If you have term deposits in a NZ bank watch out!

Yes the "levers are in place" as Minister of Finance announced earlier. In the event of a banking crisis, part of your term deposit could help bail out the bank . Listen to Radio New Zealand interview by Kathryn Ryan today at http://podcast.radionz.co.nz/ntn/ntn-20121112-0908-banks_making_record_profits-048.mp3. Bernard Hickey says banks ought now to give you a higher interest rate in your term deposit because the Reserve Bank now has in place what is called the Open Bank Resolution. This means that those who hold assets with a bank will be called on to help bail out the bank in a bank crisis. What is so disturbing in this interview is that the size of a banking crisis can be 35% if GDP and an expert being interviewed told us that this figure is common. Nicole Foss reminded us that Government bonds are much safer. Personally I have moved my term deposits to Government bonds and I know others who have taken Nicole's advice. If you don't want to do this then take Bernard Hickey's advice. He says that because your term deposit is now at more risk due to the Open Bank Resolution being in place, you should go to your bank and demand a higher interest rate. All of which reminds me of what Bernard Lietaer has been saying for decades. If banking crises happen that often there must be something systemically wrong with the system itself. Read his website or any of his books, including the Club of Rome book Money and Sustainability, available from Triarchy books.  He lists the number of banking crises, sovereign debt crises and currency crises which have happened round the world in the last ten years. It is horrifying. He says the on-going financial crisis results not from a cyclical or managerial failure, but from a structural one: more than 96 other major banking crises occurred over the past 20 years, and these crashes have happened under very different regulatory systems and at different stages of economic development.

NZ borrowing to lend to IMF, the latest absurdity

It’s a strange world this world of money. In the melee of the Greek elections and the frantic ramming through of the asset sales legislation came a strange announcement, but it was lost. It wasn’t even reported in the Dominion Post. The Government would be lending $1.26 billion to the IMF’s new bailout fund for the debt-wrecked Eurozone, but it would have to borrow this first. In addition to earlier billions for the stabiility fund, the total cost to NZ would now be over $4 billion, according to Bill English. Ponder on that one! We borrow in order to lend in order to save Europe. Whew. The child in us will ask how money is created in the first place. Can only banks create money? Of course not. We the people can create our own money without the burden of interest. But we stupidly use banks. These days we don’t even use our own banks. So to add insult to injury, when we want to borrow, we go to overseas banks for loans because their rates are cheaper. So let’s get this again. We borrow $1.26 billion at interest and then lend it to the IMF. What? At interest? They don’t say. And they will give it back, the part they don't use apparently. The Minister of Finance says it is our insurance policy. And it is the banks who are in trouble.  So we pay interest to the overseas banks so we can protect them from future bad debts. This is Alice in Blunderland stuff.  Where is the cartoonist? Reuters has just reported “Ireland's High Court began hearing a challenge to the European Union's new bailout fund on Tuesday, launched by a politician who said the European Stability Mechanism (ESM) was not compatible with the Irish constitution.” The Guardian reports: “This, for certain, is a high stakes game. Part of Europe's fighting fund has already been spent on bailing out Greece, Portugal and Ireland. Spain has also pledged funds to the EFSF and ESM, and these clearly cannot be spent buying up the country's own debt…. If the gamble fails, Spain will still need a bailout and Europe will have nothing left in the kitty for Italy.” So let's go back to the Pre-election Fiscal Update and see what it assumed about Europe. I seem to remember ...yes here it is: The PREFU's main forecasts critically assume the reasonably orderly resolution of sovereign debt problems in the euro area. Wow they were so wrong. And these our best economists and financial experts? An ordinary person listening to the news can do better. They could see that if you are solving debt by lending ever more money to a country, the problem won't be solved. And here is another thought. If Greece is too big to fail, and Spain is too big to fail and Europe is too big to fail, then it is going to apply to UK, US and China too.  Who knows where it will stop? The size of the global economy is about $63 trillion. According to Bernard Lietaer et al in Money and Sustainability, the Missing Link, "one day's currency speculation represents more than the annual economic output of Germany or China changing hands. The notional amount of currency derivatives are now more than $700 trillion today. Currency derivatives by themselves represent therefore almost nine times the entire global annual GDP". And that is only one type of derivative. No, the IMF's bailout fund is going to fail and it must fail because it can never match the power of the investment banks.    

As Europe counts down to Friday, global temperatures set to rise further and further

Today we heard the greenhouse gas emissions had risen by 5.9% in 2010. The world is on track for an 11 degree F rise in temperature and this came from the normally conservative Fatih Birol of the International Energy Agency. He had quite recently stated "We need to leave oil before it leaves us." Something will have to happen quickly or else it will become completely irreversible.

Meanwhile our Treasury has of course stated that it has to revise the preelection forecast for economic growth, which, as I pointed out before, was predicated on three inaccurate assumptions. As I was gardening today I wondered how they managed to get it SO WRONG. Anyone with a brain who was following the developments in the Eurogeddon crisis could see there would be no smooth resolution of the debt crisis there. You can't solve debt with more debt, it just puts off the day of reckoning.  And they assumed the price of West Texas oil would not go beyond $93 a barrel by 2016. Well I looked at the trend of that and it has already been beyond $93 but has dropped back. It is the lowest of the three types of oil quoted in our paper every day. On 2 Dec it was $100 a barrel and Dubai, which is the oil we rely on, was $106. As for growth of our trading partners, forget it. I don't know why we pay these Treasury officials so highly if they are so stupid.

This week five people from Transition Town Lower Hutt put out a warning on the Euro crisis and suggested planning for a crisis by having a store of food, money and water. Sensible people all of them. Robin Westenra does a wonderful blog.

But good news. Today we heard from two people in Nelson who want to start our first branch there so we put them in touch with each other! And some really good people have now joined including a well respected environmental economist.

I received a letter back from the Minister of Defence last Friday saying no they had not received any information on the security implications if ur oil supply is disrupted.  He referred me to the Defence White Paper 2010  on www.defence.govt.nz. I haven't had time to read it all, but once again I despair if our Minister of Defence and his officials don't read the military reports put out in Germany and in US on the implications of oil supply for defence. Maybe there is a frustrated official somewhere in the Ministry of Defence. A job for someone?

So we await the Merkosy solution to the Europe debt issue