Airborne minimum wage

Air New Zealand staff working mainly trans-Tasman routes have said they plan to strike for 4 days from April 8th, into the front end of the usually very busy Easter weekend. The strike will finish on the Saturday night.

"The crew are employed by an airline subsidiary, Zeal 320, and are paid at different rates to Air NZ domestic and long-haul cabin crew."

"The union said Zeal 320 staff were being paid "poverty wages" and those working directly for the parent company received thousands of dollars more."

So what are Zeal 320 staff being paid? Not much. (pdf). The starting wage is NZ$25,625 (US$14,606 today at NZ$1 = US$0.57). There is no overtime and virtually no allowances. That's barely more than the minimum wage now if we assume a 40 hour week and less than the $26,000 / annum a worker on the new $12.50 / hour rate would earn from April 1st, 2009.

The EPMU's claim these are "povery wages" would appear to be true considering virtually all these staff will live in Auckland, Wellington or Christchurch. To put hat into perspective, buying an average house ($332,000 as of this week nationally - more in the big cities) on those wages would take 14 years at NO interest and not a single penny spent on anything else. In reality, it would be completely impossible. More and more people are earning this kind of money.

As the government is the owner of Air New Zealand, this moves the present government's promises to raise Kiwi wages well into the laughable zone. Almost every policy they have brought in or plan to bring in makes it easier for employers to pay people less.

If we want evidence of deflationary pressures, Zeal 320 is a perfect example. There will be no economic "recovery" if this is the trend workers face in New Zealand and there is precious little to suggest this isn't the case.

If things pick up overseas, Kiwis - especially the young - will be off in a heartbeat....and who could blame them? Their own government certainly isn't interested in keeping them here.

NAB burnt on outsourcing

Early last week, media on both sides of the Tasman were full of stories about an imminent announcement of job cuts at the Bank of Zealand (BNZ). The BNZ's parent, the National Australia Bank, (NAB) was also going to announce significant job losses in Australia, particularly in IT areas. 

NAB has been planning for some to move more jobs to outsourcer Satyam, in India. These intended losses were to be the second wave, including moving their payments system, to Satyam. 

In the meantime, the co-founder and chairman of Satyam,B. Ramalinga Raju, has admitted to comitting fraud involving misrepresenting the companies accounts , a $1 billion fraud. 

As of this past weekend, NAB is backing away from the Satyam debacle and it's plans to dump workers and move the jobs to India are in disarray. Instead, it is now trying to make a virtue out of the mess by saying it has reduced its dividend for the forst time in 18 years and no jobs will be lost. They have even asked their redeployed IT workers if they would resume their old jobs. 

How happy would you be if you worked for NAB and barely missed having your job outsourced due to an extraneous event like crime where your job was supposed to go? The HR staff at NAB have been handed a disaster by their bosses. 

I wonder if the authors of this mess will all be rewarded with fat bonuses, while the people they were planning to sack this week wonder when the plans to boot them out of their jobs will resume. 

Essential Viewing: Jon Stewart interviews CNBC's Jim Cramer

The March 12th edition of "The Daily Show" with Job Stewart should be required viewing for journalists AND media owners and anyone interested in truth in news and commentary, for years to come.

CNBC set itself up as a credible source of business news. In the event, they were anything but. 

We could be asking the same questions here in New Zealand. Why do our newspapers appear to be trying to suggest (my impression and again)it's a good time to buy property, even as job losses mount and the global downturn here is really just getting underway. Sure, they need the ad revenue and newspapers are struggling everywhere. But if they sacrifice their credibility, they stand to lose everything.

Jon Stewart asks all the right questions. To his credit, Jim Cramer takes the hits and responds with candor and doesn't ry to dodge any of the bullets coming his way.

Watch this if you haven't seen it. The end of the first segment should give you an opportunity to click through for the next two parts.

Also below is a clip of White House Press Secretary, Robert Gibb, commenting on the interview: "I Enjoyed It Thoroughly"

The Daily Show With Jon StewartM - Th 11p / 10c

Jim Cramer Unedited Interview Pt. 1

Daily Show Full Episodes
Important Things w/ Demetri Martin

Political Humor
Jim Cramer

Irwin Tools Wellsford job losses part of longstanding plan.

NZ Herald: Biggest employer's job cuts hit town

Irwin Industrial Tools, owned by US-based Newell Rubbermaid, has announced 105 New Zealand manufacturing jobs are to be lost in Wellsford. The plant manufactures circular saw blades.

The NZ Herald:

Operations director Michael Kelly yesterday blamed "a challenging economy and other business factors" for the company's downsizing.

