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RBNZ’s Bollard defends inflation targeting; rejects ANZAC dollar; welcomes property tax reforms (Update 4)
January 29th, 2010
Reserve Bank Governor Alan Bollard has defended the bank’s performance through the financial crisis and its use of inflation targeting as its main monetary policy tool, but has said he welcomes reforms to taxation of property to rebalance the economy.
Bollard responded in detail to critics, including Opposition Leader Phil Goff, in a speech to the Canterbury Employers’ Chamber of Commerce in Christchurch. (Update 4 includes links to Economic Weather Report video)
See an Economic Weather Report on Bollard’s speech here on our video page.
Bollard said inflation targeting had stabilised inflation since its introduction with the Reserve Bank Act of 1989, although there remained other macroeconomic imbalances that needed to be addressed with tax reforms to the property investment sector.
Supplementary tools such as the Reserve Bank’s recently introduced prudential liquidity policy could also help act as an automatic stabiliser for the economy that reduces the necessary hikes in the Official Cash Rate during an upturn, Bollard said.
Bollard also rejected suggestions that New Zealand adopt a currency union with Australia or use a Singaporean-style policy to control the currency and capital flows, arguing they could have worsened any imbalances.
He said inflation targeting had worked to stabilise inflation, but some other imbalances remained.
“Inflation targeting has done well on the price stability front, and has given central banks a lot of flexibility in helping steer the economy through turbulent waters. However, in itself, it has not guaranteed balanced growth or macroeconomic stability,” Bollard said.
He went on to say:
In taming inflation expectations, the inflation targeting framework has removed a major source of economic volatility. It has also allowed for active macroeconomic stabilisation in a broader sense. Most notably, once the global financial crisis hit, we were able to respond with significant policy easing swiftly, cutting the OCR by more than 5 percentage points and providing banks with emergency liquidity at rates consistent with the OCR, at a time when the international wholesale funding markets were severely impaired. We were able to provide this degree of support because the inflation targeting framework allowed for a flexible response, and inflation expectations were well anchored.
However, the extent of the financial crisis makes it clear that inflation targeting monetary policy has not been sufficient to guarantee comprehensive macroeconomic stability. Recall the decade or so from the second half of the 1990s to the late 2000s that many commentators called the ‘Great Moderation’ or the ‘Goldilocks’ economy, when many economies experienced an extraordinarily long stretch of unbroken strong growth. Even then, we continued to see large movements in commodity prices, house prices, interest rates, and exchange rates. There were also significant shifts in the composition of growth, from the traded to the non-traded sector, and big increases in household and external indebtedness.
Some of these changes were structural, such as the rise in the global demand for agricultural and other commodities from the late 1990s onward, or the surge in migration to New Zealand in the early 2000s. Some of the price movements were beneficial in helping the New Zealand economy adjust to those changing conditions. But we also saw growing economic imbalances, and the commodity and asset price rises in the years leading up to the financial crisis were among the hardest challenges faced by central banks over the past 20 years.
The Reserve Bank had also been able to ‘look through’ a quadrupling of the oil price in US dollar terms.
The rise in house prices posed an even greater challenge. When any asset price rises sharply in the context of subdued overall inflation, monetary policy needs to decide whether to raise interest rates now – even though inflation pressures are subdued – to prevent potential asset bubbles that might have deleterious consequences later. In New Zealand, while we do not ‘target’ house prices, we have been able to identify a clear link between the housing market and broader household spending, and have therefore always monitored the housing market as an important indicator for the inflation outlook.
However, in an environment of low perceived risk, willing capital markets, and widespread expectations of capital gains, short-term interest rates turned out to have only limited leverage over housing activity. The difficulty was exacerbated by a tax system which favoured investment in housing, and by expansionary monetary and exchange rate policies in the major global economies which fuelled a global carry trade. Thus the NZ dollar appreciated while mortgage rates remained relatively low until quite late in the piece
Bollard went on to reject the idea of an ANZAC dollar, saying it would have caused more imbalances and reduced New Zealand’s flexibility.
The NZ dollar has fallen by over 10 percent against the AU dollar since 2006, a period in which Australia experienced an unprecedented minerals boom and very strong growth. If our currency had been pegged to the AU dollar, New Zealand’s exchange rate to the rest of the world would have been higher, interest rates would have risen three times already, and our recession would probably have been deeper. The argument is even stronger for other currencies, such as the US dollar.
Australia and New Zealand are not the same, but we are far more similar to each other than to Europe or the US. If our currency had been pegged to the US dollar over the past decade, interest rates would have been lower for longer in 2003 and 2004, exacerbating the housing boom (figure 3). Some of the challenges of a currency union can now be seen in Euro area economies such as Ireland, Greece and Spain, where monetary policy settings have been unable to lean against unsustainable domestic booms, or against the deep recessions that followed.
A Singaporean system was also not suitable for New Zealand, he said.
Singapore’s monetary policy regime is sometimes pointed to as an alternative to inflation targeting that has maintained stability in the currency while achieving a track record of low and stable inflation. Over the past two years, of course, this has not been the case, with inflation approaching 8 percent in 2008 and prices falling in 2009. Over a longer period, it does appear that Singapore has generally managed to guide its exchange rate to keep inflation stable.
But a range of special factors made this possible – Singapore’s extraordinarily high trade ratio, its large stock of domestic savings and foreign exchange reserves, and a range of supplementary stabilisation instruments and capital controls. In particular, in New Zealand, with its much larger non-traded sector, a Singaporean regime might potentially have required greater swings in the exchange rate than we actually saw to achieve similar inflation outcomes.
Bollard then went on to encourage the government to remove fiscal stimulus and reform taxation to help him on the monetary policy front.
Achieving both low inflation and balanced growth is considerably easier in an environment of fiscal discipline, and where the tax system is neutral with respect to households’ and firms’ investment decisions. In this respect, a failure to gradually remove the recent fiscal stimulus would put added pressure on monetary policy over the coming period.
We are also hopeful that the recently released report of the Tax Working Group will lead to a more efficient and even-handed tax system. Tax policy is complex and needs to meet multiple objectives. Our concerns are to minimise tax-fuelled property investment and consumption that might detract from more balanced savings and growth.
Bollard then addressed the issue of supplementary monetary policy tools, including either measures to force banks to have stable funding (prudential liquidity) or to force them to put aside more capital for property lending. The Reserve Bank has opted for a prudential liquidity policy (Core Funding Ratio) and is reluctant to go down the capital controls route, he said.
At this stage, we believe that the new liquidity policy and in particular the Core Funding Ratio could usefully contribute to the monetary policy task by limiting the banks’ ability to fuel credit growth using cheap and plentiful short-term wholesale funding during boom periods, as was the case from 2003 to 2007. In this respect, the Core Funding Ratio could potentially act as an automatic stabiliser and reduce the required hikes in the OCR during economic upturns.
The role for a macro-oriented minimum capital requirement in promoting macro-financial stability (as opposed to individual bank resilience), and also assisting monetary policy, is less clear. The relationship between capital requirements and loan pricing is highly uncertain, particularly as the large lenders in New Zealand (as elsewhere) target capital holdings well in excess of current regulatory minima.
At best, these instruments could supplement the role of the OCR, but will not fundamentally alter it. Ideally, they would change the mix of monetary conditions and take some pressure off the exchange rate. Overall monetary conditions would still need to be set appropriately to keep inflation stable.
Here is the full press release with the speech below. We will update this speech with more detail and reaction through the afternoon.
Monetary policy worked well in crisis
New Zealand’s inflation targeting monetary policy has proven flexible, durable and successful, but economic growth requires more than this, Reserve Bank Governor Alan Bollard said today.
New Zealand was the first country to formally target inflation. This was in response to the high inflation and macroeconomic instability of the 1970s and 1980s, Dr Bollard said in a speech delivered to the Canterbury Employers’ Chamber of Commerce in Christchurch.
“It has now been tested through a long period of growth, as well as droughts, migration shocks, terms of trade changes, an Asian crisis, a dot-com boom and bust, and, most recently, the worst global economic and financial crisis seen in generations.
“In terms of what it was directly designed to achieve, namely price stability, inflation targeting has been a relative success.”
Alternative monetary policy frameworks would not have provided the same flexibility to navigate through the crisis, and may in fact have made it harder to maintain price stability while avoiding unnecessary volatility in the wider economy.
“Our flexibility meant that, once the global financial crisis hit, we could respond swiftly, cutting the OCR by more than 5 percentage points and providing banks with emergency liquidity, when international wholesale funding markets were gridlocked.”
Dr Bollard said that inflation targeting works best in conditions where global economic conditions are stable, domestic fiscal and tax policies are neutral, and the financial system is stable.
“We know that our job will in part depend on policy choices made by the major global players as they exit from current stimulatory policy settings. Central bankers around the world are balancing the need to provide ongoing support for a very fragile recovery against the risk of keeping monetary and fiscal conditions too easy for too long.
“In New Zealand, successful removal of the recent fiscal stimulus would ease pressure on monetary policy. We are also hopeful that the recently released report of the Tax Working Group will lead to a more even-handed tax system when it comes to investment and consumption decisions.”
He said the key international lesson from the crisis was that financial instability can cause problems for the real economy. Authorities were now working out ways to strengthen and improve the prudential supervision of financial institutions.
“In New Zealand, the financial system is a lot simpler than in other parts of the OECD, and has not seen the same types of excesses. Nevertheless, we are taking steps to make our banks and finance companies more resilient to financial system shocks.
“In implementing the Basel II capital framework, we have ensured that banks’ assessment of risk is based on a ‘through-the-cycle’ approach rather than just on the most recent period of growth. We have also put in place a new prudential liquidity policy for banks to make the system less vulnerable to a drying up of international funding markets, such as we saw in late 2008 and early 2009.”
Dr Bollard said that, as a small, flexible and full-service central bank, the Reserve Bank is in a good position to be at the forefront of progress in integrated macro-financial policy design.
He concluded that, at best, new policy instruments could supplement the role of the OCR, but will not fundamentally alter it. “Ideally, such instruments might change the mix of monetary conditions and take some pressure off the exchange rate. Overall monetary conditions will still need to be set appropriately to keep inflation stable.”
My view
I agree with the Governor’s comments. I’m no huge fan of an Anzac currency union or Singaporean style currency and capital controls. The more I see of Europe and Asia, the more I think a freely floating currency is a great automatic stabiliser. Greece, Spain and Ireland would kill for our currency regime right now. We also don’t have the savings, the trade-flows or the currency reserves to support a Singaporean style system.
I’m no huge fan of Singapore. I lived there for over a year. It’s a one family autocracy that runs a workforce that is too scared of the first family (Lee Kuan Yew and his offspring) to be truly creative. You can run a currency regime in a culture like that. I don’t think it would work here.
I also agree with Bollard that tax reform for the property sector is necessary to rebalance the economy. Hopefully the Tax Working Group’s proposals, which are politically and fiscally neutral enough to go through, are adopted in the May budget. He’s right too about the government needing to withdraw stimulus, although I don’t think that should be used as an excuse for not raising the Official Cash Rate from its record low of 2.5% sooner rather than later. I sort of wish he didn’t bother commenting on it, as much because it makes clear the separation. I won’t comment on yours if you don’t comment on mine. Mucking around on both sides of the fence muddies the waters.
I also like the Governor’s comments on other tools. The Reserve Bank’s prudential liquidity policy is a sensible (and trend-setting) move to dampen the prospect of another credit boom in housing. It is a handy supplementary tool, but is no replacement for moving interest rates to control the economy.
It essentially forces the banks to raise more money for longer terms and more money domestically to avoid being stung by a freeze on international markets. The upside is that it increases the banks’ funding costs, forcing them into a defacto tightening of monetary policy, but also allowing them to avoid an explosion in rates if markets were to implode again (which is still a real possibility I reckon).
The one area where I differ with the Governor is on capital controls for banks. He’s right that it would be difficult to use as a monetary policy-style lever, but I still think the capital requirements for housing and farming lending are too low. They may yet rise courtesy of the changes being driven through by the Basle Committee. That would be a good thing.
Your view? I welcome your comments and insights below.
Here is the full speech from Bollard:
RBNZ’s Bollard talks on monetary policy
Tags: Alan Bollard, Anzac currency union, monetary policy, NZ dollar, OCR, Phil Goff, RBNZ
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January 29th, 2010 at 1:33 pm
“Our flexibility meant that, once the global financial crisis hit, we could respond swiftly, cutting the OCR by more than 5 percentage points and providing banks with emergency liquidity, when international wholesale funding markets were gridlocked.”
oh right, and how swift did he act when the property bubble start to become evident in 2003? ah he barely budged because he was so scared of hurting their own NZD currency investments! He still does! Bollard is full of s… He’s and arrogant clown and needs firing
January 29th, 2010 at 1:37 pm
He’s boom and bust boom and bust! Clearly he has hardly got a handle on things when that happens as some of our state figures and a record low OCR verify. Such movements reflect a lack of knowledge and a lack of foresight. This is not hindsight talk, this he WAS told but choose to ignore.
January 29th, 2010 at 1:40 pm
“including Opposition Leader Phil Goff”….one of the senior Labour MPs/Ministers who did nothing to give the RB tools to fight problems for 9 years and in fact by over-spending polices made things worse/harder for the RB….and now PhilG’s blaming Bollard? he’s a losser is all I can say…
Plus of course one of the other reasons we are in this state is Labour didnt fix the housing speculation frenzy while it had 9 year to do so…of course Labour MPs and the Labour party was also busily property speculating……was it greed? stupidity? ideology? all of the above?
grrrr…
regards
January 29th, 2010 at 1:51 pm
Steven, what tools are you talking about?
National did not give the RBNZ any new powers either. Prudential liquidity guidelines were introducted by the RBNZ itself, something which it should have done years ago.
January 29th, 2010 at 1:52 pm
@Justice: Bollard is the man moping the mess up caused by the Pollies…boom and busts are considered “normal” business cycles…
regards
January 29th, 2010 at 1:56 pm
speaking of bank lending to res property expanding once again but businesses lending falling , Im about to find out today if my bank is going to lend me some more money to ramp up my accounting/consultancy business. They say they love my business plan and Ive done all the form filling etc – BUT , dear bloggers, how do you rate my chances ? I reckon 50/50 at best…
I will post the outcome
January 29th, 2010 at 1:59 pm
holy guacomoley!!!…… is this the same guy who was in competition with doormice on the “hey you aven’t seen me right” scale………..I canna believe what um readin.
Well presented facts and scenarios/counter scenarios…. this boy has been working over the summer break.
Maybe giving them some stick from time to time (warranted) is healthy or maybe he outsourced the information…? in any case a great start to the year Bolly back from the brink of redundancy and ready to kick some ass…
i’m not sure but the old dog may yet have some teeth…..we will see yes !! go Bolly …down with the bully boy foreign bankers…yah!
January 29th, 2010 at 2:00 pm
@Bruce: The only real tool Bollard has is MPolicy (OCR) to fight inflation…..he has no other official goals or tools……All other economic goals are the domain of the Govn….so if the Govn wanted to hand over another aspect of the economy they need to state it and provide a tool(s) to make that possible…plus of course clear guidelines on which is more important, Mpolicy or that something else in case its found that the multiple goals are mutually exclusive. The new guidelines just help a bit….there has been considerable discussion on whether they are really useful.
Yes I agree National have done little, they might just in the next budget…
regards
January 29th, 2010 at 2:04 pm
Don Brash was years ahead of all his counterparts all over the world, as Governor of the Reserve Bank way back in 1996, when he warned that urban limits were creating a situation where monetary policy would lose effectiveness and become more volatile. This is because the historic “ceiling” for house price upswings, the lower cost urban fringe sections, is effectively removed. Don Brash’s colleague of that time, Owen McShane, actually wrote a report 50 odd pages long on the subject.
In a just and intelligent world, Don and Owen would be on the front page of Time Magazine today and their advice would be sought after by governments all over the world. But no. The Federal Reserve Bank Of Australia is the sole standout today in terms of its wise analysis and advice to the politicians. Our Bollard is way behind where Don Brash was.
Hugh Pavletich’s and Wendell Cox’s latest “Demographia” Report released a few days ago is finally getting some attention from the media and politicians, especially in Australia. Yet the media can still find no lack of “expert” talking heads to say that Hugh is all wrong, urban limits have nothing to do with it.
It was clear as day to me when I first looked into it about 3 years ago, and as the global financial crisis unfolded, that urban limits were the underlying root cause of these housing price bubbles; which had not previously occurred in past times of monetary looseness; AND all the other causes being present in markets without urban limits that did not have housing bubbles at all i.e. Southern and Central USA.
The evidence is overwhelming, yet most of the world is now in a state of the blind leading the blind; lack of attention to the real underlying problem is going to bring our civilisation down. It is that serious.
January 29th, 2010 at 2:05 pm
@ goNZ
you’ve got a snowball’s chance unless you there is res property included in the deal
i’d love to know how it goes though
if they do say no, give them a big serve. their policies actively hurt nz afterall……
January 29th, 2010 at 2:10 pm
Tax reform will not stop these housing bubbles if urban limits remain too tight. The Japanese spent much of the 1980’s raising their capital gains rates in attempts to spike their housing bubble; the rate had to go to over 100% before it actually had that effect; and by then their whole economy was stuffed anyway.
Alan Moran, in “The Tragedy of Planning”, analyses the various markets around the world, which ones had CGT’s, which ones had tax write-offs for property losses, and so on; he concludes that the presence or absence of any of these things has no correlation to the forming of house price bubbles; the sole causative factor is tight urban “planning”.
January 29th, 2010 at 2:12 pm
goNZ said….BUT , dear bloggers, how do you rate my chances ? I reckon 50/50 at best…
I will post the outcome
Dear Go… if all else fails or starts to look unlikley give the secret bankers sign to him…. make a small circle with the thumb and forefinger of your left hand…then take the index finger of your right hand and plunge it vigorously and repeatedly through the circle… wot you have just made…whilst doing this move your eyebrows up and down…. hope this helps !! Oh though a word of warning if your banky boy is in fact a banky girl do not attempt this maneuver as it will result in your probable arrest. Good luck with that!!
January 29th, 2010 at 2:38 pm
Have to agree with BH and Bollard on the ANZAC dollar
BH draws the comparison with Spain/Greece and the Eur, there is a good example closer to home, Aussies ‘poor’ state tazzy..
If anything Tazzy would be far better of going with the $NZ.
Bruce Says:
“Steven, what tools are you talking about? ”
All those tools taken off the NZRB back in the early 90s which caused the housing boom.
The ‘trend’ back then was free market, we just followed the rest of the world…or was it the rest of the world that followed us….The most important was the bank lending /deposit ratios….which this Government has reinstated.
Didnt matter who was running they NZRB, they had their hands tied…..
