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Wednesday's Top 10 with NZ Mint: 'Finance needs stewards not toll collectors'; 'The end of a disastrous debt super-cycle'; Watch the Beijing flood toll; Deleveraging until 2030; Dilbert

Wednesday's Top 10 with NZ Mint: 'Finance needs stewards not toll collectors'; 'The end of a disastrous debt super-cycle'; Watch the Beijing flood toll; Deleveraging until 2030; Dilbert

Here's my Top 10 links from around the Internet at 2.30 pm today in association with NZ Mint.

As always, we welcome your additions in the comments below or via email

See all previous Top 10s here.

My must read today is number 9 on what's wrong with the world and how to fix it. A cracking read. Easy, peasy.

1. The Kay Report - FT columnist and economist John Kay has written a useful report for the British government on how effectively the British stock market allocates capital to grow businesses.

He argues that a focus by investors and managers on short term performance targets has helped undermine trust in British stocks.

The report is well worth a read for fund managers and investors thinking about investing in stocks.

Kay makes some great points about how fund managers interact with companies and the way quarterly reporting changes incentives and behaviours.

He essentially says the explosion of hedge funds, algorythmic trading and proprietary trading by banks in stock markets has damaged the capital markets.

Here's some of his views. The full report is well worth a read:

Short-termism in business may be characterised both as a tendency to under-investment, whether in physical assets or in intangibles such as product development, employee skills and reputation with customers, and as hyperactive behaviour by executives whose corporate strategy focuses on restructuring, financial re-engineering or mergers and acquisitions at the expense of developing the fundamental operational capabilities of the business. vii We observe a wide variety of examples of companies that have made bad long-term decisions, and consider that equity markets have evolved in ways that contribute to these errors of managerial judgment.

We conclude that the quality – and not the amount – of engagement by shareholders determines whether the influence of equity markets on corporate decisions is beneficial or damaging to the long-term interests of companies. And we conclude that public equity markets currently encourage exit (the sale of shares) over voice (the exchange of views with the company) as a means of engagement, replacing the concerned investor with the anonymous trader. Bad policy and bad decisions often have their origins in bad ideas. We question the exaggerated faith which market commentators place in the efficient market hypothesis, arguing that the theory represents a poor basis for either regulation or investment.

Regulatory philosophy influenced by the efficient market hypothesis has placed undue reliance on information disclosure as a response to divergences in knowledge and incentives across the equity investment chain. This approach has led to the provision of large quantities of data, much of which is of little value to users. Such copious data provision may drive damaging short-term decisions by investors, aggravated by well-documented cognitive biases such as excessive optimism, loss aversion and anchoring.

2. 'Fedwire' sees Fed action soon - The Wall St Journal's Jon Hilsenrath is believed to have the inside track on what the US Federal Reserve is saying.

He is reporting now the Fed is willing to act, in the wake of three days of heavy losses on the US stock market. The next decision from the Fed is next week.

The options include more bond buying (QE III), an assurance of 'exceptionally low rates' for even longer (currently the Fed is saying low until late 2014) and possible reserve rate cuts.

3. More global food strife? - The Centre for Investigative Reporting's Brandom Keim looks at the risk the American drought could cause a spike in food prices similar to the one that unleashed such strife in the Middle East and Africa in 2007 and 2010.

In the new analysis, released yesterday on NECSI’s website, Bar-Yam’s group added drought-triggered price increases to the model. With those figures included, the already grim forecast becomes even darker. “The drought may trigger the third massive price spike to occur earlier than otherwise expected, beginning immediately,” wrote the NECSI team.

What happens after another bubble is a pressing question, said Bar-Yam. In both 2007 and 2010, massive unrest almost immediately followed food price surges, tracking market behavior with uncanny synchronization. Some Middle East experts say that rising prices even triggered the Arab Spring, providing a spark that ignited long-simmering tensions and resentments.

4. 'The end of a disastrous debt super-cycle' - Former Reagan budget director David Stockman talks here about the current problems weighing down the global economy.

This market isn't real. The two percent on the ten-year, the ninety basis points on the five-year, thirty basis points on a one-year – those are medicated, pegged rates created by the Fed and which fast-money traders trade against as long as they are confident the Fed can keep the whole market rigged. Nobody in their right mind wants to own the ten-year bond at a two percent interest rate. But they're doing it because they can borrow overnight money for free, ten basis points, put it on repo, collect 190 basis points a spread, and laugh all the way to the bank.

And they will keep laughing all the way to the bank on Wall Street until they lose confidence in the Fed's ability to keep the yield curve pegged where it is today. If the bond ever starts falling in price, they unwind the carry trade. Then you get a message, "Do not pass go." Sell your bonds, unwind your overnight debt, your repo positions. And the system then begins to contract... The Fed has destroyed the money market. It has destroyed the capital markets. They have something that you can see on the screen called an "interest rate."