"This decision has been a difficult one to make, and in no way reflects on the hard work and dedication of our workforce in New Zealand."

Those are nice words from Mr. Kelly, but he wasn't the first Irwin exec to use them recently. A quick Google shows exactly the same crocodile tears were shed last September when Irwin Tools announced the end of 71 years of manufacturing at their founding site in DeWitt, Nebraska.

"Today was a very difficult day for all of us here in DeWitt," said David Doolittle, a corporate spokesman based in Atlanta. "This was a difficult decision that in no way reflects the hard work of the employees here through the years."

Doolittle said higher labor costs were just part of the reason the plant was closing. Operating costs and raw materials are also cheaper in China, he said.

Why do I call these crocodile tears? Irwin Industrial Tools parent company, Newell Rubbermaid, since at least the end of 2005, have been working to a long standing plan to cut one third of their factories.

(Jan 16, 2006) ...Newell Rubbermaid Inc. will close its 300,000-square-foot Goody Products Inc. factory in rural Manchester, Ga., which has turned out combs and hair brushes since 1963.

The plant is the latest casualty in Newell Rubbermaid's plan to shutter one-third of its 80 manufacturing sites in the next three years.

When the plant closes in July, Newell Rubbermaid will move some Goody work to its other factories and outsource the rest. "What gets outsourced will get outsourced to China,'' said Todd Helms, Goody's vice president of human resources.

The present downturn appears to have very little to do with the closing of the Wellsford plant. The plan referred to above clearly envisages any new products are coming out of China. With that in mind, the circular saw blades made in Wellsford come into focus:

Case in point: the division’s Marathon-branded circular saw blades. With the housing boom of the 1990s and into the first half of this decade, home builders wanted saw blades that could cut faster to build more homes. The company developed a thinner blade, and varied the widths of the teeth.

“So what that does is you’ve got one tooth that takes out just a little bit of material and the next tooth cleans it up,” said John Smith, vice president of research and development of construction accessories for Newell Rubbermaid. The result: a saw blade with a 20 percent faster cutting time, he said.

But as housing construction turned from explosion to implosion, the company last year intensified marketing of a blade with welded tips that lasts up to 50 percent longer, the company says.“

Back in the day it was all about speed,” Smith said. “Today, unfortunately, they’re not building as many homes and everybody is looking at every dollar that they spend and looking to get more cuts for the money.”

I'm betting those new blades come from China.

The Irwin Tools "Vise-Grip" factory in DeWitt, was another victim of Newell Rubbermaid's long standing plans to move manufacturing to China. The factory had a history in DeWitt extending back to 1938.

"All that we've known is working in the factory," said Jurgens.

Many employees started right out of high school, she said, and have never had to fill out a job application or make a resume. ...

... Employees said Wednesday they were told they’ll get one week of severance pay for each year they worked at the plant, with a maximum of 13 weeks.

As of Wednesday, the plant had 330 employees, down from about 500 just a few years earlier. Production will be transferred, at least in part, to China.

If one searches on "Newell Rubbermaid Closure" in Google, there is no shortage of links over the past 5 years reporting a long series of factory closures, mainly in the United States.

This is consistent with my own experience with AT&T, where I often worked day and night to help propose global networks to connect the manufacturers of the world with their planned factories in China. Their timetables were typically for a 3 to 5 year migration of production to that country. The wave I was seeing in 2003 would be peaking about now. I do wonder what role all those millions of lost jobs might have had in causing large numbers of mortgages to go bad over the past couple of years...and in the years ahead.

Certainly, the global downturn has put Newell Rubbermaid under considerable pressure to show strong quarterly results, but manufacturing jobs were not supposed to be part of the cost cutting:

CHICAGO, Dec 18, 2008 (Reuters via COMTEX) -- Newell Rubbermaid slashed its quarterly sales and profit forecasts and said it would cut up to 10 percent of non-manufacturing jobs due to a deep slump in the global economy, sending its shares down 30 percent.

...

Newell said it would cut 8 percent to 10 percent of its salaried jobs, amounting to 800 to 1,000 professional and managerial positions. It said the cuts, which already have begun, would continue into 2009.
Newell has about 20,000 employees worldwide. Nearly half of those jobs are in manufacturing and would not be affected by the announced staff cuts, the company said. Newell also said that starting on Jan. 1 there would not be any pay increases for the entire year.

Either they changed their mind about cutting manufacturing jobs since Xmas, or the closure of the Wellsford plant was part of the wider, longstanding plan in the group to move jobs to China.