Like giving a mechanic a 1/2″ ring spanner to to service your car..never mind rebuilding an engine.
January 29th, 2010 at 2:56 pm
I take it , then , that you guys won’t be having a beer with Alan ? C’mon , in all fairness to the guy , Labour’s 9 year spendfest buggered his chances of avoiding booms & busts . And the Nat’s have not slowed the spending juggernaut . They have kept the foot on the pedal , but stopped accelerating it .
And if we slash his salary , as per Goffy’s plan , even big Al might bail on us . Goffy ya mad hoo’a , you’re the sacrificial leader who will be dumped and forgotten after being creamed by Key in the 2011 election . Labour crush the defeated , as per Mike Moore .
January 29th, 2010 at 3:03 pm
Roger Thompson says…I take it , then , that you guys won’t be having a beer with Alan ?
Roger can you get me an invite …?… I don’t think Bolly’s forgiven me yet…
January 29th, 2010 at 3:08 pm
@philBest: Utter rot……urban limits is at best a NZ function and not a global one……removing those limits would just have allowed even more speculation…in NZ….
Lets see some real data/information pointing to urban limits in say the USA. Dont think we will find any, what we will find is that urban sprawl has eaten up fertile land and that the commuting distances are or will become un-econimical with expensive fuel….”Surbubia was a facet of cheap energy, it will go the way of fossil fuels….extinct…
regards
January 29th, 2010 at 3:13 pm
See Morgan Stanley predicting world markets to plumet 25% in developed world markets this year..No surprises there..
January 29th, 2010 at 3:19 pm
As Alan’s summary “The regulatory-induced price burden dashes the hopes of a great many aspiring home owners and has the potential to undermine the social cohesion and property ownership that does much to define us as a community. Reducing the regulatory imposts that are creating these conditions has to be a major priority.”
So a free marketeer / Libertarian again worshiping neo-classical economics that has proven such a disaster….looking desperately for any reason no matter how slim not to throw the failed neo-classical economics and “free markets” ideology in the bin as the disaster it is.
regards
January 29th, 2010 at 3:20 pm
@Mario: the surprise is MS saying so and by how much…..URL pls? and >10% is a depression?
regards
January 29th, 2010 at 3:27 pm
@steven: right on. It’s not like sprawl cities like Atlanta or LA were able to avoid the boom bust cycle, whereas Manhattan came through the bust much better.
If you want to see an example of a city with no planning, go to Houston. I guarantee you won’t be tempted to stay.
This is a good speech. I don’t have a problem with Bollard commenting on the TWG. He’s saying that we can semi-successfully target inflation OR exchange rate, but one or the other will be all over the shop until we implement tax and fiscal policies that reward saving and investment.
The one glaring omission is that there is no mention of regulating minimum LVRs. These should be capped at 75% for property and 50% for shares.
January 29th, 2010 at 3:40 pm
Sydney Banker Says:
January 29th, 2010 at 3:27 pm
@steven: right on. It’s not like sprawl cities like Atlanta or LA were able to avoid the boom bust cycle, whereas Manhattan came through the bust much better.
If you want to see an example of a city with no planning, go to Houston. I guarantee you won’t be tempted to stay.
Now see thats true also………. crikey I must be on acid or in bizaro land cause I’m agreeing with Banky boy on this one…. and dosen’t he (Bolly) look refreshed and a bit dashing to boot….?
January 29th, 2010 at 3:42 pm
I’m not so convinced asset bubbles are as bad as everyone makes out.
Take oil for example races up to $147, then crashes down to $40 or so… The world carried on, we got over it, and frankly it didn’t take long to become yesterday’s news.
When it comes to housing, perhaps we are in a bubble, perhaps we are due for a bubble, or perhaps this is the new normal (personally I believe we have yet to see the real bubble I can see house prices doubling before we see a more spectacular crash next economic cycle). Again does it really matter?
Just evaluate your options, buy if you want to buy, sell if you want to sell, or wait if you want to wait – you are not being forced into any choice, so where is the problem?
I will perhaps say one thing, the housing market should have crashed more – it was supported by policy, but that’s ok, this policy also contributes to the market and is factored in – however next time the policy may note be as capable.
I would actually prefer it if the housing market was more liquid and as volatile as the financial markets, i.e. so it has the same amount of risk, that way “investors” would consider more non-property investments. Perhaps it should be made far easier to buy and sell properties?
January 29th, 2010 at 3:53 pm
Here’s the link to MS’s market predictions…..
http://www.stuff.co.nz/business/world/3276192/World-stockmarkets-tipped-to-plummet
January 29th, 2010 at 4:25 pm
Steven, I agree with the point you make about some of the Pollies, but this statement from bollard:
“once the global financial crisis hit, we could respond swiftly,”
ONCE? what was he waiting for?
January 29th, 2010 at 4:30 pm
The ‘housing boom’ was caused by a number of things here in NZ specifically:
1: too lower OCR for too long
2: increase in migration after 9/11 both kiwis coming home and foriegners thinking this is the safest country in the world
3: Lord of the Rings put NZ on the map big time
4:change to legislation regarding foriegn ownership of NZ land and property
5: NZders ‘keep up with jones’s’ mentality
Anything else to add?
January 29th, 2010 at 4:42 pm
Steven, Sydney Banker;
Read some of the above research. The connection between urban planning and house price bubbles is conclusive. There is no other single factor that explains it. You are confusing the different phenomena of a housing “boom” and a housing “bubble”.
You might mock Houston, but it is near the top of the list of the world’s fastest-growing big cities, along with all the other cities in Texas, and Atlanta, Georgia. None of these cities have had a housing BUBBLE in spite of the pressures of substantial in-migration.
There are 2 acronyms that have become fashionable in the USA in recent years:
“GTT” means “Gone To Texas”
“ABC” means “Anywhere But California”.
Low land and house prices are achievable anywhere. Steven is talking utter rot when he says:
“…….Lets see some real data/information pointing to urban limits in say the USA. Dont think we will find any, what we will find is that urban sprawl has eaten up fertile land …..”
Regions of the USA that have not been afflicted with restricted zoning, have sections for sale at well below 1 years average income.
This would become pretty much an international norm if all people could pay farmland prices for land to live on. Robert Shiller wrote THIS very interesting little analysis pointing this out:
“Unlearned Lessons From the Housing Bubble”
http://www.gulf-times.com/site/topics/printArticle.asp?cu_no=2&item_no=297701&version=1&template_id=46&parent_id=26
The point is that there is comparatively little variation internationally, in what farmland is potentially worth. The returns on farming investments are not going to be a lot different wherever the farmland is. And there is so much more farmland than there is even potential requirement for residential land, that it is impossible for price escalation for residential land to go back to anything like unaffordable levels.
January 29th, 2010 at 4:44 pm
Unlearned lessons from the housing bubble:
Every major country of the world has abundant land in the form of farms and forests, much of which can be converted someday into urban land
Wednesday,17 June, 2009
By Robert Shiller; Professor of Economics at Yale University and Chief Economist at MacroMarkets LLC
“There is a lot of misunderstanding about home prices. Many people all over the world seem to have thought that since we are running out of land in a rapidly growing world economy, the prices of houses and apartments should increase at huge rates.
That misunderstanding encouraged people to buy homes for their investment value – and thus was a major cause of the real estate bubbles around the world whose collapse fuelled the current economic crisis. This misunderstanding may also contribute to an increase in home prices again, after the crisis ends. Indeed, some people are already starting to salivate at the speculative possibilities of buying homes in currently depressed markets.
But we do not really have a land shortage. Every major country of the world has abundant land in the form of farms and forests, much of which can be converted someday into urban land. Less than 1% of the earth’s land area is densely urbanised, and even in the most populated major countries, the share is less than 10%.
There are often regulatory barriers to converting farmland into urban land, but these barriers tend to be thwarted in the long run if economic incentives to work around them become sufficiently powerful. It becomes increasingly difficult for governments to keep telling their citizens that they can’t have an affordable home because of land restrictions.
The price of farmland hasn’t grown so fast as to make investors rich. In the United States, the price of agricultural land grew only 0.9% a year in real (inflation-adjusted) terms over the entire twentieth century. Most of the benefit from land for investors has to be from the profit that agribusiness can make from their operations, not just from the appreciation of the price of land.
Despite a huge 21st century boom in cropland prices in the US that parallels the housing boom of the 2000’s, the average price of a hectare of cropland was still only $6,800 in 2008, according to the US Department of Agriculture, and one could build 10-20 single-family houses surrounded by comfortable-sized lots on this land, or one could build an apartment building housing 300 people.
Land costs could easily be as low as $20 per person, or less than $0.50 per year over a lifetime. Of course, such land may not be in desirable locations today, but desirable locations can be created by urban planning.
Many people seem to think that the US experience is not generalisable, because the US has so much land relative to its population. Population per square kilometre in 2005 was 31 in the US, compared with 53 in Mexico, 138 in China, 246 in the United Kingdom, 337 in Japan, and 344 in India.
But, to the extent that the products of land (food, timber, ethanol) are traded on world markets, the price of any particular kind of land should be roughly the same everywhere. Farmers will not be able to make a profit operating in some country where land is very expensive, and farmers would give up in those countries unless the price of land fell roughly to world levels, though corrections would have to be made for differing labor costs and other factors.
Shortages of construction materials do not seem to be a reason to expect high home prices, either. For example, in the US, the Engineering News Record Building Cost Index (which is based on prices of labour, concrete, steel, and lumber) has actually fallen relative to consumer prices over the past 30 years. To the extent that there is a world market for these factors of production, the situation should not be entirely different in other countries.
An even more troublesome fallacy is that people tend to confuse price levels with rates of price change. They think that arguments implying that home prices are higher in one country than another are also arguments that the rate of increase in those prices should be higher there.
But, the truth may be just the opposite. Higher home prices in a given country may tend to create conditions for falling home prices there in the future.
The kinds of expectations for real estate prices that have informed public thinking during the recent bubbles were often totally unrealistic. A few years ago Karl Case and I asked random home buyers in US cities undergoing bubbles how much they think the price of their home will rise each year on average over the next ten years. The median answer was sometimes 10% a year.
If one compounds that rate over 10 years, they were expecting an increase of a factor of 2.5, and, if one extrapolates, a 2000-fold increase over the course of a lifetime. Home prices cannot have shown such increases over long time periods, for then no one could afford a home.
The sobering truth is that the current world economic crisis was substantially caused by the collapse of speculative bubbles in real estate (and stock) markets – bubbles that were made possible by widespread misunderstandings of the factors influencing prices.
These misunderstandings have not been corrected, which means that the same kinds of speculative dislocations could recur.”
January 29th, 2010 at 4:47 pm
The underlying cause of all this, is urban limits being unnecessarily restrictive, so that property developers have to take part in a bidding war for the available land, and /or finance ownership of it for years before they actually do the development. This is why council planners can say they release “enough” land to satisfy growth, yet prices are far too expensive.
$250K for a section is racketeering, given historical norms and the cost of farmland just over the urban limit. In the USA, there are still thousands of jurisdictions with loose enough urban limits, that the price of sections relates directly to that of farmland, plus development costs, plus a fair profit. The comparison with the prices in urban limit regimes like NZ and California, is around ten to twenty times. Enough has been written on this by Hugh Pavletich, Arthur Grimes, Don Brash and numerous overseas authors.
Ian Abley of “AudaCity” in the UK, is actually attempting to get an “illegal settlement” movement underway in protest against all this, having lost patience for political-legal reforms that will not happen because of incumbency. I must admit a good deal of sympathy for this approach. Imagine a well publicised movement presenting the prospect of thousands of young people getting $5,000 sections outside the urban limits, which cost could go up by $10,000 or $20,000 if services were provided. The $200,000 plus premium involved in the status quo, is almost ENTIRELY a “planning tax” or rather, the result of a “cap and trade scheme” in urban land……”
http://www.newgeography.com/content/001261-there-no-free-market-housing-solution
January 29th, 2010 at 4:52 pm
Where Bollard fails the biggest is on the ‘when’ to move the OCR. He is either too late or too early. Our economy has some ‘monster’ problems which were created on Bollard’s and the labour Governments watch. Phil Goff is a hypocrite
January 29th, 2010 at 4:52 pm
@Sam Smith
I would actually prefer it if the housing market was more liquid and as volatile as the financial markets, i.e. so it has the same amount of risk, that way “investors” would consider more non-property investments. Perhaps it should be made far easier to buy and sell properties?
For this to happen the factor of wannabe owner/occupiers would need to be removed as they underpin the market due to a lack of housing. To this we need a whole more housing. If the rental market only included those who wanted to rent then the market would be a lot more volatile.
I don’t buy the lack of land excuse for lack of urban development. Nz is relatively deserted and even Auckland is a small city by world standards; we could certainly handle more housing development.
The other option is to turn off the immigration tap.
Unfortunately this would badly expose NZs poor GDP growth per capita so the government is not likely to do it.
January 29th, 2010 at 4:55 pm
Why property price bubbles, nearly everywhere, at this time? There have been numerous periods of monetary looseness in the past which have led to bubbles in the share market. I would argue that every potential property price bubble in the past was avoided in time by construction booms, other than in the UK , obviously. (There is a difference between house construction booms and house price bubbles that is being confused by many commenters today). But the 1980’s and 1990’s were marked by the advancement of environmentalism and urban limits and planning and land use rationing. Just as environmentalist mismanagement of forestry policy has finally had to be blamed for unprecendentedly destructive forest fires in California and Australia , I think it is high time that the true blame for the housing bubble crises was directed that way also.
There are only a few developed countries today that have not had house price bubbles: these include Canada, Austria, the Czech Republic, and Germany. Pro-development policies seem to be central to these countries successful avoidance of these bubbles. Contrast the UK; since their Town and Country Planning law of 1947, they have had no less than four of the world’s historically worst house price bubbles, including the current one. One wonders whether, now that these issues have become equally consequential for so many other countries as well, the penny will drop at last.
The English economist Fred Harrison has written copiously on the phenomenon of business cycles dominated by house price bubbles, using the UK experience to develop his theories. He has been credited with correctly predicting the latest one. Yet even he seems to have missed the point that these bubbles were unique to the UK until such time as other countries instituted similar land rationing policies.
Way back in June 2005, in “The Mystery of Britain’s Missing Recession”, Fred Harrison got everything right, except the role of land rationing. If you want to understand the mechanisms of how inflated house prices (consequent on land supply being regulated unwisely) “stimulate” an economy, and increase debt, this is a “must-read”.
http://www.dailyreckoning.co.uk/economic-forecasts/the-mystery-of-britains-missing-recession.html
Here are some excerpts. Bear in mind he is writing this in June 2005:
“How did Britain avoid the 2001 recession that ensnared other countries? Recessions followed after each of the post-war periods when real house prices rose above the level of real household disposable income – in 1972, 1979 and 1987.
Britain’s manufacturers did suffer a recession. Total output of the economy rose by over 5% from the end of 2000 to the end of 2003, but manufacturers had a different story to tell. They suffered a fall in output of over 5% in that period. The 6.7% rate of return on their capital (2001) was the lowest since the trough of the recession nine years earlier, in 1992.
So how did Gordon Brown guide Britain through the global turbulence of these years to avoid the embarrassment of a formal recession for the whole economy?……
“…….The clues are to be found in the financial sector. Gordon Brown sponsored a classic Keynesian pump-priming operation. This time, however, there was one peculiar difference. Instead of accepting responsibility for managing the economy, he shifted the burden on to ordinary families…….
“…….Instead of increasing taxes and/or public debt, to finance investment in infrastructure – to create jobs and sustain growth – he presided over the growth of a record level of personal indebtedness. By July 2004 that debt reached a staggering £1 trillion. To underpin this indebtedness, a blind eye had to be turned to inflation in the housing market.
If the business cycle had played out in the way that we would have predicted on the basis of historical trends, the price of houses would have deflated in 2001-2. This would have been the outcome of a mid-cycle recession. Instead, under Gordon Brown’s stewardship, the residential sector was allowed to bubble. This set new benchmarks for prices: the next housing bubble would have to inflate to stupendous levels before finally collapsing and driving the economy into the Depression of 2010.
But in the meantime, Britain’s consumers were on a spending spree. They borrowed like there was no tomorrow to finance the purchase of luxury goods, holidays in exotic locations, new cars, and improvements to their homes. Following the election of New Labour in 1997, consumption grew faster than output, with retailers sucking in imported goods to make up the difference. Between 1999 and 2001, consumption grew exactly twice as fast as Gross Domestic Product (GDP). Unsecured consumer debt rose at an annual average rate of nearly 11% over the five years to 2004. While Gordon Brown preened himself with declarations about his virtuous ‘prudence’ in handling the nation’s public finances, he sanctioned private bingeing that undermined the culture of thrift. Britain’s consumers would Spend, Spend, Spend the economy out of the recession before anyone noticed! They spent more on their credit cards than the rest of Europe put together. By 2003 those credit cards were loaded with a debt of £120bn. Shoppers in the other 14 nations of the European Union (EU) spent just £45bn between them.
The financial and psychological key to the spending spree was an out-of-control housing market. With every percentage increase in the capital gain on their homes, owners felt wealthier if not wiser. They withdrew equity at record rates so that they could buy the luxury goods that created the trade imbalance between Britain and the rest of the world. They also borrowed more to ‘trade up’ to more valuable properties – the home-owner’s way of speculating in the capital gains of the future……”
January 29th, 2010 at 4:57 pm
In many countries, opportunist politicians and media are using the crisis in the USA as a scapegoat for what are actually domestically created troubles, for which the mechanism is identical to that of Britain as described above, and California – regulatory land rationing followed by a house price bubble, which monetary policy, taxation, and finance law becomes increasingly impotent to control. Ireland and Spain are among the worst cases, along with the UK. Hugh Pavletich, one of the authors of the Demographia survey, has been pointing to the Gold Coast of Australia, now the least affordable housing market in their survey, as the next California in the making, with potentially disastrous consequences for the Australian economy.
Time will tell whether more attention should have been paid to this issue sooner. If the land supply issues are not resolved, we can expect these massively destructive bubbles to become regular cyclical economic fixtures just as share market bubbles have been for a long time but without the same destructive effects. House price bubbles are much more destructive precisely because they affect almost everyone, they involve much greater sums of money, and very much greater assumption of household debt, whether for purchase of a home or for collateral-based spending.
A lot of analytical literature fails to distinguish between house price bubbles, and house construction booms. The latter has happened regularly before, but the current bubble in house prices is a different and altogether much more damaging phenomenon. A boom that involves an oversupply of new homes actually keeps prices low throughout, and brings about its own demise as customers fail to materialize. A house price bubble, though, absent a supply-side vent, is self-perpetuating right up to the point at which it brings about collapse of the whole economy. “Land banking” and similar capture of available land by investors, can and has resulted in price bubbles even in the face of authorities releasing “enough” land for population increase based demand. It would seem that either a totally free supply in land, or “performance based planning” as Hugh Pavletich aptly describes it, based on actual prices, not bureaucratic calculations of supply requirements, is necessary to avoid this phenomenon in future.
