Tony Alexander on Europe

April 27th, 2012 at 8:19 am by David Farrar

BNZ Chief Economist writes:

Good evening everyone – although where I am in Canary Wharf in London it should be good morning. Reading the Financial Times each morning and speaking with many people over the past week one thing is clear – this part of the planet is weak and there is no reason for believing that this situation will change in the coming year. The UK has just slipped back into recession as has Spain, manufacturing sector indicators for the Euro-Zone have plunged, the French Presidential election may produce a Socialist winner intent on raising taxes and boosting government spending even further, the Greeks may soon elect a Government opposed to austerity measures, the Dutch Government has just collapsed, and the much vaunted fiscal pact aimed at making the Euro-Zone workable could be falling apart.

Considering the situation here, the underlying doubts about labour and housing markets in the United States, and weakness which next week is likely to force the Reserve Bank of Australia to ease monetary policy again, it is unsurprisingly that the NZ dollar remains strong. We look less bad than the rest. That is the case even though the employment data released in NZ this week show jobs growth slowing to 0.2% in the past three months form 0.3% in the three months before that and 0.4% before that.

At least construction prospects look good and over here companies are hiring people to work on engineering designs for the Christchurch CBD rebuild.

It seems very clear that strong global economic growth is some years off. Decades of unsustainable spending and debt is catching up.

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32 Responses to “Tony Alexander on Europe”

  1. Michael Mckee (1,091 comments) says:

    Yet John Key hasn’t clearly enunciated the issue of our being bankrupt to the voter, nor has he explained Labour’s actions in getting us to here.
    Until he changes the entitlement mindset in the voters minds he will always be vulnerable to flip flops and sabotage from the Civil Service and media.

    how about he explains properly who the 168,000 taxpayers you highlighted who don’t get WFF are and what they mean to our economy?

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  2. vto (1,128 comments) says:

    “Decades of unsustainable spending and debt is catching up.”

    Not very often I agree with you farrar but this time you are spot on in pointing the finger at the monetary system and its privately owned fractional reserve banking. The ponzi scheme is well past the point of no return.

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  3. Ross Nixon (612 comments) says:

    Anyone wonder why the Reserve Bank has made the banks prepare to give everyone a haircut at a moments notice? How will you like your ‘short back and sides’ style?

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  4. hmmokrightitis (1,572 comments) says:

    France is going to be fascinating to watch. Im a huge fan of the place, take cycling holidays there whenever I get the chance, love the food, wine and women :) Lived in Paris for 12 months many moons ago when I worked for a large telco, loved it.

    But the French want their cake, and not only to eat it, but for some other bugger to pay for it, and to pay them to eat it as well. If the socialists get in, taxes will go up, spending will sky rocket, and its entirely possible they will enter 20 years of bumping along the bottom. But then thats French politics for you. MMe Le Pen may even get a shot at the throne, Im sure her Papa would be very pleased.

    C’est la vie.

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  5. mister nui (1,012 comments) says:

    This is spot-on and as Mr. Alexander points out, the chief reason why the NZD remains strong, or more correctly, why the currencies of our trading partners are weak

    So, you have to wonder what Bollard is up to when he says that he might cut the OCR to reduce the $, as he said yesterday. It will have zero-point-fuck-all effect on the exchange rate. The only thing it would be likely to do, is encourage more over-leveraged spending in an over-priced housing market.

    As an earner of foreign exchange, I’ve adjusted to the weak foreign currencies, because I had to. We have to continually evolve to meet these challenges, which will put us in an even more competitive position when those economies do strengthen and their currency with them.

    Right now, the only place where I remain totally uncompetitive is against UK based companies, due to the oversized change in crossrate between the NZD and the GBP. But, in the meantime, I’m making the most of the Australian resource boom.

    Note to all lefties – This is how a market works, it doesn’t need interference by the gummint, it needs businesses to adapt to be strong. I can only imagine if we still had the Klark/Kullen show what they would’ve done, probably print money so we could be poor too.

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  6. Lance (2,565 comments) says:

    I have been actively following what these economic guru’s have been saying since 2005.

    They all got most or all of it wrong on a consistent basis. Some of them 100% wrong yet are still being held up as experts we should listen to (the worst offender is that clown on BBC world news who masquerades as an economist).
    The nearest they can come to predictions is scaring people with dire warnings who then take negative sentiment that then negativity effects the market… to which they acclaim… “hey I predicted that”.

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  7. mister nui (1,012 comments) says:

    Ross Nixon said:

    Anyone wonder why the Reserve Bank has made the banks prepare to give everyone a haircut at a moments notice? How will you like your ‘short back and sides’ style?

