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RBNZ's Bollard says money printing by other central banks spilling over as capital inflows into small, open economies, causing 'problematic' pressure on NZ$

Currencies
RBNZ's Bollard says money printing by other central banks spilling over as capital inflows into small, open economies, causing 'problematic' pressure on NZ$

By Bernard Hickey

Outgoing Reserve Bank Governor Alan Bollard has commented in a speech in Australia that quantitative easing by major central banks was spilling over as capital inflows into small, open economies such as New Zealand, which was proving problematic because of the resulting upward pressure on exchange rates.

"Unconventional policies can have unconventional side effects," Bollard said in the Sir Leslie Melville Lecture at the Australian National University in Canberra

"We are currently observing spillovers from large economy QE (Quantitative Easing) impacting capital flows and exchange rate pressures in small open economies," Bollard said in the speech titled: "Learnings from the Global Financial Crisis".

"Continuing exchange rate pressure is problematic for a country like New Zealand," he said.

Bollard went through the history of the Global Financial Crisis and then talked about the resulting policy challenges for central banks and policymakers in this part of the world.

"Australia and New Zealand escaped the worst of the financial crisis, but not without extraordinary policy actions of our own at various times, and not without a certain legacy of issues to deal with in our own neighbourhood," he said.

The New Zealand dollar has firmed in recent weeks to four month highs despite a 6% fall in commodity prices over the same period, prompting some to call for Reserve Bank intervention. Former Reserve Bank of Australia (RBA) board member Warwick McGibbon also called in an Australian Financial Review opinion piece for the RBA to intervene to offset pressures of foreign central banks buying Australian bonds with their freshly minted reserves.

Bollard pointed to the QE programmes carried out by the US Federal Reserve and the Bank of England, which had tripled and quadrupled the size of their balance sheets respectively.

He then went on to describe a 'new world' where the threat of deflation was real for some countries and inflation was low in others. Real per capita GDP growth had been insipid at best in most advanced countries since the crisis.

"The risk aversion in global credit markets is still reaching our shores via bank funding markets, in the form of elevated funding spreads and a heightened demand for local deposits," Bollard said.

"Although these developments at least partly reflect a transition to “new normal” balance sheet structures, it is also possibly a sign that the pre-crisis model of highly leveraged and interconnected banking may no longer attract investors That of course could be a helpful thing for macro-financial stability and for the rebalancing of non-bank balance sheets – provided it persists when good times return," he said.

'Could last a generation'

Bollard then went on to changes in household spending and borrowing behaviour, which could last a generation.

Global spending and investment appear very cautious, and seem likely to remain so for some time, given the overhang of debt from before the crisis. In advanced economies, deleveraging in the private sector appears to have started, but will take a long time – perhaps a generation. Very cautious households are a large part of the story of a slow and fragile recovery. They have been hit hard by sustained labour market weakness, and in the US and some other advanced economies this has been compounded by loss of housing wealth and balance sheet weakness.

The apparently lower appetite for debt among New Zealand and Australian households is an interesting departure from the recent past, or perhaps a return to the more restrained standards of post-war years. In New Zealand, this continues, despite an emerging pickup in housing market activity (albeit off a very low base). For example, New Zealand household credit growth has traditionally tracked the value of house sales, but this relationship has loosened since the crisis.

He also went on to refer to how strong demand from emerging Asian nations for commodities had boosted the high real exchange rates in Australia and New Zealand and was hitting the non-resources sectors, a process often referred to as the 'Dutch Disease'.

The high exposure of Australia and New Zealand to emerging Asian demand for industrial raw materials and protein has sent the relative prices of those products, and hence our real exchange rates, to high levels. While that shift has encouraged labour and capital to move to those sectors, high real exchange rates are also promoting expenditure switching towards foreign goods and away from domestic ones. Non-resources sectors and regions are squeezed as a result.

Moreover, the pressure of the high nominal exchange rate is not the only relevant “headwind” for our economies. Sectors other than those directly exposed to resources are seeing their relative productivity and cost-competitiveness decline. This reflects the ongoing and rapid industrialisation of Asia, and perhaps globalisation more generally. In New Zealand, the most obvious relative decline is in import-substituting sectors.

