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Why John Key's letter and his 2010 Budget misses the mark

Posted in Opinion

Neville BennettBy Neville Bennett

I had a terrific thrill last week when John Key wrote to me. It soon emerged however it was not personal but to everyone over-65.

He told me that the Government was focussed on economic growth and it would boost incomes, create jobs and raise living standards.

It also said my pension on October 1 would rise because of lower tax and compensation for a GST increase.

I have a few niggles with Budget 2010 - what it means for Superannuation which is the title of the PM’s letter:
•  will the budget lift economic growth ?
•  will it boost incomes and raise living standards ?
•  is it "fairer" ?
•  will it encourage saving ?
•  does a 2.02% increase in benefits compensate for a rise in GST ?
•  is the government “on track to reign in growing debt”, as the letter claims ?

Will the budget lift economic growth?

It has little to do with economic growth which is concerned with the more productive use of capital.

It helps a bit with R&D. It has helped to keep capital from moving into the housing market, but not as much as a capital gains tax would.

It does not leave more or less money in citizen’s pockets (which they could use more profitably than the government). The tax take is neutral.

But higher income earners are winners, so there will a boost in some kinds of consumption and possibly more saving.

I think it is basically neutral as far as growth is concerned, although it has a bias towards growth in lower corporate tax.

Will it boost incomes?

It is based on “trickle down” theories. These philosophers say encourage through tax polices the emergence of high income earners. Their spending will bring benefits which will trickle down to lower income workers.

J.K.Galbraith called it the “horse sh*t” theory: feed oats to horse and scavenging sparrows reap some benefit.

Lower tax does, however, increase incentives, so some people will work harder. Incomes will be higher after income tax but not necessarily after paying GST.

Is it "fairer" ?

Taxes play an important role in income distribution. I recognise that high and middle income earners deserve some relief. It is usually easy to tax them unlike others who rely on capital gain to increase their assets.

I am also aware that the changes have done nothing to reduce inequality in society.

This budget reduced progressive taxes and increases regressive taxes which can be regarded as retrograde. Richard Wilkinson’s "The Spirit level: Why more equal societies almost always do better" shows how New Zealand is very unequal, and this reduces performance.

I think a lot of lower income earners and students will suffer as GST rises, and my compensation for a married person with an "under-age" wife might come to $10 a week.

But inflation could hit 6% next year, and there will be extensive price rises … rates, power, ACC, public transport and the Emissions Trading Scheme. I expect groceries, retail items and services to rise too. Prices rises will leave pensioners/beneficiaries out of pocket.

Will the budget increase saving ?

It will only increase saving by reducing the direct tax-take and assuming people save more instead of consuming and paying a 15% consumption tax.

The Government missed the chance of allowing a tax holiday on interest-bearing deposit accounts. At present people with a small deposit get close to a zero real return as interest rates are low, tax is applied and inflation bites. It will be worse next year when inflation runs at 6%.

Is the government on track to reign in debt ?

This is an extraordinary claim. Government debt is increasing by NZ$250 million a week. The crown’s net debt, which was NZ$5 billion in 2008, will increase 12 times to NZ$63 billion in 2014.

Debt will soar to 100% of GDP.

This government has no plan to reduce debt. Moody’s and Standard and Poors will inevitably downgrade our credit rating by then. Meanwhile, the crown’s core assets will also decline sharply.

Anything else ?

Yes: I think the Budget will stimulate an inflationary boom next year and add a chapter to NZ’s record of budget deficits, high current account deficits and serious debt servicing problems.

I have had a look at Treasury projections on growth after the budget. It expects typical over-spending to continue, so private debt will hardly reduce.

In 2009 the average household spent $113 for every $100 received, and this should fall to $107 by 2014. I suspect we will have big imports of cars and kitchen appliances as the better off pay less tax. Treasury expects “residential” investment to be very high.

One wonders if continued budget deficits are in the country’s best interests. I suspect they will cause international comment as our external position is like Greece’s and Hungary’s.

The IMF has drawn attention to our “key vulnerability”: 44% of our debt has maturity dates of less than 12 months.

