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Wednesday's Top 10 with NZ Mint: NZ foreign debt jumps to 134% of GDP or NZ$18 bln in 90 days; America's prisons now bigger than Stalin's Gulags; NZ Inc's commercial property quake shock; Why NZ needs capital controls; Dilbert

Wednesday's Top 10 with NZ Mint: NZ foreign debt jumps to 134% of GDP or NZ$18 bln in 90 days; America's prisons now bigger than Stalin's Gulags; NZ Inc's commercial property quake shock; Why NZ needs capital controls; Dilbert

Here's my Top 10 links from around the Internet at 12.30 pm in association with NZ Mint.

I welcome your additions in the comments below or via email tobernard.hickey@interest.co.nz.

I'll pop the extras into the comment stream. See all previous Top 10s here.

My must read today is #1. It's a table of figures and a spreadsheet. Read it and weep.

1. By the way - Reserve Bank of New Zealand issued figures quietly on the last working day of 2011showing New Zealand's foreign debt rose NZ$18 billion in the 90 days to September 30.

More than three quarters of that rise was corporate debt, which includes bank borrowing offshore.

A large chunk of that is linked to New Zealand companies, including SOEs, who are borrowing offshore using the very cheap interest rates on offer in America in particular.

This is how American money printing reaches our shores. It also explains why our currency is up over 81 USc. Our foreign borrowing of cheap money is pushing our currency up. How is this different from what happened from 2002 to 2007 when property investors borrowed heavily overseas via our banks to take advantage of Alan Greenspan's cheap money?

This sucked in cash and destroyed much of our manufacturing export sector.

Our foreign debt rose to 133.7% of GDP in the September quarter from 126.6% the previous quarter. The peak was 137.7% in the December quarter of 2008.

Overnight the Europeans rejected a restructuring plan that would have reduced Greece's government debt to around 130% of GDP, arguing it would not reduce the debt/GDP ratio by enough.

But John Key says we're fine. We have nothing to worry about.

In a way he's right. We have our own currency and monetary policy. If needs be, we can print money and devalue our currency. Most of the debt is denominated in New Zealand dollars. No worries then... HT John via email.

2. The caging of America - The New Yorker's Adam Gopnik points out six million Americans are now in prison in America, which is more than were in prison in the Gulags in Russia during the Stalin era.

The accelerating rate of incarceration over the past few decades is just as startling as the number of people jailed: in 1980, there were about two hundred and twenty people incarcerated for every hundred thousand Americans; by 2010, the number had more than tripled, to seven hundred and thirty-one. No other country even approaches that. In the past two decades, the money that states spend on prisons has risen at six times the rate of spending on higher education.

Ours is, bottom to top, a “carceral state,” in the flat verdict of Conrad Black, the former conservative press lord and newly minted reformer, who right now finds himself imprisoned in Florida, thereby adding a new twist to an old joke: A conservative is a liberal who’s been mugged; a liberal is a conservative who’s been indicted; and a passionate prison reformer is a conservative who’s in one.

3. This is fun - An Irish journalist harangues an ECB rep in a televised debate over why Ireland's people are bailing out the creditors of European banks.

4. This is happening all over New Zealand - Commercial property owners, councils, government departments, schools and hospitals all around the country are slowly waking up to the implications of the Christchurch earthquake.

Many of the buildings built before the 1990s are earthquake risks that need to be strengthened or bowled. This is now being uncovered as insurers ask for structural assessments before they roll over policies and government departments run through their portfolios to assess the risks.

How big an issue is this for NZ Inc? Will banks have to make a mass writedown of the value of their loans they made to commercial property owners? How much of a loss will have to be booked by the government in its accounts?

Can we afford to repair or rebuild all these buildings?

The first reverberation is being felt in Wellington.

Here's the Kapi Mana News with the latest example. The Porirua Council is having to relocate 150 staff and thinking of spending NZ$10 million to strengthen its administration building or spend even more building a brand new complex. HT Blair.

Studies conducted to investigate earthquake-strengthening, determined an expected cost of $10m - twice the value of the building itself.