'Destabilising herds and the need to be humble'

Bollard said the GFC had reoriented the economic research agenda.

Beliefs that self-stabilising processes in the economy and financial system generally dominate destabilising herd behaviour have been shaken up. The potential and proper roles of financial, fiscal and monetary policy, have also been seriously challenged by experience.

The management of tail risks is the supposed province of regulators, financial experts and insurance contracts. Yet the industry’s extensive risk-management apparatus failed to anticipate and struggled to cope with the financial crisis. Some markets that locked up involved recent financial instruments such as complex mortgage derivatives, whose behaviour under stress had never really been tested.

When markets struggle to clear at any price, and when cross-border exposures grossly multiply the number of relevant variables, formal modelling to support risk management becomes difficult. By definition, tail risk analysis is about extrapolation of observed behaviour to speculate about scenarios never before seen. We should be humble about our frameworks’ ability to capture these scenarios.

Economists have yet to get fully to grips with the complex roles of the financial system, financial frictions, asset prices and credit flows in international macroeconomic dynamics. The research and policy communities are now busy introducing richer financial behaviour in models. Some promising avenues include study of how financial margin behaviour can propel economic booms, financial incapacity can exacerbate busts, and diffusion of bad news can generate panics. Experimental economics is using lab settings to study human reactions to imperfect information and discontinuous events.

'Weak banks holding the economy to ransom'

Bollard then went on to talk about financial regulation and the moral hazard problems created by taxpayer bailouts of failing banks.

The crisis confirmed that the financial system’s central economic role, and sudden escalation of systemic problems, make it politically very difficult to ensure that a bank’s shareholders and creditors bear the full costs of the bank’s failure when the entire system is under threat. Weak banks, effectively holding the economy to ransom, readily pass their liabilities and risks on to governments. Authorities’ priority in the midst of a financial crisis tends to be focused on ensuring that the liquidity crunch conditions sparked by bad banks do not drag good banks under.

All the various forms of official support involve unpalatable market distortions and incentives for further bad behaviour (moral hazard). While equity stakes capture some upside from the rescue for the government, they also involve difficult governance problems. Junior debt leaves the government with credit risk but no influence over risk-taking. Senior bank debt limits the government’s credit risk, but can make the bank’s fragility worse by scaring off private investors. Government guarantees of deposits and other liabilities might limit the upfront cashflow implications of financial support, but cast the shadow of moral hazard very broadly.

Moral hazard can probably never be eliminated, only reduced, especially after the widespread bailouts and government guarantees seen in the crisis. Some level of regulation and supervision to constrain the extremes of risk-taking behaviour will therefore always be necessary.

Macroprudential policy

Bollard then went on to talk about the need for 'macro-prudential' policies to control bank balance sheets across the financial system. However, his comments were cautious and appeared not to commit his successor, Graeme Wheeler, to anything in particular.

Macro-financial policy settings are intended to deliver automatic stabilisation akin to that of fiscal (tax and benefit) systems, as well as larger buffers against system-wide shocks and some degree of leaning against strong credit upswings. The settings would be reviewed from time to time to suit changing financial and economic circumstances. Macro-financial settings would be expected to change much less frequently than monetary policy.

Like most policy interventions, macro-financial measures (such as capital and liquidity buffers or restraints on certain kinds of risky lending) involve costs in the form of potential distortions to financial activity. Such interventions are likely to complement monetary policy, but this cannot be guaranteed. Indeed, we have very limited practical experience of macro-financial policy.

These concerns suggest that macro-financial policy should not seek to be too activist. Distortions will be most likely to occur where a policy intervention creates an opportunity for regulatory arbitrage between the regulated and unregulated sectors, or between regulated and unregulated activities. And the incentives for arbitrage will be greater under strong credit demand conditions, suggesting the likelihood that any restraining effect of macro-financial tightenings on business cycle upswings is likely to be small.

Under such conditions, the appropriate response to a future credit-fuelled upswing could well be a combination of measures. Macro-financial tightening would counter banks relaxing credit standards and undermining the stability of the overall system, while monetary policy tightening would address rising inflationary pressures associated with the strong credit demand. But in comparison with other policy areas, macro-financial policy knowledge is still immature, and we have a lot to learn.

