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Tuesday, June 28, 2005

Don't Panic!

We are heading for an economic crash. No need to panic (yet, maybe).

---------------UPDATE---------------
Gman says: The most conservative estimate has the dollar devaluing 17% this year. There has been no whole sale culling (pun intended) of capital, it's more like a slow haemorage.
Lets look at the way that the dollar has been buffered over the past year by 90 day bills...
What I'm saying is that I have been told the same story about threats being made to staff if this one gets out (with eerie similarity), by three people who do not know each other--one in the reserve bank, one in treasury and one in Min services. that is no coincidence. [My emphasis]
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As GMan expains murmurings at Treasury and the Reserve Bank and the government's obligation (under Ruth Richardson's Fiscal Responsibility Act) to open the books may pop the plasma screen bubble we are currently in. The underlying facts that will determine our fate must be stated. I have posted on this previously but there are more voices of prudence and sanity in the blogocracy now - and they are privy to more intimate and high-level insight than myself.

Here is just one of the many sets of basic equations:

Our dollar is high because:
1. It is justified by underlying infrastructural solidity (inflation rate, banks, asset backing etc.), and
2. Expectations of further growth and therefore ability to produce revenue and retain value in the future.
This results in high demand.


But what if those two premises were actually just a load of crap? What if the real equation was:

1. NZ has a fragile solidity based on smooth operational processes rather than asset backing, and our ridiculously high interest rates reflect that we are not really stable at all. The illusion of stability is produced through the boffins at RBNZ and Treasury fixing the system to produce the certificate of compliance, viz: Triple A Sovereign debt credit ratings, that lets us borrow as best we can, rather than anything else. Cullen is stashing as much money as he can (92% of the huge Cullen Superannuation fund!) in foreign funds while the exchange rate remains high as a massive reserve to stabalise the situation and act as a fighting fund should the dollar be weakened whilst pretending that it will be drawn down after 20 years (when presumably the currency is stable!?). "The New Zealand dollar is now the 11th most traded currency in the world, with daily turnover in the New Zealand market of around $7.5 billion." - admission of the speculative policiesfrom the reserve Bank itself that a tiny country of 4 million people can be No. 11th in the international marketplace! Does this sound an inherently stable situation? And

2. Our expectations are based on very soft and transient items such as annually: 30,000+ immigrants, 100,000+ foreign students and 1,000,000+ tourists. All the borrowing, 90% from foreign owned banks which repatriates all their money-for-jam profits, are purely speculative, with only a tiny deposit, and based on assumptions of unrealistic inflation+ property value growth (which is all just borrowed against as soon as the new valuation comes out) and credit card debts to pay for toys. Our industries are often mismanaged and bought by foreigners cheaply, asset-stripped and sold back to us or directly nationalised by the Government at a huge premium that the foreigners repatriate again.

Our current account deficit is about $10 billion.
Our trade surplus for the May quarter just went into the red. and for the year is $5 billion - more than expected.
Our government has been a net debtor since Vogel locked us into the vast money drain of the railway system (that we are still paying for) and despite confiscating millions of prime agricultural acres off the local inhabitants still couldn't balance the books because they were litterally giving it away to speculator insiders.
Our country has been in a deficit to the rest of the world on trade since Britain told us to fuck off in the early 70s.
Various government economic gurus since then have both invested heavily in uneconomic activities that made huge losses and divested themselves at a loss of industries that now make huge profits.
Our only solution is to pump in as many immigrants as possible to keep the land speculation going.

Now, does that sound like a AAA+ credit rating to you?

When someone on Wall Street realises these facts either our interest rate (RBNZ's OCR) is going to be much higher than 6.75% or inflation targets will have to loosen as all of our monopoly money floods back into the country, orour dollar is going to be a lot less than the $0.70c US and 0.58c Euro it is today. Or all of these things.

Not that I'm an alarmist... but let's lock into the Euro now. The RBNZ are already going to turn our silver coinage into Euro-compliant coins sometime next year or 2007. First steps.

2 Comments:

At 5/7/05 8:56 pm, Blogger Michael said...

Actually it's not too hard for the NZD to be 11th in the World. If the Euro had not replaced the Italian Lira, French Franc, German Mark, Spainsh Peso, Portugese Peseta, Austrian Mark, Dutch Guilder, Belgium Franc(?) Greek Drachma (you get the idea) then it would be 10 places lower, about where NZ is on the OECD league table.

The Hong Kong Dollar, Chinese RMB and others are tied to the USD so no-one bothers trading in those.

The Euro is also now accepted in the Czech Republic, Slovak Republic and Poland as it will replace the local currencies in a few years.

So 11th is not too hard to achieve.

 
At 7/7/05 11:00 pm, Anonymous Anonymous said...

The suggestion that the RBNZ is introducing "euro-complaint" coins doesn't appear to have any basis in fact - for a start the new nz coins are different sizes and different metal so aren't "euro-compliant" and secondly if you were changing currency you'd completely change the coins like.. umm the europeans did.

 

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