Macroeconomics

Labour relaunches their Hobbit Hater policy

Labour has re-launched their Hobbit Hater policy at the behest of the unions, proving that their investment in purchasing David Cunliffe and the 20% vote for the leadership has provided a cash for policy arrangement that is giving their leaders sticky knickers.

The Labour Party wants to repeal the law changes that were ceded to Warner Bros over The Hobbit films, a move which the Government says would cripple the $3 billion screen industry.

Labour leader David Cunliffe and MP Andrew Little launched the party’s work and wages policy yesterday, which included a boost to the minimum wage, and a commission of inquiry into workplace conditions.

Here’s an idea…why don;t they just declare a wages crisis, and in short order National will fix the problem. Seems to have worked for manufacturing and housing…it’s worth a crack.

So Labour wants to kill off the film industry in NZ, Dotcom’s party just wants to steal it, and the Greens want to destroy the oil and gas industry.

They really are the wrecking ball of the NZ economy.

But wait it gets worse…Labour also wants to kill jobs.  Read more »

As much at home writing editorials as being the subject of them, Cam has won awards, including the Canon Media Award for his work on the Len Brown/Bevan Chuang story. When he’s not creating the news, he tends to be in it, with protagonists using the courts, media and social media to deliver financial as well as death threats.

They say that news is something that someone, somewhere, wants kept quiet. Cam Slater doesn’t do quiet and, as a result, he is a polarising, controversial but highly effective journalist who takes no prisoners.

He is fearless in his pursuit of a story.

Love him or loathe him, you can’t ignore him.

To read Cam’s previous articles click on his name in blue.

A reader emails about Labour’s ‘big tool’

A reader provides his thoughts on Labour’s”big tool”.

Hi Cam,

As a student who is about to graduate after 5 years of study I will start my working life under this scheme, if Labour gains power. So over the past 3 days I have been researching and thinking about what effect this policy would have on New Zealanders, and this the conclusion that I have come too.

“The bad economist sees only what immediately strikes the eye; the good economist also looks beyond. The bad economist sees only the direct consequences of a proposed course; the good economist looks also at the longer and indirect consequences. The bad economist sees only what the effect of a given policy has been or will be on one particular group; the good economist inquires also what the effect of the policy will be on all groups.” – Henry Hazlitt, 1946, Economics in one Lesson

“Compulsory” is not a pleasant word, it’s not a democratic word, It is authoritarian. Compulsory means ‘do what I say, or else!’, by definition it requires there to be a threat of punishment if orders are not followed. What is Labour going to do to punish those of us who refuse to partake in Kiwisaver? fines? prison time? Personal Liberty and Economic liberty are not separate, they are the same. To limit the amount of money that someone can spend is to limit not just economic but personal and social choices available to them.

The policy is filled with numerous economic fallacies and judging from the policy fact sheet on the Labour Party website it is based on a misunderstanding of the current global economic situation.

Let’s start with interest rates. Interest rates are at historic all time lows in New Zealand, which makes borrowing money easy and saving money an unattractive way to invest. to say interest rates in New Zealand are too high is ridiculous. David Parker is correct when he says that compared to “international norms” and the USA we have high interest rates, but since 2002 and for the last 6 years of the previous Labour government our interest rates have been significantly higher than those of the USA. The reason that US interest rates are so low is because the Federal Reserve is spending $45 billion a month purchasing bonds to keep interest rates below 1% in a failed attempt to stimulate the economy, the UK and Japan have been doing the same.

Parker argues that our high interest rates are causing a high NZ dollar and that this is hurting our exporters. I say rubbish. The high New Zealand dollar is the result of foolish monetary policy on the part of the United States and others like Japan. By pushing their interest rates below 1% whilst inflation sits at 1.50%, the savings of Americans are been destroyed by inflation at a rate of about 1% a year. Individuals and businesses that can afford to have shifted their money around the word to countries that offer higher interest rates, and that is one of the major reasons the New Zealand dollar has risen. It is not the result of New Zealand actions but the actions of other governments.

This highlights another major flaw in the policy. Despite Parker’s claims this will increase the amount that people save It probably won’t. Parker wants to lower interest rates to “international norms” (USA levels) and as stated above that has had disastrous effects on the value of American savings as interest rates have dropped below the rate of inflation. Parker hopes to counter this effect in New Zealand with his compulsory and variable Kiwisaver but it won’t work. The policy artificially reduces the amount of disposable income people have and this combined with low interest rates will lead to people simply borrowing more money. What do people do when they don’t have enough money and money is cheaply available? Borrow. The Labour government will remove money from the economy using kiwisaver and a lot of that money will simply be replaced with borrowed money, meaning that very little if not nothing has been done to address demand push inflation.

