Monday, 27 May 2013

On Why the Neanderthals became extinct and lessons for our modern world

The Neanderthals are generally considered to have lost the competition with Homo sapiens because of their inability to compete with “modern man”.  Neanderthals get bad press, they are portrayed as “lowbrows” and of being a coarser strain. 
But what if that wasn’t the case, what if the truth is that Homo sapiens was just nastier.  There is plenty of evidence to support this contention.  Indeed the history of intercultural competition is filled with vivid examples of the nastiest prevailing over the good and the clever.  Prince Vlad the Impaler anyone?
 Maybe it wasn’t that Homo sapiens was smarter than other hominids , maybe it was because H.sapiens had developed a greater tendency for psychopathology.    Even within the different cultures there are varying propensities for psychopathology.  Hunter gatherer and nomadic people tend to have high levels of social cohesion and non-aggressive interactions because the group needs to be cooperative rather than competitive to survive. 
A good example of the vulnerability of a population with low tendency to psychopathology to one of a high level of psychopathy is illustrated by the fate of the Moriori who inhabited Rekohu now known as the Chatham Islands.  The Moriori lived on a  small island and chose birth control and infanticide over warfare as their means of living peacefully within the sustainable limits of their small world.  All was good until they were invaded by the most psychopathic of invaders a warrior party of Maori from mainland New Zealand who promptly ate most of them and enslaved the rest.  The conquerors were not superior in any way to the conquered other than that they were more violent.
Was it simply that the Neanderthal were too peaceful?  The fact that they had bigger brains on average suggests that they certainly were unlikely to be less intelligent.
It is an interesting observation that psychopaths for all of their lack of empathy seem to cluster and bond tightly with like-minded others.  Hitler and his band of brotehrs is a great example of how eveil clusters as is Stalin.  They have their trademark view that the majority of the population are prey upon which they have a right to live - but they need henchmen and have little trouble finding them.   Odd also that company CEO’s and high fliers in the banking industry are often considered to display strongly psychopathic traits.  Maybe that explains why the world seems to be forever doomed to progress in destructive lurches.  When psychopaths gain too much power the good and the meek, that is the rest of us, face increased risk going the way of the Neanderthal.   
Are we seeing this happening now with ever more power being concentrated in the hands of the greedy and unscrupulous?
And then there is the paradox that without the psychopaths unreasoned greed we might all still be living caves as hunter gatherers.

Wednesday, 22 May 2013

On Winston Peters and Xenophobia

Look deeper Armchair Critic have you ever read NZFirst policy? 

 Much of it is good old fashioned common sense and I suspect you might find youself a closet supporter.    As with much in politics it is the lurid that dominates in the media and the substance is ignored.  Which is why as the western world teeters on the brink of financial crisis gay marriage dominates the head lines - the big issues are too scary and incomprehensible while the visceral pros and antis of gay marriage have everyone in a froth.
It is diversionary and sufficently unthinking on one side and indulgent on the other that it is easy to have a position.

Also being unhappy with the current level of immigration is not the same as racism. 

Xenophobia is not the same as wanting to preserve our own cultural identity

Being of Maori Ancestry Winston has the benefit of experience with regard to open door policies on immigration and land sales.  The policies being run now will in the long run have the same effect on what we currently see as being a New Zealander as the sale of land to British settlers did to Polynesian culture

And harking back to learn from history China is at the same point in its development as Britian was in the late 1700's.  then Biritian had a huge and dominant position in world trade, it was resource hungry and it had a surplus of labour resulting from industrialisation.  What better way to address all of these problems than to put the surplus labour into boats and send them elsewhere to displace the less assertive inhabitants of other lands.  Lo and behold resources aplenty, a familiar culture to deal with, and new and growing markets to invest in and sell to -  a happy empire!

We will never overwhelm China but they could overwhelm us in weeks that innitself breeds insecurity in a culture such as ours.  They simply need to move in and buy us out and put us onto the bad lands and we become second class citizens in our own land - or at least our children do while the few who sell us out retire rich to Hawaii.  Me I will be dead before it has happened but is it the world we want to leave to our kids? 

I have a huge respect for the Chinese and Chinese culture and they are govened by people collectively of far greater vision and intellect than the vacuous twits currently running our own country but I like being a Kiwi and I would like this special little part of the world to be available to evolve culturally in its own maner for our next generation. 

We see China as an oppressive regime but are we any less repressed and are our business leaders any less corrupt?  The finance industry would suggest that our lot are every bit as good at fleecing the innocent as any and our political process does little about it - but put a tear into the fabric cover over a spybase aerial and watch out -the full force of the state is upon you. 

