Listener 19 December 1998.

Keywords: Macroeconomics & Money;

There will be frequent reference next year, to repeating the “fin de siecle”, a movement of decadence at the end of the nineteenth century. However the economic end of an era may be this year. If so, it will be identified with the Russian financial crisis of August 1998. This is not because of the size of the economy, but rather numerous financial institutions were heavily exposed to Russian debt. Some were highly “leveraged”, with a high debt to equity ratio, and are very vulnerable. One hedge fund had a liquidity crisis, others have taken a terrible financial pounding.

Listener: 23 October, 1999

Keywords: Macroeconomics & Money;

Two major economic indicators for the June quarter were released a couple of days before the Prime Minister announced the election date. Both were depressing: the current account deficit – how much New Zealand has to borrow overseas – was at near record levels; while GDP – how much New Zealand produces – declined. There will be no further major official statistics released before November 27th, although the importance of each minor one will be over-played. (Both the Treasury and the Reserve Bank macro-economic forecasts published during the election campaign are likely to be more subdued in comparison to their last ones.)

Listener 5 June 1999

Keywords: Macroeconomics & Money;

The Cook Islands lost 13 percent of its population in the last two years, about the same as New Zealand losing Christchurch. The economy suffered some severe external shocks – mainly from New Zealand – which contracted the economy. The government tried to spend its way out of the crisis, ran out of foreign currency, and the consequential cuts plunged the economy into depression and unemployment.

Listener 8 May 1999

Keywords: Macroeconomics & Money;

Michael Cullen and Helen Clark are fiscal conservatives. They think there is a practical constraint to the size of the government’s budget deficit: they may well prefer it to be in a surplus. While they may think, as sophisticate Keynesians, the size of the deficit should vary over the business cycle as a part of demand management, in the long run they see the internal deficit as constrained. However much of their Labour Party are not fiscal conservatives. In government, already evidently in opposition, Labour will face tensions because much of their caucus – even the cabinet – are not so committed to fiscal austerity.

Listener 24 April 1999.

Keywords: Macroeconomics & Money;

If it were possible to predict the precise timing of a financial crisis, everyone would take precautions, and precipitate an earlier one. However the footnote has three lists of indicators. My scorecard for New Zealand gives 5 out 8 for macroeconomic performance factors and 5 out of 7 for macroeconomic policy factors (although some of our policy changes were more than a decade ago). But for microeconomic conditions (which the conventional wisdom says is the more important), I reckon it is 0 out of 8 (assuming reasonably competent bank management – who can tell until after the event?). Moreover, with one small exception all New Zealand banks are owned overseas. Megabank International will quickly and quietly bail out Megabank New Zealand if gets it into trouble, to protect its reputation elsewhere.

Listener: 10 April, 1999.

Keywords: Macroeconomics & Money;

The worldwide trend of financial liberalisation since the early 1980s seems to have resulted in more financial crises. These include currency crises, where the foreign exchange market is disrupted, forcing the government to change its exchange rate regime (frequently either changing the peg of the fixed exchange rate, or shifting to some sort of floating regime). New Zealand had a currency crisis in July 1984 when there was a fixed exchange rate, and so much conversion of New Zealand into foreign denominated financial assets that the Reserve Bank (which funded the conversion) became short of foreign currency.

Listener 13 March, 1999

Keywords: Macroeconomics & Money;

Sometimes public comment on forecasts focuses on the statistics, and ignores that there ought to be an underlying account of the state of the economy. With the March quarter round of forecasts underway, it may be useful to set down the some of the questions that top forecasters are pondering.

Listener 26 September, 1998.

Keywords: Macroeconomics & Money;

Kenneth Branagh’s uncut version of Hamlet reminded us that while the depressed prince dithered and the court of Elisnore intrigued, Fortinbras of Norway invaded and conquered Denmark. Is there a parallel with the pettiness in our parliament, while the economy goes into what looks to be a deep recession? It had begun its downswing stage of the business cycle by the middle of last year, before the Asian crisis began. So the looming collapse of Asian export markets and commodity prices reinforced what was going to be a difficult time anyway.

Listener 9 May, 1998.

Keywords: Macroeconomics & Money;

Readers of this column will be less surprised than most at the increasingly gloomy state of the New Zealand economy. In a September 1997 column I discussed the expected deterioration in the current of account of the balance of payments. Then the external deficit was running near 5 percent of GDP. The latest figure is 7.7 percent of GDP, which traditionally would be of crisis proportions. Rather than the usual rapid collapse of the exchange rate (or the government defending the existing level by selling foreign exchange), the rate is steadily sinking. Under our floating exchange rate regime, foreign exchange transactors can take forward cover (that is purchase contracts which guarantee they can withdraw New Zealand currency at a fixed rate in the future). This smooths any precipitate descent, so the rate sinks over a long period rather than plummets over a short period.

Listener 28 February, 1998.

Keywords: Macroeconomics & Money;

While there is a widespread expectation that there will be a snap election, the political arithmetic does not stack up. There is a solid majority of parliamentarians who would suffer personally from an early election, losing there seats, there perks and their power. Even so it is possible that the political scene could change to the point where a majority might think they had a chance if an election was called early.