New Zealand: Financial tsunami unseen but felt

I’m trying hard not to overuse the word “tsunami” but it just fits so perfectly. It’s powerful but can’t be seen until its almost upon you but it can be felt. Witness the animals who headed for the hills before the Tsunami of Christmas 2004. Animals have a different vibration, a different level of energy and resonance which enable them to to be more fine tuned to natural disturbances. Humans have lost that ability, well most of us.

So it’s hard to realise what may be coming our way. Listen to the Westpac economists predicting more rate rises on the back on a very tight employment situation, burgeoning inflation and booming commodity prices. The Kiwi (NZ$) continues to surge forward to record highs against the US$ on the back of very high interest rates. So what is the problem.

Household debt is the major concern here, the fault line as it were. Stories today and from the past week lead me to believe serious problems are now emerging: The Joneses going under because of a slowing real estate market; a serious downturn in house prices where sales below the Registered Valuation (RV) are happening; people being kicked out of their homes; water shortages for farmers; a very strong currency; interest rates really starting to bite; banks having to go to the market to raise money to shore up balance sheets; layoffs on the increase and business confidence sinking.

Yet commodity prices continue to rise: oil, food and metals.

It’s not a pretty sight. What’s a central banker to do? Raise interest rates to squash inflation? Of course they will but maybe if they take their heads out of their discredited forecasting models they may realise that actually people are being squeezed left, right and centre. They don’t have any more money even to pay higher bills never mind higher interest rate charges.

We can’t change the fact that we have experienced a money supply induced asset bubble but we can change the way in which we deal with it.

Bollard be brave: if you need to do anything to interest rates just cut them. If you can’t see what’s coming then close your eyes and feel it.

Global Greenhouse Gas Reduction Agreement on the way?

Global leaders are shaping up for talks on a binding reduction in global greenhouse gas emissions. The EU Environment Commissioner is the in US for talks on this very subject. The US say they are ready to move forward on this thorny issue but want all countries to make similar reductions. This is not music to the ears of the Chinese who will continue to trumpet the issue of per capita emissions as opposed to total emissions.

No doubt they will all keep knocking this ball around until someone caves in. But why bother? It’s simply the wrong approach. At the moment we have a free energy market (actually its dysfunctional but that’s another story) where people can choose to buy what is offered. If we want to reduce greenhouse gas emissions we simply need to reduce the amount of fossil fuels available to create them.

Then just leave the market to operate as normal. Simple.

I know I’m restating my position on this but the longer this goes on the more clear it becomes

Paper $ or Solid Gold?

Tough choice eh…..well not for jewelry lovers. The gold bugs have been enjoying the ride up in the price of gold as well as making fun of Gordon Brown who unloaded a huge brick of the UK gold reserves back in 2001 much to the chagrin of UK taxpayers.

But with the $ swift decline into obscurity the fans of something more solid than the US Treasurer’s signature on a piece of paper are clamoring fro the return of the Gold Standard as a way of preserving the value of paper and controlling the impulse of bankers to keep printing the stuff.

Well yes that does seem to be a problem. I’ve touched on this before when looking at how the Bank of England experienced several runs just after it was formed. Why? Because they printed way more paper than they had in reserves of gold. So gold or no gold, there is nothing to stop authorities or private banks printing paper or more accurately filling up spreadsheets with lots of numbers.

I’m ambivalent on this gold business. Storage issues, never mind the horrendous process of digging the stuff out of the ground, present problems as do the ability to carry it safely but really its a confidence thing.

Readers of this blog should hopefully know by now that money is an artificial construct. We can make it anyway we like. It’s created into existence in some form in order that we can exchange goods, services and labour in an efficient manner.

It is subject to the laws of supply and demand like any other product or service.

William Rees-Mogg makes some interesting points about it here but the reality is still the same gold or no gold. We must control the supply of money. 1:1 exchange for gold is a way to do that but its so last century. Surely we can come up with a smarter way of doing it.

