to choose hope over fear is a good line for a political speech,hope like prayer is a poor investment strategy and an even poorer birth control method.it is a paradox,to spend is good for others to survive but to save or not spend is good for you so what to do.we can pretend to care and have a wage freeze two weeks after we get a pay rise or just put the chequebook in the drawer and ride it out.

Bravo Bernard!

Sugar fixes don't last - and the cost will only add to everyones future burden.

I'm curious about your comment about Ireland potentiallyvwithdrawing from the Euro. Presumably this would be because of the high debt loads being transferred to the statefrom the banks.

My question is this how would changing currencies actually work. With the markets in acute distress forcibly converting a countries money stock into a different currency would be regarded as good as a default. In the process of switching, money would flood out of the country precipitating a balance of payments crisis and forcing the Irish central bank to increase Interest rates to defend the capital flight. The "cure" of a floating exchange rate in a new currency would seem to me to be worse than the disease. Better to have never lost your currency in the first place.

Perhaps the plight of the PIGS in Europe and the loss of the politicians tool of choice to increase competitiveness (devaluation) is a good lesson to all those advocating a combined currency with Australia.

SimonD

I apoligise beforehand to those that like their information in 20 sec bites. Somethings just can't be done justice in that time. Those motivated enough to put a little effort into examining outside the square are those I wish to converse with anyway.

That wasn't so hard was it Bernard. Now you just have to go the final step to admitting and informing that this whole wrangle is far more rigged than it is random and you might just be a champion of the people after all. Just be aware that all those free lunches from the banking fraternity will probably be less forthcoming.

What those in the false sector refer to as strangles and straddles are evident throughout this piece, meaning it is going to be detrimental to your financial wellbeing no matter which way you move and only benificial to one element, the private central banking conglomerate and their band mecenary co-operatives around the globe.
A self interested electorates and self interested governments played like fish by the all powerful self interested privately owned central banking conglomerate. You can fiddle all round the fringes all you want, but it is the fractional prudential reserve banking system and the fraud that is compounding credit that is and has always been the thorn in the side the human development.
Credit Reformers have persisted for in excess of 3000 years. The success of Debt Free Based Public Money Systems are tried and tested. This is why they have been so ardently opposed and fought by the power structures of old that remain supportive of systems of privilege.
JFK was a credit reformer who risked it all to follow in the footsteps of past US presidents Andrew Jackson and Abe Lincoln. If you think thats bunkum, check these out;
http://www.john-f-kennedy.net/thefederalreserve.htm
then read and hear his 1961 speech to the American Newspapers Association;
http://www.jfklibrary.org/Historical+Resources/Archives/Reference+Desk/S...

For those of you who cant be stuffed here is a taste, you would almost think he was talking to Bernard in these sobering words from one of histories greatest;
"But I do ask every publisher, every editor, and every newsman in the nation to reexamine his own standards, and to recognize the nature of our country's peril. In time of war, the government and the press have customarily joined in an effort based largely on self-discipline, to prevent unauthorized disclosures to the enemy. In time of "clear and present danger," the courts have held that even the privileged rights of the First Amendment must yield to the public's need for national security.

Today no war has been declared--and however fierce the struggle may be, it may never be declared in the traditional fashion. Our way of life is under attack. Those who make themselves our enemy are advancing around the globe. The survival of our friends is in danger. And yet no war has been declared, no borders have been crossed by marching troops, no missiles have been fired.

If the press is awaiting a declaration of war before it imposes the self-discipline of combat conditions, then I can only say that no war ever posed a greater threat to our security. If you are awaiting a finding of "clear and present danger," then I can only say that the danger has never been more clear and its presence has never been more imminent.

It requires a change in outlook, a change in tactics, a change in missions--by the government, by the people, by every businessman or labor leader, and by every newspaper. For we are opposed around the world by a monolithic and ruthless conspiracy that relies primarily on covert means for expanding its sphere of influence--on infiltration instead of invasion, on subversion instead of elections, on intimidation instead of free choice, on guerrillas by night instead of armies by day. It is a system which has conscripted vast human and material resources into the building of a tightly knit, highly efficient machine that combines military, diplomatic, intelligence, economic, scientific and political operations."

Bernard

How do I sign up to your utopia?

Sadly, while I am in total agreement with your prognosis and remedy our apparatchiks of global consumerism will never summon the courage to implement such heretical solutions.

