A once in a lifetime opportunity

Bernard Hickey wants John Key to use his currency trading expertise to engineer a fall in the NZ$. Do you agree?

19th Aug 12, 10:05am by Bernard Hickey

By Bernard Hickey

Prime Minister John Key needs to embrace his inner foreign exchange trader, for the sake of the country.

If only the nation's most powerful former investment banker was bonused on foreign exchange trading profits, New Zealand's exporters might actually have a chance.

John Key is sitting on the trading opportunity of a lifetime, if only he was in a position and a mindset to take it. It wouldn't take much.

He just needs to walk across the road from the Beehive to the Reserve Bank at Number 2, The Terrace, take the lift up to the financial markets desk at the bank, and start selling New Zealand dollars out of thin air to buy overseas assets.

He won't, but I wish he would. Here's why.

The New Zealand dollar is over-valued and has been for a number of years, according to all manner of analysis, including from the International Monetary Fund.

Four months ago the Reserve Bank warned it was out of line with commodity prices and it has become more overvalued since then. It is back over 80 USc while commodity prices have fallen around 10% over that time.

The prices of our dairy, meat, fish, logs and other commodity exports are down 19% from their May 2011 peaks in US dollar terms, according to the ANZ Commodity Price Index, while the New Zealand dollar is actually at the same level as then around 80 USc.

Over recent weeks expectations have grown that central banks in the United States, Europe, Japan and China will essentially print helicopter loads of money to try to boost their economies and lower their currencies to boost their exports. All that freshly minted money will look for a home somewhere central banks aren't printing money and where interest rates are higher ie Australasia.

Some of these Northern Hemisphere central banks and sovereign wealth funds are even looking to use some of this freshly minted money to buy government bonds in Australia and New Zealand.

That's pushing up the value of our currencies relative to the underlying commodities that should be moving our exchange rate around.

The last time our currency was this over-valued was in 2007 and early 2008, and back then the Reserve Bank of New Zealand did the most sensible and profitable thing it could. It sold New Zealand dollars and bought assets in other currencies.

It then waited for the currency to fall -- and it didn't have to wait long -- before buying back those New Zealand dollars at a lower price. It's the perfectly profitable recipe of selling high and buying low.

A Reserve Bank paper released last month showed the Reserve Bank's currency interventions worth NZ$4 billion has so far made net profits of NZ$411 million.

Since then, though, Reserve Bank Governor has been very reluctant to repeat the exercise, worrying about the risk of paper losses.

Bureaucrats don't make great risk takers.

That's where the Prime Minister can and should step in, particularly when printing and selling a currency to push it down is a one-way bet, and there is only a small window of opportunity for success. After the initial losses, currency speculators tread much more warily around our currency, which is still among the 10 most traded in the world despite our relatively much smaller size.

But this is a limited one-time offer. A former Reserve Bank of Australia board member has already started murmuring about the need for Australia to print and sell its currency to offset the unusual currency inflows from the currency printing nations.

If the RBA moves before us that opportunity is lost because our currency may fall in line with the Australian dollar's fall. If it doesn't the outcome would be even worse for New Zealand.

How about it John? Show us how good a currency trader you really are.

Perhaps the taxpayer should promise a bonus to juice up the prospect a little.

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154 Comments

by Stephen Hulme | 19th Aug 12, 12:26pm 1345335981

A couple of points Bernard:

1:Prime Minister John Key needs to embrace his inner foreign exchange trader, for the sake of the country.

Was John Key an FX trader at Merrill Lynch or the fellow heading up the internal rent collection agency as the retail research generated order flow passed by?

From memory Merrill were never well ranked in the proprietary FX dealing stakes - more of a significant client of those well known risk taking operations.

2: He just needs to walk across the road from the Beehive to the Reserve Bank at Number 2, The Terrace, take the lift up to the financial markets desk at the bank, and start selling New Zealand dollars out of thin air to buy overseas assets.

Just out of curiosity, why would anyone get up in the morning to accept devalued NZD as a reward for effort expended?. The prospect of the Federal Reserve continuosly funding the US Treasury's desire to deficit finance growth prompted me to retire early as I considered my time too valuable to be paid in diminished value currency. I would rather be broke than taken for a fool.

Of course, I found the world of unearned income to be a more than satisfactory pastime, as will those demanding and receiving a hefty "out of thin air" print regime to fatten receipts.- unfortunately the majority will only feel the deep hand of inflation emptying their pockets.

by Les Rudd | 19th Aug 12, 12:09pm 1345334941

Good idea Bernard, you and Alex are going to have to work on countering the (unusually?) strong objections. Joyce is not so dim he doesn't get it:

http://www.interest.co.nz/opinion/60704/groundhog-day-governments-export-goal-weve-been-here-govts-already-asked-exporters-wha#comment-700627 Keep up the good work. Cheers, Les. www.changenz.co.nz

by Stephen L | 19th Aug 12, 1:25pm 1345339549

Bernard,

I couldn't agree more. The idea of more or less paying as you go for what you consume always appeals; and we have not been doing that for 40 years, so we are as a nation mortgaged to the hilt, or have sold what we reasonably can; and that process must continue while the currency is overvalued. The current account seems the best measure of the currency's correct value; and the IMF suggest that with reasonable demand elasticity that a 20% devaluation would correctly value the NZD. Countries that understand the benefits of owning assets are most definitely ensuring they have competitive currencies.

Following is a link to an Australian Treasury Paper published last week in the AFR (I have a paid subscription; if you can't open it let me know):

http://www.afr.com/rw/2009-2014/AFR/2012/08/17/Photos/6e952a70-e827-11e1-af38-c3360d0531b9_treasury.pdf

Note that Australian Treasury support policies that we follow more or less to the letter; so they look for any excuse to try and justify them. One paper looks at Norway and Chile's sovereign wealth fund activities; and their effects on their currencies vs the AUD. The Aussies squirm around to try and explain how they are different; but all the data in the paper seems compelling that the Norwegians and Chileans have it right, and the Aussies (and we) do not. I note we don't need a sovereign wealth fund- we should start by not selling what we have, before worrying about buying up anyone else.

Another paper looks at whether they could intervene successfully in the currency to bring it down. Again having squirmed around whether their dollar is overvalued- all the data says it is- they try and argue that intervening is difficult. They try and explain why Switzerland (and other interveners) are different, but unsuccessfully in my view.

They seem to make no allowance for elasticity of demand for exports (or import substituters) with assumptions they would sell the same amount of iron ore regardless (not mentioning the other 80% of exports they have.)

One of their main premises, which is certainly more valid in Oz than NZ, is that they are at full capacity, and so any currency devaluation stimulus would have to be very quickly inflationary. In the real world I believe they have plenty of spare capacity, and putting all their eggs in a now largely overseas owned mining industry is high risk for when prices drop. So killing off traditional industries, including tourism, seems reckless indeed.

They also argue that intervention only works if the actions are non sterilised (I can explain that if necessary). But the short answer is don't sterilise them then. By definition, non sterilised intervention works extremely well and quickly.

NZ is nowhere near full capacity in the real world; we only get close by exporting 50,000 people a year to Oz. The need to act is urgent in my opinion. Fixing the currency would set the country moving relatively quickly. And as you say, if the Aussies move first, we have to follow in any case, while the opportunities of profiting from the process at government or RB level would likely have gone.

Apologies for the long read.

by Waripori | 19th Aug 12, 1:48pm 1345340918

Its a good post Stephen. I dont know if I agree but at least you put some logic around the arguement. A bit like the reply you posted the other day to my little dig at Bernard about his piece about capital controls. I did not get the opportunity to comment on that any further.

I remember when Bollard did have a crack at getting the currency down a bit a few years ago by selling NZD. Gareth Morgan was on the telly that night and he said ( and I quote) " Bollard is dog tucker" . Turns out he wasn't but he could have been. These are not paper losses or gains. If the Reserve bank sells our currency and it rises instead of falls they have a real loss if they need to square the position. Any one remember how much money Soros made when the Bank of England tried to defend the pound? Last time I looked the BOE had a bigger balance sheet than the RBNZ. Bollard might have got away with a lightning raid once but if the currency traders realise what is going on and gang up to force our currency back up the red ink will be running down the terrace metres deep.

by Stephen Hulme | 19th Aug 12, 1:57pm 1345341443

The RBNZ is still short the thick end of NZD ~1.5 billion from the first round intervention sales of NZD ~4.0bn.

The mark to market may not look too cute for the year ending June 2012. - but I have not being watching to closely as it is impossible to really know the composition of foreign ccy longs.

by Stephen L | 19th Aug 12, 4:43pm 1345351436

Waripori,

Thanks. There are of course arguments against this idea- primarily some inflation impact; and our overseas holidays and imported items would become more expensive; countered by, you would expect, more demand for our own services and goods. It would be better if Gareth Morgan, or John Key, or Bill English at least articulated why not; rather than just call someone dog tucker; or as Key says "because Treasury says so".

