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Top 10 at 10: Cactus Kate on tax reform; Bernanke safe?; Daily Show; Dilbert
January 26th, 2010Here are my Top 10 links from around the Internet at 10am. I welcome your additions and comments below or please send suggestions for Wednesday’s Top 10 at 10 to bernard.hickey@interest.co.nz
1. Never. Never. Never. Raise. Taxes - Sorry I missed this yesterday. Cactus Kate has written a considered argument against the recommendations in the Tax Working Group. I don’t agree with much of it, but it’s worth a read. Her point about landlords leveraging up (even more) to avoid an RFRM tax is fair enough. Her solution appears to be to do nothing (because a new tax is never a good thing), apart from slashing government spending). I agree on cutting spending, but I don’t think it’s the answer to every question.
New Zealanders seem to be stuck in a pre-historic myth that rental housing stock owners are evil and not only distort housing prices for the “good guys” (ie. themselves) but involve tax avoidance. Those stuck there all have one thing in common. Envy. Most either do not own property or only have an owner-occupied home, usually terminally geared to ensure they live a miserable existence for the rest of their lives. The rest derive their income from the workings of funds and the stockmarket.
The prime reason for the alleged fascination with property in New Zealand is detailed in the report in the irony of wishing to apply the RFRM (risk free rate of return method). On page 53 this is outlined. Why is housing deemed appropriate to be taxed at a risk-free rate? Well it is based on this silly New Zealand phenomenon that house prices will keep increasing.
Worse is that the RFRM in the example on page 53 encourages excessive leveraging as it calculates based on equity. I can think right now of a fabulous tax structuring product you could sell to strip equity out of these homes. It’s just a bad, bad, bad incentive for loading debt that people cannot afford to have currently, let alone in the future.
2. David Farrar at Kiwiblog responds to Kate here. He attacks her view on depreciation in particular.
Depreciation is a necessary tax loss, when the asset really does depreciate, as it allows you to fund the cost of replacement. But when we have decades of evidence that residential buildings appreciate, not depreciate, I’d rather not give out interest free loans to property owners to claim a depreciation that doesn’t exist.
3. Bernanke no done deal – Chris Whalen at Zero Hedge reckons the reappointment of Bernanke in the Senate is no done deal, despite all the noises that came out of the Democratic leadership in Congress and the White House over the weekend. It ain’t over until the bearded lady sings about interest rates…or something.
“As of this morning, our contacts in the GOP leadership say that the White House is just shy of 50 votes in favor of the reappointment of Fed Chairman Ben Bernanke. The positive media headlines on this count are being driven by a relentless, all weekend long push by the White House, including personal telephone calls from President Obama.”
“There are still at least 10 more votes to be won before Bernanke’s nomination is ready for floor action and, even then, our sources in the Democratic leadership say that they do not want to bring the matter to the floor unless there are a couple of extra votes in the back pocket in case Senators who have indicated support for the nomination change their minds.”
“The White House spin in the media today is “overly optimistic” according to our GOP sources, who say that one more public revelation regarding the Fed or Bernanke himself could kill the nomination.”
For those who might be wavering here is Steve Keen’s economic case against Bernanke.
4. Economic black hole – Here’s 20 reasons from theeconomiccollapseblog (yikes) why the US economy is dying and is simply not going to recover. There is a certain ‘the world is ending and you need to take the hills with guns, ammo and baked beans’ feel about this piece, but the carefully selected facts are somewhat alarming. HT Gertraud via email.
The problem is debt. Collectively, the U.S. government, the state governments, corporate America and American consumers have accumulated the biggest mountain of debt in the history of the world. Our massive debt binge has financed our tremendous growth and prosperity over the last couple of decades, but now the day of reckoning is here.
And it is going to be painful.
5. Bernanke’s scam – Former Citigroup Head of Macro Research Arun Motianey writes in this piece on Roubini Global Economics that Federal Reserve Chairman Ben Bernanke is a magician and his trick looks like failing. Well worth a read. HT Colin Askin via email.
Let’s unpack the magic. The central bank and Treasury planned a stealth takeover not of our banks but of the function of banking. The banks for now are just shells, large trading desks that have been given a license to make money by “playing the carry” of a steep yield curve, using cheap funds from depositors, and sometimes directly from the Federal Reserve itself, to invest in higher yielding longer-term US Treasuries and certain other fixed-income securities and produce profits from the difference in the returns. The Fed and Treasury are doing the rest.
