Matt Nolan

Credit crisis mark 2: How will it impact on New Zealand

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I see that this is a popular topic at the moment, so I thought I would add my two cents.

Before doing so I’d like to point out that the Rates Blog has a good piece on it, and this Stuff article gives the opinion of most of the banks (BNZ’s currency strategist also gives a good breakdown on the Rates blog).

Now the way I see it, there are two channels that this crisis can and will impact on the New Zealand economy:

  1. Impact on export/import prices and volumes,
  2. Impact on domestic interest rates.
  3. Update: Impact on capital investment

Outside of these two channels global events will have no impact on New Zealand. This involves assuming that external factors don’t beat around our consumer and producer confidence for no reason, and that net migration does not change. Although these assumptions aren’t completely true, I think it is fair to assume that the impact of these factors is relatively minor.

As a result, lets talk about these channels.

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Matt Nolan

8% weekly interest rates: What’s going on

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Following the “revelation” that a loan shark in Porirua was charging 8% interest per week on loans, the government has offered to do nothing. Blogs on the left hand side of the spectrum were irritated by this, as they feel that people are being taken advantage of (the Standard) (Tumeke) (Frontline – prior to this incident). Lets investigate the issue.

Now I am not disputing the fact that people are, in some sense, “being taken advantage of”, however I do disagree with the solution that the other blogs follow – setting a cap on interest rates. In this sense I am in agreement with government policy. Read more

Matt Nolan

Credit crisis comes to Australasia?

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Following the freezing of Hanover finance’s finances we have heard that the National Australia Bank, and the Australia New Zealand Bank have both had to increase provisions for bad debt (NAB, ANZ).

These revelations put the relatively dovish stance of the RBA and the RBNZ in perspective – after all, central bankers are more than aware of the fact that the Great Depression was, at least partially, the result of a collapse in the banking sector which exacerbated a tightening in credit conditions. In a sense, the credit crisis in Australasia is now as bad as it has been in modern times – even if (arguably) things are improving in other parts of the world.

Even so, every time I attempt to pat the RBA or RBNZ on the back a couple of phrases come in the back of the head and prevent me, these phrases are “moral hazard” and “inflation”.

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Matt Nolan

What is this savings problem?

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So far we have discussed Kiwisaver and national savings in fairly loose terms. We know that (part of) the purpose of Kiwisaver was to increase national savings and that our interest in national savings stems from the fact that we want New Zealand to have more productive capital.

So before we can discuss the myriad of burning questions surrounding these issues – and more broadly surrounding New Zealand’s productivity (such as if Kiwisaver achieves the greater capital goal even if it theoretically doesn’t increase savings) we need to ask, what is the savings problem?

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jamesz

Moral hazard in the Bear market

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Megan McArdle worries a little about the moral hazard problem that JP Morgan and the Fed’s ‘rescue’ of Bear Stearns creates (although her major point is that we should be relieved that it was rescued from default). knzn’s take on the issue puts the problem in perspective:

[Hypothetical future investor]: I own a major stake in an investment bank, and I’m getting concerned about their risk management. Should I bring this up at the shareholders’ meeting?

[Hypothetical friend]: I don’t see why. What’s the worst that can happen? The bank will go sour, the Fed will arrange a bailout, and you’ll only lose 95 percent of the money you invested, 96 tops. What’s the big deal?

jamesz

Avoiding the taxman

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Talking to Agnitio today, he mentioned that the result of having a top personal tax rate above the company tax rate is tax avoidance and evasion. The idea being that people with wealth will try to pipe income through businesses to avoid paying the top tax rate. Well, it seems he’s empirically justified in that view (kinda) Read more