I note that the BOE was trying to keep the pound up against fundamentals, and Soros. That's much harder to do than getting it down, and its unlikely a Soros equivalent would try- especially in our case when all the fundamentals say it should be down anyway. In theory we can have an infinite number of $NZ, and that would be ballsy to fight against.

There seems a debate about our history of interventions. Bernard's article mentions a profit of $400 mill; Stephen Hulme says a loss of $1.5 billion. Either way, they pale into insignificance next to a current account deficit of $15 billion, or the now famous $300 million a week.

by Stephen Hulme | 19th Aug 12, 1:50pm 1345341027

@Stephen L,They also argue that intervention only works if the actions are non sterilised (I can explain that if necessary). But the short answer is don't sterilise them then. By definition, non sterilised intervention works extremely well and quickly.

Please go ahead - if nothing else it will shed light on a mechanism the Chinese Government has tried on an ad hoc basis when it purchases USD receipts from domestic exporters in exchange for printed Renminbi.

by Stephen L | 19th Aug 12, 5:06pm 1345352764

Stephen,

On sterilised vs unsterilised, best I cut and paste from the Aussie Treasury paper, as there's a good chance if I tried to put it in my words I'll get it a bit wrong:

"In principle, a lower exchange rate might also be targeted through ‘sterilised’ intervention, where the central bank purchases foreign securities and prevents any impact on monetary policy through an offsetting sale of domestic securities. The economic literature is generally sceptical about the effectiveness of sterilised intervention, as central bank purchases are invariably small relative to the stock of outstanding securities. Even if sterilised intervention was effective in lowering the exchange rate, the same problem of incompatible policy objectives would still arise. If the central bank continued to target inflation, it would need to offset the stimulatory effect of the lower exchange rate by raising interest rates, which would in turn tend to push the exchange rate back up. " They then later talk about the Swiss: "The SNB has committed to purchasing unlimited quantities of foreign currency in order to hold the franc below the cap. Importantly, the SNB is now engaging in unsterilized foreign currency intervention, as it is not offsetting the effects of its foreign currency purchases on the monetary base. Unsterilized interventions are much more effective in influencing the exchange rate than sterilised interventions." I note the Swiss still have a current account surplus, so they are fighting an uphill battle, but still doing it successfully. Exactly how you channel funds into this process I think depends on your circumstances. If there's otherwise a credit crunch without foreign money; then channel new money through the banks. If there's a lack of consumption, then channel new money direct to consumers through tax breaks or direct giveaways. Or what seems our main problem; an excess of foreign capital coming in chasing assets, inflating them ( funds we then indirectly blow on consuming foreign goods; and overpaying foreign investors, while shafting our industries in the process), then use new money to pay off foreign debts; and not sell assets. This would need some controls, with foreign money replaced by new $NZ. There may be better specific processes, but am confident that the basic principles are correct. Again, apologies for another long piece.

by Stephen Hulme | 20th Aug 12, 12:00am 1345377604

Stephen L- an extremely muddled collection of barely coherent statements. First, how loaded do we want the RBNZ to be with foreign reserves of dubious quality - second a programme of NZD sterilisation would serve to unload the RBNZ's balance sheet some. Getting government debt off the balance might serve a purpose if the aim was to trash the NZD/USD pair and flood the NZ bank depo market with NZD. Otherwise we might all get a postal offer to borrow to buy more houses because it certainly won't be an offer to borrow start a new export concern.

by Rob | 19th Aug 12, 1:50pm 1345341013

I don't believe the problem is with the NZ dollar being over valued, as you have to compare the NZ dollar with the Ozzie dollar, which it is historically quite weak againest. The problem is with the other world currencies, such as the US, UK and Euro, which are very weak sue to their problems. Are the Ozzies also looking at doing the same thing?

by Basel Brush III | 19th Aug 12, 4:36pm 1345350976

It's the TWI that determines the real position.

If the AUD moves the wrong way then sobeit.

Just move to counter the overall position.

by steven | 19th Aug 12, 5:35pm 1345354549

Yes and the classic proof is comparing the UK pound to NZD...UK devalues to "get competitive" we have done nothing....so really I agree with you, we are the bench mark IMHO.

regards

by Landmark Corporation | 19th Aug 12, 2:38pm 1345343931

NZ is...

Almost third world level incomes for most, with few or no employee benefits. It's high prices (NYC or London high) for everything, including NZ produce, even though we only get the seconds. It's insanely overvalued property. It's the wealthiest paying very little tax, if any (Oh, those clever accountants...) and the least wealthy paying the most, such as the increased GST. It's a nation, and economy, and business sector that has essentially nothing to sell to anyone overseas except meat and milk.

Will dicking with the value of our currency achieve much in the face of any of that? No. It's just another futile exercise in kidding ourselves.

by Plan B | 19th Aug 12, 7:58pm 1345363107

I agree

by hane | 22nd Aug 12, 10:32am 1345588348

Whenever someone says NZ is third world this or third world that you instantly know they have never been to the actual third world.

by notaneconomist | 22nd Aug 12, 9:48pm 1345628912

Right on the button there Hane.

by Andrewj | 19th Aug 12, 2:58pm 1345345094

Hypertiger

Posted Today, 05:36 PM

Prior to 1900...the boom bust cycle of the credit system inside the USA was around 10 years...5 years to expand to maximum potential sustainable debt load...and 5 years to collape.

Then just over 25 years 1919 to 1945

Then currently the boom phase has lasted from 1945/50 to now...or over 6 decades.

The longer take more than you give systems operate...the weaker they get.

Basically all the ignorant brainwashed weakling dependants of the system...With the help of the mass media...then blame the preceeding effects as the cause of the collapse.

The cause which is the choice by all of you to operate as you all do on a dailiy basis...then escapes revelation

The survivors of the bust are then oblivious of the cause and can be employed by you masters to power the next boom to it's maximum potnetial.

That is why you all fell for the sub prime crisis explaination...Which was just an effect of the system. http://forums.wallstreetexaminer.com/topic/1045434-when-financializatio…

by steven | 19th Aug 12, 4:37pm 1345351046

lol...

regards

by steven | 19th Aug 12, 4:42pm 1345351321

He misses the effect of oil/energy price.

It will be interesting to see how brief the booms and bust will be now.....In 2008 we went bust, oil at 4147USD. With magnificant effort we managed in 4 years to stagger along like we are mortally wounded....which we are. Looks like now here is the second recession and oil was at $120USD, kind of suggest the next bust will be at $100USD.

At that point even the retarded will have got the message I think.

regards

by Andrewj | 19th Aug 12, 3:01pm 1345345278

http://www.telegraph.co.uk/finance/comment/liamhalligan/9484414/A-messa…

by steven | 19th Aug 12, 5:32pm 1345354354

Liam is either lying, being economic with the truth or sadly ill-educated. Or all three.

To start with Callaghan and Labour took Keynesianism and really tried to make it do what it wasnt supposed to do, "self-serving ideas, yes but not keynesian. He's not unique of course, this was repeated by the right over that last 30 years. Then Liam says Callagahan says state spending was too high...While I have not studied this sorid piece of history in any detail that certianly isnt my take on his words....

Then today Liam says we are doing the same thing, we are not, in a liquidity trap keynes offers the way out.....indeed if the 1930s is anything to go by, the only way out.

Funny how the Pollies whether elected or commenting see only waht inside their blinkers.....as long as this continues we will be in dire straights.

regards

by notaneconomist | 20th Aug 12, 10:44am 1345416279

Andrewj - thanks for posting link. One thing most people just don't get is all those people working in the public sector actually receive their incomes from the private sector.

These public sector employees borrow against their non-productive jobs for houses and other goods. The borrowings of this group of non-productive people adds to the private debt levels which has obvious effects e.g. Demand for Capital that doesn't provide a direct profit, severely reduces profitability in the private sector, private sector has to squeeze more to try and maintain their balance sheet, etc.

It is frequently claimed by some, that by stipping private enterprise of their profits and redistributing the wealth that the money is still circulating. This is the biggest load of garbage that circulates as the money that is stripped never produces one once of profit for reinvestment. When a Government buys assets that produce income the income derived is poured into more bureaucratic spending.

by Andrew R | 20th Aug 12, 9:09pm 1345453747

Maybe you should read some Keynes or Minsky or Galbraith or Keen. Then maybe you will understand that public spending has different effects on private spending depending on the level of demand/employment in the economy.

by notaneconomist | 22nd Aug 12, 8:42am 1345581720

Andrew R - All public spending is a subsidy from Private enterprise. Public spending cannot exist without the Private enterprise contribution first.

You are right public spending does have a different effect on the economy - it drains the living daylights out of private enterprise.

Economics is a Social science not a natural science and therefore prone to peoples beliefs and behaviours. Socialism destroys equilibrium and the markets get distorted. Socialism has the same effects on an economy as a subsidy on any manufactured product. The markets are not able to self-correct as Socialist policies keep interferring with the natural correction process.