That isn't a market price of money or a market price of five-year debt capital. That is an administered price that the Fed has set and that every trader watches by the minute to make sure that he's still in a positive spread. And you can't have capitalism if the capital markets are dead, if the capital markets are simply a branch office – branch casino – of the central bank. That's essentially what we have today.

5. 'A slowdown in China is good for China and the world' - I'm a fan of Beijing-based economist Michael Pettis. He explains here in this opinion piece why China's economic growth is likely to keep slowing.

One for John Key to read before his next cheery bout of assuming China will keep Australasia growing at an aggressive clip. Pettis points out this adjustment will hit Australia and could slow Chinese economic growth to 3%.

The key to raising the consumption share of growth is to get household income to rise from its unprecedentedly low share of GDP. This requires China to increase wages, revalue the renminbi and, most importantly, reduce the enormous tax that households implicitly pay to borrowers in the form of artificially low interest rates.

But these measures will slow growth. The implicit “financial repression” tax, especially, is both the major cause of China’s economic imbalance and the source of its spectacular growth. Forcing up the real interest rate is the most important step Beijing can take to redress the domestic imbalances and to reduce wasteful spending.

And this seems to be happening. Beijing has reduced interest rates twice this year and reluctant policy makers are under intense pressure to reduce them further, but with inflation falling much more quickly than interest rates, the real return for household depositors has soared in recent months, as has the real cost of borrowing. China is repairing one of its worst distortions.

This cannot help but reduce investment growth, and so China’s GDP growth rate must fall sharply. China bulls, late to understand the unhealthy implications of the distortions that generated so much growth, have finally recognised how urgent rebalancing is, but they still fail to understand that this cannot happen at high growth rates. China’s investment growth rate must fall for many years before the household income share of GDP is high enough for consumption to replace investment as the engine of growth.

As China rebalances we would expect slowing growth and rapidly rising real interest rates, which is exactly what we are seeing. Rather than panicking and demanding that Beijing reverse the process, we should be relieved that China is finally solving its problems.

But won’t slower growth create social dislocation in China and economic dislocation around the world? No, not if it is managed well. Remember that Chinese rebalancing requires household to income grow faster than GDP for many years, and if Chinese growth slows even to 3 per cent, as I expect it will, but household income continues growing at 5-6 per cent, this is far from being socially disruptive.

What the rest of the world needs from China is not faster growth but more demand. Rebalancing will provide that, although the trade surplus will probably rise before it begins to decline. This will result in falling prices for hard commodities, and so will hurt countries such as Australia and Brazil, but rising Chinese demand and lower commodity prices are good for global growth overall.

6. Watch the Chinese flood toll - Bill Bishop at Sinocism is close and nuanced observer of China. I knew him from my time at FTMarketWatch, which was a joint venture involving CBS MarketWatch, where Bishop was a key player.

Now he's based in Beijing as a consultant. He writes an excellent daily summary of the key news. It's well worth signing up for.

Here's his view on the latest Beijing floods and how important they might be politically.

Expect Beijing to issue an updated death toll from the weekend flooding in Beijing that is much higher than the current 37 victims. The Fangshan District head has said that there are significant casualties in his district and the government is making statements that appear to be attempts to prepare public opinion for a much larger number.

This catastrophe could surpass the 2003 SARS outbreak in its test of the Beijing leadership, especially as it is now playing out in real time on Sina Weibo, a service which has become digital sulfuric acid to the government’s credibility. The leadership appears to realize that attempts at covering up the death toll will only make things worse. But assigning responsibility is complicated as Guo Jinlong, the new Party Secretary, was mayor of Beijing from 2008 until earlier this month.

Sam Crane has two great posts on the floods over at Useless TreeThe Politics of Rain in Beijing and The Mandate of Heaven and Communist Party Leadership Transitions. The Economist gives a nice history of the Beijing sewer system in Floods in Beijing: Under water and under fire.

There are lots of rumors flying about the death toll. I hope the one about the 200 person nursing home in Fangshan washing away is false.

7. Stuffed until 2027 - Steve Keen does a nice job of showing here why America's economy will remain flat on its back until nearly 2030 as it deleverages. He suggests a debt jubilee of sorts to short-circuit this problem.

His chart is the best around.

The last Depression saw debt levels fall from 240% to 45% of GDP over a 13 year period, and the ensuing period of low debt led to the longest boom in America’s history. We commenced deleveraging from 303% of GDP. After 3 years it is still 10% higher than the peak reached during the Great Depression. On current trends it will take till 2027 to bring the level back to that which applied in the early 1970s, when America had already exited what Minsky described as the “robust financial society” that underpinned the Golden Age that ended in 1966.

