John Key and Bill English don't see global stock rout or slowing Chinese economy leading to NZ recession; English says deficit next year possible; warns KiwiRail regularly costing NZ$200 mln/yr

John Key and Bill English don't see global stock rout or slowing Chinese economy leading to NZ recession; English says deficit next year possible; warns KiwiRail regularly costing NZ$200 mln/yr
Finance Minister Bill English speaking to reporters in Parliament on August 25, 2015. Photo by Lynn Grieveson for Hive News.

By Bernard Hickey

Prime Minister John Key and Finance Minister Bill English have downplayed the potential for last night's global stock market rout and growing signs of a hard landing in China to force New Zealand into recession.

Talking to reporters after Wall St fell another 4% on Monday night and Chinese stocks fell 9%, Key and English said the New Zealand economy was in much better shape than others, including Australia.

They said the Government had no plans yet to accelerate infrastructure spending or engineer a fiscal stimulus in response, although English said it was possible any global downturn could mean a Budget Deficit in 2015/16 was possible. They both said the Reserve Bank had room to cut interest rates if necessary and the Government could speed up spending if the economy worsened.

Key said the stock slump was a wake up call for those who thought markets only went in one direction.

"The good news about New Zealand is we are in a hell of a lot better shape than most other places," Key said.

"Our balance sheet is back in order, we've got ourselves back pretty much not spending more than we earn, households have been saving for the past five years. And the big drop in the exchange rate does have quite a bit impact," Key said, adding that a falling oil price was also good for consumers in New Zealand.

He did say falling stock markets may affect confidence.

'Plan A is the right strategy'

Key said the current's current strategy, or Plan A as he called it, was a good plan, although he would not rule out bringing forward some spending.

"In the end you can always bring forward some initiatives if you need to, spend a little bit more money. Certainly we are in a much better position to prime the pump if we had to do that now," he said, adding that interest rates could also be lowered if the situation worsened.

"We are one of the few countries in the world that have still interest rates at a reasonably high level. The government could drop those further or the government could spend more," he said.

Key said he had seen nothing to support claims of a recession in New Zealand.

"The general consensus view from economists is that the probability of recession might have gone up a little bit, but from very low levels, but overall the likelihood is that we will grow, but it will grow at slower rates than we would have anticipated," he said.

Key said New Zealand's food and tourism exports to China were less vulnerable to a downturn in China than Australia's exports of iron ore and coal, which were used more in construction than by Chinese consumers.

"On the consumer side we are still seeing some pretty strong of numbers. These things have a bit of a lead time about them, but the consensus that Bill had when he was in China was that the impacts of what's happening in the financial markets in China are much more likely to impact on the both the investing side and ultimately on the construction side," Key said.

"But consumer demand side for foods is very strong still," he said.

"Plan A is the right plan, and that is: have flexibility in the economy, live within your means, make sure New Zealand is externally focused. But, like anything in life, we have responded if we need to do that. If we needed to stimulate the economy more, we could theoretically do that. The Reserve Bank could do that. We do have options."

KiwiRail costing NZ$200 million a year

Elsewhere, English said the Government had pumped over NZ$1 billion of investment into KiwiRail, which had failed to make it profitable.

He said the Government was now regularly putting NZ$200 million a year into KiwiRail. He said the Government remained committed to KiwiRail because the public wanted to maintain that infrastructure.

"The original turnaround plan which included over a billion dollars investment from the Government hasn't generated the kind of income that was in that turnaround plan and that's posed ongoing challenges," English said.

"We're committed to KiwiRail, and KiwiRail is really committed to getting to the bottom of that business and it turns out to have taken a number of years of huge effort by the company to get to the bottom of the business, work out where it's costs really are and where it can be more efficient. But fundamentally rail in New Zealand struggles to make a profit," he said.

"If you want to have rail, it looks like it is going to cost a couple of hundred million dollars every year to have it. I think New Zealander's preferences are pretty clear. It wants the government to own a rail company and to have rail, as they regard the alternative as putting too many trucks on the road."

Little says National's approach 'mindless and dumb'

Meanwhile, Labour Leader Andrew Little said the Government's refusal to acknowledge the risks of a global slowdown and devise a 'Plan B' "mindless" and "dumb."

