Will 2014 be an economic cracker?

December 15th, 2013 at 2:00 pm by David Farrar

Brian Gaynor writes:

There are several reasons New Zealand’s economic outlook is more comparable to the early 1950s and early 1970s than the past 40 years. These include:

Terms of trade: The country’s terms of trade index rose 7.5 per cent, to 1356, in September, the highest level since December 1973. Australia’s terms of trade have fallen 18 per cent this year.

Dairy: GlobalDairyTrade auction prices have appreciated 52 per cent over the past twelve months and dairy exports surged 49.1 per cent in the three months ended October 31 compared with the same three months in the previous year. Recent surveys show that farmers have significant investment intentions, an important feature of New Zealand’s strong economic performance in the 1950s.

China: It is now New Zealand’s largest export market and is expected to continue to grow by more than 7 per cent a year.

Christchurch rebuild: The inner-city rebuild programme should gather momentum when construction begins on the justice and emergency services precinct from March next year, to be followed by the health precinct in the June or September quarter. These projects, which are mainly funded by the Crown and city, should encourage private sector investment in the inner city.

Migration: The country has had strong net migration inflows in recent months and had total net migration of 17,490 for the 12 months ended October.

This figure is expected to increase steadily over the next few months, and Statistics New Zealand figures show more than 90 per cent of new arrivals settle in Auckland.

Housing: The strong migration inflow should continue to boost the housing market and housing construction, particularly in Auckland.

Government finances: The Crown’s financial deficit is falling and the Key Administration may announce tax cuts in May’s budget. However, large expenditures on the Christchurch rebuild may restrict this option.

Confidence: Business, consumer and farming confidence are all at, or near, all-time highs.

Companies: Most domestic companies have strong balance sheets and plenty of capacity to expand and invest. Rod Drury and Xero have lifted the ambitions of New Zealand companies and we now have a large number of young entrepreneurs with aggressive global aspirations.

KiwiSaver: Last but not least is KiwiSaver, which is giving us a pool of private permanent funds that can be partially invested in the domestic productive sector. KiwiSaver ought to have the same positive effect on the domestic as Australia’s compulsory superannuation has had on its .

In view of these factors the outlook for the New Zealand economy is exciting, the best it has been since the early 1970s.

I’m not quite as positive as Brian Gaynor, but I do agree that the fundamentals are all looking good.

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56 Responses to “Will 2014 be an economic cracker?”

  1. martinh (1,272 comments) says:

    Watch what happens to the polls when the RB lifts the rates because national didnt do anything to calm the AK property market.
    Hundreds of dollars a month going out of peoples pockets to the Banks is not going to go unpunished. Key said he stands for low interest rates, we will see….

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  2. Michael (912 comments) says:

    Kiwisaver and the China FTA are the two achievements that every NZer should be thankful to the Clark-Cullen Government for.

    Not that it makes up for the unsustainable spend-up on non-productive policies like Kiwirail buy-backs, Working for Families being available to high income earners, removing the completely independent Privy Council as our final court, the undemocratic Electoral Finance Act…

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  3. wikiriwhis business (4,135 comments) says:

    ‘Government finances: The Crown’s financial deficit is falling and the Key Administration may announce tax cuts in May’s budget. However, large expenditures on the Christchurch rebuild may restrict this option.’

    so, we not borrowing 500,000,000 a week any more and we getting on top of the debt plus interest.

    There’s been no media sound bite about that.

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  4. wikiriwhis business (4,135 comments) says:

    Wonder how the FTA that Key is rabid to push through before the next election will affect this new prosperity ?

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  5. hmmokrightitis (1,595 comments) says:

    We are recruiting staff at the moment – smart IT people for projects and ongoing customer support. Finding really good people has always been hard, but at the moment, its really really hard – if youre good, youre contracting. Senior programme managers on $1,500 a day. Senior project managers on $1,000 a day. BA’s on $900, project admins on $700. Crazy money.

    And for the last 6 months weve had more work than we can deal with. Staff gone from 10 this time last year to more than 20, and still rising. Revenue up 140% year on year. We stopped responding to RFP’s 6 months ago, didnt need to.