In NZ the Public service is approximately 50% of the work-force and private enterprise has long ago reached a saturation point in its ability to pay for this hence the need for the Government to be borrowing heavily.

by powerdownkiwi | 22nd Aug 12, 10:30am 1345588257

No scientist I know, uses terms like 'living daylights'.

But you're right about 'beliefs'.

Blind ones about 'the market' are the worst. Often go hand-in-hand with a need to blame someone else if they fall over for externally-driven reasons.

by KH | 19th Aug 12, 3:15pm 1345346124

No Bernard. You have forgotten the horrors of inflation, and you suggest we do that again. No thanks.

But yes we do need to sort the exchange rate. One thing (it's not the totla solution) would be the Financial Tranactions Tax. If trading in the new Zealand dollar was reduced to what was needed for trade, eliminating the trading for speculation, then the exchange rate would more likely reflect fundmentals. Which is what is desirable i think,

FTT if successful would never raise money, because the decrease in volumes of trade would make it self defeating as a tax income for government. Also a very small tax would not create much artificial distortions. A small tax would probably still work because the very fast trading that is the problem works on very narrow margins, any only require a small intevention to destroy any margin,

by Plan B | 19th Aug 12, 8:07pm 1345363643

inflation is such a strange thing

Inflation can be a measure the rediced purchasing power of the NZD or you can look at the increased cost of things. Mixed in is domestic vs Imported inflatio/deflation

We do know that the China effect has seen the cost of stuff plumet. Technology has seen the cost of many other things plumet. Eg airline tickets.

Meanwhile we have had vast amounts of money enter via debt on property and seen our dollar half in what it can buy in 5 years in the eraly 2000s

by Gibber | 20th Aug 12, 10:49pm 1345459761

Maybe Bernard want's his mortgage to be inflated away?

by Johnson-9 | 19th Aug 12, 4:10pm 1345349406

Brilliance from Joyce on the nation this morning, about time interest.co.nz got put in its place for the nonsense being published here day in day out about currency intervention.

by Andrew R | 20th Aug 12, 9:10pm 1345453840

"Brilliance from Joyce" is an oxymoron.

by Andy Rodgers | 19th Aug 12, 4:13pm 1345349622

I remember the UK Chancellor of the Exchequer, Norman Lamont, trying to manipulate the value of the UK Pound in the early 1990's and having his arse handed back to him. George Soros personally made over 1 BILLION pounds from that fiasco. Bernard do you really think a small nation like NZ can so easily manipulate the huge FX market, if so I would suggest you are delusional. If George Soros has read your article he will be looking for another huge pay day via the FX market at the expense of the NZ taxpayer.

by steven | 19th Aug 12, 4:36pm 1345350978

Yes.....only a fool plays against that....

sorry BH but tobin taxes, sure.....manipulations, no.

Cream the currency traders once in a blue moon, yes.

regards

by Stephen L | 19th Aug 12, 5:28pm 1345354093

Andy,

The UK were trying to keep the pound up in the 90s; that is a critical distinction from trying to get your currency down. They tried to buy up pounds in the market, and used much of their foreign reserves to buy them. Compare that to the last 4 years where they have printed 375 billion pounds to keep the pound down. No Soros would fight that at all; they have an unlimited number of pounds to fight him with, and he knows it. So he wouldn't.

Five years ago an NZD was worth 35p; its now worth 51p.

The Brits have therefore devalued by 31% against the NZD in that time. Not a Soros in sight. And huge profits to the BOE on the side. I read last week that the BoE has made over 20 billion pounds profit, I believe in interest alone, and not just in mark to market paper profits, from its QE exercises.

by Stephen Hulme | 19th Aug 12, 11:48pm 1345376909

And huge profits to the BOE on the side. I read last week that the BoE has made over 20 billion pounds profit, I believe in interest alone, and not just in mark to market paper profits, from its QE exercises.

Grow up - the taxpayer pays the gilt interest and is responsible for the redemptions - get with it and stop dreaming about the utopian free ride. Buying taxpayers debt with a newly created liability makes them doubly responsible. Hardly a win win.

by Stephen L | 20th Aug 12, 11:43am 1345419826

Stephen,

The excperpt from the Telegraph last week.

"Michael Saunders, U.K. economist at Citi (C), said to the newspaper the government could use the "accumulated profits from quantitative easing (QE) to finance a special temporary tax cut for a year or two." According to official figures, the "potential profit" by February 2013 from QE to the Bank is GBP20.7 billion--more than enough to knock 2.5p off income tax for a year, The Telegraph said.

The real potential profit is even larger as the QE program has been extended by GBP50 billion to GBP375 billion since the official figures were compiled, and several economists expect the Bank to add another GBP50 billion before the end of the year, The Telegraph said. Mr. Saunders said the profits could reach GBP30 billion by 2013, which could fund a two-year tax giveaway, The Telegraph said."

I'm not sure I would advocate the tax giveaway, but the profit is real. My understanding is that the BOE is loaning new money through the commercial banks, and charging interest. That seems like easily made money to me.

The idea that the UK will not eventually monetise this new money is dreamland. They will never pay themselves back, as they don't need to. At some point in the next few years a bill will be passed to quietly write it off.

by Stephen Hulme | 20th Aug 12, 1:15pm 1345425306

So the same taxpayers are borrowing this money and paying the banks a higher interest rate than the BOE charges them. Ohh I am glad to hear they apparently can, in addition to the serviceing the gilt yields, but doubt it.

You really need to come to grips with the international elephant in the room - shadow banking

And this just for good measure.

by Basel Brush III | 19th Aug 12, 4:38pm 1345351092

On the other hand just creating money internally will frighten the horses and result in the NZD falling IMHO

by steven | 19th Aug 12, 5:30pm 1345354228

If we create QE as a one off and convince investors it is a one off to stop them running, then they will ignore it... If they think we'll do it again (and again) they will leave.

Really its a knife edge balancing act me thinks.

regards

by economist | 19th Aug 12, 5:55pm 1345355753

BB3 ...and collapse the bond market... shooting up interest rates sky high... yep I can see how that would help the economy... the risk is not worth it... (one way to crash property prices though, which I know most that are on this sight really would love - in which case they may get their wish but they will not like the outcome...)

by Basel Brush III | 19th Aug 12, 8:14pm 1345364070

Uncertainty is the thing that most of these buyers hate and it is the way to a lower exchange rate. Used in concert with other measures the NZ$ would soon reach (and probably overshoot) its intrinsic value. The important thing is that it gives the country the opportunity to rebalance other parts of the economy.

The problem is that Key and English do not have the brains to manage the position.

by economist | 20th Aug 12, 10:04am 1345413858

Or they could just drop the interest rates to end the carry trade, at the same time require all new loans to have a 70% LVR, existing ones to be brought down to that within 10 years, end the tax payer cash flowing rental properties via ringfences the losses... that will put an end to NZs need to borrow offshore debt, reduce the exchange rate and make housing cheaper and go a long way to closing the hole in the governments tax revenue books....

by steven | 19th Aug 12, 5:19pm 1345353574

BH, all overseas assets are over-valued at best, worthless at worst and here you are wanting to bail out investors with our tax money.

absolute cw*p

regards

by economist | 19th Aug 12, 5:17pm 1345353450

When the NZ dollar is 'undervalued' then some form of negative QE would be the answer BH?

At first QE was a one off to save the 'system'. Then it was a repeat to get the world out of recession. Now-a-days its a move to stimulate the economy when its not performing at its potential or to make the currency competive?

by steven | 19th Aug 12, 5:27pm 1345354062

Well you could argue that we have never left the recession. Unlike the 1930s however when keynes said we had the resources this time we do not...now whenever we recover oil price will go ballistic and cripple any recovery.

So the Q is now where is the new economic theory(s) for post peak oil.

PS Once past US elections the US will I guess invade Iran...

regards

by economist | 19th Aug 12, 5:43pm 1345355005

The US will not be invading Iran - bombing maybe (if Israel doesn't bet them to it). Iran is not Iraq - they will need to call up the draft to have the man power to invade.... not very likely...

Also an invasion could then easily bring in Russia and China to the party - not a great outcome for anyone. Best to let Israel go at it and they bear the risk, complement them privately and condemn them publicly - then call for a cease fire and 'stability' in the region (after than is, Israel has already bombed)... and all goes back as it was before... except Iran has its facilities destroyed...

by ngakonui gold | 19th Aug 12, 6:16pm 1345356970

could you all plesa agree with Bernard for once.

try and make his life simpler as he redies himself for a change of career come the end of october.

bernard we hardly knew yee

by Gummy Bear Hero | 19th Aug 12, 8:02pm 1345363344

Bernard ... , who ?

by Grant A | 19th Aug 12, 7:05pm 1345359916

Ngakonui, great idea, trying to actually explain the facts to Bernard is a waste of time - perhaps if he thinks he's convinced people that he knows more about the issue than most, perhaps he'll let it drop and stop making people think that there is an easy, risk free, solution to the high currency. Doubt it though, as soon as he's short of traffic to his site, or his Herald articles, he'll pull it out again and get mugs like me trying to balance the comments.

by Grant A | 19th Aug 12, 7:24pm 1345361060

"If we create QE as a one off and convince investors it is a one off to stop them running, then they will ignore it... If they think we'll do it again (and again) they will leave.