He called on the Government to launch a programme of house building in Auckland to "kill two birds with one stone."

"China is an important export market to us, and it's also very important to Australian which remains our largest export market, so the Prime Minister's claim that we have nothing to worry about with China is utterly mindless," Little said.

"I think the problem with John Key and his government is that they have talked down the serious economic headwinds we are facing. I think we do need to have an honest appraisal and good information about what exactly is happening," he said.

"This government isn't providing that. It's just constant spin and talking up things that aren't there. I think there is a case now for the government to bring forward some infrastructure spending. I think there is a huge piece of infrastructure that would kill two birds with one stone, and that's building more houses in Auckland."

Little said Auckland's house price rise was showing all the hallmarks of a property price bubble, "which is presumably why the Deputy Reserve Bank governor lies awake worrying about it."

He criticised Key's comments about Auckland housing.

"It's just more dumbness from the Prime Minister. We deserve better than that. We actually deserve a Prime Minister and a government that is open and honest with us about exactly what's happening."

(Updated with more comments from English, Little)

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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I wonder if anyone in NZ is taking any notice of brief 14% drop in NZD against JPY last night. Hardly a vote of confidence. I'm sure English would know how to brush it off.

Fascinating - graphic evidence - so, car price inflation just took a leap, or is it a case of previous dealer margin pillaging can accommodate cropping to facilitate sales?

I think it's a bit more serious than that. Isn't the yen still a major source for the carry trade in Australasia.

I think the move you report is testimony to it being unwound. And yes NZ banks have a dwindling reliance on Uridashi notes (currently ~NZD 20.0bn) purchased unhedged by the mythical Mrs Watanabes. Thereafter, I draw a blank beyond Kauri issuance - but it's not defined who the end buyers of these might be.

I think the super margins have sat with the manufacturers; in wishing to maintain their prices and perceived value when the exchange rate was very high, they maintained very high margins. They have plenty of room and capacity to absorb recent falls in the NZD. The dealers more or less make the same margin, regardless of the price. Some previous "discounting" may abate.

I think that's totally irrelevant

Sounds very reasonable Bill - that is, as long as the RBNZ is listening and responds to the strong hint to cut interest rates. If the RB continues to hold up the interest rates above international levels no doubt the Government will need to prime the pumps. Brace yourself this is going to be a wild ride.

If the RB continues to hold up the interest rates above international levels no doubt the Government will need to prime the pumps.

The government never drained the NZ sovereign debt swamp after GFC/1. More graphic evidence

So they want to sell off Kiwirail, too, then.
Softening up of public sentiment.....started.

I don't think anyone would want to buy it.(toll kept the profitable road freight part)
if they did decide to try and sell it the lab/greens would say they would renationalise it if they ever got in power(heaven forbid) the sale price even lower(aka power companies).
$50000/employee/year..cheaper to pay them the dole..makes the one off $30m for rio tinto sound like chicken feed..


Any public service should never be run with the aim of making a profit. It is a service. For us. Which is what we pay taxes for.
You may as well try and privatise the road network.
Incidentally, why is the spend on roads always touted as 'look what we're doing for you, aren't we great', but the spend on any other form of transport always as 'you know, this is costing you this much sure you want this? We could build more roads, you know'.
NZTA website has the amount of money 'invested' in roads a 2bn. This article has the amount 'it costs' (Kiwirail) as 200mio.
If they (Nats) had done what labour proposed, and built the carriages here, we'd have a nice little industry going, more jobs, more train patronage, increased rail network, and less hours spent 'stuck in traffic' (which is also a misnomer. When you're stuck in traffic, you ARE traffic)

There is a cost difference, which roading proponents can exploit and that is NZTA don't have to pay for the vehicles or the fuel while NZRail have to pay for the rolling stock and diesel/electricity. The costs are hidden from view in local council roading rates, ACC levies and excise taxes and only further obscured by PPP financed debt arrangements.

"A Public Private Partnership is a procurement method that usually involves debt funding. It is a long-term contractual collaboration between the public and private sectors to procure transport infrastructure and services. It requires the construction or enhancement of an asset, which is financed, designed, built, operated and maintained by the private sector partner, until its transfer to the public sector at the end of the contract."

true that.

