Days to the General Election: 22
See Party Policies here. Party Lists here.

Opinion: New Zealand must fight its corner in the Currency Wars where it's every country for themselves

Opinion: New Zealand must fight its corner in the Currency Wars where it's every country for themselves
John Key was right to fight for The Hobbit.

By Bernard Hickey

Last week's drama around Warner Bros' decision to film the Hobbit movies in New Zealand was focused on the union blacklist, but the drumbeat of background noise was all about the New Zealand dollar's rise vs the US dollar.

When Warner Bros were planning the movies, the New Zealand dollar was closer to 50 USc, but it has since risen closer to 75 USc, blowing out the costs by much more than any extra subsidies granted by the Government. That drumbeat in the background is mostly coming from the US Federal Reserve's printing presses. Currency traders and investors around the world are straining to hear the hum of the electric engines warming up. They won't have to wait long.

This week the Fed is expected to announce plans to print up to US$1 trillion to buy US government bonds in an effort to boost the US economy. The idea is that this will reduce US market interest rates and encourage businesses and consumers to borrow. The US economy is flat on its back and many doubt this second round of printing (the first was in March 2009) will have much effect. Some commentators are saying the Federal Reserve may have to print up to US$8 trillion or 50% of GDP.

That is equivalent to 53 times the size of New Zealand's GDP created out of thin air.

The prospect of the world's biggest economy printing that much of the world's reserve currency is freaking out currency markets. Thursday's announcement by the Federal Reserve will be the official first shot in what many describe as the 'Currency Wars'.

Emerging economies and commodity-based developed economies with free-floating currencies (such as New Zealand, Australia, Brazil, India, Russia and South Africa) are being hammered as the US dollar falls in anticipation of this money printing. Their manufacturing sectors in particular are being slammed because they cannot take advantage of higher commodity prices on the other side ledger.

Brazil has doubled its tax on foreign investments in local governments to discourage the inflows of capital that are increasing the Real. Thailand has done the same to protect the Baht. Ukraine and India are looking at intervening in markets for the Rouble and Rupee. South Africa announced last week a change in its capital controls to encourage investment by residents overseas to take the pressure off the Rand. It has also armed its central bank with a fund to intervene in the markets to stop it rising.

The world of currencies and trade is descending into a street fight where it's every man, woman and Prime Minister for himself and their countries.

The Hobbit and the collection of creative industries built around Peter Jackson are in effect another part of our manufacturing export sector.

'Every man for himself'

We have to fight for these highly skilled and often highly paid jobs. They are the jobs we point to when we say to our children that there is a future in this country. We can't give them up without a fight, whatever it takes.

John Key was right to roll up up his sleeves and do the 'impure' thing by offering ad-hoc subsidies to Warner Bros, regardless of the niceties of it all.

The details of the employment law changes should be scrutinised and challenged, but if necessary, they too should be used in the arsenal of dirty tricks.

The government should add more to that arsenal too to protect our capital and avoid a damaging surge in our currency towards parity vs the US dollar. That should include domestic procurement policies for governments and state owned enterprises, the use of currency intervention and the use of banking rules such as the Core Funding Ratio to discourage foreign borrowing.

When it's every man for himself, it's best to throw away the rulebook.

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.

58 Comments

You're a genius Bernard...  please name a situation when it isn't every country for themselves...

Now the pie isnt expanding, its contracting....but everybody wants to get a bigger slice....beggar thy neighbour is now the name of the game, ie export un-employment.

regards

New Zealand's right of reciprocal immigration policy with Australia? That seems to benefit Australia far more than it does us!

Oh dear....this all sounds very familar.....Oh yeah I remember where from..

Wall st crashed in 1929...bit  off a recession for  3 or 4 yrs, elections coming up, need a bit of a populist vote....start printing money, countries start with protectionist policies and all starts to multiply up on its self...

If it wasnt for Hitler and Japan and their expansionist policies makes one wounder how long the Great Depression would have lasted.

So we are once again 3 to 4 yrs into the greatest recession  since the 1930s....

Printing machines are being fired up, Some countries moving to protectionist policies.

Buckle up people ..be prepared for a bit of turbulence

John Key was right to roll up up his sleeves and do the 'impure' thing by offering ad-hoc subsidies to Warner Bros, regardless of the niceties of it all.

