Friday, June 04, 2004
Warning on looming debt crises
The New Zealand Herald's lead article today should send alarm bells ringing in many high places. According to Deutsche Bank chief economist Ulf Schoefisch, households are piling up debt at nearly three times the pace of a few years ago - and it cannot go on indefinitely.
Household debt has been increasing by more than $1.1 billion a month over the past year, compared with an average rate of $430 million a month between mid-1998 and mid-2002. Because wages are growing much more slowly than that rate, paying off debt is taking an increasing bite out of household incomes.
Debt servicing is taking about 10 percent of households' disposable income, exceeding the previous peak in the debt-service ratio, reached in 1998.
Market economists expect Reserve Bank Governor Alan Bollard to lift interest rates another quarter of a percentage point next week, which would push floating mortgage rates to 8 per cent. The markets are also expecting another rate increase after that.
Mr Schoefisch says things could bowl along for another year or two, but at some stage there will be a correction, which could be quite dramatic.
I have been warning for a long time that there are danger signs in the economy which are being ignored. Much of our economic growth is reliant on fragile factors, such as overseas investment. If Mr Schoefisch's prediction comes to pass, the government could be in for a very rough ride leading into the next election. But it will nothing compared to the rough ride for many households faced with a debt mountain they cannot repay.
The New Zealand Herald's lead article today should send alarm bells ringing in many high places. According to Deutsche Bank chief economist Ulf Schoefisch, households are piling up debt at nearly three times the pace of a few years ago - and it cannot go on indefinitely.
Household debt has been increasing by more than $1.1 billion a month over the past year, compared with an average rate of $430 million a month between mid-1998 and mid-2002. Because wages are growing much more slowly than that rate, paying off debt is taking an increasing bite out of household incomes.
Debt servicing is taking about 10 percent of households' disposable income, exceeding the previous peak in the debt-service ratio, reached in 1998.
Market economists expect Reserve Bank Governor Alan Bollard to lift interest rates another quarter of a percentage point next week, which would push floating mortgage rates to 8 per cent. The markets are also expecting another rate increase after that.
Mr Schoefisch says things could bowl along for another year or two, but at some stage there will be a correction, which could be quite dramatic.
I have been warning for a long time that there are danger signs in the economy which are being ignored. Much of our economic growth is reliant on fragile factors, such as overseas investment. If Mr Schoefisch's prediction comes to pass, the government could be in for a very rough ride leading into the next election. But it will nothing compared to the rough ride for many households faced with a debt mountain they cannot repay.
Thursday, June 03, 2004
The news is the news...
I spent two days early this week in our nation's capital, in order to sit in on a High Court case which was hearing a squirming effort by TVNZ to duck its responsibilities for in relation to violence and children.
In the course of the case, the learned judge repeated (commendingly) the axiom, "the news is the news, and not to be tampered with".
As a former broadcasting journalist of some 17 years or so experience, I cannot credit that anyone actually believes that. An ounce of reflection (let alone a myriad instances of daily experience) would show that it is a grotesque lie.
The people who wield the real power in the media are not the editors or the journalists, but the hidden people - the producers and the sub-editors. It is they who decide what goes to air. They have close to unfettered control.
If you believe that these are totally professional people guided by high principles of objectivity, then I'll put my tooth under your pillow any day.
Consider the reality of compiling a news bulletin. As a TV sub-editor, you have just a couple of minutes to cram what you can from several mountains of material. With an eye to the ratings, you choose the most explicit/entertaining/controversial clips available. The more conflict, the better. There is no time for balance, reflection, consideration of alternative viewpoints, depth of coverage, etc, etc. Interviews are reduced to half a dozen words or so. Anything that cannot be illustrated with a colourful picture or film clip is rejected. Simple is better. Spokespeople are stereotyped, because that avoids shades of grey. The witty takes precedence over the thoughtful. Those who shout louder get more attention. And most importantly, those who conform to the sub-editor's or channel's predispositions get the most favourable treatment.
If you don't believe me, speak to anyone who's been interviewed by the news media.
And by the way, what was your definition of "tampered with"?
I spent two days early this week in our nation's capital, in order to sit in on a High Court case which was hearing a squirming effort by TVNZ to duck its responsibilities for in relation to violence and children.
In the course of the case, the learned judge repeated (commendingly) the axiom, "the news is the news, and not to be tampered with".
As a former broadcasting journalist of some 17 years or so experience, I cannot credit that anyone actually believes that. An ounce of reflection (let alone a myriad instances of daily experience) would show that it is a grotesque lie.
The people who wield the real power in the media are not the editors or the journalists, but the hidden people - the producers and the sub-editors. It is they who decide what goes to air. They have close to unfettered control.
If you believe that these are totally professional people guided by high principles of objectivity, then I'll put my tooth under your pillow any day.