People don’t just save for retirement, they save for cars, children’s education, homes, business start-ups and an infinite list of other things. Lower interest rates will discourage ordinary bank account savings because the interest return on saving will be too low (particularly if inflation higher than the interest rate), instead people will seek to put their money in other higher risk investments such as the stock market to try and get a higher return.

Low interest rates that are in line with “international norms” will lower the New Zealand Dollar. Parker is right that this is good for exporters, but he is slow to admit that it will be at the expense of everyone else. Lowering the NZ dollar will cause cost-push inflation by increasing the cost of imports, a type of inflation that cannot be controlled by confiscating our money because the rises in price are unrelated to consumer demand. The only way to address the inflation caused by a low exchange rate is to increase interest rates, but doesn’t that defeat the purpose of this policy which Is meant to deliver a low New Zealand Dollar and low interest rates?

A low NZ dollar will also mean that the price of New Zealand produced goods will increase because the imported goods required for production, especially petrol and petroleum based products will become more expensive. Again these price rises are independent from consumer demand, so cannot be lowered by decreasing demand through variable Kiwisaver.

Parker is wrong when he says that this is going to create  jobs. Yes, new jobs will appear in the export sector, but at the same time jobs will disappear from the import sector as kiwis will be buying fewer imports because import prices are high and people have less disposable income.

Parker made the claim this policy is going to result in “less foreign ownership of our land and companies’” – this is nonsense. A lower New Zealand dollar will make buying New Zealand companies cheaper for overseas investors.

Another nonsense claim is that this will somehow help us save for our retirement and stop us from giving our money away to overseas banks in the form of mortgage interest rates. In reality, people who have money saved in the bank will receive a lower interest rate, thus saving less, and people who lose jobs in the import sector will also save less. Lower interest rates are good for those with mortgages, but at the same time mortgage holders will also have less disposable income because of mandatory variable kiwisaver and higher import prices, so they will likely be paying down their mortgages at a slower rate. It is also important to remember that lower interest rates will encourage people to borrow more money than they normally would, so it is unlikely that the banks will  experience any loss in income as Kiwis pay off larger mortgages at lower interest rates but over a longer period of time.

Finally – It appears that Parker has forgotten who runs our kiwisaver accounts, the banks and insurance companies do. These foreign banks and insurance companies will be making massive profits from Kiwisaver if it becomes compulsory, which raises the question of who helped Parker formulate this policy? Was it those who stand to profit from compulsory Kiwisaver?

Another implication of this policy that I have not seen discussed is the effect that the exclusion of employees and self-employed people will have. Will we see large numbers of wage earners now becoming contractors to avoid having to contribute to kiwisaver, particularly if the compulsory contribution is pushed above 10%?

As much at home writing editorials as being the subject of them, Cam has won awards, including the Canon Media Award for his work on the Len Brown/Bevan Chuang story. When he’s not creating the news, he tends to be in it, with protagonists using the courts, media and social media to deliver financial as well as death threats.

They say that news is something that someone, somewhere, wants kept quiet. Cam Slater doesn’t do quiet and, as a result, he is a polarising, controversial but highly effective journalist who takes no prisoners.

He is fearless in his pursuit of a story.

Love him or loathe him, you can’t ignore him.

To read Cam’s previous articles click on his name in blue.

BNZ warns Labour over their “big tool”

It looks like the BNZ is not at all keen on having Labour’s new “big tool” deployed.

Their Chief Economist Tony Alexander has issued a warning to Labour that their much vaunted policy won’t work as intended.

Labour’s plan to use KiwiSaver as a monetary policy tool would force investors into buying more shares when prices are high and fewer when they are low, Bank of New Zealand chief economist Tony Alexander has warned.

The proposal from Labour, unveiled earlier this week, was for KiwiSaver to be made compulsory, and the minimum contribution rate lifted or dropped as a means of influencing the pace of household spending growth.

It was billed as an alternative tool to using interest rates to dampen or stimulate economic activity in the economy, and therefore inflation.

But in his weekly newsletter, Alexander has warned about its potential pitfalls, including lifting volatility on the sharemarket.

