Congratulations New Zealand – once again, leading the world in terms of an economic downturn. The 0.2% fall in production GDP in June puts us in a technical recession!
Given how trade exposed we are I would assume that we would lag the rest of the world – but mother nature came in, provided us with a drought, and dragged us into recession.
More details on GDP to come, maybe 🙂
According to a recent post on Frog Blog it would appear so.
As well as randomly comparing the current crisis to the methodologically flawed “shock doctrine”, frog states that NZ MUST:
invest in rebuilding our local communities so that they are economically independent and self sustainable
This would surely only be the best thing to do if you have an extremely pessimistic outlook for the world and world trade.
Capital inflows are the reverse side of the current account deficits that we like to discuss on this blog (most recently here). For some reason a capital account surplus is often seen as a good thing by journalists while a current account deficit is seen as a bad thing (ht Bluematter). This does not make sense to us as economists, as we know they are the same thing.
However, I suspect the difference in attitude stems from some dose of reality – fundamentally there are good and bad elements in a current account deficit/capital account surplus, and when the two attitudes shown by journalists are put together we get a fairly good breakdown of what is really going on 🙂
On that note, Dani Rodrik discusses a paper on capital inflows. As Dr Rodrik states:
They find that capital inflow bonanzas have become more frequent as restrictions on international capital flows have been removed, that these episodes can last for quite some time (lulling policy makers into thinking that they are permanent), that they end with an abrupt reversal “more often than not,” that they are are associated with greater incidence of banking, currency, and inflation crises (except for in the high income countries), and that economic growth tends to be higher in the run-up to a bonanza and then systematically lower
Now New Zealand is a country that has had some capital inflows – so lets discuss what this view of capital inflows means for us:
It appears that many people fear a contraction in the economy – and are determined to bring to justice any factors that could lead to such a situation.
As of late, one such factor was the “credit crisis”, which has lead to a sudden freeze in lending and potentially to a contraction in economic growth in many of the worlds largest economies.
Given that it was a seemingly inevitable freezing in the credit market that has caused this reduction in economic activity many people state that it we should have regulated the credit market more – to prevent this sort of contraction from happening.
However, even if we do take the current slump in the credit market as inevitable – I am not convinced that this type of regulation would have improved the situation.
I don’t like thinks that sound like conspiracy theories – and the title of this post does! However, I am starting to get the impression that this is one situation where it may actually be the case. Overall it stinks like socialism for the rich (good cartoon here, good article here)
Two articles from Bloomberg this morning have pushed me into this view:
Bernanke Signals U.S. Should Pay More for Bad Debt
Bernanke Says Normal Markets Needed or Growth to Halt
As Felix Salmon states here, Bernanke’s interest in paying the hold to maturity price for assets just doesn’t make sense when a good proportion of the assets aren’t going to mature – and even if they wish to take into account risk, the US Treasury does not have time to sufficiently evaluate the risks.
Surely the aim of the bailout should be to do as little as possible to ensure that credit markets start functioning again – in this sense, over paying for assets seems excessive.
Over at No Right Turn I/S states that we can’t simply view “free trade” as beneficial, we have to be mindful of the costs. Now this is true, as with any policy we have to look at the costs associated with change as well as the benefits before we decide what to do.
However, I am not convinced that the issue is exactly the way I/S has framed it – fundamentally, I fear the I/S views farmers (or potentially exporters more generally) as the only people who benefit from a free trade deal – while stating that the rest of society bears some “cost”. It is the benefit side of the equation I wish to discuss here: