Keep tabs on your bank…

…especially come late August. A fascinating statistic which Bernard Hickey drew to our attention yesterday at my favorite source of economic wisdom, Interest.co.nz. It’s a bit weird. Keep it in mind, it may save your financial bacon one day.

Read about it here at the Economist. Nobody seems to be sure why this is. Historically, it was thought to be because of farmers overloading the fractional banking capacity with funding for the spring harvest in the northern hemisphere but that’s no longer relevant. I’m wondering about the habit in Britain–and perhaps elsewhere north of the equator–of everyone taking their holidays in August. Do they hold out on addressing their financial problems–and abandoning their marriages–until the holiday’s over then overload the banks?

Banking crises historically huge spike in August
Continue reading “Keep tabs on your bank…”

You’re still being screwed–where are the occupiers of Wall St?

This is just unbelievable

See The Business Insider

These are, of course, US statistics, but the same trends are happening everywhere. The Aussies may have a respite but don’t bank on it lasting.

When are the 99% going to wake up? This is the sort of thing that led to the French aristocracy having a date with Monsieur Guillotine. And here, in western democracies, despite having the capacity to decide who rules our countries, we’ve allowed the union movement to be destroyed and our wealth to be stolen.

Let them eat cake

Corporate profit margins at an all-time high

Companies are making more per dollar of sales than they ever have before. (And some people are still saying that companies are suffering from “too much regulation” and “too many taxes.” Maybe little companies are, but big ones certainly aren’t).

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Profits graph: higher than ever

Fewer people with jobs

Continue reading “You’re still being screwed–where are the occupiers of Wall St?”

Chickens coming home to roost again

chickens
The following is an extensive extract from the Business Insider. I recommend ignoring my extract and reading the full post right here, but if you’re determined not to, go ahead and read my truncated version.

It’s a little technical and although my knowledge of economic theory is improving, I don’t understand all of it. But the implications for all of us are very serious. This is the stuff that John Key and Bill English seem able to gloss over but which continues to make a mockery of their ever-optimistic and perennially wrong economic forecasts. The 95% that I do understand isn’t really debatable. As you’ll find when you read it, there’s an inevitability to what is happening that lends it verisimilitude.

This is just part of the reasons why John Key gave up on catching up with Australia and Bill English made a virtue of our being poorer than our mates across the ever-widening ditch. The ill-informed, self-serving and uninspiring people you put in power don’t get it.

The last paragraph is spine-chilling, provocative, and hopefully will not come to pass.

Not yet.

Over to Raul Ilargi Mendoz…

…and quotes within quotes:
Continue reading “Chickens coming home to roost again”

How the 1% are cleaning out the rest of us: Part 2

Talk about hoisting yourself by your own petard!

Trickle down theory seems to have struck a roadblock
The graphs at the bottom of this post are from the New York Times. They’re self explanatory. What isn’t clear is how the movers and shakers of the world can be so bloody stupid. The figures are for the USA but it all applies here in New Zealand and throughout most of the world.

At the top of the graphic you can see that for the last 30 years wages have pretty much stayed the same relative to inflation for 82% of the workforce. The top 18% however, have creamed it. (The top 1% and even more avaricious 0.1% have really creamed it; we’ll get to them at another time.) As a result, in order to be able to buy all the flash cars, flat screen TVs, the ever more fancy houses, and the iPads  that media advertising bombards we peasants with, we’ve been borrowing up to our ears. Hence the current mess, and a situation where the people doing the lending are almost as deep in it as the borrowers.

Almost, but not quite. In some cases, not at all. (Continued below the graphic).

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how the 1% are screwing the rest of us

Monumental stupidity from the top

What is mind-bogglingly and infuriatingly stupid about all this is that–as you can see from the second graph–it’s all happened before and it was perfectly clear that it was going to happen again. Not only that, it happened in the previous century (the 1800s) as well! More than once!

Sheesh.

Here’s how it works–or not

Continue reading “How the 1% are cleaning out the rest of us: Part 2”

Double-dip recession squared

Professor Steve Keen from the University of Western Sydney poses a convincing argument that not only are we in for the double-dip recession that many have forecast but that it won’t stop there. Prof. Keen is one of the lonely voices in the wilderness who predicted the current financial crisis. His reasoning is solid. Maybe we should be listening.

A quadruple-dip recession is under way and it’ll generate a few quadruple bypasses. The New Zealand Treasury’s economic forecasts upon which John Key & his National Party fellow-dreamers have based their growth predictions are looking doubly suspect and just as criminally negligent as the latest lunatic policies promulgated by Labour’s Phil Goff.

Part One

Part Two

I hate to say I told you so

But I told you soPoliticians are like diapers; they need to be changed often and for the same reason. Mark Twain

After the latest financial meltdown the cries were heard around the globe,

“Why didn’t anybody see this coming?”
“Why weren’t we told?”
“What are these economists smoking?”

We were told.

If you were one of those crying out, you were told. You just weren’t listening to the right people. You were told by Nobel Laureate economist Dr Paul Krugman; by Dr Doom, Nouriel Roubini; by people of integrity right here in New Zealand: Gareth Morgan, Colin James and Rod Oram.