January 29th, 2010 at 4:58 pm
GTT…….. dam I thought that was an acronymn for Gun Toting Troglodites……I knew that californian wuz lying.
Anyhoo Phill…. I think Banky boy said you wouldn’t want to live there and I agreed….. no mockery intended.
January 29th, 2010 at 4:59 pm
PhilBest Says:
January 29th, 2010 at 4:47 pm
The underlying cause of all this, is urban limits being unnecessarily restrictive,
Correct, and the blame should be put on councils/government for that.
Rather than a CGT the government should look at taking control of public land access/pricing and only offer a subsidy say to first home buyers. Such a move would drop house prices across the board as people moved away from renting. good or bad idea?
January 29th, 2010 at 5:07 pm
Sorry, some of what I am saying above isn’t making sense because my FIRST comment is stuck in moderation. THIS is “the above research” I refer to, minus all the “links”. I should have omitted them in the first place and posted them later.
PhilBest Says: Your comment is awaiting moderation.
January 29th, 2010 at 4:31 pm
Who’s talking utter rot?
I have read, and recommend to you, the following. How well read are you on this subject?
All the “Demographia” Annual Reports, including the latest one.
Bob Day: “The Tyranny of Planning”
Wendell Cox and Ronald Utt: “Don’t Regulate the Suburbs: America Needs a Housing Policy that Works”.
Alan Moran: “The Tragedy of Planning: Losing the Great Australian Dream”.
Those who insist that factors other than land use rationing, such as taxation treatment of housing, are responsible, should look at page 54 onwards, (page 61 of the PDF) where Moran gives analysis charts of these factors across a number of countries that have experienced housing bubbles.
Oliver Marc Hartwich and Alan Evans: “Unaffordable Housing: Fables and Myths”
On page 17 is a graph of previous house price bubbles in the UK . The UK just happens to have had land use rationing decades ahead of everyone else. They have also had devastating house price bubbles decades ahead of everyone else; they just never seem to have got the connection.
Oliver Marc Hartwich and Alan Evans: “Bigger Better Faster More: Why Some Countries Plan Better Than Others”
Germany has policies of funding local government which are powerful incentives to development and construction. Consequently, Germany has not had a house price bubble other than in a few locales where local anti-development sentiment was strong enough to survive the cost impact of consequent loss of funding. They have had a nationwide 1990’s construction boom and subsequent depressed property prices which are frequently misinterpreted as a “bubble”. They do not, however, have huge increases in household debt backed by the “faery gold” of house price inflation, and subsequent wipeout of equity bringing the whole banking and finance system down. Germany can honestly say that the impact on their economy is spillover from outside their borders. Just about no other country can say that, including NZ and Australia.
Randal O’Toole: “How Urban Planners Caused the Housing Bubble”:
Edward Glaeser and Joseph Gyourko: Rethinking US Federal Housing Policy”
Edward Glaeser, Joseph Gyourko, and Albert Saiz: “Housing Supply and Housing Bubbles”
Alain Bertaud: “The Costs of Utopia”
Bertaud analyses why urban limits, where they have been in use the longest, such as in Portland, have actually driven up the average commute lengths because the pattern of higher density development has been distorted. Traditionally, higher density development took place on the more valuable land closer to a city centre – Bertaud shows several graphs of cities where the population density “profile” is normal: highest in the centre and gradually reducing out to the fringes.
But in Portland, the land has been forced up so high in price that anyone who might want to live at higher densities simply cannot afford the prices that “inner area” high density homes end up having to sell for. The result, aided by first home buyers desperately seeking the “least unaffordable” option, is that the higher density development is taking place at the urban fringes! Look at the graph on page 12.
I have read many other papers by Alain Bertaud HERE:
The Bertaud study’s conclusions are repeated in this one by Randal J. Podenza of “QuantEcon” in Portland itself:
“Smart Growth and its Effects on Housing Markets: the New Segregation”
January 29th, 2010 at 5:08 pm
What is interesting is alot of the advice Bollard takes comes from his meetings and discussions with the US FED. And what a great job they have been doing(sarcasm)
January 29th, 2010 at 5:13 pm
Q: What is the point of looking at finance graphs from 1980-2010 and ‘comparing’ data when the fundamental finance laws have changed over that period so much?
It’s like watching a game of rugby in 1980 and then putting the same players together on the same pitch with the ‘new’ rules in 2010 and STILL expecting the same score result!
January 29th, 2010 at 5:26 pm
“Justice”, thank you. Someone using their brain at last, or at least someone who isn’t being motivated by vested interests/existing investments/unwise property purchases or pre-rational Green religious ideology.
Do read my 4.57PM comment and see if you agree with my conclusion re solutions: “…..either a totally free supply in land, or “performance based planning” as Hugh Pavletich aptly describes it, based on actual prices, not bureaucratic calculations of supply requirements”.
I have no faith in “government control of land access and pricing”. Our problem already is, ideological capture of government bureaucracies by pre-rational “green” religious ideology. This just happens to provide a convenient alliance for NIMBYists and vested interests to block reform. Those vested interests unfortunately now include all existing mortgagees who do not want their equity eroded by a managed fall in property values; and their creditors in the banks and the finance industry.
Ian Abley and I have a lengthy discussion about this HERE:
http://www.newgeography.com/content/001261-there-no-free-market-housing-solution
I have already taken up more than my fair share of space, but I could say a lot more about just how wrong the “planners” and the Green ideologues are. They illustrate as well as any historical example, the way mens fatal conceits regarding what they can and cannot do and “plan”; lead to unforeseen consequences that are the exact opposite of those originally intended. The “planners” in the former USSR did it; now OUR planners are following the same wrong assumptions about resource consumption, urban form, and transport.
Bob Day says it succinctly in the above essay I refer to:
“……The case for urban consolidation has been advanced on the back of a number of arguments – namely, that it is good for the environment; that it stems the loss of agricultural land; that it encourages people on to public transport; that it saves water and energy; that it leads to a reduction in motor vehicle use, and that it saves on infrastructure costs for government. All of these claims, I repeat, all of these claims are false. The facts and evidence from around the world refute each and every one of them.
Urban consolidation is not good for the environment; it doesn’t stem the loss of agricultural land; it doesn’t encourage people onto public transport; it doesn’t save water or energy; it doesn’t lead to a reduction in motor vehicle use, and it doesn’t save on infrastructure costs. In fact building brand new infrastructure on the fringe is significantly cheaper than renewing or upgrading old infrastructure in the inner suburbs that was not designed for higher density living…..”
Having read all the research listed above and then some (I haven’t listed any of the Transport Studies, just some of the Housing ones), I confirm that Bob Day’s assertion is well founded.
January 29th, 2010 at 5:40 pm
Justice, I agree 100% about the US Federal Reserve. As I said in my first comment, the Aussie Reserve Bank people are the stand-outs; they leave the Yanks for dead in their grasp of these issues. Check out what Glenn Stevens and Anthony Richards have been saying. LIKE:
“…..In principle, the price of housing should be close to its marginal cost, determined as the sum of the cost of new housing construction, land development costs, and the cost of raw land. In the absence of any restrictions on supply, the price of raw land on the fringes should be tied reasonably closely to its value in alternative uses, such as agriculture…
“……Both economic theory and international evidence suggest that housing prices can be boosted by land usage policies (which can create artificial scarcity of residential-zoned land), problems with the complexity of the development process (which creates rents), and the fees and charges imposed on development.18 Accordingly, the fact that higher prices for housing have not resulted in a more significant supply response could be a reflection of various supply-side costs that have represented a wedge in the cost of bringing new housing to market.19
This suggests that the run-up in real housing prices may not be fully explained by demand-side factors and that supply-side ones – especially policies on land usage – may also have played a role. Of course, this is not to argue that all policy intervention in the land market is inappropriate, but rather that the benefits from zoning regulations, growth boundaries, infrastructure charges, etc should be weighed against any costs in terms of higher housing prices…….”
January 29th, 2010 at 6:02 pm
“He’s saying that we can semi-successfully target inflation OR exchange rate, but one or the other will be all over the shop until we implement tax and fiscal policies that reward saving and investment.”
I agree with him….he can only chase one target…primarily…its upto ther Govn.
regards
January 29th, 2010 at 6:11 pm
@Justice: “once the global financial crisis hit, we could respond swiftly,”
“ONCE? what was he waiting for?”
Hindsight is great….its 20/20…the economy was over-heating due to the price of oil flowing through, I remeber reading that $200 or $300 was possible, then it all collapsed very quickly. Later I read some economists who with graphs showed that every time oil got to 4~6% of GDP in the last 60 years we went into a recession….Bollard was not alone in being caught a bit flat footed, look at Treasury a year ago….their report had a worst case that we exceeded….ie worse still…I wasnt surprised, neither were others…but it was an semi-educated guess……
When you look at NZ consider just how bad many other countries are….relatively speaking we are in good shape….
regards
January 29th, 2010 at 6:24 pm
@Philbest & Justice. Totally free land supply? How many houses would Peter Jackson need to ‘photo-shop’ out of his movies if we had a free land supply? That “green” religious ideology is saving these views from whatever style urban expansion you profess will solve the problem! I for one do not want NZ to turn into England! I’ll rather rent the rest of my life due to high prices than see NZ get savaged by endless residential housing developments.
Keep up the rant though.
FYI, those lengthy ‘cut and paste’ jobs slow the page to a crawl…
January 29th, 2010 at 6:42 pm
“None of these cities have had a housing BUBBLE in spite of the pressures of substantial in-migration. ”
Try looking at how far their house prices have collapsed and how far they could still collapse….they are in a bubble, whats happened is a mad house building period where many will now lose their shirts.
Yet more failed economics….
“But we do not really have a land shortage. Every major country of the world has abundant land in the form of farms and forests, much of which can be converted someday into urban land.”
and where do we grow crops? when energy is expensive? sprawling surburbia has eaten up productive land in the USA, its going to become worthless. This guy has lost the plot he sees everything as coming down to dollars…it does not, it comes down to energy….dollars/money are proxys for energy. ie at some point the money you have eventually buys you energy….
High house prices are the result of specualtion and crazy building by so called developers who are really specualtors gambling they can seel it quick….its laissez faire run amok and left a huge mess…
PhilBest at at 4:42 pm and again at 4:44 pm
Re: Robert Shiller’s piece I dont read it the same way, to me he’s commenting on their is a problem, he doesnt lay it at [bad] urban planning…given Ive read some of his work I think you are taking it out of context. What he is saying is ppl will find a way around urban planning…
“The sobering truth is that the current world economic crisis was substantially caused by the collapse of speculative bubbles in real estate (and stock) markets – bubbles that were made possible by widespread misunderstandings of the factors influencing prices.”
He’s saying its a collapse and ppl have mis-understood…
“These misunderstandings have not been corrected, which means that the same kinds of speculative dislocations could recur. -”
Its speculation and greed driving up prices its a self-feeding frenzy….
“You might mock Houston, but it is near the top of the list of the world’s fastest-growing big cities”
and so? who cares how fast its growing? so yes actuially I do mock it….I lived in London and commuted for ten years…I left for better…a lot better.
One of the reasons I like NZ cities are the urban belts….it makes them worthwhile to live in.
Ppl are stupidly speculating in housing rather than businesses, take away the tax advantages and that goes away….or remove urban restrictions and we get lots of houses built very quickly that nobody will want ie a over-supply…which will lead to the classic bust with a ruined environment to boot.
regards
January 29th, 2010 at 7:01 pm
Short memories….the housing bubble here and in the rest of the world was caused primarily with unrestricted lending to those who could not afford it, and pollys lifting old fashioned financial principles 1:2 ratios.
In the States it was call Subprime….
And if you lend to if you lend to people who are high security ..Sry Very high security risk, it cant go on forever, something has to cave in….
A bubble is only a bubble after it has burst, and the lending bubble burst, housing was just collateral damage.
January 29th, 2010 at 7:05 pm
I am bemused that Bollard would believe Key’s lot have any intention of altering course. What matters to national is staying in power…not putting the economy on a growth path…that bit was the blather, the humbug, the BS aimed at the peasants.
Property remains seriously unaffordable and if National have their way it will stay that bloody way.
They showed their hand when the cabinet raised the welcome home to greater debt loan limits by a massive amount. It was only the warning from S&P that stopped the fools from following Rudd in giving handouts of other peoples money to first home buyers. Make no mistake, they would have done this.
So now we have Bollard waiting waiting waiting….and still bloody waiting for the govt to end the property game. The same govt that is using every trick they can to suck in immigrants and wealthy property investors.
I think you will be waiting a very long time Alan.
January 29th, 2010 at 8:21 pm
I agree National would have followed Aussie down first home owners grants if not for S&P. It made too much political sense at the time (for a politician) i.e. massive immediate gains in employment and general happy youngsters (paying less in mortgage than renting in the first year)… getting ripped off in the end but who cares about the long run, right?
@steven. They will use hydroponics to grow their crops of course. Problem solved. PhilBest and Justice will back me up here: we are far superior than nature at growing crops. *(Phil) Cough!
January 29th, 2010 at 8:26 pm
http://www.landlords.co.nz/blog/property-investment-rules-to-change-forever
January 29th, 2010 at 9:03 pm
Luke, Steven.
Britain and California and Germany are all roughly 15% urbanised. Simply allowing “Urban sprawl” would result in maybe another 2-3% of their land being urbanised. Germany probably will, the others currently will not.
NZ is 2.2% urbanised, and allowing urban sprawl would result in maybe another .3% of our land being urbanised. Even more ridiculous statistics apply to Australia.
NZ has more actual land in Lifestyle blocks than in Urban development; so there’s another 2.5% odd of our land mass that presents Peter Jackson a problem.
Instead of grumbling about the length of my postings, why don’t you actually read them and learn something other than Greenie LIES. The earth is in no danger whatsoever of being paved over.
The COSTS of NOT allowing “Urban sprawl” are many many times greater than the most optimistic alleged benefits from it. And even these alleged “benefits” do not stand scrutiny.
January 29th, 2010 at 9:23 pm
What a crony monetarist finger puppet indoctrinated piece of crap. In modern banking the reserves have followed the overlending of credit by the monetising of further govt bonds by incorporated investment bank/ primary bond dealers. These increased reserves they talk of are a confidence trick as “virtual” as the “virtual” money/credit they are supposed to back:
http://www.georgewashington2.blogspot.com/2009/09/if-credit-is-not-created-out-of-excess.html
As for the inflation they have supposedly successfully targetted, check out the methodology used, housing not fully included in CPI for one. If the basket of goods used contained only the necesities of live that effect the low earning majority most and includeded housing, what do we think “real” inflation would be?
As for messing with core funding ratio’s, unless you completely match the lenghth of borrowing with the length of lending, it is not the answer and only a distraction.
This is no better than a bunch of standover men trying to keep the hold of fear over those in their patch.
January 29th, 2010 at 9:33 pm
WOW.
PhilBest and Iain Parker on the same billing……
Thank you……
Once again….. the little boxes aren’t worth it……
January 29th, 2010 at 9:33 pm
steven Says:
January 29th, 2010 at 6:42 pm
“None of these cities have had a housing BUBBLE in spite of the pressures of substantial in-migration. ”
“Try looking at how far their house prices have collapsed and how far they could still collapse….they are in a bubble, whats happened is a mad house building period where many will now lose their shirts.
Yet more failed economics….”
Steven, YOU try looking at the facts. I am well acquainted with them; what you are giving us is Greenie propaganda.
California, which is YOUR Urban Planning poster child, is responsible for about HALF of the USA’s $4 trillion of destroyed capital. This is the result of median multipliers going from 3.5 to 8.5 in ten years (in spite of stagnant net migration) and then back to 4.5 (still not “affordable”) in 1 year. $350,000 houses going to $1 million and then back to $450,000. New sections being $350,000 when a fair price would be a tenth of that.
Texas; about $200 million of destroyed capital; which probably would not have happened without California dragging the entire US Mortgage Finance market under. Median multipliers ranging between 2.7 and 3.0 during periods of high net in migration. New sections consistently available for $30,000, new houses for $180,000 total. Older houses in older areas nearer the urban center available for $80,000.
In California or NZ or most other countries where there are severe urban limits, these older run down houses in older areas are costing over half a million dollars, 95% plus of which is land value. And your type has the cheek to expect wage slaves to live closer to work, when your policies have pushed the prices of houses that these people used to routinely buy for a song, waaay out of their reach?
January 29th, 2010 at 9:34 pm
You are comparing Big Al Bollard to the ” Godfather ” ! Bit of a stretch there , Iain . Like the first sentence ; it would look brilliant on Wally’s bumper : What a crony monetarist finger puppet indoctrinated piece of crap . Awesome . So you’ve seen his truck ?
January 29th, 2010 at 9:39 pm
Steven also says:
“……remove urban restrictions and we get lots of houses built very quickly that nobody will want ie a over-supply…which will lead to the classic bust with a ruined environment to boot…..”
Steven, I have explained that the amounts of money lost when a construction boom collapses, are only a fraction of the losses when a PRICE bubble bursts; and a boom has provides many practical economic benefits wheras PRICE bubbles are economically destructive even in their expansion phase.
January 29th, 2010 at 9:42 pm
I THINK I agree with Iain Parker so far in his comment above;
Iain, you might be interested by Ian Abley’s arguments HERE:
http://www.newgeography.com/content/001261-there-no-free-market-housing-solution
January 29th, 2010 at 9:45 pm
To allow private interest to issue the worlds money/credit base as interest bearing debt is like allowing a pharmaseutical company to keep charging a fortune for a treatment that does nothing to alleviate the uncomfortable symptoms of a cancerous disease yet all the while they have possessed the cure, but if they cured the disease their profits would plummet as their snakeoil cures would become surplus to any requirement.
January 29th, 2010 at 9:51 pm
Steven, the misunderstandings that Robert Shiller refers to, that have not been corrected, are the beliefs that countries like England are “being paved over” and we are somehow going to run out of farmland to feed humanity if we build too many houses. These misunderstandings are what leads to urban limit policies being politically and democratically acceptable; if the people are given enough factual knowledge, they soon would not be.
You blame developers for buying up land speculatively. What are they supposed to do if they are to stay in business, and the next few years worth of land that is allowed to be built on has been arbitrarily specified by the planners?
Arguments from the “planners” that they are releasing “enough” land, reminds me of the Car Import License Auctioning scheme the government ran in the early 1980’s. They auctioned “enough” licenses for NZ’s historic market requirements; but did car prices have to go UP or WHAT? It ended with the car market and several big importers collapsing when car prices got to more than people could even pay.
