Breaking News: NZ Government to guarantee all bank deposits

News just out today that the NZ government will provide a guarantee for all bank desposits. Details are sketchy but it seems it is opt-in and will cost banks a small amount.

It was inevitable but good to get it up front and out of the way. It could actually see money flow into NZ from overseas where deposit insurance schemes have a limit on them.

At least Kiwis can sleep a little better this evening presuming their bank opts in to the framework. More on this tomorrow.

PPPs….no,non,nyet.

Private Public Partnerships are back on the agenda as the New Zealand Election approaches once again. National is proposing them and Labour denouncing them. For once I actually agree with Michael Cullen though probably our reasons are somewhat different.

First of all I think infrastructure is incredibly important. Imagine if we had free broadband covering the whole of NZ. Imagine a computer in every household. Decent and reliable energy and school facilities our children require to get them on track to become productive adults.

Of course we need decent roads, hospitals and schools. I think National has a bit more vision in this area. It realises that we need to seriously invest and not in extra layers of bureacracy but in high impact areas like teachers, classrooms, sports and leisure facilities and technology.

It’s the PPP bit that I don’t like because what normally happens is that the Public bit gets loaded with debt and the overall cost of the project spirals out of control. Private investors want iron clad punts with very good paper returns. The Public wants quality common good assets for the public use. I think road tolls can be useful if a road supplies a benefit to a small group of users but in general we need to create long lasting infrastructure that ultimately benefit all.

It’s easy to split hairs over the financing and benefit aspects of building public assets but i’d bring the axe right down and say that we can fund these projects interest free.

Yes that’s right. Interest free. There’s a proviso, well maybe a couple:

One: The asset must be clearly adding the the public good. Broadband comes into this category as do schools and healthcare (though that is a greyish area).

Two: the money supply needs to be better managed.

The proposal is simply that government can create the money interest free, metaphorically speaking by printing it. The money comes into the system and is used to create the asset. The money can be paid back or not depending on the asset.

What? i hear you say. Isn’t that inflationary? Ceteris paribus yes but see proviso 2. The main issue is that interest will not be required so no new money needs to be created in order to pay back the interest. All you monetary scholars will alread know that interest is money that does not yet exist in the system and so has to be created via new money, normally in the form of debt.

The Forum for Stable Currencies in the UK has been advocating this policy for 6 years now through a string of Early Day Motions in Parliament. These have been kindly sponsored by Austin Mitchell, an MP well know to New Zealanders.

The point here is to dispell the myth that we are dependent on banks and overseas financiers to create our own public assets. That is a conversation I would love to see John Key and Michael Cullen have.

New Zealand: Still are Warriors

I caught up with an old friend in London recently and he mentioned Once Were Warriors, the New Zealand film, as still being seared in his consciousness. His comment has been reinforced since I got back to NZ with the revelations of Tony Veitch and his violent assault on his previous partner.

Violence never seems far from the front pages over here. Whether it’s child abuse, domestic assault, late night bashings or just some good old biffo on the sports pitch, the modus operandi is the same: fists. Is Jake the Muss the deeply ingrained dark side of the NZ male? That’s not to present the UK as a country that doesn’t experience violence on a regular basis. It’s hard to remember a month in recent years where a teenager hasn’t been knifed to death.

The rise in violent crime in London was certainly one reason to move to NZ.

But there are differences. The two Deborah’s raise the issues of violence and anti-intellectualism as being embedded in NZ society. Deborah Coddington laments the violent culture that pervades this “Godless country” noting the desire to hand out “loving smacks” as an inviolate right. If one casts back a year and remembers the furore at the introduction of an “anti smacking” law here. The energy going into a repeal of this law is quite impressive. Regardless of the merits of the new law it is the desire to be allowed to hit that, for me at least, reflects a desire to sort matters out with brawn rather than brains.

This follows neatly onto Deborah Hill Cone’s piece on Jim Bolger and his new appointment as the “Fat Controller” for Kiwirail (will all the trains be black?). As she notes

“The only conclusion to draw is New Zealand’s anti-intellectualism is so acute we really feel most comfortable being governed by thick people or bullies”.

This point was reinforced by Robert Winston on his recent trip to NZ where he noted that cleverness was not valued. He also noted we are exporting our talented people in droves and under investing in research and education.

