Matt Nolan

Why are we still spending so much overseas?

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According to figures out yesterday, New Zealand corp has greatly increased its spending overseas over the past year.  In part this seems crazy since we have been in a recession over the past nine months – however, there are reasons:

  1. Our exchange rate fell (assuming demand is inelastic – or is not passed on through intermediaries),
  2. The price of imports (specifically food, petrol, and intermediate goods like fertilizer) has risen,
  3. Businesses wanted to invest before our dollar fell below “fair-value”,
  4. Higher prices for our exports have made imports more affordable.

Note that the first two reasons solely drive the increase in prices – while the later two work through greater volumes of imports.  When the terms of trade numbers are out we will be able to see which bit dominates 😉

Furthermore, our recession over the first half of the year was the result of a “temporary” shock – through petrol prices and drought.  As a result of this, people in New Zealand will increase borrowing in order to “smooth” consumption over time – as the goods aren’t here, this involves borrowing to buy goods from overseas.

With the price and availability of credit now rising, and the exchange rate below fair value, I would expect import values to start declining – what do you guys think?

Matt Nolan

Fed cuts rates to 1%

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The Fed lopped 50 basis points off its cash rate, taking it to 1%.  With real interest rates already well in negative territory I’m not sure this sort of action is really necessary – maybe they want to stabilise consumer confidence or something of the like.

Anyway, our concern here is New Zealand – so what did it do?  The TWI went up to 59 from a low of 56 – the $US/$NZ got to $0.59 from a low around $0.54, so it helped to stabilise the FREE-FALL in our currency lately (just before I’ve gone on holiday).  Oil prices also bounced back – but still lie at the “relatively” low level of $67US a barrel.  For New Zealand this might imply some stability in our commodity prices – this is an essential issue so we can only hope!

All this is a sign that the market has initially taken the rate cut well, with the DOW now up 1200 points from its low about 36 hours ago (*).  If this lasts, then we could finally be in for a time of stabilisation – if it doesn’t, who knows 😛

All I know is that the Fed will print as much money as it can to prevent a “Great Depression”, ignoring the future consequences.  I will aim to discuss this more next week.

Will Taylor

Matt Nolan on Breakfast: Relive the magic, the hair and the hairy prediction about the property market!

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For those of you who missed the magic, before the credit crisis we were worried about a property crisis.  In the midsts of this madness Matt Nolan was itnerveiwed by Paul Henry on breakfast.  I was bored so I thought I would track down this video and relive the magic.  At Matt’s gesturing I’m posting the link on the blog so that we can “make fun of how wrong I was (as house prices are already down 5.8% on a year ago) :P”

So here it is

http://tvnz.co.nz/view/video_popup_windows_skin/1638250

I don’t claim to know much about the proprty market,so instead I’ll make fun of his hair, watch the video to see Matt’s long (OK it’s not THAT long…) flowing mane of hair, then click below the flap to see Matt’s photo from the Infometrics website to see what he looks like these days

Agnitio

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jamesz

Franken-regulation

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Greenpeace’s environmental plan has just been released and it says pretty much what you’d expect: be more sustainable. The thing about it that intrigues me is the presence of an emissions trading system, efficiency standards for all energy consuming appliances and legally binding targets for renewable energy usage.

The point of trading systems is to internalise the costs of emissions in the most efficient way by allocating the costs through a market mechanism. Why would you then try to second guess the market by forcing emissions standards and renewable energy targets on people? Read more

Matt Nolan

Political quiz

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We have discussed where we stand on the political spectrum before, but now it seems that there is a quiz that tells us where we stand (ht Kiwiblog). Below I will tell you the results of the different authors here:

Matt: National (83%), United (73%), NZF (64%), ACT (63%), Labour (61%), Progressives (50%), Greens (46%)

Matt Comment: Very surprised with my results – I didn’t think that my views were so close to those of other parties. My main focus was on economic/employment issues along with the environment.

Goonix: ACT (82%), National (62%), UF (55%), NZF (48%), Labour and Greens (35%), Progressive (28%).

Goonix Comment: The quiz results are pretty much bang on for me. The high ACT score demonstrates my broad alignment with libertarian principles while at the same time my fundamental distaste for military action (the primary area that I disagree with ACT on). The rest of the order makes sense and I’m very happy that I’m less than half aligned with NZF/Labour/Greens/Progressives. 🙂

Agnitio: National (72%), UF (71%), ACT (69%), NZF (62%), Labour (55%), Progressive (49%), Greens (40%).

Agnitio Comment: I didn’t know United future stood for antyhing so I’m surprised by by 71% rating with them! Other then that no surprises I guess. Interesting thing about the Greens is I agreed with them 92% on environmental issues yet they still come in on 40%, just shows how crazy I obviously think the rest of their policies are! Bring on the Blue-Green party!

Rauparaha: Labour (66%), United Future (65%), National (61%), Greens (60%), ACT(59%), Progressives (58%), NZ First (46%)

Rauparaha Comment: I seem to have a fairly uninformatively narrow spread. Parties are either too socially conservative for me or too economically prescriptive. It’s nice to see that I at least don’t side with Winston on many things.

goonix

Private prisons: National’s policy and “the proper scope of government”

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Today National released their corrections policy, which would allow the private sector to tender for the management of prisons.

Although not a completely ‘new’ concept for New Zealand (Auckland Central Remand Prison was privately run under the last National Government) it nonetheless raises the issue of when is it appropriate for such services to be ‘contracted out’ rather than provided ‘in-house’ by the government.

Hart, Schleifer and Vishny’s “The Proper Scope of Government: Theory and Application to Prisons” asks the question when should a government provide a service in-house, and when should it contract out provision? (Anyone interested in the full article may be able to locate it here).

The authors’ develop a model for asset ownership (in this instance a prison), which can be owned by the private sector, who contract back to the government, or alternatively can be owned outright by the government.

The central finding of the paper is that the private sector has relatively stronger, but seemingly contradictory, incentives to both reduce costs (driven by a profit motive, which comes at the expense of quality) and increase quality (to get a higher price from the government, who is an ongoing buyer of the service). In this instance the quality of a prison entails order in the prison, amenities that prisoners receive and rehabilitation.
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