Something happened around mid-September 2008. In the midst of all the turmoil that engulfed the markets the US Federal Reserve discovered the power of magic. In a bland and technical announcement about paying interest on bank reserves it gave itself the power to expand its balance sheet without limit. It then also proceeded to cut rates to close to zero per cent so that within weeks it was giving itself unlimited and costless funds. We were told that the money was needed to increase the size of the liquidity support measures. But this was only a diversion — the “pledge” in the magic trick — to distract us from what was really being planned.
By late November, three weeks after the US presidential elections elections, it was using its balance sheet to buy and hold government and agency debt as well as mortgages. It had gone from being lender of large resort to banks and primary dealers to being the investor of first and last resort in the obligations of the federal government and the agencies that were guaranteeing mortgage borrowing. The purchase of other securities backed by credit card debt, auto and student loans under the TALF program would follow.
The incoming Obama Administration was happy to play its part. It became the other end of the double-handed saw, creating immense quantities of Treasury and agency-guaranteed debt which the Fed, aided by a banking system that was too scared to lend to anyone else, would buy. For all the public talk of retaining the confidence of international investors as Treasury and other contingent liabilities soared no one in Washington was losing any sleep over it. The Fed stood ready to replace foreign buying several times over if necessary with its infinite and costless overdraft facility. It has come through on that assurance. Within months of that announcement it increased its balance sheet by $1.7 trillion, greater than all the US securities holdings in China’s fabled foreign exchange reserves. This was the “turn” – the second part of the magic trick.
Why does this matter? Because by doing this the US central bank has extended its remit to control interest rates along the full length of US Treasury yield curve. Much of the term lending and borrowing that happens in the US economy and in fact in many other parts of the world are based on these rates. The Fed has exercised iron-clad control of these longer yields so that they are kept just high enough for the banks to make money, but not so high that they would crimp the demand for mortgages and other kinds of credit (of which, once securitized, the Fed is the main buyer in any case).
Vast swathes of the most important financial market in the world have therefore ceased to be a market in all but name. It is little exaggeration to say that what we’re seeing is a simulacrum of the American economy and not the real thing. Here the US government is the support for much of the domestic demand, the banking system intermediates the borrowing and the US Fed is the dominant and in many cases the sole buyer of those investments. The Fed and the US Treasury have gamed the system and from that has emerged something like weak growth. This is the “prestige”, the third part of the trick, but on the grandest scale.
And so that is the recovery we have been given – worthy of a centrally-planned economy, while the Fed’s self-serving supporters like Warren Buffett (not to mention the reprobate bankers) pay lavish lip service to the ideology of free markets and American capitalism and are rewarded handsomely for it. Bernanke’s “noble” lies that the economy is returning to health and that we are at the start of a self-sustaining recovery had as much truth as anything that came out of Dick Cheney’s mouth on Iraq. His – and the Fed’s – prestige (in both senses) will stand or fall on how things turn out when the magician exits the stage, which is why he is suddenly looking for an excuse to stay.
6. ‘Scam offer’ - The Press reports that Marchmont Securities Trust has made a cash offer of 10c in every dollar for debentures in Strategic Finance, but the offer has been labelled a ’simple scam’ by Kapiti Coast broker Chris Lee.
Lee said the offer was “a simple scam … they have simply bought or got hold of the Strategic registry. … By law they are allowed to get hold of it. Strategic made it a condition they didn’t contact clients [but Marchmont] have selected those people they believe are vulnerable to offer them a stupid amount of money for their debentures.”
7. The Withdrawal method – 2010 will be the year when we work out if the global economy (and the US economy in particular) can cope without all the monetary and fiscal stimulus pumped in over the last couple of years. The initial signs aren’t good and there’s more withdrawal to come. Overnight data showed US existing home sales slumped a worse-than-expected 17% after the withdrawal of a tax rebate, while the Washington Post is reporting that the government is looking to end support for low mortgage rates.
For more than a year, the government pulled out the stops to revive home buying by driving down mortgage rates. Now, whether the housing market is ready or not, the government is pulling out.
