Same point made here;
http://www.stuff.co.nz/business/opinion/nick-smith/2310142/Deficit-to-dr...

This from Westpac's Brendon O'Donovan;

"Reduced foreign earnings will have a profound impact on the current deficit, says Westpac chief economist Brendan O'Donovan, although he's loath to mention that his employer and the other banks are the ones primarily responsible for the investment income deficit.

Foreign investment income, after all, is responsible for about half of the entire current account deficit."

"The analysis highlights a stark and structural reality that the largest and dominating contribution to the increase in the Current Account deficit over the last five years has been the increased profitability of overseas-owned companies operating in New Zealand."

If government were to support Kiwibank as suggested here:

http://www.interest.co.nz/news/banks-attacked-profit-gouging-and-mislead...

Would it not help us in the short-term with appropriate competitiveness in the i.rate market and also long-term reduce our risk to said "stark and structural reality", which seems like a classic self exacerbating factor given the associated risk premium and consequent effects on our tradeable sector with fx.rates more reflective of resultant speculative cash flows than real trade flows?

This is interesting too:

http://www.stuff.co.nz/business/world/australia/2316836/Cashing-in-on-a-...

Les Rudd
Invited Member
NZMEA

To Les:

"Would it not help us in the short-term with appropriate competitiveness in the i.rate market and also long-term reduce our risk to said "stark and structural reality"

Probably not. The Government can inject more capital into Kiwibank, but this accounts for as little as 5% of their funding; the other 95% is borrowed in one form or another. Kiwibank can rely on deposits for most of their funding precisely because they are small, but if they wanted to get big enough to start crowding out the big banks, they would have to cast the net a bit wider. That would mean either (a) taking their chances in international capital markets, as a no-name bank from a tin-pot country, or (b) doing something to drastically change New Zealanders' saving patterns i.e. raise deposit rates a lot. Either way, the result will be massively higher funding costs for Kiwibank.

Is it not the case that any gains from lower foreign returns from New Zealand operations will be offset by the higher costs of servicing our burgeoning government debt?

The NZDMO has already raised an additional NZD 5.383 billion over the last four months. View graphic details here:

http://www.omo.co.nz/nzd_value2_lv.gif

Furthermore, our case is not helped by the latest stock tap/reverse issuance debacle undertaken by the NZDMO over the last two months. Read more at Alert: 8/04/09 here:

http://www.omo.co.nz/

Les : are we not in danger of tinkering with micro-economic settings, when we need to be looking at the big picture. Did you see the article "NZ is paying for its 'pandering' ways" in todays CHCH Press ? Mr Jennings is onto the heart of our problems with the same ferocisty that a Jack Russell terrier is onto an old ladie's ankle ! Since Douglas/Richardson, we have gone off the boil, we are off supping a cup of tea ( thankyou, David Lange ). Meanwhile our trading partners and competitors are reducing taxes and compliance costs. We are doing the opposite. The world has moved onto to satellites, the internet, and broadband; and we are buying back the train-set. Where's the vision for a golden future ? Who gives a monkey's arse, internationally, about "Kiwi-Bank" ?

Roger - yes I saw that article. I have a lot of empathy with it. See the book reviews I completed for NZMEA, top of the page here:

http://www.mea.org.nz/events.aspx

Yes lower taxes would be nice, see my thoughts here:

http://www.interest.co.nz/news/new-zealand-could-go-bankrupt-within-next...

plus, then reflect on Stephen Jennings comment about our tendency to believe our own myths.

Whether anyone offshore cares about Kiwibank, or NZ for that matter, have a squizz at this:

http://www.stuff.co.nz/business/opinion/stirring-the-pot/2317307/Fletche...

Finally when you say, "tinkering with micro-economic settings, when we need to be looking at the big picture." What you have read and seen suggested by NZMEA, PEC, Dr Nana, does seem to be "big picture" stuff. If you think otherwise can you say why please?

Also, and I don't mean to be aggressive here, but have you got some evidence based suggestions that would help?

Miguel - see above and re. NZD and -20%. I can't speak for Dr Nana, but if that occurs, retaining a policy 'status quo' just adds more weight to the volatility arguement, in that if we change nothing on our side of the fence we all know it'll be off north again with the usual momentum - because as Dr Nana states, our currency is in the top ten of traded currecies in the world - our dollar was traded 118 times our GDP in 2007 compared with 65 times for Australia - what does that say? It's not just about level, it is about the vol. when it comes to business planning for many exporters.

Again, and I don't mean to be aggressive here, but have you got some evidence based suggestions that would help?

I wonder if Dr Nana would also enjoy having some Singapore-style recessions to go with that Singapore-style managed exchange rate. Peak to trough falls in GDP were 4.4% in 1998, 6.2% in 2001, 2.3% in 2003, and 6.4% so far in the current recession.

And never mind the poor old exporters: down 15% in 1991, 20% in 1998, 25% in 2001, and 40% and counting today.

Miguel you only have to look at Singapore's savings per head vs New Zealand's debt per head to see how far ahead they are as a nation.

Kiwis like to throw crap at Singapore in the same way the US attempts to defend their Medical System against Canada's and really it's not defendable. Singapore has no natural resources, started as a third world nation state in 1963? in the middle of communist threat, when we where delivering one of highest GDP / capita in the world and now look at where we find ourselves. Singapore is a 1st world Nation with some of the best infrastructure you will see anywhere.

Unfortunately they have nothing to fall back on when hi tech exports stop and that's a nature of the their small physical environment. Their policies are as right as I have seen around the world and most importantly acknowledge their vulnerability to exports and the small size of their economy which ours do not.

Selwyn - I'm not throwing crap at Singapore. Merely noting that they've chosen a system where the brunt of any shock, good or bad, is felt through volumes rather than prices.