While we delever, investment by American corporations will be timid, and economic growth will be faltering at best. The stimulus imparted by government deficits will attenuate the downturn—and the much larger scale of government spending now than in the 1930s explains why this far greater deleveraging process has not led to as severe a Depression—but deficits alone will not be enough. If America is to avoid two “lost decades”, the level of private debt has to be reduced by deliberate cancellation, as well as by the slow processes of deleveraging and bankruptcy.

In ancient times, this was done by a Jubilee, but the securitization of debt since the 1980s has complicated this enormously. Whereas only the moneylenders lost under an ancient Jubilee, debt cancellation today would bankrupt many pension funds, municipalities and the like who purchased securitized debt instruments from banks. I have therefore proposed that a “Modern Debt Jubilee” should take the form of “Quantitative Easing for the Public”: monetary injections by the Federal Reserve not into the reserve accounts of banks, but into the bank accounts of the public—but on condition that its first function must be to pay debts down. This would reduce debt directly, but not advantage debtors over savers, and would reduce the profitability of the financial sector while not affecting its solvency.

8. Finance needs stewards, not toll collectors - This piece from John Kay is a nice companion piece to his full report referred to in #1.

It is hard to see how trust can be sustained in an environment characterised by increasingly hyperactive trading, and it has not been. Trust is essentially personal and cannot easily be found in a dark pool. Impersonal trust can be established only in a rigidly disciplined organisation – the kind that retail banks were once but are no longer – or by regulation of a ferocity that has not been achieved and is probably not achievable. Trust usually rests on a long-term relationship: the merchant in a foreign bazaar does not expect to deal with you again, and that expectation governs his behaviour.

9. 'What we're doing isn't working' - This piece from Westwood Capital's Dan Alpert is a cracking overview of what's wrong with the global economy and financial markets. Has some solutions. My must read today.

Irving Fisher taught that to prevent a deepening slump amidst a debt deflation we must stabilize economies and then go all-out to reflate them. The monetary authorities in the developed world have engaged in massive coordinated action to stabilize their financial systems and economies to prevent depression (at least so far). But they have not succeeded in being able to reflate the advanced economies—and will not be able to do so through a singular reliance on the blunt instrument of further monetary easing. Fisher would certainly have seen this.

We must move from stabilize and reflate, to stabilize and recalibrate:

  • It is time for creditors throughout the developed world to finally take the write downs that have long been coming their way in connection with the trillions of dollars of truly un-payable household and sovereign debts that resulted from the credit bubble of the 2000s.  Yes, this will pressure lenders and, yes, they will need to be recapitalized to the detriment of their existing stakeholders.  But there is presently no shortage of capital seeking reasonable risk-adjusted returns, and I have every confidence that it will flow eagerly into the financial sector—if only the balance sheets of our institutions were honestly reckoned by having the currently unrecoverable carrying value of assets written down to that which can be recovered today from borrowers and/or underlying collateral.
  • As I have been saying and writing about for years, we must accept the reality of what the credit markets are telling the planet’s most creditworthy governments, particularly that of the U.S.  The message is “please, here, take our money…take it cheaply and keep it safe…we have no fear of lost purchasing power, the trend is not inflationary…now take it (and use it to fix your  economy).” And that is what we must do. We must take as much 30-year money at these depression level interest rates as we need to re-employ our underemployed workers directly, on public infrastructure projects that return benefits to the economy more than sufficient to repay the sums borrowed when the time comes.  The private sector will not hire until it sees a recovery in demand—so the only agent for re-employment of workers and regeneration of demand may, for an extended time until the imbalances at least decline somewhat, be our governments.  It is long past time to pack away austerity agendas.

10. Totally Jon Stewart on the LIBOR scandal - "The stallion of the free market cannot run wild without the feeding of the sacred cows at the trough". "You got to let business be business if you want to let the economy prosper."


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#5 RBA govenor Glenn Stevens seems less worried about China - see his speech "The Lucky Country" which looks at Australian economic risks around China, house prices and bank funding. Some good charts too:

What's happening on the ground is not so rosy.
Migrant workers who look for jobs in cities in China are now leaving the cities and going back to their home towns as jobs losses mount amid economic slowdown.  This wave of migrant workers leaving cities emerges for the first time since the financial crisis 2008/09.

Read more:

Someone once said to me, "No matter what you hear about China, its bound to be true somewhere at sometime." A common mistake is people then conclude its true about all of China all the time.
Zhejiang and Jiangsu are the provinces around Shanghai which may indicate a slowdown in property construction - no surpirses there. As Glenn Stevens pointed out, slowing growth in the Chinese economy is most likely a good thing rather than the rapid unsustainable growth of recent years.