Consider the reality of compiling a news bulletin. As a TV sub-editor, you have just a couple of minutes to cram what you can from several mountains of material. With an eye to the ratings, you choose the most explicit/entertaining/controversial clips available. The more conflict, the better. There is no time for balance, reflection, consideration of alternative viewpoints, depth of coverage, etc, etc. Interviews are reduced to half a dozen words or so. Anything that cannot be illustrated with a colourful picture or film clip is rejected. Simple is better. Spokespeople are stereotyped, because that avoids shades of grey. The witty takes precedence over the thoughtful. Those who shout louder get more attention. And most importantly, those who conform to the sub-editor's or channel's predispositions get the most favourable treatment.
If you don't believe me, speak to anyone who's been interviewed by the news media.
And by the way, what was your definition of "tampered with"?
Ogre, ogre, ogre, oi oi oi!
Sometimes some surprisingly good messages are contained in pop culture. Shrek 2, about to be released at a cinema near you, is getting some rave reviews. I loved the first movie, so guess I'll be queuing up for this (and I generally don't enjoy sequels).
Sometimes some surprisingly good messages are contained in pop culture. Shrek 2, about to be released at a cinema near you, is getting some rave reviews. I loved the first movie, so guess I'll be queuing up for this (and I generally don't enjoy sequels).
Wednesday, June 02, 2004
Burgernomics
If you are addicted to McDonalds (you poor soul), you will no doubt realise that they seem to cost a lot more in London or Los Angeles, compared with the exchange rate of Kiwi currency.
This, dear friends, is the basis for the Economist magazine’s "Big Mac� index, which rates currencies around the world on the comparative cost of buying a burger locally.* The idea is you can’t find out much by just converting GDP into market prices for currency – prices tend to be lower in poor countries, as New Zealanders find when buying a coffee in London. Because a buck goes further in Auckland than in London, the Economist uses the identical ingredients of Big Macs as a rough comparison.
On that basis, the New Zealand dollar is under-valued eight per cent against the US dollar.
It found the average price in the US was $2.90. The Philippines has the cheapest burgers, at $1.23 and the Swiss the most expensive -- $4.90. In other words, the Swiss franc is the most overvalued currency and the Philippines has the most under-valued.
Although the comparison puts the NZ dollar low by eight per cent against the US
dollar, we really need to make a comparison against a basket of our major trading partners. Australia comes up 22 per cent undervalued, and Japan 20 per cent under, while Britain comes in 16 per cent over-valued. China (57%) and Malaysia (54) come in hugely under-valued against the Greenback, Taiwan is around the Australian level while South Korea is pretty much on a par with us. Against a full basket of currencies, our dollar still looks pretty high.
It looks like the currencies of almost all the emerging economies are hugely undervalued. When the Economist calculated China’s GDP using its Big Mac index, its economy was two and a half times bigger than a conversion using a market exchange rate, jumping it from the world’s seventh largest economy to its second.
* Note: I am indebted to Molesworth & Featherstone for their summary of this info, and thoroughly recommend you get their weekly email newsletter.
If you are addicted to McDonalds (you poor soul), you will no doubt realise that they seem to cost a lot more in London or Los Angeles, compared with the exchange rate of Kiwi currency.
This, dear friends, is the basis for the Economist magazine’s "Big Mac� index, which rates currencies around the world on the comparative cost of buying a burger locally.* The idea is you can’t find out much by just converting GDP into market prices for currency – prices tend to be lower in poor countries, as New Zealanders find when buying a coffee in London. Because a buck goes further in Auckland than in London, the Economist uses the identical ingredients of Big Macs as a rough comparison.
On that basis, the New Zealand dollar is under-valued eight per cent against the US dollar.
It found the average price in the US was $2.90. The Philippines has the cheapest burgers, at $1.23 and the Swiss the most expensive -- $4.90. In other words, the Swiss franc is the most overvalued currency and the Philippines has the most under-valued.
Although the comparison puts the NZ dollar low by eight per cent against the US
dollar, we really need to make a comparison against a basket of our major trading partners. Australia comes up 22 per cent undervalued, and Japan 20 per cent under, while Britain comes in 16 per cent over-valued. China (57%) and Malaysia (54) come in hugely under-valued against the Greenback, Taiwan is around the Australian level while South Korea is pretty much on a par with us. Against a full basket of currencies, our dollar still looks pretty high.
It looks like the currencies of almost all the emerging economies are hugely undervalued. When the Economist calculated China’s GDP using its Big Mac index, its economy was two and a half times bigger than a conversion using a market exchange rate, jumping it from the world’s seventh largest economy to its second.
* Note: I am indebted to Molesworth & Featherstone for their summary of this info, and thoroughly recommend you get their weekly email newsletter.