Whatever happened to cost-benefit analysis before spending taxpayers money? Why does Peter Jackson get his project subsidised when there are many other sectors that could benefit from such assistance? What are the criteria for such government handouts? Why aren't the laissez-faire proponents that frequent this site all over this picking-winners intervention?

Fighting a currency war needs to be done by throwing out our obsolete, excessively-orthodox monetary policy; not by cronyism.

Mediawatch did an excellent summing up of last week's hobbit-hysteria:

http://static.radionz.net.nz/assets/audio_item/0004/2427376/mwatch-20101031-0905-Mediawatch_for_31_October_2010-m048.asx

When Saint Peter calls middle-earth to arms we act like a bunch of school kids.

cringe, cringe

A bird in the pocket, is better than two in the bush.

Sometimes hard business decisions do not taste nice. Sovereignty for small nations do not necessarily provide any greater moral rights than other large organisation in global business discussions.  

Unfortunately the long period of mostly global financial stability seems to have ended.  As a nation we must make making hard decisions about our lifestyles in this environment.

Much of the NZ dollar market is driven by currency trade in external markets - about 10 USD billion per day. Likely the only way to "control" the NZD is to introduction currency controls so that it no longer was floating. Perversely, this might make it harder for our exporters - who wants to buy NZD if they need to apply to the NZ government to trade it. It may lead to high interest rates, since most of our capital is imported.

"The dollar’s exchange rate is plunging, and U.S. money managers themselves are leading a capital flight out of the domestic economy to buy up foreign currencies and bonds, gold and other raw materials, stocks and entire companies with cheap dollar credit.

This outflow from the dollar is not the kind of capital that takes the form of tangible investment in plant and equipment, buildings, research and development. It is not a creation of assets as much as the creation of debt, and its multiplication by mirroring, credit insurance, default swaps and an array of computerized forward trades. The global financial system has decoupled from trade and investment, taking on a life of its own"

http://www.marketoracle.co.uk/Article23941.html

Anyone still think the "covered bonds" rort is not about allowing the banks here to gorge themselves on Ben's toilet paper, so they can keep blowing credit into their private profit generating property ponzi scheme in Noddy? 

 "One-third of U.S. real estate is now reported to be in negative equity, as market prices have fallen behind mortgage debts. This is bad news not only for homeowners but also for their bankers, as the collateral for their mortgage loans does not cover the principal. Homeowners are walking away from their homes, and the real estate market is so thoroughly plagued with a decade of deception and outright criminal fraud that property titles themselves are losing security. And despite FBI findings that financial fraud is found in over three-quarters of the packaged mortgages they have examined, the Obama Justice Department has not sent a single bankster to jail."

Soon we will be flooded with useless USD. Unless the RBNZ starts our own "manipulation" we are doomed into ever larger and larger current account deficits as our ever stronger dollar sucks in imports while our exporter dies from a high currency induced drought.Meanwhile RBNZ will increase the OCR to curb ever rising consumption and the inevitable inflation of commodities and food prices caused by Ben's recklessness...and the NZD goes even higher every time the OCR goes up. This goes on until we collapse from unpayable debt (or the world economy keels over from QE XX )

   What can Ben do?  the Chinese have kept the US in Bond buying heaven for ten years.Now they quite wisely dont want anymore junk.They are starting to sell them and will be lucky to get a third of their face value...Ben can only print..and say to the Chins,you get what you deserve.Their will be as many empty factories in China as in the USA.The problem is that a lot of chinese sold their smallholdings that gave them food and income to migrate to the cities to better themselves,and now these small farms dont exist anymore.Their are far more males in China than women because of the one child policy...The males join the PLA.or the expanding Navy.either way it's all getting dicey. 

Economics 101 - don't print lots of money!!  We might have short term pain because our exchange rate will be bad for exporters, but in the long term we should try and be one of the few countries that doesn't commit economic suicide just because the US is!! 

Just because the world has gone insane, that doesn't mean we need to...

No point being a long-term sane country, with short-term dead exporters, Jimbo. That's interest rates through the roof ( and mortgage rates, of course) as we try to keep the waka afloat with even more borrowed money, printed elswhere.

Round the wrong way mate - it is printing money that makes interest rates go through the roof... 