Micks  - Stevens is full of it.
He argues that Aus will be fine whether China stays strong or slumps. He argues that a Chinese slump will devalue the Aus dollar, and as a result exporters will then be boosted, offering economic mitigation.
Poor logic! Yes in that scenario the Aus dollar might devalue, but demand will shrink. Take tourism for instance. Theoretically, a much weaker Aus dollar resulting from a China slump would encourage tourism. So much for the theory! Despite the weaker dollar, fewer chinese would come down under given the slump (Asians are notoriously conservative with their spending when economic slumps occur). Not to mention collapsed demand from Europe / USA if China slumps (due to collateral damage)       

FYI from Martin Wolf. It turns out Greek workers are actually the hardest working in Europe. Seriously.

Note: in all southern EUcountries 3 1/2 hours of “siesta” middle of the day are included in the working hours.
Furthermore – I’ wondering what a massive “Greek army personnel” is doing “defending” all the Islands – daily ? I guess they are not very productive.

He shows Greece getting over 2000 hrs now, which is impressive for a European nation.
But figures from 2009 show - the asian economies of Korea, Singapore and Hong Kong were all closer to 2300 hours.

Re #9, He wants the economy to return to the halycon years of 1970 when US was the worlds largest oil producer and I was eight
Dont we all ....

Trust might be the most over looked thing in all the plans to 'fix' the world's economic problem.
Trust is essentially personal ...
Everyone has to address their own behaviour.  A deeply unpopular suggestion in our society where it's always some ones elses fault.
And probably cannot be achieved by ferocity of regulation.
You can have all the laws you want and they're powerless in the face of wide spread moral decay.
if only the balance sheets of our institutions were honestly reckoned ...
Well, quite.

Reminds me of two quotes from Rogernomics critics in the late 1980's.
Brian Easton:
“The pursuit of self interest became the central ethical principle in public policy of the rogernomes….It is an enormously attractive principle for what it says is ‘do what feels good for you and that’s good for society’. At a stroke most of the great ethical dilemmas are resolved.”
Bruce Jesson:
" it “became smart to be amoral” and that the kinder attitudes of a gentler age have become an object of ridicule"

Our efforts to repackage greed as a good thing seem to have suffered the same fate as repackaged bad debts.  I guess it's the nature of hubris to think this time it's different.

On Australian Banks Europe probably the most informative read I have come across yet.....

Although Australia cannot influence events in Europe, it can prepare for the effects: limited 

exposure to potential sovereign defaults; increasing difficulties in accessing international capital 

at a time when European investors are withdrawing from global markets to shore up their 

domestic operations; and a slowdown of Chinese exports to Europe, which will have an impact 

on Chinese demand for Australian commodities.


To counter these effects, the only action Australia can take is to shore up its domestic savings 

or reduce its funding needs, for example, by returning the budget to surplus.


Ha Ha! have you heard that before....?





Limited direct exposure of Australian financial institutions

A major concern in the European debt crisis is the interrelation between sovereign 

debt and the banking sector. In the past few decades, European banks have been 

major sources of funding to the countries that are now struggling to service their 

debt burdens. A sovereign default would severely devalue these banks and may even 

obliterate them.

Australian banks, on the other hand, have never been greatly involved in the 

business of lending to European governments. Therefore, the direct fallout on 

Australia of any European government defaulting on its debt would be limited.

In a speech in October 2011, Malcolm Edey, Assistant Governor of the Reserve 

Bank of Australia (RBA) said: 

Australian banks have only limited direct exposures to sovereign debt in the 

countries that are most at risk. So potential effects on Australian banks’ overall 

asset quality are not an issue.


According to the RBA, the total exposure of Australian banks to Europe was 

$87.2 billion at the end of 2011 (2.7% of their assets).


 However, even this 

figure overstates the risk from Europe’s public debt crisis because the majority of 

this sum is invested in the healthier core of Europe (Germany, the Netherlands, 

and France): $74.6 billion is loaned mainly to the banking sector of these countries.


Even in a worst case scenario, in which a number of countries in the European 

periphery default on their debt, Australia’s banks may not be severely affected in 

a direct way. It would need a collapse of Europe’s banking system for Australian 

banks to feel direct losses from their European assets. Even then, the total sums 

in question are not substantial and could be dealt with by Australia’s banks.

Funding difficulties for Australian banks


 I wont  go on, but would urge those who are interested to read the report in full....there is a blank just after the intro , but it's nothing(tee hee) just go to page one.

 Bernard you may even find some useful tidbits here, as I can see where our fiscal policy is being directed from clearer than ever.