Unless you embrace ZIRP you will be considered dysfunctional.

Hi Bernard thats why thieving finance cos got away with six billion dollars because a thrifty NZ public saved.Why should it be any different for savers?history would just repeat itself.The police chase purse snatchers in 21 police cars.,I havnt heard them do much chasing to the massive theft of savers funds.

The audio link to JFK speech on the link I gave seems to be hard to get to work. So try this instead. Use it in conjunction with the transcript and the article link to assure yourselves, as I did, that it is not taken out of context.

http://www.youtube.com/watch?v=GuvGEdR0THc&feature=PlayList&p=88F1B8FB22...

I dont know burnard, you may be right, but your commentary seems miles away from everyone elses, low interest rates seem very attactive to me with regard to borrowing for housing and business opportunities? A low dollar will be attractive for our exporters which are the backbone of our economy, sounds like perfect conditions for a recovery to me?

September 2009 mild recovery, in my opinion.

I have thought very hard about this Bernard, you are right about the symptoms but wrong about the solution.
The solution you advocate is a solution of a failed era. What would Thatcher or Rogernomics advocate to get us out of this spiral? Probably exactly as you have stated; a return to Monetarist dogma, reduce money supply, reduce spending and guts it out. It's a re-establishment of the market knows best.
We all know that this time has passed and monetarism has failed as the economic philosophy of the western world. Just like Keynesianism before it the dominant philosophy will be bastardised and wilt and die.

Look and John Key, Barrack Obama, Gordon Brown and others, do they have the public mandate to "˜ reduce their spending and increase savings to rebuild an unbalanced and damaged global economy'. We all know that the answer is No.
As a statement in point, John Key cannot personally survive by going back on his election promises by cutting spending such as working for families and taking away much promised tax cuts. If he can't survive politically he won't do it.

I am very interested in studying these personal motivations and how it effects judgement as highlighted in Naked Economics by Charles J. Wheelan. This strips to the core the motivations we all have for our economic decisions. Politicians and indeed everyone will follow the course that self serves their own individual agenda.

So assuming the politician are heading down a cul-de-sac they cannot turn back on. They don't have the knowhow, the mandate or the balls to run against the tide. Then what will happen, where will this take us?

My opinion is that a new economic philosophy will position itself and become the dominant model. We can't say what this model will be at this stage but my gut feeling is that we are heading into a socialist era. Witness the nationalisation of banking and business around the world; is this a first step towards a Government super state? Probably too early to tell.

I agree with Bernard's post. It does not make sense to re-inflate a bubble with so many holes in it. I read Roubini's latest analysis and it is clear to me that the global financial infrastructure is insolvent. And rather than transparency, trading in these markets has become more opaque, with wild market rallies on the heels of news that would have sent investors running for gold at any other time in history. Some of this can be explained in the Plunge Protection Team (PPT) in the US. At the very least it explains how stock in banks mysteriously recover value, despite devastating P/E numbers. You can read here for more on that... http://www.leap2020.eu/The-Plunge-Protection-Team-or-the-diversion-of-an...

If, as Iain suggests, there is a shadow conspiracy of Bundebergers or Tri Partists, they are a damn sight smarter and better organized than any other government or institution around these days. Perhaps they deserve to run things? ( And Iain may very well be right! )

In any case, this recession/depression is something beyond our control. The National Party needs to test the strength of their coalition early by rescinding personal tax cuts. It seems likely Bollard will reduce the OCR; my fear is this will trigger much higher borrowing costs, especially if the S&P lower our credit rating. No matter how low our dollar is permitted to fall there are simply no buyers for our commodities right now. Fonterra may have destroyed any market share for New Zealand products in China.

New Zealand can weather this storm but it will not be without the tough medicine that comes from paying down debt and saving.

I will post the links to JFKs speech when I get back from my surfing trip next week
using a borrowed lap top at mo, interesting thing tommrow I am going to listen to BILL ENGLISH speak in Hamilton guess the topic---Has New Zealand become DUMB
BAZ

Perhaps a bit off topic but...

I'm not sure why anyone who has a mortgage or hire purchase or credit card debt - would even contemplate 'saving' anyway. To my thinking, it's always been simple household accounting to pay down debt if you have anything left over in the household budget. Once you're debt free - then saving makes sense.