We are one of the few countries that are currently in a reasonable economic situation, and most of our real money making exporters will survive with a high exchange rate (e.g. dairy).  If the US dollar does go down a lot more from here, it won't be long until the world starts trading with a new international currency.  So why panic right now...

Err.... we don't actually have to run the 'presses' Jimbo. It floods out of the economy that prints it at 0%, and into the likes of us, who borrow it at ever escalating interest rates to offset the currency loss in value of the printing country. And we are not in a 'reasonable shape', Jimbo; comparative to some~yes.  Why else would we be borrowing $250 mio per week, $120 mio of it to spend on welfare, to make up the short fall in our accounts? Can't you see that we are on the road to nowhere that's good? What changes do you see that we have made over the last 2 or 3 years of this downturn that will position us for a new growth path? None...Oh, except for a partially finished bike path!

The government is borrowing so much money because they decided to give tax cuts without reducing spending. Had they just kept the tax rates where they were (do you feel much richer since the cuts?), then we would have been fine.

Commodity prices are through the roof - you don't need to grow if other countries start paying you more for what you are already producing!  Yes a poor exchange rate will eat into that, but like I say it is short term pain until we settle on a new international currency.

The tax cuts were revenue neutral, so we are told! "They" ( we, actually) were borrowing, and have been, significant amounts before and after the tax realignments. And the projection is for the borrowings to increase. Maybe that's where your point re 'no spending cuts' comes in?  So, you see the accummulated, and accumulating, weekly borrowings being repaid from our commodity sector, do you? ( what's our gross national debt- $160 billion?) So how come it hasn't 'looked after us' over the last 3 decades, then, if it can do that? Answer: It can't. 

And as for the 'new international currency?!" Do you think the States is really going to give up being 'the reserve' currency of the world without a fight of some sort? I don't. They are likey to to take the view that ' if we are going down, we will take everyone else with us; and as long as we end up on top of the heap at the bottom, then we are still in charge'.

You're right

In the past the USD was the rock that every other currency moved against but the debasement that the US fed is promoting is making the value of the USD very unstable.

In USD terms gold, oil, food are all going up but in NZD and other currencies the prices are stable. Farmers and others moan that if the NZD went down they would get so much more but the other side is their costs would be so much more! Net position zero (or worse).

NZ is running a trade surplus, inflation is low, interest rates are realistic and those USD loans are getting cheaper each day. Each day our NZ salary makes us richer by being worth more. When will those Kiwis who went to get those big US incomes be coming home?

Neville, I think you are right and wrong.

The last paragraph listing the benifits of a high NZD is correct and as a farmer at present I dont have a problem with the currency level as it is doing exactly the job that it should  ie balanceing out high commodity prices just as it should fall to compensate for any weakening terms of trade.

Where I do differ is that on a personal level I would be far better off with a lower currency for the simple fact that my expenses are only 50-60% of my income so the benifits of cheaper inputs are proportionatey less not a zero net situation.

Actually neo-classical economics 101....ie the clowns that got us into this mess and are now unable to get us out so listrening to their mystic beliefs makes no sense IMHO. Printing lots of money when no one else is is certainly bad, I do agree, but printing money to match everyone else is to remain on par maybe our only option....

Taxes on foreign purchases of national property seems the way its going....it may seem crazy but the other side is crazyier.

regards

All of this talk about currency intervention is very curious if it was so easy why hasn’t  it been done before. For very good reason you need to make a stand against the market so how do you do that sell the $NZ. How do you pay for it, is it seriously being suggested we print $NZ or do we borrow real money. If you start printing in a small economy like NZ the market will trash the currency over night and we will be impoverished. Borrowing is not an option. Seriously debasing a currency is not a road to riches 

Exactly - if a country could devalue its currency without causing any harm then everyone would have been doing it for years. Right now the only countries that are doing it are the ones that are so screwed or stupid they will try anything - I don't think we are there yet!!

"Seriously debasing a currency is not a road to riches"   Isn't it a case of a self imposed "take the medicine now" or waiting for the bankers to turn up imposing bailout austerity measures.

"All of this talk about currency intervention is very curious if it was so easy why hasn’t  it been done before."

Well it has...many times, it is only in resent times that our currency has been floating...