Treasury has opted for economic growth forecast of about 3% p.a. in the medium term. This is above historical trends and optimistic in view of the global slowdown.

Its assumptions are based on robust exports, especially dairy, but I have argued elsewhere that dairy will also strike headwinds as lower cost producers enter the market. Our land costs are completely out of kilter with competitors.

I am disappointed with New Zealand's current direction of low growth and high debt.

Debt servicing is going to take a big chunk out of the budget leaving less for education and welfare.

It is going to be tough times for a lot of lower income people in the years to come, especially as I think the global recovery is slowing right down and I have noticed signs of recession here in Christchurch.


* Neville Bennett was a long-time Senior Lecturer in History at the University of Canterbury, where he taught since 1971. His focus is economic history and markets. He is also a columnist for the NBR.


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Welcome back Neville. As

Welcome back Neville.
As usual your comments are well researched, objective and full of old fashioned common sense

Thanks but no thanks for you

Thanks but no thanks for you input Neville - the last thing us middle income earners want is to be further supporting you with increased benefits. Be happy your pension increased at all, because as far as most workers are concerned our welfare state has gone far enough. Plunging our national debt to unrecoverable levels to support pensioners and beneficiaries is the last thing we need.

Yes, welcome back Neville. I

Yes, welcome back Neville. I checked the link and it is indeed the same guy who said, "The process by which money is created is so simple that the mind is repelled."

I couldn't find this one though, "We are treated like mushrooms -kept in the dark and fed on sh*t."

Maybe he didn't say it, but IMO it's also true of the last budget.

Cheers, Les.

"The only function of

"The only function of economic forecasting is to make astrology look respectable."

Another one from that Galbraith link, just for you, Matt in Auck.

Interesting that you see

Interesting that you see signs of recession in CHCH, here in Marlborough Recievers have been appointed for two winerys in the last month with rumors of more in the wind. The ones that are not rolling over are restructureing with many jobs on the line. Building/Construction is also deathly quiet again with layoffs occuring. I do not see any economic recovery on the near horrizon. Are we sure Bollard is reviewing NZ data not Australian?

Ditto. Good to have you

Ditto. Good to have you back.

Love the "reign' in debt. Thats exactly what our financial masters do.

Reign. To have power, sway or predominance

Whereas we, the serfs, are raining in debt!

Perhaps you meant " rein" in debt as in hold the horses, keep in check?

Words are wonderful but a causal chain occurs when language is weakened and corrupted.

Confucius describes it this way

"If terms be incorrect,
then statements do not accord with facts;
and when statements and facts do not accord,
then business is not properly executed;
when business is not properly executed,
order and harmony do not flourish,
when order and harmony do not flourish
then justice becomes arbitrary......

What's more

What's more important?

Keeping the momentum in the economy and endeavouring to keep people employed & productive by deficit spending? or pandering to the bond traders/credit rating agencies/IMF/deficit terrorists about sovereign debt levels?

Who has should or does have our best interests at heart? I, for one, do not think the wealthy overseas loan sharks should take a higher priority above the struggling citizens of New Zealand.

The New Zealand government will always be able to meet it's debt obligations. We are not like Greece or any of the PIIGS.

Issuing government bonds/debt amounts to little more than corporate welfare - and is a voluntary political decision.

Kanuck, I see that you read

Kanuck, I see that you read and espouse the MMT theories here I think and here is a link that Les posted the other day which you may have read, and which I just read thanks Les.

This reserve bank article recognises the difference between government fiat and bank created money as a result of new loans being written. What the article doesn't talk about is how that fiat is created in the first place (through deficit spending), in fact this is the ONLY way that fiat money can be created, the rest is bank created credit. It doesn't mention the effects of deficits and the reasons why a Government may or may not choose to issue bonds to mop up the excess fiat that ends up in circulation when there is a deficit.

Neville, if you read this, can you comment please on this question: What would happen if the Government simply decided not to sell treasury bonds and bills, and what would happen if it decided to monetise it's own debt by the allowing the reserve bank to purchase treasuries (Inflation results yes, but why would that be so bad, as it effectively imposes the austerity before the IMF will if we are forced to go to them cap in hand, (or the "bond vigilantes" hold us up)).