    A boom is coming, what we dont know yet is how big and how long.

    And maybe ross69 or toad can answer these questions:

    1. That manufacturing crisis, hows that going?

    2. Migration – now that kiwis are deserting Europe and Australia, and there is a net migration growth trend, are you going to say well done to the gubbermint, or just keep making shit up?

    Your silence will most likely be the answer we all expect.

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  6. OneTrack (3,237 comments) says:

    wiki – Wonder how the … next election will affect this new prosperity ? fify.

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  7. martinh (1,272 comments) says:

    Hmmmo

    Senior programme managers on $1,500 a day

    Thats over $300000 a year.
    Thats not the IT market ive seen so if i was one of your companies shareholders id be pretty pissed off.
    I suppose being in a company of 20 people you are really speaking about a one off situation too

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  8. wikiriwhis business (4,135 comments) says:

    “wiki – Wonder how the … next election will affect this new prosperity ? ”

    I detect no ring of confidence from you National supporter.

    Don’t worry, Labour and the Greens will finish Keys work if he can’t get the TPP thru.

    Just like he finished a lot of their projects.

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  9. bc (1,377 comments) says:

    Good point about the Reserve Bank OCR rates martinh (@2.09pm).
    When my mortgage came off fixed in July this year, I did some tough negotiating with the banks and fixed again. It was just at the right time – banks were desperate for business and the talk about increasing rates hadn’t made its way to the banks changing their fixed rates quite yet.
    For people coming off fixed next year, it could be nasty. I predict the Reserve Bank will lift the OCR at least twice next year. The first one will be in the new year. The softening of the LVR restrictions will also contribute to the Reserve Bank having to lift the OCR.
    With increased growth next year, there had better be increased wages as well, otherwise joe public will be starting to hurt. Not good in an election year.

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  10. Harriet (5,145 comments) says:

    Or in other words – much much higher inflation.

    But that can ALL be offset by kiwis putting more money into kiwisaver or shares ect.

    …..that’s best if you want to prime the country for 2 decades of responsable growth – where everyone becomes much better off – month by month.

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  11. bc (1,377 comments) says:

    That’s assuming that people will have additional money to invest Harriet. For many people, things are going to tight next year.
    That’s why wages will have to increase for everyone – not just for politicians!!

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  12. Harriet (5,145 comments) says:

    “……if youre good, youre contracting. Senior programme managers on $1,500 a day. Senior project managers on $1,000 a day. BA’s on $900, project admins on $700. Crazy money….”

    LOL…..the working week is made up of 5-6 days – not 1 or 2.

    So why arn’t you offering fulltime employment for your staff if there is -as you say- ” a boom coming and we don’t know how big it is”……a bit uncertain about ‘the future’ are you?

    I think you are exagerating. really.

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  13. martinh (1,272 comments) says:

    BC
    yes im one of those having to refix next year and im nervous as i have no data showing increases in salary to pressurize my boss for a raise

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  14. wreck1080 (3,972 comments) says:

    What goes up comes down though.

    It is all part of the normal economic cycle so deploy your money wisely when the sun is shining.

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  15. wikiriwhis business (4,135 comments) says:

    ‘What goes up comes down though.

    It is all part of the normal economic cycle so deploy your money wisely when the sun is shining.’

    The market doesn’t run itself. it’s regulated and controlled.

    This measure is simply to encourage confidence in the market to ensure liquidity and then crash again.

    Therefore there will be a boom followed by a complete international crash that will devastate the world and bring in one world govt, the cashless society and microchipping of the world populace. All technology is in place as never before.

    which makes the world ripe for world dictatorship technologically possible. Big brother rules effectively right now.

    what we see technologically now would be considered conspiracy theory in the 1990’s.

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  16. hmmokrightitis (1,595 comments) says:

    Those are the rates contract resource are getting at the moment. Thats what Im competing against. Thats what the market is paying – as evidenced by the following extract from an email on got on Friday.