However you look at it, the loss of the jobs in Wellsford is just one data point in a tsunami of data points that record the mass migration of manufacturing from the West to the East and it has been programmed in since long before the present downturn. What we can't know for sure is to what extent the present downturn is a product of the same process. Certainly there are other factors at work, but it seems to me that the steady erosion of the manufacturing base in North America, Europe and Oceania was never going to do anything but have a long term, cumulative and negative effect on the economies of the countries losing the largest proportion of jobs.

The irony is that trade with China is anything but free. They have an extensive and longstanding system of tarrifs and import controls and restrictions on foreign ownership. This isn't about "free trade" at all. It's about a gold rush by the worlds corporates to a state where workers have few real rights, social services almost non-existent and labour is cheap and kept in line by government-run trade unions, the police and - if necessary - the military.

But having sent all their jobs off to China, and made their workers redundant, who did they think they would then sell their products to?

Soros and Volker agree: It's REALLY bad!

Investor George Soros sees no bottom to the world financial collapse.

"We witnessed the collapse of the financial system," Soros said at a Columbia University dinner. "It was placed on life support, and it's still on life support. There's no sign that we are anywhere near a bottom."

Meanwhile, former US Federal Reserve Chair, Paul Volker, has said the downturn was happening uniformly globally and more quickly than during the Great Depression. Volker says the American banking system should operate more like Canada's.

Things must be very bad indeed if senior American policy makers admit Canada does anything right.

Switzerland going broke, too?

Looks like debts in Swiss Francs going bad in Eastern Europe could make a mess of the Swiss financial sector. The Swiss Franc has long been viewed as one of the most stable around. That reputation has seen the value of currency rising rapidly, making those Eastern European debts even more precarious. 

In another interesting development, the Swiss National Bank recently began selling debt in US dollars. This story suggests it is doing this to cover part of the US$60 billion in toxic debts held by UBS, Switzerland's largest bank. 

The more you look into the detail, the more all this looks like a bathtub full of worms....  

Of lawn mowers and other dumb things...

A lawn mower will just as happily mince your foot as cut the grass if you point it the wrong way. The global economic system has been pointing the wrong way for some time now.The unthinking, unaware (idiotic) whirly-chopper we also know as the global financial system has finally achieved its destiny in a gush of green from severed financial arteries everywhere. The global economy is now bleeding out.

Rather than clotting up and healing, the pace of deterioration in the status quo appears to be quickening as the resources that were available to governments and business as a legacy of the "pre-crash" era begin to diminish and disappear.

There are so many threads running through each day it's a challenge to track them, never mind make sense of them. Here are a few items that caught my eye.

Former US Federal Reserve Chairman, Alan Greenspan, blamed by some for creating the housing bubble, now says it may be necessary to nationalise the country's banks.

In an interview with the Financial Times published on the paper's website on Tuesday, Mr Greeenspan said 'it may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring'

Long one of the world's most powerful proponents of hands-off financial regulation, Mr Greenspan indicated nationalisation may now be necessary.

'I understand that once in a hundred years this is what you do,' he said.

At the same time comes news that one of the wealthiest states in the United States, California, is about to go broke. Faced with a drop in tax revenue of US$40 billion, Governor Schwartzenegger is looking at sacking 20% of all state employees as a prelude to shutting down the state government altogether if the legislature is unable to agree on a new budget. The Republicans in the legislature want to cut taxes and spend even less, in line with their ideological view that no government is good government. Looks like they may get to find out.

These two stories, for me, throw into sharp relief the primary elements at play in this whole rolling disaster. A far as I can see, the people who allowed it to happen are now divided in two camps: those who think they did wrong (or could have done better) and want to do something else now, and those who see badness, but no wrong, and want to use this as an opportunity to explore the further limits of the very same policies of non-regulation that lead to the whole mess in the first place. They call themselves "conservatives" while they have done anything BUT conserve. It fair takes one's breath away to read their words and listen to them talk. They obviously had no idea whatever what was going on when times were good and are today equally bereft of any useful model of reality now times are not so good.

People losing their jobs each day now number in the tens of thousands in country after country. This is a disaster these mis-named "conservatives" have wrought....and they can't see it at all. Amazing, yet understandable or they could not have pursued with such vigour and determination the policies that caused it all.

That's all grass (and toes) in the grass catcher now. As these contractions in income feed through into the so-called "real economy" in shrinking demand and more bad debt, there will certainly be an accelerator effect operating for some considerable time yet.

Meanwhile, the US Congress passed its stimulus bill. They are supposedly going to use almost US$800 billion into prop up failed banks and support activity that is supposed to help the economy keep going. The same people who couldn't see the crash coming are now planning how to combat it. Good luck with that. The blind gardeners now turn into surgeons.