Really its a knife edge balancing act me thinks."

Stephen - and when the RBNZ's finished its QE program, how many billions of crappy USDs do you want the RBNZ to be left holding the can on ? Or do you think that the US's got a great future over the next few years and we're going to be rich converting them back to NZDs ? Think it through - intervention means owning a sinking currency, and in this case one that deserves to, and has further to fall

by Stephen L | 19th Aug 12, 9:09pm 1345367357

Grant,

I'm not sure whether I'm the Stephen you are addressing- too many Stephens on this site- but here is an answer anyway.

I'm not certain we need to hold significant currency risks through some QE; depending on who exactly now holds the exchange risk of unwinding all the foreign debt we (as a country, not just a government) already have. We could for example start by buying up the foreign debt held by our SOE's. I believe Mighty River Power alone has over $1 billion worth. Second we could lean on or legislate our main banks to take funding from the Reserve Bank instead of issuing Japanese or Swiss or whatever country bonds, the next time they wish to flood the country with foreign money. In any of these processes there is a guaranteed upside in not paying interest on the funds printed. They would not be inflationary through increasing the local money supply (but may be through imported costs rising relative to local costs).

But if we did choose to buy foreign currencies, the almost certain result is that we would gain, as follows:

If we spent say $10 billion buying USD and selling NZD; we would currently receive US$8 billion more or less. Let's suppose we were happy with a 10% devaluation, and so stopped when that was achieved (The IMF advocate a 20% drop). NZ is not important enough for the US to counter the move at a Federal level, or they would decline against every other currency, and have to print trillions more. So the US$8 billion would now be worth NZ$11 billion. We would have made $1 billion, (plus really the initial $10 billion of created money). If in fact our exchange rate didn't decline at all, we've actually made $10 billion, as the money was created on a computer.

by Alex13 | 19th Aug 12, 8:30pm 1345365006

The suggestion to "engineer a fall in NZ$" is nonsensical in so many respects that it is hard to decide where to start criticizing it (or whether to even perceive it with any degree of seriousness). The article is either a (too subtle) joke, or the author is seriously detached from real life.

The majority of ordinary people benefit from the high NZ dollar when living here or when traveling overseas. The “engineered” fall in NZD exchange rate would cause a significant rise to both cost of living and inflation. The only people who might benefit from such an exercise are owners of export companies – and even that is not guaranteed (I won’t go into analyzing the reasons for success or failure of export businesses in NZ as this is too big of a subject for this post – suffice it to say that the said reasons have very little to do with the currency exchange rate).

In a nutshell, the suggestion is just silly – both in essence and in the form it is expressed.

by Plan B | 19th Aug 12, 8:11pm 1345363890

We use a currency in NZ called the NZD it is not accepted anywhere else in the world except for one or two pacific islands. Strangely the currency we use in the real world is also use in the world of finance for traders to bet on resulting in it being one of the most heghly traded currencies in the world. The bets are really USD bets but still we use a currency that we do not actually own or control in any meaningfull way.

It is funny in a starnge sort of way

by Gummy Bear Hero | 19th Aug 12, 8:33pm 1345365195

Unless I'm Gummfuddled ( again ! ) ....... but if you push our dollar down , doesn't our debt servicing costs eventually soar , considerably so ...... 'cos we're paying back with a weakened $Kiwi ...

..... are you trying to bankrupture us , Bernie ?

by Stephen L | 19th Aug 12, 9:28pm 1345368515

GBH,

That is indeed a very good question. I've asked here before who really holds the exchange risk of existing foreign debt if the NZD depreciates; but those who likely know have stayed silent.

Is it the Swiss, or Japanese, or German investors who have bought NZ dollars to loan them back to us through our banks? I understand some will have probably hedged them through middlemen hedge funds, who may then hold the risk- that is all very murky? Or is it actually our main commercial banks (for private debt) or Treasury/Reserve Bank (for government debt)?

What are the consequences to us of that depreciation, if any?

My expectation is that most exchange risk is held offshore- certainly private debt of householders and farmers and small/ medium businesses is in $NZD; only Fonterra scale type companies may hold some exchange risk on their debt- and am sure they are smart enough to hedge it. And if you owe NZ$1 million, that is all you have to pay back (plus interest of course). The bank doesn't come and say sorry, but they borrowed Swiss francs, so you have to now pay those back.

I do believe foreign investors have been well warned; and well rewarded, so my sympathy for them is limited. In the Swiss' case, its newly printed Francs anyway, so little real cost to them. At some stage we have to face the music- digging a deeper hole to fill the last one is not a good process.

Would interest rates rise? Foreigners may demand higher rates to lend to us; but the whole point is that their shortfall would be made up by new money; their money is doing far more harm than good (see Bollard's mea culpa speech of a couple of weeks ago). The Reserve Bank would likely be in more control of interest rates than they are in truth now.

by notaneconomist | 20th Aug 12, 9:20am 1345411243

GBH - thank god for some common sense on this topic and it only took 3 lines.

by Ergophobia | 19th Aug 12, 9:24pm 1345368279

Bernard, Bollard intervened in July 2007 and the NZD dropped to 69c:USD, by December it was back to 78c. Later on the dollar fell rationally and the RB made some money then. It really is insider trading, anyone else would go to jail. I have just spent 3 months in Australia and there is little support there for funny money; most economists appreciate the high dollar is holding inflation in check and that to sabotage it would hurt a lot more people than the relatively small manufacturing low dollar lobbyists. You financial alchemists will end up destroying us all in your pursuit of free money.

Ergophobia

by raf | 19th Aug 12, 10:02pm 1345370555

Currency intervention is very tricky to get right. It's very difficult to support your currency unless you have major foreign reserves. The UK experience during the ERM crisis is a good example of this. However, it's important to remember that the UK had a duty to intervene to support the Pound within its ERM bands. When it became clear that this was no longer tenable, they pulled out and the Pound fell (and in the process helped the UK export sector recover).

It's a different story if you are trying to prevent your currency from getting too strong, because you can sell as much of your own currency as you want. Problems arise here under the following conditions: you have a current account surplus or your economy as at full capacity. The former tends to support a strong currency (Japan and Switzerland both have this problem) and the latter requires heavy sterilisation of new currency, which is not always that easy.

Switzerland has now put a line in the sand for its currency in order to prevent further deflation in the economy. In order to offset new currency, it is looking at limiting the expansion of new bank credit. This is a very sensible option and one I have recommended for some time.

New Zealand is different again. It has an overvalued currency AND a massive current account deficit. According to macro-economic theory, this shouldn't really be possible but in today's world of global capital, it is. The government here doesn't seem to be able to work this out (listening to Steven Joyce on the Nation today talking about exchange rates was a bit worrying). NZ is in a very rare position of being able to intervene to drive down its currency and really have nothing that could work against it.

What Bernard suggests is quite straightforward to implement. With an overseas debt of $150b overhanging the currency, there is really nothing to support it, if the government decides to move it down 10-20% (incidentally, Australia is in a very similar situation).

by Realtor in France | 19th Aug 12, 10:47pm 1345373267

NZ could be the testing ground for Prof Steve Keens hypothesis for solving the global debt crisis through a modern day debt jubilee...hmm bit out of left field I know, but what have we got to lose. What do ya reckon sheepies?

by Gummy Bear Hero | 20th Aug 12, 9:14am 1345410888

....... this " sheeple " reckons that Prof Steve Keen's psychiatrist should double the dosage of his medication ....

by steven | 20th Aug 12, 10:26am 1345415173

Im afraid it would take more than double safe medication to get him to your level of la la land,

8 X I reckon....to start with.

regards

by Gummy Bear Hero | 20th Aug 12, 7:42pm 1345448567

He's the silly la-la land fellow , who lost the bet , and took an enforced trudge up Mount Kosciusko !

....... at least Bernard wasn't daft enough to place a wager on his housing-price-collapse prognostication .....

One up for the Kiwis , methinks ....... yaaaaaaaaaaaah !

regards

by scarfie | 19th Aug 12, 11:02pm 1345374163

I have said in jest before that some racial tension in Auckland would go a long way to scaring off asian property investors, I reckon this would have a greater impact than anything on the currency.

by Gummy Bear Hero | 20th Aug 12, 9:11am 1345410683

As I told youse lot 3 years ago : Vote Winston Peters for Mayor of Super-City-Auckland ... ....

....... and that scenario you envisage , would've come true ....