    Merry Christmas and a Productive New Year
    Senior Business Analyst – contract

    Immediately available

    Senior Business/Systems Analyst
    Charge Rate: 107 p/h excl GST

    Exaggerating? I wish I was. $1,500 a day is what I charge myself out at for private sector clients, $1300 for public sector. The IT market is booming. Thats a good thing, but you struggle to compete when contract resource can command rates like that.

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  17. duggledog (1,589 comments) says:

    May as well spend the lot National. It’ll make a change from Labour doing it!

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  18. OneTrack (3,237 comments) says:

    Wiki – “I detect no ring of confidence from you National supporter.”

    On that you are correct ( no ring of confidence ). I get the message that a lot of my fellow New Zealanders seem to think that if they vote Labour in 2014, that everything ( EVERYTHING ) will be just the same, except without asset sales. Ask them about Labour and Green Party policies and all you get is “Labour are for the “workers” and the “Greens are for the environment”. So, no idea of actual policies and what changes those are likely to bring.

    The whining will start in mid-2015 (at the latest), when they have lost their job (just after getting their government mandated wage rise to the “Living Wage” ™ ), the price of petrol goes through the roof, and the prices of all imported stock suddenly spike because of the exchange rate crashing and all of the new taxes.

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  19. OneTrack (3,237 comments) says:

    Harriet – “But that can ALL be offset by kiwis putting more money into kiwisaver or shares ect.”

    Where Winston can then spend it on buying back “assets” which will be operating in a price-controlled market ( aka KiwiPower )? You really wanted the assets anyway. You didn’t need that money for your retirement.

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  20. tvb (4,519 comments) says:

    Time for a Labour Government to spend all that loot. That is the pattern of the last 50 years. When times are good people wAnt labour and then they blow the bank balance and in comes national to clean it up.

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  21. Harriet (5,145 comments) says:

    “…Where Winston can then spend it on buying back “assets” which will be operating in a price-controlled market ( aka KiwiPower )? You really wanted the assets anyway. You didn’t need that money for your retirement….”

    Winston won’t be in the next parliment.

    And if he is – fuck all people will then place money into kiwisaver – then Winston will have enough money to buy a petrol generator. :cool:

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  22. Sir Cullen's Sidekick (895 comments) says:

    OK, so it is now time for the idiots of this country to vote Labour and Greens – pay more taxes and screw up all the hard work done over the past 5-6 years…..this is why we are never move forward…..

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  23. mandk (1,020 comments) says:

    martinh: “Key said he stands for low interest rates, we will see….”

    That’s not an unreasonable claim by Key.

    FYI, he inherited an OCR of 6.5% and the monthly average under his watch has been 2.72%. During Labour’s time in office the monthly average was 6.43% (RBNZ data)

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  24. mandk (1,020 comments) says:

    wikiriwhis: “we not borrowing 500,000,000 a week any more and we getting on top of the debt plus interest”

    Please quote your source for that number.

    Borrowing only got to about half that level, even when we had the GFC and aftermath of the Christchurch earthquakes to deal with.

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  25. Gulag1917 (1,026 comments) says:

    2014 election year boom but the NZ economy is doing well.

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  26. Manolo (14,082 comments) says:

    NZ will be fucked big time if the alliance of Labour-Greens-Mana-NZF-United Future win the election.

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  27. Gulag1917 (1,026 comments) says:

    Doubt the alliance of Labour will win the election.

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  28. martinh (1,272 comments) says:

    mandk
    But that was due to the GFC.
    He cant say we have high unemployment due to the GFC but not acknowledge its effectvon interest rates

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  29. mandk (1,020 comments) says:

    @ martinh

    You are correct to a fair extent.

    But what I was getting at is that, if you are concerned about mortgage rates under National, you need to be really fearful about what a Labour/Green government might do to interest rates and the economy generally.

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  30. heathcote (104 comments) says:

    Wiki won’t be able to attribute his NZD500m pw borrowing because it’s not true. Wiki just makes shit up. The true figure is around 500 times less than that, and more importantly, the debt/GDP figure has been constant for the last three years, and just a third of many of the world’s major economies.