'Zero-bound problem'

Bollard then went on to talk about vulnerabilities in the banking systems in Australia and New Zealand and the potential problem of the 'zero-bound' on interest rates, where the effectiveness of interest rate cuts diminishes the close interest rates get to zero.

Local issues include the relatively heavy dependence of our economies on bank lending, the relatively heavy dependence of the banks on foreign funding, and the high degree of concentration of the banking sectors. We therefore seem to face a similar priority to other advanced economies in reducing the risk that investors will progressively tighten constraints on the room for fiscal action. Countries with high debt/GDP positions remain exposed to the longer-term economic outlook, putting a premium on structural reform measures to promote growth. Of course, implementing such reforms is easier said than done, especially when their short-term effect on demand is usually adverse.

The fiscal balancing act over the next few years is to restore headroom through consolidation where possible, while taking into account any adverse short-term impacts on activity. This should help reduce the chances of getting backed into the very difficult and constrained space in which a number of advanced economies now find themselves. However, this is of course yet another policy challenge in the category of things easier said than done. Moreover, the link to monetary policy is particularly important in the current environment, because of the zero lower bound on interest rates. Fiscal austerity is probably not as contentious when monetary policy loosening can offset its short-term effects on economic activity.

'Plumbing not neutral'

Bollard said monetary policy had been effective in reducing the high inflation of the 1970s and stabilising it through the 1990s and 2000s, but now it faced new concerns.

First, financial cycles are evidently able to destabilise the economy without necessarily implying large inflation fluctuations. Second, the financial system is far from neutral “plumbing” for the real economy. Instead, it substantially modulates economic shocks and can generate shocks itself. It can also materially affect monetary policy’s effectiveness in stabilising economic activity. We can probably expect that, for some time, risk premia on private and public debt will remain much more variable and differentiated, and a source of noise in the policy formulation process.

How monetary policy strategy should account for these complications is not at all settled. It does not help that monetary policy settings and interventions themselves have been highly unusual in many countries. Many researchers are studying the possible adverse effects of very low interest rates on investor risk-taking, and the effects on global financial conditions of large-scale QE activities by major central banks.

There are other questions, such as how to set interest rates in a deleveraging environment. Increased saving promotes the longer-term stability objectives of stronger balance sheets, but its impact on demand needs to be accounted for. In addition, the exchange rate effects of monetary policy are no doubt important, but distinguishing these impacts from other influences is far from straightforward.

'Unsafe territory'

Bollard acknowledged the zero-bound problem was not that far away in New Zealand and Australia, where official cash rates were 2.5% and 3.5% respectively.

Conventional monetary policy is safer known ground, but central banks, including in our region, are realising they may be pushed by events into unsafe territory.

 The large expansion of the central bank’s balance sheet under QE markedly increases the central bank’s financial risk, and its dominance in the targeted markets distorts market pricing (indeed, the distortions are one means by which QE is believed to work). These factors place limits on how much QE can be relied upon as an additional tool.

In a globalised world, big players lowering their domestic interest rates, whether by QE or any other tool, will (all else equal) tend to promote capital flows to other countries and appreciation of their exchange rates. As a small open economy, New Zealand has often seen the effects of carry trades on the exchange rate. This can be distortionary and problematic, because an economy relies on its exchange rate as a signalling price.

(Updated with more detail, charts)

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35 Comments

Really.... go figure....now how long has this been happening...

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WTF? It as if our Monetary and Fiscal authorities did not know about this problem, while the entire economy struggles to remain competitive , our export  industries get gutted and manufacturing gets screwed .

Has treasury not heard of the Currency war and how it affects us ?

What exactly do all those overpaid public servants in the Treasury do all day?

Hell , even I knew this was happening and was likely to stimulate demand for the NZ $, and I am some clueless ageing baby boomer. I recall blogging about it on this site  in 2010.

 

 

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On reflection , its unacceptable to stand by and do nothing ... this is not the Kiwi way

New Zealand needs to be really bold and do two RADICAL things for 1 year ( and review it annualy )

1) Fix the exchange rate at the 5 year average (pre the GFC) against the US$and track it accordingly

2) To prevent speculators screwing us,  we need to have exchange controls for the period

Malaysia did this to protect itself not that long ago , and it worked  

We have interests to protect and those interests are New Zealanders, why should we get dragged down by the stupidity of the Eurozone and the US  ?