Didn't listen to the Gummster , did yers ! ..... tisk tisk ....

by robby217 | 20th Aug 12, 2:26am 1345386365

How about we all chip in a fiver and let Bernard ply the Forex markets?

by keriwin | 20th Aug 12, 8:12am 1345407165

If you want the NZ dollar to drop you have to drop the OCR. Simple.

by FatCatWatch | 20th Aug 12, 8:36am 1345408609

Hello Bernard - Hello readers.

You interventionist attitude is alarming me Bernard - your on a slippery slope that might ultimately end in the Nationalisation of the Todd Empire Gas Resources, and as such would make New Zealand a very unsettling place for foreign investment and further pillage and plunder by Rich Listers.

Old mate from your organisation got told off by that aggressive silver tongue Steven Joyce about promoting this issue over the weekend and yet you persist - YOUR ON REPORT, very thin ice.

by Frostwind | 20th Aug 12, 8:55am 1345409750

I don't buy this low NZD$ is good for the economy BS. Low NZD$ lower our standard of living substantially as cost of imports (mostly fuel) rise and will push up the entire cost structure.

Lowering NZD so that we can become "more competitive" is like asking an employer to give you a pay cut so that you are "more competitive" amongst the other candidates/employees. Sure, we are more competitive but at what cost?

Furthermore lowering NZD will attracts overseas money and they will buy up all our assets, houses, land, so that we can be tenants on our own land.

Lowering NZD is effectively trimming our wages, because everything else will become more expensive.

by raf | 20th Aug 12, 9:09am 1345410563

"Furthermore lowering NZD will attracts overseas money and they will buy up all our assets, houses, land, so that we can be tenants on our own land."

Frostwind, You may not have noticed but you are already a tenant in your own land. How do you propose to pay back the $150b you owe? With a trade surplus of $1b a year? The only way to pay back this debt is to either sell your assets or generate more income. The former is already happening and the latter requires an exceptional improvement in our trade account, which is only going to come from a downwrads adjustment in the exchange rate.

To put it into domestic terms, imagine you had an income of $50,000 a year and a mortgage of $7.5m......

by Stephen Hulme | 20th Aug 12, 9:48am 1345412902

raf - slightly ingenuous and of little use.

Lowering the value of the NZD/USD ccy pair increases the NZD valuation of outstanding hedged foreign debt.. The collateral clauses will be invoked after a devaluation, demanding more NZD to be lodged with the foreign debt counterparty of the FX swap. Rollover terms will become more demanding in terms of interest rate payments, haircuts etc. We certainly will need to export more just to stand still.

It's inevitable that asset sales will be needed as NZ is called upon liquidate it's debts. It is how the poor will be recreated. Those with serious money want the grasping middle classes denuded of their faux wealth.

by steven | 20th Aug 12, 2:32pm 1345429930

but those with "serious wealth" have their wealth based on the backs of everyone else....break that and there is nothing to feed off.

Inevitable sales? no inevitable default....Argentina did it with a petrolium company....its spanish owners can do what?

http://www.guardian.co.uk/world/2012/apr/17/spain-argentina-oil-company…

regards

by Les Rudd | 20th Aug 12, 10:59am 1345417156

Whatever way this idea might be executed, quickly or gradually, some 'joined-up'ness' would help with adjustment, eg. fuel cost could be offset by reducing excise duty and implementing, say, a land tax to replace the revenue. We'd need to be more hard headed and sovereign-minded about asset purchases. Supporting the change we could need to lower the OCR and use other means to control inflation, eg. various capital ratios, especially requiring lenders to be 100% local deposit funded.

The benefit would be that we start dealing with a persistent current account deficit, at long last. It cannot go on being ignored.

At some point we will need to address whether the whole nation's right to sovereignty is to continue being subordinated to individual personal property rights, of just a few.

Who are the few?

Cheers, Les.

www.changenz.co.nz

by @tony | 20th Aug 12, 8:58am 1345409918

Print money to build more dams/wind farms and buy 1/2 billion in solar panels from USA/China, cheaply, whilst we can! and get ready for what we know is coming...

Why should we continue to bury our heads in the sand and pertend Oil/Gas/Coal is not running out.

11:59pm and the clock is ticking.

by steven | 20th Aug 12, 10:33am 1345415607

Now if you were going to print, yes.....and create some jobs here....

I'd throw in getting some tallow to bio-deisel plants on line, 2 or 3 about the limit I think based on the "waste" output....transport fuels is the problem, really need to know what is essential and what is nice to have....

Tide in Cook straight looks very doable...

Hydro, Im not sure we have many suitable sites left...

regards

by steven | 20th Aug 12, 2:27pm 1345429641

Suppose they want to come after we've told them no?

Machine guns on the beaches?

Sink the boats before they get close?

I can hear the liberals screaming already....

regards

by Chris-M | 20th Aug 12, 9:17am 1345411034

If we go down the money printing currency devaluing route we are just buying into the present world wide currency war. Heaven know where that will/is going to end. (I think that it started with China) The countries playing artificial currency games (China, USA, Switizeland UK, ..) should somehow be penalized. Vain hope though and the only way that they will all come to their senses is after the whole house of cards has come crashing down. I still think that about the only thing that is sensible is to introduce a Tobin Tax, apply some financial dampening and take a profit from the speculative/security seeking cashflows that are screwing our currency about.

by Boatman | 20th Aug 12, 9:33am 1345412007

Wow , over sixty responses to the article . It seems the idea of weakening the NZ$ has got some traction among ordinary Kiwi business people.

Its important to understand the cosnequences of a weaker NZ$ ,but it seems we are at a point where weaker would be better than stronger for us.

Everyone else is racing to the bottom to maintain their competitive advantage , and we cannot ignore this trend

by Bernard Hickey | 20th Aug 12, 9:45am 1345412710

FYI from a reader via email:

Hi Bernard

I would suggest a transaction tax, like what the EU is looking into.

Especially for people who buy and sell overseas currency, as speculating on foreign currency causes distortions in the market and affects to value of the $NZ.

For example if overseas companies buy large amount of $NZ our dollar is driven up affecting our exporters

If they sell down $NZ the dollar goes down affecting NZers household spending , oil etc.

We get these flucuations on a daily basis irrespective of how our economy is doing.

On the issue of superannuation, I think Kiwi Saver should be compulsary for all NZers as soon as you start working. Just like the 1974 Labour Govt Policy.

Say 6 % contribution.

Employers should also be made to pay 6%. They can really afford it. In Australia its is compulsary for employers, and we should be able to compete with the Aussies.

If we dont, we will continue to loose NZers overseas to Aussie.

As NZers become more financially independent, with Kiwi Saver investments we could phase in a means test on the Old Age Pension. Say in 15 to 20 years.

This gives NZers time to adjust.

The current Labour policy of increasing the age of eligibility within 10 years is too short for NZers to adjust to.

Also Kiwi Saver and other superannuation schemes today are not Govt gauranteed, so we need an old pension scheme just in case the value of super schemes drops, like in the USA.

Also on geting the economy going, I think the minmum wage needs to be increased to $15.

Again employers can afford it.

This will help low income earners and help to stimulate growth.

You are the financial man, what do you think about these proposals.

Transaction tax

Compulsary Kiwisaver 6 % for employees and employers

Minmum wage of $15 per.

Should we ask Labour and National to include these in their next party manifesto's.

Thanks

Peter

by Bernard Hickey | 20th Aug 12, 9:49am 1345412993

FYI from a reader via email:

That was spot on! About time the government and Reserve Bank intervened with the currency. Every other government is manipulating theirs.

Dan

by Chairman Moa | 20th Aug 12, 10:46am 1345416391

Yeah Bernard.. I am sure NZers would love to see petrol going at $2.80 a litre and more.. then everything else will follow the price increase. John Key isn't that stupid..

by John L Walley | 20th Aug 12, 11:17am 1345418236

NZ print money? No way.

We would rather borrow the money others print and pay them for the privilege.

www.johnwalley.co.nz

by Stephen Hulme | 20th Aug 12, 11:34am 1345419299

John

How would you account for the new moneyness attached the Key Government's recent increase in our indedtedness? Surely printing by another name when foreigners are predominantly the creditors supplying our local banks the less risky option to monetise these new promises to pay?

by Waripori | 20th Aug 12, 11:31am 1345419099

I know!. Why dont we print a Trillion NZD and buy Aussie dollars? We would go to about 20 cents against the Aussie and they would have to send all their manufacturing jobs here.

Do you think they would mind?

by JackJill | 20th Aug 12, 12:24pm 1345422289

I know, look at how well Australia and the USA r doing. They're so rich because they have locally owned banks and speculators.

by powerdownkiwi | 20th Aug 12, 2:15pm 1345428957

Upside down as usual, Misty.

You don't get to make money without expending energy.

I don't think you're ever going to understand that the driver isn't money. Why so blind? I can understand not having thought it through - that's mainstream - but the moment somebody points it out, surely it's obvious?

by notaneconomist | 20th Aug 12, 2:49pm 1345430988

PDK - Most of the time I find your comments as depressing as doing a tax return or other crappy enforced compliance task.