Fred, You are correct. I do

Fred, You are correct. I do follow bilbo's blog and while not fully sold on the idea, I do find some of the principles to be worth investigating further, and that the old school economic theories are not as relevant (or accurate) as they used to be.

Today's post is another good one:

"Responsible fiscal practice in MMT

This is the macroeconomic sequence that defines responsible fiscal policy practice in MMT. This is basic macroeconomics and the debt-deficit-hyperinflation neo-liberals seem unable to grasp it:

1. The sovereign government, which is not revenue-constrained because it issues the currency, has a responsibility for seeing that the workforce is fully employed.

2. Full employment means less than 2 per cent unemployment, zero underemployment and zero hidden unemployment.

3. The sovereign government can purchase any real good or service that is available for sale in the market at any time. It never has to finance this spending unlike a household which uses the currency issued by the sovereign government. The household always has to finance its spending (as do state and local governments in a federal system).

4. The non-government sector typically decides (in aggregate) to save a proportion of the income that is flowing to it. This desire to save motivates spending decisions which result in the flow of spending being less than the income produced. If nothing else happened then firms would reduce output and income would fall (as would employment) and households would find they were unable to achieve their desired saving ratio.

5. The government sector must in this situation fill the spending gap left by the non-government sector’s decision to withdraw some spending (in relation to its income). If the government does increase its net contribution to spending (that is, run a budget deficit) up to the point that total spending now equals total income then firms will realise their planned output sales and retain current employment levels.

6. The government sector’s net position (spending minus revenue) is the mirror image of the non-government’s net position. So a government surplus is equal $-for-$, cent-for-cent to a non-government deficit and vice versa. So if the non-government sector is in surplus (a net saving position) then income adjustments will render the government sector in deficit whether it plans to be in that state or not. If income is falling in the face of rising saving behaviour of the non-government sector and that spending gap is not filled by government net spending then the budget deficit will rise (as income adjustments cause tax revenue to fall and welfare payments to rise). You end up with a deficit but the economy is at a much less satisfactory position than would have been the case if the government had have “financed” the non-government saving desire in the first place and kept employment levels high.

7. A fiscally-responsible government will attempt to maintain spending levels sufficient to fill any saving but not push nominal aggregate spending beyond the full capacity level of output."

Fred - I was having similar

Fred - I was having similar thoughts back here:

Inflation need not be the big scarey bogie given the kind of controls that can be put in place, like using ratios and scheduling, specified by our independent CB, and appropriate sterilisation (as it were) by spending on development of productive capacity, as I was getting into here:

based on the fact that loss of same is joint equal major root cause of 'hyper-inflation' along with willy-nilly 'printing', drill through from here:

Cheers, Les.

Neville, always enjoy

always enjoy your posts. Thanks.

Neville Bennett says "I have

Neville Bennett says "I have noticed signs of recession here in Christchurch."

As I have said before the only thing holding up the ChCh economy is the profligate spending of the ChCh City Council. I doubt that there is a retail shop in ChCh that doesn't have a sale on at present.

As an example the CCC have

As an example the CCC have just spent $10 million on re-paving the City Mall area and the retailers are complaining that there has been no increase in trade.

Classic! "We'll waste a ton


"We'll waste a ton of money on fancy new paving and when anyone walks on it cash will magically appear in their pockets and wallets!"

Didn't they know it was done

Didn't they know it was done to allow a rise in capital values.....followed by rates!

One good side-effect of this

One good side-effect of this is that there are tram lines in there now. I think we'll need more public transport in the future as people can no longer afford to run their cars. Presently it's geared 100% toward tourists with slow (ineffective for transport) trams and $12 fares, but I'm confident that will change.

Good to have you back

Good to have you back Neville.
In the current climate sustainable Growth only comes with increased production in the secondary sector of our economy with emphasis of reducing quality imports.