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Who let this clown out as a representative of the top echelons of the best intelligence the country has to offer.

 

Really .. sounds like King Canute Bollard standing on the sands at the edge of the water at Spirits Bay Cape Reinga, willing the pacific ocean to turn back .....

 

Spillover? What? Spillover? 

 

Ok introduce a spillover tax .. tax all that hot-money flooding into the country every day. It's not new .. been going on for a long time .. and if the big-boy-banks do some more QE you can guarantee you're gonna need a bigger bucket.  

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HEADLINE on interest.co.nz article, by Alex Tarrant.

Finance Minister bemused by Euro Tobin Tax talk

Not in favour of NZ tobin tax, unless all others do ..

 

Right .. he's bemused is he .. and so he should be as he does the King Canute thing alongside his stooge Bollard. Can someone tell him the money is flooding OUT of EU and flooding INTO NZ

 

In case you are confused it's not european money .. it's Asian and Central-Asian and middle-East Petro-Dollars looking for a new home. They're getting out of the Euro having previously transferred out of the USD into Euro. Now they're transferring into the AUD and NZD.

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JK and BE are both well out of their depth but there is no excuse at all for Bollard to bemoan our fate and not do something about it.

And it is not just the petro-dollars but the flashover from loose Chinese cash reported to be $120 billion flowing out.

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The talk about our high dollar confuses me. When I was young man I travelled to the USA, late 70's, I got $1.10 US for an NZ $. We farmed cattle at the time and were doing fine.  Over the years our $ has weakened but so have my profits. Once we ended up in the high 30's but that year was not exceptional. The price for cattle has been remarkably stable over the last 20 years with no major collapses. If the $ drops then the middle men take their cut and the producers  get little benefit. Periods of low $ are seen by the processors as times of windfall profits as are droughts and are not passed on like they used to be. What has been happening is a constant inflation rate above our trading partners, and often close to double digits, costs are now a a major consideration in farming, its all about what we can do without, what we dont need to do anymore.

A low $ may hide the effects of poor policy or whatever but the reality is something is going on in NZ that is much more sinister.

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AndrewJ. You're gonna have to consider becoming a currency cowboy.

 

If Bernanke does some more QE at the next FOMC meeting, the USD will depreciate, the NZD will appreciate. That means if you have some cash sitting around over there in the US you should switch it back to NZD before the FOMC, and then after the QE has been done and the USD gone down, switch your NZD back to USD.

 

That's why there will be a flood of money into the NZD early September, then out again late September.

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Yep :-)

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The way I see it is the Euro is a mess and Germany loves a low Euro. The USA has a number of probelms and like the UK they are able to QE better than the rest. They want more competitive currencies and they are going to deliver one way or the other.   WE are stuck beside Australia with relativly low government borrowing and we are an English speaking Western democracy. We need to adapt to a strong currency.

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Andrew, would you say it is a good time to become a farmer, given the price of land?  Fertilizer?  Is the protein production worth the work, when selling it? 

 

Jim Rogers says the next wealthy drivers of nice cars will be farmers. 

 

http://theeconomicanalyst.com/content/vancouver-housing-full-correction…

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Well we would have to destroy a lot of debt first and then everyone would have to get used to more expensive food. The parasites would then come after us and our costs would escalate. A lot of my friends already have nice cars just a lot of debt as well.

 I think we will have a few years of serious correction in agriculture, after that we could see higher prices.

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Andrewj - Ahh the 70's, cheap imports, SMP, inflation, Muldoon, Tarrifs and a different type of tax system. Very little tax collection compliance, no GST, fringe benefits, OSH, RMA etc must have been a thousand pieces of legislation less than now.  And people didn't air their dirty laundry in public.

 

All I can say is WTF happened - oh thats right the 80's followed and set the table for a whole new laundering service.

 

"Over the years our $ has weakened and so have my profits"  yes it is all inflation and most of the inflation comes from internal sources.  Government and its Agencies.  Land and buildings involved in farming are difficult to make a profit on and every farmer knows that.  And people who don't have a clue demand that Government implements spending on Agencies, projects and infrastructure to get the economy going without ever considering what the actual return will be to the economy. 