DFTBA I pay tax..never use the rail..
I use the road(s) do I pay for it? you bet.Plenty in rates ruc,s rego, fuel tax..
For years (under Cullen) road users like me have been subsidising the economy as a whole(only about half of the revenue gathered was ever spent on the roads..the rest went to the consolidated fund..
Rail is only useful for large volumes over long distances..passenger rail is uneconomic at any level in this country.
Local metro rail(welly/auck)should be funded by those who use it and by the ratepayers in the area if you must..Why should those in the provinces pay via taxes.(we spend enough supporting the infrastructure left behind as many moved to the cities and left us carrying the can .
It didn't matter where the carriages were built..the patronage would remain dismall..Just cost us more probably.

Don m
User pays doesn't work or isn't logical when it comes to utilities and infrastructure.
We all need
hospitals (health)
fire services
roads (plus other forms of transport)

and so on.
The cost to provide all these should be shared fairly and equally, according to one's means.
yes, some will end up subsidising others, this should not be a reason to gnash your teeth and wail - it means you are in a privileged position and are better off than most (I'm talking in general here, don't take it personally).
This is how a healthy society should be run, or how one is obtained.
User pays only serves to exacerbate divides already present in an unequal society, and in the long run is not sustainable. For everybody involved.

thanks comrade..many of those using subsided rail probably earn more than me anyway so your argument is flawed
I love the use of "fair and equal" ..generally those spouting that claptrap propose anything but..
not sure if Soviet Russia would be classed as a "healthy society" certainly wasn't sustainable..
as thatcher famously said.."the problem with socialism is that eventually you run out of other peoples money..'


As far as I'm concerned, the trotting out of the Soviet's totalitarian state as an example of social democratic principles is a good as Godwinning an economic debate.

that's the problem you face..rail cant win an economic debate ..period..
a political debate ..well we live in a democracy..
dont confuse the two..


You didn't debate.
You called me comrade and implied I wanted to impose a totalitarian regime on your a**.
That's not debating
that's playing the man, not the ball.
But that's ok.
if you have nothing else to contribute, I consider the debate quite finished.

good one.

I see no economic debate on your part.

To go back to a public service v private. A classic is a publically funded health system it costs about 1/2 the GDP of a private one and has a better life expectancy.

To go back to rail as long as diesel is fairly cheap and plentiful, maybe yes as a short term view point. Once this is not the case (within 20 if not 15 years) then to move hvy goods we need electrical power and that has to be on rails.

But why do we have to own the rolling stock and run the day to day operation.
I agree that the government should own the rails but like roads they should let private enterprise run on it for a fee

Socialism helps a country become a healthy society but as history shows, there is a tipping point when socialism starts to do the exact opposite. NZs tipping point was over 40 years ago.

Although only a story this is similar to what is wrong with socialism

A young woman was about to finish her first year of college. Like so many others her age, she considered herself to be a very liberal Democrat, and was very much in favor of the redistribution of wealth.

She was deeply ashamed that her father was a rather staunch Republican, a feeling she openly expressed. Based on the lectures that she had participated in, and the occasional chat with a professor, she felt that her father had for years harbored an evil, selfish desire to keep what he thought should be his.

One day she was challenging her father on his opposition to higher taxes on the rich and the addition of more government welfare programs. The self-professed objectivity proclaimed by her professors had to be the truth and she indicated so to her father. He responded by asking how she was doing in school.

Taken aback, she answered rather haughtily that she had a 4.0 GPA, and let him know that it was tough to maintain, insisting that she was taking a very difficult course load and was constantly studying, which left her no time to go out and party like other people she knew. She didn't even have time for a boyfriend, and didn't really have many college friends because she spent all her time studying.

Her father listened and then asked, "How is your friend Audrey doing?" She replied, "Audrey is barely getting by. All she takes are easy classes, she never studies, and she barely has a 2.0 GPA. She is so popular on campus; college for her is a blast. She's always invited to all the parties, and lots of times she doesn't even show up for classes because she's too hung over."