New Zealand is in some ways still primitive. We rely on our primary industries for the bulk of our economic performance. Perhaps that is still reflected in our base culture. Perhaps that is why the Auckland rugby league team was named “The Warriors”. Talk about embedding the brand!

The way the news is presented on TV One sometimes seems an extension of that silly programme “A Game of Two Halves” which makes “A Question of Sport” look like “University Challenge”. That the man in question is involved in both probably reflects the current malaise. On top of that the jocularity of the presenters leaves one to wonder whether it is the news or some mates gathering.

This story wont go away. At some point the violence, and its seeming acceptance, has to be addressed at a wider level.

NZ economy on the skids

New Zealand joins its larger and more illustrious economies, the U.S. and the U.K., on the slippery slope with the release today of pretty poor employment numbers. 29,000 jobs lost is no small number for a small economy and with retail numbers looking very soft as well, the Reserve Bank will soon be reaching for the “cut” lever on its interest rate management dashboard.

Regardless of the credit crunch, employment really is the key to how the economy will fare. As long as people are employed then somehow they can get by and service their debts. Well mostly. But now this will see a deeper problem emerge and that is one where people simply cannot service mortgages or debt in any way.

This will reverberate throughout the whole economy. Added to this is a report out today showing house sales down 40% in the last quarter and 53% lower last month from the previous year.

Ouch.

NZ Emissions Trading Scheme in tatters

The NZ government has announced a delay in implementing the proposed Emissions Trading Scheme. The 5 year pushback for the transport sector comes at a time when fuel prices are going through the roof and the government is concerned about the impact of further price rises on consumers.

Forgive me for wondering if that isn’t the whole point. First up it was the carbon charge which was dumped back in December 2005 and now the brand spanking new ETS which looked full of holes and now is barely recognisable as a piece of effective policy.

The main concern cited by “critics” is that higher costs may be passed onto consumers. Well the goal of the carbon charge and the ETS is to raise prices in order to lower demand. However, fuel prices are generally regarded as inelastic i.e. demand does not fall as prices rise, which consigns a price approach to the bin. Of course, there is some level of price at which demand will certainly fall. According the research it is when the price increase exceeds income rises i.e. the is the affordability as opposed to higher prices.

Or to put it more succinctly as long as money is available fuel will be purchased regardless fo the absolute price. So the supply of money is a major player in this equation. Now with the credit crunch bedding down money has become less available and so the impact of higher fuel prices is starting to kick in.

So given fuel prices have nearly doubled in the last 3 years, one would expect to have seen a huge fall off in fuel consumption. This has not been the case.

One can conclude that price measures will not reduce emissions and therefore any policy based on this approach is doomed to fail.

Why, you may ask, is no one clamouring for quotas to be implemented? The answer to that is very simple. It’s too hard.

So let’s keep pouring millions of $ into schemes that won’t do the job and keep the veneer of pretending to do something about climate change. They’d be better off spending the money on something important like child poverty and education.

House market in a slump

We’re starting to see real signs of a weakening house market here in New Zealand. Sales for Auckland’s top real estate company are down over 50% and a recent auction saw a 6% clearance rate.

I decided ton investigate this myself in Christchurch and looked at some properties recently. One i saw was a 3 bedroom unit which had been bought for $375,000 a year ago. It could be rented for about $350 a week maybe a bit more if it had some money spent on it. It wasn’t in great condition but looked a reasonable investment property.

It was auctioned yesterday and passed in at $317,500. It still hasn’t sold.

We’re not really seeing this come through into prices yet because we only get the median price which is often misleading. In fact it can go up if a few properties sell in the higher brackets and none in the lower levels.

But it’s clear that prices are falling quite heavily in many areas and there is a buyers strike on at the moment.

Although there is the belief that property prices increase regardless the market is clearly starting to realise that capital gains are not guaranteed and therefore investors are starting to look more closely at the maths.

Mortgage rates are 9.5% for 2 years fixed. Yields are 3-5% and prices are falling. Even with the negative equity tax break that’s a big yield gap to fill. There is also the issue of not being able to borrow 100% of the price anymore.

With many fixed rates rolling over this year to much higher rates, the squeeze is really on. This will really start to impact when banks ask for properties to be revalued and then ask for extra equity.

Property investors, like banks, are facing a major liquidity crisis.  Price falls of 10-20% may not be as outlandish as previously thought.