Your comment is a classic example of why  financial markets collapse, are in the sry state they are now, and why the US and other countries are going to screw up just as they have done for 100s of yrs .....The older generation warnings are considered rantings of dithery old fools....and when that generation and the children that grew up thru the last major crisis die off...it happens all over again...called "history keeps on repeating itself"  or "lack of experience and alter egos of the new generations" who think they know better.. And history keeps on proving them wrong.

It's taken from the The gratest Show on Earth - R. Dawkins:

And now, here's an odd  thought. If only all the trees in the forest could come to some agreement - like a trades union
restrictive practice - to grow no higher than, say, 10 feet, every one would benefit. The entire
community - the entire ecosystem - could gain from the savings in wood, and energy, which are consumed in building up those towering and costly trunks.
The difficulty of cultivating such agreements of mutual restraint is well known, even in
human affairs where we can potentially deploy the gift of foresight. A familiar example is a
suggested agreement to sit, rather than stand, when watching a spectacle such as a horse race. If everybody sat, tall people would still get a better view than short people, just as they would if everybody stood, but with the advantage that sitting is more comfortable for everybody. The problems start when one short person sitting behind a tall person stands, to get a better view.
Immediately, the person sitting behind him stands, in order to see anything at all. A wave of
standing sweeps around the field, until everybody is standing. In the end, everybody is worse off than they would be if they had all stayed sitting.

So it seems obvious that we will fail.....

Anyone heard of "WebBot"? it was/is a computer programe designed to predict trends for the Stock Market..designed by a linguist it scanned the internet looking for keywords..its called a Spider .Anything it came up with was sold for a modest sum to anyone who was interested.Apparently after a few months the programers noticed before something big happened like 7/11..the same keywords started to appear for a disaster scenario..as they did for the Stockmarket trends .What is interesting is, that it did exactly tthe same thing as the 'GCP' does..Thats the Global Consciousness project coordidnated from Princetown UNI.This does a similar thing in regards to observing the changes from chance in "Random number generators" That are reporting from many Universities around the world..for instance before 7/11..Dianas death etc..their is a significant movement from chance sometimes up to millions to one before a global event takes place...Strange but true!"...Without getting to philosophical its a Practical application of Du Chardons Noosphere concept........

  The point is the Web bot predicts that at some time from the 8th of this month untill the 12th..something with 20 times the impact of 7/11 will occur!! this could be anything that changes things permanently...it also predicts another ten significant earthquakes will occur before the end of the year... the Indonesian one included....so we wait and see if it happens.

  Ive been through the predicted forcast written in 2009..and up untill now its been very good..just google "Web Bot" if you want a read.

Hmmm   First thing that came up was UFO's are predicted.

OK

"Hysteria predicted by device that measures levels of hysteria"

Yeh..some of its a laugh...They call themselves the "Time Monks",but then again UFO. reports are spiking,but when is Genius Madness?,only time will tell.The GCP.is the creditable one.Incidentaly NZ is a participant.

I've been looking at the ALTA, SOTTC reports for a few years now.  They've had a couple of big hits which do make you wonder whether there's something in it.  They absolutely nailed the share market crash in Oct 08 to name one - to the date if I remember correctly.

Of course with much of their reporting, its so generic that you can find things to match with hindsight.  It's a bit like reading last weeks horoscope and then 'fitting' what actually happened to the prediction.

If something as major as they are saying actually happens around mid Nov - in their words bigger than 9/11 - then maybe we should all sit up and take notice.

One of the 'time monks' has his own website, where he looks at a whole range of issues, but mainly economic related.  He often talks about Elliot Wave theory and the coming crash of the DOW.  Most days there's something of interest in his blog.  If you subscribe to the MainstreamMedia view of life then this is not the site for you.  Check it out.

http://urbansurvival.com/week.htm 

Of course I don't have to worry about such predictions, I've got a direct line to the big guy upstairs!

It will be picking up all the web vitriol surrounding the mid-term elections in the US - some of the stoushes on Facebook pages have been unbelievable - "friends" are banishing "friends" left right and centre..... no, make that left and right, as there is no centre (i.e. moderates) in the US anymore.

Watching that carry on, I'd say we are lucky to have MMP.

Playing some games via fb are interesting to say the least....Im certianly getting agro from ppl  who wish they could reach out from the screen to strangle me....

My reply, hey we are in a war game so attack me....of course its an economics game....not a war game....