Your always saying people don't understand, that their blind, haven't thought things through etc. But you never provide any workable alternatives that can be applied to the real world.

I have to ask - Do you work in the Public or Private service?

by powerdownkiwi | 20th Aug 12, 3:40pm 1345434017

Oh yes I do. All the time, openly, and here too. I live and demonstrate just what can be done, and how much fun can be had, living in a non-impactive way in the real world.

Why don't you visit (we have heaps of folk through, both formally and informally, no charge ever) ? The house supplies most of it's own energy, the rest is renewable/off-grid.

Take a look at my blog, for more.

But 'depressing' is an interesting take; emotions never changed fact.

by shorts | 20th Aug 12, 4:00pm 1345435213

You do realise that the interweb has a massive carbon footprint and uses a huge amount of energy?

by steven | 20th Aug 12, 4:16pm 1345436172

Yes....

Hence why I wonder if its likely the Internet will survive more than 20 years the way we are going, that is in energy terms of course, given geo-politics who knows.

regards

by Kate | 20th Aug 12, 5:18pm 1345439894

Just curious, pdk, about the $50K or thereabouts cost of your house .. did it get a Code of Compliance? I can see how one could manage to build for that price, but the question is whether it would (or did) pass muster with current regulations.

by powerdownkiwi | 21st Aug 12, 3:45pm 1345520733

While not yet signed off, the place is compliant. The engineers 'producer statement' covers the non-standard bits. I couldn't build that square metrage again for 50, but I could build single-storey 80-100 sqm, for 50. Ex labour, but it would go up in a week, so that's no biggie.

You have to think outside the square - meaning, think for yourself. When the fully-insulated, self-supporting walls and roof, in your choice of colours either side, turn up on-site cut to length, with every last flashing and fastening, for 16 grand, you'rea long way down the track. If you keep under 50 volts (12, 24, 28) you can wire it yourself (we're still shy of 5g for all the electrics. The pad would still be about 5g. That leaves 25g for glazing, doors and plumbing.

Keep it simple, and if it isn't there, it won't cost. For instance, our interior walls are single-skin 17mm plywood. No stopping, painting, finishing, hardly any construction, great bracing. 30-something dollars every 1.2 metres of wall.....

Most people are too accepting, too scared of being different. Probably worried about their re-sale, but at that outay, they're going to be way ahead anyway.

by powerdownkiwi | 21st Aug 12, 4:26pm 1345523210

Footings and pad were tweaked by the engineer, from my drawings, to pass local regs. We had a prior geologists report ($600).

Anyone with math can do the bracing calcs. You just need an engineer to do them officially. I knew it was over-braced before I sent it to him.

Don't know about sprayed c/crete. Doubt it would match panel. I prefer sandwich structures, lower inertia, better bracing, better insulation, why go anywhere else?

by Kate | 21st Aug 12, 4:35pm 1345523701

Most people are too accepting, too scared of being different. Probably worried about their re-sale, but at that outay, they're going to be way ahead anyway.

Having a CoC for re-sale is a biggie for most folks.

I think there's a very good chance that a book with a whole bunch of building alternatives laid out - with nice illustrations and pictures would really sell well. Perhaps someone like you should pair up with a creative, practical alternate- orintated architect.

Our first home was built by one such architect. Very stylish/trendy and superbly space planned home, with a most economical construction. Sliding double wardrobe doors for example were your stock-standard cheapy hollow doors - painted bright colours with a long piece of wood (standard trim) glued on the outer edge (for handles). Built in study desk was similarly two plain doors turned sideways and joined in an l-shape configuration. Most walls and all ceilings were sealed particle board. Strategically placed skylights for excellent light and heating. Pot belly stove in lounge placed below a small 'door' in the pitched ceiling which lead to the stairwell and hence heated the second story (two main bedrooms). A delight to live in.

by Stephen Hulme | 21st Aug 12, 4:39pm 1345523969

Kate I like this format as a look into the future of building.

by JackJill | 20th Aug 12, 3:46pm 1345434382

you just dont get it. PDK is the messanger- the canary in the coal mine if you will. dont shoot the messanger. . what have you done, notaneconomist??? !

by notaneconomist | 21st Aug 12, 7:14pm 1345533276

JackJill - In answer to "What have I done"? Holistic Management.

by JackJill | 21st Aug 12, 7:29pm 1345534159

you did a theory? whats relevent is how you apply this theory. where and when and how are you spreading the message.

PDK spreads his message and has built a house and uses it as an example.

by notaneconomist | 22nd Aug 12, 9:44am 1345585447

JackJill - You state - "Whats relevant is how you apply this theory, where and when and how are you spreading the message"?

What is relevant JackJill is the success in a commercial operation. The provisioning of freebies is not a sustainable or viable option. People have to be prepared to pay as otherwise they are obtaining a signifcant advantage/gain at someone elses expense and it most certainly isn't going to be mine.

Why should I pay to privately educate myself on a system, the costs of implementation, monitoring etc in a commercial capacity to assist others who want a free ride?

So when you assumed quote "you did a theory"? question followed by your statement that assumed that relevance was missing from the theory. I could have assumed that perhaps your female, early to mid 30's, politically you might stand on the green side and could like personal gain from other people's efforts. Would my assumption be correct - well maybe I'm right or maybe I'm wrong but that is the danger of assumption.

by JackJill | 22nd Aug 12, 10:34am 1345588468

lol - avoiding the answer

by notaneconomist | 22nd Aug 12, 5:30pm 1345613445

JackJill - Do you actually know what Holistic Management even is? I suggest you prod your little needle elsewhere.

by JackJill | 22nd Aug 12, 6:28pm 1345616932

lol- still no answer. whilst PDK has actually done something - you haven't.

you told him to come up with answers and he has. you haven't.

by steven | 20th Aug 12, 4:13pm 1345436005

So without a workable alternative that meets your specification, you will continue to ignore reality. the very point is we have to think on whats the best we can do and how to get there, what is certain is, we cant carry on.

Where anybody works makes no difference to nature, maths, physics, geology etc...

regards

by steven | 20th Aug 12, 4:17pm 1345436262

because as individuals we act in what we think are our best interests as an individual and not as a nation.

by JackJill | 20th Aug 12, 12:10pm 1345421414

A radical idea - spend less than you earn. i know its crazy but these are crazy times.

by Gummy Bear Hero | 20th Aug 12, 12:44pm 1345423440

Oh , come on ..... behave yourself ...... this is New Zealand we're talking about !

...... now come along , team .... thinking caps on , this is a very serious issue ....

How can we create more money from nothing ,... hmmmmmm ?

by steven | 20th Aug 12, 1:02pm 1345424559

"From nothing"....the same way the right wingers and "free marketeers" have done for the last 30 years....leverage make believe $s to make more fantasy $s that is based on pure greed and delusion.

regards

by steven | 20th Aug 12, 1:30pm 1345426212

The point is its all make believe....leverage that really produces something, yes....the rest really is ponzi.

"same path" maybe deny all......as long as most ppl have a decent bit of skin in the game the amoral can take unfair advantage....when too many have no skin in play then its bye bye.

regards

by steven | 20th Aug 12, 2:01pm 1345428118

So everyone it seems has an over-inflated idea of their worth and contribution to the system...if they dont get it they whine....maybe greed is overwelming then,

I use stainless steel throughout unless I cant get the something in stainless. My deck is 3m off the ground and the joist holders have rusted out...if they had been stainless it wouldnt have happened, mind you they used mild steel 4inch nails as well....I guess its to protect us from cowboys. NB When I repiled I used stainless steel holding nails and stainless steel straps throughout.

Which is the biggest cost? labour or the materials? I'd suggest labour so do it once.

regards

by Global Guardian | 22nd Aug 12, 12:53pm 1345596794

So the real answer is you do not want to do a proper job, just a cheap one. NZS 3604 is an industry standard which has been around since 1990. So stainless steel within 600mm of ground level has been a requirement since then. Especially on an exterior deck hitch is not protected from rain washing.

i have built for decades and it pisses me off when ignoramuses like you moan about things you know squat about. Every utterance you have made on this post reinforces this fact.

from evidence gathered over decades, NZ has been slowly spiraling towards irrelevance alongside I'll conceived and illogical decreases in tax revenue. So from experience, the lower the taxes, the lower the standard of living of kiwis. Blows a rather large hole in arguements against public servants and for lower taxes .

by Global Guardian | 22nd Aug 12, 8:31pm 1345624299

Yeah I've heard of Branz. They are the organisation which gave the thumbs up to all the products and new cladding systems which leaked like a sieve and causd the leaky building saga. Now you tell me where in the Building Code Compliance Documents they are referenced?