We kid ourselves that we have effective democratic government but why do so few vote - becasue it has become largely meaningless.  The communist party leadership process in China  is arguably at least as democratic as our own and as much of the population is involved.  It is also more effective process for selecting a leadership and a strategy for the colelctive future if the talent that gets to the top is anything to judge by.

As we sell everything off and drive our children to leave New Zealand to find  a decent career and a living wage we collectively commit cultural suicide.  So being against excessive levels of immigration is not being racist it is being pro-Kiwi. 

We have had a series of governments who seem to hate us.  they destroy communities by amalgamating local government into super cities and by destroying the insitutions that hold community together.  They make everyone who is not wealthy poorer with wages lowering and house prices inflating.  The last socialist government thought the state knew best and the current one seems to think that corporations know best but both are anticommunity and anti the individual. 

Immigration is another tool the state uses to undermine the existing sense of community and our culture of social justice - it does not make us wealthier, instead it puts downward pressure on wages and upward pressure on house prices.

China does not want millions of foreigners living in China for just the same reasons that most here do not want to be overwhelmed by a culture that is not our own.  It is not that our culture is superior to any other culture - it is just that it is home.   And I like it the way it is.

Friday, 10 May 2013

The Reserve Bank, Debt and the Property Market

The issues of house price rises in Auckland and Christchurch is prompting comment that it may be time for the Governor of the Reserve Bank to raise interest rates.   It is noted in the media that an increase in interest rates will result in foreign money seeking higher returns to enter the domestic market and this will also increase the value of the already overvalued dollar. 
What hasn’t been commented on is that an increase in interest rates will also penalise every business and household in the country including everyone resident in Auckland and Christchurch who already have a mortgage and have no intention of buying or selling a home.  There will be no beneficial behaviour change within that wide group who are not seeking to get further into debt but it will impose hardship and constrain the rest of the economy.  The interest rate rise would be imposed simply as an attempt to limit price rises in response to artificial shortages of housing in two localised parts of the property market. 
The more sensible action would be to address the cause of these shortages rather than attempt to alter the market response by raising interest rates.
The Reserve Bank Act is not only completely ineffectual at slowing property prices it is the root cause of property price inflation.  Because the Reserve Bank Act obliges debtors to pay over the market price for debt, it also guarantees lenders greater than normal market returns on investments.  The result is that foreign cash looking for high and secure returns has flooded into the New Zealand property market.  The banks are incentivised to actively inflate the property market because of the high returns it provides (thanks to the Reserve Bank Act) and because of the flood of money that they have to invest.  As a result the more the Reserve Bank increases interests rates above the natural rate for the marketplace the more money that flows into the property market, the less risk averse lenders need to be because they receive higher margins on loans and this results in banks adopting laxer lending practices, this then leads to property price inflation which results in the rate of increase in capital value of the property (in the overheated parts of the market) to exceed the cost of debt - for a while at least – the negative real rate of interest in this small part of the property market consequently further incentivises borrowing.
The end result is that we are as a nation carrying far more debt than is necessary for the economy to function effectively, we have a ruinously over valued property market, we have a grossly overvalued exchange rate, we are bleeding our scarce foreign earnings on interest payments on all the debt and meanwhile our productive sector is crippled by both the cost of borrowing and by the over-valued and highly unstable exchange rate, Instead of suppressing inflation, the Reserve Bank act causes inflation.
The Reserve Bank Act is singularly the most stupid element of the reforms of the 1980’s.  It is utterly illogical in that it defies the simplest of precepts of economics.  The answer to the problem of inflation is simple.  If a government wishes to increase the cost to the consumer of any element of the economy without increasing the supply of that element it imposes a tax not a compulsory price increase – alcohol and tobacco are excellent examples of this concept in action.   The government also targets only those activities it wants to constrain.  So when it taxes alcohol it does that based on alcohol content – it doesn’t tax all liquids.
A tax also allows for redistribution and targeting by the government to occur so if the tax imposes on lower income households this can be resolved through social payments with the tax on debt as a source of funds.  Similarly the tax can be linked to the asset class or region causing the problem so there may be a lower tax on business debt.  This is not difficult; the banks already set interest rates by the manner in which the debt is secured, the tax could be similarly targeted.   This is only one possible mechanism as there are is a range of possible taxation responses to this problem which these need to be linked into a wider strategic review of the role of taxation in the economy.
At a more fundamental level any market failure or physical circumstances causing the price pressure also needs to be addressed.  Auckland prices are being driven by a range of other policy actions by government that put inflationary pressure into the market.  These include allowing uncontrolled foreign ownership of residential real estate, immigration – from both within New Zealand and from off-shore - and from a failure to fully price the true cost to the national economy of growth of the major cities and the cost of internal migration of business and residents.  Property in the larger cities but particularly in Auckland is being subsidised in a number of ways while the rest of the national market is in one form or another languishing with surplus housing and infrastructure.  In addition to fostering policy that actively inflates the cost of housing nationally and causes our international debt to be excessive and our currency to be over-valued we are not as a nation using our existing investment in infrastructure wisely. 
We need to be asking ourselves collectively why we, who as a nation have the highest natural capital per capita and arguably the best system of society in the world, are one of its debt basket cases.  We are only being prevented from being another Greece or Cyprus by the dairy industry.  We also need to ask why we are not so much better off as a nation when countries like China and Singapore are doing so much with so comparatively little.  The answer is quite simple and that comes down to the vision and courage of their political leadership, could I commend you to read George Monbiot’s recent post as it very accurately describes the malaise that we have inflicted upon ourselves with our reforms and our reliance on “The Market”  to provide. 