The following steps need to be taken:

Mr Key it would be far better to travel here in New Zealand visiting producers/ manufacturers talking and create better conditions for Kiwi companies/ exporters.
It would be far better having an economic strategy, placing orders for our infrastructures needs here in New Zealand.
This would create skilled and better paid jobs here in New Zealand. This would bring the skilful and experienced Kiwis back home to set up new businesses and to work in interesting jobs. This would make us less depended from foreign capital/ skill and knowledge. This would increase our national safety/ security. This would help exporters to compete better on international markets. This would increase interaction with other industry sectors science/ education etc. This would lift our profile, working for the next generation, so we can afford an average life standard in a safe environment.

Mr Key when are you going to stop our unbalanced economy causing a massive, unhealthy Real Estate industry. When are you going to stop our greedy and megalomaniac farming industry, which runs into trouble on many fronts ? When are you going to stop the current trend, pursuing “Uneconomic Growth” ?

Mr Key you are the wrong person to complain in saying - quote: Prime Minister John Key says he doesn't want New Zealanders to become tenants in their own country as foreign companies seek……….

The former government created that and you still do.

Prime Minister it is up to you and your government to create conditions, so we are in charge of our own economic, environmental and social destiny - do it !


I just shake my head in

I just shake my head in disbelieve what’s happening in this country caused by government.

More than a million Kiwi adults are being held back because they lack essential literacy and numeracy skills, Tertiary Education Minister says Steven Joyce says.
Please read on:

Minister Steven Joyce you are the person, who think and publicly said we are better served importing our infrastructure needs and other high tech widgets ?

Your economic strategy just doesn’t make sense. With your decisions you are even guilty of preventing our workforce from lifting it’s skill/ knowledge. You are guilty of transporting our brains overseas – stop complaining about your hidden mistakes Minister.


"I had a terrific thrill last

"I had a terrific thrill last week when John Key wrote to me" need help Neville!
3 years to a credit boot up the bum and an IMF bashing for anyone holding any debt. The smart ones will shift capital out of Noddy before then and make a bundle on the fx market. Then those cashed up will quietly pick up the bargains from the bloody mess left by the IMF. Simple really. We know it's coming. We know Bill is too scared of a voter backlash to stop the borrowing.

Funny thing is Wally that a

Funny thing is Wally that a lot of people genuinely seem to NOT know it's coming. There are still a lot of 'Noddylanders' out there convinced that it's still 2005. Obviously there weren't enough of them to sustain the bubble, but there's still enough that the coming pain is going to HURT BAD.

One thing that strikes me is

One thing that strikes me is that if we are currently borrowing 250m a week, we will clearly need to borrow more and more as time goes by because the interest required to service the debt will increase as the debt itself increases. Yet we don't seem to be doing a heck of a lot about it (or else I don't imagine our total debt would be forecast to "increase 12 times to $63 billion in 2014"). It is quite obvious to me that sooner or later the govt will reach the point where they can't even pay the interest on the debt, let alone provide any other fundamental service (think health etc). Do we have a plan?? Is no one in govt worried enough by the forecast that within 4 years our debt will have increased 12 times to actually do something about it?? Should I be worried that they don't seem worried or have I missed something?

Also, could someone please point to a link showing the details of the "250m a week" that we borrow? This seems to be the official figure and I'd dearly like to understand how we manage to get there. A spreadsheet showing all govt weekly income & expenses would be useful (is that public info??). Obviously running a country is not the same as running a household but surely the basic principle remains the same - don't spend more than you earn, and preferably less! - that's from the self-titled Spreadsheet Queen :)

Don't worry, they've invested

Don't worry, they've invested it all in the residential property market.

Elley, agree with you. I also

Elley, agree with you. I also would like to know, what the government plans are to REDUCE deficit spending, instead of all the peanuts of so called "measures" they are advocating. Every increase in private spending necessity (GST hike, ETS scam) is offset by compensations, either through tax cuts or increased entitlements just purely for political reasons.

This is insane! We can never catch up with the exponential growth of our debt!
We should bombard the politicians with mails and demand a proper approach to reduce spending.
Reducing costs of our government (nearly 48% of GST) would be a good beginning.
If we don't do it now, the pain later on will be just worse.

