More money = more problems
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The provinces step up
The results of this year’s Deloitte Fast 50 prove that while Auckland is crucial to New Zealand’s economic growth the rest of the country is not doing too badly either.
In last week’s NBR print edition I wrote about this year’s Fast 50 but one aspect I didn’t cover was where the companies were located.
Auckland supplied 13 of the Fast 50 companies (26%) but Christchurch, which has only about 30% of Auckland’s population, was narrowly behind with an impressive 12 businesses on the list.
Despite its legion of grey suit-wearing bureaucrats Wellington still produces its fair share of entrepreneurs, with 10 of this year’s Fast 50 based in the nation’s capital city.
Hamilton was also well represented with four Fast 50 companies based in the ‘Tron while Dunedin had three companies.
Provincial pride
As well as having a healthy spread of companies across the major cities, the Fast 50 also features plenty of start-ups from small provincial towns across the country.
Nelson, Blenheim, Mt Maunganui, Oamaru, Pukekohe, Queenstown, Rakaia and even tiny Te Kauwhata are all hosts to one of the 50 fastest growing businesses in New Zealand.
Having even one of these highly successful businesses can be a huge boon to a small town because they create new jobs and benefit the existing businesses in the town.
These ventures often start out in classic Kiwi fashion, straight out of the shed, and within a few years they become booming businesses with revenue in the millions.
Instead of funnelling most new immigrants into Auckland the government should think about encouraging them to move into these other thriving cities and regional centres as well.
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Taskforce ideas rejected (again)
Once again the National-led government has proven that it’s not prepared to put its policies where its mouth is when it comes to catching up to Australia economically.
There’s no point setting an “aspirational” goal to become an Olympic athlete, commissioning a report that tells you what training you need to do to achieve it, and then ignoring any recommendations that involve actually getting off the couch.
But this is pretty much what the government has done in saying that it would like to match Australia’s income per person by 2025 but it’s just all too much of a hassle.
The latest report by the 2025 Taskforce, chaired by former Reserve Bank governor and National Party leader Don Brash, warned that 400,000 Kiwis will cross the ditch in the next 15 years unless changes are made to arrest New Zealand’s economic decline.
It contained recommendations such as selling state-owned companies, reducing the size of government and bringing in more foreign investment.
Unfortunately, this policy prescription is pretty much the opposite of what various New Zealand governments have done for the last 15 years.
Predictable reaction
The response to the report, from both the government and the opposition, was as predictable as the report’s recommendations.
Prime Minister John Key rejected many of the suggestions such as raising the age of eligibility for New Zealand Superannuation and reducing the minimum wage or re-introducing youth rates to reduce unemployment.
For its coalition partner Act nothing really needs to be said because the 2025 report reads like an Act Party manifesto.
Labour’s finance spokesman David Cunliffe called the 2025 report “ideological claptrap.”
This from a man whose party wants to ban New Zealand farmers from selling their properties to foreigners. Pot, meet kettle.
The Maori Party didn’t seem to make much reaction to the report but catching up with Australia economically should be a priority for this party because many young and talented Maori are heading across the Tasman for a brighter future.
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Is it QE2 or the Titanic?
The US Federal Reserve’s $US600 billion “quantitative easing” program announced this week is the latest in a long line of stupid policies that will make the world’s economy worse.
The policy, nicknamed QE2 because this is the second round of it since the global financial crisis, basically means the Fed will buy up assets with newly created money.
In other words, it’s a more sophisticated way for Fed chairman ‘Helicopter Ben’ Bernanke to crank up the printing presses, as he tries to force interest rates lower (the Fed has already set its interest rate at close to zero).
Anyone familiar with Austrian Business Cycle Theory will understand just how damaging the creation of new money to drive down interest rates is for the economy.
According to the theory, when interest rates are artificially pushed below their free market level it creates damaging economic distortions.
This is a result of the misleading price signals they send, which make interest-rate sensitive economic industries (such as housing development) appear more profitable, causing capital to be “malinvested” in loss-making projects.
In New Zealand this has meant a string of property developers facing bankruptcy, leaving behind little more than empty holes in the ground.
Worldwide harm
Because of their unique understanding of how creating money out of thin air damages the economy, Austrian economists were able to predict the global financial crisis not one or two years before it hit but all the way back in 2000-2001.
This was when former Fed chairman Alan Greenspan used what came to be known as the “Greenspan put”, lowering the Fed’s interest rate to pork the stock market after the dotcom bubble burst and 9/11 threatened to push the economy into recession.