    But this is all beyond Wiki…….

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  31. mandk (1,020 comments) says:

    @ heathcote

    Just as well I’m not holding my breath for Wiki’s reply :-)

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  32. Viking2 (11,576 comments) says:

    If, as we are led to believe that NZ is earning all this money from exports and provided all you smucks stop buying so many new Mercs. and Rolls we just might have some money in the bank.
    Now if we have some money in the bank then the Banks won’t need to borrow so much to lend to you profligate spenders.
    If the banks don’t have money hungry customers then they will trim their rates.
    So, stop wasting your money on the frivolous and new toys and save enough to force the bank thieves to lower house mortgage rates.

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  33. Ross Nixon (559 comments) says:

    With a very strong possibility of a larger crash in 2014 than in 2008, led by Japan or the USA…. things could be looking a bit poorly by late next year. The derivatives market could self-destruct if interest rates go only a bit higher.

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  34. heathcote (104 comments) says:

    So let me get this right V2, if we stop spending money on buying Rolls Royces (snigger) the banks won’t need to borrow. What? Hello? So if I leave my millions in the bank they won’t have to borrow? Well excuse me, it’s not their money, it’s mine. And I am free to spend it where I will. In fact, I would be doing NZ Inc a favour if I spend it here and not overseas. Have you heard of GST?

    Methinks it’s time for back to school for Economics 101.

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  35. Alan (1,087 comments) says:

    ““……if youre good, youre contracting. Senior programme managers on $1,500 a day. Senior project managers on $1,000 a day. BA’s on $900, project admins on $700. Crazy money….””

    I can believe that easily; my charge out rate at my present job is AU$2,200 a day.

    I’ve quit to go contracting, in a technical role; no problems at all finding $1,000 + GST a day in Auckland.

    We have a crippling skills shortage; rates are great just now.

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  36. Simon (764 comments) says:

    In terms of real GDP growth, the Greek economy has performed very well in recent years and has weathered the international slowdown in activity better than most OECD countries.

    Greek GDP is estimated to have grown by well above 4% in both 2003 and 2004, thus outperforming not only the European Union, but also the OECD average by a substantial margin for the fourth year running. A sharp decline in nominal and real interest rates that preceded entry into the euro area in January 2001was amplified by financial market reform, and the subsequent investment boom resulted in a large rise in productivity.

    http://www.oecd.org/greece/economicsurveyofgreece2005.htm

    Will 2014 be a good year for the nz economy? Fuck knows but when all the RBNZ money print starts to get out of hand and that Wheeler clown attempts to drain the swamp via interest rate increases and fucking with banks reserve requirements the NZ economy gets crushed.

    Government finances are fucked as well. All that off balance sheet debt via legislation has to paid somehow. The incoming National governmnet burnt through so much cash as a result of all of Labour’s legislation. National hasn’t reversed any of the shit Labour has heaped upon NZ.

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  37. Viking2 (11,576 comments) says:

    thcote (99 comments) says:
    December 15th, 2013 at 7:36 pm

    So let me get this right V2, if we stop spending money on buying Rolls Royces (snigger) the banks won’t need to borrow. What? Hello? So if I leave my millions in the bank they won’t have to borrow? Well excuse me, it’s not their money, it’s mine. And I am free to spend it where I will. In fact, I would be doing NZ Inc a favour if I spend it here and not overseas. Have you heard of GST?

    Methinks it’s time for back to school for Economics 101.
    ==================
    yep for you.

    Obviously if you buy a Rolls then that is money that is retrieved from the original earner (probably a diary farmer or such), for his export earnings and traded with you to import something you never earned by exporting and earning NZ dollars. GST of course is only payable on the way in and any other transaction is effectively neutral barring minor transaction differences. So no great gain for the govt. there
    You will of course have hidden it in a company so effectively you will claim that GST. probably at a higher number than the govt. originally earned for the import. (Dealers Margins etc.)
    A subsidy by the rest of us taxpayers to your indulgent lifestyle.