Her wise father asked his daughter, "Why don't you go to the Dean's office and ask him to deduct a 1.0 off your GPA and give it to your friend who only has a 2.0. That way you will both have a 3.0 GPA and certainly that would be a fair and equal distribution of GPA."

The daughter, visibly shocked by her father's suggestion, angrily fired back, "That wouldn't be fair! I have worked really hard for my grades! I've invested a lot of time, and a lot of hard work! Audrey has done next to nothing toward her degree. She played while I worked my tail off!"

The father slowly smiled, winked and said gently, "Welcome to the Republican party."




Argh! I cringe when I read these simple 'stories' or 'analogies' of complex topics. They've been created to persuade idiots who aren't smart enough (or can't be bothered thinking critically) to support the storyteller's chosen viewpoint. Do you seriously buy into them!? They are pure dross.

Never mind Plutocracy I cringed when I read your post and found that 9 people had hit liked !! The storyteller tried to simplify it but I guess that it doesn't matter how simple you make something lots of people on the left just can't understand......Perhaps there is a neuron blocker added to the water!

Why is transport the only government spending that needs to be spread 'fairly' across the country? Should the government also evenly spread superannuation spending 'fairly' across the country?

Doesn't it already?
People over 65 can apply for Super, regardless of where they live, can't they?
All government spending should be done in the best interest of its constituents.
Not quite sure why you have the word fairly in quotation marks, though.
You just being sarcastic, or is it an alien concept to you?

DFTBA you do realise why the profit is actually in the equation???

"Any public service should never be run with the aim of making a profit. It is a service." so you don't care if the service is delivering efficiently or not...just as long as the system is there?? And if you don't have to pick up your fair share of the costs of that service because you can get it subsidised by someone else who earns more than you, you will not have to worry about what that service actually costs will you?

I don't know what you do DFTBA but there appears to be some significant gaps in your understanding of business and how it're trying to paint a rosy picture of benefits while not acknowledging the risks! Do you by some chance work in the public services?

my guess is an ex school teacher...



How do you come to the conclusion that not 'run for profit' is the same as 'run inefficiently'?
I did point out that costs should be shared fairly. I believe it was Don M who argued, that, just because he lives in the regions and never takes the train, he should not pay for it.
I think Don M would be hugely surprised, if all services provided to the regions were split per capita of who lives there. I believe he would find that all of a sudden, his service bill would be significantly higher....
A public service is not a business. Running a government is not a business. Most of what a government does, is providing social services.

dftba which services are you subsidising for me? .I want to be hugely surprised..

Your local council, or local board, gets to use its rates take for maintenance of local infrastructure and services.
The actual building of such comes out of the national kitty.
Think your roads, your local hospital, your local schools, swimming pools. libraries, etc.
As such, if the initial build had not been subsidised on a national level, your local council/board would have nothing to maintain.
As more people live in cities then in the regions - and wages are usually also higher in cities - this means that a greater tax take comes from the cities. Not the rural constituencies.
I thought this was quite obvious.

DFTBA.....hmmmm---where to start on your post.

Firstly do some homework because what you have written is not correct!!

Before the days of councils there were roading boards.
Residents financially contributed directly AND guess what this is still happening in rural areas!!

Many of the back country farm roads had a direct input from the residents, run-holders or station owners and some still undertake their own maintenance.

There were various funding formulas on local road upgrades........and guess what much of that fuel that has been used on farms was taxed so all that running around lambing beats and calving etc IN OTHER WORDS OFF ROAD USE...was contributing to the tax base that cities got road development funding from while the rural areas suffered.

Do not confuse roading maintenance with other council services! Similarly don't confuse maintenance with road upgrades or local roads with national state highways they all different.

Roading upgrades in regional/rural NZ are a little bit different in how they are funded and even today there is still often a direct financial contribution by residents.
And I hope you watched TV1 last night and the small town of Moeraki and how the residents funded and completed the works on the only access road in to the place!!