    Where did you see, or how did you deduce this Ross?

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  8. Scott (1,736 comments) says:

    I think this government is doing the right thing by cutting government spending. Basically the previous government inherited beautiful economic conditions and spent that windfall on income redistribution and increasing the welfare state.I am pleased we have a responsible government of adults running this country.

    As for Europe one wonders whether the European Union will survive? How much longer will the hard-working Germans be prepared to subsidise the lifestyle of the leisurely Greeks?

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  9. flipper (3,847 comments) says:

    Tony Alexander hs done an excellent job in identifying a pending economic storm.

    If our media were less concerned with inconsequential matters (and were also devoid of left wing, economically ignorant producers/editors) and devoted time to serious issues, they would have followed up on The Outside The Wellington Beltway Group that said in their mid January treatise, ” The Demolishing of New Zealand’s Political Comfort Zone”:

    ” Amid the post-election comment, tears and euphoria there were a few words of economic sanity. In a November 26 late night TV interview, John Key referred to the deterioration of world economic conditions and, by way of illustration, noted that in the past few days a bond issue by the German Government had closed with only 60 % being subscribed. In his (retiring) commentary on Monday, November 28, 2011 , the CBA’s CEO, Ralph Norris, described the failure of the German bond issue as a danger signal for the whole world – and a world from which New Zealand and Australia could not escape. The Key/Norris comments went almost unnoticed by the New Zealand MSM.

    “: The question which the Key Coalition Government may have to confront is this: If Europe or the Euro collapse as suddenly as some commentators are saying, how will the New Zealand government respond? How will it create the political conditions which such a situation requires? And if the US economy fails to recover, what effect will that have on us and how will we deal with it? (It seems almost certain that the US will move into a period of high inflation, following the creation of trillions of new dollars, necessitated by the impossibility of lowering interest rates to stimulate activity, the Federal Reserve cash rate being only just above zero.)

    ” In geo-political/economic terms, New Zealand is a pimple on the world. The world economic situation is of greater import to New Zealand than New Zealand is to the world. As a consequence, New Zealand’s future economic success is inextricably bound up with the rest of the world. As a nation, we must therefore turn our immediate attention to ensuring that the country is safeguarded. That may require some hard decisions and cost National short-medium term popularity.

    ” Much of what we are seeing around the world can be blamed on the propensity of governments to intervene in detail in the running of their economies. This has been demanded by their voters (where voters have the option of such a choice), and no government has yet solved the unsolvable problem created by John Maynard Keynes; namely, “stimulating” an economy with deficit government budgets is one thing, but no-one has yet figured out how an administration can back away and withdraw the favours it has bestowed on its citizens in order for state spending to come back into balance. Failing to deal with this issue stores up trouble for later, and arguably we are today seeing the awful consequences, which have expanded ever faster during the last 80 years and a world war.

    ” The Greeks are finding out about this earlier than most, and the British recently have had some big street demonstrations as the public sector unions have at last twigged to what their Chancellor of the Exchequer has been talking about. British citizens face a large number of unpalatable choices for a long time to come.

    ” One result has been the appointment of unelected bureaucrats as government in Italy and Greece. There is no clear path out of this particular attempt to deal with the problem of state debt, and some otherwise sensible people are beginning to look at China and see a “better” way of doing these things. Lots of not-very-benign government interference, and lots of punishment for those who speak out of turn. For most Western people such a development would be unthinkable, but it is another sign that we are in confusing and unprecedented times.

    ” As part of New Zealand’s apparent aversion to “the market” there have been repeated left wing assertions that capitalism has failed. For some in the MSM this has become a mantra. But there was no failure. If Governments had resisted the temptation to meddle in the market, capitalism would have solved many of the problems. …,.,.,.”

    It would be helpful if the Trotters, Fallows, Armstrongs, Smalls, Watkins (and TV One’s Watkin), Edwards, left wing bloggers, et al undertook a rapid revision in economic literacy.

    Too much to hope?

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  10. krazykiwi (9,189 comments) says:

    flipper – The Trotters, Fallows et al will will tell us all this economic carnage has be brougt by too little welfare, insufficient central planning and not enough public spending. We need more of all this if we are escape the clutches of the evil rick pricks.

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  11. Paulus (2,565 comments) says:

    A good thought provoking report by Alexanber and I agree flipper.
    Our so called media are virtually illiterate editorials pushing their narrow picture (look at the disgraceful Herald so called cartoon this morning).
    The Editors are only concerned with bums on seats, and they are losing, in some part because of their inability to balance their publications. The fact that since the Ambrose affair where one of the “sacred” sold the tapes with which he found himself in “surprised” possession, they have become feral towards the Government, and the tall poppy Key.

    Am nort sure whether we will have as many papers within 5 years. I expect the Fairfax SST will close first.
    The Herald change from broadsheet will not help them, except in printing costs, but whether the buying public will continue to support it remains suspect.
    More importantly unless they get rid of the amateurish political attempts and get a true balance will be a turning point.

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  12. flipper (3,847 comments) says:

    KK…
    Yep…

    You know, one of real reasons that the Soviet Union failed (collapsed, not that that was a bad thing) was that the bureaucrats concocted a load of bullshit and fed it to their “Politbureau”. The Politbureau, in turn, lied to their people.
    The communist czars believed it all and spent accordingly, even though their mass productrion (and food ) was trash.

    Unfortunately (for the Sovs) it resulted in their demise because they had simply build a house of cards.

    Ever since the days of Sutch and Lewin, the New Zealand left has been pursuing a similar illusion.

    When they recognise this they will start to regain some respect.

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  13. smttc (711 comments) says:

    Where did all the money go?

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  14. Yoza (1,678 comments) says:

    The thing I love about the far-right is their gormless faith in a thoroughly discredited socio-economic system.
    Like Marie Antoinette and her buddies, they will stand there blinking with incomprehension as the mob descends on them.

    “You know one of real reasons that the Soviet Union failed…”
    The reason the Soviet Union collapsed is exactly the same reason the western system is in collapse, the control of capital and authority has been effectively concentrated in the hands of a tiny group whose primary purpose is perpetuate and enhance their positions of control to the detriment of everyone else. The contemporary ruling elite will fall for the same reason the Soviet leadership fell; they serve no socially productive function, their very existence is detrimental to the healthy development of society.

    Tony Alexander is nothing more than a functionary who exists to feed the fantastical dogma his corporate masters require to be implemented on the population of this much abused planet. Thankfully, the internet has seen such an effective, successful application of the neo-liberal disaster that the speed of the collapse caused has caught the ruling elite completely unaware. The more vigorously the quasi-fascist right apply their economic ‘final solutions’ the greater the ensuing socio-economic disaster will become.

    I am really looking forward to the coming revolution. JUSTIN IS COMING!

    (You will have had to have seen Eagle versus Shark to understand that last sentence.)

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  15. smttc (711 comments) says:

    Gee Yoza, you win the prize for proving Godwin’s Law and it’s only 10.30am. Onya.

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  16. simonway (375 comments) says:

    Decades of unsustainable spending and debt is catching up.

    Like in Spain, right?

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  17. thedavincimode (6,590 comments) says:

    Yoza

    You seem quite keen on using the term “far right” as a cornerstone of your cunning and incredibly sophisticated communications strategy.

    So where then does this leave the term “right” in what appears to be an attempt to re-draw the boundaries on the wearingly trite cloth cap delineation of persuasion across the political horizon. And where then, does this leave Liebour, the melons and Hone bin a Paris?

    Are you just shifting everyone one place to the left, or two places? Or is it something even more clever than that?

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  18. labrator (1,849 comments) says:

    Tony Alexander is nothing more than a functionary who exists to feed the fantastical dogma his corporate masters require to be implemented on the population of this much abused planet. Thankfully, the internet has seen such an effective, successful application of the neo-liberal disaster that the speed of the collapse caused has caught the ruling elite completely unaware. The more vigorously the quasi-fascist right apply their economic ‘final solutions’ the greater the ensuing socio-economic disaster will become.

    Anyone know where I can buy shares in tinfoil? Hat production boom lead indicator right there.

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  19. JeffW (324 comments) says:

    “Decades of unsustainable spending and debt is catching up.”

    So let’s have more – Labour, Greens and WinnieFirst.
    So, let’s have more, just look busy around the edges – National.
    MSM Business Pages – something must be done; MSM Front Pages – you can’t cut that, that’s unfair.

    There has to be an unhappy ending here.

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  20. simo (150 comments) says:

    Watch the Germans – a seeding ground for the solution to Islamic problem, remember the 1930′s and the potential similarities are fermenting……just quietly…..its great to live in NZ….always!

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  21. Viking2 (11,283 comments) says:

    Its never good or bad out there, its only what you think it is.

    What have you done today, this week, this month, this year to look at your business or incomes to change. The world is changing rapidly and I know people making more money online than 99% will ever make in their business.
    What have you done to get online and sell to the world.
    Sounds a challenge and it is but maybe you have to sell or do something you don’t have, make, or do right now.
    Online purchases in NZ alone last year ran at about 3.6 billion. Imagine what the world turnover is.
    And guess what ,there are lots of opportunities off shore for a small use of your time. There are still billions out there with money to spend. Its is how you tap into your share. Its really up to you. Its your life.