The CCA treatment in the timber is known to react with the galvainsing of the bolts. If you had used untreated macrocarpa, not in gorund contact, and hardwood sleepers again, you would not have had to use the stainless steel fixings. No CCA treatment no stainless steel. But you used H5 treated Piles and you bitch about being having to do something which you did not know.

I knew the lower tax take thing would probably confuse you. When everyone paid a higher tax the country prospered. Once the morons started cutting tax rates, the country suffered a slump in the standrad of living simple really. Have I made it simple enough for you?

$65. each. crickey. Come down to Nelson mate and I will sell them to you for $50.00 That still leaves $25.00 for me to pocket if I was that sort of person. But alas I am not.

The building code for the uninitiated does not specify 1 way of building things. So when you say "But the deck needs to have 12kN tiedowns which have to be stainless steel" you show the complete lack of knowledge or experience in building. That is why the Goverment has introduced licensing so cowgirls like yourself are run out of the industry.

But if we use the cookbook most people know to make a hosue, NZS 3604:2012, (Which is 1 way to satsify the building code.) 12kN fixngs are required for bearers fixed to Anchor and Brace Piles. Now from your description, you have got neither, so why use 12kN. A little bit of knowledge would have saved you a heap of money, but hey justice is a bitch.

by JackJill | 22nd Aug 12, 9:23pm 1345627427

"knew the lower tax take thing would probably confuse you."

Brilliant, not. - i think its a tad more complicated than raising taxes. nz sits within the world economy and the world economy has changed. unfortunately the economy is a bit harder to deal with than buildings.

by Global Guardian | 23rd Aug 12, 8:50am 1345668656

Are you suggesting we follow the leads of the power countries?

USA, UK, France, so far indebt they will never repay what they owe to the rest of the world.

China- you do what you are told by the ruling elite.

Germany, has been trying to take over the world for over a century. Now it is through political threats to the sovereign authority of other European countries.

The above economies are in a worse shape than ours, so why should we follow their lead.

Singapore. Highly regulated, highly authoritarian. But economoy not in the dolldrums and standard of living we can only fantasuisie about.

It's been said we need to think outside the square. By doing nothing it will be foistered onto us by the destruction of the very civilisation we know. History tells us mankind does not have the ability to change momentum for his betterment. Civilisations crumble, and ours will be no different, UNLESS WE CHANGE WHAT WE DO NOW.

by JackJill | 23rd Aug 12, 9:11am 1345669876

too funny. you have an expats view of Singapore: you want to shift nz over the tectonic plates to a strategic shipping location to have the same economic power, install a one party system, have a massive underclass ie have maids imported from elsewhere etc. sure go for it... did you know in singapore the ethos of the workforce there is work and work and work. thats your thinking' outside the square'

Im sorry to say, I think your the cow-girl in terms of economics. stick to buildings, you sound very good at it! i.e. the USA cant default on its debt because it prints it own debt!! also the size of debt is an effect of have an advanced economic system that allows debt to to happen.

by Global Guardian | 22nd Aug 12, 1:49pm 1345600176

So to finsih the job, from tomorrow there will be no income tax payable by anyone. No deductions or exemptions will begin immediately.

by notaneconomist | 20th Aug 12, 2:53pm 1345431213

GBH - Sack the majority of the public service. That should create many spare billions. How much are you after??

by Gummy Bear Hero | 20th Aug 12, 7:33pm 1345447994

As you know , I'm not an economist , notaneconomist ....... but we have a government who refused to borrow money to invest into the daft Cullen fund , during the GFC ..... and yet they continued to borrow money to prop up Labour's seriously dopey policies , WFF & interest-free-student loans ......

..... Gummy reckons that'd save the tax-payer $NZ 4 billion per year ( give or take ) , every year ....... just dump those two middleclass welfare policies ....

And no need to sack anyone !

by steven | 20th Aug 12, 12:56pm 1345424218

Not radical but very von mises, von cameroon and von greece, and we can see where that is going...a Greater Depression.

regards

by JackJill | 20th Aug 12, 2:44pm 1345430673

that's really time preference / present value vs future value mixed in with cultural/aspirational values. i.e. your first car. you didn't pay interest but you lost monetary value via inflation, maybe offset via bank interest (though taxed) but gained in area of technological advances becoming cheaper and the deprecation of the current cars cost and your potentional increase in wages etc. its just not clear cut!

by JackJill | 20th Aug 12, 9:18pm 1345454300

but it does work that way. yes the future that you did have wouldn't happened but another future would have.

by notaneconomist | 20th Aug 12, 2:58pm 1345431516

NZ Heads to Fin - Debt forgiveness, Iceland style. Interestingly the IMF encouraged this move.

by JackJill | 20th Aug 12, 3:16pm 1345432577

Yes! We Want Action. Set up Special Economic Zone on Stewart Island. Shenzen eat your heart out!

by goNZ | 20th Aug 12, 3:36pm 1345433788

.....LETS GO NEW ZEALAND....

Oi - thats what I am not you nz finheads !

by JackJill | 20th Aug 12, 9:52pm 1345456352

What does that mean. What productive work is not being paid properly?

by JackJill | 21st Aug 12, 7:19am 1345490356

Thanks. Some questions.

I see that the public service is very well paid and there is great opportunity in currency speculation but are the private companies that produce these things actually profitable? are the owners are very rich and the workers poor? Is the the government budget a much greater percantage of the GDP compared to other nations where the workers in the prouductive area are paid better wages? I guess the question is why are wages low here compared to other nations?

by JackJill | 20th Aug 12, 3:30pm 1345433415

I would go even further. all non-new zealand 'things' here should be banned. cars, movies, phones+ planes!! - even Google and the internet have come here!!!! And the English language!!!!! its not even from here! We must make them all ourselves - down with outside influences!

by JackJill | 20th Aug 12, 6:40pm 1345444835

I'm with you! no more enslavement. I want FREEdom to choose whom I bank with now!!!

by JackJill | 20th Aug 12, 6:43pm 1345444990

Im with you! Lets reopen the gold fields! we need real wealth.. gold!. no more fiat money!!! no more "funny money"

by Bernard Hickey | 20th Aug 12, 6:14pm 1345443263

FYI from a reader via email.

The hornets nest you have provoked surrounding the need for an intervention in the NZ $ as all around us countries devalue to preserve their export competitiveness brings to mind Keynes:

> “When the facts change, I change my mind. What do you do, sir?”

>

> The issue is - it's not a perfect world out there and we are now operating in an environment that was previously considered inconceivable.

>

> If I had offered a bet 10 years ago that the UK, the USA the EU would each be printing trillions

> - I would have not had any takers.

>

> I am struggling to see how when you swap pieces of A4 labelled NZ $ for another currency

> which can be converted into hard assets or remove liabilities you can " lose " as the

> acquired assets value is irrelevant - you didn't pay for them ! Just a ream of A4.

>

> This is not ging to end well - new car imports + 27 %. All borrowed. Does anyone never stop to think how we can afford these or plan to pay for them ?

>

> Cheers, John

by Stephen Hulme | 20th Aug 12, 6:59pm 1345445958

GE Money - at our service - could care less - it's parent is now a fully fledged US Federal Reserve approved bank - hence money for nothing.

by MortgageBelt | 20th Aug 12, 7:20pm 1345447240

GE Interest rates = 27.95% on Creditline after the Interest-free period - targeting low income, poor budgeting NZ-ers.

GE - 24+% Interest rates on Personal Loans

GE - GemVisa - 24.95% Interest rate after 6 month interest-free -targeting the poor budget demographic?

by steven | 20th Aug 12, 7:19pm 1345447165

Its going to be very very hard if what unfolds is going to be as big as the Great Depression....and I think it will be bigger, The Greatest Depression.

I can see GBH swallowing prozac like uh gummy bears.....

The thing is if you have some debt but can see your way out you knuckle down and do it. If on the other hand you know you are stuffed because you cant pay and the house you bought will never ever be worth what the mortgage is owed you stop paying everything....and move the money elsewhere....then wait to go bankrupt.....

As for cars, so you bought a $60k vehicle on 5years HP or a mortgage topup that will crash in price as petrol becomes scarce...or un-affordable.....oops.......

I wish my Grandparents were still alive, I'd love to listen to how the 1930s were...

regards

by Gummy Bear Hero | 20th Aug 12, 7:52pm 1345449139

It's moments like this that I wish I'd learnt to play the violin ..... 'cos that is such a sad refrain , wishing to hear how bad the 1930's were .....

...... Gummy will be swaying in a hammock , under the coconut palms of SE Asia , come what may , whether the world rights itself , or not .....

And poor old steven will be stuck in NZ , alone with his violin , having a fiddle with himself ....

by Global Guardian | 22nd Aug 12, 1:47pm 1345600051

If we can imagine the world is a big jar of jelly beans.

Gummy places his hands into the jar and sates his hunger on day 1. On day 2, Gummy again sates his hunger, not once but thrice. The level does not drop very much and Gummy has energy to produce hot air to power nothing. Gummy does not think about anything but hot air.