The effects of these events will continue reach us here in NZ in the months ahead. Already large numbers of NZ companies have wage freezes and hiring freezes in place. In some cases, these have been ordained by their overseas owners as part of the big corporate picture globally, regardless of how well or poorly the local NZ operation actually did. My own employer, part of a US-based conglomerate, has imposed such policies recently despite the New Zealand / Australia operation having just had its best year ever and good prospects for the year ahead, despite the downturn elsewhere.

If most of what we read each day makes little sense, that's because it doesn't, really. These events are being driven by an economic machine we have allowed to usurp our own conscious control of the world we live in. The gardener doesn't need need to tell each blade of grass how to grow, but he does need to know where to oint the lawn mower and where not to. It bears repeating: A lawnmower will just as happily mince your foot as cut the grass if you point it the wrong way. The global economic system has been pointing the wrong way for some time now.

Hope you have your steel-toed boots ready. They will come in handy about now if you haven't got them on already.

US Bailout: Kucinich makes a case against

It has long been my view that an informed, educated, thinking America would and should have a president like Dennis Kucinich. He's a man who not be out of place at the heart of politics in countries like Canada, Australia or New Zealand. But in the United States, where reality doesn't get much attention these days, Kucinich has been largely marginalised......much like reality itself, hence the crash "no one saw coming".

Kucinich makes his case against the US$700 bailout of the people who caused the crash in the first place.

I agree with Bernard

I've been watching the income from my savings decline, month-on-month, as interest rates head steadily lower. It's very clear that the Kiwi who collectively have billions of dollars in savings accounts and on-call accounts have already suffered a decrease in their returns by almost 40%. I was receiving 8.3% interest on my savings in June and it's now down to 5% and headed lower.

Meanwhile, the 80% of home mortgages (in NZ) that are on fixed-rate interest won't see a decline for months or years unless the mortgagees pay the penalties and break those agreements. It may well be worth it, but you need cash up front to do it.

Credit card interest is still around or over 20%, the reason being given for that now is these facilities are more risky for banks......not less...as people come under financial stress. One wonders what they might see if they opened both eyes.

The picture forming here is that costs to banks are falling rapidly while costs to their customers are not. Perhaps the equivalents of our Reserve Bank around the world are doing this to give banks some breathing room to accumulate some capital by effectively widening their margins for them. The overall effect appears to be to cut the incomes of most savers now while - much more slowly - reducing the cost to borrowers (if at all - as in credit cards)

Whatever. If you missed it, Bernard Hickey's blog on Stuff on January 26th covers many of the same things that have plagued my own thoughts in recent weeks. If you missed it, here's "Five reasons why Alan Bollard should not have cut the OCR".

Ignorance, unfounded faith and perversity equal trouble

Following on from my post yesterday, I've continued to think on this topic. So much to think about!

The Guardian in the UK has compiled a list ("Twenty-five people at the heart of the meltdown ...") of people to....well.....blame for the crash. All the big names are there and the role of each is summarised in more or less detail depending on their part in the big picture.

In each case belief appears have have played a significant role in the way each behaved. The article explains that even 'The Maestro' himself, former US Federal Reserve Chair, Alan Greenspan, now admits he acted on beliefs he now considers to have been incorrect.Many of the people listed in the article (like George W Bush) would have had no real idea themselves as to what economic or financial policy regime would have been best. They were almost certainly acting on the advice of others, many of whom are on the list. But acting beyond one's competence can't be an excuse when you are ultimately reponsible for the outcomes. If anything, this highlights there is too little diversity of opinion close to the where the big decisions are made, and the people who make the final decision on these matters don't actually KNOW.....they have merely been persuaded.The difference between the two is huge.

But how did they all get it so wrong for so long? US investor, Warren Buffet was warning of possible disaster 6 years ago, as was Nobel Prize winning economist, Paul Krugman in 2003's "The Great Unravelling".

Leon Gettler, writing in Melbourne's "The Age" at the end of October, cited "The Perverse Organisation and Its Deadly Sins" by RMIT academic Susan Long as providing some insight into why things were able to go so wrong: perversity.

Long argues that:

"... organisations and corporations can create perverse systems, of which there are several forms. "

"First, there is the state of primary narcissism, where certain interests are pursued at the expense of the general good, and others are turned into objects to serve certain ends."

"Second, there is a system where the awful truth is acknowledged and, at the same time, denied, echoing Freud's view that there is a part of the personality that sees things realistically and another that is locked into a delusion."