 

They used to once have compusory military training perhaps we now need compulsory private enterprise training.

 

 

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The other problem, which needs consideration, is the influence and growth of corporates in NZ. Landcorp will probably remain our biggest but we now have Chinese government investment, along with Dutch and German, even our Super fund is jumping in, along with ACC. I don’t know if I want to be a medium sized player in a small fishpond with some seriously ambitious predators.

Landcorp make the most of their size to get substantial premiums we don’t know how big but the rumors which while unconfirmed, likely, are that they are significantly more than the rest of the countries farmers who, lets face it end up paying them. In the Venison industry Lancorp has a major advantage over any other farmer.

 When I was last in Canada the farm I worked on 25 years ago was still trucking on but no longer, at 20,000 acres considered large, the corporates have moved into Alberta, the farm when I was there faced a certain amount of animosity from locals but now that’s gone as corporates  buy up large.

 The farm owner went to a corporate farmers shareholder meeting and came back horrified unable to understand how they could keep on buying land aggregating small farms and becoming a monster, when it was obvious to him, their farming system was not as profitable as his. Reminded me of Landcorp in NZ.

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http://peterlbrandt.com/grain-markets-may-be-on-verge-of-final-blow-off…

It is the wrong time to become bullish on U.S. agriculture. In fact, it is the right time for grain farmers to sell their land for an outrageous price and retire to Hawaii. This is a post for another day.

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Andrewj - thanks for your links above. I have been watching this closely and it looks like the markets have factored in a fair bit of the drought effect.  The charts are indicating a "breakout".

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Can anyone tell me who owns ' Farm lands of Africa inc'  ?

http://www.agrimoney.com/news/africa-farm-firm-acquires-220000-hectare-…

 

http://www.otcmarkets.com/stock/FLAF/company-info

 

Company Notes
  • Formerly=Farm Lands of Guinea, Inc. until 3-2012
  • Formerly=Kryptic Entertainment, Inc. until 4-2011
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Look like chancers..

 

FLAF Security Details Share Structure Market Value1 $4,604,168 a/o Aug 08, 2012 Shares Outstanding 9,208,335 a/o May 10, 2012 Float 3,214,315 a/o Nov 18, 2011

from:

http://www.farmlandsofafrica.com/management.php

DIRECTORS

  • Mark Keegan (Chairman): A farmer with experience of transforming low-grade cattle ranches in Argentina into highly productive soya and maize farms. He speaks fluent Spanish and will be bringing a full management team from the Argentine to train local labour.
  • Cherif Haidara has an MBA in Administration and advises companies with business interests in West Africa.
  • Michael Barton is a past President of the North West Society of Chartered Accountants. He has been a director of numerous public and private companies and was chairman of New Hibernia, Mark Keegan's Company in Argentina.
  • Nigel Woodhouse is a Fellow of the Royal Geographical Society, who has had a 35 year career in Horticulture and Aquaculture. For the past 15 years he has been consulted in writing Standards for UK and European organic movements.

 

and from:

http://bankrupt.com/TCRLA_Public/091201.mbx

NEW HIBERNIA: Creditors' Proofs of Debt Due on December 4
---------------------------------------------------------
The creditors of New Hibernia Investments Limited are required to
file their proofs of debt by December 4, 2009, to be included in
the company's dividend distribution.

The company commenced wind-up proceedings on November 19, 2009.

The company's liquidator is:

          Robin J. Mayor
          Clarendon House
          Church Street, Hamilton
          Bermuda

 

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Let's do some QE ourselves and send our spill-over back the other way.

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Indeed, we have very limited practical experience of macro-financial policy.

But in comparison with other policy areas, macro-financial policy knowledge is still immature, and we have a lot to learn.

What honestly is left to be said beyond the above admission......effectively it's not our fault , we do only what we know to do, if that fails we do it some more, because we really are out of our depth on Macro financial policy.

 

On a positive note we are aware of our short comings in regard to speculative overflows taking full advantage of our infantile approach.

Bollard , I told you here near four years back to return to your office and await further instructions.....you are redundant.