People who 'save' at the same time as they have interest-bearing debt, aren't to my mind actually saving - they're speculating. JMTCW.

Neven - I like the sound of it - tax consumption, not production. You have to get the feeling however that if it were that simple, some economy would have already done it - and because it was so successful in terms of getting the incentives right, everyone else would have followed?

Steps, well that's saving in the sense of having a bit of extra cash, say $5,000 or so. Nothing silly about that. What I'm talking about is 'saving', say through a 'retirement scheme'. It's these retirement schemes - be they a rental property investment, a Kiwisaver scheme, a share portfolio etc. that I'm talking about. These are not to my mind 'savings', they're speculation.

"With painful irony, banks are choosing again to encourage households to borrow more to buy houses and spend on consumer goods, rather than encourage businesses to invest in productive capacity."

You're not kidding. I'm on a benefit and in the last two months I've received two separate offers from Visa. A 30 percent increase in my credit card and a Gold Card.

Mitch O - might be a point, but Iceland's fate looks about to be followed by Ireland and Spain, and the few folks living on a rock in the ocean analogy doesn't apply to them.

The party is over. I think that has long been the conclusion of those hanging out on this blog.

As Bernard notes,

"With painful irony, banks are choosing again to encourage households to borrow more to buy houses and spend on consumer goods, rather than encourage businesses to invest in productive capacity.."

The real problem for the real economy is the high cost of funding for productive enterprise. Banks should ultimately act as a conduit for money, a clearing house. I have money I don't want to spend and someone else wants to borrow it.

Too much of that borrowing has been for investment purposes (financial speculation) and not enough for productive enterprise.

Savers have become accustomed to living off unearned income (which is what interest is) as opposed to dividends from productive businesses. Forget the banks and buy corporate debt directly!

So one could argue that whilst saving is good, high interest rates are not. We need to take inflation out of the system and divert savings towards investments that provide a real return.

The level of interest rates now is a bit of a red herring. The yield curve steepens so the banks can recapitalise but it's time to look at a new financial architecture.

Hi,

I agree....basically because the debt/loss is at most half way unwound and the US Govn will simply run out of money trying to prop up the up-propable.....it cant be done and the sooner they see that the better.....though I suspect they wont look....Its lookng like ground hog day....

regards

Thing

Bravo Bernard,
Finally some common sense prevails, you should seriously run for governor of the RBNZ! I think you'ld make a fine prudent leader.
I really thought Bollard would have known better than to follow the lead of the wicked wests policies. How could i have been so wrong!
However, in fighting inflation Bollard did better than most and i hope that when it re-emerges (perhaps even into hyper-inflation) in the not too distant future he'll do the same again and smother it in interest rates (last bit of faith remaining in him).
But unfortuantely for the short term all that the Reserve bank appears to be achieving in lowering rates towards zero is erode faith in the dollar whilst increasing the margins for the banks (why do us savers really have to pay for the banks mistakes like this?). I agree Bernard nothing seems to be working with throwing money at the fire and thats pretty basic obvious logic isnt it.

Time will tell that this is a fools errand (this keynesian theory) and one in which i will take no part in. If that means withdrawing my savings pot from NZ and buying all the gold i can get my hands on, so be it, but if Bollard continues to devalue the rates much further, i.e. below 4.0%. I'll have to take my money and run.
In fact my gold stash (valued in british pounds) has doubled in value (revalued) inside of 15 months, go figure, perhaps the sensible people are doing whats best and getting out of paper, don't give people a reason to do this Bollard or you'll find out what a 'run' on a bank is like and you've already seen what state thats put britain in.
New Zealand has alot of things going for it: Hard working export lead nation and is better placed than most of the western world as it actually makes things at a reasonably low cost, i just hope that the NZ government would be a little more independent and show big brother how to survive a global crisis rather than join them in their folly.
Put the faith back into paper Bollard and see how the economy will react. Go on, i dare yah!!

Those running to precious metals better make sure they take physical possession of them. The old Goldsmiths Scam is far from dead.
http://uk.reuters.com/article/marketsNewsUS/idUKN1228014520070612
http://www.lawyersandsettlements.com/settlements/08388/precious-metals.html

"Forget the banks and buy corporate debt directly!"

Exactly.