There certianly seems to be huge anger directed at the Govn....by the right wingers....maybe palin should have won in 2008....

No Im kidding....

regards

Who would want the job of being an armed guard the unemployment offices.

http://www.theindychannel.com/news/25539273/detail.html

But if it's the best paying job in town, best to be anonymous.  An interesting discussion here on what it's generally like.

http://www.zerohedge.com/article/indiana-braces-violence-adds-armed-guar...

Earlier this year I was wandering around a small suburban centre here and there were guards in front of every bank, not armed I presumed.  What's up with that?

Jeez Fred...didn't you realise they were giving out twenties to anyone who entered!

WINZ offices here have had security guards on site for years now.

The US government's financial situation is deteriorating everyday.  The economic storm will hit NZ, to what extent depends on your personal circumstances, the types of investment and business you are in. Unfortunately the media and our politicians in NZ have not done a good job educating our people this economic storm.  To get a better understanding of the US situation, please Google interviews and articles from smart and successful people like Jim Rogers, Peter de Krassel, Johan Galtung, Robert Lawrence Kuhn,  Fareed Zakaria, George Soros,  Robert Kiyosaki etc.  I am yet to find a person in NZ who has the credentials, knowledge and track records as any of the gentlemen above.  Do yourself a favour, keep an open mind, use your head not your heart. Unfortunately in NZ we are so used to perception, heresay and spin doctors from all quarters.

I am confident these people will enrich your outlook of the current world financial, economic and political situations.  Whether we like it or not, these three factors go hand in hand with what is happening and what is going to happen.  So prepare yourself with sound knowledge of the world to make some sound decisions for yourself, your family and your couutry. NZ is not insulated from the global events, some of the large economies have applied some  forms of trade restrictions/tariffs to some of its trading partners to boost their own economy, unfortunately such actions will also be reciprocal.  NZ will be caught in this, my particuar concerns will be our exporters.  NZ has low domestic savings, high foreign debt, small population and lack of high tech or niche export industries, it is going to be very challenging for all of us. We need to face the reality, all the talk, spin and half truth is not going to change the real global situation.
 

The US government's financial situation is deteriorating everyday.  The economic storm will hit NZ, to what extent depends on your personal circumstances, the types of investment and business you are in. Unfortunately the media and our politicians in NZ have not done a good job educating our people this economic storm.  To get a better understanding of the US situation, please Google interviews and articles from smart and successful people like Jim Rogers, Peter de Krassel, Johan Galtung, Robert Lawrence Kuhn,  Fareed Zakaria, George Soros,  Robert Kiyosaki etc.  I am yet to find a person in NZ who has the credentials, knowledge and track records as any of the gentlemen above.  Do yourself a favour, keep an open mind, use your head not your heart. Unfortunately in NZ we are so used to perception, heresay and spin doctors from all quarters.

I am confident these people will enrich your outlook of the current world financial, economic and political situations.  Whether we like it or not, these three factors go hand in hand with what is happening and what is going to happen.  So prepare yourself with sound knowledge of the world to make some sound decisions for yourself, your family and your couutry. NZ is not insulated from the global events, some of the large economies have applied some  forms of trade restrictions/tariffs to some of its trading partners to boost their own economy, unfortunately such actions will also be reciprocal.  NZ will be caught in this, my particuar concerns will be our exporters.  NZ has low domestic savings, high foreign debt, small population and lack of high tech or niche export industries, it is going to be very challenging for all of us. We need to face the reality, all the talk, spin and half truth is not going to change the real global situation.
 

I'm sure you can find Google interviews and articles from smart and successful people that say the exact opposite too...

Lets see some then....GBH will love you....long time....

regards

Oh , hello steven ! Nice to see you still putting the boot into Gummie's dreams of a brighter future for us all . Actually , JimboJones has been making a heck load of sense here . Did you know , steven , that NZ is one of only  a handful of countries which have never defaulted on their government debt . .......... We have a proud record to uphold .

And as maniacally idiotic as our politicians have been over the last 3 or 4 decades , few of them ( Roger Douglas excepted ) would advocate " throwing out the rule book " as Bernard recommends . You cannot win a currency war . A Hungarian lad Soros off the mighty Bank of England ! Wot chance little Kiwiland . We just gotta suck-it-up , short-term , and accept that life ain't fair ( now there's a surprise for us all ........ not ! ) .