His actions hurt not only the American economy but also the economies of many other countries around the world, including New Zealand, due to the loose monetary conditions being “exported.”
The insanely low rates provided fuel for the carry trade, when people borrow cheaply in one country and park the money in another country with higher interest rates (such as New Zealand).
Between 2005 and 2007 New Zealand’s Reserve Bank tried helplessly to slow down the overheating property market by hiking interest rates but banks undercut it by borrowing cheap money offshore.
The Fed’s new “put” won’t bring about a real economic recovery but it will cause economic distortions and it will demonstrate yet again that central planning of the money supply does not and cannot work.
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Comments and questions5
Some more very basic financial info to try and help the Unions / Labour party get some monetary understand - without electro-shock treatment to their extremeties! Wrong currency perhaps, but the theory still works. Enjoy!
Suppose that every evening, 10 men go out for beer and the bill for all ten
comes to £100. If they paid their bill the way we pay our taxes, it would go
something like this :-
The first four men (the poorest) would pay nothing.
The fifth would pay £1.
The sixth would pay £3.
The seventh would pay £7.
The eighth would pay £12.
The ninth would pay £18.
The tenth man (the richest) would pay £59.
So, that's what they decided to do....... The 10 men drank in the bar every
evening and were quite happy with the arrangement, until one day, the owner
said,
"Since you are all such good customers, I'm going to reduce the cost of your
daily beer by £20".
Drinks for the 10 men would now cost just £80.
The group still wanted to pay their bill the way we pay our taxes. So the
first four men were unaffected. They would still drink for free. But what
about the other six men? The paying customers? How could they divide the £20
windfall so that everyone would get his fair share? They realised that £20
divided by six is £3.33. But if they subtracted that from everybody's share,
then the fifth man and the sixth man would each end up being paid to drink
his beer.
So, the bar owner suggested that it would be fair to reduce each man's bill
by a higher percentage the poorer he was, to follow the principle of the tax
system they had been using, and he proceeded to work out the amounts he
suggested that each should now pay.
Therefore, the fifth man, like the first four, now paid nothing.
The sixth now paid £2 instead of £3 (33% saving).
The seventh now paid £5 instead of £7 (28% saving).
The eighth now paid £9 instead of £12 (25% saving).
The ninth now paid £14 instead of £18 (22% saving).
The tenth now paid £49 instead of £59 (16% saving).
Each of the six was better off than before. And the first four continued to
drink for free. But, once outside the bar, the men began to compare their
savings.
"I only got a pound out of the £20 saving," declared the sixth man.
He pointed to the tenth man, "but he got £10!"
"Yeah, that's right," exclaimed the fifth man. "I only saved a pound too.
It's unfair - he got 10 times more benefit than me!"
"That's true!" shouted the seventh man. "Why should he get £10 back,
when I got only £2? The wealthy always win!"
"Wait a minute," yelled the first four men in unison, "we didn't get
anything at all. This new tax system exploits the poor!"
The nine men surrounded the tenth and beat him up.
The next night the tenth man didn't show up for drinks, so the nine sat down
and had their beers without him. But when it came time to pay the bill, they
discovered something important. They didn't have enough money between all of
them for even half of the bill!
And that, boys and girls, journalists, labour unions and government
ministers, is how our tax system works. The people who pay the highest taxes
will naturally get the most benefit from a tax reduction. Tax them too much,
attack them for being wealthy, and they just may not show up anymore. In
fact, they might start drinking overseas, where the atmosphere is somewhat
friendlier.
David R. Kamerschen, Ph.D. Professor of Economics.
For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible.
Very clever, but that is only 1/2 the story
In NZ and throughout most of the rest of the world, the tenth man would have paid off a politician for $10 to get a beer subsidy of $30 per night (to create jobs for the bartender). Of this $30, $10 of course would have covered the lobbying expense, $10 would go in his own pocket, $1 would go to the bartender to keep his mouth shut, and $9 would go to the bar.
The Bar would give him a kickback of $10 each night for bringing in his 9 buddies to make them into alcoholics, repeat customers for life.
The Bar would then raise their prices to $130 citing inflation and higher taxes.
The tenth richest man would then secure his finances in a Dutch Holding Company managed by a trust in Ireland which invests in Chase and Bank of America. He would then explain to his buddies that he is as poor as the rest of them and can’t afford to pay himself as he cries into his beer that night citing his latest financial report which shows him to be broke on paper so that he doesn’t have to pay taxes in the United States ever again.
Citing his former generosity, the other nine men would agree that the tenth man can now pay nothing like the 4 poorest.
