Opinion: Why China is refusing to let its currency rise and what this might mean for New Zealand

Opinion: Why China is refusing to let its currency rise and what this might mean for New Zealand

By Bernard Hickey

Prime Minister John Key seemed to capture the mood of the moment a few months back when he mused about risk of New Zealanders becoming 'tenants in their own land.'

That followed the debate around the Chinese-funded bid for Crafar Farms and prompted the government's review of large foreign purchases of farmland. Key is, if nothing else, an excellent sniffer of the breeze of public opinion and economic trends, and not just in New Zealand.

The concern about China using its massive foreign reserves to roam the planet buying supplies of the commodities it needs is genuine and global. The World Bank published a report this year about the risk of China and other large surplus nations buying up land in developing countries. It rightly pointed to the risksof corruption and of exploitation.

But it's worth looking at the economic forces behind China's great land grab that are creating such turmoil in global capital and currency markets. They highlight a great clash between the forces of capitalism and nationalism and between a rising global power in China and a declining global power in America.

China has built up the biggest foreign reserves in the history of the world in the last 10 years, increasing them from US$165 billion to US$2,454 billion. It did this by holding its yuan or renminbi currency relatively low to encourage its exporters. It effectively subsidised its exporters at the expense of its own consumers. This strategy of keeping a currency low to build exporters and manufacturers is known as mercantilism. It's been happening for centuries and it's understandable for developing economies who want to industrialise their societies.

It seemed to work a treat too for American companies, who systematically moved their factories from America to China to reduce their costs and increase their profits. Many promptly paid out those profits to themselves in the form of bonuses and high salaries while laying off skilled manufacturing workers in America. It seemed like a good idea at the time. It depended on the theory that America would reinvent itself as it has done before through a process of 'creative destruction'.

This reinvention has happened, but only partially, and now as the tidal wave of easy money has gone out in the wake of the Global Financial Crisis it's becoming clear to most Americans their economy has been hollowed out and most have been made much poorer. Real wages for America's middle and underclasses stagnated or fell through much of the 2000s, but they kept spending as if they were getting richer. They did it with the help of bankers in Manhattan who were lending them money hand over fist and paying themselves big bonuses throughout. Those same bankers were borrowing their money from China.

It was a big money go round that left China holding a lot of US Treasury bonds and Americans in an awful lot of debt. This all worked well for both countries until America's debts built up to unsustainable levels.

The Global Financial Crisis was essentially triggered by America's realisation that it had borrowed too much, fueled by the cheap money provided by China. At some point this imbalance of trade and capital flows has to be turned around if the global economic system is to be sustainable. That's why there is such pressure on China to allow its currency to rise versus the US dollar. That would allow the natural automatic stabilisers to kick in.

A higher yuan makes Chinese exports more expensive and American imports cheaper, helping to boost the US economy and slow down the Chinese economy. The problem is China is refusing to quickly revalue its currency because its government itself benefits from the growth of these factories. They employ many migrant workers and have helped lift wages to keep the populace happy. The political pressures on the Chinese are intense.

Where to put the money?

So now they hunting around the world for other places to put their cash pile, other than the US dollar, which is about be devalued by a flood of money printing.

Key, a former currency trader, is more aware than most of the dynamics of these global stresses and why the Chinese are so interested in our land, in Australia's mines and Brazil's soya beans. This weekend finance ministers are meeting to Washington to talk about these tensions in the global trading and capital system, now described as 'Currency Wars'. We can only hope they find a solution and can cajole China into allowing its currency to float higher.

If they can't we have to be ready to deal with a potential flood of these newly minted US dollars looking for hard assets that produce food with our ample water.

Key is right to worry about our ability to keep control of our assets.

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?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

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Aymereeka has itself to blame. The Chinese didn't force Govt Motors or any of the others to shift production to Asia. How quickly people forget about the massive union liabilities built up in the usa. And who remembers the day Nixon nixed the gold standard and started the production of a toilet paper currency.

The financial trickery that created the trillions in debts lived on Wall street. An Aymereekan invention. They wallow in a pit of effluent of their own making.

China has been revaluing its currency. They refuse to bail out the Yanks and rightly so. Why should Beijing create social unrest in China just to keep Barry Obama in the Whitehouse!

As for Noddyland, 'we' cannot save because 'we' are now trapped paying almost all our income as interest on the created bank credit so that 'we' could gamble for capital gains. Even a National MP only a week ago said NZ agriculture is our 'subprime'

I mentioned all of this this some 2 yrs ago in posts here....Chinese setting all this up decades ago,, most probably one of the biggest economic coupes in history....The change from Vienna to London and London to Wall street where all 'accidents of the time'......this one has been purposefully manipulated in the same manner, and still has a few yrs to play out to its conclusion.

Commonsense and history repeats

Also we dont have a professional political PM in Key, we have a very competent CEO, and it is this that the rest of the pollys bar a small handful can grasp..espec  Goff.

Most CEOs move up the ranks, eventually to take over multi nationals...Not Key...he has proven to himself hes good at what he does...so what is next?  I can just see him mushing a while back...CEOs come and go history forgets them....PMs good and real bad ones are remembered in history books Savage, King, Vogel, Muldoon....he wants to leave a lasting mark, saw the opportunity ..the way the economies where heading, (The Chinese, the US blindly following the big short term profits and Bush forever the village idiot) and what would result, yrs ago.

So, he understands what's going on, then what's the cunning plan?  Take the money while it's sloshing around the system looking for a safe haven.  If we don't like the outcome, we'll just nationalise it anyway,

 "Here is where Bernanke is firing a warning shot across Congress's bow. His speech is a warning to Congress that the Federal Reserve will not take the hit. It will not destroy the dollar in order for Congress to play its game of deception."

 http://www.marketoracle.co.uk/Article23375.html

Do you think the Noddy govt has faced up to the mountain of BS built by itself and all previous govts in this country! You are a fool if you do.