Deputy mayor Liz Kelly says while the fact the building is not up to code "isn't new news" - a report was completed by consultants in 2007 - the expected cost pushes the issue to the "top of the agenda" as the council nears its long term plan review process.

Under the Building Act, which has been updated since the Canterbury earthquakes, PCC's administration building is required to meet category one standards as it will be the headquarters should a natural disaster strike the city. "The costs associated with [this] forces the council to urgently contemplate alternative approaches," Ms Kelly says.

5. Two new gilded ages - The New York Times has a good piece on how the 1% in the developed world are making out like bandits for the second time (first time was Great Gatsby era of 1920s) and the 1% in the developing world are experiencing their first gilded age.

In the 19th century, the Industrial Revolution and the opening of the American frontier created the Gilded Age and the robber barons who ruled it. Today, as the world economy is being reshaped by the technology revolution and globalization, the resulting economic transformation is creating a new gilded age and a new plutocracy.

The two forces are intricately related. Indeed we are living through slightly different gilded ages that are unfolding simultaneously. The West is experiencing a second gilded age, while the emerging markets, as (Goldman Sach's Jim) O’Neill and others have documented, are experiencing their first gilded age.

The resulting economic transformation is even more dramatic than that in the Gilded Age. Now, billions of people are taking part across much of the globe, not just the inhabitants of the West.

6. Giz a job - The International Labour Organisation says in a new report the world needs 600 million new jobs to stop unemployment and under employment from rising.

It talks with insight about a developing negative feedback loop in the developed world.

There is growing evidence of a negative feedback loop between the labour market and the macro-economy, particularly in developed economies: high unemployment and low wage growth are reducing demand for goods and services, which further damages business confidence and leaves firms hesitant to invest and hire.  Breaking this negative loop will be essential if a sustainable recovery is to take root.  

In much of the developing world, such sustainable increases in productivity will require accelerated structural transformation – shifting to higher value added activities while moving away from subsistence agriculture as a main source of employment and reducing reliance on volatile commodity markets for export earnings.

7. Local government vs global shareholders - Robert Reich has a good piece on the political challenge facing America's political decisionmakers.

Put simply, American workers are hobbled by deteriorating schools, unaffordable college tuitions, decaying infrastructure, and declining basic R&D. All of this is putting us on a glide path toward even lousier jobs and lower wages.

Get it? The strategic responsibility for making Americans more globally competitive can’t be centered in the private sector because the private sector is rapidly going global, and it’s designed to make profits rather than good jobs. The core responsibility has to be in government because government is supposed to be looking out for the public, and investing in public schools, colleges, infrastructure, and basic R&D.  

But here’s the political problem. American firms have huge clout in Washington. They maintain legions of lobbyists and are pouring boatloads of money into political campaigns. After the Supreme Court’s Citizen’s United decision, there’s no limit.

8. Follow the money - Economists Carmen Reinhart and Nicholas Magud write at VoxEu about the problem of expansionary monetary policy (money printing in America and Europe) spilling over into hot money capital flows into developing countries.

They propose capital controls for those economies without flexible currencies.

But what about those (like us) with flexible currencies? See #1 above.

9. There's nothing inherently evil about capital controls - Yes I said it. And Here's Boston University's Kevin Gallagher saying the same thing in an FT blog.

Economists such as Keynes argued long ago that capital controls are important to prevent crises and to maintain an independent monetary policy that can strive for full employment and financial stability. This new work however elegantly models capital flows and capital controls in a broader contemporary economics context and thus could be seen by some to be a more rigorous justification for policy action on capital flows.

This work is not just for the blackboard. With quantitative easing, and as interest rates were lowered for expansionary purposes in the industrialised world between 2008 and 2011, capital flows returned to emerging markets at an alarming rate, where interest rates and growth were relatively higher. With eurozone jitters in the final quarter of 2011, capital flight occurred to the “safety” of the US and beyond. This has caused significant asset and exchange rate volatility that has made for an uncertain environment for policy-making and investment alike.

In response, many nations deployed capital controls to regulate the negative effects of cross-border capital volatility. Like earlier studies confirming that capital controls can change the composition of inflows, make for more independent monetary policy, and ease exchange rate tensions, new studies are emerging that show how nations such as Brazil, Taiwan, and South Korea have been at least moderately successful as well.