Monday, 13 August 2012

The pernicious effect of an over valued exchange rate.

Exchange rate distortions are at the very core of the current global crisis.   It is form them that everything else that is wrong arises – worse even than the debacle that is global banking.

Floating exchange rates are meant to reflect relative efficiency of the respective trading economies a weak and inefficient economy will have a very low valued currency while an efficient economy will have a high valued exchange rate.

There are two problems with this.  It only works if everyone is playing by the same rules and if there isn’t anyone gaming the system.

Unfortunately we have some economies that have rigged fixed exchange rate mechanisms that tip the balance in their favour.  We then rely on an infrastructure of global finance to operate the system.  Unfortunately those who operate the system run it for their own benefit when it needs to be run for the common interest of those who trade in goods.

Parties who trade internationally are using a system of currency exchange that is run by parties who are not just betting against them but who are actively interfering in with the demand for money.  These parties are doing an ENRON but with money.  They withhold money or flood money into individual markets to drive the price up or down and then bet on the consequences when they reverse their positions.  The fact that 95% of all foreign currency trades of the $NZ are for speculative purposes is illustration enough but when the absolute scale of this activity is included it becomes clear how corrupt this system is.  The daily trade in NZ currency is equal to half the country’s annual GDP.  This is crippling our ability trade as it imposes a huge cost to our export sector.  

It is also sending us broke.

It is also how our Prime Minster got rich.  He didn’t work hard, he didn’t create some innovative product, he didn’t add value to any process; he was just a filter feeder in a system run by filter feeders.  His wealth he skimmed from those who were working honestly in the field of international trade.

The deeper problem is the lack of a common set of rules for managing currencies. The true villains at the core of the current round of economic crisis are Germany and China.  Each have set up relationships with client states that contained an entrenched fixed currency imbalance in their favour.  The European Currency Union acts as a subsidy on exports for Germany and tariff on imports while it acts the other way around for all other countries in the EU.

Similarly China has had a pegged currency against the dollar for the past several decades.  Japan did the same thing for as long as it could.  These resulted in huge transfers of wealth from the overvalued economy to the undervalued economy.  Why the US and the rest of us have put up with it for so long is truly surprising as it is such an obvious and damaging yet simply rectified distortion.

As with all distortions when it does resolve itself the rectification will be rapid and hugely disruptive.   It will be like an overstretched rubber band - it will either snap or snap back - either way it will be a rapid and violent reaction.

Tuesday, 24 July 2012

Kiwisaver conned confirmed

The NZ Herald ran a story last weekend entitled Bigger KiwiSaver investment overseas predicted

Onepath predicts KiwiSaver will grow from about $12 billion now under management to $50b by 2020. At the same time it share of retail funds under management will increase from about 40 per cent to about 70 per cent, with total retail funds reaching about $70b, it says

This will mean that we have saved through Kiwi saver more than our share market is worth by 2020 and we will invest that money in the productivity of other countries – what losers we are!

Because our economy can’t absorb that level of savings under the current model the investment whizzo’s are going to put it into international share markets.  These while they have fallen back somewhat from their hysterical highs of the last decade are still horribly over valued and even the optimists expect no more than 2.5% return on capital from the Dow Jones for the next decade.  And that is if the money doesn’t disappear down the hole in the meantime either through business failure, skullduggery or inflation.  Remember that at the same time the EU, the USA and Britain are printing money like it was going out of fashion.  Your Kiwi saver will evapourate as this continues.

"The more money available [from KiwiSaver] the more money can come into the New Zealand capital markets and the more companies will use them," Body says.  "But the growth in the [KiwiSaver] industry will probably be too fast. That means more global exposure for a lot of fund managers.