Exactly the same has been done with urban land today.
January 29th, 2010 at 10:00 pm
Iain Parker,
I argue the following with Ian Abley, (link to thread above) who talks like you.
“…….I think that the situation you describe, where workers are somehow paid less than the value of their work, due to the power of capital holders over them, is in one sense an anachronism. Joseph Schumpeter in “Capitalism, Socialism and Democracy” describes very well the increasing disparity between this Marxist theory and reality, as full employment is reached in a developing economy.
I do not think that people in modern first world economies are still paid “less than the value of their work”, other than in comparatively small degrees and isolated instances, as the result of State and Trade Union interference in free markets. You yourself say, 100% accurately, that the period prior to your infamous 1947 Town and Country Act, was one in which home ownership was a practically attainable goal for the most, even low income earners. It still was a practically attainable goal in Australia, NZ, and the USA, until the same urban planning mania seized hold there too. It still is a practically attainable goal in the “non progressive” States of the USA. This is all watertight evidence, to my mind, that true free markets do not at all conform to the Marxist myth of exploitation of the proletariat.
The things that you blame “Capitalism” for, I blame Statism and Socialism. But you are right that the labels are pointless. The problem we are discussing is State interference in free markets, whether the State has been captured by a “Big Business” conspiracy or by a leftwing “Long March through the institutions”. I incline to the latter…..
“……..You are concerned, like me, at the grip that lies about the environment have on the public, lies that have been completely debunked over and over again by people like Julian Simon, Bjorn Lomborg, Indur Goklany, George Reisman, Steven F. Hayward, and Patrick Moore. I am entirely accustomed to these people being condemned by Leftwing activists, as “stooges of big business”. I think you see Greenpeace as the stooges of big business, and in a sense I agree with you. But I see the Left as the drivers of all this, and the moneyed funders of the likes of Greenpeace and all the other society-weakening grievance industries, as the suckers. (I think you see the moneyed funders as the main drivers and the lefty activists as the suckers). You see these lies as initiated by big business for their own advantage. Yet I see them as maintained only by the Left’s grip on the education and media institutions.
Environmentalism is just one facet of all this. I mention grievance industries and bureaucracies. Almost ALL the various bureaucracies follow litanies, mostly derived from the grievance industries themselves, that are every bit as false in their derivation as the environmentalist litanies are.
I think the consistent political solution to all this, is small government libertarianism – in fact, the USA as its founders intended is about the best we can do. Texas is probably the closest to it today, and happens to be the easiest place in the world where anyone can get themselves housed and mortgage free. I find the antagonism to this suggestion, from leftists who are intelligent enough to break out of the litanies and admit the real problems, inexplicable; and am left wondering whether functioning and obviously beneficial free markets are in fact their worst fear rather than the evil manipulated markets……”
January 29th, 2010 at 10:02 pm
“The Governor of the Bank of England has admitted he is ’surprised’ that rising house prices are not included in the official inflation figures, according the BBC.”
http://www.thisismoney.co.uk/news/article.html?in_article_id=422580&in_page_id=2
January 29th, 2010 at 10:12 pm
Steven, there is no comparison between Houston and London. London has severely unffordable housing caused by urban planning and yes, Green belt preservation. Houston has genuinely free markets and affordable housing. Most people appreciate affordable housing; what are you, some modern day Marie Antoinette? (“let them eat cake”).
Long commutes are the result of urban planning that has zoned businesses and homes miles apart from each other. More flexible uses of land and multi nodal development actually results in the outcomes that planners who impose urban limits and long commutes, THINK they are trying to achieve; i.e. shorter commutes and high quality of life.
Where is the consistency in loving Green belts, concrete block high intensity living, and mass commuting; and despising quarter acre sections with trees and gardens?
One of the commonest but least understood contradictions of Green advocacy, is this. In the advent of depleted resources and scarce, expensive energy, most inner city jobs will simply cease to exist. We might condemn the extravagance of the advanced US economy, yet we completely fail to recognise that millions of bureaucratic and paper-shuffling jobs simply cannot be supported by a leaner, simpler, “Green” economy. All those workers have to be fed, clothed and housed; and these things have to be provided by millions of other humans for whom inner city living is impossible.
Not to mention the sheer unaffordability of high density downtowns for the most people. Not only do the inhabitants of Manhattan have jobs that would not exist without the extravagant, complex US economy, they earn the highest incomes in that economy. Manhattan actually represents the same sort of elitism as the ancient castle in which the nobility lived, surrounded by peasants who did the dirty work necessary to sustain the inhabitants of the castle in their utopian existence. When the peasants were forced by enemy action, to abandon their low-density living, the castle could not survive for long.
Furthermore, inner city living itself will become impossible in the brave new world of scarce resources. The same factors that will make free use of private vehicles less feasible will also apply to public transport. If we really do have to confront such a crisis, we will be forced to resort to freely mixed uses of land. The transport necessary for the support of modern living, particularly for the supply of food and necessities, will no longer exist; neither will the supplies of affordable electricity.
In the brave new world of depleted resources, what makes sense? Living in a wholly separate house with its own plot of surrounding land, where you can burn biomass to heat your home, cook on a barbecue, hang washing on a line, grow your own vegetables and fruit trees, collect rainwater, compost your own waste and recycle “grey water”, keep fowls or even a sheep or two, and have solar panels all over your roof and a wind turbine in the back yard; and buy produce from nearby small farms, vineyards and cottage industries? Where does living in high density inner city blocks of flats, or catching trains, fit in to this picture?
January 29th, 2010 at 10:27 pm
In a recent reply from Bill E to an official info request I put, he admitted all new mortgages, that is before they become transferable and tradable, are written into existance, creating new money/credit in the banking system. Thus given that the rate of interest charged is supposed to represent the risk of someone loaning someone else their hard earned savings for a period of time, how the hell do they justify anybody having to repay 2-3 times the principal when it was created as a debt book entry. Think of the impost this has been upon the common peoples of developing nations as they built there mod con dwellings and how much the benefit to them has been stolen.
Given that B E also admits that in excess of 90% of the money supply enters circulation as interest bearing debt owed to the banking network, if someone who borrowed 100,000 principal to build a house, then actually managed to pay back the 2-300,000 mortgage including the compound interest attached, they have actually removed 300,000 from the money supply, meaning others in the system are going to come up short, and the only means they have of staving off impending foreclosure is seek further borrowings, we are pitched into shit fight for survival that very few can win due to the impost of such usurous interest charges. 300,000 paid back on a borrowed principal of 100,000 is a simple interest rate of 200%.
You boys have got me talk’n far to long, I got to get some zzzzzz’s ready to get back on that hamster wheel again early in the morn, nobody get me wrong, I don’t mind hard work, I just get pissed at seeing less and less visable advancement for it, wiped out by the greatest tax of all, the privately owned debt based monetary system.
Good luck to you and your families.
January 29th, 2010 at 10:55 pm
Justice, what happened was the RBNZ was hiking rates reasonably quickly in 06-07, so much that we were up with the highest in the world.
The problem was as his rates were going up the banks rates were going down because they were getting so much cheap money overseas.
This has been addressed by the capital requirements the RBNZ has brought in.
But there are other reasons our property prices are so high, as mentioned in the article.
January 30th, 2010 at 5:52 am
Lost me there with your math , Iain . From my limited perceptive , under FIAT monetary systems , every debt issued is counter balanced by someone’s savings ( i.e. China ) . So to alleviate the risks of buying that debt ( inflation / default / etc . ) a market place auction determines a rate ( interest % ) of return . I win / You lose sort of thing .
So how do you figger that 100 000 enters the munny supply , and 300 000 leaves it . You got my 100 000 to play with , I got your I.O.U. for that amount , and an ongoing interest payment from you , which added up to 200 000 . Where’s the loss from the system ?
January 30th, 2010 at 7:12 am
@Phil Best
Thanks for your posts. I have long thought that it is the ideologies of the technocrats who infest local and central government bureaucracies that are the source of a lot of our problems. I am no advocate of completely free markets, sometimes there has to be some regulation but each case has to be carefully judged on its own merits. In this country we often expect “the guvmint” to sort out a problem, forgetting that the solution they come up with may make other problems far worse or create new ones
When central or local government sets out to do something, the ideologies referred to above come into play. They are nothing more than trendy values fused with a flawed understanding of human behaviour, picked up during the recipients formative years in secondary and tertiary education.
Regarding Allan Bollard, his comments have the wisdom of 100% hindsight. As I have commented before, as RBNZ Guv’ner he has been an abject failure, for two reasons that I can see. First, the job needs someone who can look accurately far enough into the future to act and shape that future. Bollard is reactive and his own comments show this. Second, the job needs a truly independent thinker, not an ideologue. The two previous governors, Don Brash and Spenser Russell, were strong characters who you knew would strongly resist any political pressure on the decisions that they made. They also thought for themselves, which for bureaucrats is rare. Bollard was (is) a career bureaucrat, he was a poor candidate to begin with. He may be a nice guy but that is irrelevant. A complete bastard who doesn’t care what anyone thinks would probably be more suitable.
Peace to you all.
January 30th, 2010 at 7:47 am
@PhilBest,
While it is true that urban planing had an effect on the housing market in the US. It was only a catalyst in driving prices higher in those areas that had urban planing laws.
The underlying cause was low interest rates and relaxed lending standards, due to the removal of risk from the parties involved in making the loans via the creation of MBS.
The only factor that determines the price of housing is the amount of money the bank is willing to loan an individual. If banks in California had looked at peoples incomes they would of rejected the persons loan and no house would of been sold.
January 30th, 2010 at 8:34 am
Yes DavidC, and that also applied in NZ, the Gov/Banks removed the require 15/20% savings deposit, approved 100% loans and the boom slowly built from the mid 90s thru to end 2007…
And yes it was supply and demand..not of land but the money to freely speculate.
I dont think of money as a means to and end, but rather as a commodity to the end.
Like this..think of money as the post hole borer.
I want to build a fence, I can buy a post hole borer….Or I can hire a post hole borer.
If I have a lot of holes it could be cheaper to buy a borer, and it is in my savings a/c ready for the next fence
Or If hire it is money down the drain as ‘interest’ and have no ’savings’
The balance of choice depends on how many holes I need to dig now and how many more in the near future.
January 30th, 2010 at 8:40 am
shucks Iain
the link from your post provided me with a good laugh…
“Economists expect the Bank of England to raise interest rates to 6% by September, something that could prove a problem for some homeowners struggling with large mortgages”
How wrong those UK economts of June 2007 were. They did not even recognise they were on the very cusp of a very messy bubble burst that would see variable (floating) mortgage interest rates plummit to 2.3% with in 18 months and yet home owners still struggling in the face of falling wages, falling house prices and rising unemployment.
That said I agree with you, house prices (and wages) should be reflected in the official inflation figures – on the way up – and on the way down. It’s the only way younger generations are going to halt their being consumed by the legacy of those that came before. The only incomes that have gone up in the UK are pension entitlements. Grey power spending will be the only way out of the mess now. God help us!
January 30th, 2010 at 8:51 am
Hi Roger,
Try this video:
http://video.google.com/videoplay?docid=-515319560256183936&ei=ZDtjS_CyCoSKqQOZncjlAw&q=the+money+masters&view=3&dur=3#
Also this guy has a new documentary out called ‘The Secret Of Oz’
January 30th, 2010 at 9:50 am
@Luke: “They will use hydroponics to grow their crops of course.” You miss two points here….
Read up on how Cuba grows their crops,
1) its virtually all organic…they have to because they dont have the Ngas to make fertilizer, we will face that problem, hydroponics needs fossil fuel it wont be cheap so it will have no advantage. Its not bad it means that instead of pumping up tomato sauce with 10%+ of indigestible but cheap corn syrup, it will have real tomatoes in it…
2) Distance transport, it will no longer be a trivial or marginal cost, urban sprawl pushes farming out further increasing costs. MAny cities are where they are because they had fertile land around them….so thats being converted to housing….
3) Processing energy, we use 10 calories of energy to produce and deliver 1 calorie of food….hydroponics uses lots of energy which is not going to be a trivial cost moving forward, organics will be cheaper.
January 30th, 2010 at 9:54 am
@Sam: “Take oil for example races up to $147, then crashes down to $40 or so… The world carried on, we got over it, and frankly it didn’t take long to become yesterday’s news.”
How shallow….Try telling that to the huge number of still un-employed….the auto industry in the US for instance…or the ppl who have lost their homes or their pensions….it might be of no import to you, but a high % of the world’s population is not in a happy place.
regards
January 30th, 2010 at 10:03 am
@PhilBest: “The underlying cause of all this, is”
Energy….or its cost. and its lack of supply…
When you look at the numbers of ppl living in dwellings it has decreased, when you look at the size of dwellings they have increased….we are spreading out, we dont need to…indeed its the low cost of energy that allowed that and thats a thing of the past.
Energy isnt going to be cheap ever again so wasting it on large houses and commuting (whether food commutes or ppl) isnt going to make economic sense….yes its possible we will see collapses to $40 again….it wont stay there….the old average price was $20~30US its now likely to be $80US (ignoring inflation)…
Also moving forward cost to live is going to be much higher, instead of 10%? of income going on food, we will shift back to the historical norms. This means the sprawl you now are advocating isnt going to be affordable….
Then there is the roading projects like Transmission gulley….an oversized cycle track inside of two decades.
regards
January 30th, 2010 at 10:14 am
@Justice: again 20:20 hindsight…..”He is either too late or too early.” How accurate is economic planning? Look at Treasury forecasts, they have a mean or most likely then an upper or lower bound and the spread (probability) between those gets wider the further forward you project…then consider that Bollard has to allow for the lag of I think its 18months? because of NZers high liking of fixed term mortgages….
Go back to Dec08, the Treasury was still getting the economic outlook badly wrong…I thought that they were too optimistic…but Im an amateur…they are also blinkered by their neo-classic economics…disbelief that their world order could go so badly wrong.
So today using a crystal ball Bollard has to guess where inflation will be in 18months? and move the OCR today….
Also add in that the fixed term mortgages seem to come in groups….ie there are not say 30 households coming off and/or going onto fixed terms every month….some months or years there are more or less, this also effects the impact of the future OCR…
Ive been taking a great interest in things economic for maybe 3 years….what I have seen is that so called professionals get it more wrong than right…
regards
January 30th, 2010 at 10:22 am
DavidC,
I no longer believe that argument has any validity. Central Reserve Banks are always going to be raising and lowering interest rates to stimulate the economy or to combat inflation. But the presence of urban limits mean that housing bubbles will form at the drop of a hat and will continue to inflate, as long as interest rates are kept even COMPARATIVELY low. You can’t blame the US Fed’s 1% rate for the Californian housing bubble when NZ develops a similar housing bubble with 3% – 4% rates.
Don Brash and Owen McShane were right way back in 1996. Urban limits have resulted in the OCR’s effect becoming fatally distorted. Every shift in the OCR is increasingly volatile, because the factors that affect the housing price bubble are completely different to the factors that affect the real productive economy where goods and services are produced. If the Reserve Bank’s job is to raise the base interest rate to contain house prices, they will kill the entire productive economy in the process.
If houses are escalating in real value at 10% per year because of land supply failure, what level of base interest rate is going to stop this? Then imagine you’re a manufacturing exporter, and ask yourself how long you will survive with interest rates that high.
The Aussie Federal Reserve governor and his key men have their heads screwed on. When they are criticised for raising their base interest rate, they point to the bubbling and boiling house price expectations and say in effect, “reform land supply, and we can safely lower interest rates again. Until then………” No other Reserve Bank has “got it” to this extent. But Don Brash had it back in 1996.
January 30th, 2010 at 10:29 am
Steven:
Did you read my post at 10.12PM? It is not “urban sprawl” that will be unaffordable when energy “runs out” (an absurd suggestion anyway) or becomes too expensive. It is high density living and office jobs in high rise buildings.
Cuba is a slum, directly comparable with Calcutta and Bombay. But there is more hope for Calcutta and Bombay because they do not have totalitarian brutes running the show, and people have some freedom to scramble to personal betterment. Both you and Castro need to read “The Mystery of Capital” by Hernando DeSoto. There is no WAY that “Slumdog Millionaire” could have been set in Cuba.
January 30th, 2010 at 10:41 am
steven Says:
January 30th, 2010 at 10:14 am
“………How accurate is economic planning?…..
“……Ive been taking a great interest in things economic for maybe 3 years….what I have seen is that so called professionals get it more wrong than right…..”
I AGREE. Now if you could just read a bit of Hayek, Von Mises, Schumpeter, you might get an epiphany. Your argument above is the classic argument for the free market; not for more government intervention. No-one gets it more wrong than bureaucrats; if Wall Street is wrong you can bet the bureaucrats will be even wronger, every time.
The sceptic like me will always find the fingerprints of bureaucrats and politicians all over the cause of every economic crisis. The incurable Leftist will always blame “free markets” and call for more bureaucratic intervention. Which will bring new problems, I promise you.
The ultimate bureaucratically planned and run economy, is North Korea.
Look at the various crises that hit Wall Street when Ronald Reagan was President. No bailouts; yet the world didn’t come to an end. On the contrary.
Bailouts, once they start, tend to be habit forming, to the worse. This rot really started under Bill Clinton.
January 30th, 2010 at 11:45 am
Amen to your last post PhilBest. Got it in one.
January 30th, 2010 at 11:53 am
Phil
Free markets are the answer to this, and we haven’t had those for at least a couple of decades – unfortunately every time in response we borrow, print money, bail-out, and stimulus. If only we could let the free markets punish the losers and reward the successful, rather than the other way round as we seeing in spades in the likes of the US and UK….the pain would be more mild and evenly spread across the years, rather than hitting massive brick walls that threaten the whole system which is still the situation today
January 30th, 2010 at 12:09 pm
@Philbest
You can’t price fix the cost of borrowing. Central banks and central bankers are always the root cause of all boom and bust cycles.
When a central bank sets the price of borrowing via interest rates they instantly distort the market and always begin the process of creating bubbles. Alan Greenspan had been doing this in the US for the last 20 years and Helicopter Ben is continuing it.
“Central Reserve Banks are always going to be raising and lowering interest rates to stimulate the economy or to combat inflation”
Since the central bank is the cause of the boom and bust cycle and inflation I totally reject your statement. Go read about the Austrian business cycle theory.
Of course cheap credit is not what allows someone to buy a house for $400,000 on a $70,000 wage with 0% down. It is the loan officer who works for a loan originating company, he/she processes the loan it could be a stated income loan (No proof of 70,000 wage). This is then sent to a bank which approves it then the mortgage is hopefully sold on to one of the GSE’s who then packaged it into a MBS which is sold after being rated AAA to CALPERS or the chinese or some other “Smart” investor. Nowdays the “Smart” investor, CALPERS, Chinese have been replaced by the Federal Reserve which last year accounted for 70% of all the MBS.