Yet New Zealand is not even talking about capital controls.

10. Totally irrelevant video from Jon Stewart on how Newt stole North Carolina.

 

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Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

54 Comments

Quake rebuild across the country...no worries...we can borrow more at low rates....make work no problem.....then borrow more to finance the orignal borrowing which is financing even earlier debt...John Key thinks it's all ok

 

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I prepared myself to weep and read No. 1, but then also noted the RBNZ's comment ``New Zealand's overseas debt is a gross figure. It includes liabilities only and does not take account of overseas assets held by New Zealanders...''. What to conclude without the corresponding figures for assets, then?

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It's all greek to you, obviously.

They're all between a rock and a hard place:

http://steadystate.org/growth-debt-and-the-world-bank/

Are those 'assets' wholly paid up?

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How much are the greek islands selling for...?

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depends on the state of their rhodes

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Got a feeling Gross Assets didn't rise NZ$18 bln in 90 days, given most in stocks, illiquid property etc.

cheers

Bernard

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34% of nearly 67000 voters in an Economist poll, are voting that the Euro will not survive 2012....that's a staggering load of fear out there. It would be really helpful to know the % of bankers..of pollies...of fund managers...of piigs peasants...and even more helpful to know what % of the 34% have already removed their wealth from the euro into Dollars and or gold....and what % have shifted that wealth into a Swiss bank vault.

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NZ foreign debt jumps to 134% of GDP or NZ$18 bln in 90 days !

Bloody hell – why can cows not produce milk-powder ?

 

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re: number 4 I think that is pretty major. My father's mate in Wellington owns an old office building that needs to be strengthened big time, for both insurance AND leasibilty reasons (with lots of new offices on the Wgtn market, plus fears springing from the Chch earthquake, tenants are demanding greater earthquake resilience). Its really killing them financially to deliver.  

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This will freak you out Matt...

http://quake.howison.co.nz/

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More drug taking

more booze consumption

more people in jail.

THE ONE GROWTH INDUSTRY IN USA AND NZ.

Better off in there than out in the public annoying me.

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Provided you're willing to pay for it. Look at the disproportionate amount of blacks in jail in the US over what are basically marajuana possession charges.

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Even New Scientist magazine suggested legalising presently illegal drugs as one of the top ten ways to make a better world;

http://www.newscientist.com/special/blueprint-for-a-better-world

 

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yeah cos drugs don't cause serious social issues! It's the meat head non drug users who are the problem!

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yeah cos drugs don't cause serious social issues! It's the meat head non drug users who are the problem!

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If only a rational debate could be had. How many retired police commissioners, frontliners, judges, lawyers have made thier views clear that prohibition just doesnt work. People abusing drugs need help not alienisation.

The USA has been trotting out their position on drug law to the rest of the western world since, well a long time. Marijuana was criminalised in an attempt to control the migrant communities of the day. Nothing to do with rational scientific assessment of its possible detrimental effects which, in comparison to some legalised substances is minimal. Look up the stats for violent and sexual offences related to alcohol. Scary stuff.  

Was it Peru who recently stood up to them because they were due to add coca leaf, chewed for millenia as a cure for altitude sickness to the list of banned substances?

The most effective tool for enriching organised crime has been prohibition. Dont know about you folk out there but I'm not visiting Mexico any time soon.

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In Oz "Breaking news! CPI for the December quarter has come in at zero..".

http://www.macrobusiness.com.au/2012/01/inflation-cops-a-donut/

 

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"Sir Mervyn King said that the economy faced an “arduous, long and uneven” path to recovery but that once it does it will be on a “more sustainable footing than at any point in the past 15 years”.
He spoke before publication of figures on Wednesday, which forecasters said would show that the economy shrank in the final three months of 2011. A further consecutive quarter of negative growth would mean the country has returned to recession, a “double dip” following the slump of 2008"

 

http://www.telegraph.co.uk/finance/financialcrisis/9037053/Sir-Mervyn-King-no-reason-to-despair-over-economy.html

Now you know why they are dancing on the streets in London...oh it bloody cold and dancing keeps the peasants warm..sorreeee.