You seem to lack experience and depth of knowledge on issues of how things are done.....I take it you have never been stuck in the mud on a rural road in the middle of nowhere with 3 small kids and a boot load of groceries due to a complete lack of maintenance being undertaken. You have probably never had to get out of your bed in the middle of the night and haul trucks up hills with have probably never experienced corrugations that can potentially bounce your vehicle right off the road, You have probably never experienced the nor wester blowing so hard that you couldn't see the road in front of you for the dust, you have probably never experienced a rainy event that washed the road away in front of you or brought down a slip still with your kids in the car and having to walk home in driving rain with them in an isolated area......and then you have the balls to tell us here on that city people are subsidising the roads......

And as for the city people having more people and paying more taxes do you think these cities could survive without the input from regional and rural NZ?? Much like the bureaucracy, cities exist by being a parasite on the productive.

DFTBA....The services on the whole would not exist if it wasn't for the regions and the minority who live and work there.......but there you go I have just learned that centralising the service delivery and then distributing to the regions who earned most of the real income in the first place gets credence on the left !!

City people are being subsidised by the regions always have been.....what do cities actually export apart from a lot of left wing nonsense ??

No, he didnt say anything about efficiency just no profit. My perspective is a public service should not have a profit margin but should be efficient and effective, that way businesses relying on it can do so at minimum cost.

'So how the heck do you know when they are squandering money and resources then Steven???
What did you say - Oh you'll take their word for it !!

It is an impossibility for ANY public system to deliver efficiently and effectively!.....

Yearly audits.
And your last phrase is quite a statement.
Care to back that up with some hard facts?

A yearly audit does not tell you if you have been efficient and effective in the daily delivery of goods or service.!! It is looking for legitimate expenses and income. It doesn't tell me that that $1000 expense could have been purchased for $500.....get my drift.

My first paragraph really answers your question.

But if that doesn't suffice then maybe think about EQC.....and all the work that has to be redone....

what? didn't they learn from last time when they lost on the deal, then were forced to lose again buying back the bits that were run down.

My assumption, Cowboy, the article says that 'the government remains committed to Kiwirail, because the public have indicated that that's what they want'.
I'm just a tad cynical, that's all.

The inference from BE is that without the public being keen on keeping rail, he would dish it right now and sell off all the asset base. That is cynical in the extreme. The guy is just as short sighted as his esteemed leader who with his background cannot or will not see any further ahead than the next seconds that his background in forex trading imbedded in his tunnel visioned brain.

BBIII if you limit all your replies to "its John Key's fault" then you are bound to win any argument here and save a lot of typing..

My only comment is that lack of governance just ain't governing.
Just today while on tour here in Sweden the difference to NZ became all to clear. Here the people expect their government to serve them not to dictate its interpretation of what it can get away with for its own ends. Neither Key or English would be in a Swedish parliament.

Are the roads profitable? Nope! Why should our other important infrastructure turn a profit? Time to kick this lot out...

you have the cart before the horse..
without roads rail would cease to function..freight still has to be moved to and from a railhead..(unless a port is involved)

A mix is required to enable a well-functioning economy.
if rail is starved of funding, then roads would not be able to carry everything required. More gridlock, more hours wasted.

Why should the taxpayer subsidise something that the general freight users don't want to use, because the alternatives (Road freight) are more competitive, more efficient, and offer better service.

Taxpayer already subsidises freight by road.
Which gives a skewed view as to what's more competitive and more efficient..
Freight by road also increases danger to other road users.

'"Taxpayer already subsidises freight by road.'"
I think you are way off there.Road users pay there fair share and then some.
Freight by rail increases danger to road users too (level crossings),plus extra $ put into keeping rail afloat could build safer roads..

Wrong. The damage to roads is directly in proportion to the weight of the load. Trucks do the majority of damage to roads but do not pay the majority of costs. Other road users, ratepayers and taxpayers subsidise trucks. The heavier the truck the bigger the subsidy.

Tell me about it, they cut a forest up the road from me, did more damage in 6 months than the last 20 years. If the Forestry company actually had to pay the true cost of the roading damage, it would have made the block uneconomic.