Either the US central bank is going to prop up the US housing market for ever or the US housing market is going to crash even more this year. If you watched the SOTU on Wednesday then I think the president wants the Central bank to prop up the US housing market for ever.
“If houses are escalating in real value at 10% per year because of land supply failure, what level of base interest rate is going to stop this? Then imagine you’re a manufacturing exporter, and ask yourself how long you will survive with interest rates that high.”
real value at 10%???? there is no such thing as real value or fake value or philbest’s magic value. There is only value. If houses are increasing in value at 10% per year, either wages are increasing at 10% per year or lending standards are reducing. If urban planning laws are creating restrictions and wages are flat then the only way houses in this area will sell is because there are reductions in the lending standards.
Note the above is EXACTLY what happened in CA. The correct response should have been no changes in the lending standards. This then would of created legislative pressure to fix urban planning laws.
Lending standards were reduced all across the US, so even in the areas that had no urban planning laws people who should not have been getting mortgages were still getting them and are now in foreclosure proceedings as a result. Texas is still in the top ten for mortgage defaults as are many other states. According to you Texas shouldn’t be having any problems paying for them. Of course what happened in Texas was that because their were relaxed urban planing laws developers built lots of houses which were sold thanks to reduced lending standards to people who couldn’t afford them. These people are now and will continue to default on these loans completely irrespective of urban planning laws. The only difference is that in California the urban planning laws resulted in even more relaxed lending laws and therefore even more losses for the GSE’s
January 30th, 2010 at 12:45 pm
Bollard has taken to believing in the tooth fairy….”Bollard then went on to encourage the government to remove fiscal stimulus and reform taxation to help him on the monetary policy front”….Haaaaaaaaaaaaarhahaha
January 30th, 2010 at 12:49 pm
DavidC; you’re an Austrian theorist. Good on you. That puts you ahead of 99% of other pundits. I strongly agree with Gold standards and genuinely free markets in banking and credit.
I meant “real value” in the sense of “adjusted for inflation”; sorry this was not clear. I get you completely, you’re preaching to the converted here. You are right about the reductions in lending standards, but I still maintain that the reductions in lending standards are subsequent on the price pressures caused by supply restrictions; partly because of political interference and partly because of competitive pressures. I agree that developers and banks should have just abandoned California 10 years ago. (Hugh Pavletich chose to retire early – he deserves credit for this). But in the real world……..
Now tell me; what is it about a Gold standard that would prevent a bubble from forming in any commodity in which supply has been cornered or restricted? Look at the history of bubbles and speculative manias. Plenty of them go back to the Gold standard era.
The Austrians do the best job of anyone at identifying bubbles that others cannot even see. But if Ludwig Von Mises was to come back today, I think he’d point out to his followers that there are factors that tend to stabilise or destabilise market prices besides the presence or absence of a gold standard.
January 30th, 2010 at 1:11 pm
A further point, DavidC; regarding the difference between low income earners in Texas getting to buy homes, and what happened in California.
There is a world of difference between a dropout low income earner or beneficiary getting a $40,000 loan, or a $60,000 or $80,000 to buy a cheap old home in Houston or Atlanta; and yuppies in California borrowing $1,000,000.
In California and NZ and other urban limit models, part of the “logic” for bank mortgage lending is that the value of the home will continue to inflate, providing more equity for the buyer and more security for the bank. I know this can’t last; but I can’t say I predicted 4 years ago that it wouldn’t – I wasn’t even taking any notice of the issues back then. But far too many people in NZ still are in the mindset that it could last and still should be lasting. I am fighting that thinking as hard as I can.
But no lender in Texas or Georgia provided mortgages in the expectation that the mortgaged home would double in value in 10 years. This of itself means that lending standards are higher. I believe the banking system in such markets could easily handle defaults and mortgagee sales with a minimum of lost capital. The amounts of money involved are so low and the underlying economic situation, growth, employment etc, is strong. Contrast California and NZ, where the price bubble situation is like a cancer diverting blood flow away from the vital organs (I am quoting Gareth Morgan in the latest “Listener” here).
I would say that without California precipitating the crisis, Texas could have gone on business as usual. As it is, California is responsible for $2 Trillion in wiped out capital (and still rising) and Texas has lost perhaps $200 million and stabilised. We are talking about houses in California that were worth $350,000 ten years ago, went to $1 million, and crashed to $450,000 (and are still not “affordable”); in Texas, it was $150,000 houses that went to perhaps $180,000 and back to $150,000 and never went above the 3.0 median multiplier in the process (while California went to 8.5).
Another consideration here, is that the Rust Belt in the USA now has areas with median multipliers of well under 2.0; but Britain has areas that have had higher unemployment, for longer, and house prices there remain unaffordable, 4.5; 5.5; and stuff like that – just because of sheer undersupply, and while carpenters and labourers who could be building new houses are on the dole with everyone else. DUH. All for the sake of some pre-rational Gaia god religion.
January 30th, 2010 at 1:37 pm
Crooked Thumb at 7.12 am;
Thanks for the comment. Hugh Pavletich wrote a good article a few weeks ago entitled “The Curse of Politically Engineered Research” in which he likened the out-of-control bureaucracies in Climate Science and those of Urban Planning. I say it is a lot worse than that. I say that this sort of thing infests Education, Criminal Law, Social Policy, and Health, to name but a few.
Theorists like Hayek, Schumpeter, and Von Mises are being proved abundantly right, to those who have eyes to see it, about the nature of bureaucracies. Hugh Pavletich draws on the much more accessible, but no less right, C. Northcote Parkinson. I would also point out that a lot was written by the Founding Fathers of the USA about human corruptibility and the need for checks and limitations on the powers of the government’s personnel.
We seem to be trapped in the absurd political rationale that while business men and ordinary men need to be micromanaged to death by the State, any bureaucrat will, by virtue of the office he holds, be an incorruptible saint and a philosopher king.
January 30th, 2010 at 2:57 pm
“Now tell me; what is it about a Gold standard that would prevent a bubble from forming in any commodity in which supply has been cornered or restricted? Look at the history of bubbles and speculative manias. Plenty of them go back to the Gold standard era.”
In answer to your first question, nothing. A good example of a restricted and cornered commodity is diamonds, the market in totally controlled and the supply is restricted which helps to drive the price higher. However Why don’t the diamond companies make people pay 1million dollars for a 1 ct diamond. The reason is that the price for anything is not determined by the seller but rather the buyer. The seller(the diamond company) can restrict supply but only to a point that the buyer will still buy them.
Bubbles occurred during the gold standard however they all involved fiat credit. Every last one of them. A true gold standard doesn’t allow a bubble for the very simple reason that gold can’t be created out of thin air.
January 30th, 2010 at 3:32 pm
i”When energy “runs out” (an absurd suggestion anyway) or becomes too expensive.”
Energy will always be around the problem is the quantity and the price…so no and I dont believe I said “runs out” what I have said is un-affordable and scarce ie probably rationed.
“It is high density living and office jobs in high rise buildings” High density living is quite doable in an energy scarce environment its a question of which cost you pay…energy cost to ship food a long way and peal small quantities off as you pass ie have urban sprawl or ship shorter distances and in large quantities….the latter is probably more sustainable.
“Your argument 8><—- is the classic argument for the free market; not for more government intervention."" No it is not quite the opposite…private enterprise and free market has proven to be un-sustainable and un-controllable.
"No-one gets it more wrong than bureaucrats; if Wall Street is wrong you can bet the bureaucrats will be even wronger, every time."
I have yet to see Wall Street or free markets get it right, in fact the opposite, indeed free markets cant react to [any severe] energy shortages [or events] in time as they dont plan ahead enough for long enough time periods.
What the Wall Streeters do is once the business is bankrupt (sucked dry of short term profit and laoded with debt) sell up and move on…Govn’s cant do that…
Bureaucrats are controlled by those we elected and quite often have to function within the political restraints / ideology and this is especially felt when Govns are extremist/fundimentalist….Bush's administration is the latest example, however there are equally useless example on the left…..
I have read enough of Libertarian views to know that is not a society I want…indeed it is no better than, and just as extreme as "The ultimate bureaucratically planned and run economy, is North Korea. " It may even be worse just we have no real world examples.
regards
January 30th, 2010 at 3:41 pm
“The Curse of Politically Engineered Research” in which he likened the out-of-control bureaucracies in Climate Science and those of Urban Planning.
Spoken like a true free market fanatic….cant accept real science or research so label it political and fight it with lies….
I dont think you will ever get it….you cant lie to ppl and twist facts and expect them to believe you…..you get caught out with the truth.
Ultimately ppl get to choose their society this is the choice they make…if its semi-socialist that is the power of the ballot box.
regards
January 30th, 2010 at 4:15 pm
HeaVY reading chaps………. whew knackered….. Fiscal permutations aside…
The notion that something is “worth” what “someone” is willing to “pay” for it is an ideology that would need to be addressed by both bureaucrats and free marketeers alike….
You see the common thread is always greed ,it affects every decision and the “rules” will always be enforced or altered to suit the desired outcome……… and no ammont of geniuses on this blog will make a rats ass difference…………you know the old “if you can’t beat em..?
January 30th, 2010 at 6:56 pm
Roger T. Given clarity around the maths and two things will become clear. Increasing the OCR to “fight” inflation is an absolute crock, and interest represents wealth transfer that can only be paid for out of growth. A wealth transfer to the banking system.
The $100,000 principle is created out of nothing, a book entry. A fact. Many authoritative sources confirm this (google “the mind is repelled”). When it’s paid back the money disappears back to where it came from, back to nothing. The interest payments have to be sought by the borrower, so the $200,000 in interest has to be other freshly created money and is extracted from the real economy and paid to the banks. This can (only) paid for out of growth, or if there is no growth it causes inflation. Hence the reason why everyone calls for growth as the solution to economic malaise.
So why increase interest rates in response to inflation when clearly it should be reduced is there is a problem with inflation.
The other way to confirm this is to consider what would happen if money was gold. You borrow a one ton of gold from the bank to build your house and you agree to pay back 3 tons. If one ton was the sum total of gold in the system when you borrowed it you are relying on someone digging up another two tons so you can earn it to pay it to the bank. The one ton of principle that the bank owned in the first place is back with the bank (debt cancelled). The two tons of new gold had to be found by the borrower (which is fine, by the way, provided that lender and borrower agreed to the terms up front eg. I understand that I am going to work for you for three years, one of them to pay the principle and two to pay the interest but for the “rules” to be changed mid stream is so wrong eg. if we ever see a return to interest rates around 12 to 15% as the banking system fights for survival, and do the sums on that to work out how many years you are working to the benefit of the banks).
January 30th, 2010 at 8:10 pm
DavidC,
I am sorry to be disagreeing with you because there are lefties and greenies on here who need the attention of both of us. But when you say,
“…..A true gold standard doesn’t allow a bubble for the very simple reason that gold can’t be created out of thin air…..”
I don’t agree. A bubble can still occur simply by people using their gold to buy a particular supply-restricted item at ever-inflating prices rather then using their gold for something else. The only difference between this and the current FIAT setup is that the total amount of FIAT money is higher, but the ratio at which part of the available money (whether honest gold or inflated paper money) is being malinvested will be similar. The rate at which the productive part of the economy will be bled, will be similar, and an economic collapse can still be the result.
Your illustration using diamonds is good – it is straight out immoral for governments to effectively do the same with the very homes that people live in. And homes and property are possibly the one thing that a price bubble in, will involve total sums of money big enough to destroy an economy. This is not the case with diamonds, or shares, or oil.
January 30th, 2010 at 8:46 pm
As an addendum to PhilBest comment at 10:41 a.m. I would proffer the NZ Labour Gumnut 1999-2008 . Until they blundered into power , our taxation system was ticking over quietly . The voting public had no pressing issues with it . Cullen’s constant meddling and additions got us into our current mess . Bureaucratic piss-arsing around with something that whilst not perfect , was a damn sight better than the hideously deformed monster they turned it into .
January 30th, 2010 at 8:52 pm
@ Steven:”Bureaucrats are controlled by those we elected”. Next you will be saying that MPs write their own legislation. Politicians may have broad policies they wish to implement but the devil is always in the detail, controlled by the technocrats who advise, and present the options (THEIR options) to the pollies. To suggest that the technobureaucrats somehow manage to jettison their own values and beliefs while they do their jobs is ridiculous and shows a fundamental misunderstanding of cognitive processes.
I am no libertarian but am keenly aware of the threat to human freedom posed by the growing tyranny of unelected technocrats who are 100% sure they know what is best for the rest of us. Steven for you to say that a libertarian society would be as bad as, say, North Korea, shows me only that you have never lived under a reign of terror. Have you forgotten who built the Berlin Wall, and why? While you’re at it I suggest you read The Diary of Anne Frank. I hope her testimony may alter your views.
@Phil Best. Agree with your mention of the Founding Fathers. Their prescience shows hard-earned wisdom that we would do well to reflect on.
The marriage of liberty and democracy is not always harmonious but for humanity to have much of a future these two have to learn to resolve their conflicts, each knowing that they cannot long survive without the other.
January 30th, 2010 at 8:56 pm
Steven:
“…….High density living is quite doable in an energy scarce environment……”
Disagree 100%. High density living AND WORKING will be impossible to fund in an energy scarce environment. See mine of 10.12PM yesterday. Not that I think we are ever going to have an energy scarce environment by any other means than “Green” obstruction of progress, like a self fulfilling prophecy.
“…….No it is not quite the opposite…private enterprise and free market has proven to be un-sustainable and un-controllable.
“No-one gets it more wrong than bureaucrats; if Wall Street is wrong you can bet the bureaucrats will be even wronger, every time.”
I have yet to see Wall Street or free markets get it right, in fact the opposite, indeed free markets cant react to [any severe] energy shortages [or events] in time as they dont plan ahead enough for long enough time periods……”
This argument reminds me of what Winston Churchill said about democracy; “the worst form of government except all the others that have been tried”. Come ON, you can’t seriously claim that bureaucrats have EVER made “less bad” predictions than free market operators?
“……..What the Wall Streeters do is once the business is bankrupt (sucked dry of short term profit and laoded with debt) sell up and move on…Govn’s cant do that…”
What Wall Streeters can’t do, is run things at a loss for decades and bleed the taxpayer for the shortfall. Like virtually every SOE everywhere in the world at every point in history.
“……..I have read enough of Libertarian views to know that is not a society I want…indeed it is no better than, and just as extreme as “The ultimate bureaucratically planned and run economy, is North Korea. ” It may even be worse just we have no real world examples……”
Very convenient, eh, no real world examples. Mass murderers like Stalin, Mao and Castro get excused for “meaning well”; while Ayn Rand and her followers get condemned without ever having lifted a pistol in their own cause. However, there is enough evidence for the success of “freer” markets versus less free ones. Ronald Reagan refused to bail out Wall Street and they had to learn from their mistakes, and no recession happened. Quite the opposite.
January 30th, 2010 at 9:03 pm
steven Says:
January 30th, 2010 at 3:41 pm
“The Curse of Politically Engineered Research” in which he likened the out-of-control bureaucracies in Climate Science and those of Urban Planning.
“Spoken like a true free market fanatic….cant accept real science or research so label it political and fight it with lies….”
EHHHH? Threatened prosecutions hang over crooked scientists and bureaucrats as we speak, and you’re still trying to circle the wagons? Read the Climategate emails for yourselves, everybody, and stop letting the IPCC play you for fools. THIS analysis is very well done, in chronological order and with background information supplied.
http://www.assassinationscience.com/climategate/
Crooked Thumb responded admirably to your naive ideas about bureaucrats.
January 30th, 2010 at 9:07 pm
Fred, under a gold standard, the price of everything in gold, actually drops as productivity and the total of goods in market circulation increases. This is one of the historic criticisms against it.
I remind people of this every time central bankers who have run out of ammo at 0.1% base interest rates, start talking about NEGATIVE interest rates (fair dinkum….!). They could always go back onto the gold standard.
January 30th, 2010 at 9:37 pm
“Threatened prosecutions hang over crooked scientists and bureaucrats”
URL?
January 30th, 2010 at 9:40 pm
“Read the Climategate emails for yourselves.”
I have, they are meaningless….they are no smoking guns….no conspiracy….they dont change the science one bit, they just show human beings inter-acting.
In terms of prosecutions the only thing ive seen is the Police are investigating the break in…
You should re-call that Watergate was Nixon breaking in to look for advantage, instead he found his downfall.
regards
January 30th, 2010 at 9:45 pm
Ive already read “John P. Costella” not impressed….he is an improvement on the usual quality of the deniers but marginally at best. Maybe you should consider just how little traction climategate has got…..its really the death throws of the George C. Marshall Institute and Fred Singer…
regards
January 30th, 2010 at 9:48 pm
“Steven for you to say that a libertarian society would be as bad as, say, North Korea, shows me only that you have never lived under a reign of terror. Have you forgotten who built the Berlin Wall, and why? While you’re at it I suggest you read The Diary of Anne Frank. I hope her testimony may alter your views.”
Any extremist state and in this I include a Libertarian one is no better than another…Yes the Nazis were evil, Yes Stalin, Yes Mao….
January 30th, 2010 at 9:48 pm
Hey Bernard
Screw you with your property hating yap. You have your own head stuck somewhere where there is no light. Get it into your head – New Zealander’s don’t need you or the government to tell us where to put OUR hard earned money. Print that. And get off your Prop Inv high hate horse… For gawds sake, if we followed everything the Government said we, (some of us maybe not you), should do, we would be down and out broke.
January 31st, 2010 at 2:57 am
………hmmmmmmm , I take it that you own a rental or two , Robert ?
January 31st, 2010 at 7:56 am
Bleeding heck RT…2.57am….
Back to a clean slate you lot.
Great little ‘Minsky’ article from BH in the Herald today. Noddyland is dying due to its debts and the fools in charge think spin and BS will save it. It has been almost 18 months since these fools crossed the floor in the House. Instead of throttling the property bubble, these idiots threw petrol on the fire and made sure the RBNZ tossed in plenty of dry wood as well.
Up went the welcome home to greater debt loan limits….up went the ‘welcome to buy’ message aimed at wealthy foreigners because the Fools know the loot will prop up the bubble….up went the ‘immigrants wanted’ signs because the same Fools think more immigrants means growth.
Has anything changed for the better?…according to the BS and spin the recession is over…if you believe this you are a complete friggin nutcake. The mountain of stinking debt with ‘household’ all over it, remains and the Fools are borrowing a billion a month to make it bigger.
January 31st, 2010 at 8:03 am
Our copper plays are falling into a hole , Wally . Time to shift to summit more profitable , and endorsed by gumnut ministers ………….Let’s get into the rental housing market !