As for our venerable leader ; I am inclined to the opinion that Chicken-Little Hickey  has lost his head .

Dear JimboJones, can you provide me with links to the Google interviews and articles from smart and successful people with opposite views? I am keen to learn from these people.  Thanks for your help.

 Bernard , you are like the 'Guru on the Hill' you have clearly given much thought to this subject  , and John Key should consult with you .

Even as a free marketeer and ex currency dealer Key  would .......know when to fold , know when to walk away and know when to runl

I concur 100% with your thinking , a small country like New Zealand  should adopt a defensive position to protect its interests in this war .

This whole currency war is no laughing matter . I am in favor of controls in the 'National Interest'  , but I dont have a clue as to how to achieve the desired outcome . The problem with controls is that they can never be permanent because they cause distortions  and unintended consequences , but as a short term measure they may be necessary 

In the meantime we should be doing at the very least what the 'Yarpies' in South Africa are doing , in our own interests .

In the time I have lived in NZ , I have learned that Kiwi's march to the beat of their own drum. Well New Zealand , the drums are beating, and you buggers need  need to start marching . 

 In short .....to use the term coined by the founder of NIKE shoes .....' Go  with your gut feeling and let the rest of the world catch up with you later' is appropriate now . Deep down , John Key knows this . I would like to know what he really thinks 

Good on ya Bernard, you are right on the money with this one, excuse the pun.

The countries that are nimble and fast thinking on their feet will protect their industries.

So far Key has done well showing he is a quick thinker and more importantly quick to act.

But you get the feeling this world situation could be a long process that requires leadership and imagination, and polices like the RBNZ has put in around the capital requirements for banks.

It will also require a governent not scared to implement things, that probably only a few years ago could have been unthinkable, such is the way the goal posts have changed so quickly.

Countries that stick with a hands off everything, market knows best policy may really fall behind the fast movers, and find a lot of their exporters and industries get wiped out.

In this whole  debate it is well to remember one Keynes who when asked why he had changed his view replied:  When the facts change  - I change my views -  What do you do ?

We now face an  situation deemed  inconceivable a few years ago - That the US  & UK would be following exactly in the footsteps of Robert Mugabe and firing up the presses.

The interest rate target horse served us well - but that horse is now dead.

We should place all Government advisers  on US $ salaries indexed to Nov 2008 which will ensure a clarity of thought that only exporters have at the moment.

This is a crisis and requires action NOW !   a la Hobbit action.

Exporters other than commodity producers cannot survive and deliver the needed jobs at current FX rates.

 

 

 

No one has really followed Keynes since (1970s) when the left wing Govn's twisted his work to their own ends and seriously screwed it up.  So in the 1980s we had the right wingers do the same thing with the Monetary school......ie twist it to their own political ends out of context....the end result is an even bigger mess than was achieved with quasi-keynes....

Crisis and action now, well the problem is un-intended consquences....trying to fix thinsg too fast is the surest way of really making a mess of it.

regards

NZD's current exchange rates are being led by a bunch of programme traders with to much snorting stuff to keep up with the hipe because I have not seen any numbers coming out of the NZ economy to justify them other than a pigy back ride on the AUD. If tomorrow employment numbers fail then the NZD will meet it's maker, and then exporters might have a decent chance to improve the economy.

Michael..can you honestly say the number is not already known by the players in the game of 'kick the Kiwi '

Michael is spot on. You would be very surprised to see how the NZ economy and currency is written up by overseas commentators and bank economists. They are, and have been for some time, universally bullish on NZ. 

To some extent this is the same in Treasury and RB. 

Start talking to business people around NZ and you get a very different story. There is a lot of underlying weakness in the NZ economy but it doesn't seem to filter through to policy makers.

Much of this can be attributed to the numbers we focus on. GDP, deformed CPI etc. Instead of the numbers that really matter: Debt, Money supply, interest costs etc.

SCF and similar structural financial problems would be ringing serious alarm bells but as Michael notes the yield searches only look at the top line.

 

A government that sets out to abolish market prices is inevitably driven toward the abolition of private property; it has to recognize that there is no middle way between the system of private property in the means of production combined with free contract, and the system of common ownership of the means of production, or socialism. It is gradually forced toward compulsory production, universal obligation to labor, rationing of consumption, and, finally, official regulation of the whole of production and consumption. 