The wind-down of federal support for mortgage rates, set to end in two months, is a momentous test of whether the Obama administration and the Federal Reserve have succeeded in jump-starting the housing market and ensuring it can hold its own. The stakes for the economy are massive: If the market again falls into a tailspin, homeowners could face another wave of trouble, and it would deal a body blow to President Obama’s efforts to get the economy on track.
8. Expensive, dumb and tragic – This story is about how governments waste money. A British fraudster managed to sell ‘bomb detection wands’ (pictured below) to the Iraqi government for US$85 million, BBC’s Newsnight reports exclusively. HT Troy via email
9. Relevant video – Jon Stewart from The Daily Show captures the mood in America on big bank bonuses nicely.
| The Daily Show With Jon Stewart | Mon – Thurs 11p / 10c | |||
| Clusterf#@k to the Poor House – Wall Street Bonuses | ||||
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||||
10. Totally irrelevant video – Cute video of dolphins killing fish in an unusual way.
11. Second totally irrelevant video – This video is of an experiment where a bunch of kids were put in room with a marshmallow and told they should wait for a while for mum to come back with another marshmallow. If they didn’t eat it they would get another one. If they did, no second marshmallow. Guess what happened. It says something about our human nature’s need for instant gratification, our urge to save and our urge to consume. There is way too much sugar in the world, the way. The hyperactive twins are hilarious. They are itching for sugar.
Oh, The Temptation from Steve V on Vimeo.
Tags: Top 10 at 10
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January 26th, 2010 at 10:49 am
# 10 : Do the dolphins have Resource Management Consent to stir up the sea-bed mud ? The video is damning evidence of their blatant disregard of local by-laws . They shall cease and desist from such behaviour until further notice .
A case manager from WINZ will be assigned to them , as from next Monday . They may receive an emergency relief allowance , enabling them to purchase required supplies of fish from local markets .
Those seeking new career paths toward obtaining fish in an approved manner will be granted an interest-free student loan .
January 26th, 2010 at 11:22 am
You see this 100% leverage argument popping up a lot in relation to the RFRM on rental properties. It really just shows the mentality of those who invest in rental properties.
Those who are considering this approach are ignoring commercial reality, which is the current problem with rental properties.
If the RFRM method is adopted, then actual income will be exempt, and no deductions allowed. Therefore if someone chose to leverage a property 100% or more (assuming they could actually find a willing lender) they would have the negative cashflow, but no tax losses to obtain any short-term benefit.
January 26th, 2010 at 11:24 am
Put #4 with #7 and it is going to be a good 3 to 5 years for US housing market problems to work through.
The good news for the Alt A and Option Arm borrowers is that the banks are busy chasing up the subprime defaulters.
They will be placed in a queue: “Our loan officers are currently busy, your loan repayments are important to us, please wait for the next available officer. Have a nice day.”
January 26th, 2010 at 11:28 am
I’ve just read the Cactus Kate post and am wondering why you don’t agree with much of what she points out Bernard?
It would appear that any report by such a biased group must be flawed as, except for Morgan whom they simply sidelined, they had the precept of what they wanted to say and simply arranged their comments accordingly
January 26th, 2010 at 11:31 am
One for Wally. http://www.telegraph.co.uk/finance/newsbysector/industry/7073794/Chinalco-wants-to-buy-copper-mines.html
January 26th, 2010 at 11:33 am
Re : Residential buildings do not appreciate they deteriorate – get out there and look at the pille of shit you get in the bottom 25%.
It’s the land that has gone up in price, due to restricted supply (think RMA and the dead hand of the council) and wild bank credit expansion (think debt – you know the stuff you have to pay for somehow eventually).
The worthless bit of dirt (previously gorse clad hillside with an economic value of perhaps $5 per year for forestry) my house stands on is valued at $250,000. This is ludicrous.
January 26th, 2010 at 11:43 am
The kids are so funny!…….
January 26th, 2010 at 11:51 am
@ #’s 4, 5, and 7
I see they are packing Mike Moore off to the states to keep chasing a free trade agreement with tehm. Is it wise to do a deal with a party that is economically in a massive hole whose legislative arm is so beholden and warped by the dominance of their lobbyists?