Your logic seems sound to me.

Your logic seems sound to me. I think basic principles are the same for a country or a household. Over-spend in a household, and further down the track there is going to have to be belt-tightening. Instead if you have to keep borrowing more money to pay the interest on existing debts, you're just getting deeper in the hole. Any household in this situation is living beyond their means. Any country in this situation is also living beyond its means and is not sustainable. The only way to survive is belt tightening - to get rid of the debt that's causing the problem in the first place.

From memory...

US yearly education spend US$150 million
US yearly defense budget US$500 million

Interest alone on outstanding US debts ... US$500 million/year.

Next problem; I don't see how democracy can survive in a significant belt-tightening environment. The party in power will just be voted out. The answer is that any cutbacks carried out by democratic governments will fall short of what is required, and will eventually fail. For a household that means repossession, for a country it depends, possibly on the size of your army.

Oops, they're billions, not

Oops, they're billions, not millions.

So you think that a sovereign

So you think that a sovereign government - which ISSUES the currency must follow the same rules as a private citizen/business which just USES the currency?

You don't think there may be just a bit more to it than that?

"So you think that a

"So you think that a sovereign government - which ISSUES the currency must follow the same rules as a private citizen/business which just USES the currency?"

If by 'follow the same rules' you mean make the books balance, then yes. When a country continually borrows more and more money and eventually resorts to printing it out of thin air (well, in exchange for IOUs), people will lose confidence in the currency.

Then you end up with $100000000000000 bank notes, like the one I have here framed on my wall (Zimbabwe 100 trillion).

Not necessarily - are you

Not necessarily - are you trying to say that our economy is suffering the same circumstances as Zimbabwe did?


"Should I be worried"...not

"Should I be worried"...not if you don't mind getting a good financial bashing and experiencing a big drop in your wealth!..
Get rid of your debt Elley and be ready to move your loot to aus at the first chance you get. It will be safer in an aussie miner that pays a div. Maybe BHP. That way you are safe from an aussie$ drop, you get a return and you get to cash in 'Key style' on the fx gain after the Kiwi spews its guts.

We have no debt...but sadly

We have no debt...but sadly not much in the way of loot eitheras we have used our $$$ to build a home our family can grow into, that will last us till retirement or later, ie 30 years or more from now.

The easiest fx for us is Euro-NZ$ because we have accounts in our names in France. We were actually thinking about moving savings over when we feel the NZ$ has got as high as it can be against the Euro (ie not yet) and then, assuming the Euro doesn't disappear into history, moving them back here when it drops (and investing in the Paris stock exchange in between because that's the only sharemarket/companies we have some knowledge about). I don't know anything about FX taxation though, so will have to look into it.

But to go back to the NZ debt issue, are there details anywhere of the weekly govt income/expenses? Why is it not a top-priority to stop borrowing and making the situation worse by the day?

You could do worse than look

You could do worse than look at the Treasury SFP which at a crude level supports the $250m/week notion.

Net core crown debt (see P24) was $NZD17,119m at 30 June 2009, now it's $NZD27,787m. That's a leetle over $10,000m, or $1bn/month or $250m/week - difference.

Hope this cheers you up a bit Elley - at least the accounting crew are on the ball. So to speak.

Thanks for this. That's

Thanks for this. That's useful. I haven't had time to read the whole document yet but from what I can see, what the govt spends on health or education is only about half of what it spends on welfare & social security (by far the biggest expense if I read this right). Well, at least now I can see why people are calling for a scrapping of benefits.

$NZD27,787m - $17,119m =

$NZD27,787m - $17,119m = $10,668m / 52 = $205m per week. About $7 per person per day.

The question you need to ask

The question you need to ask is WHY DOES THE GOVERNMENT NEED TO BORROW AT ALL?

They are the issuer of the currency. They are not revenue constrained in the technical sense. They will always be able to pay the interest on their "loans" by crediting the bank accounts of the 'debt holders'.

Sovereign governments are the issuer of currency, whereas households/businesses are the users of it.