    Go looking. http://bit.ly/J7ZY2d

    or here. http://bit.ly/KgoGtj

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  22. tom hunter (4,568 comments) says:

    I’m glad to see that at least some members of the MSM are finally beginning to see through the almost endless cycle of blather from European political and financial leaders. It’s all been designed as much to generate banner headlines as to fix the real problems. I’ve lost track of the number of times I’ve seen some blaring headline announcing that some agreement or other has been reached, and every time the stockmarkets have reacted like schoolgirls at a Justin Bieber concert.

    If you take the time to back-track on these announcements it’s amazing to find what was actually not done; my favourite being the announcement some months ago that the EFSF was going to be boosted to €1 Trillion, acting as a firewall for Spain. This was in reaction to people looking at the Greek bailout and multiplying the effect for Spain, which talk caused wobbles. So the “leaders” got together and made this announcement, prompting numerous talking heads to proclaim that the creation of this gigantic backstop had “calmed” the markets. Only a few financial blogsites kept track of this and within a couple of weeks their analysis showed that it simply was not happening, mainly because it could not work, since the “plan” apparently involved the sort of leveraging of which Wall Street would be proud. But the MSM simply moved on. Idiots.

    Funnily enough I agree with those commentators (almost all left-wingers) who claim that “austerity” measures like those in Greece, won’t work to dig them out of this hole. Normally I’m all in favour of such cuts – I certainly think we need them here in NZ and in the US – but in the case of Greece and the other Southern Europe disasters it’s too late. The time for such cuts was a decade or more ago, setting the damned social welfare states up on an sustainable basis when debt was lower. But when debt is piled up to the extent they have got, no amount of budget cuts will save them. When debt is that high you simply cannot dig your way out of it.

    The only effective solution is to default on most of the debt, and of course the rest of Europe won’t let Greece do that because of the cascade of disaster that would inflict on the banking systems of Northern European countries. The default of Greece (and 70% cuts are default by any measure even if no one dared to call it that) back in March was only on private holders of Greek debt, amounting to about one third of the total. The rest is held by the ECB and various governments: no cuts for them lest their taxpayers explode.

    Then there’s the USA: I think they’re at $16 trillion debt already, $10 trillion of which is external? So if inflation takes off, even the mild inflation of 2% that normally comes with a normal economic recovery from a recession, the Federal Reserve will not be able to raise interest rates to keep it under control, since a rise of even 1% would mean an extra hundred billion plus in annual interest payments, this on top of their current budget deficits. Of course the government may not care since inflation destroys debt. But since that won’t be good news for savers I don’t envy whoever has to deal with that problem in 2013 and beyond.

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  23. Ross12 (1,279 comments) says:

    Some good comments on here but Tony Alexander is not saying anything new. Anyone who takes even a small amount of interest in world economic affairs would have latched onto what Aleaxander is saying months ago.

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  24. DJP6-25 (1,313 comments) says:

    Tony Alexander is right.

    cheers

    David Prosser

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  25. Luc Hansen (4,573 comments) says:

    Tom Hunter

    Then there’s the USA: I think they’re at $16 trillion debt already, $10 trillion of which is external?

    er, no, incorrect, old chap.

    Last I saw, 2 trillion was external, mainly to China. The remainder is domestic debt. This means, as you suggest, inflation is indeed the friend of the US government, which is the course it followed when Reagan bequeathed record debt level to his successor.

    But kudos to Christchurch.

    Without that invigorating clutch of earthquakes, where would we be?

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  26. Luc Hansen (4,573 comments) says:

    A link for Tom

    http://krugman.blogs.nytimes.com/2011/12/28/debt-is-mostly-money-we-owe-to-ourselves/

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  27. Luc Hansen (4,573 comments) says:

    And Krugman on austerity

    http://www.nytimes.com/2012/04/27/opinion/krugman-death-of-a-fairy-tale.html?_r=1&partner=rssnyt&emc=rss

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  28. tom hunter (4,568 comments) says:

    er, no, incorrect, old chap.

    Sigh. I meant external to the so-called “intra-government” debt (SS IOU’s and so forth), not external to the USA. I suppose I should have checked Wikipedia – but then you could have also:

    As of March 2012, debt held by the public was $10.85 trillion or approximately 70% GDP, while the intragovernmental debt was $4.74 trillion or approximately 30% GDP. These two amounts comprise the national debt of $15.6 trillion, roughly 100% GDP.