Brendon .thanks for the physics have never owned a truck have you...thought not.
Did you know Fonterra pay enough RUC,s to seal 400km road per year?
if you read my previous posts you will see I include ruc,s regos rates fueltax etc as contributions made by road users.
rail on the other hand rely on paying customers that come up short and have to be topped up by the taxpayer.
the damage to the road andrewj eluded to would be likely on a rural road ,once again funded by the above means..not the taxpayer

We used to get a lot of funding for bridges and road maintenance from central govt bit I'm pretty sure it's been cut way back. There is a big forest on the coast out of Dannevirke being milled and sending a lot of trucks up a road that are is longer state highway. When the trees were planted we were told the trees would go to the nearest railhead but now it's truck all the way to the port of Napier.
However with log prices so low maybe they will stop milling. I do have my HT license.

can you provide evidence to support your viewpoint? and refute this?

"Heavy trucks obviously cause more road damage than cars, but how much more? According to a GAO study, Excessive Truck Weight: An Expensive Burden We Can No Longer Afford, road damage from one 18-wheeler is equivalent to 9600 cars (p.23 of study, p.36 of PDF).

The study assumed a fully loaded tractor-trailer at 80,000 pounds, and a typical passenger car at 4,000 pounds. That’s 20 times difference in weight, but the wear and tear caused by the truck is exponentially greater."

And trucks wouldn't be on the road Brendon if it weren't for the goods they were carrying and given that the density of populations live in the city we all know were the largest amount of goods head to!! And all the food and other resources that cities consume needs to somehow get from the rural areas to the cities.....and then there is all that rubbish that has to be carted out of the city.........

Rural communities could actually survive on their you can't say that about cities can you....
food, water, electricity.....well it isn't delivered on a wheelbarrow now is it??

....and so we're back to trains and alternative modes of transporting goods.
Which is it to be? Trucks good, or trucks bad? You seem to be arguing for and against at the same time.

I asked you before what you did for a living....honestly I despair at how impractical you seem to be!!

Is this a city disconnect thing or what?? I have no problems with trucks and no problems with them using the roads!!......they are a good efficient way of moving goods around to where they need to be. So not sure where you are coming from apart from the fact you want your journey to be on the train.....and logistic management skills are not part of your day job. And you don't understand subsidies!!

A breakdown of income 2012-15 NZTA plan - RUC's. fuel tax etc



Before we hide under the beds, let's look at where the asset froth genuinely is - the unearned money that's being blown away.

In New Zealand, we have a modest stockmarket, so there's little froth to lose - bar from the obvious flimsy shares.

We're fortunate too in being a country of SME's. These can't stay in business without getting most things right. So there's little unearned money among them, though our bungled dairy strategy will hit many hard.

But there are two big sources of asset instability.

One is agricultural land, where Fonterra 's lack of business nous (all its eggs in one market, undistinguished commodity product, no contingency planning whatsoever, etc), and bankers' lending exuberance will come home to roost.

The other, and this is a big one, is residential property. We may well see what a lot of people have dreamingly called 'asset value 'evaporate. But that'll be good for others who depend on earning real money to buy houses - that is, houses for themselves to live in.

Re Kiwirail, I'd like to see any national cost-benefit analysis between rail and another 10,000 trucks, with all their contingent costs. But the government plainly isn't too hot on national cost-benefit work.

So the Markets are having the usual Seven Years itch (twitch or switch) ?

QE extension soon, to match the Royal QE's record tenure ?

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
Oldie but a Goodie

I think it is possible to have a ..kinda... soft landing , in regards to a deleveraging that results from excessive debt/credit growth.
If it happened in NZ.... I would introduce a version of Gareth Morgans "Big Kahuna"...
Indebted people would have to use it to pay down debt.... all others could spend it as they wished..
( we would finance this by QEing..This is the only version of QE that I would find fair and equitable...)
At the same time ...we would "sort our shit out"..

Ray Dalio is my favorite guy on deleveraging... ( he uses the term... beautiful a possibility )

Krugman in the New York Times correctly, in my view, apportions the underlying cause of the world's economic issues as a Savings Glut.

What’s causing this global glut? Probably a mix of factors. Population growth is slowing worldwide, and for all the hype about the latest technology, it doesn’t seem to be creating either surging productivity or a lot of demand for business investment. The ideology of austerity, which has led to unprecedented weakness in government spending, has added to the problem. And low inflation around the world, which means low interest rates even when economies are booming, has reduced the room to cut rates when economies slump.