During your tenure of "Wait n See" a forex trader has come to lead our economy, I am absoluetly sure the forex trader thinks the timing could not have been better given the benign leadership of the RBNZ.

Disgusted.

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A bit late in the day, but otherwise mostly a good speech. Bollard has at least finally admitted what many of us have been saying for years. Inflation only targetting is no longer a suitable measure; the OCR is no longer the only suitable solution; and QE and the carry trades cause us fundamental problems.

He shows his personality weakness in saying  that we are studying the effects a lot'; and that central banks should be relatively passive: 

"Indeed, we have very limited practical experience of macro-financial policy.

These concerns suggest that macro-financial policy should not seek to be too activist. "

Some humility at least- perhaps too much humility frankly. The paper seems an acknowledgement that the Reserve Bank non action since the GFC has been disastrous, especially in not addressing the exchange rate. He is still trying to blame other central banks. That bit is nonsense. They must do what they see as right for their economies, and if QE is the answer, that is their call. We then must respond- except that we haven't.

He at least opens the door for Wheeler to make better calls, although Key and English give every impression of not understanding the issues, or that there are plenty of things they can do about them.

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Stephen L, your constant belief that our destiny should be determined by our own initiatives and actions cannot be realised while we remain a small island community in the Pacific Ocean tied to the economic and military policies of the US.  NZ is an economic derivative of the US.

 

The futility of not facing this reality and renumerating the likes of Bollard above the level of his superior in the US Fed highlights the contempt in which NZ citizens are held by the so called local ruling class.

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Stephen,

You may be right, although I refuse to accept it. IF QE is good enough for the US, then in my view they absolve themselves of any authority over others not to embark on that or similar activities.  I also don't think they care that much about us; and to the extent they do, then long term they should like to see us current account neutral, or even surplus.

The Chinese- and other determinedly current account surplus countries like Germany, the Swiss and Japanese, may be upset that the rest of the world wishes to deleverage, so they might have to start doing their own consuming. (The Chinese government at least appears to understand this, but will struggle to change their peoples' culture. The Germans don't yet get it at all; they think all of Europe should be like them, without realising that is in fact impossible.)

If we in fact have foreign masters I suspect they are in the banking towers of Sydney and Melbourne. If indeed we do, then at least let's have the balls to go public and say that the US, Australia, China or whoever insists that we carry on spending a lot more than we earn, so that they can keep buying us up; and that they threaten x consequences if we don't go along with it.

I personally suspect there are no such masters, and we are just weak kneed.

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The ECB would do QE if it could, but it can't. Not allowed to. Against the rules. "Ultra Vires". Thats why they're limited to "sterilised issuance". Until they change the rules.

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Stephen, I can see you have never endured the ignominy of working for an American bank as a barely legitimate 'Alien'.

 

The palpable contempt for 'Aliens' has no end. But I did get well paid for my thought servitude.

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WOW!! It took Alan 3 years to finally come to this conclusion??? Looks like all the central bankers will ride the asset deflation train straight off the commodity inflation cliff before they get a clue.

 

Prescription: STOP PRINTING MONEY!!

 

They have been doing the same thing over and over again expecting different results its time to do the oppose and make money worth something again.

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Questions.

1. What is the value of NZD trades per day?

2. What is the value of actual NZD transactions in NZ

The difference between the amount of NZD traded internationally and what we actually use each day is so great as to call into question what it is actually all about.

NZD can only be spent in NZ ( and maybe a couple of Pacific Islands). Most rading in NZD happens when we are asleep in countries other than our own, traded by people other than ourselves.

They rade the NZD because they can, they will trade anything. If you or I traded in NZD there is a cost for each transaction, so we don't change in and out of NZD/USD every hour, or every day.

The people that trade of course do not have these transaction costs, they can trade almost friction free. So they trade continuously - every second.

People are told that it is OK because these trades are making a market and our finding a price. But who are they making a market for really. Not for experters, not for farmers not for manufacturers. These people have time horizons of decades yet the people who dominate our currency have time horizons of a morning or maybe a day.

It could be that we are using a currency day to day in NZD ( the only place you can) that isn't really our own. It is really owned and controlled by others either through markets or through debt created money- pushing money into our real economy with our say so.

