Posts by Dismal Soyanz
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OnPoint: Election 2011: GO!, in reply to Keith Ng,
then the bank cannot do whatever they were doing with it.
Like mortgage lending? Or consumer debt financing? I don't see why the asset that is liquidated must be one that is "productive" (e.g. a loan to a company producing widgets).
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OnPoint: Election 2011: GO!, in reply to Keith Ng,
Not that I am disagreeing with you but what if the money used to buy the asset is cash?
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OnPoint: Election 2011: GO!, in reply to Keith Ng,
then we are no better off.
may not be true if the productive asset is held by NZ residents as the investment income is not lost to NZ.
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Private debt is a problem here, sure. But it’s not going to lead to the nation’s credit being downgraded. It will lead to individuals being downgraded, if they fail to service the debt. If they service it fine, the opposite tends to happen.
Well, yes and no. One of the lessons that the ratings agencies did learn after the Asian Financial Crisis was that massive private sector capital outflows can have very deleterious effects on an economy even if the government runs minimal debt. The issues are serviceability and sensitivity. How likely is it that private sector players will be able to continue to service their debt? (And in the wake of the more recent GFC, correlations are certainly going to be/have been reassessed.) And on a related note, what are the consequences if they don't? In a nutshell it is about the likelihood that borrowers will continue to service their debt, not so much the fact that they have up until now serviced the debt. A downgrade can (and indeed should) occur before a default.
Key talks about "crowding out". Typically the mechanism here is along the lines of: government spends more, to fund this it borrows (more), this drives up interest rates, private sector investment declines. I consider that he is right to highlight our level of debt as a country. Our growth (and really the appropriateness of that as a yardstick is another topic) in recent decades has been driven in part by consumption rather than investment. Coupled with a lack of savings on the part of the private sector, NZ's indebtedness does impose a cost (higher interest rates and thus foregone alternative uses of that interest). Note that this is subtly different to the concept of crowding out as used by economists.
What makes me uneasy is the subtext in Key's speech is that we are at the point where any additional borrowing (by the government or implicitly the private sector) will drive interest rates up higher and the best way to address this is by cutting government debt. Given that public debt is relatively low, it has been well recognised that the problem has been largely a private sector one in that the private sector has not saved enough and (the flip side) it has had to borrow offshore - reducing public debt cannot alleviate this problem. This is pretty much Keith's point.
Certainly if the external debt position was being driven by households borrowing from overseas to fund mortgages, I can see the rationale for an increased risk premium for NZ. However, the case for saying the same applies if it is public debt is less clear cut. Much depends on how that money is used and the potential benefits from the resulting asset. Nor is it clear cut if the marginal borrowing is to fund say, a processing plant that produces an extra high quality diary product that commands a significant premium in global markets. Key's brush is arguably too broad.
I'm agnostic about asset sales in general. However, the theoretical ground on which these have been pitched is shaky. If the net debt position is indeed his concern, it would be much better for Key to look at ways to directly influence private sector behaviour toward saving more.
In light of Goff's own tax announcement earlier, I would say the score is Blah-merchants 2, Meaningful policy 0.
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Hard News: Because it's about time we…, in reply to BenWilson,
I have a plunger by my desk for when I feel motivated enough but too stingy to go buy outside. I clean it by hand – a squirt of dishwashing liquid and a little patience with one of those long-handled scrubbing brush. And lots of hot water. Like I say, only when I feel motivated….
ETA: I always thought you were meant to press the plunger slowly, no?
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Hard News: Because it's about time we…, in reply to Russell Brown,
Did you stress it could be done sans melamine?
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Hard News: Because it's about time we…, in reply to Lyndon Hood,
Speaking of caffeine levels, apparently 42 cups in one sitting is bad for you. So glad I stop at 40.
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Hard News: Because it's about time we…, in reply to Stuff n Things,
Not sure if there is a proper way to annunciate it (poise?) - maybe enunciate....
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Hard News: Because it's about time we…, in reply to recordari,
Starbucks to Starwars?
Tis' art thread 'roids,
Yew hour lurking furore. -
Legal Beagle: Coalition of Losers, in reply to Craig Ranapia,
"Doesn't give my opponents much time either.... (hic)"
A memorable piece of political history.