Think about it.

How much non-borrowed created

How much non-borrowed created soverign New Zealand dollar money would you be happy holding, in that case? And what would you hope to buy with it?

My answer to your question

My answer to your question is: enough - relative to the cost of the asset in question for sale.

Exactly! That's the 'interest

Exactly! That's the 'interest component'; the discount that you are not prepared to pay the 100% face value for.( the credit stading of the issuer) And likewise, this applies to whoever you give that same bit of paper to.

Kanuck: What you describe is

What you describe is the quickest and surest way to devalue a currency, by creating more of it with no underlying value, endpoint Zimbabwe.

Disagree - our economy is

Disagree - our economy is currently NOT AT ALL subject to the same circumstances which Zimbabwe faced during it's currency crisis.

Look it up some time...

Here, let me save you the

Here, let me save you the trouble:

"Zimbabwe does not make a case against the use of continuous budget deficits in defence of full employment.

Bad Governments will wreck any economy if they want to.

A wise government using the fiscal capacity provided to it by a fiat monetary system can engender full employment and equity yet also sustain price stability."

And the actual country of

And the actual country of proof of your last paragraph, is?

I think it's fair to say we

I think it's fair to say we (the West) are all still working, stumbling and fumbling our towards that goal ;)

Which is fine, because our monetary systems have evolved and so we must adapt. No one can claim that process will always be so black & white, or without a learning curve.

And what is so wrong with trying to find a 3rd way out of the mess anyways?

You got any proof to show that fiscal austerity is the ONLY way forward?

So; None, is the answer. And

So; None, is the answer. And none are likely to, as humankind being what it is, it is too prone to exploitation of any monetary system. We do not live in Nivarna. We live in New Zealand, and elsewhere.
And as for the way forward? It's black, in my opnion. Debt will be repaid or wiped. Living standards, for us, will fall, and we will move on with whatever is left. Who knows, maybe that's when your idea gets a run!

Perhaps - but it's important

Perhaps - but it's important to remember that the choice will be voluntary. Debate about the evolution of macroeconomic systems is always an option.

Absoulteley! And that's what

Absoulteley! And that's what we are doing. For me, the essences of my thinking starts with "what is money?", and it is merely a mechanism for the exchange of goods and services. Nothing more. It has no value in iteslf; no store of value. And hence like any commodity where perceived value is above intrinsic value, counterfeiting comes into play ( not that it alreday doesn't, of course!). Government sanctioned counterfeiting, on any level; for what ever reason, is the road to the blackness that I described above. Cheers.

I get the impression that you

I get the impression that you are comparing fiat currency to gold... I feel this is no longer relevant.

As long as people can earn enough legal tender to purchase their milk & toilet paper - it doesn't matter what it's relative value is to shiny metals.

Gold as a valuable industrial commodity however, is a different story.

Keynesism Vs Austrian

Keynesism Vs Austrian Economics........
I sway strongly toward Austrian, less govenment, let the market set the rate, and the true value, the more intervention and govenment proping up there is the harder and more painful the correction will be, Neville, god bless his sole, as an Economic Historian can see this more clearly than Kanuck.
Unfortunately, humanity has not changed it's basic nature over the last 4K years, sure technology has progressed, and it has found more and faster ways of doing things and counting things, but the basic nature of humans is unchanged, Thus the basic drivers of Govenments, the market, and the masses, is unchanged.
Read Mises and get your self properly educated on the contrary theroies Kunuck, and start looking around you, really look, and really listen.
Post 2nd war Germany is the bench mark ...... limit govenment intervention.

I'm not an economist, and no

I'm not an economist, and no I don't have any proof that austerity is the only way forward.

I do find it difficult to see a bright future when living beyond your means though. That is, unless you don't pay it back. Then the creditor has the problem ... and your reputation goes down the toilet. Still if you have a big army (like the US) maybe it doesn't matter.

"If you owe your bank $1000 and cannot pay, you have a problem. If you owe your bank $100,000,000 and cannot pay, your bank has a problem." :-)

I put it to you that the USA,

I put it to you that the USA, Japan, Canada, Australia & NZ are probably the best candidates for proof.