After sating his hunger for a while, gummy dreams of things other than Jelly Beans. He has heard of a strange thing called chocolate, and although he has never seen it, he knows he wants it. So takes a couple of large handfulls of jelly beans out of the jar and ventures forth. He spoke with Tim and gladly gave Tam his handfull of jelly beans for a single biscuit coated with this misterious chocolate.

Everyday now he takes many handfulls of jelly beans out of his jar all for the short term pleasure of chocolate.

Gummy thinks his time is too valuable for mundane stuff, and if he has friends working for him, more chocoalte can be got. So he gives a couple of jelly beans to a friend to take the handfull of jelly beans to Tam for his chocolate. And now he is giving other friends jelly beans to get him other exotic things he has heard of. Wine. Lamborghini. Starlets. All the while Gummy lies on ahammock ina far away land enjoying himself.

No one is watching thelevel of jelly beans in the jar. His friends dutifully accept their assignment for fear of upsetting Gummy and no longer being paid jelly beans. the thought of living sustainably again scares them, for Gummy has told them work hard and you can have all that I have.

But how can this be, for Gummy will never pay them enough out of his jar, to accrue extra jelly beans.

The answer comes one day when Gummy tired of waiting for his daily extravagances, remembers the jar of jelly beans and goes to sate his hunger. He discovers the jar in many pieces, for his friends had to smash the glass to get the remaining beans out. There is not a single jelly bean left.

But Gummy was right. Now his friends, after working hard have all that gummy has.

Nothing.

by powerdownkiwi | 22nd Aug 12, 2:31pm 1345602664

GG -

But Gummy will blame someone else for his having nothing. Government, taxes, the Greenies.

Anyone but Gummy.

by Gummy Bear Hero | 22nd Aug 12, 2:44pm 1345603445

I am infinitely rich when I have the " Peak Love & Adoration " of my fellow bloggers , such as Mr PDK and steven .....

.... the money I receive , from putting energy & imagination into the marketplace of life , just buys those annoying necessities we all need ...... groceries , internet connections , Aussie red wine ..... mundane stuff 'like that .

Life is good , friends , very very good !

by steven | 22nd Aug 12, 3:03pm 1345604634

Of course and the funny thing is when GBH's shares plummet to worthlessness GBH will be on the next plane home to NZ with his hand out to the NZ Govt he pays no taxes to and despises.

regards

by Gummy Bear Hero | 22nd Aug 12, 3:08pm 1345604907

Is this " pick on Gummy day " ....... again ? .....

..... gotta get back to class . When GBH has graduated , I'll come back to NZ , and you can all bask in the glow of my holy aura , once more .....

Stay looking at the glass half full , my friend ...... Ciao !

by Kunst | 22nd Aug 12, 4:06pm 1345608399

Although you had a personality change recently, don’t be gloom and doom Gummy – I think people still love you.

by Gummy Bear Hero | 22nd Aug 12, 7:29pm 1345620567

Walter : I could not possibly have had a change of personality , if I could do so , why would I still be using this one !

..... sadly , I'm still the " glass-is-half-full guy " @ interest.co.nz , paddling against the tsunami of gloomsterising that washes over this site umpteen times per day , every day .. ....

by steven | 22nd Aug 12, 3:06pm 1345604819

I'd be very happy stuck in NZ. Check how much food the phillapines has to import to feed its ppl GBH....swinging under a hammock or on a spit? I hear white long pork is very well regarded...

regards

by Gummy Bear Hero | 22nd Aug 12, 3:11pm 1345605074

Crikey Dick & Jane , steven .... has a hedgehog crawled up your bum & died there ? .....

.... you seem to be more prickly and irritable than usual ......

...... wishing you well , old chum : Pip pip !

by JackJill | 20th Aug 12, 6:45pm 1345445132

yes, yes! Im with you. full conscription. no more unemployment!

by JackJill | 20th Aug 12, 7:28pm 1345447720

don't be angry now. You can do it! John Key has no chance against you at the next election. you have fresh ideas, he has stale ideas. we own nz because it is ours, it was given to us so we own it!

by JackJill | 20th Aug 12, 7:41pm 1345448473

yes, yes. drop the them back to white house on queen street.

the fed is history, we New Zealand will open a fed with negative interest rate. that is way way better than zero interest rates. you pay us to hold your money.

by JackJill | 20th Aug 12, 7:44pm 1345448693

nah a revolution, it will be a evolution! unlike any other peoples (r)evolutions. this one will be for the people, by the people, beacuse we are people from inside other people.

by JackJill | 21st Aug 12, 9:11am 1345497108

yes, yes. we need the UK to start buying all our sheep again. down with the european common market. rise britanica, rise!

by JackJill | 21st Aug 12, 9:14am 1345497291

yes, yes. we should lock the gates at the airport to stop those educated kiwis from leaving. they have to give back what they have put into nz. no more going overseas to make money for other people. just like our Dear Leader did, mr john key!

by Gummy Bear Hero | 21st Aug 12, 8:53am 1345496022

I sprouted from the common clay of the Canterbury Plains ...... and as much as I love NZ , I consider myself to be a citizen of the whole wide world ......

by steven | 21st Aug 12, 12:17pm 1345508231

You didnt mention that you now live in the Philippines and I assume pay no NZ tax...

correct?

regards

by travellerev | 21st Aug 12, 11:25am 1345505141

In response to Bernard Hickey thinking it would be a good idea to have John Key become a trader again the following.

John Key was involved with the very first predatory attack in modern times on a currency in as early as october 1987 three days after Black Monday.

His counter party Andrew Krieger made US$ 300 million in one afternoon and the currency tanked 5% leaving a lot of people out of pocket.

The currency? The NZ dollar.

I put it to you that letting John Key anywhere near our currency is an extremely bad idea.

by Global Guardian | 22nd Aug 12, 1:42pm 1345599731

This is the very reason currencies need to be lifted above chattels and removed from being traded. Faceless and morally bankrupt people bankrupting countries for the sole gain of immoral bankers.

Greece. Give Germany the finger and say after me Stuff you. We are not going to pay you any more. Ireland. Spain and Portugal will quick join the chorus, along with any other country whose elected officials do the right things by their constituents.

Vested intersts in the Un and WHO have to be removed forcibly and publically made an example of. They know back in the 70s their fanciful idea of continued growth was impossible to maintain. Instead of telling the truth they lied and have continued to lie to silence debate ever since.

If we do not act, we will be enslaved. Most of are without really knowing it. we are not free to choose. we are forced into survival.

John Key is an extremely bad idea.

by Donker | 21st Aug 12, 12:00pm 1345507223

I'm not so sure how much we can do to protect ourselves from what other countries do like US, we are so small, that we have to roll with the punches.

So if you are a NZ exporter, it will be fine if you have low debt. Businesses that have been built on debt and leveraging are facing insolvency - because they rely too much on the $dollar. These businesses will go under and be sold at a loss to a new owner who has a more sustainable model.......

The problem with NZ is that we are too focussed on making quick money......housing, land investment etc, when the true business model is commodities. It's not actually that complicated we just make it that way by borrowing too much and taking too much risk - basically greed.

We need a generation that focusses on sound science in food production and profitably increasing output - which has a basis of gradual growth/ debt free model

by steven | 21st Aug 12, 12:14pm 1345508067

Correct.....it seems the idea of working to make a living and profit is poo poo'd by too many ofthose who prefer to be parasites and gamble. Of course when you can make a decent capital gain and not pay CGT (when you retire - honest gov) whats not to love about it...

"a generation that focusses on sound science in food production and profitably increasing output - which has a basis of gradual growth/ debt free model"

Yes and no....I totally agree on sound science and debt free. What we do need to do however is take our reliance on fossil fuels out of the food production cycle as much as we can as they will get scarce and expensive (GE crops without the right amount of fertilizer and pesticide has lousy yields it seems). So we have to go organic and get production up based on that methodology as a base.....IMHO.

regards

by Donker | 21st Aug 12, 12:47pm 1345510043

What scares me is that the new generation are a little slow to realise that the housing market is over-valued and they are still rushing to the bank to secure a house at 5% deposit - Because the bankers are salesmen - they sell money - that's their job. So the only way they do that is make people feel like they need something - that's why they have the happy, feel good adds on TV about a couple buying their first home - nothing wrong with that if you have the money, but trying to lure those who don't based on emotion is a scam

Property market in Auckland is horrendous, wouldnt touch it unless you have very sizeable deposit

by top_shot | 22nd Aug 12, 11:08am 1345590502

I forgot that it is possible to print your way to prosperty. Everyone hang up your boots and kick back. No work is required because all of this printed money will solve our problems.

The four most dangerous words in finance are: 'this time its different' and if you ever hear that run for the hills. Bernard is essentially saying that 'this time its different', because while every other country that has tried and failed to print money to make their economies better off have failed, NZ will succeed because we have a currency trader at the wheel.