The state splurging machine must be throttled a dam sight quicker. The brief opening exists for the beaurocrats booted out to bugger off to aus and prove themselves in the private sector. $500ooo salaries plus have to be chopped back. The golden state sector pension scheme must be slashed. The handouts and perks for MPs in retirement have to stop. The bloody borrowing must end. The benefit munny tree needs ripping out at the roots. Retirement age must be placed higher. This country does not and never will have an economy that creates enuff wealth to cover the liabilities no matter how big the bloody govt lies are.

You're out of touch

The sate sector defined benefit pension scheme was closed to new people in the mid 80's.

The MP perks were removed from anyone who entered Parliment less than 10 years ago.

There are no state servants on $500k + (I think you are getting confused with SOE chiefs)  

What's an SOE chief when not a state servant....and don't tell me the salaries are fair. Why are MPs getting three times the salary of a senior teacher. It's a friggin joke. 60 are not even elected. Bums on too many seats.

Cut out the list garbage....chop it to 60 electorates. Make the term of govt 7 years. That would cut the costs by hundreds of millions. Fewer electorate seats would likely mean more by elections during govt terms and that would keep them on their toes.

Lock in govt spending to a fiscal deficit ceiling. End the pork slicing vote buying BS.  

"Retirement age must be placed higher."

Sounds good on paper...but in reality are these people going to be kept on and/or employed on equal footing by the younger generation bosses?

Or will they just be transfered from Super to benefit?  And does this achieve what on paper looks good....The difference between theory on paper, reality and commonsense.

It can be done Steps...it already has been done...recall the age was 60!...the problem is the reduction in liabilities might be seen as an opportunity by another useless progressive socialist labour mob to splurge on more vote buying benefit BS. What is saved by a National govt will be wasted by Labour.

Read this again....and this time substitute 'Congress' with 'New Zealand'...and then you have an excellent chance to see and understand why Noddyland hasn't got a chance in hell of ever escaping from the endless game of political BS and spin. You will conclude that if you want to make the most of your life..you will get out of here.

 http://www.marketoracle.co.uk/Article23375.html

Take a look at the behaviour of both main parties of political liars in Noddy. National are hell bent on protecting their rump of support by bailing out the agricultural losses while pretending to the urban workforce that they have a 'strategy'...........the progressive socialist Labour liars are already engaged in cooking up promises to swap for votes while rubbishing National's 'strategy'.

A pox on both their parties. They are both as bad as each other. Will the system change....it has in the past but not enuff to rid us of these lying fools. We need govt to have 5 years and maybe even 7 if they are to apply policies that extend beyond 3 years. Such a suggestion at first makes us spew at the thought of what might emerge from the slime......but the pain of being booted out of office for 21 years...3 terms....would soon shake the crap out of any BS govt.  

Wally/Wolly, you are spot on with this. I said in a post a week or two ago, that after 20 years of following NZ politics, and financial patterns that nothing has changed, and now the country in covered in turd. Yet still people feel that voting every 3 years makes a difference. WAKE UP NZ you are living in la la (noddy) land, and most of you don't have a damn clue do you!

Wally you are also right about the getting out. I love NZ, but came back after a long stint abroad, worked for a period of time, saw that nothing had changed and in fact to me is was even more laughable than when I had left, that people still even engage in NZ politics in embarrassing in the extreme, so I left again, and most likely will not return to the country I am proud (but only just these days) to be from. Makes me sad actually.

I see you're still pushing the failed concept of Fortress New Zealand, and the big step backward to the Gulag.

I'd be interested on your comments on the below two posts by US economist Donald J. Boudreaux :

1) In the face of your pushing China as some sort of modern day success story, what say you of the following:

http://cafehayek.com/2010/10/they-do-have-a-comparative-advantage-at-imprisoning-political-dissenters.html 

Quote:

If Mr. Gruber means that Americans are somehow failing economically, especially compared to China, he’s wrong.  First, per-capita income in China today is what it was in the U.S. in 1932.  Chinese per-capita income now ranks behind such economic giants as Namibia, El Salvador, and Albania.  Second, manufacturing output in the U.S. reached an all-time high in 2007, and declined slightly in 2008 (to its level in 1999) and is today recovering.  Third – and the chief fuel for the prodigious growth in American manufacturing output – per-worker productivity in manufacturing is skyrocketing in the U.S.  Today that output is just shy of 50 percent higher than it was in 2000, 130 percent higher in 1990, nearly 200 percent higher than in 1980, and almost 250 percent higher than in 1972.

Myths and misconceptions do not good policy make. 

2) In the face of your dinosaur mercantilism, what say you of this:

http://cafehayek.com/2010/10/exports-and-the-depression-of-1920-21.html 

Quote:

One of the steepest financial crises and depressions in U.S. history began in January 1920 and lasted for 19 months.  During that depression, Americans each month exported, on average, $583.6 million worth of goods.  During the 19 months immediately following that depression, Americans each month exported, on average, a mere $321.0 million worth of goods.  That is, exports during this period immediately after the depression were only 55 percent of what they were during the depression.

And not until October 1941 was there a single month following the depression of 1920-21 in which American exports again reached the level of their 1920-21-depression monthly average.

Clearly, this depression was not ended by any “export boom.” 

 

Finally, at last the academic economists are demonstrating the contradictions in your posts, Kim Jong, and the disaster (economic and I would say more importantly, philosophic) your ad hoc policy suggestions would lead to. Perhaps spend your Sunday on these:

http://www.tvhe.co.nz/2010/10/06/a-step-too-far-the-case-against-pursuing-direct-capitaltradecurrency-controls/ 

(Though I don't agree with some of Matt Nolan's comments: mind you, being a utilitarian he is philosophically pre-disposed to the tyranny of majority, unfortunately.)

And this from Eric Crampton: http://offsettingbehaviour.blogspot.com/2010/10/trendy-economics.html

Thanks for the Sunday morning reading , great links , Mark .

Matt Nolan's piece was an excellent rebuttal to the Hickey Fortress Theorem . ............ " Consumers and bankers need to be saved from themselves " .............. seriously , Bernard ............have you  been hanging out at Labour Party conferences or something ? Or merely had a loss of memory and totally forgotten the pre 1984 economic landscape in NZ !