The Chinese plan to slow their economy is killing commodities . But if they don’t slow down , they’ll get to 14 % GDP growth . ………. So they’re aiming for ” only ” 8 -10 % growth ………… Anyone recalling NZ achieving summit close to that , since 1642 ?
January 31st, 2010 at 8:56 am
Interesting to suss out the causes RT. A Greek tragedy and the Spanish debt disease brings out the fear and the rush is on for the ’safety’ of the US toilet paper. Meanwhile China carries on harvesting the surpluses and organising growth that has the same people who screamed for a Chinese stimulus, screaming for them to stop! Go figure.
Truth is the 4 billion in the growth economies cannot proceed without the commodities…so I expect the market to turn back up once the morgan stanleys and the goldmans et al have placed in their longs and arranged to sing a different tune.
January 31st, 2010 at 9:23 am
Robert,
Yap, Yap, Yap, Capital Gains Tax, Yap, Yap, Land tax, Woof, Depreciation on buildings banned, bark, bark, Yap, Yap, Growl, Capital Gains, Yap, Bark, Grrrrrr
cheers
Bernard
January 31st, 2010 at 9:30 am
WALLY at 7.56AM.
You SAID it, man. I’ve been saying that on blogs since Wall Street first started having problems, and pretty much given up in despair. Kiwis mock at Wall Street and yet fail to learn the lessons from it that apply to them. How much thicker than Wall Street and mortgage-security investment Yanks does that make Kiwis?
I resurface occasionally and mount the same arguments again to see if there is any more sense out there yet.
January 31st, 2010 at 9:39 am
“Threatened prosecutions hang over crooked scientists and bureaucrats”
http://www.timesonline.co.uk/tol/news/environment/article7004936.ece
Everyone: read the Climategate emails for yourself, and decide if Steven, the IPCC, and “New Scientist” magazine have ANY credibility at all.
http://www.assassinationscience.com/climategate/
I could say a lot more but it is not Interest.co.nz’s metier to host Climate Change debates. Kiwis are waking up, in spite of the “mainstream” media pissing in Al Gore’s pocket. Have you seen any poll results on this subject lately? No, the media are too embarrassed to publish them.
January 31st, 2010 at 9:46 am
Robert:
RRROOOOARRRRR; Iceland; SSNAAAARRLLL; Ireland; GRRRRRROWWWLLLLL; California; RRRROOOAAARRRRR; Greece; GRRRRRR; Spain………….CHOMMPPPPP; NZ.
It’s coming to get you.
Spot the correlation boys; economies in big trouble, economies in not so much trouble; and housing bubble yes/no.
January 31st, 2010 at 10:25 am
Anyone read this latest piece of rubbish from Tony Brazier who owns a real estate company?
http://www.stuff.co.nz/business/personal-finance/3265799/Property-investing-requires-planning
Talk about protecting ‘your patch’ !
January 31st, 2010 at 11:08 am
Something about avoiding weeds in your kayak whilst seeing in your mind’s eye …………… ahhhhh , feck . The silly sod totally lost me too . Dealing with property investors 24/7 has addled his brain ?
January 31st, 2010 at 11:11 am
“Threatened prosecutions hang over crooked scientists and bureaucrats”
http://www.timesonline.co.uk/tol/news/environment/article7004936.ece
This is about the failure to release information under the “Freedom of Information Act” and not about falsifying the data….yet another slight of hand.
Time and time again we see that the Deniers use half truths, slight of hand and lies to justify their “scientific” position knowing full well if thet admitted their objections were on Political grounds they wouldnt get anywhere…
The “IPCC, and “New Scientist” have peer reviewed science papers going back decades…the AGW deniers, none. In any evernt it is indeed up to those individual voters to decide on what is the truth about AGW this financial mess and Peak oil…
Look on the bright side, by all means ignore peak oil it will not do you any good. It is going to become blindingly obvious within as little as 2 years maybe 5…Im more than happy that stupid ppl will continue to ignore it and pile on debt..why? because their actions keep the economy from nose diving give me more time to get my “house” in order…ie be debt free…
regards
January 31st, 2010 at 11:12 am
weeds are only a prblem in a kayak if the rudder is down….assuming you have a rudder of course…
January 31st, 2010 at 11:15 am
Spot the correlation boys;
Tis easy, Lack of regulation and big time gamblers.
regards
January 31st, 2010 at 11:24 am
Read the links in order below to see the layout of NZ future if monetarist elements remain unchecked:
Words of John Key the central banker cohort manoeuvred into place to set up the next money laundering tax haven for incorporated investment bankers:
“Bellotti made him global head of foreign exchange and he revolutionised the “blue blood” investment banking sector. “There was this massive opportunity to cross-sell the firm,” says Key.
“We’d go to these fund managers and we’d talk to them about equities, but we wouldn’t necessarily leverage foreign exchange – and when we did, they’d say our capability wasn’t that good.
“So I wandered up to London and said, ‘we’re going to go interbank FX – make prices to the other banks’. Morgan Stanley, Goldman Sachs and Merrill Lynch, the blue-blood investment banks, didn’t do that,” he explains. “We actually took on the big banks, Citibank, Chase, then we went and hired their staff and went to their clients and told them ‘look, we’ve got all those same capabilities as Citibank in FX and options. Plus we had this beautiful thing going because we were the first to supply margin trading to big hedge funds. We had the capability to cross-sell them several products using one bit of margin.”
Remembers Bellotti: “I brought him to London and he shot the lights out there too. Within three to four years Merrill Lynch, London, was regarded as one of the premier businesses.”
Key explains: “I had a whole lot of people working for me who were at the cutting edge of delivering quite complex and new and innovative products. They tended to either be a new product or into a new market, usually the emerging markets, Russia, Brazil, Argentina. I wasn’t the guy sitting there dreaming it all up, but I was the guy who was responsible for those people.” Did he foresee the problems which resulted in the sub-prime crisis? “Was it hard to predict? Not really.”
The products which underpinned the sub-prime boom – then bust – were hatched in 2004-2005, long after Key had left Merrill. Indeed, he says when he went back to London in 2007 he was “horrified” at the level of risk Merrill was running. “It was enormous and I just didn’t think that enough had changed to warrant that level of risk.”
Back in the late 1990s Key was in his element, working at the centre of the universe for FX. He presided over around 140 dealers trading billions of dollars a day. The Asian markets came in in the morning and New York in the afternoon. “Within two years we went from being 43 in euromoney to number three,” Key says.
http://johannhari.com/2010/01/29/this-corruption-in-washington-is-smothering-americas-future
http://www.johannhari.com/2010/01/15/cameronomics-has-already-been-tried-in-ireland-the-result
http://www.nzherald.co.nz/company-taxation/news/article.cfm?c_id=691&objectid=10336608
http://www.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=10605036&pnum=1
“In recent months, the crystal and china manufacturer Waterford Wedgwood, Ireland’s most famous manufacturing concern, has been forced into receivership.
Meanwhile, the international companies that moved in so greedily at the start of the century are moving out.
For example, the computer firm Dell recently announced that it was shifting operations out of Ireland to Poland.
Ireland’s financial sector, like Britain’s, is wrecked. The Anglo-Irish Bank, destroyed by reckless and, it is believed, corrupt lending on property, has been taken into public ownership. Tens of thousands of new-build houses are empty or half-finished.
There is very little left in the Irish economy beyond Dublin’s famous Guinness brewery and the farming sector, the historic base of the country’s prosperity.
Read more: http://www.dailymail.co.uk/debate/article-1168667/PETER-OBORNE-How-Ireland-economic-basket-case—lessons-Britain.html#ixzz0e8WsmVWV
January 31st, 2010 at 11:49 am
Phil B
I’m not suggesting that going to a gold standard is the solution in fact far from it. The point I’m making is that unless there is growth the interest cannot be paid. It’s impossible. All other transactions in the economy net out to zero, whereas interest payments do not.
January 31st, 2010 at 12:41 pm
If we ignore the silliness of Urban planning being the cause of the financial meltdown…Canada has not suffered, no banks collapsed…wanted handouts…
http://www.newsweek.com/id/183670
“Guess which country, alone in the industrialized world, has not faced a single bank failure, calls for bailouts or government intervention in the financial or mortgage sectors. Yup, it’s Canada. In 2008, the World Economic Forum ranked Canada’s banking system the healthiest in the world. America’s ranked 40th, Britain’s 44th.”
“Canadian banks are typically leveraged at 18 to 1—compared with U.S. banks at 26 to 1 and European banks at a frightening 61 to 1.”
NZ’s leveraging?
Public health care or private?
“Canada has been remarkably responsible over the past decade or so. It has had 12 years of budget surpluses, and can now spend money to fuel a recovery from a strong position. The government has restructured the national pension system, placing it on a firm fiscal footing, unlike our own insolvent Social Security. Its health-care system is cheaper than America’s by far (accounting for 9.7 percent of GDP, versus 15.2 percent here), and yet does better on all major indexes. Life expectancy in Canada is 81 years, versus 78 in the United States; “healthy life expectancy” is 72 years, versus 69. American car companies have moved so many jobs to Canada to take advantage of lower health-care costs that since 2004, Ontario and not Michigan has been North America’s largest car-producing region.”
regards
January 31st, 2010 at 12:50 pm
@Fred: “The point I’m making is that unless there is growth the interest cannot be paid. It’s impossible.”
This is I think a true statement…
So, if we cannot grow (the economy/GDP), therefore the interest cannot be paid and a default occurs.
Which is interesting…..in the lethal sense….when you borrow this is a tie on future earnings therefore unless there is a return bigger on the capital borrowed and invested in an endevor than the interest on the debt due, at some point your future net income is worse…….So if GDP does not grow but shrinks then the impact is pronounced…I can see why the Great Depression left a scar on a generation…if not two.
Since increasing GDP is linked to increasing energy use and it now seems that our energy use has plateau’d so has our economy…so who thinks the future is pretty?
regards
January 31st, 2010 at 12:57 pm
“There is very little left in the Irish economy beyond Dublin’s famous Guinness brewery and the farming sector, the historic base of the country’s prosperity.”
huh? Ireland has never really been a prosperous farming country IMHO…it took off due to joining the EU and the necessity taht if you wanted to seel goods in the EU they had to be substantally made in the EU…..companies saw this and so did the Irish Govn…it opened up Ireland and the companies rushed in….I’d like to see a reason Dell is moving,olish labour cheaper?
January 31st, 2010 at 3:42 pm
Steven:
“….The “IPCC, and “New Scientist” have peer reviewed science papers going back decades…the AGW deniers, none……”
EHHHHHH????????
List of 450 skeptical peer-reviewed papers:
http://wattsupwiththat.com/2009/11/15/reference-450-skeptical-peer-reviewed-papers/
Prosecutors have to start somewhere. Taxpayers have been paying for scientific research data and it has been manipulated in breach of scientific method for political ends. But don’t pretend this whole thing is not political. It will need changes of government in a few countries to get honest inquiries done.
You talk about Watergate. I am picking that Climategate is a leak, not a theft; as a result of a scientist or someone in the loop having a bad conscience. Keith Briffa looks likely to me. Read the emails where he expressed honest doubts for years and was finally bullied into producing the most dishonest and unscientific study of them all, the Yamal Tree Rings Study; to provide some justification for the second most dishonest artefact of this fraud, the “hockey stick graph”. He is now apparently on leave with health problems.
Considering all the information I now have, he has my sympathy; he is like a decent man caught up in an administration that has been taken over somewhere along the line by the Nazis.
January 31st, 2010 at 3:48 pm
I’m happy to say it loud: peak oil is just as much of a non-problem as anthropogenic global warming. Most of the alternatives to Oil are viable at oil prices of $50-70 per barrel. (eg Fischer-Tropsch coal to liquid) The only thing stopping full scale investment in them is the potential for oil to keep going lower than that if the Arabs feel like it. And it would go lower if the alternatives started to make a dent in oil demand.
The world needs to be much shorter of oil yet, but even when it did run out, there is about 1000 years supply of the alternatives the cost of which equates to approx $50-$70 per barrel oil.
The alarmism is a combination of “great leap backwards” Gaia religion Green ideology, and opportunist big oil looking for excuses for more gouging.
January 31st, 2010 at 3:50 pm
steven Says:
January 31st, 2010 at 11:15 am
Spot the correlation boys;
“Tis easy, Lack of regulation and big time gamblers.”
So you hold Helen and Michael responsible for what has developed in NZ in 9 years on their watch?
January 31st, 2010 at 4:00 pm
Ah, Steven,you raise the subject of Canada’s stand-out performance.
Demographia gives them a big hand too with the exception of Vancouver, for sufficiently free approaches to urban land supply to maintain housing affordability. I regard Canada in this respect, as a poster boy for my side of the argument, not yours.
Germany is another. Fantastically leveraged banks, (I am not saying I agree with that)but no housing bubble thanks to their approach to urban development.
The question of health care in Canada vs the USA, is a moral object lesson in its own right. Canada provides “free universal health care”. The USA does not, but a combination of leftwing Democratic legal mandates, judicial activism, and Trade Union incumbency in large companies like GM, adds up to insupportable burdens for the large employer.
Here’s where it gets really amusing. Canadians are forever crossing the border into the USA to get treatment for which they pay their own way; having been put on never-never waiting lists by their own State system. (like every other “Free Universal” system in the world). So we get GM exporting jobs to escape the costs imposed on them by politicians, activist lawyers and judges, and Trade Unions; and Canada keeping their health care costs attractive by having a high proportion of those workers who need treatment, going back to the USA for treatment on their own dime.
What a choice little object lesson.
January 31st, 2010 at 4:04 pm
Steven at 12.50PM;
I agree with Fred too. You are talking a lot of sense there.
You say this:
“…..Since increasing GDP is linked to increasing energy use and it now seems that our energy use has plateau’d so has our economy…so who thinks the future is pretty?”
Good, you get the connection between energy use and GDP. An awful lot of woolly thinkers do not. But I regard the plateauing of energy use as self-inflicted; the result of unjustified alarmism and obstruction of progress viv-a-vis getting energy to market (new mines, drilling, hydro dams, nuclear, etc)
January 31st, 2010 at 4:09 pm
steven Says:
January 31st, 2010 at 12:57 pm
“There is very little left in the Irish economy beyond Dublin’s famous Guinness brewery and the farming sector, the historic base of the country’s prosperity.”
“huh? Ireland has never really been a prosperous farming country IMHO…..”
Neither has NZ. Farming countries have, most of the time, been helpless price takers on glutted international markets. Whst we remember as “the good times” were exceptions, not the rule.
This is another reason for land reform. It makes no sense to reserve land for farming, which results in low wage and profit earnings per hectare used, and force all other more productive activities to pay twenty times as much or more, for the restricted quantities of land allocated for THEM. Furthermore, modern industry is actually less polluting than farming. This is why rivers in industrial areas in Germany are far cleaner than the Manawatu River.
China might be “the world’s foundry” at this stage of its economic development. NZ is the world’s cattle yard.
January 31st, 2010 at 4:14 pm
Iain Parker at 11.24AM,
That is really fascinating; that is what investigative journalists should be telling us. To my mind, John Key comes out looking quite good.
“…..he says when he went back to London in 2007 he was “horrified” at the level of risk Merrill was running. “It was enormous and I just didn’t think that enough had changed to warrant that level of risk.”…..”
January 31st, 2010 at 4:19 pm
Iain, I regard Ireland as a poster child for what urban planning and property price bubbles can do to an economy. They are just a little bit ahead of us in reaping the consequences.
Note that in parts of the UK (where they have had urban planning for longest), they have unemployment at 25% plus, third generation welfare families; yet they still have unaffordable house prices (4.5 – 5.5). This could be NZ in a few years. Contrast the Rust Belt of the USA: house price median multipliers down to under 2.0. Guess which region has a hope of recovery; the free market where prices respond to reality, or the “planned stagnation” alternative?
January 31st, 2010 at 4:24 pm
There’s a new thread, guys:
“Mortgagee sales near record high at 5% of total sales as indebted owner occupiers start defaulting too”
Here is what PhilBest Says:
January 31st, 2010 at 4:11 pm
“As I have been saying on the previous thread, somewhere along the line some symptom like this is going to be the beginning of the end for NZ’s very very fragile property bubble economy.”
Apologies for being a thread hog this time. I make up for it by not participating at all most of the time. Steven has it far too easy most of the time…….
January 31st, 2010 at 4:28 pm
nah he’s just proud of his tuch tiping skills.
and rightfully so I might add….
January 31st, 2010 at 4:48 pm
@PhilBest – If we could sub-divide our way to economic Nirvana, Mangaweka would be the Financial Capital of NZ… Plenty cheap land there Bro’…
So what’s up with your economic model?
January 31st, 2010 at 5:05 pm
Location? Too near to Palmerston North? That dumb aeroplane? Crap rail link?
Nasty beer? Underpopulated country?
January 31st, 2010 at 5:15 pm
@Philbest: “List of 450 skeptical peer-reviewed papers:”
As in peer reviewed by acknowleged specialists in the relevent field(s)….not some Von-mises “economist” reviewing a climate paper written by the Janitor at the Marshall institute, this is not a scientific peer review and publication… At best its a blog piece or something written for the popular press because it wouldnt stand the light of day in a scientific circle.
“You talk about Watergate. I am picking that Climategate is a leak, not a theft; as a result of a scientist or someone in the loop having a bad conscience.”
wishful thinking…..URL?
The last piece Ive seen was the British police wee treating is as theft/computer fraud/hack ie an illegal access….
“The hacking of the computer is being investigated by Norfolk Police.
The files stolen from the computer include documents, detailed data and private e-mails exchanged between leading climate scientists. ”
http://news.bbc.co.uk/2/hi/uk_news/england/norfolk/8389727.stm
http://www.theregister.co.uk/2010/01/15/climate_ndet/
regards
January 31st, 2010 at 5:25 pm
the result of unjustified alarmism and obstruction of progress viv-a-vis getting energy to market (new mines, drilling, hydro dams, nuclear, etc)
Losing 4~8% of our energy supply per year is going to be serious…its quite justified to point out the seriousness of the situation.
If you looked at what Govn’s are doing say the UK they are going full tilt for alternative energy supplies. There is little in the way stopping a private company putting private capital into an energy solution…what there is is lack of return at present ie its not worth while private investors investing any quicker because the market signals ie high price isnt there yet….this means that when finally there is enough of a signal there would be the plant due to the lead time of 3 to 8 years to build it…so we are going to see short term energy shortages appearing all around the globe…here is also concern that alternatives cant be built fast enough, ie plant to build the wind turbine alternators as an example…Then there is govn procrastination in not wanting to be involved….its a vote loser until the shortages become apparent, then the SOE’s and private companies become the scape goats of the Pollies.