Ludwig von Mises.

 

But what is needed for a satisfactory solution of the burning problem of international relations is neither a new office with more committees, secretaries, commissioners, reports, and regulations, nor a new body of armed executioners, but the radical overthrow of mentalities and domestic policies which must result in conflict. 

Ludwig von Mises

(Bernard, is there any truth in the rumour you'll be standing  for NZ First in next years election given you seem to be writing Kim Jong Senior's - aka Winston Peter's - economic policy  over the last eight or so months?)

The problem I have with Von Mises above and indeed any extreme political view point is their logic dictates that if doing something to a degree didnt work then logically for them that wasnt enough so do more of it.....and then make some illogical conclusions on extreme actions no one in their right mind could come to....

I would liken it to putting your finger into boiling water, for me I'd take my hand out because it hurt, the Von Mises of the world would say no, but all your hand in, didnt work? well get up to your neck.....didnt work, well dip under then....your dead, oh never mind....We had this loonacy with the [real] socialists/troyskysts etc in the 1970s....and now we have seen it with the neo-cons etc only worse.

The problem with "market prices" is there is the faulty assumption that that is a true price and this is always the case, or markets are rational or self-Govenering...they are not, Govns therefore need to step in and regulate to try and keep a level playing field, do they succeed all the time? no....

regards

And again, since when has someone promoting free markets, the economic bastion of the once free West, been considered 'extreme'?

Perhaps it only looks extreme if you're Amish, but then, I'd consider 'your' Amish extreme, steven.

There is no superior system to the allocation of resources, and to maintaining free societies, than free markets. That's simply an indisputable fact (especially shown to be so since the events that began over August 2008 in world economies). 

Your final sentence, steven, is appalling: you simply don't understand how the pricing mechanism works (as all central planners do not, which is why they have always, and will always, fail. Result: human misery and subsistence societies like the Amish or North Koreans).

Mark - I've been pondering the essence of the first sentence in your paragraph, below, for a wee while:

"There is no superior system to the allocation of resources, and to maintaining free societies, than free markets. That's simply an indisputable fact (especially shown to be so since the events that began over August 2008 in world economies). " 

I've come to a point where I can rationalise the logic on a cost basis, but not necessarily, as yet, on a value and time basis. Not a trick question, can you help?

As for the second sentence, I think, that will be true over one time period, but not necessarily another. Am keen to get your comment.

Time - or the rate of change of ??? (state?) - who needs it .... 

(Next inflation targeting. By the way Kate, how many chocs did you get through?)

Cheers, Les.

www.mea.org.nz

I've come to a point where I can rationalise the logic on a cost basis, but not necessarily, as yet, on a value and time basis.  

 

Les, I've not got a lot of time I'm afraid, and I'm out of the office tomorrow (plus am seething after watching Stalin McCarten on Back Benches say he wants to get rid of free markets and go completely to central planning: why do these communist morons have no ability at all to learn from the bloodied, failed history of  communism! Bloody hell.

 

Anyway, I'm not sure what you mean by 'time', you'll have to define that for me better. But as every post I make is from a concrete philosophical position, that being freedom loving Objectivism, I can speak to 'value'. The only value that is important, is the individual and his or her pursuit of happiness via a morality of man qua man, which can only occur in state of freedom from (certainly) Big Brother State (http://www.solopassion.com/node/8089  ) and from the manufactured needs of his unknown neighbours. The only economic system consistent with that highest of values, the value over which every single war that has ever mattered has been fought, is free market, laissez faire, capitalism. This philosophical point is absolutely irrefutable.

 

Centrally planned economies can only exist on centrally planned societies and Big Brother States, whereas the values that humans have aspired for throughout history, have been an individual's freedom. And yet despite the bloodied history books of the twentieth century, barbarians and brutes like McCarten still preach the road to serfdom and the Gulag, as do the Amish luddite steven here, Fred, and Kim Jong Junior, namely Bernard. I'm sick and tired of all of them and wish their ilk would leave me alone (which is the one thing they can't do, of course, as they need me to pay for buggering up yet more generations in their violence breeding welfare state).

