Intrade has launched a US depression contract (ht Institutional economics).
This depression is defined as:
a cumulative decline in GDP of more than 10.0% over four consecutive quarters
Do you think NZ’s very own iPredict would like to make up a similar contract for NZ?
We have Deposit insurance in NZ now.
I’m not sure. Even if it is the right thing to have (as Bernard Hickey on the Rates Blog suggests) I still fear that this sort of action leads to a signaling problem.
The act of committing to deposit insurance could suggest to people overseas that our banking system is also in meltdown. Fundamentally, people assume that the government may have some information that they do not. To external people our banks look safe, but seeing the fact that the NZ government has come in to offer an insurance scheme to banks may shake this view. This type of signaling issues is probably one of the reasons why the RBNZ didn’t cut rates a few days back.
I’m just a little uneasy, and I’m not sure why – I blame my educations focus on signaling models 😉
I’ll read the details and comment later tonight – if you want to comment now, yell at me in the comments section of this post 😉
Update: Good article by David Hargreaves. Note:
The decision by the Australian government (and let’s say that it WAS their decision) suggests a nervousness about the position of the Australian banks that hasn’t been indicated before. And that’s not a comforting thing.
Hmmmm
Update 2: Forget about risk – the government will pay for it. Hmmmm.
In the absence of rational grounds for supposing intimate connection, there would be no sufficient reason for supposing that history “would repeat itself”. For if there is one thing which is shown by history, not less than by elementary logic, it is that historical induction unaided by the analytical judgment, is the worst possible basis of prophecy.
From Chapter 4 of The Nature and Significance of Economic Science.
… the master-economist must possess a rare combination of gifts. He must be mathematician, historian, statesman, philosopher–in some degree. He must understand symbols and speak in words. He must contemplate the particular in terms of the general, and touch abstract and concrete in the same flight of thought. He must study the present in the light of the past for the purposes of the future. No part of man’s nature or his institutions must lie entirely outside his regard. He must be purposeful and disinterested in a simultaneous mood; as aloof and incorruptible as an artist, yet sometimes as near the earth as a politician.
ht Anti-Dismal, Bluematter, and India’s Development. Note it is also mentioned under the Economist post on Wikipedia.
Or so says two of the blogs I often read for US economic information:
Market Movers (*)
The Big Picture (*)
I have to concur.
However, for New Zealand there is a big plus to this collapse in US economic activity – the huge capacity constraints on shipping have lifted (Market Movers).
Shipping costs have been restrictively high for our exporters for a long time. A fall off in import activity to the US has freed up ships, which leads to much lower shipping costs for our exporters. Add to this the lower exchange rate and our tradable sector is getting one hell of a boost moving forward.
Update: Dow breaks 8,000 on the downside.
Hat Tip: NZIER economist Patrick Nolan