Dollar plummeting

October 9th, 2008 at 10:03 am by David Farrar

Down to 60c. Farmers will be happy but this means more price increases for most Kiwis.

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59 Responses to “Dollar plummeting”

  1. expat (4,050 comments) says:

    Not a slow transition.

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  2. dime (10,132 comments) says:

    add to the declining dollar the cost of goods coming out of china going up anywhere from 20-40%.

    a lot of importers will have forward cover, but that wont last long.

    ouch.

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  3. anonymouse (722 comments) says:

    Although Manufacturing exporters will be tearing their hair out, ( likely to buy in USD and sell in AUD)

    during the same time, The NZD/AUD rate has gone through the roof, from under 80 to over 90c Ozzie,

    -The carry trade is dead and the Ozzy is being pummelled more than the Kiwi.

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  4. Glutaemus Maximus (2,207 comments) says:

    We are all doomed! Doomed I tell you.

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  5. expat (4,050 comments) says:

    The Kiwi is yet to be fully pummelled. Wait until the next rate cut which will have to be 100bp otherwise the Aussies will kick up all sorts of shit and the Kiwi will become a carry trade play thing again.

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  6. Adolf Fiinkensein (2,923 comments) says:

    It’s heading northward again, don’t panic.

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  7. stephen (4,063 comments) says:

    ‘phew, relief!’, ‘good god no!’, ‘good for the economy’, ‘bad for consumers – but aren’t they the economy?’, ‘yes! no!’…ad infinitum

    Is there such a thing as an optimal rate for NZ as a whole?

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  8. fizzleplug (72 comments) says:

    Reminds me of Labour’s polling trend earlier in the year.

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  9. flyingkiwi (16 comments) says:

    It’s John Key’s fault. He used to work at Merrill Lynch! :P

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  10. Chthoniid (2,047 comments) says:

    For a while Treasury/RB were talking about a natural (long-term) rate of around 60c.
    The economic reality is that we’ve had some very big current account deficits in the last few years. If people overseas aren’t going to lend us the money anymore (quite likely), then the trade-balance is going to have to come right via trade-flows very quickly. Not easy when commodity prices are looking like they’re heading south.

    That basically means the NZD is going to have to depreciate a lot. That’s the overhang effect of the private household spending splurge. It looks like we’re going to have to start paying some of that spending splurge back…

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  11. Ross Nixon (559 comments) says:

    So who is for a big shopping trip to Australia – before they restock at higher prices?

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  12. emmess (1,433 comments) says:

    Not quite yet, but looks like we probably have a currency crisis on our hands

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  13. Glutaemus Maximus (2,207 comments) says:

    I am very happy that NZ will be one of the best placed to ride the storm.

    Nothing to do with Government, and all to do with an AG economy.

    Happy Times!

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  14. wreck1080 (3,970 comments) says:

    This is awesome for exporters, the real drivers of the NZ economy.

    It is about time the exporters had their turn so I think this is great. Being an exporter I could be biased :)

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  15. dave strings (608 comments) says:

    Oh today I am so happy, cause I bought US dollars at 72 cents :-) (And I’ve still got them :-) :-) ) (but not for long! :-) :-) :-) )

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  16. beautox (422 comments) says:

    The reason the aussie$ is so weak is that they cut their interest rates recently. If the RB cuts our rates any time soon it will only help the drastic decline.

    I’m lovin’ it. As an exporter I’ve had to put up with high rates for too long. Roll on 50cents I say.

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  17. stephen (4,063 comments) says:

    Bastards!! :-)

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  18. anonymouse (722 comments) says:

    Beautox: the Ozzie cross had gone nuts well before the 100pt cut in interest rates, infact when the cut came the dollar actually rose ( along with the Ozzie sharemarket), its because Oz has so much more liquidity then NZ, and as a result ppl can get money out faster.

    Sense will return eventually, but as they say, markets can remain irrational longer than you can remain solvent.

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  19. aardvark (417 comments) says:

    The falling dollar is all the more reason *NOT* to axe tax credits for R&D.

    The more the dollar falls, the more valuable our export-earning hi-tech industries become to our recovery.