Sure free trade is a nice idea when the playing field is level, but is this a nation we want to be bound to like this? I get the feeling the moore is so far up the whole free trade thing that he c an’t back out, even though the shine has come of it somewhat…
January 26th, 2010 at 12:00 pm
Simon – “If the RFRM method is adopted, then actual income will be exempt, and no deductions allowed. Therefore if someone chose to leverage a property 100% or more (assuming they could actually find a willing lender) they would have the negative cashflow, but no tax losses to obtain any short-term benefit”
As I understand it, an RFRM would be calculated on equity – so if you leverage 100% you have no equity and no RFRM to pay.
muzza – agree completely.
January 26th, 2010 at 12:18 pm
Ring fence losses on rental/investment properties against the rental/property income generated, rather than as a general deduction against all income sources. Couple this with a RFRM amount this would remove any purely tax driven incentives.
Introduce a CGT charge purely on the Capital gains on rental/investment properties but give an indexation for inflation based on RPI. Exclude the family home completely but introduce strict percentage time of residence rules in order to qualify for the exemption, ie the property must have been the sole residence for a period of at least 1 full calender year.
January 26th, 2010 at 12:18 pm
The bomb detector one actually makes me laugh….
Ok, for the RFRM one, I doubt anyone will choose to leverage 100% to avoid tax, because that will simply cost them more.
January 26th, 2010 at 12:24 pm
For point number 4, won’t those adjustable rate mortgages reset lower than they are now? i.e. no crises?
January 26th, 2010 at 12:36 pm
No 10, the 2nd totally irrelevant video.
Not irrelevant at all, incredibly relevant. The study was a serious one, undertaken some years ago. Those who held off eating the marshmallow achieved better long term outcomes – better academic achievement, financial independence, even stronger relationships. They value long-term gains over instant gratification. The question is, which kids to NZers most resemble? Looking at our savings record compared with consumption, and also looking at our chronic national current account deficits, the answer is sobering.
Which ones are Bill and John? Short-term gratification of landlords? Or long-term growth of the productive economy?
Ref. Daniel Goleman, Emotional Intelligence.
January 26th, 2010 at 12:38 pm
Why is anyone who calls herself “Cactus Kate” to be taken seriously? Who cares what she thinks?
January 26th, 2010 at 12:43 pm
RFRM
I guess if you removed the equity in the property into an offset account with a loan eg BNZ total money then you would not have any equity in the property to calculate a risk free return. This would work best for those with large amounts of equity. those highly leveraged people are the ones that would hurt the most as the they have large expenses and little equity. But then I guess the RFRM is aimed at them.
This would make property a more neutral investment from a tax perspective. No large loss offsets for WFF and tax refunds.
January 26th, 2010 at 12:44 pm
Worldwide , people are chortling that Australia has a Prime Minister called ” Kevin ” …………………. Would you care what they think ? Or focus on what he can do …………. Hmmmmm .
January 26th, 2010 at 1:18 pm
Muray – “As I understand it, an RFRM would be calculated on equity – so if you leverage 100% you have no equity and no RFRM to pay.”
Correct you have tax to pay, but you also do not get tax losses. So you have a bad investment from a commercial point of view because it is cash flow negative without the tax benefits available at present. It would be an awful investment, especially if capital gains taxes are imposed.
Even without CGT, the IRD would argue the property was purchased with the intent of disposal and tax its proceeds. And how could you argue that you hadn’t purchased it to onsell later at a profit? You would be an idiot to buy it if you intention was to hold it indefinitely making cash losses, that you cannot get a tax credit for!!!
January 26th, 2010 at 1:29 pm
… “Buildings *always* appreciate”
Well if that is true, what we should do is securitize these mortgages obligations, package them all up for banks to resell, get them investment graded (as log as Fitch, Standard and Poors, etc. use “always appreciate” in their formula) all will be good – we could sell them to everyone, pension funds, mums and dads it will be great – it will be the safest investment around.
Actually while we are at it, as buildings always appreciate – what house owners can do is use there house as an ATM – they will always be able to get their money back.
Also for those that cannot afford to get into a new house, what they can do is 100% mortgage pay as much interest as the can, just put the rest on the mortgage – no problem, buildings always appreciate so eventually the mortgage will be manageable…
Hmmm… “Buildings *always* appreciate” is a very dangerous assumption!
January 26th, 2010 at 2:06 pm
@Trev: 3 to 5 years?
um….
Greg out W@
Is it wise to do a deal with a party that is economically in a massive hole whose legislative arm is so beholden and warped by the dominance of their lobbyists?