The others would then be faced with an adjusted amount of
The fifth would pay $3.
The sixth would pay $10.
The seventh would pay $22.
The eighth would pay $38.
The ninth would pay $57.
Now the group would recognize that this is not fair and so would lobby the Government for an Earned Drinking Credit for the Poorest men. The government would oblige and give the four poorest men $2 each, but they would tax the 5th – 9th men $2 each as well.
4 men receive a total of $8 and 5 men pay $10.
The adjusted amounts would then look like this for all 10
First Receives $2 pays $2 | Net 0
Second Receives $2 pays $2 | Net 0
Third Receives $2 pays $2 | Net 0
Fourth Receives $2 pays $2 | Net 0
Fifth Pay $1 to bar pays $2 to tax | net paid $3
Sixth Pay $8 to bar; pays $2 to tax | net paid $10
Seventh Pay $20 to bar; pays $2 to tax | net paid $22
Eighth Pay $36 to bar pays $2 to tax | net paid $38
Ninth Pay $55 to bar; pays $2 to tax | net paid $57
Tenth Man: Tax Credit Received: $30 ;
Pays $10 to politician;
$1 to bartender;
Receives $10 from Bar
Net RECEIVED $29 per night and free beer
Of course this can not go on forever as the sixth, seventh, eighth and ninth men can’t afford to pay those rates forever. So they start paying with their credit cards held by Bank of America and Chase.
The tenth man would start demanding a higher Return on Investment from his investment managers, who would be hearing similar requests from all of their other investors. They would then expand their holdings into mortgaged back securities where a good deal more profit could be made.
Meanwhile the Fifth through ninth men are racking up debt on their credit cards from drinking every night, their health care costs are increasing as their liver fails, and they are also spending more on gasoline as they drink and drive as they can no longer afford to cab it.
Ultimately, they end up refinancing their credit cards into their house where they have equity. The mortgage broker promises them a 4.9% interest rate on the refinance which sounds good as their credit card interest rate is up to 21%. The broker promises them that they will not have to verify their income, provide W2′s nor copies of their tax paper work.
Their mortgage broker doesn’t tell them, but lies about the value of their house in order to refinance their credit and help them avoid paying private mortgage insurance. At their current income levels, and without verifying their income, their mortgage would be classified as Sub Prime and the interest rate would be 10.9%
The mortgage officer lies about their income levels as well to boost the internal credit scoring mechanism and get them financed, not at 4.9% but 5.9%, which is better than 10.9% and happens to pay the mortgage broker a higher commission than a loan at 4.9% that is not sub prime.
The mortgage broker also promises them a payment of $900 per month, but fails to mention the balloon payment of $50,000 in the 5th year and doesn’t mention the adjustable rates in year 3.
The men separately show up with a hangover and sun glasses on the date of their close for their new mortgages. They trust their broker and do not read the paperwork in detail flipping and signing almost as fast as they could raise a beer bottle to their lips.
The loan closes, the mortgage broker gets a fat commission, the bank securitizes the mortgages by selling them to an Irish Hedge Fund and pockets collectively a billion dollars in profits that year.
The hedge fund holds the investment for a year, shows a 35% gain on paper and starts selling shares to retirement funds and 401ks in the US that the Sixth through 9th men just happen to have the rest of their life savings sitting in.
The tenth man sees the writing on the wall, literally magic marker on a stall in the restroom of the bar.
“The end is Nigh”
He pulls his money out of the Irish Hedge fund invested in real estate and invests in Gold at $600 a troy ounce.
Meanwhile, he lobbies congress to tighten bankruptcy laws for credit cards which he still has a sizable investment in. Congress tightens bankruptcy laws and makes it impossible to absolve credit card debt, forcing people into chapter 13 where they must pay off the debt within 3 years or go to debtors prison where they can work it off in 7 years.
Gas prices are still going up so the President ignores a minor terrorist threat, allows the terrorists to blow up a major building and then goes to war with the terrorists home country where there is no oil, and simultaneously with a country that sits on 10% of the worlds oil reserves that has a decimated military infrastructure.
Oil prices shoot through the roof with Gold following close behind. The President whose family comes from oil barons make a fortune and become famous at their skull and bones country club outside of Yale.
Meanwhile our famous 10 guys, start paying even more money at the pump. The first 4 guys end up taking second jobs working at Wal-Mart and have to give up drinking at the bar so that they can try and beat their teenage kids out of a promotion.
The fifth and sixth guys get foreclosed upon. They were forced to stop paying their mortgage payments so that they could pay their mandatory credit card payments as required by the new bankruptcy law.