    Someone give JK a boot up the backside for favouring a lollie-scramble rather than a sensible medium to long-term strategy that will get this country back on its feet again.

    Dimbulbs rule in politics I guess :-(

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  20. Lee (610 comments) says:

    aardvark,

    As I have to earn the money for tax I see no reason why I should not get some of it back. It’s MY money. I have a family to feed and food is extremely expensive now. You want to take it off me so some other guy can use it to help himself.

    The technical term for that is STEALING.

    If you want to steal from low and middle income people trying to feed their kids and give it to big business, at least have the decency to be honest about the fact instead of hiding behind dishonest crap about “smart” economics.

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  21. redeye (630 comments) says:

    Lee arguing left wing policies for a right wing government. What a hoot.

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  22. aardvark (417 comments) says:

    Hey, this isn’t “stealing” from anyone — it’s a tax credit, something that can only be used to offset tax payments.

    A company that earns nothing gains *no* benefit from these tax credits.

    And if you’re so in love with the concept of giving back — why has National not restored the top rate of income tax to 33% like it was before Labour imposed their “rich-prick” adjustment?

    And what about me?

    I earn a pittance, my wife earns a pittance. We have raised our kids without any handouts from the taxpayer (a different time) yet a good chunk of *our* money is now being taken to give to people on incomes that are three times higher than ours — because they’re “working for families”.

    No matter what way you look at it — tax is theft. It’s the taking of money with duress. It’s just that I’d rather see the money taken from me *invested* in the growth of the nation than given to someone simply because they can’t keep their dick in their trousers despite the fact they can’t afford to support the kids they’ve already got.

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  23. PhilBest (5,125 comments) says:

    Call me Jonah. I keep telling you, the crisis in the USA is actually NOT AS BAD as the crisis in most other Western countries and the crisis in NZ may well be the worst one of the lot, and it is NOT the fault of ANYONE overseas or anything that is happening overseas.

    Consider:

    The EURO and most other currencies, is dropping relative to the US. US economic growth is still higher than virtuially everybody else’s and their unemployment rates are no worse (and they are not as creative as many other nations including NZ, with their unemployment figures).

    Per capita, the amount of money used by the UK government for bailouts of financial institutions, is higher than the US 1 billion dollar bailout. Taxpayer exposure in Ireland, to deposit insurance, is 2xGDP. France, Germany, Spain, the Netherlands, all have financial institutions collapsing and being bailed out.

    What is the lowest denominator to look for? The ratio of property values to income; i.e. the amount of “inflation” of property values. And guess what? NZ along with Ireland and Spain, is the worst in the world. Our real estate market has frozen up and distressed sales are going through at 30% under; and how many finance companies have we had collapse, rephrase that, how many finance companies are still standing, in NZ?

    DUH. DUH. DUH. Here we stand, crowing and thumbing our noses at Wall Street because they’ve got their shoes dirty, and we are completely unconscious of the mire up to our own knees? A mire entirely of our own making, our own “greed”, our own regulatory stupidity?

    Look on the bright side, there is no “run” on the finance sector in NZ yet, because the wool has successfully been kept over our eyes by our media. I would like to think they are acting responsibly in all this, but I suspect ignorance and anti-American opportunism is the real reason, plus their inability to bring themselves to tell us anything that might reflect badly on their idols Helen and Mikhael.

    Another reason to be positive, is that our overseas-owned banks will be OK, as long as their parent institutions are among the survivors and the bailed-out ones. If we had a hermetically sealed domestic finance sector as some rabid lefties might want, or even a “Nationalised” one, we would be economic “toast” already and unable to deny it.

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  24. BlairM (2,365 comments) says:

    Anyone who thinks a fall in the NZ$ is good for us needs their head examined. Sure, it makes it cheaper to export goods, but only because we’re now poor enough to sell them cheaply.

    The world’s money is looking for a place to go right now, and if Bollard would only stand firm and do the job he’s supposed to ie. get inflation down, that money might start coming back to us, and we could weather the storm a good deal better.

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  25. Camryn (543 comments) says:

    I’m earning in US$ and sending money back to NZ (when it suits) to help pay off a mortgage. Woo hoo!

    Well, actually, I’m only half a winner since the property itself hasn’t gained in value at all.

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  26. Gravyman62 (37 comments) says:

    Aaah the Pacific Peso, Helen back in power, crappy showers, compensation for everything, no incentives to work, endless useless policy analysts clogging the streets of Wellington. Good times!

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  27. Turpin (342 comments) says:

    The way Ii see it, Working for families is the benefit for the middle class.
    Greed and envy drive it.
    That shouldn’t be the Kiwi way.
    We won’t become strong and compete if we take that road.

    Lee and others, So you’ve been paid off/bought by Labour
    Can you admit it?

    that’s the rub.

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  28. MikeE (555 comments) says:

    Reminding anyone of events in 1984?

    Anyone starting to thing we need captian roger to come save the day yet?

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  29. Redbaiter (13,197 comments) says:

    “if Bollard would only stand firm and do the job he’s supposed to ie. get inflation down,”

    Maybe he could make the weather better while he’s at it.

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  30. Adolf Fiinkensein (2,923 comments) says:

    David, don’t forget all that extra GDP thos farmers will produce. You know, the GDP which will get rid of the ten years of Cullen’s deficits? All the Gnats have got to do is make sure the pricks pay tax on it instead of piling on more debt.

    I was talking to a 35 year old dairy farmer this week who has 13 mil assets and 5 mil debt. He said- “I don’t pay tax, I pay debt.” In these few words you can see the heart of our Fiscal Fool’s ineptitude.

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  31. PhilBest (5,125 comments) says:

    Here is Jonah speaking again. We no longer have “reducing the size of the public sector” as a policy OPTION to give our economy a boost along. We purely and simply can no longer afford all the activities that government is involved in. This goes for the whole western world, what we are now seeing is not a collapse of Capitalism, it is the collapse of Big Government. It is absurd to see media commentators telling us that Labour has a chance of getting back in if the Nats dare to tinker with WFF and KiwiSaver. MATE, we need to be working out how long we can afford a DPB and an unemployment benefit and free public health and free education and Ministries of Womens Affairs and the like, and public transport subsidies, we need to be looking critically at every government activity and the cost benefit ratio of every dollar of taxation.

    So we are going to borrow our way through the next decade or so? So who lends us the money and at what interest rate and what security do we have to put up? One busted-arse country, with loss-making train set, a brain drain, a shrinking economy, emmissions trading scheme to drive industry offshore and shut down the energy and farming sectors, all the wrong economic incentives in place,…….hahahaha. What do you think the world bank poo-bahs are going to say to that?

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  32. Redbaiter (13,197 comments) says:

    Damn right Mr. Best. (as usual) All that needs to happen to fix the “recession” is for greedy ever growing governments to stop taking more than a third to a half of a worker’s income before the worker even sees it.

    Actually, to be more accurate, what really has to happen is that workers have to STOP VOTING FOR POLITICIANS WHO ROB THEM BLIND. ARE THEY FUCKEN WELL MAD??????

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  33. labrator (1,850 comments) says:

    Anyone who thinks a fall in the NZ$ is good for us needs their head examined. Sure, it makes it cheaper to export goods, but only because we’re now poor enough to sell them cheaply.

    Well examine my head then. People aren’t buying much lamb/beef from NZ because it’s expensive due to the exchange rate. Now it’s cheap, so more will be sold. That will be good for all of the farmers in NZ.

    The world’s money is looking for a place to go right now, and if Bollard would only stand firm and do the job he’s supposed to ie. get inflation down, that money might start coming back to us, and we could weather the storm a good deal better.

    The Reserve Bank Act seems to have encouraged the exact opposite behaviour of what it was supposed to. I wouldn’t expect anything smart to come from the Reserve Bank.

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  34. freethinker (694 comments) says:

    david (570) Vote:

    Sounds an interesting site but doesn’t respond to “Create Account” – so useless really.