Alexander said: “The policy would boost Kiwisaver contributions when the economy was booming and presumably asset prices like shares rising firmly and at high levels. The tightening of monetary policy would lead to more asset buying out of the contributions and this would amplify the equity price cycle while forcing people to buy more when equity prices are high.”  Read more »

As much at home writing editorials as being the subject of them, Cam has won awards, including the Canon Media Award for his work on the Len Brown/Bevan Chuang story. When he’s not creating the news, he tends to be in it, with protagonists using the courts, media and social media to deliver financial as well as death threats.

They say that news is something that someone, somewhere, wants kept quiet. Cam Slater doesn’t do quiet and, as a result, he is a polarising, controversial but highly effective journalist who takes no prisoners.

He is fearless in his pursuit of a story.

Love him or loathe him, you can’t ignore him.

To read Cam’s previous articles click on his name in blue.

So, Labour launches a policy to solve Kiwis money fears…only problem is Kiwis don’t have that problem

Labour launched their much vaunted new “Big Tool” to solve some problems they say are worrying Kiwis. Like rising interests, that are still miles off where interest rates were the last time they were in government…and protecting borrowers from money issues.

The only problem is for Labour is that the problem doesn’t actually exist in voters minds.

Kiwi’s money worries are at the lowest level in two years and are expected to continue improving this year, according to a report by a credit agency.

Dun & Bradstreet’s Consumer Financial Stress Index hit -5.6 points in March down from 7.5 points the same time last year.

Anything below zero shows lower financial stress.

stress Read more »

As much at home writing editorials as being the subject of them, Cam has won awards, including the Canon Media Award for his work on the Len Brown/Bevan Chuang story. When he’s not creating the news, he tends to be in it, with protagonists using the courts, media and social media to deliver financial as well as death threats.

They say that news is something that someone, somewhere, wants kept quiet. Cam Slater doesn’t do quiet and, as a result, he is a polarising, controversial but highly effective journalist who takes no prisoners.

He is fearless in his pursuit of a story.

Love him or loathe him, you can’t ignore him.

To read Cam’s previous articles click on his name in blue.

What problem is the “Big Tool” trying to solve here?

So, the beguiling message is “stop paying interest to those overseas owned banks, put your money in your savings account instead”.

If it was that simple, why hasn’t anyone done that before?

The real question is, what exact problem is Labour’s David Parker trying to solve here?  What is actually broken right now that needs fixing?

Bill English explains

Let’s start with a quick stock-take. The economy is growing, employment is increasing, wages are rising, exports are growing, business and consumer confidence are elevated, house-building is increasing and interest rates have just moved off 50-year lows. Looking ahead, the New Zealand economy needs more skilled people, more exports and less household debt, and the trends for each of these is positive. New Zealanders have learned that we can get on top of tough problems and grow our jobs and incomes if we stick to sensible and considered change, year after year.

As we’ve reported ad nauseam, the New Zealand economy is coming right in spite of the strains that the Global Financial Crisis and the Christchurch earthquakes have placed on it.  There are always problems and challenges to overcome, but on the whole, the economy is in a state of requiring small conservative adjustments over time.  Not some radical untried overhaul.

Bill English continues   Read more »

As much at home writing editorials as being the subject of them, Cam has won awards, including the Canon Media Award for his work on the Len Brown/Bevan Chuang story. When he’s not creating the news, he tends to be in it, with protagonists using the courts, media and social media to deliver financial as well as death threats.

They say that news is something that someone, somewhere, wants kept quiet. Cam Slater doesn’t do quiet and, as a result, he is a polarising, controversial but highly effective journalist who takes no prisoners.

He is fearless in his pursuit of a story.

Love him or loathe him, you can’t ignore him.

To read Cam’s previous articles click on his name in blue.

Barry Soper is brutal on Labour’s new ‘big tool’

Barry Soper, a long time socialist and a big fan of Helen Clark, has been brutal this morning on Labour’s new ‘big tool’ policy.

When it comes to monetary policy in this country, it’s always been a ‘robbing Peter to pay Paul’ exercise – Peter being the long suffering home owner with a mortgage and Paul being the foreign-owned banks.

Labour’s come up with a way of changing the mix, a sort-of ‘robbing Peter to pay Peter – providing Peter has a mortgage’. If he doesn’t, then he is simply mugged in the short term and may be able to enjoy his retirement if he recovers.

This is the massive problem for Labour…people don’t like being told what to do with their own money and they hate even more being told they can’t have something until much, much, much later. They certainly won’t buy the line that it is for the good of the nation…especially when there are bludgers within easy reach that they think should do their bit first.