    Simple enough stuff really.

    If you earn that in export dollars then that’s fine, however if you are a lawyer charging $350 per hour to save us from politicians who make so many stupid laws then you are also part the problem.

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  38. martinh (1,272 comments) says:

    mandk im not as concerned about a Labour/Green interest rate effect as if they go hard on the housing market then the govenor wont be fretting about that anymore and so by the time National came back in id have a good chunk of my mortgage paid off.

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  39. heathcote (104 comments) says:

    Simon, please explain ‘that off balance sheet debt via legislation’ and while you’re about it ‘RBNZ money print’….

    I’m waiting

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  40. Viking2 (11,576 comments) says:

    Simon (524 comments) says:
    December 15th, 2013 at 8:05 pm

    Will 2014 be a good year for the nz economy? Fuck knows but when all the RBNZ money print starts to get out of hand and that Wheeler clown attempts to drain the swamp via interest rate increases and fucking with banks reserve requirements the NZ economy gets crushed.

    Government finances are fucked as well. All that off balance sheet debt via legislation has to paid somehow. The incoming National government burnt through so much cash as a result of all of Labour’s legislation. National hasn’t reversed any of the shit Labour has heaped upon NZ.
    =========================
    Yep, Wheeler really concerns me. The rest of the world has low low interest rates and has done for years but our Reserve constantly attempt to fix some unknown problem by raising the interest rates. It has fixed nothing since Brash started this falsity. It never fixed inflation as it was already on the wane. Its a nonsense to believe it ever will. Banks still lend at the inflated rates and people charge more to cover the costs and the rich get rich and the poor get poorer. Cycle after cycle.

    If we want a growing economy we need money in the system and more freeing up of regulations and the RMA. More removal of cartels like the Lawyers and Land agents run. None are better than unions. We need better Labour Law. The Nats were going to put that right but we are still waiting in vain.
    We need to remove the public service cartels in education and health.
    Health is expensive and this govt has solved the problem of cartel by simply dishing out more money rather than reform the costs.

    We need to clamp down a lot more on public Spending by both Govt. and Local Govt. so they stop borrowing and competing with the taxpayer.

    More we should sell down a lot more assets. Litle by little, we don’t need a met service, we don’t need to own Airports,ports,buildings in schools or other institutions.

    NZer’s wont win until we tackle these simple issues.

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  41. Nostalgia-NZ (5,283 comments) says:

    Fairly deep analysis VK. All the same, next year shapes as a good one. Not so much to fix, compared to a negative forecast.

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  42. wiseowl (937 comments) says:

    Right with you Viking.
    Wheeler looks so much the bureaucrat.I know thats a stupid statement but seeing him pontificating about our economy was scary.
    If he increases interest rates ,up goes the dollar and more pain for exporters.OK maybe the dairy sector will be OK, but what about everyone else.
    Seeing comments about earning $1000/ hour and knowing exporters who earn income for the country from real widgets and can only pay minimum rates and maybe up to $20/hr makes for an interesting comparison.

    How can I get $1000/day ? Do you get time for coffee and maybe a bite for lunch?.What the hell do you produce in a day?

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  43. Johnboy (17,018 comments) says:

    “How can I get $1000/day”…Apply for a job with the Chow brothers wiseowl. :)

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  44. burt (8,324 comments) says:

    Tax cuts … In the last year of the their second term … National are full of surprises.

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  45. hmmokrightitis (1,595 comments) says:

    $1,000 a day, thats for a bloody good project manager in IT, with a solid track record of delivering some reasonable sized projects, say in the region of $2M to $5M budget. Ive got 4 of them at the moment, and about to make an offer on a fifth.

    As a contractor, if you can work 250 days a year, most do, but you tend to burn out, and so $250K sounds great, but you tend to get gaps, need holidays etc. If youre good at it, youre working 10 hour days, 5 days a week, minimum. Managing staff, deadlines, deliverables, reporting to a SteerCo. Its challenging, and a good customer expects their pound of flesh for that money.

    Coffee, lunch? Yup, totally. These people are highly organised and incredibly efficient at what they do. For eg, most of my email is done on a plane, or in an hour at night rather than during the day – you find ways to be productive when others are chilling.

    Programme Managers (responsible for multiple project managers) working on multiple streams with large goals and projects tend to be older buggers like me, 45+ with lots of project grey hair.

    But then Im making shit up right Harriet? ;)

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  46. EAD (1,331 comments) says:

    Outlook for 2014 – a different perspective:

    http://www.zerohedge.com/news/2013-12-13/faber-rogers-dent-maloney-stockman-%E2%80%93-what-do-they-say-coming-2014

    Something to ponder is what would happen to our debt as money system if worldwide interest rates were to raised to a more normal 6-8%?.

    What would happen if the World’s Central Banks were to slow down the rate of QE?

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  47. EAD (1,331 comments) says:

    A couple of Ron Paul quotes spreading a little truth in sunshine on economic matters:

    “They don’t say, inflate the currency. They don’t say, debase the currency. They don’t say, devalue the currency. They don’t say cheat the people who have saved. They say, lower the interest rate. But they never ask you, and I don’t hear you say too often, the only way I can lower interest rates is I have to create more money”

    “And unless we get down to the bottom of it and define what inflation is, and not look at only prices — this was taught by the free market economists all through the 20th century. They said, beware, they will increase the money supply but they will make you concentrate on prices, and they will you CPIs and PPIs and they’ll fudge those figures, and they’ll talk about wage and prices controls to solve our problems”

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  48. mister nui (1,030 comments) says:

    I have to laugh at the boasting if $1500 day rates. Lets get an oil and gas industry going in NZ, where I wouldn’t even lift my head off the pillow for that.

    Come on guys, there are ways we can make this country great, and it is in high value international exports, such as oil and gas, not low margin domestic services.

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  49. mister nui (1,030 comments) says:

    Well said Allan. Someone worth their salt should be collecting NZD3j per day easy as a contract resource. First of all though, we need valuable export driven industry, such as oil and gas, not domestic services, just on a money-go-round, typically funded by the gummint.

    We’ve got dime damn bright brains, we just need to have the export driven industry to be able to apply those brains to.

    Everyone in NZ has this blinkered domestic approach. Lets get international.

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  50. mister nui (1,030 comments) says:

    Thinking further on hmmmo’s comment; if he were export driven he would be celebrating the rates his staff earn, as his clip if the ticket would be greater, meaning more profibility.

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  51. V (750 comments) says:

    The US rate curve is starting to back up, we will not be immune.

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  52. V (750 comments) says:

    Seriously that comment above about doing email on a plane? You think that’s something amazing?

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  53. berend (1,716 comments) says:

    DPF: Christchurch rebuild

    Next time we hit a dip in the economy, I suggest we destroy Auckland. That should give a nice boost to the economy. At least according to Brian Gaynor.

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  54. EAD (1,331 comments) says:

    Good comment Berend – it’s amazing the nonsense that passes for economic commentary by Keynesian economists. “print money”, “destroy and rebuild”, “borrow and spend”, “slash interest rates”, “government stimulus”, “consume rather than produce”, “spend don’t save”

    The Austrian school on the “broken window fallacy” that destroys the myths that disasters are somehow good for the economy: http://mises.org/daily/5593/

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  55. mikemikemikemike (331 comments) says:

    Migration is moving up? How can this possibly be a good thing?

    Our wages are shit and the living is expensive. My guess is that the bulk of those arriving here are coming for the welfare.

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  56. Ed Snack (1,927 comments) says:

    I wonder why martinh thinks that the banks make all money when interest rates rise, the banks clip the ticket, but most of any increase goes to pay those who supply the cash, aka savers.

    Low interest rates, or rather too lower interest rates are a curse, they fuel asset based bubbles and contribute strongly to the mis-allocation of capital. The biggest worry for higher interest rates in NZ is being out of step with our trading partners so the currency goes up too high based on rate differentials. The elephant in the room is the US and it’s insane money printing “QE” program.

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