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  35. emmess (1,433 comments) says:

    >>If we had a hermetically sealed domestic finance sector as some rabid lefties might want, or even a “Nationalised” one

    Exactly – after all it is rather difficult to nationalise something when it is already nationalised. If a government nationalise a something in a crisis such as we are having now, then they can perhaps flog it off at a profit. But if it is nationalised then either they pour money in a black hole for no return or pour money in and then get it back by privatising it, in which case they have foregone the income from.

    This may be the case with Kiwi “sub prime” bank

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  36. david (2,564 comments) says:

    freethinker
    I don’t have an account, just watch the rates and ring the bank from time to time with instructions. It can take a bit of time to load and doesn’t work so well in Firefox on my home Mac but otherwise it seems pretty robust.

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  37. GJ (329 comments) says:

    What a great opportunity to buy Real Estate in NZ. Forget what the papers say, just wait until all those Kiwis start heading back home after a change in Government. They won’t believe our Real Estate is so cheap, considering what they will be getting for their dollars and pounds. It can only head one way over the next 12 – 24 months and that will be UP!
    So if you are thinking of buying, take your head out of the sand and DO IT NOW!

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  38. dave strings (608 comments) says:

    Wait for it

    .
    .
    .
    .
    .
    .
    the CRASH of ’09

    .
    .
    .
    .
    coming to a civilisation near you
    .
    .
    .
    .
    .
    .
    in about six months!
    .
    .
    .
    .
    .
    Thats how long it took for the ’87 crash to hit “average joe’s” pocket – as I well remember.

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  39. Ross Miller (1,706 comments) says:

    I’m no economist but I do know that if/when the Reserve Bank cuts the cash rate the dollar will drop further. Great for exporters but stand by for an increase in inflation which is already projected to break the 4% barrier.

    And can someone tell me where developers/home buyers will go to get the top-up over and above 1st mortgage finance or will the property market just grind to a halt.

    Interesting times especially if you are cashed up and my wife’s UK pension paid in STG is sure looking good.

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  40. gd (2,286 comments) says:

    havent read the comments as just logged in but as anyone else got the tin foil hat on and thought maybe just maybe the Gumints are not so worried about being able to nationalise the banking system and take back the controls of the good old days.

    I mean was it that they were a mite concerned that private enterprise had just a bit too much control over the money system and engineered a way to take control whilst being seen to charge in like the cavalry to the rescue as regards the punters and paints the bankers as all evil bastards

    just a thought mind you from one who trusts all pollies as far as he can kick their collective arses

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  41. adc (595 comments) says:

    even at 60c the kiwi is still over-valued…

    a few years back it was down to 38c.

    but then again, as an exporter I could be biased… :)

    YEE HAAAA!

    The high kiwi has been absolutely awful to live with.

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  42. Grant Michael McKenna (1,160 comments) says:

    does anyone know how much forward cover KiwiRail has? No? gee, you must be in management….

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  43. side show bob (3,660 comments) says:

    I heard a rumour that Fonterra has just signed up a HUGE export order to China in the wake of their poison dairy products disaster. China it appears wants food they can trust. Do not know if it’s true but I hope the order was made before and paid for before the fall of the dollar. Anyhow the fall is good for us dairy farmers but it’s a two edge sword as just about everything we buy in, fert, fuel, machinery etc will only rise higher

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  44. expat (4,050 comments) says:

    Kullen is a dickhead isn’t he.

    http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10536657

    New Zealanders were under a lot of financial pressure, Mr Key said.

    “I think for the health of the banking system, and for confidence in the New Zealand economy, interest rates should come down now.

    “It’s the reserve bank governor’s decision and I’m sure he’ll monitor that, but I think they should be going lower, a minimum of 50 basis points and you can’t rule out a bigger cut.”

    A spokesman for Finance Minister Michael Cullen said the bank was independent of politicians and it would not be appropriate for the Government to say anything that could be interpreted as putting pressure on it.

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  45. OECD rank 22 kiwi (2,753 comments) says:

    aardvark says at 12:43 pm

    why has National not restored the top rate of income tax to 33% like it was before Labour imposed their “rich-prick” adjustment?

    Short answer, “ME TOO”.