So your savings are being used to help NZ’s capital markets grow fat- a bunch that even Stephen Joyce acknowledges as being less than honest over the past decade.  The investment advisors can’t see where in the NZ market they can invest so they are going to take it off-shore.  But BillE says that we need the money and the asset sales to build our capital markets.  The capital markets are saying that the asset sales wont make much difference.  And all that money pouring into the global capital markets is competing with all of the retirement funds of every other rich countries plus the money magic of the bank’s fractional lending and we will soon be wondering were our money has gone – a fool and his money – is an image that leaps to mind.

Body says state-owned asset sales will help. "But if you think about the raw numbers, we think KiwiSaver is going to grow $50b in the next 10 years and the [assets] float is about $6b in total.

Even if growing savings sees that triple by 2015, by that time the NZX may have a market cap of about $75b thanks to growth and proposed SOE privatisations, he says To date about $1b of KiwiSaver money is invested in the local share market from a NZX market cap of $58b

If the government wanted capital put into public assets why not just let KiwiSaver invest directly in our energy company through bonds.  Remember however that when all us old farts want our money out it wont matter whether it is through taxes or power bills - the next generation will cop the bill.

Why not use all this cash to get rid of the foreign banks that are bleeding us white and use the savings to fund our own internal borrowings – far safer and better returns than the share market, particularly the foreign share market.  Why not invest it in the rebuild of Christchurch?  Why not invest in energy self sufficiency? 

Do our leaders have no vision? No sense? No courage?

The current account deficit for the year to March 2011 was $7.2 billon, or 3.7 per cent of gross domestic product, Statistic New Zealand figures show.  Kiwi firms paid out $9.6b more to overseas investors than Kiwis received from other countries. On top of that we export another $4billion each year in Kiwisaver investments.  This is all stupid.

We are bleeding money and yet our leaders want to accelerate the bleeding.  Are they bleeding idiots or what?

Bigger KiwiSaver investment overseas predicted ELOISE GIBSON Business Day STUFF 23/07/2012

And Time magazine agrees with this current article...  Are Dividend Stocks the Next Bubble?

Dividend stocks are leading the market and some pundits believe the rally is a bubble about to end badly. But they may be underestimating the flood of income-starved retiree money heading this direction in a record low-yield environment

Monday, 16 July 2012

The answers are simple the solutions are complex.

We are broke and getting broker for some very simple reasons …

  1. Our exchange rate is too high
  2. Our exchange rate is open to manipulation (it is unstable).
  3. The worse our economy gets the higher our currency rises when we need it to fall – this is the complete opposite of what needs to happen
  4. We play by the rules of free trade and no one else does
  5. Foreign owned banks use inflation and speculation to fill the country full of debt and capture our productive surpluses.
  6. Banks can print money without any effective control by the state
  7. We spend more than we earn
  8. We are squandering the talents of our young while burdening them with debt
  9. Our retirement savings are inflating the share-market
  10. Anything of value is sold to foreign investors
  11. Our employers have to meet the social costs of trading in New Zealand while their competitors don’t (an effective subsidy)
  12. Labour is taxed while energy capital and land aren’t
  13. We treat basic infrastructure as an “investment” rather than as a basic function of production – roads aren’t there to make money they exist to allow business to function - same with power telephone and a whole raft of other things.
  14. And we too often allow the core institutions of community and commerce to act with impunity with regard to the law and to moral behaviour.

It is not foreign forces or some compelling logic causing these things to happen to us.

The last reason is that we have just suffered thirty years of ideological leadership.  

It is our leadership that has made us poor as we have wished this on ourselves.  The mess that is the Euro is the best illustration of the problem of exchange rates not reflecting the relative earning potential of separate national economies.  We have the same issue with Australia the US and China,  as Greece has with Germany - our principal trading partenrs are cheating on the free trade deal   and we are the losers.  Our dollars is over-valued to an extent of about 30% in comparisons to them.  This could be resolved overnight - but it would take courage.

It is this ideological base that is the first thing that needs changed. 

Once that has happened then fixing this country is easy - we are rich in resources, we are well educated, we should be energy self sufficient.  We should be the luckiest country in the world but our leadership prevents this from happening.

Wednesday, 11 July 2012

Kiwisaver Con

Are the asset sales necessary to suck up money being taken from working kiwi’s through the Kiwisaver scheme to fund their retirement? 

It seems so because Stephen Joyce thinks supporting our capital markets is more important than retaining state ownership of our power companies.

It seems most unusual that a Minister of the Crown would consider that supporting capital markets a key responsibility of government and the provision of energy infrastructure a key responsibility of investment markets.