Way back, before the New Zealand 2005 general election, the Wanganui Chronicle published a letter from me. I wasn’t prescient. I was just listening to the people who knew what they were talking about:

It was a relief to find that through your editorial column that our biggest problem has been addressed: the balance of payments. Neither the political parties nor the rest of the media are addressing the matters of most concern: what should we do to grow the cake so that we’re all better off 5, 10 or 20 years down the track.

Everyone’s excited by huge government budget surpluses. They’re blind to the fact that the balance of payments is massively in the red. It’s as if Mum has an extra thousand bucks in the housekeeping jar, but Dad’s putting the mortgage payments on VISA and spending the income at the pub and the TAB.

The major parties with their vote buying strategies are hell-bent on creating a big spend-up. They will exacerbate our already frightening deficit. If we’re to gain anything from having some of our money returned to us we must be bludgeoned into increasing savings, retiring debt and reducing spending.

The crunch will come. Don Brash knows it, Michael Cullen knows it. For short term political gain, or maybe because neither of them wants to win this election, they’re prostituting themselves.

A plague on all their houses.

Give me a checkbox on my ballot paper marked: None of the Above.

Those who cared to pay attention could see what was happening very clearly. And now we’re stumbling along at the mercy of the unprincipled and the incompetent. Politicians whose definition of integrity is whatever it takes to win the next election and our enlightened Reserve Bank Governor, Dr Alan Bollard, who declared the current recession over in 2008.

It’s a bit of a worry.

So where to from here?

This post restored from Google cache

The chickens are coming home to roostchickens

The IMF suggest that the world is in the worst economic downturn since the Great Depression. In the US and here in New Zealand we’re in election mode. What have our current governments and our would-be leaders had to say about:

  • how we got into this mess,
  • what they intend to do about it
  • and how we avoid the next meltdown?

Not very much.

Wait for the bang

Major US financial institutions are going to the wall with monotonous regularity; many innocent bystanders have lost their houses, their life’s savings, or both. Tens of billions, possibly hundreds of billions, of US federal funding (also known as tax-payers’ money) is going to be needed to bail major lenders out.

How’s that going to play out? Is foreign money going to continue to be invested in the US? A falling US dollar, reluctance to fix the fundamental problems and endemic bad debt may keep investors’ purses closed. One good thing. Maybe at last we’ll see a revolt against obscene executive salaries and bonuses, especially for those who preside over poorly performing businesses.

Housing is overpriced around the world. Bad debt is endemic, building and construction are in decline. The US Fed chief gets it all wrong or doesn’t know when to keep his mouth shut. “What housing crisis?” he said. And he predicted that no more financial organisations would collapse after Bear Stearns.

Things are going to get worse. You can’t have major structural woes in the US without worldwide problems.

Meanwhile, here in the sticks

We will feel their pain.

Here in New Zealand our banking sector is probably OK, but other financial institutions have been falling like ninepins and there has been lamentable corporate and regulatory oversight of the sector. We regulate productive businesses until they’re strangled, but we can’t enact simple regulation to force financial institutions to act responsibly.

We allow their unprincipled principals to scurry out the back door with tens of millions ensconced in family trusts.

As everybody knows, we have far too much debt. As individuals and as a nation. So the weakening of the labour market is, and will continue to be, a real problem for many. People who are up to their ears in debt—credit cards, hire purchase and mortgages on homes with falling market value—are going to be in deep strife when their overtime dries up or their jobs go down the gurgler.

We’ve actively encouraged people to go into hock for LCD TVs and holidays in Bali. We’ve begged them to max out their credit cards and refinance their homes to spend up large on consumer goods. How stupid is that? Great for Nokia, Chinese plastic junk-makers, BMW and Sony. It may even have produced a few low wage, low productivity jobs in retail, but it’s wrecked our economy.

It’s grim and getting grimmer

Per capita employment has been growing, but working hours have been falling. Have businesses been hoarding labour? What happens next?

It’s already started. Thousands of Kiwi jobs are being lost. 26,000 in the last year. Risk is being reassessed around the globe. Economies with heavy current account deficits are in the gun. Our current account deficit of $140 billion requires 8% of our GDP to service. That’s $14 billion in interest payments. Money that doesn’t get spent on reinvestment, wages and growth. Money that goes to overseas banks’ shareholders.

The investment chickens are eyeing up their home perches.

How much of your mortgage interest payments go to compensate the overseas banks because they’ve been lending billions to dodgy borrowers? If we’d been responsible with our fiscal policies and our personal spending habits your mortgage interest rate would be 5% or less.

Why have we crippled businesses (also known as job providers) with the highest interest rates in the developed world?

We’ve done it in an attempt to stop spending.

Has it worked?

No.

What should we do?

Stop institutions lending irresponsibly.

How?

For a start:

  1. kill no deposit hire purchase.
  2. stop hire purchase interest holidays.
  3. restrict mortgage lending to 80% of registered valuation.
  4. stop owners of second and subsequent houses from legally screwing the IRD.