Matt Nolan

Wealth destruction?

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Can wealth have really been destroyed if it never really existed?

“Between 40 and 45 percent of the world’s wealth has been destroyed in little less than a year and a half (*)

I don’t see this as wealth destruction.  Fundamentally, people have realised that wealth they thought existed doesn’t exist.  House prices will not be as high in 20 years as they thought, the value of capital is not as high as the firm owner expected.

Realising this, firms and households are cutting back expenditure – they have spent too much on the past, by borrowing on wealth that would never appear.

The fear is that households and firms will over-react.  They may suddenly believe that their wealth level is lower than it really is, and they may buckle down too much.

Ultimately, what the author of that quote is arguing about it is an issue of expectations – not of “wealth creation or destruction”.  Once we realise this, it becomes obvious that trying to “increase wealth levels” by arbitrarily throwing money at people isn’t the answer – managing expectations is the answer.  Maybe …

Will Taylor

Ever had issues navigating the Commerce Commission website??

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If like me you have had issues now is your opportunity to let them know!

They are conducting a survey on their webite, here’s the link

Matt Nolan

Liverpool 4 – Real Madrid 0

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Good work boys.

Another Champions League Final on the cards?

Matt Nolan

RBNZ March MPS tomorrow

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The Reserve Bank will decide how much to cut interest rates tomorrow.

The market is currently expecting between a 50bp and a 75bp cut. However, there is still potential for a 100bp cut if the Bank downgrades their growth forecast sufficiently.

Ultimately, it will all be about the Bank’s forecast growth. In normal circumstances we might say that an OCR of 6% to 6.5% is neutral – however, we are expecting a period of sub-trend growth, a faltering credit market, and downward pressure on prices from overseas. In such an environment neutral could be substantially lower.

If the Bank now expects low growth to be substantially more persistent then I would expect a larger cut. Forget about “keeping bullets in the barrel” the Bank will want to get us sufficiently under neutral as soon as possible. If the Bank still expects a bounce back in growth (even following a sharp fall), then given the lags associated with monetary policy I would expect a relatively short cut.

As a result, in my opinion tomorrow’s decision will rest on the Bank’s “mediumish” term outlook (2-5 years). We will see I guess 😛

jamesz

Google Books

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Google Books continues to expand their range of available material and it’s great to see. Not only does it increase access to information but, for the material that you have to purchase, it increases the efficiency of the market for information. Previously you had to buy an entire textbook, or purchase a membership at an academic library, to get access to snippets of the text. Now you can buy just that snippet that you want on Google Books! Who does that help? Well, pretty much everyone in the market for information, actually. Read more

Matt Nolan

Farewell Espressoholic

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Farewell Espressoholic,

Although I have not frequented you for a while, I will never forget the gift you gave to me – the gift of Jägermeister.

I first enjoyed this beverage with you – and I will continue to consume it when you are gone.  For a fleeting moment before each shot I will be sure to keep you in my mind.