Let's ask Merv how long his "once it does" will be....Merv....hello....hell ohhhhh....I think Merv's idea of "arduous, long and uneven" amounts to bloody awful....decades for sure....and uneven in it's impact ie the fatcats will do very nicely thankyou.

 

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Someone made a good point on Macrobusiness today that although growth going forward from here might be a lot weaker than in the recent past, we might also have less volatility, less of the boom/bust.

A bit like Japan since the early 90s.

I thought that was a good perspective  

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Matt - think it a 'good perspective' all you like, but it's horseshit.

 

From here on, for reasons you've had every chance to investigate for more than two years here, there will be a downward sawtooth. Each 'recovery' will hit the ever-lowering ceiling - why do so many folk not want to contemplate this?

 

From the fearful humour of GBH, to the hissy-fit 'exit' of DavidB - is it really so hard to grasp? My Physics Prof talks of cognitive dissonance - says he can't see any other explanation for folk who think things will continue - just because they want them to.

 

Welcome to the well-heralded limits to growth. Note that Japan just announced it went backwards.

 

http://steadystate.org/discover/downsides-of-economic-growth/

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You are entitled to your views but I for one don't buy your armageddon fears. The same kind of doomsday stuff has been spouted ad nauseum through history, humans are resilient, sometimes ingenious and adaptable.
And you are rather condescending and arrogant as if your perspective is the only possible truth - like a cult. Hey you might turn out to be right, but i think there are a range of credible alternative views that might be right too.
You are more similar to libertarians - in your fundamentalistic blindness - than you may care to think

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pdk is a "fundamentalist" because he stating fundamentals and his "blindness" comes from the glaringly obvious  - he is far from alone in his "perspective" for the future of humanity.

It may take a far more right wing approach than libertarianism to assage mans assault on his environment. The anti-whaling brigade is only a precursor to a future struggle that will  define human civilization on Earth. Resource depletion and environmental protection. I can only imagine how this may manifest but expect environmentalism to play a bigger and bigger role in human endeavours over the next century.

I'm giving the world one more splurge to the top of the bell on the fossil fueled orgy  then there's only one way from there.

I'd love to know more about this resilience and ingenuity you talk of - with regards to finding an alternative energy source the equal of fossil fuels, I'm not seeing any.

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Matt : Methinks that in one paragragh you have neatly encapsulated PDK more accurately than anyone else on this site has !

 

..... I'll say this for PDK , he brings people together ...... little bands of annonymous strangers gather on a digital platform to harangue him for his arrogance & for his doomsday scenarios .....

 

Without him , many of us would never have " met " !

 

...... on the sad side though , he turns people away from true environmentalism by his arrogance . Rather than educate , he ridicules ..... and we really do need to research and debate our impact upon our little planet ......

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Truth as in facts, data, science, engineering, geology and maths...not cults....cults is a belief in the un-provable....or non-existant....you dont buy it, Ok thats your view but that isnt substantiated, or proven, hence the cultist is more in you.

regards

 

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Steven - he's an interesting representation of a type, eh?

 

There are two sub-sets who appear to ignore fact, cherry-picking what they want, and closing their minds/ears to everything else. The first actually know what's going on, and are cynically positioning themselves into what they think is the best position. They're in a wee bit of trouble, given that their appraisal of 'best position' still equates to 'being rich', but no matter.

 

The other sub-set are those who wannabe, and therefore vote/speak as if they 'are', members of the first sub-set. I suspect we're dealing with one of the latter, given the lightweight contributions.

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I think its totally wrong.....we will see a highly volitile future.....we will have shallow recoveries, quite possibly almost jobless and as the recovery starts oil prices will stiffle it.....and our system has to grow, if it cant a recession results....so at best I see 2 or 3 decades of a mean decline downwards following oil's output decline....but volitile about that....or 5 or 6 years of a depression scale collapse...ie 10% per year...

Japan had cheap energy.....we now do not...japan was a one country event in a wordl doing OK....this is global.....japan had a huge domestis savings rate to tap at very low cost...thats ending for japan as ppl retire and draw down and that isnt available to the world.