"There is no superior system to the allocation of resources"

There's a flaw, and that's the tragedy of the commons.  Oil, soil, anything mined, are economic inputs that are "free" to the economy.  Sure it costs money to extract the oil but the true cost of the oil (for example) is what it would cost to replace it and put it back into the ground.  "Exploitation" needs to be externally controlled.

mmm. currency war.

this is very relevant.

reading Michael Hudson's article is highly recommended.

the US is using a tsunami of worthless currency to buy overseas assets and price other currencies out of export markets. when will other currencies take concrete action based on the recognition that they are being fleeced?

the currency war is not the beginning of the end or even the middle of the end. this is the end of the end. the end of US dollar hegemony and the US oligarchs are going to try and grab as much real wealth as they can before it all blows up.

the only thing to do is stop accepting US dollars. only barter trade or trade using a medium of exchange that has some real basis can be justified. why sell the stuff you have produced with your own labour in exchange for worthless US dollars? it defies sense.

Because you cease to function without oil, and without US$ you can't buy oil.

countries buying and selling commodities and goods will cease to use the USD as the medium of exchange. they won't cease to buy oil, they will make alternative arrangements for settlement. the US is a violent parasite on the rest of the world. the USD (including US Treasury debt instruments) is its main weapon in this financial war. do you think the rest of the world will simply let this parasite suck them dry forever? hardly likely. the whole rotten system is coming apart at the seams as we type...

Even now it's more than a financial war

http://www.youtube.com/watch?v=VmoghK44jdI

http://www.youtube.com/watch?v=5Iz5MwPsfyo&feature=related

They have no concience, vis; agent orange, depleted uranium.

excerpt:

The problem is that the supply of dollar credit has become potentially infinite. The “dollar glut” has grown in proportion to the U.S. payments deficit. Growth in central bank reserves and sovereign-country funds has taken the form of recycling of dollar inflows into new purchases of U.S. Treasury securities – thereby making foreign central banks (and taxpayers) responsible for financing most of the U.S. federal budget deficit. The fact that this deficit is largely military in nature – for purposes that many foreign voters oppose – makes this lock-in particularly galling. So it hardly is surprising that foreign countries are seeking an alternative.

Contrary to most public media posturing, the U.S. payments deficit – and hence, other countries’ payments surpluses – is not primarily a trade deficit. Foreign military spending has accelerated despite the Cold War ending with dissolution of the Soviet Union in 1991. Even more important has been rising capital outflows from the United States. Banks lent to foreign governments from Third World countries to other deficit countries to cover their national payments deficits, to private borrowers to buy the foreign infrastructure being privatized or to buy foreign stocks and bonds, and to arbitrageurs to borrow at a low interest rate to buy higher-yielding securities abroad.

The corollary is that other countries’ balance-of-payments surpluses do not stem primarily from trade relations, but from financial speculation and a spillover of U.S. global military spending. Under these conditions the maneuvering for quick returns by banks and their arbitrage customers is distorting exchange rates for international trade. U.S. “quantitative easing” is coming to be perceived as a euphemism for a predatory financial attack on the rest of the world. Trade and currency stability are part of the “collateral damage” caused by the Federal Reserve and Treasury flooding the economy with liquidity to re-inflate U.S. asset prices. Faced with this quantitative easing flooding the economy with reserves to “save the banks” from negative equity, all countries are obliged to act as “currency manipulators.” So much money is made by purely financial speculation that “real” economies are being destroyed.

...

The BRIC countries are simply creating their own parallel system. In September, China supported a Russian proposal to start direct trading between the yuan and the ruble. It has brokered a similar deal with Brazil. And on the eve of the IMF meetings in Washington on Friday, October 8, Premier Wen stopped off in Istanbul to reach agreement with Turkish Prime Minister Erdogan to use their own currencies in tripling Turkish-Chinese trade to $50 billion over the next five years, effectively excluding the U.S. dollar. “We are forming an economic strategic partnership … In all of our relations, we have agreed to use the lira and yuan,” Mr. Erdogan said.

Hey Tochigi...how long do you give the Amercian dollar from here?

haha... the 64 trilion dollar qestion. when will the bank run occur? your guess is as good as mine.

but... not more than five years, imo. probably another 2-3 years from here. but who knows? could be next year... or 2015. the behaviour of the US Congress, the Fed and the Wall St. banksters are the clues you must decipher...hahahahaha. good luck!

Days to the General Election: 22
See Party Policies here. Party Lists here.