No its dumb….I dont see why we have to….either our Pollies are thick, or there is an advantage they see and we dont. Like they personally make money.
January 26th, 2010 at 2:21 pm
talk by Steve keen at google is interesting…..but you need two hours!
http://www.debtdeflation.com/blogs/2010/01/20/talksgoogle/
January 26th, 2010 at 2:52 pm
3 to 5 was just an uneducated guess. We could start a sweep?
January 26th, 2010 at 3:06 pm
RFRM
Here is another thought:
I bought my properties at > 10% return (last one in 2005).
I don’t have much leveraging.
Imagine there is no capital gain (as all my investment decisions assume)… then how will people feel when I receive 100K in rent… but am taxed as if only receiving 25K?
Bernard, will you see this as a triumph? Is this not the mother of all loop holes?
The problem at the moment is that owner-occupiers have driven up the cost of housing way beyond the value dictated by rents, thus RFRM is going to hurt landlords with high equity like me during the transition years (and force my parents generation/retired into immediate sales). However, in the steady-state, when prices return to 2002 levels, properties with > 10% return (and no debt) will look more attractive than many other investments… plus you can borrow against them for your other investments and claim the interest against these other ventures.
January 26th, 2010 at 3:11 pm
Depreciation
This is real. I am constantly amazed at how accurate the IRD tables are… my bathroom fans do need to be replaced after 5yrs… the heat pump does only last 7yrs… the hot water cylinder does fail after X yrs etc etc
Buildings do depreciate. What I think you are seeing is not so much a building appreciating, but rather massive inflation for new building or replacement value. Maybe you could argue these are equivalent?.. nah, a 50 yr old house is still a 50 yr old house.
January 26th, 2010 at 3:32 pm
No body will ever convince me that there is a logical reason for housing to ALWAYS increase in value. It’s ridiculous. However, real estate has out preformed gold as a store of value in the last 60+ years. You can also make a silly argument about rents vs. ownership. Then again I’m sure that there are a few people in Japan that would say otherwise. The idea that real estate is an investment is actually a recent phenomenon in human history. My advise is to view your house the same way you see your car, always depreciating. If it doesn’t and you sell and make an actual profit, then good for you! Count yourself lucky! But never count on it!
January 26th, 2010 at 3:37 pm
Bernard I did propose changes – an all in one approach to move towards the Hong Kong style of system – last paragraph.
The TWG report is an all in one committee approach of compromise. You cannot cherry pick one of the ideas without the whole reform package which is not going to happen under a National government so the TWG report basis is fundamentally flawed to start with.
While I do not have too much objection to land tax as such, in NZ I cannot see it being a) saleable to the centre-right electorate (very important unless we want the Pinkos in charge again), b) affordable given plenty of NZ land is used in low-return activity/Maori land or long-term forestry and c) certain groups from above will want exemptions.
In Hong Kong land tax works as a) tenants pay the costs and b) the tenants in middle-class property and above are generally better paid than in NZ as well as able to keep far more money in their hands as the government doesn’t steal it from them. The highest tax rates in Hong Kong are a myth of their own – very few people pay them for all the deductions and foreign source rules applied.
Interestingly a bloke from the left wing Standard who is a rental property owner responded to taxes on property with an excellent rational response – I shall raise the rent. Any further taxes on property will have the same effect and NZ will become a low wage, high rent economy.
January 26th, 2010 at 3:42 pm
@troy….Agree…there is a danger that when looking at a thing has done well that you compare like with like…when ppl said to me in the past, x investment has done well over then last ten years, why is that a valid indication it will do well in the next ten? maybe that’s a good indication to move on….from experience it seems to be!
Is 60 years enough of a time span? Also there have been big changes like coming off gold in the 1970s….did this give a short term ease/advantage but store up huge issues long term ie today? 40 years of a bubble? ie if things change in the last 60 years that did not occur in previous times then is that comment valid? I dont believe so. If that 60 years is from the end of the Great Depression then it should be to my mind to the end of the next Depression or what ever time that is and look for the net gain….ie you are looking from a bust/bottom of a market to the top….funny how many ppl selling some sort of investment always quote their choice in these terms…
regards
January 26th, 2010 at 3:48 pm
“saleable to the centre-right electorate (very important unless we want the Pinkos in charge again)
….LOL….