So the perspective is wrong, its wishful thinking.....its blind hope based on a religious belief in our present growth system....

regards

 

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Its OK to put the raw figures on the borrowings out there but what about a bit of analysis?

If corporates have borrowed an additional 13.5 billion or more ( depending on how much over 75% it is ) in a quarter what have they done with it?

Have they repaid high cost local borrowings? Is that a good thing or a bad thing?

If it is the banks , have they lent it on? I thought Interest.co figures on bank lending books tended to show them flat or declining. Has there been a big jump in housing debt? If not , what about the core funding ratio which should stop bank liabilities being loaded up with hot money?

Bernard and his boys and girls have the resources to pull these figures apart and cross reference them with the other numbers they have to see what is actually happening. That would actually be valuable.

 

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So six million Americans = 1/721 of the population.... Huh?

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How did you arrive at that number?. Population of USA is 307,000,000

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311 800 000 in mid- 2011 .

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It was 310,799,999 mate. Snodgrass Throgmorton. Tree fell on 'im. Alas poor Snodgrass, I knew him well Gummy.

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So ... 310 million divided by 6 million would be aproximately, give or take a few, 1/51 .. the question was .. how did rpcas arrive at 1/721 ...

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Yep, 1 in 51.  What with journalists mistaking positive feedback loops with negative feedback loops and results like 1 in 721, we (human kind) don't have a hope do we?

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I know of Snodgrass Throckmorton , but the only Throgmortons of my acquaintence are allied to the ertswhile Winthrops ......... and they're British dontcha know , hearts of oak !

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I didn't arrive at that number, the article did.

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The Irish journo is a sad bugger for not understanding that Ireland is a member of the Eurozone , one of the founding member states from January 1999 ....... and as such , the " taxi driver " & every other working stiff in Ireland are obliged to bail out bond holders all over the frigging bloc .

 

..... as yourself , why didn't the English sign up for the Eurozone ..... what made you believe that you were getting a better deal than them , when they stepped away from signing the pledge ?

 

..... and despite it all , other countries ( Croatia , Hungary & Turkey spring to mind ) are queuing up to join ....... damn freakin' amazing !

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Did you mean 'arse yourself'?

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I am not sure how you would do that, but I bet a capable man like Gummy knows.

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I meant " ask " , but as it's  the Eurozone we're talking about , " arse " is equally appropriate  ....

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Seigneurie d'Arse, a French wine from the Fitou region. or 

the British/Irish-English vulgarism for the buttocks, equivalent to "ass" in American or Canadian English

http://en.wikipedia.org/wiki/Arse

England are not part of the Euro so perhaps a cross between the two, being rogered by a Frenchman whilst inebriated on the local liquor?

 

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What's truely " arse " is that GBH had to side with an EU bureaucrat ! ....... Bernard may sidle with the journo , but the sad fact is his country of free will chose to join the Eurozone .......

 

...... and who are the Irish to be lecturing others about fiscal responsibilty & prudence !

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I see siding with the bureaucrat requires not addressing the reporters point. He did explicitely say un-insured bond holders and in another country. I expect you will be making an equally mundane statement, insisting on more fiscal prudence, to support the next NZ tax payer bailout of uninsured bond holders in NZ finance companies?

 

 

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Nope , I am against government bail outs ..... so much so I'd gleefully horse-whip Cullen & English for putting NZ tax-payers on the hook for SCF .....

 

...... as per  the Irish  journo , you're missing the point : The Eurozone supercedes sovereignty ! ..... boof-head bureaucrats , un-elected clowns , now have the power to over-ride a government , to dictate how they must behave fiscally .......

 

.... and Ireland signed up for this ! .. Saints preserve us , did no one bother to question the downside risk , before signing in1999 ? ...... did the Irish not take heed of the UK & Nthn Ireland who chose to keep out ?

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Well Hourse whipping may still be a valid part of political lobbying in parts of Southland. In fact it seems like that journo would have been happy to resort to this if he was going to get a straight answer out of it.