There are lots of good corporate bond issues available and more coming up. There's no need or sense in savers accepting low bank rates and have their money dished out to consumers to buy houses. Get into the bonds. They are long term term deposits with the ability to be sold before maturity if you want to get at your money. Bugger the banks!

Darryl - Before you think corporate bonds are your saviour I repost this from a previous thread on bonds;

Bernard I would really like to see you get more specific when referring to Japan and China buying treasuries and bonds on the secondary bond market. I mean specific who just which socio-economic groups within those nations actually buy large quantities of these things. I would suggest it is the commercial elite elements of nation in the main. That is until a credit crisis is imminent due to overlending of central banker created credit, then the insiders try to palm as many bonds off to the private savings institutions and superannuation?pension funds of the commoners as possible.

Every bond is a certificate of indebtedness. There are different types of bonds Govt Bonds, Public Bond Issues, Corporate Bonds etc.

Just recently many of our internal trading banks went to the public to borrow money by way of public bond issues due to their traditional lines of credit from their central bank parents being frozen, taking money and by contract of a bond promising to pay it back with interest at sometime in the future.

Govt Bonds is where it gets real interesting. The only registered issuers(underwriters) of Govt Bonds are the private owners of the central banking network and are the very core of the privately administered world money supply. The central bankers loan credit created out of freshair, backed by nothing, to governments who inturn sign on behalf of their nation certificates of indebtedness(govt bonds) to be paid back at sometime in the future with interest. These loans of electronically created credit which is the form that the world reserve currency now takes are then spent into circulation by way of services by the borrowing govt. Then in turn when the population receive it and place it in an internal trading bank, their deposits are expanded again by the reserve ratio as set by the BIS and once again loaned out at interest, further increasing the amount of created credit/money in circulation. This along with mortgages being written into existence, is how all but the 3% of notes and coins circulating in our money supply is interest bearing electronically created credit of the private central bankers that never leaves the electronic transfer system.

Some of these bonds are kept by the central bankers and some are sold on at profit on the secondary bond market to the worlds commercial elite until such time as described above it is beneficial for them to temporarily not own any.

Govt Bonds in my opinion are the modern day slave trade of the world. For instance take Saudi Arabia where their Royal family has a cosy alliance with the western oil and banking interests. The royals have personal fortunes in the billions from oil sales, while the commoners via their taxes on their pitiful wages are repaying loans to the central bankers in the 100s of billions. The royals have brought 100s of billions in US treasuries and Bonds, the interest from which is being paid for by the US tax payer and is estimated to have thus far paid for the entire Saudi armed forces. Weapons and equipment all purchased from central bank subsidiary multinational weapons manufacturers.

Lets stop wrapping it up in this patsy language designed to some how make it all seem so normal and keep public confidence in what is a hoax, and make it appear like their are no alternatives.

Take the US, supposedly the richest nation on earth. Rich for the 3% that hold 90% of the wealth, the other 97% owe the central bankers now in excess of $10 trillion dollars via their taxes out of their meagre wages.

Darryl - If you tell the truth before it is widely comprehended you get labelled a revolutionist and thats not good for advertising revenues. Bernard has been better than most, but he is not yet quite a champion of the common man against the private banker fraud. I have every sympathy for him, wish him all the strenghth in the world and all the mercy. But he sought it and he has become it. Sometimes you need to be careful of what you wish for.

Bernard's prognosis and remedy will be well understood by the public.

First, as public debt mounts to replace lost tax revenues, interest rates will rise as will wages to service the debt.

Second, trade barriers will cut off the supply of cheap imported goods and hence easy credit to finance the currrent A/C deficit. The need rebuild import substitution industries - subsidised or otherwise will further raise the pressure on rates.

Third, the imposition of tighter bank regulation and the resultant costs will be passed on the form of higher fees and interest rates.

The above are standard practice like it or not. Otherwise it's revolution and then just more of the same.

Bernard,

Two questions:

1. Having encouraged NZers to save more through higher interest rates, how would you control what banks lend out these additional funds for? If they are left to their own devices, they will just lend on property again.

2. Do you think exchange rate controls are necessary to dissuade foreign investors from driving up the NZ dollar through uridashi issuance etc.? If we have interest rates at a significant premium to the rest of the world, the NZ dollar will soar and any gains realised through the recycling of local savings into productive capacity will just be wiped out via an uncompetitive exchange rate.