The seventh, eighth and ninth men all previously traded up their homes for McMansions that they can not afford with interest only payments of $2300 a month. When foreclosures start happening their plans on flipping their McMansions and cashing in on the equity slips through their fingers.
To make matters worse seven and eight get laid off from the companies they work for when their jobs get outsourced to China. The ninth man keeps his job at a law firm, but fails to notice that his 401k fund is slipping and has lost 10% in the last year. Things are looking up as his law firm seems on the edge of landing a big contract with Merrill Lynch.
Then the real estate crash and sub prime mortgage scandal erupt. Banks start dropping like flies to be saved not by the cash strapped government that can barely afford the war for oil any longer, but by China. Oil and Gold soar, Gold hits $900 a troy ounce and Oil hits $130 a barrel (about the same amount for 10 rounds of beer prior to the crash). Beer prices hold steady for the first few months, but then start to edge up as gas prices for delivery creep into the bar owners expenses.
Then the first four men one night remember their favorite bar. They sneak around back around 4:30 am and steal 50 empty kegs that just happen to be made of pure aluminum. Those kegs are now worth about half the value of a keg that is full in scrap metal prices or about $80.
They are not stupid and don’t want to get caught turning the kegs in at the dump where the police are already looking for keg thieves. So they head out to the closed down manufacturing plant where they used to work. They start a big fire, and melt down the aluminum into big messy aluminum splashes on the cement.
They turn in the aluminum for cash and get caught up on their back alimony and child support before heading back to work at Wal-mart where they now work for their teen age kids that beat them out for that promotion earlier in the month because their job skills weren’t as good as recent high school graduates. They then begin dreaming of new ways to find aluminum alimony allowances.
Meanwhile, the banks and mortgage companies lobby congress spending about $10,000 a head in an election year to bail out the economy. Congress provides the major banks with government backed loans to refinance the bad sub prime loans so that the government can personally guarantee those bad loans. They also put $100 billion of actual cash into the hands of Americans hoping to stimulate the economy.
Americans however, are all in debt up to their eye balls and use the extra $1200 they receive to make 2-3 credit card payments. They take the $300 for each kid and buy groceries for the month and then they start worrying about next month.
The banks get away free as they have Chinese financing now and no bad loans as they have refinanced them over to the US Government. The US government had to print more money to pay for all of these actions and so Gold goes up to $1500 a troy ounce.
The tenth man is now worth Billions and moves to Costa Rica to retire taking the new trophy wife that used to be the bartenders girl friend with him.
The first four men end up going to county prison for 3 months for stealing aluminum dog crap receptacles after running out of kegs to steal.
The fifth and sixth men end up living in an apartment and then homeless after they lose their jobs at Wal-Mart.
The seventh and eighth men whom we previously left hanging in our story after they lost their jobs and ability to pay for their homes, end up losing their homes, and their kids. They and their spouses are each convicted of mortgage fraud by the FBI in a major sting operation after it is revealed that they lied on their mortgage applications. Their mortgage brokers who actually did the paper work cop a plea agreement in exchange for immunity with the Feds and rat out each of their unsuspecting customers.
The ninth man ends up losing his entire retirement fund which took a big hit as the dollar rapidly plummeted into free fall. He ends up refinancing his own house under a government backed loan for $650,000. Unfortunately, a tornado comes through that winter in a freak coincidence and levels the home. FEMA promises to provide assistance but never shows up and the ninth man freezes to death attempting to salvage the shreds of his belongings. His home insurance policy refuses to pay as they claim that his house was over valued and then they prove it with comparables studies from his own mortgage brokers database.
The tenth man ends up dumping his new bride a year later, moving back to the states a year after that when the US appears to have hit rock bottom and he leads up a Chinese real estate investment initiative in the states. He makes another $10 billion in ten years, but is then executed in Beijing for espionage.
Meanwhile, the bar tender goes on to win American Idol and sleep with Paula Abdul. They are now blissfully happy, doped up on anti-psychotics, and the biggest two idiots the world has ever seen.
Thanks for those two comments; Brilliant.
Do these numbers include the fiscal disturbance associated to Mr Dick Head Smith imposing an emissions bar tax as there are far to many Co2 bubbles in the beer? What about the job opportunities available to the financially derelict bar patron's in Obama/Key/Clinton et al's new world order programme? Or, are these people marginalised because they believe in neither?
But did the bar tender and Abdul sail away on the QE2? Or was it the titanic? Or is the QE2 the Titanic?
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