The centre-right and right voter (or the centre-left and left voter) does not matter….where are they going to go? Vote Labour? vote ACT? not vote? their only chance of winning some power/protection/influence is to vote national for otherwise they get Labour. What wins the election is wooing the center / swing voter, thats where you spend because thats where it matters….Labour learnt this and JK did it even better….
“I shall raise the rent” this will only work where there is no alternative….in which case he or she can raise the rent now anyway….its inelastic…if its elastic ppl move to cheaper. I know ppl who rent, they move every year or so if there is a better property that’s cheaper or even for one of those…if there is enough of a difference…
regards
January 26th, 2010 at 3:58 pm
Great You tube clips,,,,Where is Neville Bennett, enjoy reading his articles…
January 26th, 2010 at 5:26 pm
Thanks Ruru, that cheered me up no end. Wish the buggers would see the light and buy me out for a fat gain. On the other hand, BHP did that to me with WMC and there I was feeling chuffed only to discover BHP bought the whole oufit for a fraction of its true value. WMC had been too bloody lazy and hadn’t bothered drilling a few holes to see what was in the ground. Place is called Olympic Dam and is one huge copper gold and uranium deposit.
January 26th, 2010 at 5:40 pm
I was further north , up in the Cooper Basin gas-fields . We all knew that Western Mining Corp. sold their shareholders short . The uranium is massive . It was held back for many years by the Labour Gumnut who had this ” Three Uranium Mines ” rule . One of those dickey arbitrary things that the socialists dream up . Whilst Olympic Dam was sitting on it’s piles , Canada was exporting uranium to all and sundry , and cleaning up , big time . Labour are dicks , when it comes to munny and business . [ Cullen ( here in NZ ) was the King Dick of them all . ]
January 26th, 2010 at 6:33 pm
Steven
There is only centre-right and right and centre-left and left in my view. There is no centre party in NZ politics, well there is I guess United.
Currently National voters are centre-right and they need to keep them. They won an election based on being against the direction the centre-left party was heading in and after 9 years of it. Central to this was the difference in parties perceived taxation policy – where we are at now.
If National do not deliver something advantageous to their own current supporters then those supporters will switch to centre-left and Labour. ie. election loss.
Any tax changes to rentals will see all rental properties affected. As costs to landlords increase so too will rents as they will have no option but to all add on those costs (taxes etc)
January 26th, 2010 at 7:33 pm
Steven,
It’s not as simple as whether or not people will pay rents or landlords will up them. It’s just your basic supply and demand. If a tax acts as a dis-incentive to property investment, supply gradually reduces, demand pushes rents up and we have a new higher rent level.
That’s part of the reason that rental yields have dropped… greater rental supply kept rents low.
Wouldn’t want those transient tenants anyway!
January 26th, 2010 at 7:37 pm
Cactus Kate:
“In Hong Kong land tax works as a) tenants pay the costs and b) the tenants in middle-class property and above are generally better paid than in NZ as well as able to keep far more money in their hands as the government doesn’t steal it from them.”
You’ve got your chicken and your egg mixed up. They pay less income tax *because* the high land tax provides so much revenue for the government.
The land tax is successful because it can be a) massively discriminating (half the population lives in government subsided public housing, and effectively don’t pay land tax), and b) spectacularly progressive (those on higher incomes live in significantly (1,000x?) less dense areas, and so a larger portion of their dwelling value is the land value).
January 26th, 2010 at 8:08 pm
Explain – tax changes re. prop. investment = rents up, as people say. OK. Tax changes re. NOT prop investment = paye & corp taxes down, AND tax changes BOTH (whole?) = property prices down, (sh*tting oneself if spec’ed wrong – sell off) so people say. Tax changes = more investment in productive enterprise, so incomes up, CAD down, etc, etc. Tax changes = improved affordability, & 4 FTB’s, hmmm, might = < rental demand. Rents track = ?? Tax changes = good or bad? Explain?
Cheers, Les.
PS – am only an engineer, just want to know, seriously. Tell me. Clever people, and Andrew King, again.
PPS – Fred, too complicated. How to explain? (Save me…) Abe had it right, + James Robertson. Easy as. It's been done before = no brainer. Thanks anyway. You too Roelof.
January 26th, 2010 at 8:41 pm
Les
Ahh there you are, give me some time with a whiteboard
Here’s a “sound bite” bumper sticker. Convert all debt to fiat and publish the balances of all non-individuals (non real persons). It’s our debt right?