"Third, accomplices need to be seduced and set in place. These relationships need to be instrumental, turned into transactions. And perversion, she says, begets perversion. Which means collusion and turning a blind eye permeate the system."

On the RMIT page about her book, Long also says:

“To look at the formation of perverse practice, structure and culture within organisations is also to look at that development in society more broadly.”

So there it is. Perversity on this huge, globe-spanning scale isn't isolated or exceptional. It's most likely to be a reflection of the wider society. In that context, the ignorance of each of us about so much that we SHOULD know become very relevant. From climate change, to peak oil, to the way our own municipalities and countries are run, large parts of the population don't know (and don't want to). It's all part of the wider context in which the financial systems of the world become a slow motion train wreck right before the eyes of everyone.....and most weren't even paying attention and even most of the experts claim to have not seen it coming.

...and they really didn't. That IS perverse.

Making sense of it all - Finance, Politics and Greed

I've made it clear in past posts that the financial crash was something that many had foreseen and that I, personally, had planned my own affairs since roughly 2003 with the risk of such an event very much in mind. This was the thinking behind buying the farm in the Manawatu in 2004. Concentrate equity. Reduce exposure to debt. Get out of the residential property market. Have an asset that can produce as well as simply exist.....and so on.

The rationale, for me, was that Bush, through invading Iraq and running huge deficits, would almost inevitably lead us toward the same stag-flation of the early 70s caused by spending up huge on war and borrowing to fund it instead of raising taxes to pay for it. Then add on peak oil, climate change and other things that didn't exist then. Plus no sign that the US (or the world in general) was in any mind to actually, really change the negative, destructive behaviours that lead us all to this point.

I could see that ever-increasing debt simply wasn't sustainable. I had in mind that the tipping point for the housing market in NZ would be about 8%-9% for mortgage rates. I could see - from my vantage point within AT&T as an Asia Pacific Client Solution Manager - that the accelerating shift of manufacturing to China would in 4-5 years time (about now) lead to HUGE job losses in most of the OECD. I was handling the pre-sales projects for bids to build the networks to service and connect the planned factories / distribution centres and R&D sites for the companies now shedding jobs by the thousands. Millions of jobs were doomed anyway, I suspect. The crash just allows the process to happen sooner and faster.

But this week, The Economist puts forward another reason for the crash that ignores most of what I thought was important, relevant and obvious. Instead of monster US government fiscal deficits and the torching of billions in war, they blame "imbalances" in global trade for an Everest (or three) of free-floating cash looking for short term homes. They say the reason money was so cheap was that there was so much of it around from China and oil economies. I had thought very low interest rates in the wake of the Tech Crash in 2000 were intended to provide "stimulus" and prevent a recession. The same justification was used to go ahead with the Bush tax cuts in 2001, despite their original conception in 1999 as a means to return the surpluses to taxpayers (and don't worry about funding Social Security). But that's history and political context and The Economist appears to avoid these in its analyses.

In another article in the same issue, The Economist reflects the breach of trust resulting from the human and regulatory failings that contributed to the crash. In the end, they call for a

"system that supports economic growth through the best mix of state-imposed stability and private initiative."

It isn't clear what "the best mix" might be, though I'm sure it would be a close match with the interests of any person or company that cared to advance their own view.

The Economist also has a think about the future of "sovereign wealth". It's a erm used to describe the group of investment companies owned by cash rich governments (China and Qatar and Saudi Arabia and others) around the world. In some cases they have direct access to money approaching trillions of US dollars. They have taken a mighty pounding in the crash, having invested in some of the banks and businesses hardest hit.

There is a lot of food for thought there. One gets the sense that the writers still emotionall cling to the paradigm they know and have defended in the past, while a the same time seeing that the future cannot be as it was. Assumptions once taken for granted must be tested and reviewed and may even have to be changed. The tone is careful. The overall feeling is reluctance mixed with accepance of what has occured. But as to what to DO about it.....old ideas die hard indeed. Some regulation clearly needed, but not too much and no specifics anyway.

Overall, The Economist's explanations are technical and fail, in my view, to adequately recognise and take account of the policies - and politicians - that hugely contributed to the crash.

What seems clearer to me, trying to make sense of it all, is that - for now - the people making the decisons about what to do next and where to go next should be those directly accountable to the taxpayers who are - now - in many countries being essentially forced to cover all the risk, back the bad debts and pour money into the carcases of large that are now essentialy among the walking dead.

Nothing else seems to make any sense. The finance markets had the chance to show the world they could regulate themselves and the blew it spectacularly.