You might be right about the eurozone influence of sovereignty, but why don't you support the Irish trying to understand and maybe rectify their predicament?

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The only answer to their predicament is to leave the Eurozone .

 

.....  The Euro as a currency , and the Eurozone as an economic bloc , have distorted the natural market mechanism , and have absolved feckless peoples of responsibility ........up to a point . And the Greeks have impaled themselves upon that point ..

 

The one country who has manipulated it most , and achieved the greatest outcome from the Euro & the Eurozone for their citizens  : Germany ! ........

 

..... in the immortal words of Basil Fawlty : " Who won the bloody war , anyway ! "

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You should just admit it, you contradicted your principals because you like calling people idiots. The journo is actually doing an unusually thorough job of actually trying to get a straight answer out of the eurocrat. This is far superior to the normal practise of letting him off with his first answer, and then creating a propaganda piece to explain what people should think about the guys idiot answer, or lack of an answer.

If Ireland decides to leave the eurozone or not, your opinion is actually not relevant. But they (the Irish) might start by asking why are we here? Seems to be exactly what you criticised the journo for asking.

 

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No , totally wrong , I  do not like calling people idiots . And I don't know why you said that . So I'll end the discussion here , as you seem to be misconstruing my words .

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"but the sad fact is his country of free will chose to join the Eurozone .... and who are the Irish to be lecturing others about fiscal responsibilty & prudence"

"boof-head bureaucrats , un-elected clowns , now have the power to over-ride a government , to dictate how they must behave fiscally ..."

"and have absolved feckless peoples of responsibility ... up to a point . And the Greeks have impaled themselves upon that point "

I see, not people, peoples.

 

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nothing to worry about. John Key says we're going to be ok. Woohoo! I'm off to borrow lots more money! I mean LOTS more money! Bunches! Stax! Heaps more! I'm going to be 'TOO BIG TO FAIL!'

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Regarding #6, they mean positive feedback loop, not negative feedback loop.  Negative feedback loops stabilise.  Good grief, no wonder the world's in such a mess.

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BH will thank you for your feedback.

Unless he's fedup with being fedback.

:)

 

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I am in Papua New Guinea at present. This is real life on struggle street here, maybe NZ is not so bad after all......... Real poverty, not self induced like so many people in NZ exert upon themselves.

This is potentially a rich country, if they could sort their shit out politically they could become a rich nation, LNG, Gold, Nickle, Copper to name a few things lurking underground. IN Lae the Mobil LNG project is boosting the local economies, roads are getting done up, they don't have potholes here they have craters.

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1 2 3 4 5 keep going...don't look down...the drop won't hurt a bit....!

"In December, Draghi introduced the first three year refinancing operation for Euro area banks.   The facility allowed qualified institutions (basically any Euro area bank) to borrow from the ECB at a zero interest rate for a three year term.  Banks are required to put up collateral, normally holdings of sufficiently high grade sovereign bonds. 

The facility was expected to total about 150-200 billion Euros.  The market was shocked when the loan total came in at close to 500 billion.

Banks needed the funding.  Euro area banks hold large amounts of medium term debt that has to be rolled over before the end of 2013 and many of the larger ones are being pressured to increase reserve ratios and tier one capital.

So is this the Euro version of Quantitative Easing?  Not exactly, though it looks like it if you squint.   Quantitative Easing is the creation of money out of thin air by a central bank for asset purchases.  The ECB didn’t (and probably won’t) take that step which would directly contravene its price stability mandate.   Draghi gets around that by setting up loan facilities.   When banks pay the loans back in three years (assuming they do) the ECB balance sheet would shrink again. 

There would and should be some monetary expansion if the banks are taking these funds and re-lending them.  Traders treating the lending facilities as money printing are one reason for the Euro’s recent weakness"

 

http://www.marketoracle.co.uk/Article32787.html

 

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In no.1, I note that our OVERALL foreign debt of 133.7% of GDP is compared to a plan to reduce Greece's GOVERNMENT debt to around 130% of GDP, implying that they are the same.

Not quite the same, though, is it...not even close.  Disappointing to see that little sleight of hand in argument.  Let's see apples compared with apples.

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