Isn't the risk to NZ/AUS banks one of liquidity not direct losses. If the freeze in credit markets had gone on for a couple of months longer in 2008 there may have been limits to how much emergency liquidity the RBNZ and RBA could provide to the trading banks and then the real risk of panic and bank runs.
"The transmission mechanism by which the European financial crisis will reach Australia is simple. As European investors are struggling to absorb the impact of the losses they incur in Europe, say from a potential sovereign default, they will be forced to pool their resources in Europe. They will have to withdraw from other markets and liquidate their overseas assets to strengthen their home business.This process of deleveraging will pull capital out of countries like Australia instead of being made available to Australian financial institutions."
Don't buy the premise of the author or Bill English either that the AUS/KIWI are now safe havens.

Totally agree - we need, as does Australia, continual foreign lending infusions as debt rolls over and interest becomes due - what initially would be called a liquidity issue will suddenly evolve into one of solvency.

On a positive note - should funding for our lavish lifestyle evaporate the budget would get balanced real quick!

Ralph, I have some sympathy with your general intent, but in my view our lavish lifestyles are mostly funded by offshore sourced private debt through our commercial banks; selling or mortgaging every private asset possible;  leading to an over valued exchange rate, leading to price signals to buy as much as we can from overseas.
The government is a part of that in terms of their spending (and a much bigger part in terms of ignoring or even endorsing a massive current account deficit); but they are not that big a proportion in terms of their spending. If a squeeze happens, the exchange rate is likely to be the first casualty, and that would not be a bad thing.

Do we need foreign infusions of money, and if so, why?
If the debt is in NZD, presumably at any time, but certainly in a crisis, we can print NZD and pay it off. I understand that would devalue the currency, but we would always be solvent. If we are replacing funds that have been withdrawn to shore up banks in Europe or elsewhare then our money supply actually would not increase, so apart from the devaluation aspect, there would be no inflationary impact.
Deliberately devaluing may be considered a default, (although hasn't been when nearly all other western countries have done it) and would hurt savers in NZD assets, but given most of the world has been printing as fast as they reasonably can, we would not look out of step. And I personally am aligned with the IMF that we should devalue by 20% or so.
Spain, Greece, Italy's problems clearly are largely because they cannot print.

You're right in that we could print but under Labour or National we never would because a) they either believe in the current neoliberal system or b) they are terrified of the consequences if they did.
The whole idea of the WTO, IMF, World Bank and shortly the TPP is to remove the power of small sovereign governments like NZ to act independently in its own interests without devastating saction, overt or covert
"The second related problem is the fear of something happening if a country changes its mind or retreats from the neo-liberal prescription. There is an “assumption that capital will respond in a way that has catastrophic consequences for the country.”
This impression is fostered by proponents of neo-liberalism both inside and outside government. However it cannot be tested without risking the very consequences these proponents are talking about and none of the main parties seem inclined to do so. Even if a future government had a mandate for change it is likely in the face of both internal and external threats of sanction or capital flight they would desist. “The deep penetration of international capital into New Zealand’s economy and the economy’s increased exposure to international markets have heightened this ‘fear factor’”."

You may well be right in there being some sanctions, although I would be intrigued as to what they would be. Are the UK and the US not neo liberal; or are you saying that they take the approach of "Do as we say, and not as we do, given their massive printing"?  
Given the Chinese, Japanese, Swiss, Germans and Petro guys are our underlying new creditors/owners, are we happy as people to have the threat of such sanctions? Should we be aware of what they might be, rather than some whispering campaign? 
The IMF has publicly said we need to devalue by 20%, so maybe they are speaking with forked tongues, but I wonder why. The IMF is also pleading with Europe to start printing.
Separately at some stage the 4-7% current account deficit will have to stop; when there is nothing left to sell or mortgage, although one imagines some sovereignty/trade/immigration policies wil be for sale first. In economic terms, the world should be happy if we start to try and live within our means.
From your cut and paste comments, I strongly suspect we are afraid of something that actually would not happen. Let's at least try and define what that something might be; and then decide what we should do about it, if anything. 

You are right in that the big guys, esp Britain and the US love to make an example of smaller upstarts. Look at the massive over reaction of the US to the anti nuclear legislation. Any formerly loyal Westminster democracy that decided to buck the status quo would be punished severely. Any party advocating such policies would have to be upfront as to the possible repercussions. Look at the penalties available under the WTO and likely under the TPP (if its precursor MAI is anything to go by)
I would expect great difficulties in NZ firms, particularly Fonterra gaining and even maintaining access to European and US markets especially if their banks/financial firms were affected.
Kiwis I speak to would, come to the shove, back down in the blink of an eye. Better to be under the yoke than destitute in their eyes.
Personally I'm a screw 'em go for it type of person but most are not.

Hopefully TPP will have the same rules for them as it does for us (although I'm very nervous that John Key is letting them write the document); so there's plenty of scope there. The US and Europe make Fonterra's life pretty hard already; am not sure they would make it harder somehow. WTO rules actually have to be even handed in theory.
I actually suspect its our Aussie banking friends calling the shots; and their bluff can be called. Good to hear you are willing to give it a go.