    As of January 2011, foreigners owned $4.45 trillion of U.S. debt, or approximately 47% of the debt held by the public of $9.49 trillion and 32% of the total debt of $14.1 trillion.[53] The largest holders were the central banks of China, Japan, Brazil, Taiwan, Switzerland, Russia, and the United Kingdom.[55] The share held by foreign governments has grown over time, rising from 13% of the public debt in 1988[56] to 25% in 2007.[57]

    As of May 2011 the largest single holder of US government debt was China, with 26 percent of all foreign-held US Treasury securities (8% of total US public debt).

    There’s also a rather nice table, that shows China and Japan both holding a bit over $US1 trillion.

    But a more useful graph is this one, showing the breakdown of all that “public” debt to Sep 2008. Major owners include State and Local governments (their pension funds), mutual funds, as well as foreigners of all types (governments and private sector).

    But there are several big laughs here.

    First is that the Federal Reserve has become the main buyer for the debt being issued by the US Federal government. But technically that does not count as debt owed by one part of the government to the other since the Fed is a private entity. Cute.

    Second is that the debts of Fannie Mae/Freddie Mac are not included – and there’s a couple of trillion there, consisting of houses that are underwater on their mortgages.

    But the really big laugh is that the liabilities of the pay-as-you-go Medicare/Medicaid and Social Security systems amount to something like $30 trillion plus out to 2050, are also not included. Apparently their payments will come out of thin air. And in one sense they will from the Federal Reserve – for a while.

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  29. tom hunter (4,568 comments) says:

    And Krugman on austerity

    Cough. Hack. You’re quoting Krugman?

    But of course you are. Hilarious.

    He’s fallen a long, long way since his Nobel Prize, to the extent that other economists now wonder whether he ever actually understood the subject outside of his narrow speciality. In 2003 this clown actually demanded in writing that a “housing bubble” be created to replace the dotcom bubble that had recently collapsed, because created credit equals spending on consumption to fill the ever-present Keynesian “aggregate demand gap”. He actually had two separate columns about the effect of Quantitative Easing (QE) : one that argued it was critical to keeping interest rates low – the other arguing that QE had an insignificant impact on them. And there are other examples of him contradicting himself.

    And of course he’s never heard of the broken window fallacy so thinks that another gigantic war would do the trick, in his case a really far-out war:

    If we discovered that space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months. And then if we discovered, oops, we made a mistake, there aren’t any aliens, we’d be better.

    There was a Twilight Zone episode like this in which scientists fake an alien threat in order to achieve world peace. Well, this time…we need it in order to get some fiscal stimulus.

    Which is rather funny for a left-winger to get excited about, considering how the left moaned and bitched about The Three Trillion Dollar War. Do they think it was all spent in the Iraqi deserts?

    Apparently Japan did not borrow enough or spend enough over the last twenty years and that’s why they’re still mired the mud. Following in Japan’s footsteps, the US has borrowed $4 trillion of money in the last three years to get $1 trillion of GDP growth. Not to mention the $4 trillion that Bush borrowed for his wars and other government spending – although he at least got some economic growth, though not enough before the next big bubble burst. That’s not a great multiplier and even Krugman admits there could be problems if the economy continues to grow more slowly than the debt. But another few trillion will be sure to juice the economy into long-term growth – which just happens to fit so perfectly with the spend-more-tax-more desires of the left.

    Idiots.

    P.S. I’m off out to party and make my consumption contribution to Krugman’s fantasy world. You should to: take your wife and go out for god’s sake. There’s nothing sadder than watching somebody crank up multiple arguments on multiple threads on a Friday night.

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  30. Luc Hansen (4,573 comments) says:

    Tom

    It’s all about parenting and caring for a sick child tonight. So I may as well make a nuisance of myself ;-)

    Some evidence to accompany your rant would help your credibility, too.

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  31. Luc Hansen (4,573 comments) says:

    A Krugman quote for Tom, since he obviously didn’t read the link:

    “Japan has faced dire warnings about its debt for more than a decade; as of this week, it could borrow long term at an interest rate of less than 1 percent.”

    Why wouldn’t a government borrow at 1%. Even our government can now borrow at ridiculously low interest rates. We should be borrowing for infrastructure projects, not indulging in pointless self-flagellation.

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  32. Anthony (785 comments) says:

    Interesting, although this is the same Tony Alexander who in early 2008 didn’t believe there would be a recession – check the Kiwiblog link to him. At least it makes a change from his continual carping on about the housing market and mortgage market (where again he has got it wrong much of the time).

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