At the moment if we’re all out having too much of a good time spending up large on things that we don’t really need and socially over-indulging, then we’re doing our bit to fuel inflation.

It’s our money, so what. Typical of Labour to want to control everything with their Stalinist, we know best, policies.

It’s that sort of behaviour that makes the Reserve Bank Guv tetchy, and he’s likely to turn on the money market vacuum cleaner, raising the Official Cash Rate. That drives up our mortgages, which means we pay more to the foreign owned banks and have less to spend on enjoying ourselves.   Read more »

As much at home writing editorials as being the subject of them, Cam has won awards, including the Canon Media Award for his work on the Len Brown/Bevan Chuang story. When he’s not creating the news, he tends to be in it, with protagonists using the courts, media and social media to deliver financial as well as death threats.

They say that news is something that someone, somewhere, wants kept quiet. Cam Slater doesn’t do quiet and, as a result, he is a polarising, controversial but highly effective journalist who takes no prisoners.

He is fearless in his pursuit of a story.

Love him or loathe him, you can’t ignore him.

To read Cam’s previous articles click on his name in blue.

Labour’s ‘big tool’ policy turns out to be a big dog

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Aside from a half hearted attempt from the Labour Party spokesman for Fairfax, Vernon Small, and Brian Fallow who has taken time off looking around the globe for catastrophic global warming and a carbon trading system that works it’s not been a particularly welcomed policy release. The exporters love it though with a free lunch on the backs of the working poor.

We wait for the endorsement and backing of Labour from the Property Council, first of all Labour are going to drop their tax rate from 28% to 15% by introducing a CGT and now they are going to give them the gift of lower interest rates which is generally the biggest cost by taking money out of the lowest paid who will now be earning more in retirement than when they are working.

 

Labour’s proposals to allow the Reserve Bank to adjust KiwiSaver contributions rather than interest rates to control inflation could hurt savers and see debt repayment delayed until retirement, KiwiSaver experts warn.

The Labour Party this morning announce proposals to change New Zealand’s monetary policy tools by introducing a variable savings rate for KiwiSaver.

The policy would require the Reserve Bank to use changes to the rate of people’s KiwiSaver contributions rather than interest rates to control inflation while taking pressure off the over-valued kiwi dollar.

Labour would also make KiwiSaver compulsory and increase contributions from the current 6 per cent combined employee and employer contribution to 9 per cent over time.

According to sorted.org.nz  if you earn $600pw and you save at Labour’s compulsory rate you will enjoy a retirement income of $496pw and when added to the super payment of $366 you will be earning $262 a week more in retirement than when you were working and struggling to get ahead.   Read more »

As much at home writing editorials as being the subject of them, Cam has won awards, including the Canon Media Award for his work on the Len Brown/Bevan Chuang story. When he’s not creating the news, he tends to be in it, with protagonists using the courts, media and social media to deliver financial as well as death threats.

They say that news is something that someone, somewhere, wants kept quiet. Cam Slater doesn’t do quiet and, as a result, he is a polarising, controversial but highly effective journalist who takes no prisoners.

He is fearless in his pursuit of a story.

Love him or loathe him, you can’t ignore him.

To read Cam’s previous articles click on his name in blue.

Why the ‘Big Tool’ won’t work

Rob Hosking explains the logic fail in David Parker’s ‘big tool’.

It’s an interesting idea. One of its origins seems to be the Australian example: its compulsory savings scheme was introduced largely because the then Labor government of Bob Hawke wanted to provide pay increases for employees but, at a time of high inflation, did not want to do so in any way that would further boost inflationary pressure.

In the form of the VSR, it would enable the Reserve Bank to not only manage inflation without hiking interest rates, it would also – and Mr Parker’s speech spent much time on this – therefore lead to a lower exchange rate.

This is where the very large evidential leap of the policy occurs.

The  entire policy rests on the assumption a lower interest rate will also lead to a lower exchange rate. This is by no means a given: interest rates have been at their lowest rate for much of the period since 2008 and yet New Zealand’s exchange rate has been at historic highs for much of that period.

There is, in short, nothing to suggest the policy will have the effect which is being promised.The second issue is more political.   Read more »

As much at home writing editorials as being the subject of them, Cam has won awards, including the Canon Media Award for his work on the Len Brown/Bevan Chuang story. When he’s not creating the news, he tends to be in it, with protagonists using the courts, media and social media to deliver financial as well as death threats.