They are all still a work in progress, but the point is they have relatively efficient economies operating as close as anything is to a Modern Monetary Theory economic system.

I would have included the UK on that list, but since they have decided to surrender to the deficit terrorists by introducing their fiscal austerity measures - they have effectively shot themselves in their economic foot, right when they were looking to make a shallow recovery from the recession.

That's what separates us, K.

That's what separates us, K. I believe the UK has taken the correct choice, having previously dabbled with the expansinist policies that the USA still wished the world to follow. If this was the first run the world had had at this, I'd be very much encouraged to give the 'print and send' thing a go, too. But we've been there, done that; four or five times! And the created money supply/debt has never been withdrawn after the fact. There is not more capacity to give it one more go. The well quoted " today is the tomorrow that we hoped would never arrive" appears to be a reality. Yes, it will cause enormous damage, but less so that creating even more currency, and hence future problems, that the world will be unwilling to adrress.
My first boss told me on day one " Do it once, boy, and do it right"

To be fair - we've haven't

To be fair - we've haven't really done it properly since the Nixon took us off the gold standard - and old habits die hard (hence the obsession with borrowing & budget balancing).

And there is always capacity to create money in a deflationary environment.

And on that point, we agree!

And on that point, we agree! To put another answer into this post. I also agree with you - Gold is merely a minor producive commodity. But that will enrage a whole new set of posters!

by Martinv | 08 Jul 10,

by Martinv | 08 Jul 10, 2:13pm
"Your logic seems sound to me. I think basic principles are the same for a country or a household. Over-spend in a household, and further down the track there is going to have to be belt-tightening. Instead if you have to keep borrowing more money to pay the interest on existing debts, you're just getting deeper in the hole. Any household in this situation is living beyond their means. Any country in this situation is also living beyond its means and is not sustainable. The only way to survive is belt tightening - to get rid of the debt that's causing the problem in the first place."

But since we have politicians run the country rather have an all empowering dictator, there is a trade off.
Yep we can haul in spending...
Spending on inferstructure...and instead have all those guys climbing poles and making roads unemployed
Spending on unemployied...either they out a veggie garden and hen house or become extinct.
Spending on education
Spending on health..ok no more breast scans or prostrate, cant afford it right.
Spending on corrections and law and order...
Its a trade off a balance between social riots, civil disobedience etc

And notice how a cut in one area then increases costs in another...very much a catch 22 right?

So the real question is what would be the min we need to borrow, where to cut without civil disobedience.
So you say "yes" BUT Will you accept that when you, or you Mum or Dad become terminally ill due to a terminal illness like breast cancer or prostrate that todays technology can prevent after saying "yes"

So the real question is "Is the current level of borrowing at the right level?"

Too often we condemn certain actions without think thru "what if it happens to me"

I know. It's really

I know. It's really difficult. The problem is, any deficit will mean that next year the budget will be worse than this year (all else being equal). That's not sustainable.

Those relying on growth to pull the GDP up and get rid of the deficit that way are also on an unsustainable path. Growth requires excess - excess that can be invested to increase production. We have no excess, indeed we have a deficit. Plus all the time resources are becoming more scarce and more expensive.

What difference is there

What difference is there between public debt and private debt? In terms of the net effect on the economy it seems to me there is none. Already in New Zealand households are heavily debt burdened.

The government piling on debt to support the economy simply burdens future taxpayers with more debt. Are we heading for a repeat of 1984 where the rich right welcome asset sales and make a killing with their first access to capital in a depresses market?

Already some well informed commentators are advocating public asset sales to bailout insolvent banks rather than burdening households with further public debt which would depress consumption.

At some stage the bullet will need to be bitten. It seems likely that a regression in living standards is inevitable.

"What difference is there

"What difference is there between public debt and private debt?"

If you don't understand the difference then you can't credibly jump to your conclusion that they are the same.

Try reading some of the above posts for discussion on it.

"What difference is there

"What difference is there between public debt and private debt?"