The facts relating to China's GDP/person , and to USA manufacturing production/ productivity , have been totally absent from any debate around here . .. Until now ! Why have you missed these , Bernard ? Are you " independent " in your economic journalism , or biased toward presented only those stories which validate your new found central planning fiscal approach ?

The problem isn't an issue of mechantilism vs capitalism - as the world's reserve currency is controlled by a corrupt crony capitalist state of the worst order of magnitude.  Too big to fight, if you will.

So when the ideal/aim of Hayekian capitalism and Jeffersonian republicanism is totally usurped by the actions of the crony capitalists - what should be the response by those nations/entities being persecuted by the cronies?

What we have found is we cannot change their politics ala Mike Moore's attempts - we can only change ours.  Call it shorting the "free market" - we don't need to abandon it altogther, just place a safe bet against it in the meantime.

 

Unfortunately Kate your 'safe bet' always leads to the repression of individual liberty, and is just  another step toward the Gulag.

But the point of the US economist  I cited above was not that: it was that Kim Jong Hickey's economics is wrong, even on the level 'of' economics. He suggests policy based on a view of economic fundamentals that are flawed because he does not understand economics (apparently, going by his postings here).

some worthwhile research and reading Ta....Tribeless.

Tribeless,

So you think the system of the last 10 years of crony multi-national corporate capitalism has worked?

Lower real wages for most in developed economies. Vastly higher household foreign debt and lower percapita GDP. Good outcome?

Thanks for those links.

cheers

Bernard

While I don't disagree with you as an overview Bernard.......I was expecting something a bit more substantial in reply................I mean Mark obviously spent a bit of time putting that together and you wipe him with a throwaway line ending in a..... ?............robust I don't think so.

How about  fostering intelligent input regardless it being the flavour you desire.

Not sure that there requires any complex retort Christov, the simple facts are exactly what BH writes and you agree with.

While endless diabtribe of economic theory is all good and well, the simple fact is that for the vast majority of the western worlds peoples, and the same of the 3rd worlds peoples, the economic/trade and financial systems have failed them

All the complex windbagging often using statistics which have been spun into meaning less BS over many years does not alter the fact that the siuation the world is in for most people, is rooted!

Bernard , the largest  part of the last  decade in NZ were under the control of the Labour Government , who amply demonstrated why your  new model of central planning ought not be instituted . The Clark / Cullen / Simpson control freaks took nearly half of the country's GDP into their control , and lashed out on a series of welfare programmes , and a massive build-up in the public service . ........... And look where that has left us now ! Crunted .

Cullen's idiotic high tax policies caused people to run for tax shelters ....... So much for central planners knowing what they do .  The unforessen consequences to Cullen's actions severely stuffed New Zealand . The free market or " crony capitalisnm " did not do it . A spiteful , arrogant plonker in parliament did .

nonetheless...GBH there is a need to start somewhere in  an effort to find better ground.

We can assume I think,  that the 'FREE MARKET" is not just suffering a bad rap without some involvement..........often it it better to focus the spot light on our weaknesses in order to extoll our virtue.

And in that do you not think the Global Banking Industry as the (self ordained) flagship of the 'Free Market" is in need of reining in......regulation....demotion in the chain of power...?

 Think it through......I have no wish to ant feed the queen of a bureaucracy either but there has to be some changes in view of the events that have overtaken us Globally.

Prudent , workable banking regulations were thrown out by the US congress , after the local big banks lobbied heavily . The EU had already deregulated , and their banks were taking market share from the Yankee banky . The era of easy credit had begun .

Alan Greenspan kept interest rates too low , and for way too long .

Freddie Mac & Fannie Mae ticked off on homeloans to anybody . No standards applied . Many were non-recourse loans , allowing the mortgagee to skip out scot-free if things turned ugly .

Put all that together , much of it stuff ups by central planners , enabling unfettered credit growth , and ka-powie , we're in the bubble zone !

Kim Jong said:

So you think the system of the last 10 years of crony multi-national corporate capitalism has worked?

I am a fundamentalist laissez-faire free marketer. I believe that the Austrian theory of the business cycle explains better than any other theory what caused the events starting August 2008, and predict what will happen from the current continued Keynesian crony capitalism followed by Western economies (by foolish economists who believe in the macro, as you do).

So in relation to your question, what do you think my stance on your question is? (If you were working from an integrated philosophic and economic base - as I do, which I can sum up in one word: freedom - you would have understood the foolishness of asking me that).

Question back at ya: if you believe that the last 10 years of crony multi-national coporate capitalism has not worked, then why do you continue to advocate the policies of crony multi-national corporate capitalism?

 

 

We aren’t productive enough – low wages employment – unbalanced economy – etc etc.– obviously with not much initiatives for changes - this is all “Déjà vustuff -  but what about looking into and prepare for the future? Where are we in a double dip recession scenario or even worse a possible depression scenario  ?

Deja 'vu all over again , Walter . steven says there is a 40 % chance of a double-dip recession . My modelling suggests that the actual risk is only 32 % . Bernard says ( RadioNational , with Jim Mora ) that we are already in a depression . After reading his " Top 10 " daily , you'd believe him .

Recall , Walter , that at the beginning of 1999 NZ was muddling along happily . Then there was a change of government . And the new finance minister immediately ratcheted up personal income tax on the " rich pricks " ( his words ) , purely out of spite , not because the government actually need the munny ....... With me so far ? ....... Goody ! ............. Over the next 5 years there was an unheralded ramp up in individuals purchasing investment properties and using LACQ's to avoid the new top income tax rate ........... The property market boomed ........

..... Then the  incumbent government bribed the populance ( or key wedges of it , students , for instance ) to win the 2005 election .......... And it also  boosted the pay-roll of the public service  to unprecedented levels . ........ Government spending accelerated , continuing a trend of growing far faster than the GDP growth of the country ......