In NZ on the other hand I do agree we have too much Nimbies and the RMA cw*p slowing hydro etc down….add in the likes of Jerry Brownlee (I think it was) commenting that he would back up the Nimbies..so we will hurt….
regards
January 31st, 2010 at 5:26 pm
@Phil Beast –
Funny… Iv’e travelled Canada… and Vancouver is the only City I’d consider living in there… Give me urban Planning please!
January 31st, 2010 at 5:28 pm
“Rust Belt of the USA: house price median multipliers down to under 2.0. ”
Wont be that, its toast…just sit back and watch…the reason the houses are so cheap is there are no jobs….the hvy and light (car) industries are gone…..Canada makes them cheaper.
regards
January 31st, 2010 at 5:33 pm
“Mortgagee sales near record high at 5% of total sales as indebted owner occupiers start defaulting too”
The worry is we are no where into the darkside yet….if we continue to recover and we do as Wally thinks? and see [hyper-]inflation then the defaults are going to rise…but un-employment drops (maybe). If we go down the road I see, its deflation and a depression, which could lead to wage cuts and high un-employment, that means the real value of the debt becomes larger….its not pretty either way.
January 31st, 2010 at 5:35 pm
Palmerston North….ew…..mind you I like the flues on the Polytech welding bays…
Mind you, good things do come out of there, my double kayak was made there….my Single is Canadian though…
regards
January 31st, 2010 at 5:36 pm
@ Phil Beast – Let me think… Huston or Vancouver, Huston, Vancouver, Huston , Vancouver, Huston, Vancouver……
I pick Vancouver!…
Hey maybe they could transfer the Guanantamo Bay Prisoners to suburban Huston, but denigh them key’s a motor vehicle…
A life sentence!
January 31st, 2010 at 5:39 pm
@mouse: “Funny… Iv’e travelled Canada… and Vancouver is the only City I’d consider living in there… Give me urban Planning please!”
Me too, if I had decided I didnt like NZ a re-visit to Canada and specifically Vancouver was my next place….mind you I liked Saint John, NB as well….funny how I got on with Canadians so well….not so Americans…
regards
January 31st, 2010 at 5:42 pm
Now for some guitar practice…
January 31st, 2010 at 6:01 pm
@Steven – Guitar practice…>
http://www.youtube.com/watch?v=64atEM8uiyU&feature=PlayList&p=449B6CBE53622192&playnext=1&playnext_from=PL&index=14
January 31st, 2010 at 6:27 pm
cooo… I’ve got one of those (not the young lady you fools). Wish I could play it.
January 31st, 2010 at 6:33 pm
@mouse: Im learning classical which i do like but its more for the technique right now.
I do like those jazz semi’s she sounds good…got myself a SG (chinese copy) as well as a classical.
http://www.youtube.com/watch?v=sP0qLZf9RF8&feature=related
http://www.youtube.com/watch?v=sHLfK0h7L68&feature=related
She is good, im enjoying listening while cooking dinner.
January 31st, 2010 at 7:31 pm
@steven – Classical is great… teach’s the physics… and you need to know the rules before you can explore how and when those rules can be broken… [or at least have been todate].
Actually, it’s kind of like learning from Von Mises and Haycek… important learnings and you can’t go forward until you have explored that…
But, as I’m sure you already know…it ain’t the end on the road… even though others percieve it, and delcare it to be.
Funny!
January 31st, 2010 at 7:54 pm
Im actually surprised how bad economics theory is…..everything has to be simplified and then once its simple enough to understand, you have to ask are you understanding [part of] the real economy or that simpified model that does not compare to the real world. Then the disaster is some Treasury official or Pollie thinks its the modelling the real world so wants to apply it…
So, then on top of that economics seems to have been bent and twisted by Politics. Its like a young sapling hidden in the shade of a poisioned ivy for to long…its now stunted and twisted from where it ought to be….and in fact just about dead.
For me that’s been the second big joke “political science” there is no rigor in there….Political art or myth maybe….
and here we are looking at two aspects of our society and neither are good enough to guide us with any accuracy or confidence…god help us….oops thats religion….bottom of the pile….lets leave that one there.
;]
regards
PS Ive always liked Adam Smith….
January 31st, 2010 at 8:14 pm
For me looking at the “Greats” of economics I quite like Marx for his theory (as in a theory not as in I like communism), interesting that in fact it does not survive in the real world and collapses to totalitarianism the fastest…At the opposite end, Capitalism….its survived the longest, yet seems to be collapsing as well…..just reading on how many cameras are now in existance in public places….how many govn databases there are…..the fact that if you are passing through LA you are finderprinted, yet you are not even entering the USA….for me these are signs of a totalitarian regime….another classic is where the people feel the need to include in their speech around how much they love their country….or fly patriotic flags…..etc…..seems more like fear or brainwashing…just more subtle than say North Korea….but equally detrimental.
So where to from here? I think post peak oil is going to change things, I dont think the old political order will survive as is….but I dont know the outcome will it be better or worse…….
regards
January 31st, 2010 at 8:38 pm
Phil you said
“Iain Parker at 11.24AM,
That is really fascinating; that is what investigative journalists should be telling us. To my mind, John Key comes out looking quite good.
“…..he says when he went back to London in 2007 he was “horrified” at the level of risk Merrill was running. “It was enormous and I just didn’t think that enough had changed to warrant that level of risk.”…..”
Phil, I could have preempted the above, but I wanted to see just who JKs friends are.
The investigative reporting from which the above was done prior to the last election:
John Key – The Unauthorised Biography
Weekend Herald Sat July 19 2008
-Into the big time-
onfortunately it would not have been read by most common folk and as it was of very lengthy detail it would have been over looked by the bumper sticker brigade. You say the above excerpt puts JK in good stead, but if you do some more indepth investigative research(which just happen to have prepared before, here
http://publiccreditorbust.blog.com/2009/06/01/john-key-born-again-good-guy-or-still-a-bankster/ )
You will realise that when JK was at the height of his game, when he was overseeing the pioneering of margin cutting transactions between subsidiary incorporated banks, banks filling then emptying markets to create their own insider trading opportunities, when he was invited onto the powerful Foreign Exchange Advisory Committee of the New York branch of the US Federal Reserve 1999-2001, was right after the passing of the Financial Services Modernisation Act 1999:
http://www.pbs.org/wgbh/pages/frontline/shows/wallstreet/weill/demise.html
the final nail in the coffin, as symbolic as they may have been, of every check or balance that had been put in place after the 1930s depression, the deregulation that would once again allow those that control and create the money supply to once again be able to crossown the equities markets, even list themselves as incorporated companies. They have since quite simply played one great game of market manipulation to feather the nests of their major controlling stakeholders, transferring the profits into their family trust funds and leaving the losses with the large pooled investment funds and the unsophisticated, unsecured mum and dad investors.
Dont be conned by JKs blame deferring referral to post 2005, he was right in this up to his chin. Add to the fact that he has been overseeing brigades of FX trading desks that have made life hell for the realsector of NZ, all the while he was on the phone to Don Brash, then the Governor of RBNZ at the time:
“Geoff Massam, a New Zealander then running the IT part of Merrill Lynch’s FX business, now with Deutsche Bank in Connecticut, remembers how Key would be on the phone to the Governor of the Reserve Bank, Don Brash: “Though he wouldn’t do it in a name-dropping way – he was talking to people like that all the time.”
Below happened all around the world on a grand scale:
“ANZ offers specialist investment services to wealthy clients through its private banking arm and the Sunday Star-Times understands they were sold very little of the two funds – ING’s Regular Income Fund and Diversified Yield Fund. Of the more than $2 billion of assets owned by the bank’s high net worth clients, a mere $7 million-$8 million was in the funds.
The funds were frozen in March 2008, locking in more than $400m of investors’ money. ING and ANZ have since compensated investors for some of their losses – a gesture other fund managers and promoters have yet to match.”
http://www.stuff.co.nz/business/3278774/ANZ-faces-favouritism-accusations
Just google -pension funds lose trillions -
Do we begin to understand “the game” peoples, and just who we have at the helm of this nation, and just how wide and deep his cohorts are inbedded in the backroom advisory institutions of local and national government.
January 31st, 2010 at 8:56 pm
I’m a fan Ron Paul… Competition between Currencies… Indivdual freedoms and the responsibilities that go with them etc.
But for AWG and post Peak Oil, I think our one big hope is Communication… the internet.
More people as a percentage of population than ever before have the ability to do their own analysis… think independantly and position themselves ahead of the inevitable future…
Some will, Most probably won’t… and others are just blinded by the headlights of the oncoming train and will ahve no time to react… but hey, that should’nt stop us trying.
January 31st, 2010 at 9:00 pm
Under the last financially illiterate Labour Cabinet Executive we suffered the backroom banksters via puppet strings, every other Caninet Executive in NZ since early 1800s has been dominated by locally recruited bankster co-operatives. Many a financially illiterate party member has been allowed to lead as the humane face of a corrupt backroom treasury cabal.
Integrity without knowledge is weak and useless, knowledge without integrity is dreadful and dangerous,
sums up the last govt to the present for me. Wally, it all comes down to finding someone with knowledge and integrity. They have been few and far between I admit, but they have been.
January 31st, 2010 at 9:35 pm
It is a pity that Dr Bollard didn’t provide a better cost-benefit balance on the pros and cons of using the Australian dollar. He glibly says that in the latest downturn, New Zealand would have been worse off with Australian monetary policy. Even if this were true – and there are good grounds to doubt it – one needs to examine all the costs and benefits, not just those associated with monetary policy during a recession.
There are at least four major points. First, New Zelanders borrow about 100% of GDP from foreign lenders, mainly in New Zealand dollars. Over the last decade, long term interest rates in New Zealand have been nearly 0.75 percent higher than those in Australia, and real interest rates have been another 0.25 percent higher still. If New Zealanders had been able to borrow at the same rate as Australians during this period, they would be on average $1.2 billion better off per year – or roughly $300 per person per year. The benefits of monetary independence have to be set against this – and this is a very large hurdle . It would have been nice to hear from Dr Bollard why he thinks the average benefit to New Zealanders of monetary independence exceeds this amount.
Secondly, it is by no means clear that New Zealanders would have been worse off if we had Australian monetary policy over the last three years. It is true that the RBNZ cut official interest rates by more than Australia after June 2008, and has kept them lower. But average market rates fell much faster in Australia than in New Zealand – by December 2008, average mortgage rates had fallen by 0.3% in NZ, compared to 2.3% in Australia, and by May 2009 the respective declines were 1.3% and 3.3%. Even though New Zealand was in recession while Australian was not, Australian average interest rates fell much faster.
The use of the word “average” is deliberate. Australian average mortgage rates fell so quickly because most Australians used flexible rate mortgages, so cuts to interest rates flowed immediately to the pocket book. In New Zealand, most borrowers had fixed rate mortgages, so the decline in interest rates took much longer to take effect – not until the end of 2009, after New Zealand had been in recession for 5 quarters. It is arguable that this difference is due to the Reserve Bank’s behaviour in the five years leading up to 2008. The Reserve Bank of New Zealand, almost alone in the OECD, operated a steeply negative yield curve (short term interest rates higher than long term interest rates) for much of this time, encouraging borrowers to move to lower rate fixed rate mortgages. This means that monetary policy took much longer to take effect in New Zealand than Australia – had we been using the Australian dollar, it is quite plausible that more New Zealanders would have been on flexible rate mortgages, and would have benefited more quickly from the cuts in interest rates. (Since 1993, New Zealand 90 day interest rates have been at least one percent higher than five year interest rates some 37 percent of the time – and in the last five years a staggering 70 percent of the time. Other central banks seem fortunate enough to control inflation without needing to do this. Since 1993, Australian 90 day bank bill rates have been one percent higher than five year government bond rates only 5 percent of the time, and such a margin is scarcely ever seen in the United States.)
Thirdly, while an independent monetary policy can help stabilise an economy against idiosyncratic shocks, whether it does so in practice is an empirical matter. The key issues is whether a shock is idiosyncratic or not, in New Zealand’s case hitting New Zealand and not other countries. The global financial crisis is not an example – it hit all countries, and most countries cut interest rates. I can think of three idiosyncratic shocks in the last 12 years. there was the late 1997/1998 drought; the immigration surge in 2003; and the drought in late 2007/2008. In the first case, Reserve Bank policy lead to an increase in interest rates, at the time a supply shock led the economy into a recession. This has been seen as a mistake, and the RBchanged its operating policy as a result. In the second case, interest rates were cut – at the time of a large positive inflation shock. New Zealand had a boom and high rates of inflation. In the third case, interest rates were raised to the highest in the OECD (except Iceland) and the economy again slid into recession. In each case, one can make an argument that the appropriate response would have been the opposite to the actual response – that interest rates would have been cut in the face of a negative supply shock, to prevent such a large dowturn, or that interest rates would have been increased in response to a positive demand shock. Whatever the outcome of this debate – a debate that had not taken place in New Zealand – the main point is that the existence of independent monetary policy does not prove that it is necessarily good.
The fourth major point is a very old one – if a country adopts the currency of another country, it typically leads to greater trade and cycles that are more closely tied. If you use someone else’s currency, you have less need for an independent currency as you have fewer idiosyncratic shocks. In any case, New Zealand’s cycle appears to be moving closer to Australia’s – except possibly we have monetary policy exacerbated recessions (two to nil in the last 15 years).
It is been a decade since there was last a major debate about the pros and cons of monetary union in NZ. At that time a majority of business people favoured a currency union with Australia (or simply adopting the Australian dollar.) It will probably be another decade before the debate is picked up again – so perhaps there is still an opportunity for those who like the ability to fine-tune to prove that monetary independence is worth having. We can only hope so.
Andrew
February 1st, 2010 at 7:14 am
@mouse: “I’m a fan Ron Paul… ” Ive always liked/preferred his advisor….though being a gold bug isnt me….
regards
February 1st, 2010 at 8:55 am
“finding someone with knowledge and integrity”….like searching for the holy grail. Remember Iain,,,power corrupts etc etc…and the corrupt always game the rules to stay in power….that’s what we have now..a system so twisted that voters begin by asking themselves “what’s in it for me”….”which candidate will hand me the most for my vote”. Now we suffer as each govt measures up to determine the cost of cutting their cloth this way or that. The lying has been raised to an art form.
There are lies, dam lies , statistics and then there are governments.
February 1st, 2010 at 10:22 am
@Wally…“what’s in it for me”… the ‘Prisoner’s dilemma’? Scary indeed.
February 1st, 2010 at 12:45 pm
On the news on one of the channels here in Aus last night, they showed a protest outside the Australian Reserve Bank by property investors. Calling for Stevens to resign, ‘demanding’ OCR goes back to 2.5% in line with other OECD economies. Catchy placards like “Stop the Squeeze”.
Comical, I almost thought it was a spoof clip. What next, bankers protesting to get their bonuses back? … placard suggestions? “”why so much onus on the bonus?” …..
I’ll get my coat.
February 1st, 2010 at 1:02 pm
“I’m an anus, why aren’t you payin’ us”
February 1st, 2010 at 1:05 pm
“We rule – eat that”
February 1st, 2010 at 1:22 pm
“We have your interest…”
“Your Pain. Our Gain”
February 1st, 2010 at 2:21 pm
From Goldman Sachs :
” We too , eat beans on toast ;
on our yacht
at the Ivory Coast . “
February 1st, 2010 at 2:43 pm
Oh dear, Steven never gives up, does he? And he has a little friend called Mouse too.
I am quite happy to leave my arguments there without adding any more and let others read both of ours and make up their own minds.
Pick Vancouver over Houston, fine; if you can afford to. But wealthy elites dictating that people not as well off as them are to be denied the choice of affordable housing, (Houston would not be affordable, and nowhere would be affordable, if the pro-planners had their way), well, what’s that? Is it morally any different to Eugenics and all the other stuff that was fashionable in the 1930’s and that ended up paving the way for Adolf Hitler?
I can’t understand why guys like you would have any time for Ron Paul, are you jiving? And Von Mises and Hayek?
But hey, I really, really like the comments on Classical and Jazz Guitar and likening that to fundamental knowledge. I liken Heavy Metal to rabble-rousing class warfare rhetoric; both are about as intellectual as a small child throwing a tantrum.
One thing you guys haven’t mentioned, is Schumpeter’s critique of Karl Marx’s theories. i.e., the first half of the book “Capitalism, Socialism, and Democracy”. If you are sincere in what you say, I think you would find it interesting.
February 1st, 2010 at 2:53 pm
Steven Says:
January 31st, 2010 at 8:14 pm
“For me looking at the “Greats” of economics I quite like Marx for his theory (as in a theory not as in I like communism), interesting that in fact it does not survive in the real world and collapses to totalitarianism the fastest…At the opposite end, Capitalism….its survived the longest, yet seems to be collapsing as well…..just reading on how many cameras are now in existance in public places….how many govn databases there are…..the fact that if you are passing through LA you are finderprinted, yet you are not even entering the USA….for me these are signs of a totalitarian regime….”
Steven, all this fits very well with Hayek’s “The Road to Serfdom”. I just said this on a newer thread:
“…..But the critics of Communism in Russia itself in 1919 were never vindicated. Can anyone name one of them today? Every totalitarian system has the luxury of being able to blame its favourite scapegoats instead of their own system’s inherent failings. Hayek identified unchecked, snowballing bureaucracy as creeping totalitarianism. He, not Keynes, was the economist-philosopher for our time.”
I can’t understand why your scepticism for economic expertise, which I share, does not extend to bureacracies generally, and I cannot understand why you do not see Urban Planning bureaucracies in a sceptical light. Alain Bertaud in “The Costs of Utopia” actually identifies identical errors as were made by the planners of the former USSR, being made by our own urban planners today.
I could have said the following myself:
Steven Says:
January 31st, 2010 at 7:54 pm
“Im actually surprised how bad economics theory is…..everything has to be simplified and then once its simple enough to understand, you have to ask are you understanding [part of] the real economy or that simpified model that does not compare to the real world. Then the disaster is some Treasury official or Pollie thinks its the modelling the real world so wants to apply it…
So, then on top of that economics seems to have been bent and twisted by Politics….”
But I would extend my scepticism well beyond the economics profession. Start with Climate science and Urban Planning, then go on to Social policy, Crime, Education, and Health.