Reading Bollard you get the feeling that it is all High Preist Stuff. He may as well be talking about "Camels and needles".

I think it would be usefull for Interest.co.nz to publish daily or weekly numbers showing our real economy and the amount of NZD traded.

 

 

 

 

 

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It could be that we are using a currency day to day in NZD ( the only place you can) that isn't really our own.

 

I think that's a given.

 

The question is: is there a way out.

 

Clearly, Alan Bollard doesn't have the intellect to answer it.

 

 

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Its on this site :)  I could be wrong but wouldn't you subtract the value of the monthly/annual import and export transaction values from the monthly/annual FX trading volume to get the surplus which is the financial markets only?

eg May 2012 export + import transactions $8.584b   FX transactions $289b   Surplus $280b

http://www.interest.co.nz/charts/exchange-rates/foreign-exchange-trading-volumes

http://www.interest.co.nz/charts/overseas-trade/trade-balance-monthly

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WTF: Right on the money. The hot-money flushing straight through NZ is more than NZD $4 trillion per year.  More than 10 times the country's annual GDP.

 

It's obvious. For the Month of May that $290 billion could be $290 billion done once, or it could be $1 billion flipped 290 times.  Regardless, the valuation of the NZD has nothing to do with its external trade, or its trading partners. It's monopoly-money time. Play time. Even the spot and outright markets are both double the size of the trade market.

 

It's big. So you gotta wonder why the principals of this site, who proclaim "they're looking out for you", helping you make financial decisions, don't and won't touch it? Never have.

 

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The London branches of our local banks need to make a NZD/USD pair market along with others, in the Northern Hemisphere, to price, set, and unwind hedged foreign currency borrowings - ie swaps. Also the foreigners lending to the government in NZD wish to see a liquid price in their time zone to satisfy liquidity and risk management demands. There maybe more obscure factors requiring this service, but I am sure you get the idea.

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Listen to the Chatter:  Attention Alex Tarrant and Bill English

While you weren't looking. A Tobin Tax is NOW in operation. Depositors of funds in the EMU are pulling their funds out and moving to Central Banks with a negative interest rate, ie they have to pay the receiving Central Bank to hold their money. That's a (Tobin) Tax. Now get a wriggle on.

Domestic and foreign investors are steadily losing confidence in the Economic and Monetary Union, and are increasingly looking for safe havens for their money outside the eurozone. In the interest of safety, i.e., preserving capital, they are accepting negative interest rates. And with confidence in the EMU shaken, there is the danger of this capital outflow turning into a self-perpetuating process, further accelerating the tension within the system.

 

PIMCO says:
http://www.businessspectator.com.au/bs.nsf/Article/Europe-debt-crisis-capital-flight-eurozone-pd20120810-WZT28?OpenDocument&src=sph

 

How much of that is New Zealand getting

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"Has The Flight of Capital From The Eurozone Begun?"

http://www.marketoracle.co.uk/Article36002.html

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"Weak banks, effectively holding the economy to ransom, readily pass their liabilities and risks on to governments. Authorities’ priority in the midst of a financial crisis tends to be focused on ensuring that the liquidity crunch conditions sparked by bad banks do not drag good banks under"

Let me rewrite the above fluff....

All banks are holding the NZ economy to ransom thanks to gutless self serving govts that continue to this day...and it has always been the intention of Tweak and Fiddle to bail out their mates..the same mates who jerk the govt strings to ensure they can suck on the NZ economy...so the taxpayers will be the ones who will bail out the parasites either as they are doing right now...or by way of capital injections from Bill English..dressed up as important measures aimed at bringing about growth and recovery in our time...

"when good times return"......this is so much utter drivel from Bollard....he does not have the courage to point to the worst yet to come and that when he uses the term 'good times'...he means times without any real growth but lacking serious bailouts.

The NZ economy has been mismanaged into a corner of debt by fools out to ensure they get to park their rear ends in the Beehive. Shearer is working hard to learn how this is done!

There will be NO real growth...just a shuffling of the Titanic deckchairs, over and over again...all sold to the peasants as great govt..vote for us..we will bring you a surplus...we will create the jobs...take your pick folks...we approach the 014 idiot election time.

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