Now , Walter , join the dots , and tell me why NZ has an unbalanced economy !

hey GBH where u at.....av a look at Bernard's response to Tribeless.....tsk tsk. 

Hello Count-of-Christov : Brown-out all morning here ( massive thunderstorm overnight ) :

Power On , now  !

Yes , not a deeply thought out response my our mournful maestro to Mark's comments . Meebee Bernard is feeling " put upon " by all the criticism his new fiscal theorem is engendering .

As a high profile economic jounalist , Bernie will be copping some flak . And rightly so . Many of his arguments are spurious  ; alotta long stretching of the bow   ;  and some pretty daft " remedies " .

As St. Nick says , the moment the last of the moderate thinkers amongst the financial intelligentsia throws in the towel , and gives up on the free market model , then the worst of the global financial crisis is behind us .

did you find yourself calling out "Skipper.....Skipper" at any time during the night..?

Anyhoo glad to see your powered up again........av a good one.

I recall bunging me pinkies into my ears , 'cos the noise was so loud ........... And then when I discovered that the power was out , using the wax on my fingers to make a candle ! ( all natural ingrediants , and a charming yellow-brown colour )

Kunst old chap....there will be no great improvement from the current crap state of Noddy until the Elephant has shrunk to the size of a skunk.

As well, we suffer from a lack of 'Sir Ed Hillary attitude'...where is the personal effort...the determination to better oneself....the desire to learn....the inclination to refuse the political benefit bribes offered by lying politicians.!

Wolly – reading your comment and I often think you could be much older then I’m.

 ..there will be no great improvement from the current crap state of Noddy until the Elephant has shrunk to the size of a skunk.

 Roger what do you think when in a short time only, two of the most knowledgeable bloggers here agree with each other ?

I thought you were busy banging out the art to flog to the tourists Walter.....same scenes mate...an old artists trick from way back. Oh..... you flog prints and save on the paint...hey that's cool too.

No I'm not one of the many  "NZsceneryartist", but still sold  four paintings (incl. 15% GST) to three ladies from Wellington yesterday. It seems "Wellingtpoliners" are bunch of art connoisseurs.

Roger join the dots , by reading my many previous articles and they tell you why NZ has an unbalanced economy.

Roger, what is the verdict after you joint my dots - explaining our unbalanced economy ?

Roger, when challenged for a debate you often come up with some “Gummy Bear Rhetoric” – or even nothing – or, which is understandable - do you have currently some digesting problems ? Was BrownLee eventually a bit too heavy ?

Bernard, you have just conducted a very intellectually dishonest exercise in falsehood.

As for John Key, it is expected of him as he is a politician and to be politically dishonest is par with the job.

1. Please remember basic accounting: Every surplus Dollar in China must first be created by the US as China cannot create USD.

2. China surplus with the USD and their holding of US T bills are one and the same thing.

3. China cannot force US to import their goods, but the import happens nonetheless because Chinese labour is one-fifth of that in the US.....ie They are Dirt Poor and will work for pittance...will US (or even NZ) workers work for the same??

4. The reason why China is now stuck with a huge amount of USD is because of easy money and cheap money creation by the US Fed reserve thereby causing excessive consumption in US and excessive investment in China.

5. Now everyone is saying China should revalue because they have so much USD and is distorting their currency by pegging it too low.....and that China must revalue. What would happen to China's asset in US T bills then?? They will suffer a loss immediately. Would you do the same ? would you accept less value for your investments just because your debtor say so that you should ?.

6. The answer should be that the US should stop their easy and cheap money policy (like a snowball chance in hell ) and rid themselves of their excessive consumption, not to continue creating money needlessly and try to bully their creditor into debt  hidden forgiveness.

Kin... just to give some balance...   If u compare the money supply growth between China and the USA ... over the last ...say 15 yrs... China has expanded its money supply far more than USA.

The irony is that , Chains policy has probably had just as much an impact on its own , ordinary ,wage earning citizen...  as it has on global exchange rate mechanisims, in terms of how they are supposed to balance trade.

China is "awash"  in Yuan....  my guess is that internal inflation is much higher than reported and that its ordinary people are not better off than they were 10 yrs ago.

This is all a result of their exchange rate policy. ...  They literally  print yuan and exchange these for the USD that their exporters own. ( without regard for the impact that massive in creases in its money supply has on its own citizens).

SO... I agree with what u say...  but it has taken 2 to tango...  and China is not blameless just as USA isn't blameless either.

I tried to find a chart....

http://2.bp.blogspot.com/_-bTJTfQp_a0/TEd4OIK4MAI/AAAAAAAAAV4/6VCkh4YOMi...

As u can see , M2 money in China has gone up 300% since 2004.

@Roelof, sorry to disagree. 

The rise in M2 is not caused by China money creation per se. It's the trade surplus PLUS Hot money inflows from foreigner PLUS FDI (esp USD inflows to take advantage of possible Yuan revaluation. ) China has not undertaken any QE of any sorts so there is no money creatrion without reserves to back them. The fact that China is sterilising  USD inflows and buying US T bills and still have such large money supply growth shows how enormous the problem is being created by cheap and loose money creation from the US Feds. 

Yes I agree with you that vast number of Chinese are still not seeing the benefit of their country's economic progress, but that is because of the vast size of the country and it's population (1.3 billion in case you forgot) Which basically means that China still has a lot to do and a long time to do it before we can really call the country developed and it's population enjoy a better standard of living than now. This would be cut short if it is forced to revalue too early. Any large (even 10%) revaluation now would cause massive bankruptcy and job losses in China (most chinese export business  earn less than 3% margin on their exports)

Kin... we can't blame the huge money supply growth in China solely on the USA.... 

The fact that the Yuan is a fixed currency is the PRIMARY reason that the money supply has grown at such incredible rates (300% in 6 yrs).....  this money supply growth puts Chinas GDP growth into perspective.

Of course ... the trade surpluses and the DFI, hot money inflows, going into China are the fundamental reasons for their money supply growth....BUT it is the fixed exchange rate policies that are the " multipliers" of that growth ... ie.. ( 300% in 6 yrs ) 

Growing money supply at these kinds of rates....  leads all sorts of very serious problems, within China itself.