My view is that monetary policy is next to useless in trying to achieve the objectives you rightly propose. Fiscal policy and exchange rate controls / management are necessary to get our economy back onto a sound and stable footing. The day we hear Geithner call NZ a currency manipulator, we'll know we're on the right track.

I disagree that interest rates should be kept high to encourage saving. The net result is export destruction. At the moment, people fear job losses and see their house value dropping. Why would a rational person borrow, even at low rates, to buy another house? They could buy it cheaper next year. What I hope comes from this crisis is that NZ gets to a parity of interest rates with our trading partners, and we find additional tools to fight the inevitable inflation cycle. Reliance on interest rate manipulation alone simply perpetuates a boom and bust cycle. By all means have some flexibility in interest rates, but NZ has to get away from being at the extreme end of high rates. One tool is to maintain what the banks are currently doing, that is requiring that borrowers contribute some capital to an asset purchase. I think the banks lax lending policies partly fueled the last house price boom, and the Labour govenrment did most of the rest with their 39% income tax.

Michael Bruce

We cannot pay off the national net foreign debt. At NZD 165.00bn and rising, it is too large. So inevitably the payment will be extended over time. Just like a perpetual motion machine for those on the receiving end.

Our patient Japanese friends have been playing this game with us for years. The capital payback time even at 3 percent interest is profitable for them.

We are faced with crushing those with tendencies toward getting indebted to inhibit further extensions of the national trajedy with penalties they just cannot afford.

Drip feeding their current desires will never suffice.

Collective intergenerational penury of this magnitude is unacceptable serfdom, for those not personally responsible (our children).

Simple really, stop penalising savers and offer incentives like reducing tax on savings. There is no point in putting money away when the end result is youre worse off than those
having borrowed to the hilt.

Great article....

As an Australian I'm waiting for the real problems to start here. You think the US and NZ had a housing bubble, ours is huge, prices in some areas have tripled in 5 years. To give you an example Adelaide pop 1million with average annual income of $55,000 median house prices are $450,000. Yep thats 9ish times annual income, our historical average is 5ish times annual income.

USA had Alan Greenspan, we have Wayne Swan "there is no housing bubble in Australia". Whats even worse our government is encouraging first home owners into this market at its peak by using a $25,000 first home owners gift using tax payers money. I have a feeling our government is priming our own sub prime crisis.

Aussie's are on the beach with their heads in the sand, lets see what happens when the tide comes in.

Why not look at the Canadian RRSP system where you can invest up to 18% of your income tax free on the first $100,000 and it earns tax free until you start to withdraw (any time beyond age 55). The catch is that X% must be NZ content and cannot include housing (non-productive asset).

This will increase domestic market liquidity, incent people to save and make saving easier as pre-tax dollars go into the savings fund. This leads to lower borrowing costs as investors / lenders are willing to take a lower return if the result is not taxed until withdrawal which in turn fuels the investment in productive capacity. Further lower NZ domestic borrowing costs combined with a weaker currency relative to others and an educated and capable work force may attract overseas investment to build production facilities in New Zealand.

Further a more wealthy retired population takes strain off the working populace without penalising those that built the platform on which our nation stands today through social welfare cutbacks. That and a lot of hard graft to get over this consumer debt fuelled hang-over.

It worked in Canada where the impact of the USA collapse has been somewhat mitigated by the fact the Canadian economy was in a stronger position before the collapse than that of it's southern neighbour. I wonder what it might do here with New Zealand's more diverse list of trading partners?

I agree DrewRiskManager Australia seems to be even more in denial than we are.
Bernard has been preaching the same message for a while;we should keep interest rates high, reduce spending, increase saving. Unfortunatly the message is about 10-20 years too late. Thats what you do in the good times. Keynes is right and the worlds leaders and economists know it. If the world followed Bernards advice we would be in a major depression by now even bigger than the 1930's. If higher inflation is the consequence of avoiding a depression then so be it, I know what I would rather have. Stephen Hulme you are right Bernards ideas are Utopian and idealistic.

Steptoe while you were busy protesting against 'Nam' you will know the words to this byrds song then:

To Everything There Is A Season.
A time to gain, a time to lose
A time to plant, a time to reap
And a time for every purpose, under heaven

As I said, now is not the time for Bernards ideals it doesen't mean its a bad idea just bad timing.

ugg classic tall boots sale
classic tall ugg
classic cardy uggs on sale
**