The problem with the TPP (they learnt their lesson from the MAI) is that it is completely secret. We, the public aren't allowed to see the final agreement until 4 years after its signing! Great democracy that! If you trust Key et al to do the right thing and not be over awed by the US then you are more trusting than me.
I agree we could call the bluff of the Aussie banks but would we under pressure from their mates in the Aussie govt. Would we sacrifice free trade with Australia for freedom from Australian banks? I honestly believe that is what it would come to.

We are close to the same page. I actually don't mean to deliberately shaft the Aussie Banks, and I certainly imagine them playing a continuing significant role here. We should not though sacirifice our whole macro economy just to suit their 1-2 year profit horizons. There's plenty of scope for them to make money with old fashioned banking.

Don't think Stephen that it would matter if the intent was deliberate or not. Cut their income and profits and they're going to be pissed and complain in their pet Australian politician's ear.

Well somebody sees it ...! cudos Stephen L.

Agree, this is so un-democratic, there must be some kind of mechanism somewhere which requires the contents of this agreement be released. One pertinent question is how NZ is suppost to implement an agreement when hardly anybody knows what its agreed role is? But clearly the public should know what the government is agreeing too before NZ signs, actually I think rules to that effect should be in NZ's democratic constitution.

The MAI got canned because it was global and the opposition was global. The TPP is regional and New Zealanders are more complacent these days. Under current convention Cabinet can sign agreements like this without submitting them to Select Committee or  Parliamentary vote. Jane Kelsey is the the longest standing critic and authority on the issue. Co-incidently :) she got barred from attending a conference in Australia recently - refused entry.

I seem to remember Fletcher Steel's dispute with the US took about 4-5 years to resolve. By that time currency movements and other factors had made it worthless.
Look at the length of time the WTO dispute with Australia took with the apple dispute and they're still dragging the chain. Small guys get shafted all the time.

Thank you. There are, it seems to me, a lot of parallels between failed monetarism in the UK  in the 80s as Keen describes it, and NZ's current situaton. Relatively high interest rates by global standards; those interest rates being championed by the banks purely for their own profits; the high exchange rate they cause hollowing out our industry and competitiveness; and excess returns going offshore.
I understand Keen's method of printing money, if and when it was necessary, would likely be different to QE as practised by any of the UK, the US, the Swiss, Japan or China. If there was a shortage of spending, or over indebtedness, printing money and giving it to banks to increase debt even further does not sound the answer. He may well champion the type of idea I see in one of Bernard's articles today- giving money directly to the public, as long as it is first used to pay off debt.
I may be picking out what I choose to do, but that was my outtake. 

That's exactly Keen's idea. Avoids moral hazard too by giving money to those who have not splurged on credit. Needs to be implemented by re-regulation and tax changes though to restrain inflation. Pumping money into the same system won't work!

I think its Pilkingtons article, but it does seem relevant. Actually I think that NZ went through the 80s in the 80s, I don't think NZ is going to go through a sudden further bout of Monetarism (e.g Rogernomics).
My own main take home from the articles is that the public should never allow democracy to be a spectator sport, no matter how sophistocated the arguments of their opponents appear, though I am not foolish enough to actually assume that this will happen in the short term.

NZ can NOT print! We have purchased too many US FED credit swaps and they will not allow us to do it even if it were a good idea!
By the way, making our own currency worthless is not a road to sure solvency. The currency MUST be based on something real, of value, AND NOT created using borrowed funds, i.e.unlike most NZ mortgages 

Please do try to read the Pilkington piece I posted, it indicates the the FED is not at the helm of of its own money supply, which implies its not at the helm of other countries either.
Another side of the same coin which I have been pointing out to you, the RBNZ has not and probably can't prevent or cause property bubbles in NZ.

So its okay for them to print US$1.9 trillion, with more to come, increasing the value of our debt; but its not okay for us to proportionately match to get back to an exchange rate pre QE? 
You say "The currency MUST be based on something real, of value, AND NOT created using borrowed funds, i.e.unlike most NZ mortgages."
I couldn't agree more. We have inflated our currency by borrowing offshore funds. If we had not borrowed all those yen, Swiss francs, Yuan (channelled through many channels) petro dollars and so on, our currency would be worth approximately 20% less than it is. The something real the currency should be based on, is a value where our sales of stuff plus investment returns, equals our purchases of stuff less outward investment costs. In other words a current account in balance.
So we need to stop those funds coming in; we could then go cold turkey and do things very hard for some years, or if need be, we could print, which would ease the change. We are not yet in crisis so could take these steps progressively. 