February 1st, 2010 at 4:17 pm
Iain Parker, Wally:
Recent research on “Power and Hypocrisy”:
http://www.kellogg.northwestern.edu/faculty/galinsky/Power%20Hypocrisy%20Psych%20Science%20in%20press.pdf
From a summary by “The Economist”:
“……people with power that they think is justified break rules not only because they can get away with it, but also because they feel at some intuitive level that they are entitled to take what they want. This sense of entitlement is crucial to understanding why people misbehave in high office. In its absence, abuses will be less likely. The word “privilege” translates as “private law”. If Dr Lammers and Dr Galinsky are right, the sense which some powerful people seem to have that different rules apply to them is not just a convenient smoke screen. They genuinely believe it……”
February 1st, 2010 at 4:24 pm
“In questions of power let us hear no more of trust in men, but bind them down from mischief with the chains of the Constitution”
-Thomas Jefferson
Each Western democracy has a “Party of Government”. They feed it, and it feeds them. The larger government grows, the more agencies that are created, the more bureaucrats who are hired, the more people who benefit from lavish pay scales and pension schemes, the more deeply entrenched in power the “Party of Government” becomes.
Besides the government employees, there are the legions of beneficiaries who depend on government handouts for the necessities of their daily life.
This voting bloc provides insurmountable resistance to any party that pledges to cut or curtail government; because this bloc happens to be fighting for their own livelihoods.
You can guarantee that “research findings” and the funding of “research” and “independent” “consultants”, where bureaucrats control it; will be biased firstly; in the direction of self-perpetuation, growth, aggrandisement, and empowerment of the same, and further, bureaucracies; and secondly, in the service of whatever political correctnesses prevail in the iron triangles of media, educational, and bureaucratic elites.
February 1st, 2010 at 7:44 pm
@Philbest: “I can’t understand why your scepticism for economic expertise, which I share, does not extend to bureacracies generally”
Simple, as democracy, they are not prefect, the Q is are they better than nothing, and the anwser is a resounding yes.
regards
February 1st, 2010 at 7:50 pm
From a summary by “The Economist”:
“……people with power that they think is justified break rules not only because they can get away with it, but also because they feel at some intuitive level that they are entitled to take what they want.” 8><— "They genuinely believe it……”
While not defining what power is in this case, it can equally be applied to CEOs of large businessses as Politicians….hence where morals fail, laws and regulation have their place.
regards
February 1st, 2010 at 8:08 pm
“Start with”
Climate science
Generally based on previous comments to give me some context, this is a true science and mathematically based and has a good peer review process, as such the components of AGW are well understood, ie CO2 blocks certain wavelengths and not others.
At some point you have to consider risk and the management or risk, AGW is a significant risk, it appears to be of significant impact, therefore it has to be considered and addressed.
Therefore at this point in time as a voter my vote goes with supporting mitigation.
however the very worst risk and impact to society is peak oil….Robert Hirsch laid it out very clearly we need 20 years to migrate to alternatives…Iraq might give us 10…
and Urban Planning,
No context here but ad hoc and uncontrolled building ie laisez faire is a sure quick way to reduce the quality of a neighbourhood.
Again hindsight is twenty twenty…is urban planning efficient? is/has poor planning detrimental to our financial system? I dont believe so. I have actually spent time researching your point of view on this and can find little in fact nothing to support your claim that bad urban planning is the root of the financial downfall….its a unique claim
then go on to Social policy,
No context here. However WFF is a financial and social disaster waiting to happen…if as I do you except that over-population is the root of the problem then encouraging large families is plain wrong, let alone any other reason.
Crime,
No context here.
Education,
No context here.
and Health.
No context here. However I think the fiasco that is the US heath system clearly shows that a private healthcare system is far more expensive and has poorer outcomes that a public one similar to ours.
February 1st, 2010 at 8:52 pm
Pop!…………….sorry Robert.
February 1st, 2010 at 8:53 pm
Anyone notice the date ? 01 02 2010 : How come the 7′th Day Adventists or some other group of nut bars didn’t predict an apocalyptic world’s end for this palindrome day ?
Hickey has , but for ” some-time ” in 2010 , rather than be exact . Losin’ yer kahunas , big guy . Name the day of the Minsky Moment . I’ll get me telescope , see if we can spot this momentous event .
Where is the big guy today ? Unless there’s something dreadfully serious like an explosion in a gummy bear factory , you better front up tomorrow , fella !
February 1st, 2010 at 9:38 pm
@ Phil Best – I thiink you are missing a little context here…
- Year zero to 1960 human Population = 3 Billion
- Year 1960 to 2010 = 6.77 Billion (US cenceus Bureau estimate)
Only two points yes, but spot a little exponentiality there?…
When Thomas Jefferson made the great quote [your post 4:24pm] there was only approx 600 million people on planet Earth… and today there are are almost 6.77 million?
The greater the population, the greater the demand for resources… and the greater the need for regulation… because regulation/rules minimize and de-escalate conflict.
What was gospel when contention for fixed resources was limited to 600 million people ain’t necessarily appropriate for when the population is almost 7,000 million and growing exponentially and competing for the same fixed resources.
You may consider this communism, but I consider it a logical responce to changed circumstances.
If you hanker for a cheap section and subdivision infinitum, I recommend you move to where land is already cheap and available…. because the price is a free market signal for you to move to where there are available resources…
Maybe you could excercise a little of that ‘individual responsibility’ attitude and start a business and grow the economy?
February 1st, 2010 at 9:51 pm
Roger T
Got that one covered!……. the date didn’t happen. In America…. its 02 01 2010.
You knew that though didn’t you….silly moi, fell for it again……
Don’t worry, he said he’d come back…. however dumb a career move he’s made.
February 1st, 2010 at 10:32 pm
@mouse
I don’t know much, but “the price is a free market signal” sounds wrong to me.
The demographia people, amongst others, seem to make a fairly coherent point about the artifice of restricted urban boundaries. I suggest it isn’t, therefore, a free market. Its just what we’re used to, and a silly game we play.
For myself – I want the housing market to stagnate, and houses simply to become homes.
For those younger than me (quite a few), I want the most affordable future for them all. We have land – defuse the current problem by using it – The inner city(ies) will regenerate as a result, and we won’t end up paying ridiculous prices for poor quality housing. People will move in and out of the city at different stages of their life.
I see housing as the biggest noose one can hang oneself with. But we all have to live somewhere.
Affordability/quality for others is possible, if we so choose.
February 2nd, 2010 at 3:53 pm
re my post 29-1-2010 I Just Got My Biz Loan approved ! of course it is secured over ,wait for it…trumpet fanfare ,drum roll …
my Residential Property.
February 2nd, 2010 at 6:28 pm
Mouse,
I think Julian Simon in “The Ultimate Resource” is a wise guide for humanity and that the anti-human doomsayers are a danger to humanity. Thomas Malthus and Paul Ehrlich are both just as wrong as each other; even given that population is so many times higher in the day of Ehrlich and Simon.
You either know about Julian Simon but your mind is closed already; or you do not know about him at all. In the latter case, there is hope for you to be undeceived.
February 2nd, 2010 at 6:37 pm
# steven Says:
February 1st, 2010 at 7:44 pm
@Philbest: “I can’t understand why your scepticism for economic expertise, which I share, does not extend to bureacracies generally”
“Simple, as democracy, they are not prefect, the Q is are they better than nothing, and the anwser is a resounding yes…..”
Soooooo, Steven, how many bureaucrats predicted the financial crisis? And what are all the following people? (hint: they are not bureaucrats)
JANE D’ARISTA wrote an essay:
“Is A Mortgage Bubble Filling The Treasury Debt Vacuum?”
– way back in the third quarter of 1999. You might say this was “too early” for someone to have been picking a problem that no-one else saw until after 2001 at least. But she was right – she picked the start of the housing bubble only nine months after it had started, and the role of the GSE’s (Fannie Mae and Freddie Mac) and the securities industry.
It appears that Jane D’Arista was working for years, on the subject of financial system and monetary reform. Unfortunately, there does not seem to be any archive of regular essays as there is for many other analysts. Nevertheless, Benjamin Wallace-Wells in an excellent April 2004 essay (included below) credits Jane D’Arista with being the first to have been making consistent and regular early warnings about the developing crisis.
In September 2001, Stephane Fitch and Brandon Copple in Forbes, authored an article, “What If Housing Crashed”, in which they discuss the concerns of economist Robert Shiller, whose specialty is the analysis of housing affordability. Shiller clearly identifies areas of the USA in which worrying bubbles are forming.
Robert Shiller features regularly over the years in warnings of a housing bubble, both in articles authored by others, and by himself. A particularly good example is a paper he co-authored with Karl Case in September 2003, “Is There a Bubble in the Housing Market?”.
Gary North, whose archives at Lew Rockwell.Com are freely accessible, was writing regularly about the developing housing bubble and the coming crash, in incredibly accurate detail, years back.
Articles of particular note:
“The Residential Real Estate Bubble”, in March 2002
(Included in this essay is a credit to the “FMWatch” website for warnings regarding Fannie Mae and Freddie Mac. “FMWatch” deserves credit but is only accessible to subscribers)
“Housing Bubble, Mortg*ge R*tes, and Spam”, in August 2003
(Included in this essay are credits to Alex Berenson and Gretchen Morgenson of the New York Times, James A. Bianco of Bianco Research, and Philip Coggan of the Financial Times)
“Pop Goes the Bubble”, in August 2003
(Included in this essay is a credit to Richard Benson)
“Rohatyn’s Warning on America’s Indebtedness”, in May 2004
(including credits to Felix Rohatyn, Bill Fleckenstein, and John Templeton).
“Five Myths of the Economic Recovery”, in August 2004
(includes a credit to Stephen Roach)
“Greenspan: The Devil Made Me Do It”, in February 2005
(includes credits to John Mauldin and Marc Faber)
FURTHER notable authors:
(Note: most of these authors wrote extensively on this subject: the following references are just some especially good early predictions of the problem)
“Bubble Trouble: Your House Has a P/E Ratio, Too”, by Edward Learner, in June 2002
“The Run-Up In home Prices: Is It Real, or Is It Another Bubble”? by Dean Baker, in August 2002 (NOTE: There are two different Dean Bakers, the other one of whom is at the other end of the spectrum from this one.)
“The Costs of Bursting Bubbles” by Stephen S. Roach, in September 2002
And “The Mythical Recovery”, in August 2004
(Stephen Roach’s writings are unfortunately mostly subscriber only, through Morgan Stanley. Apparently he wrote many prescient essays in this forum.)
“Housing Bubble: Myth or Reality”? By Frank Shostak, in March 2003
AND “Running On Empty”, in February 2004
“The Coming Crash In The Housing Market” By John R. Talbott, in April 2003
“The Housing Bubble”; by Christopher Mayer, in August 2003 (NOTE: There are two Christopher Mayers, the other one of whom is at the other end of the spectrum from this one).
“Fannie and Freddie’s House of Cards”, by Richard Benson, in August 2003
AND “Debt Versus Income: At the Point of No Return”, in February 2004
“How To Identify A Bubble”; by Kurt Richelbacher, in Jan 2004
AND “It’s the Bubbles, Stupid”, in June 2004
“Greenspan’s Black Magic”, by Ron Paul, in Feb 2004
“America: Like New York in the 1970s but worse.” by Felix Rohatyn, in April 2004
“Game Over For Stocks and Real Estate”, by Bill Fleckenstein, in April 2004
“There Goes the Neighborhood”, by Benjamin Wallace-Wells, in April 2004
“Housing: Too Good To Be True”; by Mark Thornton, in June 2004
“Collateral Damage From a US Housing Bust”, by Paul Kasriel, in July 2004
“Mr Bailout”; by Antony Mueller; in Sept 2004
“The Creation of a Bubble – The Housing Market”, by Jens Kjaer Sorenson, in Sept 2004
“America’s Unsustainable Boom”; by Stefan Karlsson, in Nov 2004
“Down In the House”, by Bruce Bartlett, in Dec 2004
FROM this point on, the warnings come thick and fast. The following authors have been acknowledged by various article writers to some degree or other:
(In no particular order)
Steve Keen
Peter Schiff
Nassim Taleb
Barry Ritholz
Jim Rogers
Keith Fitz-Gerald
Nouriel Roubini
Fred Harrison
Steven G. Horwitz
Michael Hudson
James A. Bianco
George Reisman
David Kenner
Paul Krugman
George Goodman
R.D. Congleton
Bill Bonner
Judy Shelton
Mark Skousen
Harvey Golub
Ken Rogoff
Roger W. Garrison
Steve Eisman
Lew Rockwell
Jeff Scott
Mark Zandi
Ivy Zelman
Meredith Whitney
Martin Feldstein
Paul Cleveland
Thomas DiLorenzo
Robert Blumen
Thorsten Polleit
Gerald Celente
Hans F. Sennholz
Joseph Salerno
Ambrose Evans-Pritchard
David M. Walker
February 2nd, 2010 at 10:00 pm
@ Phil Best – An experimental psychologist is hardly qualified to quantify the physical limitations of the earths resources.
a little joke….
Q: How many psycologists does it take to change a light bulb?
A: Only one… but the light Bulb has got to want to change!
but the real funny part is…This statement is true only as long as the Psycologist has access to at least one light Bulb!… and yes light Bulbs are at some point finite… the question is ‘what is that that point?
Julian Simon was accomplished in the art of ‘Interlectual Masturb@tion’ but… sadly, he failed to make the connect between his life and experences with the constrainsts of physical real world.
maybe he did too much LDS in the 60’s?… So forgive me when I object to his philosiphy’s being the basis of exponential urban sprawl.
February 3rd, 2010 at 2:32 pm
Mouse, that is a scurrilous bunch of lies about Julian Simon. The Julian Simon I am talking about was a resource economist, and the author of “The Ultimate Resource” and “The State of Humanity”. Those books should be required in any Uni syllabus that purports to teach about resources. Julian Simon and George Reisman should be regarded as some of the most important intellectual influences of our time. Instead, a bunch of lies prevails. Shite, I feel like an honestly informed German might have felt in the late 1930’s.
February 3rd, 2010 at 2:34 pm
MISH has the Aussie housing bubble summed up. Debate HERE:
http://www.interest.co.nz/ratesblog/index.php/2010/02/03/top-10-at-10-obamas-debt-lie-china-cracks-down-on-3rd-mortgages-macquarie-banker-embarassed-dilbert/comment-page-1/#comment-58435
February 3rd, 2010 at 2:37 pm
Read about Julian Simon winning bets against Paul Ehrlich and other alarmist idiots on Wiki:
http://en.wikipedia.org/wiki/Julian_Lincoln_Simon
WHO
“……failed to make the connect between his life and experences with the constrainsts of physical real world.”……..? Nice description of Ehrlich and Co, Mouse.
February 3rd, 2010 at 4:26 pm
@Phil Best – a couple of points…
1- Julian Simon ‘BA experimental Psycologly 1953′… read a little further down the Wiki Link…
2- If Julian Simon truely believed in himself, why make a few nickle and dime wagers with Ehrlich and Co…. Why did not bet the farm Lever up and take positions himself on NYMEX?
The fact is he did not even truely belive in his theories himself!… Simon was nothing more than a simple contrarian with a passion for interlectual masterb@tion.
Furthermore Ehrlich and Co were not wrong in their veiws any more than Steve Keen’s is with his veiws regarding the Aussie Housing market… Loosing a bet does not necessarily make your thinking wrong… the issue is only one of time perspective.
PS. Julian Simon also had a degree in Economics… But I won’t bore you with a list of economists who have also been wrong… the list is too long.
February 3rd, 2010 at 4:38 pm
@PhilBest –
Try thinking of yourself as more like Tom Cruise… an intelligent good looking chap whose thought process is clouded as result of Cult worship.
February 3rd, 2010 at 5:28 pm
“…..Simon was nothing more than a simple contrarian with a passion for interlectual masterb@tion……”
Great argument, really relevant; couldn’t be said of Ehrlich and co just as relevantly, could it? Or anyone who writes books and essays and stands for something?
What about resource alarmists taking market positions to get rich on their predictions? Examples of successful ones, please.
“…..Ehrlich and Co were not wrong in their veiws any more than Steve Keen’s is with his veiws regarding the Aussie Housing market… Loosing a bet does not necessarily make your thinking wrong… the issue is only one of time perspective…..”
What a pity we don’t live longer. Malthus, Ehrlich, Mouse, et al, all dying regretting that if only they’d lived long enough to be proved right about resource runout…..
Like all the other alarmists, you won’t be able to say “told you so” in your lifetime. You MAY get to interfere in a totalitarian way so that resources are left in the ground, exploration and technology research come to a halt and the world economy collapses back to the Stone Age; a Green totalitarian movement would be the former USSR and North Korea, times ten.
WHO is the blind cultie?
February 3rd, 2010 at 10:12 pm
Phil Best –
Sucessful is a subjective term… but what about…
1- The Tutsi’s and Hutu’s that survived the Genocide in Rwanda… that was about competition for resources.
2- The American Indian’s that live on reservations today… they survived having their resources taken from them… they get by running Casino’s and drinking white man’s fire water.
3- Surviving Easter Islanders… they overconsumed their resources… and that resulted in a large population decline… Capt. Cook visited them but did’nt stay long… He logged they were a sorry looking bunch…and went about his business
4- Anyone in Haiti who has locally grown food to sell.
I could go on, but “resource alarmists” as you like to call me are taking defensive positions… They are short ‘fiat Money’ and debt… long physical resources like land shelter, items that may be of value to trade when, as Voltaire say’s… ‘Paper money reverts to it’s intrinsic value [i.e. that of paper].
Actually I am just hopeing I am wrong… it’s just that I am yet to be proved so with a reasonable agrument.
Phil… I hate to dissapoint you but there ain’t no conspiracy… the truth is large organisation by nature just gains a certain ‘inertia’ they do stupid things and make mistakes… we need to be mature enough to deal with that on that level… I would’nt want to see a one world govt… But AWG is real. and it needs to be addressed.. .climategate exposes some of the mistakes of inertia… but, cheap Light Sweet Crude and fiat money are painting humanity into a corrner ….>
http://www.energybulletin.net/node/51365
February 4th, 2010 at 11:49 am
Mouse: “…..Successful is a subjective term… ”
And HOW, given your examples.
I agree on the fiat money, but not on the oil. I am so gloomy about the fiat money that I doubt our civilisation will survive the coming breakdown of the whole medium of exchange and in this case all discussions of resources are moot. I do not believe that gold will be worth anything either under a scenario where fiat money has broken down. You can’t eat gold.
On the oil, seeing you missed it:
PhilBest Says:
January 31st, 2010 at 3:48 pm
I’m happy to say it loud: peak oil is just as much of a non-problem as anthropogenic global warming. Most of the alternatives to Oil are viable at oil prices of $50-70 per barrel. (eg Fischer-Tropsch coal to liquid) The only thing stopping full scale investment in them is the potential for oil to keep going lower than that if the Arabs feel like it. And it would go lower if the alternatives started to make a dent in oil demand.
The world needs to be much shorter of oil yet, but even when it did run out, there is about 1000 years supply of the alternatives the cost of which equates to approx $50-$70 per barrel oil.
The alarmism is a combination of “great leap backwards” Gaia religion Green ideology, and opportunist big oil looking for excuses for more gouging.