To allow the failed to simply pillage the world's Treasuries in order to make good their losses....and then expect to cary on as before makes nosense at all. It would amount to the biggest theft in history.

"We'll be good - honest! We really mean it THIS time!"

Pull the other one.

Economic weirdness

Can you spend money you haven't got?

I can't.

But this seems to be what the leaders who claim they can save the world from economic collapse expect to happen. I can't see how it will work and it looks like it isn't.

Rewind. Last year, there was concern consumers had far too much debt. People could barely make ends meet. Banks were "extremely concerned" about consumer debt levels.

In the present, the obvious answer to that problem would be to reduce spending to pay off debt. But to pay down debt significantly, people in debt would have to retrench for a long time - perhaps several years (and the rest). To pay off a $20,000 credit card debt in just two years, you'd have to put about $1000 a month into it, above and beyond the $400 / month interest charges. That's a big chunk of money every month for most people and any mortgage would be on top of that...and you haven't bought any food yet.

The effect? Reducing consumer demand by even several percentage points overall for periods of years would lead to a long recession at the least and perhaps even a depression if enough people try to save enough, fast enough, at the same time....and ironically end up throwing each other out of work.

Debt starts to look more and more like an addiction. When the world tries to go cold turkey on debt, it starts to feel very ill and rushes off to the local central bank for a fresh "fix" of debt......as cheap and as much as possible and - now - backed by the taxpayer.The same taxpayer too often mired in peronsal debt and loss of their job. Tax takes must fall.

The G20 just met and the main thing to come out of that meeting is a plan to get together in April to actually talk about doing something about the broken financial system and rapidly deteriorating economic situation. The other main thing to come out of the meeting is the expansion of the G7/G8 to include 20 countries, with China, Brasil and India among them. Many have called this a sign that global economic power is shifting to the developing countries. A cynic might see it as the old powers scrounging for cash from the up and coming powers.

The immediate aims are to keep trade barriers low, ensure access to capital for vulnerable countries, keep consumers spending and the economies of the world flying.

But if people are saddled with debt, concerned about job security and looking at their primary asset - their home - having lost a chunk of its value, they won't have any new money to spend. A short term fix might be to cut taxes, but that endangers the people who are already vulnerable at the very bottom and don't forget the tax take will be falling even without tax cuts. Tax cuts start to look like a dumb idea, not much helping consumers while at the same time limiting the options open to government.

The bottom line appears to be the only way to keep this albotross in the air for a bit longer is to make debt cheap again....and back it all with taxpayer guarantees. But isn't that - in effect - the country hollowing itself out the same way home owners were spending their home equity on consumption via credit lines secured by the equity in their homes? Sure looks like it.

Won't taxpayers just end up having to pay more tax tomorrow to fund their consumption today? On top of the debt they also have, of course.

How long can that go on?

Did Social Credit win after all? Is funny money now the only money?

It looks like the climax to this situation is yet to come.

Ya gotta wonder......about cars.

John Key's new government and Cabinet is worthy of closer examination and I will get to it soon. I want to let that one settle a bit.

Today I am thinking about cars. Make that car makers. US car makers.

I remember, back in late 2003, I was standing in the paddock behind the house on a property we have since sold, thinking about cars.

My train of thought had run across and through the US invasion of Iraq and on to a falling US dollar. If past cycles held true, the Saudis and others would seek to compensate themselves for the decline in the currency their oil is valued in and oil prices would rise. Alongside this, the avalanche of war spending that would surely ensue in Iraq over a period of what could only be YEARS would see debt explode and interest rates rise leading to........a recession.

When? Unclear....but as certain to arrive as almost anything I could imagine. The signs would be there along the way.

In this context, cars came to mind. The last time the United States did this to itself, the Vietnam War era, the big US automakers made almost no provision for a possible future that involved selling smaller, more efficient cars. They suffered and the Japanese and European car makers began to eat their lunch.

Surely, this time around, mindful of past cycles, the legion of experts the major US automakers would have on tap would see to it that this contingency was covered. How could I, standing in a paddock in NZ, possibly have more insight into global economic trends than they could or would? Seemed bizarre to me that they would allow this particular process to engulf them.

I clearly recall concluding that they would. I was betting on the myopic stupidity of people I've never met and never will...based on my own knowledge and experience of US corporate culture.

Looks like I was right.

Whenever I think I'm right, I look for an alternative explanation. There is one, but it requires some faith in clever people working for US auto makers and if they really were that clever, they would be able to avoid the whole problem in the first place by being tooled up and ready to make smaller, more efficient cars....and would have been pushing for laws to push people in that direction in order to address climate change, energy independence, national security...or whatever.