Whatever the precise mix of causes, what’s important now is that policy makers take seriously the possibility, I’d say probability, that excess savings and persistent global weakness is the new normal.

My sense is that there’s a deep-seated unwillingness, even among sophisticated officials, to accept this reality. Partly this is about special interests: Wall Street doesn’t want to hear that an unstable world requires strong financial regulation, and politicians who want to kill the welfare state don’t want to hear that government spending and debt aren’t problems in the current environment.

But there’s also, I believe, a sort of emotional prejudice against the very notion of global glut. Politicians and technocrats alike want to view themselves as serious people making hard choices — choices like cutting popular programs and raising interest rates. They don’t like being told that we’re in a world where seemingly tough-minded policies will actually make things worse. But we are, and they will.

I would add that while countries like Germany, Japan, and China are somewhat addicted culturally to spending less than they earn, debt and or asset bubbles will occur elsewhere. Best for their own sake and everyone else's that they start consuming more as countries, or at least accept that from time to time they will do their dough when the bubbles burst.

The idea that there is a savings glut is wrong.... in my view.
Just because some of the rampant credit growth over the last 30 yrs ends up as someones saving... that does not mean the problem or the underlying cause of the worlds economic problems is a 'savings glut".

My parents generation were savers... in the true sense of the word....
I think Krugmans use of the word is a little mischievous...

In my view.... the underlying cause is excessive credit.... too much credit growth.... too much borrowing to spend... ( this is the complete opposite view of a " savings glut" )..

ps... Chinas problems have more to do with levels of private sector credit growth ...rather than excessive savings.... thats my view.. ( private sector debt at 200% of GDP , and which has grown over 60% in the last 5 yr... is a recipe for a crisis... a recipe for an implosion in aggregate demand )

I think the point here is he fact that most of the so-called wealth is owned by people who aren't spending it (the 1%).
They're 'investing' it in shares and real estate, not in anything which would stimulate the economy....
Hence....savings glut.

Yes, how many times does it need to be pointed out. Savings are a direct result of credit/debt creation. Looking at the global picture we can ignore the fact that some households, cities or countries are on the spend or save side of the equation, fact is that savings and debt are equal. Also curious that QE is just creating the same thing (credit and debt) by fiat and that one of the so called nation of savers - Japan has been the biggest issuer of central bank credit. Now why would that be?
Anyway, thought you might enjoy a little of (the even worse) David Stockman:
Actually, dopey does not even begin to describe Paul Krugman’s latest spot of tommyrot. So here are his own words—–least it appear that the good professor is being unfairly caricaturized. In a world drowning in government debt what we desperately need, by golly, is more of the same:A brief recounting of US fiscal history leaves little doubt about Krugman’s strawman argument. During the eighty years after President Andrew Jackson paid off the public debt through the eve of WWI, the US economy grew like gangbusters. Yet the nation essentially had no debt, as shown in the chart below, except for temporary modest amounts owing to wars that were quickly paid down.

In fact, between 1870 and 1914, the US economy grew at an average rate of 4% per year——the highest and longest sustained growth of real output and living standards ever achieved in America either before or since. But during that entire 45 year golden age of prosperity, the ratio of US public debt relative to national income was falling like a stone.

In fact, the real point about the government debt market in today’s central bank rigged financial system is that it has become a venue for state sponsored thievery. That is to say, when the Fed pegs the front end of the curve at zero for 80 months running and then pours $3.5 trillion of fiat purchasing power into buying the rest of the treasury curve, including mortgage-backed agency securities, in order to boost bond prices and lower yields, it is creating a virtually risk free arbitrage for Wall Street gamblers. And that serves no public purpose whatsoever, except to transfer massive windfall profits to the most adept gamblers among the 1%.

Professors Krugman and Caballero actually think this helps?

The problem is that like all Keynesians they do not know the difference between fiat credit, which is manufactured out of thin air by fractional reserve commercial banks or money-printing central banks, and honest debt that is funded out of genuine savings from current income by households and business.

Interesting post, Kiwidave.