If the debt is in NZD, presumably at any time, but certainly in a crisis, we can print NZD and pay it off.
Stephen, you seem not to be able to grasp the fact that our domestic Australian owned banks borrow in a foreign currency - the liability of which does not disappaear until it is paid back - but over the term of this loan an FX swap or basis swap (for a longer tenor loan)  is entered into with a counterparty or broker to swap the proceeds of the foreign loan into NZD.
Swaps are synthetic, but nonetheless real transactions designed to change one operation's outcome into another for a period of time, but not to undo the original contract of liability.

Am keen to understand this process:
If say ANZ, WBC, NAB, CBA etc borrow say NZ$1 billion worth of Swiss Francs, paying 4% interest on the NZD, and at the time of the original loan, they pay a broker a percentage to turn the Francs into dollars. At that point, have the NZ/Aussie banks passed on any liability to ever pay back the loan in Swiss Francs to either the counter party, or to the original Swiss investor? Or have they only a liability to pay back in NZD? Presumably if all parties are then dealing in their home currency, with our interest premium being shared between the three parties, then there is no real winner or loser in the event of a devaluation of either currency? (other then us, in my view, paying an interest premium for money that we don't need, that only inflates asset prices, and our currency, and makes us more indebted). At least we should not feel remotely guilty if in fact a devaluation does occur, or we manage it deliberately.
Or if it is that the NZ/Aussie banks do have to pay back in Swiss Francs when the loan is wound up in the end, then I see they have a problem with a devaluation of the NZD? They have though gone into these transactions with eyes open, and it would be their problem?
Either way, I can see they would wish to perpetuate this sort of transaction. In the former case because there are lots of different margins to make all through the process. They would though fairly quickly get over that opportunity being closed.
Where they have the risk, I can see they would be crying a lot. Even then, the solution is a big box of tissues; not to perpetuate an unsustainable process. Please advise which of these processes occurs; or maybe a third alternative.

I am not here to offer an education but rather to point out the liabilities. The European covered bonds proceeds issued by our NZ banks have to be redeemed by our NZ banks.
Local NZ banks take proceeds in say Swiss Francs and swap to USD and then USD to NZD.
Two legs and presumably two counterparty risks and two ISDA agreement collateral/ principal adjustment processes if the NZD collapses over the tenor of the contract.
But inevitably the swap agreement declares that the foreign currency will be returned to our local borrower at a predetermined rate to allow for foreign covered bond redemption and vice versa. But in a calamity and or a NZD devaluation either counterparty may not be able to deliver.  Contract reassigment has to be undertaken etc etc. We are now moving into the legal realm, the finer points of which are beyond me. You will have to investigate further- but I doubt it will be free. 

Ignoring the zero bound problem for the moment.  At which point a) no one else lends to us and b) the exchange rate goes down the pan, we get inflation. So we find importing petrol say gets very expensive....consumer goods, well who cares...but both have a neg impact on employment...
We are not in the EU....and are considered a risky currency, playing fast ball is a luxury the USA cannot afford longer term and us not even short term.
In the zero bound we can actually print, but then the cat is out of the bag and that money has to be reigned back in.....via bonds is an effective method....

In the zero bound we can actually print, but then the cat is out of the bag and that money has to be reigned back in.....via bonds is an effective method....
Won't NZ Government stock be the main medium exchanged for cash by the RBNZ? - so the government will be forced to issue more and hence the whole house of cards collapses as the taxpayer already privately burdened fails to honour the public one. Witness Greece.
You really cannot transpose the US freedom to do as they wish upon a tiny country such as NZ. The old adage of being heavily in debt being the bank's problem doesn't apply here as it does in the US.

WTF....Don't buy the premise of the author or Bill English either that the AUS/KIWI are now safe havens.
IF you read what I read ....the conclusion is quite the reverse .(for me..)..did you read the report..?
You will note on re-reading my post I was intimating also where our fiscal policy was probably being heavily influenced from.....if not dictated.

I read the report. To me he is insinuating that Australia's attraction as a relative safe haven will more than counteract the usual flight from risk on/risk off trades like the carry trade.
"This makes Australia an attractive destination for overseas investors wishing to avoid being punished by near-zero interest rates, and in the case of the US dollar and the euro, collapsing exchange rates.
As this money flows into the Australian dollar, again in a way that counteracts the deleveraging outflows, it will add pressure on the Australian dollar to appreciate. As a result, the Aussie dollar may shoot well above parity with the US dollar and approach parity with the euro."
From what I've seen the panic trade is always into the US, YEN and Swiss Franc.
Not sure what you're intimating about fiscal policy except perhaps that the big banks here regulate the RB not the other way around and the governments on both sides of the Tasman are completely in thrall/scared of them.

Yes wtf, that's there abouts the to the other yes that is the message of the report , but that carries a qualification as I pointed out is a distinct possibility given that all historical printef money would not be enough to resolve the E.U's problem.
Cheers for your response..!