"I don't believe the government's going to back down on that at all," Mr Joyce said on TV One's Q+A programme on Sunday.

He said the role the policy would have in strengthening New Zealand's capital markets had not been discussed enough.

"Now, the New Zealand capital markets actually historically, certainly over the last 10 years, have performed very poorly relative to the rest of the world, and that's because there's been some breaches of faith historically."

The sale of stakes in the energy companies would be an opportunity to list strong companies.

"That's an opportunity to actually strengthen the capital markets and get more kiwis interested," Mr Joyce said.
No backdown on asset sales, says Joyce NZ NewswireUpdated June 24, 2012, 2:13 pm

It is interesting to note that Mr Joyce comments that “there have been some breaches of faith historically” with reference to the capital markets not always acting honestly. Not only is this a profound understatement but Mr Joyce now expects this den of thieves to be trusted with these assets.

Power companies are nothing less than a pipeline straight to the wallet of every kiwi.  It is easier to avoid paying tax than it is to avoid paying the power bill. 

And this turkey also intends to rely on the Electricity Commission to regulate the “electricity market” which is about as useless a guard dog as any burglar could wish for.


Bill English also openly acknowledges on his National Party Webpage that the asset sales are simply another way of putting your savings in the share market's pocket at your expense.

As well as reducing the Government's debt, the mixed ownership companies will also provide New Zealanders with another investment option for their large and growing pool of savings.

In fact, New Zealanders are telling us they're hungry for other options as they look to diversify their investments away from highly-leveraged property and finance companies.

Kiwi investors have about $100 billion sitting in term deposits. And there are tens of billions of dollars invested by other New Zealand investors from KiwiSaver providers to the NZ Super Fund, ACC, Government Superannuation Fund.  
A mixed ownership model for state assets by Hon Bill English, Finance15 February 2012

Why Bill is so keen to give your assets to the share market?

The reason is that the quantity of money flowing into the capital markets from enforced savings is artificially inflating the value of the whole share market. Bill has acknowledged that in recent press comments. Bill needs more assets to be put in the market to soak up the enforced transfer of your cash in the form of your household savings plus your Kiwi Saver investments and ACC into the share market. You then pay the profit on these investments through your power bills. 

This is the circular idiocy that is Kiwisaver.

Kiwisaver and other retirement saving schemes are at the root of why the investment markets are so unstable and dishonest. The money is going into the share market because investment funds need to put the money somewhere and there are few other options that can absorb the vast volume of cash that these enforced schemes introduce to the market each year.

When there is no increase in the scale of the market – when new assets are not being created - but there is a constant inflow of cash, then there can only be an inflationary response in asset values.

The retirement fund managers also play the market as they attempt to generate decent returns and this reinforces the speculative behaviour. The investment advisors working for these firms are also not putting their own money at risk so they have no moral balance to their investment decisions. All they are interested in is producing paper returns on assets and so they play bidding wars with their fellows.

In effect what Silly Bill and even Sillier Steve are doing is using your hard earned spare cash to subsidise the very destructive behaviour that has brought the world to the precipice of a financial disaster.

Bill is old enough and rural enough to remember when farming was subsidised and the wreckage that happened when that distortion was corrected. He doesn’t seemed to have learned anything from that experience. Subsidising farming at least produced salable goods even if at a loss. Subsidised capital investment and subsidised banking just creates a vast and destructive waste.

Right now the best investment is getting rid of debt both private and public. It might have a low rate of return but it has a very high degree of certainty as to outcome.

Debt repayment also has the benefits of avoiding inflation risk. The chances of ever getting the real value of your Kiwisaver money back is slight. History provides good evidence of the erosive risks of both inflationary forces and share market under-performance. The future for both only looks bad in the longer term particularly as your money is, as Stephen Joyce acknowledges, being placed in the hands of thieves and the swindlers.

There is also a demographic issue with Kiwisaver. That issue is the same one that government raises for the impossibility of funding pensions from taxes and that is that there will be too many retirees and not enough taxpayers.

The same effect occurs when there are too many sellers and not enough buyers in the share market. When the bulge of baby boomers seek to withdraw their cash from the market it will collapse for want of buyers. Indeed the wisest long term investment strategy for both retirees and for future taxpayers is to build an essentially debt free society.

We need to be building an investment in the future. Instead we have loaded our children with debt. We have either run the assets we inherited from our parents into the ground or sold them off and we have not prepared ourselves, or our children for the future.

It is not too late to resolve this situation but there is very little time left and the best years for doing this have passed.

And the orthodoxy does not have the answer it just provides more fuel for the problem.