There's two types of $ in circulation. Government fiat dollars and bank credit. This is a fact and the Reserve Bank paper (linked above) confirms this. Private debt $ in circulation is private debt that needs to be paid back. Government fiat dollars in circulation is the liability of the taxpayer and also needs to be paid back (via taxes) so why does the Government need to buy these $ back by selling Treasury bills/bonds? It's already the taxpayers liability.

Malinvestment is malinvestment. The quality of the debt (and hence the soundness of the money in circulation) in both cases (Govt. spending and private credit creation) is dependant on the quality of the investment. The housing bubble is as bad as many of the things that the Govt could have spent it's money on.

Reading the posts: The Kiwi

Reading the posts: The Kiwi again wants most everything, but cannot pay for it – just stupid !

The discussion is slowly moving towards: What is the easiest way to make money – invest in commodities or selling houses to each other – HA!
People, as a nation among many we cannot operate that way !!!!!!!!! The world changed for ever- it's over - new ideas please !




Bring back Buck!

Bring back Buck!

Here's my budget idea: The

Here's my budget idea:
The govt could purchase as many as possible of these used Japanese bicycles and give them away or sell them cheap and then put a big fuel tax on unnecessary transport. It would save on ets, infrastructure wear and tear and stomach stapling operations etc.

What John Key has done is

What John Key has done is like hitting a walnut with a sledge hammer.gone in guns blazing and hasn,t really done his homework ,e.g.takes away the tax incentives on rental properties,so no one wants to own one,so everyone sells, so rent goes through the roof as not enough rental houses available,then the tenants can't afford to buy a property as interest rates will rise because the Govt has put up GST which will fuel inflation ,ah but the tax cut,well whippy good for the rich but not the average person.A better idea would be to see where the money is wasted in the GOVT coffers and nip it in the butt

Think of it like this: Is

Think of it like this: Is there a money-making activity which could continue, indefinitely, without fossil fuels? The rare hair-splitting one you might find, won't be paid for if the buyer relies on fossil fuels to raise his/her purchasing power!

So we can safely assume that wealth is straight-line related to energy, essentially fossil fuels. Further, given that they are a finite resource (and BP wouldn't be drilling deep in the GOM if they were unlimited) we can ascertain that wealth is finite, and can be ascertained by ascertaining the remainng energy reserves.

No oil, no transport.
No oil, not much agriculture.
No oil, no plastics.
No oil, not much travel.

So being at, or near-as-no-matter to peak oil, we can say there's just one more 'doubling-time' left, and that has to be less than 20 years. The question is whether we will chew into it at that rate, or whether the angst the declining supply causes, will render the supply somewhat erratic.

The only stave-off, is efficiency in energy use, but that has to track a law of diminishing returns.

Growth, Neville, there cannot be from here on. It's pretty simple maths. Don't waste time telling the mass that their fiscal dreams can be achieved - from here on, they can't. There will be macro winners and losers, individual willers and losers, but the house is issuing less chips each round, as of now.

Sustainable infrastructure, while there is still the lubricated time to do so, is the only legitimate goal. Not party central, but a good way to get food to the supermarkets, ex oil.

Anything else is an insult to following generations.

The problem will not be no

The problem will not be no energy, there is an ubundance of enery, the problem is cheap energy, wealth is not related to energy, it is related to the cost in Man hours of obtaining that energy, and it's correct use in other production. In fact with the rising cost of that energy some will obtain great returns and increase their wealth.
Look at the cost of copper extraction, it preceeds the oil curve, but relates to the oil curve. Peak oil has been and gone, the repositioning began in 2007.
BP in trying to reduce the cost of Gulf drilling went for the cheapest contractor, who cut cost to try and make a profit from having underbid, this in turn led to Rig saftey violations, which caused the error, then the spill, and then the veto, and thus the price will increase and the true cost will be advertised to the market. Risk was not valued correctly in the dessions that were made.
Sounds like other markets were risk was not valued correctly.

Another good example of the

Another good example of the government's long- term economic strategy Mr Tourism Minister.

"The 100% pure Iron jungle" !

Unstoppable march of the giant pylons.