Somewhere in that piece I put up....I highlighted a line.. that needed attention paid to it in regards exposure to the E.U.
. It would need a collapse of Europe’s banking system for Australian 
banks to feel direct losses from their European assets.
Now that is a significant statement, not just to be taken at face value , but to be interpreted as a qualified statement....
Collapse open to interpretation as in when Banking systems in the E.U. given all tools at their disposal cease to be effective......
The link from yesterday.....
paints a picture of just  such a scenario being distinctly possible.......I believe the effect of an event such as this has been understated by the authors of  On Australian Banks Exposure have understated the risk due to what they perceived at the time was an improbable development...........well hello..?

From one of those links on the Beijing floods:
In a microblog post translated by the China Digital Times, one user wrly commented: “In my brief existence, a once-in-a-century solar eclipse has happened twice, a once-in-500-year flood has happened ten times, and a once in a millenlium earthquake has happened twice. The only thing that hasn’t happened is the once-every-five-year general election.” The post was swiftly removed by online censors.

I appreciate the bloggers sentiments.  However realistically with the type of representative democracies we have in the OECD countries does it really matter which political party you vote for?  I think P J O'Rourke had the best advice "Don't vote for the bastards it only encourages them"

TV3 got Lockwood Smith to name the 15 people with special access to Parliament ie a key to go through the "back door" without security checks (or I presume public notice)
Included are 3 people from public relations company Saunders Unsworth who promote their atributes as:

  • Interact with Ministers, MPs and their staff  and officials on a daily basi
  • Research and write reports on issues of public importance
  • Directly advocate with officials and regulatory authorities on behalf of clients 
  • Research, write and prepare Select Committee submissions as well as appearing with or on behalf of clients at Select Committees
  • Create constituencies for policies that meet client needs
  • Write media releases, speeches and articles and influence newspaper editors, business editors and leaders writers
  • Provide political intelligence about issues, including the way they are likely to be  dealt with by Ministers
  • Participate in and manage teams seeking to achieve public policy objectives 
  • Handle crisis management situations
  • Provide strategic business advice and analysis
  • Monitor happenings in Wellington

A great post, but you have overlooked the dedicated Chinese Section in your bullet points.
Write media releases, speeches and articles and influence newspaper editors, business editors and leaders writers.
Would be right up thier alley.

Add to that the recent comment by an Australian PR firm that the big layoffs at Fairfax opened great opportunities for PR companies working for their clients to insert their "new" into the public domain. Time pressure + need to generate content = PR opportunity. If anyone hasn't read Nick Davies Flat Earth News I highly recommend it.
"As Edward Bernays, frequently described as the founding father of PR put it: "The concious and intelligent manipulation of the organised habits and opinions of the masses is an important element in the democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country. In almost every act of our daily lives, whether in the sphere of politics or business, in our social conduct or our ethical thinking, we are dominated by the relatively small number of persons...who pull the wires which control the public mind."

"The concious and intelligent manipulation of the organised habits and opinions of the masses is an important element in the democratic society.
I have been waiting all my life. Same for the fabled three day weekend and the paperless society. The PR is boring me rigid. I want action not meaningless, soothing words.
What happened to integrity and duty?

What a raving  lunatic.
"As the Jesuit-educated philosopher sees it",
Just about sums it up. You have to be seriously stupid to swallow thayt kind of stuff. Where's the facts? The figures? The record temps? The record ice-loss? The need to be precautionary in a 'Russian Roulette' situation?
Are you seriously down at that level, Hugh?

Apparantly any Jesuit education he had failed,
"including a special vow of obedience to the Pope. Rule 13 of Ignatius' Rules for Thinking with the Church said: "That we may be altogether of the same mind and in conformity[...], if [the Church] shall have defined anything to be black which to our eyes appears to be white, we ought in like manner to pronounce it to be black."

Thanks Hugh.
Entertaining read.

“But they [political ecologists] are crazy. They propose nothing and are opposed to everything...
Now that sums it up.
Away with you - and take your doomsday sandwich board with you.

Re-item number one and long-term versus short-term risks. The bees have been around for millions of years, and therefore many climate scenarios, and only recently have they struggled to adapt to the human factor. Centralisation and empire building a-la Auckland "Super-City" will have too much downside and inflexibility to survive. Centralisation is just a way to run from local issues.

Oops forgot the cut-n-paste part :)
Take, for example, their approach toward the "too-big-to-fail" risk our financial sector famously took on. Honeybees have a failsafe preventive for that. It's: "Don't get too big." Hives grow through successive divestures or spin-offs: They swarm. When a colony gets too large, it becomes operationally unwieldy and grossly inefficient and the hive splits. Eventually, risk is spread across many hives and revenue sources in contrast to relying on one big, vulnerable "super-hive" for sustenance.

The bees presumably have 'somewhere else' to go to.

the varroa infested tree