January 26th, 2010 at 8:51 pm
Fred – debt free money can exist, HAS existed. (It depends how you define debt.) I think this is the difference we fall apart on. Essentially, as a ‘cherry picking’ pragmatist, I’m keen to use stuff that has worked before, where precedent exists. That is not your idea. Anyway, let’s not fog this thread, zip over to the one we were using before(??) my absence if you like. I’ll carry on there if I can. (Maybe tomorrow – still in catch up mode ….)
Cheers, Les.
January 26th, 2010 at 9:00 pm
If you encourage renting, you encourage social disenfranchisement, the result being tagging, gated communities, and ‘three strikes’.
It adds not a cent to real accumulated wealth, which bases on real resources.
Brownlees attack on the DoC estate, Heatleys on the coast, and the plethora of applications for multiple, massive, and competing land-uses……. all suggest we are into the last ‘doubling-time’ of them all.
Meaning the wealth base dwindles from here on in, and the Yankee debt piece is quite correct. No wonder we are looking at taxing something that hasn’t turned a profit yet – the profit-making taxable activities just peaked.
This is just a way to shift the remaining wealth upward – you either flog off the ‘commons, or you tax static possessions. Last one standing takes all.
Duh!
January 26th, 2010 at 9:09 pm
Ok, I’m keen to get some sort of feedback. I don’t think the system I describe relies on the existence of debt free money, or not. But let me ask one question here. If it was debt free, how would you tell. Money is fungible. All I’m trying to do is understand the system you and Iain describe, again in practical terms, as a pragmatic.
January 26th, 2010 at 9:12 pm
Disencouragement of renting resulted in sub-prime.
January 26th, 2010 at 9:20 pm
Keith Ng – thanks for that clarification.
Cactus Kate – now that you’re properly informed – do you plan to continue to defend the comparison you used to legitimate your argument?
January 26th, 2010 at 9:38 pm
# Wilsta Says:
January 26th, 2010 at 12:24 pm
For point number 4, won’t those adjustable rate mortgages reset lower than they are now? i.e. no crises?
You obviously haven’t heard what US banks are asking now even with a near 0% OCR
January 26th, 2010 at 9:42 pm
No:4 is why i have no debts at all, have got savings in 4 currencies(none are USD) own a small market garden outright(no mortgage on the land) and own some gold.
even the 4 other currencies i have are not safe really. If the US economy goes then we ALL go!
January 26th, 2010 at 9:43 pm
Cactus Kate, NZ is not Hong Kong however hard we might wish.
The TWG has pointed the direction – lower broader and remove the blatant tax havens around property and capital gains.
That said avoid taxing mobile activities as owners will arbitrage the settings one jurisdiction to another.
Conclusion, capital gains, property and land tax, consumption tax are more effective than taxing personal and corporate earnings.
What we have is broken and the recommendations are a bit bland but the guts of the report has the detail and the outcome is a function of political will, not Hong Kong but a move in the right direction – how far remains to be seen.
January 27th, 2010 at 7:44 am
Cactus Kate
Many thanks. Fair enough. I saw that last line as a wish list rather than something the government could do in the budget.
“The perfect tax system is found in Hong Kong and it explains why I live here. Copy it and guaranteed is a path to prosperity. Low flat tax, low land tax, source income concepts, stamp duty for land and stock transactions, free property market, no capital gains tax, no RWT, low company tax. To achieve this there is minimal government, less intervention and streamlined welfare provisioning.”
I actually agree with you. Good luck with getting all that past the electorate.
I reckon though there might be more political support on the centre-right for a land tax than you think, particularly if it comes with an income tax cut to 30c. A lot of people see the logic of a simpler tax system.
Loving your piece today on Air NZ by the way.
http://asianinvasion2006.blogspot.com/
cheers
Bernard
January 27th, 2010 at 9:42 am
Fred – “Money is fungible. All I’m trying to do is understand the system you and Iain describe, ….” Indeed. So what don’t you understand? Let’s carry on here again:
http://www.interest.co.nz/ratesblog/index.php/2009/12/29/summer-chart-series-why-consumer-confidence-is-indicating-a-spending-surge-in-2010/comment-page-5/#comment-55440
Essentially I’m keen on things that are simple. For me now, that is basically James Robertson’s approach (the NEF paper) but I’d lean toward +ve ‘reserve lending’ instead of ‘full reserve’ (because of the growth, liberty issues) and with RBNZ varying both issue of credit to Treasury (as Robertson) and also varying the +ve reserve ratio; all within present PTA. I think that would further stabilize money supply, inflation, lower i.rates, stabilize NZD toward a real trade flow value – and lower the tax burden – bye, bye $250mio pw down the gurgler.