They say that news is something that someone, somewhere, wants kept quiet. Cam Slater doesn’t do quiet and, as a result, he is a polarising, controversial but highly effective journalist who takes no prisoners.

He is fearless in his pursuit of a story.

Love him or loathe him, you can’t ignore him.

To read Cam’s previous articles click on his name in blue.

The new big tool is likely to be little better than politicians snake oil

The ANZ Bank is having none of David Parker’s posturing and mistruths.

In their latest Market Focus of 28 April 2014 they basically call out Parker as a snake oil salesman.

The monetary policy framework has served the NZ economy well. Tweaks have been made from time to time to ensure that the NZ framework has evolved in line with global best practice, with the use of macro-prudential policy adding more ammunition to the RBNZ’s policy arsenal. However, the mandate has remained price stability, as this is the best contribution monetary policy can make to delivering better outcomes.  Read more »

As much at home writing editorials as being the subject of them, Cam has won awards, including the Canon Media Award for his work on the Len Brown/Bevan Chuang story. When he’s not creating the news, he tends to be in it, with protagonists using the courts, media and social media to deliver financial as well as death threats.

They say that news is something that someone, somewhere, wants kept quiet. Cam Slater doesn’t do quiet and, as a result, he is a polarising, controversial but highly effective journalist who takes no prisoners.

He is fearless in his pursuit of a story.

Love him or loathe him, you can’t ignore him.

To read Cam’s previous articles click on his name in blue.

ANZ Bank mocks “Chicken Little” style commentary

The ANZ Bank has made mention in their NZ Market Focus newsletter of 22 April (PDF) that they are not impressed with the “Chicken Little” style commentary over housing.

The “bubble” is not about to burst, and we don’t find “Chicken Little” style commentary useful. That said, New Zealand is facing challenges, as we have highlighted many times before, and with euphoria sky high according to both business and consumer confidence surveys, it’s perhaps timely to remind readers of that. New Zealand is navigating a potent combination of legacy issues from the last business cycle (a weak balance sheet and high debt levels) and opportunity (high commodity prices and growing exposure to Asia) – while addressing a fairly urgent and demanding to-do list in terms of housing shortages and a city rebuild along the way. It’s an outlook fraught with tensions and frictions, and a bun-fight for resources. Net immigration is set to touch a decade high.

[…]

The so-called “bubble” is not about to burst. That’s our opening salvo in response to headlines over the weekend about New Zealand facing an economic disaster. Throw together rising interest rates, overvalued property prices, large household leverage, and the high New Zealand dollar and you have the so-called recipe for a crisis. If that’s the case, then major parts of the world are pretty well cooked. Somehow government debt made it on the list of 12 reasons as to why the bubble will burst – somewhat surprising given that New Zealand’s government debt is in the lower quartile across the OECD. For that matter the article also claims New Zealand is not an agriculture-based economy (“nothing could be further from the truth”).

If you strip out all the positives, the outlook will be negative. There is a reason why interest rates are moving up; the economy is moving forward. If New Zealand is going to have problems in terms of rising interest rates biting into leverage, the world should be very afraid: a host of other countries have interest rates at or near zero and government debt through the stratosphere! A 40-year peak in the terms of trade means the NZD should be high, though we’d still put it in overvalued territory. New Zealand has had an income boom that the article ignores. Yes, New Zealand has some clear issues in the housing arena; they won’t be sorted overnight but at least we’re seeing some action on the supply side. LVR restrictions were bought in precisely to curtail some of those systemic risks bubble trouble can lead to, and the RBNZ has other tools available as well. The OCR will be lifted a second time this week.

Nonetheless some clear challenges cannot be ignored, and it’s timely to remind readers that the NZ economy is going through a material transition – probably one of the most significant in fifty years. We’re moving from legacy issues to opportunity, amidst the demands of rebuilding our second-largest city, housing shortages in our largest city, and an overvalued currency. There will be bumps in the road. Read more »

As much at home writing editorials as being the subject of them, Cam has won awards, including the Canon Media Award for his work on the Len Brown/Bevan Chuang story. When he’s not creating the news, he tends to be in it, with protagonists using the courts, media and social media to deliver financial as well as death threats.

They say that news is something that someone, somewhere, wants kept quiet. Cam Slater doesn’t do quiet and, as a result, he is a polarising, controversial but highly effective journalist who takes no prisoners.

He is fearless in his pursuit of a story.

Love him or loathe him, you can’t ignore him.

To read Cam’s previous articles click on his name in blue.