U said  "The fact that China is sterilising  USD inflows and buying US T bills and still have such large money supply growth shows how enormous the problem is being created by cheap and loose money creation from the US Feds. "

This in not correct.....  USD inflows can only be sterilised if they are not exchanged for  Yuan . The fact is that Chinese exporters exchange their foreign earnings ( USD ) for Yuan....    and then the Chinese GOVT invests that foreign exchange in USA.....   the massive growth in money supply show that nothing is being sterilised.

Why did they choose to hold their foreign reserves in USD....????   Do u think it was to help USA to purchase even more goods from China..?????    To help keep the USD high..????

They have reached a point where the distortions mean they will have to revalue the Yuan upwards...and yes, it will cause alot of damage within China.... The problem is not that they will revalue too early but that they have left it too late.....   we have reached a point where people talk about "currency wars ".  AND there is no one to blame for that ...but China.     

China is now a World leader...   USA is so much in the shit that China needs to consider that.....

Anyway.... just my thoughts.

Well Bernard .....some responses to Tribeless and Kin  would appear to be in order....I shall look forward to a robust / robut( choose one) yet clean debate.....we like that around here in blogland.

The mistake is to assume that there is any point in discusing unworkable fringe economics with funde extremist loons....

regards

Exactly my point too , steven ......... Waste of my time banging on about those " funde extremist loons " , Labour 1999-2008 . And a mistake to assume a point in " discusing the unworkable fringe economics "  of Michael Cullen .

Finally steven , we agree ........ Bravo upon the scales falling from your eyes . Welcome into the light .......... [  But you need a spell-checker , dude . ]

The mistake is to assume that there is any point in discusing unworkable fringe economics with funde extremist loons.... 

So says the man who recommends living like the Amish as the cure for Western ills. Yeah right.

It's a pretty sad day when support of the free market, that system that has brought so much wealth  and freedom to the West, and more so the more it has been allowed to flourish ... pretty sad day when support of that is considered 'fundamentalist'. Though I'm proud and wise to be a free market  fundamentalist.

Tribeless - you may be proud, but you have to be able to think, to claim wisdom.

You fail that yardstick by a goodly margin.

You just chant mantra. Someone else's at that.

hello there PowerdownK..........to be fair I think Steven took the first cheap shot and so Marks reply was tainted with a bit o spite.

For me while I may not agree with Marks philosophy I support his and others like him here to champion their cause with  a commitment  and further to engage them on points where they are accessible and from time to time amenable ...................I see this as the way forward in finding a mix that has workable merit.

I suppose on some subjects I would be considered an extremist fringe loon.....but I am willing to listen .

Can someone please explain to me since when championing the free market, which is to champion freedom -  the prosperity from which the West is currently pissing against a wall of Amish airheads like steven and powereddown - since when, exactly (remember the  Allies fought WWII over it) did this become extremist?

What do you all think the founding philisophy behind the free West is? Where else would you want to live, but in the ideal of that?

And what does it say about people- lets call them Amish airheads from this point, given steven thinks the answer is to live the subsistence lives of the Amish (hell, the Soviets were better off)  - that they view  freedom as a matter of spite or point setting?

I saw Kim Jong on the news tonight, the real one with his tanks and missles, not the wannabe: he rules over a country of goose-stepping morons who have no lives at all, and yet so many people on this site advocate the Hairy One's economic policies: Fortress North Korea meet Fortress New Zealand meet central planning, starvation and the Gulag.

 

What makes you think all North Korans, simply by circumstance of their birth, are "goose-stepping morons"?  Do you somehow scorn and blame them for having been born into a political system of autocratic dicatorship?  Does that make them all morons?

And what about the beauty and precision of the arts in many of these cultures which are "non-West"?  It is a mistake to judge a country's people/culture by its political circumstance. 

Do you somehow scorn and blame them for having been born into a political system of autocratic dicatorship? 

No, I feel sorry for the poor goose stepping morons. The major point of my posts is I am trying to avoid a bunch of goose stepping morons in this country turning the society I live in, which was once free, into one of goose stepping morons. Or worse, Amish.

And what about the beauty and precision of the arts in many of these cultures which are "non-West"?  It is a mistake to judge a country's people/culture by its political circumstance.  

Absolutely agree Kate. I love art, literature, music. At least that which is from the enlightenment, not born of nihilism as so much in the West has become. But that has nothing to do with my post which was solely about how North Korea has been forced into being a nation of goose stepping morons, and how I, desperately, do not want to be forced into such a nation, yet, many of the posters here talk of a hatred of freedom and that system which is the foundation of freedom, laissez-faire capitalism.

Go figure? It does my head in?

Yes, I can understand your frustration - as I'm a fan of the Enlightenment thinkers as well.  Indeed it's a part of history which is the foundation of the historical content of lectures I do - leading of course into postmodernism as well - and again some amazing thinkers there too.

The Enlightenment was of course as much a political movement of its time, as neoliberalism has been in today's society - and it's neoliberalism (not liberalism) which is what most folks in the West are railing against.  Interestingly, the Enlightment ideals tried to rid society of 'the divine right of kings' - and the anti-neoliberals are trying to do the same, only the kings have become the crony-capitalists and their benefactors (the money creators).

So really, your side is not really so at odds with those who frustrate you so much.  You are both seeking freedom from the clutches of the divine right of "kings".

Well, I'm a classical liberal, which is a libertarian, so what would I know about neoliberals? They're crony capitalists. No common bond there. But it seems a strange thing to attack neo-liberals by advocating the return to repression and totalitarian government, the reverse of the Enlightenment. Indeed, every twentieth century dictator has done their best to snuff the Enlightenment out finally - that was Hitler's great evil, the destruction of the Jewish emigre communities of Vienna and Berlin of the early and mid-1930's, and the classical liberal humanism that was flowering from them.