Apologies for the deafening silence, was away.
Anyone, Andrew King – my 26th at 8.08pm, am keen to get an explanation.
Cheers, Les.
January 27th, 2010 at 10:05 am
Les if you want a reply to that post, I think you’ll have to make it more intelligible first!
January 27th, 2010 at 12:38 pm
@Cactus kate: I am looking in terms of how voters vote …ie where they sit as opposed to where the old parties sit. So in terms of Left and right, these are as far left or right as they always were….however I think the % of the population in these camps has been peeled off over time, whats happened/happening is there is a large section of voters who instead of blindly voting left or right will vote on either side of centre depending on whats on offer…so this is a central and growing pool of voters the old parties have to win to gain power.
So, “Currently National voters are [dominantly] centre-right and they need to keep them.” mostly agreed, but not why….ie what you are balking at is policies to keep these centre or swing voters loyal to National instead (it appears) you want to give the right voters what they want…
The link I gave to Steve Keen above is really interesting….what he is discussing is historically only 25% of debt to GDP was mortgages, the other 75% was productive lending by banks to endevours ie businesses that made widgets as opposed to today where 90% odd is to housing speculators looking for asset inflation…which produces nothing….
So the WGroups proposals to cut the legs off property speculation to get that % back to 25% actually makes huge sense IMHO.
“Any tax changes to rentals will see all rental properties affected. As costs to landlords increase so too will rents as they will have no option but to all add on those costs (taxes etc)”
There are swings and roundabouts here….rents or margins are based on what a landlord pays for a property v income….if house prices are pushed up by speculators which seems a dead cert….then the professional landlord is forced to pay too much for a property and hence rent is higher than it needs to be…if the speculators run house prices will drop somewhat but also the crazy infaltiosn will not be so dominant moving forward. Then some renters will buy as its now cheaper to buy and professional landlords will also buy houses cheaper, hence rents may or may not rise….whats removed from the rental market is the huge distortion of asset speculation…..which I think is bad for the rental and housing market.
@dave smyth: If a tax acts as a dis-incentive to property investment, supply gradually reduces, demand pushes rents up and we have a new higher rent level.” The tax is being used for speculation on asset prices and not as an investment ie real income.
“That’s part of the reason that rental yields have dropped… greater rental supply kept rents low.”
possible, but not necessarily….
The quantity of houses is still the same….if those houses are not rented they are sold to owners, or professional landlords.
Its quite simple, speculation is driving huge debt which is a burden on the real economy….it has to be fixed.
January 27th, 2010 at 12:53 pm
@John Walley: “Conclusion, capital gains, property and land tax, consumption tax are more effective than taxing personal and corporate earnings.”
This is pretty much my conclusion, this is because generally a real business is making something real, asset speculation creates nothing. So to me we should be dropping tax on businesses that make real “things” and raising taxes on anything that doesn’t make anything. Yes ppl can move their capital to a country that allows such asset (property) speculation, but I think here in NZ for one we can see that this is killing our productive economy…bu this is shown to be the same in OZ and the US…
What I can see in here is some ppl blindly thinking their property speculation is making them rich long term, and kicking up a fuss about losing their ability to live off the rest of us. they are no better than GS really, what they are really doing is sucking the life blood of of the real economy short term….as this progresses the sucking gets harder but more intense as there is less real economy left, more greed over worthless assets and more ppl doing so….the result is its going to kill that part of our economy that makes money, has real jobs and makes us wealthy as a nation.
regards
January 27th, 2010 at 9:18 pm
Wealth built around property is a zero sum game with the banks winning every time – seems pretty simple.
Sadly the rules we have made for our jungle encourage people into zero sum activity and tax avoidance as opposed to growing the economy – maybe that will change.
I have to say the comments and discussion on this and other blogs are encouraging, pity the mainstream media subscribe to the “smile and wave” approach