It could be that running the US-based auto industry off the cliff is their way of breaking the powerful unions who ensure that US (and Canadian) auto workers have good wages and conditions. While times are good...No problem. When times get tough, the automakers let the shit hit the fan, take the inevitable bail-out....and bust the unions.

This alternative explanation accounts for all the facts BUT FOR the effect such a plan would have on the current crop of executives....who would almost certainly get the sack and have their reputations tarnished and possibly their business careers ended.

Whatever....there are some dumb people in big automaker offices in Detroit.

US: Politicking on the edge, while banks fall over

Despite early appearances there might be an agreement on the US financial crisis, it now appears party political considerations have taken over and any deal is now in tatters.

Democrats had insisted the interests of taxpayers, who will be funding the bailout, be given priority. This included equity stakes in banks who got the billions and a share of any profits that flowed from the bailout over time.

US House Republicans turned up at a White House meeting convened by President Bush and announced they could not support such a bailout. Objecting to the government having any equity role in the banks, instead they want taxpayers to underwrite an insurance guarantee without taking any equity in the banks being bailed out.

Democrats, who were ready to support a bailout, reportedly felt betrayed and it went downhill from there, to the point were US Treasury boss, Henry Paulson, went down on one knee imploring Democrat House Majority leader, Nancy Pelosi, to not "blow it up". She responded that it wasn't Democrats who had blown it up and Paulson resportedly agreed.

Finger-pointing ensued, including - tellingly - the Republicans accusing the Democrats of trying to rush through a bailout agreement before Republican Presidential candidate, John McCain, could get to Washington and participate in the forming of any agreement.

Hang on a minute.

Is the bailout urgent or not? Why is making John McCain look good suddenly the overriding aspect of any deal to be brokered? Accusing the Democrats of moving too quickly to effect the bailout seems like a VERY odd way to respond to a financial crisis.

The Republicans have no problems with taxpayers funding the bailout, they just don't want taxpayers to benefit by it - apparently on ideological grounds.

Apparently private property is sacrosanct to Republicans unless it's money that belongs to taxpayers. The markets can crash in a heap before they will let taxpayers see value for money.

Meanwhile, today saw the largest bank failure in US history. Washington Mutual, worth over US$309 billion, was taken over by the US government, wiping out shareholder equity and many bond holders. Alongside the big picture, this historic event barely rated a sidebar.

The crony capitalist achilles heel

Oops.....Not a good time to be praising deregulation of financial markets, Mr. McCain.



If the public begin to understand the link between the National Party's policies and their derivation from similar policies (less regulation, less "red tape") that contributed to the financial market meltdown in the US (and spreading)....It might not be a good time to be talking about PPPs and handing public services to private businesses (your Rotary mates).

US: Largest mortgage lenders to be nationalised

The housing slump in the United States appears to have brought down even the largest of the large lenders.

A US Government takeover of mortgage-lenders, Fannie Mae and Freddie Mac, appears to be imminent. Between them, they account for 70% of all new mortgages in the United States. They hold over US$5 trillion in mortgage loans.

Shareholder equity will be effectively wiped out by the move to impose a government conservatorship on the two mortgage giants. The size of any liability assumed by US taxpayers isn't known, but will be many billions of dollars.

This is huge. What it means for the US economy is hard to say. I wonder how many - if any - pension funds lost huge money as the share values of the two biggies lost over 80% of their value in recent months?

Kiwibank looks like a winner - again

Kiwibank is going from strength to strength having announced a $36.m profit for the past year. That's up 19% on last year and Kiwibank says that is actually an 82% increase due to changed rules requiring last year's profit to be restated.

I moved my accounts to Kiwibank a few days after the ANZ, who I have dealt with for 23 years, announced they were sending 500 back office jobs to India.

Bad enough we are now scorched earth for manufacturing, but to loose clerical jobs to India in large numbers would ultimately gut our economy.

One of the interesting things I learned while working at IBM a few years back was that banks make 80% of their profits from the top 20% of their clients. In those days, they made mothing at all from the bottom 20%. Hence the move to much higher bank fees. For a huge chunk of relatively low-income banking customers, those fees are the only profit the bank makes from dealing with them.

This triggered the move toward setting up Kiwibank. It was essentially intended to offer banking services to that botttom 20% (and anyone else) who want banking with lower fees. It was also intended to exert downward pressure on the fees other banks could charge without losing customers.

Having spent 6 months in Canada last year "enjoying" the much higher banking fees they pay to their large banks, the value of Kiwibank to every NZ banking customer - whether they deal with Kiwibank or not - is very obvious to me. 