Just as, unfortunately, Postmodernism was the further  nihilism I spoke of; the manifestation that the Enlightenment was ended finally, a once shining classical liberal romanticism and humanism puked out through Johnny Rotten's every orifice. Lucan, Derrida, Foucault: they said language was this dirty thing that could be used to deconstruct freedom, and that is precisely what they did  with it.

Classic liberalism, to my mind is not one with libertarianism.  The latter I understand follows the Ayn Rand political philosophy (if you can call it that) - but Rand was not a studied philosopher, and certainly not up there with many of the Enlightenment philosophers in terms of original thinking.  To my mind, her place in history is as author of fiction - likened more to George Orwell - than Thomas Jefferson.  And she had a 'fan' club, including many cohorts of neoliberalism, such a A Greenspan.

Alan Greenspan was a complete traitor to freedom, and I'm sure he realises it. By becoming the Central Banker, distorting market signals for the biggest economy in the world, he turned  central planner, and then tried to cover up after stuffing it up (especially after the Tech Wreck from 2001) by blaming capitalism. Greenspan was crony capitalism, one of the furtherest things from laissez-faire. Indeed  the meddling Greenspan and Kim Jong Hickey would probably get on well: they both live within contradiction.

I think broadly classical liberal is libertarian: it should certainly be separated from neo-liberals whom are conservatives and often mystical fruitcakes taking their morality from an All Knowing Other, rather than man qua  man - hence neo-liberals, unlike humanist classical liberals, because they often believe in absurdities become as capable committing atrocities (citing Voltaire) as any other group that does not base morality on man qua man.

Ayn Rand was one of the greatest philosophers and greatest original thinkers, and not just of our time, though obviously she was writing from a tradition, which she would overtly trace back to Aristotle. Indeed, Rand on Aristotle is very interesting:

Quote:

If there is a philosophical Atlas who carries the whole of Western civilization on his shoulders, it is Aristotle. He has been opposed, misinterpreted, misrepresented, and—like an axiom—used by his enemies in the very act of denying him. Whatever intellectual progress men have achieved rests on his achievements.

Aristotle may be regarded as the cultural barometer of Western history. Whenever his influence dominated the scene, it paved the way for one of history’s brilliant eras; whenever it fell, so did mankind. The Aristotelian revival of the thirteenth century brought men to the Renaissance. The intellectual counter-revolution turned them back toward the cave of his antipode: Plato.

There is only one fundamental issue in philosophy: the cognitive efficacy of man’s mind. The conflict of Aristotle versus Plato is the conflict of reason versus mysticism. It was Plato who formulated most of philosophy’s basic questions—and doubts. It was Aristotle who laid the foundation for most of the answers. Thereafter, the record of their duel is the record of man’s long struggle to deny and surrender or to uphold and assert the validity of his particular mode of consciousness. 

The above is from the Ayn Rand lexicon: a good place to start sampling Rand:

http://aynrandlexicon.com/ 

 

[Tailpiece: 'Libertarian' is strictly a political term, not philosophical, and is really a coveral for those groups who believe in a free society that is based on a minimal sized state whose only function  is to enforce the non-initiation of force principle. Thus the Liberatiran party contains groups as disparate as myself (classical liberal/Objectivist) and even those mystics, the Christians.]

But did Aristotle base morality on man qua man - as my reading of his basis of moral philosophy/morality is in pusuit of the Golden Mean - the moral mean between excess and deficiency.  I will read Rand on Aristotle - because I too lean toward him from a fundamental perspective. 

A civilising morality of man qua  man was all Rand :)

Well said Kate. Those who say these things are the "Morons" who fail to see that the western version of "democracy" is nothing more than the capitalists version of the same fascism they accuse North Korea of!

Again, I'm not defending crony capitalism, or democracy for that matter, but, Lloyd, so you have no preference between living here (or any Western democracy) and North Korea?

Really?

Chq this...>

"The International Monetary Fund on Saturday night failed to reach agreement on tackling mounting global "frictions" over exchange rate policies despite US calls to deal with the issue more forcefully. "

http://www.telegraph.co.uk/finance/economics/8053433/IMF-fails-to-strike-deal-over-currency-frictions.html

And this....>

"George Soros has warned that a global “currency war” pitting China versus the rest of the world could lead to the collapse of the world economy. "

"Mr Soros added: “Whether it realizes it or not, China has emerged as a leader of the world. If it fails to live up to the responsibilities of leadership, the global currency system is liable to break down and take the global economy with it.”

http://www.telegraph.co.uk/finance/currency/8052729/George-Soros-warns-China-of-global-currency-war.html

 

 

Soros is concerned about the global economy...not!.

Soros is concerned about Soros....

So if he is giving Beijing the stick..there must be a reason..and it has to be to do with bets Soros has placed v the Yuan going up.

Good one George....you stand to make billions on the Chinese revaluing the Yuan up. How have you placed your bets George?...short the UStoilet paper are we...short the Euro poo as well...oh jeez you're not are you..short the bloody pound too...you greedy old bugger!

Wally .....they don't care where the rhetoric is coming from....so long as it gains momentum. 

Mouse ...that is pretty much following the script as I saw it in Fridays 90 at 9 Soros will be the beginning of many such speeches about China's new-found responsibilities....

Ha, ha, Kim Jong Hickey indeed. I was thinking more like, Bernard Heretic, or Heretic Hickey.

Anyway Bernard, keep up the good work, incite debate to challenge the status quo and the 'free market fantasy' I'd rather that than see the path we are on continue toward inciting civil unrest. On that note, folks, what kind of problems do you think China would have internally if they immediately revalued and removed their export subsidies? What does that imply for them, the rest of the world and little New Zealand?

Cheers, Les.

www.mea.org.nz

 

Exactly.........open the debate...the "free market nightmare" really, most ppl are worse off, the ones for who its the fantasy are <2% of the population earning lots off their investments while doing absolutley nothing productive with them.

In fact when you think about it, its the most successful hijack in history....

Think I read somewhere that the Icelantic ppl have indited their ex-PM...Ican but hope justice is done.