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  46. clintheine (1,571 comments) says:

    Woohooo! Get lower you filthy South Pacific Peso! I’ll be back in a couple months and want my lovely pound to go a lot further as everything costs so bloody much in NZ.

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  47. expat (4,050 comments) says:

    exactly clint. expect the kiwi rouble to be worth 2/5ths of f all by then.

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  48. kiki (425 comments) says:

    some comments.

    If we need the dollar cheap to sell our exports then we obviously aren’t selling what the world wants

    Why after 100 years are we still selling sheep, beef and milk?

    and if some sectors get a big pay boost (exporters) combined with a large increase in the cost of imported goods won’t this create a huge inflation problem? only solved by rising interest to get the dollar back up but at the same time other parts of the economy will collapse due to loss of consumer spending because people are maxed out on debt. With the government increasing welfare but running out of a tax base to pay for the extra on top of the increased government levels while finding it hard to borrow?

    are we in trouble?

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  49. clintheine (1,571 comments) says:

    I am wondering if I should buy now or wait a little bit. Current trends, compiled with a Govt that finds living with capitalism uncomfortable… I may wait a little.

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  50. OECD rank 22 kiwi (2,753 comments) says:

    I think it is safe to say that the NZ$ will trend downwards relative to sterling. The only problem is that both economies are underperforming which is why sterling hasn’t done so flash compared to the Euro or US$ of late. New Zealand is in recession at the moment and isn’t looking to exit that situation anytime soon. The UK isn’t in recession officially as yet although 0% growth in the last quarter hardly signals a happy future for the UK economy.

    Clint, are you heading back to NZ permanently or just for the Christmas break? Are you intending to return to the UK?

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  51. expat (4,050 comments) says:

    Clint could be a poster boy for returning new zealunders for granny herald reporters.. ;)

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  52. OECD rank 22 kiwi (2,753 comments) says:

    I know there a plenty of kiwi’s amassing stock piles of sterling and watching the exchange rate between the UK and NZ. Their expressed intent is to purchase property back in New Zealand.

    I can’t see why you would want to buy property in New Zealand at this point in time or probably for the next two years if the market is tanking. Then again I can’t see the attraction in wanting to work in New Zealand at any point in the future. The New Zealand economy is well and truly stuffed and it won’t be getting fixed anytime soon.

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  53. expat (4,050 comments) says:

    OECD – thats why I sold up and left, again.

    There will be bargains to behad in 12-24 months once the boomers have to sell.

    Did you know that 2008/2010 co-incides with a) boomer max. density reaching retirement age b) max. uridashi maturity years.

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  54. OECD rank 22 kiwi (2,753 comments) says:

    Agreed expat.

    By the time this financial crisis malarkey is all over anyone returning to New Zealand with a pocket full of sterling will be able to live like Kings.

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  55. PhilBest (5,125 comments) says:

    Oh, come on you guys, “Sterling”??????? Anyone with any brains would be holding Swiss Francs right now. The Sterling merely isn’t quite as stuffed as the Kiwi. Same for the Euro.

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  56. labrator (1,850 comments) says:

    Phil, how about Yen?

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  57. PhilBest (5,125 comments) says:

    Hmmmm, not a bad suggestion, the Japanese have had their economic shocks already. But although the Swiss Franc came off the “Gold Standard” in the year 2000, and was the last currency ever to do so, Switzerland’s central bankers still understand the need to keep their currency stable, and are probably the only ones to understand this and practice it.

    http://www.bis.org/review/r061218a.pdf

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  58. clintheine (1,571 comments) says:

    OECD – I’m back for a month long holiday before I head back to the northern hemisphere for another few years. I feel so blessed that I wasn’t here for 5 years of Clarkistan :)

    In 2/3 years I am moving from London to set up in Prague. The Czech Rep has a 15% flat tax and a quality of life that is going to pass NZ in a decade if Kiwis continue to vote in parties that promote high taxes. In fact they are cutting it down to 12.5% in 2010. I want to be part of that!

    I’ll be spending my Sterling in bars around NZ on my return :) Got to help prop up this backwards economy.

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