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Jacinda Ardern addresses a Wellington crowd after being sworn in as Prime Minister
Jacinda Ardern addresses a Wellington crowd after being sworn in as Prime Minister
Extended interview with Boston University Economics Professor Larry Kotlikoff on his publications about a six-decade long Ponzi scheme in the US which he says will lead to a clash of generations.
Kotlikoff also touches on what his projections mean for the New Zealand economy and why Prime Minister John Key should take more attention of New Zealand's 'fiscal gap' - the gap between all future government spending commitments and its future revenue track.
I'm Bernard Hickey and welcome to 's second exclusive interview with a newsmaker. Earlier this month we spoke Reserve Bank of New Zealand governor Alan Bollard.
Here we talk to Professor Joseph Stiglitz. He is a Columbia University professor and a Nobel Prize winner in economics who has co-written a book tallying up the true cost of the Iraq War to US taxpayers and the US economy. The book titled the Three Trillion Dollar War explains how the 5 year old war was expected to cost US$50 billion and has instead ended up costing at least US$3 trillion. The direct costs of the destroyed equipment and spending in Iraq is added to the growing medical costs for injured veterans, along with the massive macroeconomic costs of higher oil prices.
Stiglitz details how this surge of deficit-funded cash and wasteful spending has distorted global financial markets, helping create the global credit crunch that this week claimed Bear Stearns.
He goes on to say that the US Federal Reserve's move to rescue Bear Stearns creates a dangerous precedent and adds to a growing "Moral Hazard" on Wall St that investors can always rely on the US Federal Reserve to bail them out of bad lending and investing decisions.
He worries about the future of financial markets and cautions that other unnamed banks are also rumoured to be in trouble.
Stiglitz finishes by saying the Fed's liquidity pump is helping to strip the US dollar of its status as a reserve currency.
Stiglitz was in New Zealand to promote the book at the International Festival of the Arts at its Readers and Writers week. He spoke in Auckland on Tuesday night.
Bernard Hickey talks to Alison Mau from TVNZ's Breakfast programme about a blog entry on in which he argues Generation X and Y need to leave the country as soon as possible because Babyboomers have cemented in the biggest transfer of wealth between generations in the history of New Zealand.
Professor Keen runs the 'Debtwatch' blog, and the website . He is a follower of Hyman Minsky, has built is own substantial following, and claims to have predicted the 2008 GFC. Like Minsky, he argues against the accumulation of debt. He is a speaker in high demand.
Bernard started by asking Professor Keen about why debt matters, and what moves asset prices.
Professor Keen has the view that banks make profits by creating debt, and while there are some good outcomes from this when the borrowing results in expanding the productive base, most of the recent debt expansion has been for 'unproductive' housing and has resulted in rising prices and rising housing debt levels.
He is calling for a "modern debt jubilee" - QE for the public - where both savers and borrowers share in the debt forgiveness, and the banking business is radically restructured.
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Why falling unemployment isn't so miraculous
Analysis by of migration and employment figures shows net migration to Australia over the last nine years matches almost exactly the drop in the number of unemployed in New Zealand over the same period. A chart showing this relationship is on the left.
We're not suggesting that the same people who were unemployed left to go and live and work in Australia, but it is interesting that as we lose workers to Australia, their positions appear to have been filled directly or indirectly from the ranks of the unemployed.
It suggests that the Labour-led government's claims that falling unemployment are a central achievement of its three terms have not taken into account the leakage of workers to Australia.
It also suggests that a core reason for labour shortages and the resulting wage increases and inflation is as much to do with migration to Australia as it is linked to falling unemployment.
It also raises questions about whether one of the reasons for poor productivity growth in the last nine years is because more skilled, healthier workers are leaving New Zealand and being replaced by less skilled, less productive workers who were unemployed.
It's hard to tell whether those leaving are jobless or highly skilled. Either way it's bad for productivity, inflation and interest rates. The fallout is worse if our most highly skilled and productive are leaving and being replaced by jobless. There is some debate over this. Many believe a large number of those leaving are going for lower skilled (but higher paid) jobs in mining, construction and the services sector in Australia.
Whoever it is that's leaving, the productivity of their replacements is likely to be lower and the inevitable result is wage pressure as more employers compete for fewer workers and have to employ more workers to produce the same output. If it is simply jobless people leaving for jobs in Australia, that also reduces the total available pool of labour and increases wage pressures.
The inevitable result of these wage pressures is inflation and then higher interest rates, which is what we're suffering now.
It's worth comparing this exodus of people to Australia with the last big exoduses in the late 1980s and early 1990s and in the final years of the last Muldoon government of the late 1970s and early 1980s. There was also a surge around 2000 when the economy slowed. It's fairly clear that previous exoduses happened at times of growing unemployment and slow growth, with many leaving simply to get a job. Whereas those leaving this time are leaving to get a job with a higher salary almost despite relatively strong economic growth and low unemployment.
Muldoon joked at the time that unemployed New Zealanders migrating to Australia in the early 1980s increased the IQ of both countries. That may or may be the case this time around, but it's clear that something is happening that is reducing the productivity growth of our labour force, which in turn is lifting inflation and interest rates.
This linkage also begs the question: what are we left with after the longest period of economic growth in the last 50 years and 9 years of a Labour-led government?
We have low unemployment (good), high household and foreign debt (bad), high interest rates (bad), higher inflation (bad), unaffordable housing (bad for homebuyers, good for home owners) low productivity growth (bad for all) and low economic growth (bad for all). It now turns out the one unreservedly good thing to come out of this growth (low unemployment) may actually have been a factor in creating some of the other bad things (low productivity, high inflation and high interest rates) via migration to Australia.
What's clear is we don't have the recipe for sustained and fast economic growth that we need to raise wages and stop this exodus.
Those looking for a deeper read on the costs and benefits of migration to Australia should have a look at this working paper from the Treasury from 2001, which concluded that surges of net migration to Australia were a "same drain" rather than a "brain drain."
These are nervous times for banks all around the globe as they try to refinance debt they owe to banks in other countries.
The international inter-bank credit markets virtually froze this week as banks stopped trusting each other. They were petrified in the wake of the shock collapses of AIG, Washington Mutual and Lehman Bros, the forced mergers of Merrill Lynch, Halifax Bank of Scotland and Wachovia, and the bailouts of Fannie Mae, Freddie Mac, Bradford and Bingley, Fortis and Dexia.
Reserve Bank Governor Alan Bollard acknowledged the disruptions on global credit markets this week when he said some parts of the inter-bank markets had jammed up, which would be a significant concern if they remained frozen for longer than a few days.
This matters for New Zealands banks because over the last 5 years New Zealand banks have borrowed heavily in these international credit markets on our behalf and have shuffled it through to us in the form of more and bigger mortgages, which have promptly use to boost house prices.
US futures broker
Files for bankruptcy
European debt hit
US$39.7 bln of debt
US$41 bln of assets
JP Morgan, Deutsche
Goldman's Jon Corzine
Geared up to bet
US, European stocks
Doubts about Europe
Italian bond yields
Still at 3%
May delay ECB cut
RBA seen cutting
Melbourne Cup day
Will banks pass it on?
2 speed economy
NZ$ down to 81.3 USc
Up vs yen to 63 yen
After BoJ intervened
To push yen down