My favoured approach is for a central monetary authority to issue interest free new money into the system directly. that supply of money (the only supply) could be controlled on an annual basis responding to set limits, constraints and changes in demand, population etc.

Goodbye interest, goodbye inflation and goodbye financial markets as we know them.

Gold bugs or not, we have to do something about the current system before it blows up and makes the 1930s depression look like an afternoon tea party.

Global Recesson or Rebalancing?

With all the doom and gloom in the US right now it would be easy to fall back on the old maxim “when the us sneezes the rest of the world catches a cold”. Not so anymore. There is good reason to see a rebalancing of economic fortune and the shift is potentially seismic.

The BRIC crew are doing very well compared to their older relatives, the U.S, U.K and Europe. Yes they have all experienced a similar asset bubble in equities but for different reasons. They have huge upside potential. They also have a less developed banking system which may have saved them from the sub-prime fall out.

There is also the interesting move by the Iranian Oil Bourse to price in Iranian Rials rather than US $ and then to state that the Rouble may be the preferred currency. Sorry?

The Rouble…..surely some mistake. Once a fashionable wallpaper accessory and now a petro-currency. Politics aside it does make sense to have a range of currencies available at the global level. This will create tensions but also prevents one country having power over all others.

This is a real wake up call for the US. With their military stretched across the Middle East and their financial system in disarray, the US is in a precarious position. Like the playground bully who finally loses his power it is suddenly looking very frail.

The Water Conundrum

It’s good that the water debate is starting to take more shape. In the main we have struggled with the idea that we should pay for it and how to construct proper markets around it. Some places meter water and some don’t but as we know it’s hard to manage a resource if you can’t measure it use.

So it’s refreshing to see a piece in The Press  on the need for a water market to be constructed to provide an efficient allocation of this precious resource. As I’ve discussed many times, a resource with no price will be treated as if it is free. For many people water is free and always has been but now there are competing claims on water. In New Zealand this is primarily from agriculture with huge demands for irrigation from the dairy industry, which converts water into milk on an enormous scale.

Initial objections are alway around the issue that water is a necessity for life and should therefore be free.  Well so is food and shelter and they aren’t. We have lived with the false notion that water will always be plentiful and is a constant renewable resource. Tell that to Australian farmers who have suffered a 5 year drought in many areas. Water availability is subject to climatic variation and to overuse. Just look at the state of NZ rivers and lakes which are well known to have experienced a serious decline in quality over the last 20 years of intensive farming.

It’s fairly simple to make sure people are allocated a fair supply of free water to assuage those who believe they shouldn’t pay for it but anything above a basic amount should be paid for just like our energy.

It’s only through the pain of payment that we really focus our efforts on conservation, efficiency and alternatives.

It’s time we got on with this whilst we still have water to charge for.

Food Glorious Food

I came across this humdinger of a letter to Hillary Clinton at the Celsias site. Whilst it could be regarded as some kind of political stunt it does raise serious issues about the nature of our globalised food chain.

I have never been a fan of Monsanto and there despicable deeds have been well recorded. But as we have seen with the impact of biofuels, the whole food production process is changing and judging from the price increases not for the betterment of consumers. A new term has been coined: Agflation

In New Zealand we are seeing the benefits and costs of food price rises. Our diary farmers are raking it in but consumers are suffering. But consumers are taking action; they are eating less meat and dairy; they are reinstating the veggie patch and being more circumspect about their shopping habits.

This brings several benefits: healthwise less meat and dairy is generally good for you; growing your own veggies creates a sense of self-sufficiency, gets you in touch with nature and you get to eat really fresh food; there is a greater focus on food and what you eat with many people finding it cheaper to avoid processed food and make your own from scratch.

Isn’t that what many activists have been calling for for a long time? And the reason that this is happening? The price mechanism.

People respond to price signals. And when the respond they can be very smart about it. There’s a lesson in here for the bureaucrats and activists.

Let’s hope they find it