Sure keep the free market but make sure it stays free and level...curb the excesses which benefit no ordinary voter and in fact seems to make them poorer.

There seems to be considerable un-rest in China, I get to catch up with the in-laws at xmas it will be interesting listening about what they say from thosedirectly from those on the ground.  But, yes the comments about stability are justified, china has been like that for a lot of history and the last 50 years have been no different...they really do have a problem, all be it of their own making....and actually I think they are going to come unstuck....

and we do have to tie down our assets; resources, land and businesses....they will be looking to spend their money abroad as quickly as possible...

regards

Wolly, you say "Noddyland hasn't got a chance in hell...if you want to make the most of your life, you will get out"

You do sem to have a rather jaundiced world view, and NZ is not as bad as you make out.

You are right that farm prices are going to come back big time, but the export returns are going to be good for some time.You sem to be fixated about the negative factors but there is a balance of positive factors as well

Muzza....the much heralded export returns are going to pay for the credit borrowed to blow the rural land price bubble...that debt cannot be paid off...it can only be 'serviced'!....hence my comment....the rural sector is our 'subprime'.( as pointed out by a National MP)

This mountain of debt is being socialised as you read this post...your savings are being inflated away by the RBNZ in an effort to lower the debt burden. Now you might enjoy this but I don't. English meanwhile is trotting out the spin that the export 'boom' will create 170ooo jobs and solve the problems....this is so much drivel. Even Goofy can see that.

If by chance Mr Market steps in and kicks the crap out of rural land prices..there will be consequences...massive losses that the taxpayer will be expected to pick up because the govt will opt to protect the banks first second and last. You Muzza, are expendable.

The res and rural bubbles are like the giant balls in 'The Prisoner'....whichever way or time of the day you run...the big ball will get you and back to the prison you go. It is a prison term that is set to last for twenty years minimum.

Giant balls? Ah,... Rover.

If only we hadn't "lost China" in 1949, maybe it would all be different with the Pro-west Nationalist (following on from the Generalissimo Chiang Kai-shek) in charge of Mainland China.

I wouldn't be optimistic about that. It could well be Haidi only 150 times worse. Chiang's son took the presidency after him, and there was no democracy until the 90's.

End  1929 the share market crashed..Did this cause the Depression ? NO

Around 3 yrs later into the recession depressed markets, the USA (at the time an up and coming financially influence ) decided to print money, devalue and move to protectionist policies...AND this is what caused the Great Depression...

Sound familiar?  this is what the Chinese have been dong for the last decade.

The Japanese had a go in the 60s and early 70s, but did not pull it off because the recession of late 60s early 70s was just not big enough to tip the scales.

The Chinese learnt from the great depression, and the Japanese failure to pull it off, took their time. Combine this with the Chinese maintaining  the appearance/perception of a 'Communist' country, undeveloped, they have sucked the USA  (who are so full of themselves as the greatest nation on this earth and invincible, 'Rome' cant fall) hook line and sinker, along with most of the western world.

Did the USA give a damn about any other country in the 1930s?  NO

One just needs to look at the US Presidential oath of Office...its ALL about American security, the well being of the American people...blah blah  blah, and the US Constitution is the same. By definition the US Government, CANT give a damn....So why would we expect any different from China in regards to the USA and the rest of the world, except for a few critical small countries that are essential to supplying China with the raw materials they need to be the new Rome in 10 or 12 yrs time.

2 or 3 yrs back there was discussion on this recession being  V  or  U or L  or double dip....the doomsayers where scoffed on the double dip......well all the fundamentals are now in place for a double dip, and going by the attitude of China and the USA, both who dont give a monkeys a55e abut the rest of the world...they are going to fight it out.

Its all in History  and common sense

Where is Neville ?  Im sure he already has a handle on something like this. 

   China China China!..It hasn't the mental empathy for balanced backtrading.  It never had, and never will have.  Like the man said, why should they raise the Yuan,?..They know how the game of Monopoly ends in the real world.History teaches us the only time China plays the game is when they've got a "Gunboat up the yellow river".

    During this time of Economic distraction,an unprcedented arms build up is taking place around the Gulf of Hormuz...Hezbolla wants to have a Coup in Lebanon..and Syria has fifty thousand rockets for Israel..At present Iran is completly surounded. An open ended terrorist alert has been issued, because as soon as Iran is attacked,sleeper cells will do their thing.

  Its estimated eighty percent of terrorism will ceace when Iran is brought to heel.Iran buys the weapons from China and distributes them.The "Gunboat" will will be the supply of oil from Iran to China after the attack. At present China is building a pipeline to get the oil shipped from the gulf to China.So America will get its power back as Iran and Iraqi Oil is fourty percent of the worlds supply.This October is tipped as the window of opportunity to mount the attack.Probably at the times of the new Moon. With any luck we will see a brief regional war. With Israel "De nukeing" Iran with America acting as referee..but it will happen and soon.

By China keeping it's currency pegged to the US it is effectively printing money whenever the US prints money.

China is effectively devalueing Yuan against other major currency whenever US prints money.

And that's half of what US wants - Boeing will be more competitive for Chinese than Airbus, and China already ordered a shitload of Boeing this year.

The root cause is US intentionally devaluing USD, while demanding Yuan to appreciate, in order to reduce trade deficit and save its OWN economy. US doesn't give an a$$ about anyone else, including EU and Japan.

Worst is that they don't give a rat's ass about their unemployed as well.

FYI from an emailer.

Good story Bernard .........

 

But what a lot of people don't appreciate is that China's build up of foreign reserves is no "free lunch". When the Central Bank buys all those USD off their exporters they exchange them for Yuan. To prevent a blow out in the money supply those Yuan must be sterilized via the issuance of Yuan denominated government securities to the private sector.

 

Thus the Central Bank ends up long foreign currency and "short" its own currency.

 

Note than any country can do this, even New Zealand. If the RBNZ decided that it would hold down the value of the NZD/USD rate to say, 60 cents, by intervening in the market like the Chinese authorities do, then the RBNZ would also end up with  "massive" (for us) foreign exchange reserves. But on the other side of the ledger, the RBNZ would have an equally massive short position on the NZD. Should the RBNZ later on be forced to let the Kiwi rise to its "fair value" then the NZ taxpayers would end up with a very big FX loss.

