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Alex's Top 10: A million new home owners only know crisis rates; Blessed be the short sellers; EU debt deflation; Forward guidance; Bird and Fortune

Alex's Top 10: A million new home owners only know crisis rates; Blessed be the short sellers; EU debt deflation; Forward guidance; Bird and Fortune

Today's Top 10 is a guest post from Alex Tarrant, formerly's parliamentary press gallery journalist who is now based in London.

As always, we welcome your additions in the comments below or via email to And if you're interested in contributing the occasional Top 10 yourself, contact

See all previous Top 10s here.

Hello again everyone. I hope all's well. The sun's starting to shine again in London, you'll all be glad to hear.

1. A million homeowners have only ever known crisis-low rates - and that's for five years.
I read this on my way into work this morning and was thinking all day that I probably should have bought a house in London in 2009. Over a million first time home-owners have taken out a mortgage here since the Bank of England cut its base rate to 0.5% in 2009. CityAM has it:

I wonder what the stats for NZ would be since the RBNZ cut the OCR to 2.5% in April 2009?

The 1.06m who have taken out their first mortgage since 2009 make up just over six per cent of all homeowners.

Those with no experience of higher rates are increasingly keen to borrow – figures from the Council of Mortgage Lenders shows 46 per cent of borrowers in December 2013 were first time buyers, compared with 40 per cent five years ago.

And thanks to low rates, even as house prices have risen the average monthly repayment has fallen from 20.5 per cent of the borrower’s income to 19.2 per cent.

The Bank of England intends to raise rates only slowly, and even when the recovery is fully established expects the base rate to stabilise at around three per cent – well below the five per cent norm seen before the crash. 

2. Forward guidance.
It really is great fun watching the Brits figure out 'forward guidance', the notion that a central bank might actually - shock-horror - indicate when it's thinking of lifting interest rates (if everything plays out according to its forecasts of course...). Our RBNZ's 90 day bank bill track has done the job in NZ for years. The reason for doing this is an attempt to try and reduce uncertainty - if people have a fair idea of when they might get whacked by higher mortgage costs, then they can plan accordingly and a rate rise hopefully doesn't come as a shock.

The problem for poor old Carney is that he linked his forward guidance to the unemployment rate, instead of, er, interest rates. If someone were to say to you they would use a lagging indicator for forward guidance, you'd ask them to repeat themselves. Now he's having to change it. For the better, we're told. Basically to reduce the uncertainty brought in by the original forward guidance. The chaps at the BBC explain:

So what has happened since the summer?

In Mr Carney's own words: "The unemployment rate has fallen much faster than anticipated... and is likely to reach 7% by the spring."

This jobs growth has meant that the Bank has had to take a fresh look at its forward guidance policy.

As a result Mr Carney said that, instead of just the unemployment rate, the next phase of the Bank's interest rate policy would be determined by a range of different indicators. These included aspects such as the output gap - the gap between potential and actual output - and broad terms such as income and spending.

All this has made the policy somewhat more confusing.

Oh right. That's much easier. (Not).

3. Shrove Tuesday.
I'm including this because I have never come across it before. Do we do this in New Zealand? My Mum's English and I never heard of it, yet everybody at work on Tuesday asked me if I was having pancakes for dinner. We cheated and had corn fritters (well they're sort of pancakes), with bacon and a poached egg on top. Beautiful.

Is that allowed?

4. FONTERRA (Lord of the Rings country's only company) IS AWESOME!
Screamed the headline on the FT's website. Not really, but pretty much. Apparently we're the Saudi Arabia of milk now.

It's funny. I always think it's fantastic when I read a story like this on a big UK-focussed publication. But then you look back, and they're all generally along the same lines, published every so often, just to show 'we haven't forgotten about you". Jan Wright even gets a mention. Right at the bottom.

Manifestation of this bounty is likely to come in the form of higher interest rates – New Zealand is expected to nudge its rates higher on March 13 – and the Kiwi dollar may surpass parity against the Australian dollar for the first time in 40 years, according to a report by HSBC.

Should not have swapped my NZ savings into pounds.

5. How the Fed is having to explain itself.
Apologies if this has appeared earlier. Have you guys come across the Grumpy Economist blog? He has the most fantastic chart ever from a Deutsche Bank economist. As he says: forward guidance seems to be getting harder. A fantastic chart.

6. Further cuts to come in the ECB rate?
And not necessarily because of deflation, but just lower-than-expected inflation. Ha. We have the no-deflation-no-need-to-cut-rates-further brigade cornered now. I found this piece on iMF Direct pretty interesting:

Both deflation and less-than-previously-expected inflation increase the real burden of existing debt and the real interest rate that borrowers pay. As it happens, the countries with deflation/low inflation...also happen to be the ones with already higher debt burdens (private + public) and real rates, and include all the countries that have been under market pressure during the crisis.

7. Krugman explains it all.
And has a good old go at the ECB for good measure:

It’s the perfect antidote to the do-nothing voices insisting that there’s no problem, because we don’t see actual deflation yet.

Part of the IMF analysis concerns debt dynamics. They don’t put it quite this way, but I’d say that to have debt deflation — in which falling prices due to a weak economy increase the real burden of debt, which depresses the economy further, and so on — you don’t need to have literal deflation. The process begins as soon as you have lower inflation than expected when interest rates were set.