Employment: participation up

Economic journo, Bernard Hickey, of Interest.co.nz reports worker participation rates are up, which has pushed the unemployment rate up. More people are joining the work force or looking for work. The number of people employed rose 1% in the June quarter over the March quarter. Hickey says that is a big rise for one quarter.

I suspect the rising cost of living is pushing some who would prefer to be at home with the kids back into the work force in an effort to make ends meet. It may also be the case that in some sectors, people leaving for Australia has resulted in others being pulled back into full or part time work. I'd be one of these, having taken 18 months off to pursue personal interests before resuming paid work in July. I'm taking the place of a co-worker who left for Melbourne last Friday.

'Bright lights, big city' called and if you're tired of Auckland, there's really nowhere else to go but overseas. No government here can legislate against our remoteness.

Telecom's thrilla in Manila.

Today's NZ Herald reports that up to 1500 Customer Service jobs at Telecom may go to the Philippines after December. They have to say "may" or the current employees wouldn't feel any need at all to do a good job. Why bother?

But those jobs almost certainly already gone....unless - perhaps - the fall-out here at home is so bad that Telecom decide it isn't worth it.

Moves like Telecom's may make sense from their own point of view, but in aggregate they make little sense from New Zealand's point of view. In saving money on these jobs, they impose costs on all taxpayers and losses on all businesses who won't see sales to the people who used to work at Telecom. Millions will be sent to Manila to pay wages there - instead of here. Telecom's customers won't see improved service or cheaper phones or internet.

"While Mr Watts said the move had been beneficial to customers, Consumer NZ chief executive Sue Chetwin told the Dominion Post a recent survey showed 25 per cent of those dealing with the service rated it as poor or very poor."

Great timing, too, when many people are already finding it tough.....You send their job to the Philippines or Mexico or India where our labour laws don't apply and leave the taxpayer to pick up the local tab.

Thanks, Telecom.

Oram on pessimism and optimism

Economic and business journalist, Rod Oram, muses (Sunday Star Times) on whether Kiwis - individuals and business - are justified in being so negative about New Zealand's prospects in their responses to surveys of the public mood.

To some extent, the difficulties some are experiencing are the product of their own choices.

"Why many households over-borrowed and over-spent is a very difficult question to answer. Each individual and family would have its own reasons. But catch-up was perhaps a theme for many. After more than a decade of anxious slog through economic reforms, people felt it was time to reap more material rewards.

But it has left them poorly prepared to deal with rising interest rates, food, fuel and other costs over the past two years. And those factors will get only worse before they get better."

Oram notes that business is pessimistic despite things going well.

"Since this period of uninterrupted growth started in late 1998, they have been net negative 38% of the time. Yet, their profits have increased two-and-a-half fold over that period, as measured by corporate tax payments.

They have soared from $4.5 billion in 1998 to $11b last year."

The UMR survey asks: "Generally speaking are things in New Zealand heading in the right direction or are they off on the wrong track?"

You could fill that bucket with any angst or joy you happened to have on hand derived from any source. Marriage going wrong? Can't make the minimum on your credit card? Everything is off track.

I know it is just measuring sentiment, but to be any sort of realistic public assessment of anything, the question presumes the person being asked is sufficiently well informed to make an accurate response reflecting the real world. Measuring the anxiety levels of someone who hasn't got a blind clue what's going on won't inform public policy in any way unless you also determine the competence of the respondent.

The questions also presume everyone will give an honest answer. Hmmm.

Over the years, I've more or less come the conclusion that businesses don't much like Labour-lead governments and will respond very negatively to the general questions while being muc more accurate and realistic about their own company's prospects. I particularly remember how business talked down the NZ economy after Labour won in 1999. Almost to the point where their negativity became sfl-fulfilling. Only then did they pull back. They were cutting off their own noses to spite Labour's face.

Business has been particularly negative for the past four months. Sure, the rising price of oil may have a role there, but I hope no dairy farmers dared to express pessimism. It's just as likely that some business people use these surveys to dump on a government they don't like whether or not the country is on the wrong track or not.

Finally, most people have no idea how the world works or what lies ahead. If they did, they wouldn't be having debt problems or be caught out by the property market tanking. Their responses are useless.

Rod Oram may not feel he can declare these surveys of the public mood to be rubbish, but I'll go there. I think these surveys are worthless. They tell us some people are always wringing their hands for unknown reasons. The survey reports get some free earned media for the bank or whoever conducting / sponsoring it, and have some propaganda value for people who want to cast them one way or the other.