 

It is this other side of the coin that is often forgotten when discussing China's foreign exchange policies..........

 

Regards

 

Ted

Should the RBNZ later on be forced to let the Kiwi rise to its "fair value" then the NZ taxpayers would end up with a very big FX loss.

Eh? Only if the RBNZ takes its dogmatic idealism with it to its grave. You can't make a loss being short a currency whose supply you control - that is the lesson the chinese have been trying to teach the West for the last decade.  If you receive a pressing call on your currency, you just print some more. The Fed have now woken up to how easy that is and its a matter of time before the rest of the world does too. In fact the RBNZ should probably just print it at the time of the original FX intervention as then theres no debt on the ledger in the first place.

Anyway race you to the bottom and the loser is the one with no Gold  when the music stops..

Is what you describing along the lines of Muldoon devaluing, manipulating the dollar,  wage and price fixing etc....totally getting things out of balance only to find at a change of Government we where damn near bankrupt?

This only happens when one gets things way out of a fine balancing act, and ones own self interest to stay in power becomes paramount. 

Buying the foreign currency from exporters for more than it is really worth is nothing more than an export subsidy.  This is at the expense of importers.  Sure the central bank now holds foreign currency that it has paid over par for but because it costs the central bank nothing to print the local currency it doesn't matter.  Internaly it's a wealth transfer from importer to exporter but externally it's far worse, it's stealing.  The printing central bank is in possession of currency that is worth something of value that it has paid "nothing" for.   A central bank can do this for ever but eventually the other party gets mightily pissed of.

FYI from an emailer

Mr Hickey,

 

Surely China is simply the immediate symptom.  If the system remains the same, even if that symptom is dealt with, the problem remains.  Before the Americans accused China of currency manipulation they accused Japan.

 

As Niall Ferguson has pointed out, spending vast money on wars and printing it to pay has ruined many an empire.  Empires pleads their uniqueness all the way to the grave.

 

The moral bankruptcy of greed, like cancer, eats away the community of caring for others until the philosophy of every man for himself paralyses the collective will 

leaving the political currency required to pay the cost of system change, spent.

 

China is playing a selfish hand to be sure but America seems set on printing it's way out of it's debts.  Little better.  What they devalue, along with their currency, is the whole western life boat New Zealand is in.  Much can be said, much could be done.  But little can be received and we are in poor shape to bear it.

 

Enjoy your column.

 

Best Regards

Carlton

Well that's nice is it not........but nothing you could not read here on any given day.....have you stopped reading your own blog roll and taken to fan mail.....?

Buy NZ made "and keep your country working" 

Don't buy Chinese made "and stop them from winning real world monopoly"

......almost too late mate !

…and I see a high number of young people walking the street doing nothing. ...and I see MP Steven Joyce saying: All imported, because it is cheaper. ...and I see more idiots saying the same. ...and I see more young people walking the streets doing nothing. ...and I see young people getting together forming gangs - not working gangs constructing our most needed infrastructures in factories - but destructing. … and I see Steven Joyce saying in parliament we do need more police. …and I see the public saying - Yes we do need more police. ….and we do have more police. …and we do build more prisons….and I see Steven Joyce saying in parilament we do need more money…. and we are stuffed as a nation !

Well said Kunst. I would like to see the trains we are buying from (Is it Korea?) built in NZ (and the components). It would employee a bunch of people. The jobs would need to evolve from building to maintaining roles but I'm sure that could be easily achieved. 

Same can go for a lot of other industries. Boat building especially, how many components are bought from overseas that could be manufactured in NZ?

Can we compete with any of these products? http://www.made-in-china.com/

 

Interesting site...

Often wondered what will happen once the 'Western' world realises that it can buy direct from the manufacturer, rather than through Western re-badging operations.

From an emailer

Dear Bernard

I’m constantly amazed at the way we as a nation respond to monetary matters, we seem to have developed a mentality that money does indeed grow on trees at it’s the government’s role to fix everything from retaining tip top hospital services, paying excessive pay demands, working for families, ensuring that state pensions will be available for ever. The demands are never ending, many of them unrealistic.  Is there a urgent need for a national debate on the country’s finances, and what are the nations priorities.  We need to have consensus certainly on what the issues are.  The debate should not be based on any ideology or party lines just simple common sense.  Ideally it should be a TV style debate with ample time to discuss the issues, (not the usual 10 mins close up gives to its debates) it would be critical to get a host someone like yourself that understands the issue and sets the pace and poses the right questions.  Utilising commentators such as Bryan Gaynor together with someone from treasury possibly NZRB to ensure all the relevant topics have an in robust debate, and are covered in depth.

 We are not a financially savvy nation however, now would be good timing, as we are slowly waking up to the fact we need to save not spend.  Just maybe our political leaders do not want us to understand too much about the economy, as it takes away the corrupt way in which they buy favour during the course of electioneering. 

We have embraced a culture of which political parties can give away sweeteners in order to gain votes, many of these giveaways are often unaffordable and do not stack up in a winning economy, take interest free student loans, working for families ……….. How do we stop such stupidly?  Would it be possible to put in place a third party i.e. Treasury or a similar body that could block such moves if they don’t make economic sense or do not stack up  in simple business terms.

 Quite a few years ago (while working in South Africa) Clem Sunter the CEO of Anglo American http://www.londonspeakerbureau.co.uk/clem_sunter.aspx introduction the high road/low road scenario to South Africa, suggesting that after apartheid there were basically two options/scenarios the country could take.  This technique worked extremely well, as he, and his team had credibility, it also pre-empted any ideological arguments that politicians would inevitable introduce.  His work was funded by one of the large banks in SA. 

 I’m suggesting that a similar concept happens here that we are also facing a high road or a low road (to nowhere).

  Graham

cheers

That link goes off to a GMail  page. I'd be interested in reading the article.