Is ECB policy constrained by the zero lower bound? You could argue that it isn’t, since it could cut a bit further than it has but hasn’t. I’d argue, however, that if nominal interest rates were much higher — say, 4 percent — but the overall euro macro situation were what it is, with inflation clearly below target and unemployment very high, the ECB wouldn’t (and certainly shouldn’t) hesitate at all about cutting rates substantially. It’s only the fact that zero is already so close that makes cutting rates seem like a big deal, an admission that things are looking dangerous (which they are).

8. How not to respond to someone on Linkedin. (and how to translate 'Brit-speak').  
A colleague sent this to me earlier today (yesterday for you Kiwis). Basically a lesson in how not to use a networking site. A college grad sent a message to Cleveland businesswoman Kelly Blazek regarding any job opportunities. This is the response she received:

We have never met. We have never worked together. You are quite young and green on how business connections work with senior professionals. Apparently you have heard that I produce a Job Bank, and decided it would be stunningly helpful for your career prospects if I shared my 960+ LinkedIn connections with you – a total stranger who has nothing to offer me.

Your invite to connect is inappropriate, beneficial only to you, and tacky. Wow, I cannot wait to let every 25-year-old jobseeker mine my top-tier marketing connections to help them land a job. Love the sense of entitlement in your generation. And therefore I enjoy denying your invite, and giving you the dreaded 'I Don't Know' [scribbled-out name] because it's the truth.

Oh, and about your request to actually receive my Job Bank along with the 7,300 other subscribers to my service? That's denied, too. I suggest you join the other Job Bank in town. Oh wait - there isn't one. Don't ever write me again.

Now that's pretty harsh. But the best bit in the article was the Guardian blogger's revelation of a note on her company's US office wall for when they're dealing with British colleagues:

What the Brits say: Quite good
What the British mean: A bit disappointing
What others understand: Quite good

What the Brits say: Very interesting
What the British mean: That's clearly nonsense
What others understand: They are impressed

What the Brits say: I only have a few minor comments
What the British mean: Please re-write completely
What other understand: He's found a few typos

So true.

9. And the Lord said: 'Thou shall be allowed to short sell.'
The Church of England is having to defend its decision to invest more of its wealth via hedge funds. The FT reports:

...the group “does not have ethical concerns about short selling per se as an investment practice,” and “did not make an ethical distinction between seeking to profit from a rise in the value of a security as against seeking to profit from a fall.”

This is in sharp contrast to the views of John Sentamu, the Archbishop of York, who attacked short-sellers as being “bank robbers and asset strippers” in the 2008 financial crisis.

The Church’s ethical body has advised that the appropriateness of shorting “depends on the way in which the technique is used”, and has instructed church funds not to invest in managers who make “large directional bets” on a stock’s decline.

That's pretty much what short selling is, is it not?

10: Video: Here's one for the election year. Bird and Fortune down the pub:

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Satoshi Nakamoto (long believed to be a pseudonym), the man who invented bitcoin, may have been uncovered and is in fact a man called Satoshi Nakamoto (age 64, of California)
"I am no longer involved in that"…


#8 I've always thought that the Accept and Ignore options on LinkedIn were not sufficient. There should be a "Get F$%^ed" button that expresses my displeasure at being approached by the approacher. I don't like some people and I want them to know that - Ignore just doesn't do that - does it! 


What about the US ships option - neither accept nor ignore.


#3 It seems to have been resurrected - sort of like Jesus, I suppose, tho' I doubt they ate pancakes in his day and for sure they didn't have maple syrup (which by the way is great on corn fritters too).


No 1 - interest rates, inflation/deflation.

NZ and the World needs needs to have a massive debate on real/actual money and the created money via the book entry component which has been commonly termed "money which is created out of thin air".


Charging the same interest on money that exists on a book entry only, has a huge affect.


I would propose that the real/actual money that is used to secure the leverage needs to have a higher interest component to be paid than the created out of thin air money.

As the newly created money gets paid down and thus can be used to leverage further created out of thin air money it would attract the higher interest rate component.


It is the responsibility of the RBNZ to ensure there is Financial Stability and yet the term Financial Stability is not clearly defined. Should Financial Stability be described as ensuring the underlying asset is protected and doesn't become vulnerable and exposed? The RBNZ does acknowledge depositors funds as being the real asset that backs all debt created out of thin air and I assume that is their real reason for formulating the OBR.

The OBR for example is a very deliberate attempt to ensure that the real/actual money that depositors own will be used as security against a bank that were to suffer an OBR event. 

The RBNZ informs us that using depositors funds during an OBR event is suitable as depositors should wear risk like any other commercial transaction. While on the surface this sounds reasonable I for one don't believe the reasoning behind the statements and worse the whole OBR is really a wolf wearing sheeps clothing scenario.


The real/actual money that backs the created money should receive higher interest rates than the created money. Applying the same OCR across the entire system is a systemically flawed model as the risk  of the leverage is not factored in properly.

I would hypothesise that a new two tiered interest rate system would more accurately reflect the market conditions of supply and demand for deposits and newly created money with debt.


Newly created money (debt) should attract a lower interest rate as this money is not in reality brought into existence until any portion is paid off.

The underlying asset of the depositors funds which backs the writing of the created money should receive a higher rate of interest as it is the exposed part of the whole transaction.