Manufactured money has no transactional backing in fundamentals, so represents no exchange of value. It is thus unearned. And here, surely, is the disconnect we have between a falsified financial system and the 'real' economy.

The falsified system is capable of creating great wealth for those working it or benefiting from it, and capable just as quickly of losing it for them. That's one game. It feeds on itself, but reaches below. The pity is it impacts severely on the 'real' economy too - that concerned with earned money, based on fundamentals - why so many lost their jobs and houses last time.

Surely this "glut" is merely vapour-fiat; stock/asset/business values catapulted to unsustainable heights from the keyboards of the worlds central banks. This money went to save the 'welfare queens' of the 21st century, the investment banks, and the costs passed to the taxpayer i.e. the Govts.

Producers all over the world are borrowing to produce (cos consumers are maxed out and can no longer borrow to consume) because this glut is trapped in financial assets and is not available to main street. I include pension promises, such as our own Kiwisaver, in this GLUT.

Credit cannot expand forever; the ‘Minsky Moment’ occurs when the cost of servicing (unsecured) debt plus the cost of running the actual economy exceeds the cash flow that can be generated by more borrowing.
Economic Undertow

“A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him.”

— John Maynard Keynes,

Why does successive Governments insist on continuing to subsidise road trucking companies and stopping Kiwi Rail from being able to compete on an equal footing? They sold it off, and Fay and co promptly neglected the network leaving the tax payer with a burden that is extreme. Rail is also much more ecologically friendly than road transport too.

A simple question.
Please Mr Key tell us what Plan A is as opposed to just avoiding having a plan at all.

I choked on my tea when he said that, my god he does have a plan and does not change things when the polls tell him its unpopular, or it just pops into his head and he blurts it out before he has discussed with B E or S J

Obviously Key never buys his own petrol, if he did, he would realise the price has barely budged while the price of oil has dropped by two thirds. All I think is what a /=_/< /\/ idiot, and the leader we have is the leader we deserve.

In the land of the blind, the blindest man is Key King.

Kiwi rail has been run badly for years. I have several friends who worked there. I said on this site probably 12 months ago they would go bankrupt. Anyone who openly disagreed with the kiwi rail managers decision to buy Chinese trains was fired, while the majority of people that worked there disagreed with the decision. Is it a case of rail being sacrificed as part of the FTA with China? There is no surprise with this announcement, the government has allowed this to happen, and are totally to blame.

Sadly Tim, the government doesn't care and neither do the NZ public! It is what it is, that is, same as it ever was.... We will be run from the politburo in Beijing within twenty years, mark my words... Maybe not overtly, but still no one will care, as long as they are getting richer on their property's eternal capital gains!

This is all overhyped in true media fashion. It's a significant correction, but not a meltdown. The Chinese Govt will prop it up. Chinese will keep buying Auckland property. BAU, move right along.

We shall see, we shall see... But you are correct, the money fleeing China will land slap bang into the Auckland property market and prices will go into the Milky Way, and still no one will care, as long as their property prices go up, up, up.. Except the dummies who didn't buy property "with their ears pinned back!"

The doomsters are usually wrong. How many times over the last 10 years have we heard this event and that event spells the end for the NZ economy? And it doesn't happen. Humans are ingenious at finding our way out of these holes.
I used to be a doomster. But I realised the folly.
I'm not Key's biggest fan. Nor am I his biggest enemy. I think he's right here. And even if he did think it was really trouble, should we expect our leaders to totally talk doom and gloom? Surely we want them to shed some positive light on things, but with some balance in acknowledging concerns? Because, usually, there is a way out of things.
And if you don't like Key, you think Little and his mob are any better? I have serious doubts.

the Chinese government seemed to have stopped propping up their sharemarket. It's down another 7.63% on todays trading when i last looked. I think they have decided to let it find it's own level.

correct - heard yesterday - announced late Friday
China Securities Finance Corp announced it was no longer standing in the market supporting the SSE

Negative... Market commentators are predicting Central Government will be propping up the markets if they keep on dropping, with funds akin to a real move of shock and awe! Now whether it works or not, that is the real question.

Chinese government have cut lending rates again and bank ratios but that money will not head to their stockmarket it will go into other assets fueling other bubbles