In This Edition: Super Crisis!!! - Sludge Meets Industry Captains - So Many Ears To Bend, So Little Time
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C.D. Sludge can be contacted at sludge@scoop.co.nz. The Sludge Report is available as a free email service..Click HERE - http://www.scoop.co.nz/mason/myscoop/ to subscribe...
Sludge Report #80
Super Crisis!!!
Go Kim!
This morning’s multiparty debate (excluding the Government) on Superannuation on Radio New Zealand’s Kim Hill show is
probably the closest thing New Zealand has had to multi-party, free and frank discussions on the super issue since the
days of the failed super-accord.
In this morning’s discussions only one thing was reasonably clear. The idea of borrowing money to spend overseas, at the
risk of losing it all, is considered daft by a broad cross-section of Parliament.
And that the government is panicking is also clear.
Quite apart from the cowardly absence from this morning’s debate, Cullen’s actions have had panic written all over the.
First he announced that this is the issue the election will be fought on if necessary. Sludge might have thought it
would be worth consulting caucus his first!
But now Finance Minister Michael Cullen has, it appears written NZ First’s Winston Peters something akin to a blank
cheque in order to get the support he needs for the centrepiece of his economic policy.
Again it would appear he has done this without first consulting either cabinet or caucus. And as there are no cabinet,
caucus or committee meetings this week, Cullen will be sailing blind for some time yet.
And so, in the absence of his suddenly coming to his senses, in Sludge’s opinion, our Finance Minister could soon be six
feet under in the hole he is in the process of digging for himself.
Sludge’s advice to sceptical pundits in the government is to count.
Cullen has at present the Labour and the Alliance votes in his support, plus support from United Future NZ’s Peter Dunne
and conditional support from Winston First.
More importantly, according to the wind, he only has the Alliance votes as a quid-pro-quo for his support of Anderton’s
Kiwi Bank.
If this is true then Cullen is about to make not just the one unholy alliance (his new, yet to be consummated marriage
to Winston) – but two, to get his numbers in line.
This does not auger well for an issue that, in principle, requires broad bipartisan support in order to get off the
ground, and which is idea election fodder.
This morning Cullen has had one break in his favour, he has received United Future’s Peter Dunne’s support. But as Peter
has made a career in recent times out of propping up failing government’s ever-thinning majorities, his support should
not necessarily be taken as a good omen.
But even with both the Alliance and Peter Dunne, and assuming he does not face a rebellion from among his own or his
coalition partners back-benches, Cullen hasn’t got enough votes unless he signs up to the Winston amendment.
All that can be said about this is that any decision to hop into bed with Winston and his merry men, will be very
carefully thought out by Government strategists. When considering the idea the fate of Jim Bolger, the last person to
make such a deal, comes quickly to the fore.
And of course this is not a decision that is entirely up to Michael Cullen alone. What will Helen think?
Watch this space.
******
IMAGE: PM Talks To A Couple Of Suits
Sludge Meets Industry Captains - So Many Ears To Bend, So Little Time
Speaking of New Zealand’s economic fortunes, C.D. Sludge was rather honoured to be invited last week, along with the PM
(pictured above), to the launch of Business New Zealand.
The launch had a very exclusive invitation list including such luminaries as new MED chief Geoff Dangerfield, NZ trade
negotiations guru and next Washington Ambassador John Wood (soon to become the neighbour of both Dick Cheney and Bill
Clinton), and Reserve bank Governors Don Brash and Murray Sherwin.
Also present were a few select captains of industry, such as Business Round Table spokesman Roger Kerr, plus the
delightfully friendly and sanguine staff of the various components of Business NZ itself, and a handful of politicians
including National’s Lockwood Smith.
C.D. Sludge was one of only three journalists at the event. So many ears to bend, so little time.
Sludge had hardly stepped out of the lift and it was all on.
He immediately bumped into an old acquaintance who has proved relatively hard to get a hold of lately, Reserve Bank
Governor Dr Don Brash. To be fair on the doctor it is hardly surprising that he has been giving Sludge a wide berth of
late as Sludge’s championing of the supply side of monetary policy theory has been growing increasingly strident.
As Sludge approached Dr Don was already discussing the relative merits of his remaining sole judge of interest rates
with an industry captain, and so Sludge was easily able to slip a curly question line into the melee.
Sludge asked Dr Don why he had refused to accept an invitation from the New Zealand Banking Reform Group to speak at a
public discussion on monetary policy alongside leading UK banking reform author Michael Rowbotham. (Rowbotham is
pre-eminent in the field of banking reform, and the Banking Reform Group has been in Sludge’s ear of late about its
invitation to the doctor.)
Dr Don replied that he could see very little point in engaging with a discussion with the proponents of social credit
theory. He explained he had had some discussions about such matters back in the early days of his career, and he had
nothing more to say.
Sensing a dead end on this tack, Sludge moved attention to the recently completed Monetary Policy Review. “Aren’t the
findings of review really of the consistency of mashed vegetables, lacking all definition,” Sludge remarked.
Dr Don, unsurprisingly, did not think so, but by now he had taken the bait.
Sludge then moved on to debate subject of the today, Government plans to borrow the funds it plans to inject into the
superannuation scheme: “Wouldn’t it make much more sense if the money for this investment were borrowed off the Reserve
Bank at a far lower interest rate than the current OCR?”
Dr Don smiled. “Of course the bank could create credit….”
And then the PM interrupted. Dr Don was about to say…”but it won’t.”
Sludge then moved on to NZ’s Trade Supremo John Wood, asking whether he thought the US Democratic Senator’s proposal -
which emerged last week - to propose granting authority to President Bush to negotiate a trade agreement with NZ would
have any legs.
Wood’s answer, as might be expected of such a senior diplomat, was impenetrable. Nevertheless Sludge was left with the
distinct impression that Wood was up to something. And it is from instinctual impressions such as this that rhetorical
edifices grow (Watch this space…)
Then, after the PM’s address, Sludge moved to Dr Don’s deputy Murray Sherwin. If the good doctor wouldn’t front for
Rowbotham, then would he?
Like Dr Don, Sherwin could see nothing constructive to be gained from debating issues of credit creation publicly at
such a high level of the bank, and like Dr Don, Sherwin offered NZ Banking Reform the services of a less well-known
official from the bank.
But, as is often the case at such events, it was not quite so easy for Sherwin to escape Sludge’s grasp. In the brief
discussion that followed Sherwin remarked that the relationship between GDP growth and money supply growth was tenuous.
Sludge by now had the bone between the pearlers. Drawing a picture of two lines chasing one another, Sludge replied that
from observation, GDP growth and money supply growth tracked one another very closely, in fact M3 could be considered
almost as a leading index for GDP expansion.
“Oh but you really have to be very careful what you read into those tables,” replied Sherwin, taking up the usual
refrain of the central banker.
Sludge replied that sources said commercial banks conducted elasticity studies to assess whether supply-side instruments
(like offering overseas holidays as an incentive to refinance) had an effect on the take up rate of new mortgages.
“Wasn’t this proof that money supply growth is not solely a demand driven phenomena?” Sludge asked.
The supremacy of the demand effect on money supply is an article of faith among central bankers, and Sherwin was having
nothing more of this heresy. Redfacedly, he quickly took his leave.
With Sherwin gone, C.D. Sludge now had a chance to catch up with a member of the Business NZ team who has been receiving
a great deal of radio exposure of late, Alasdair Thompson of the Northern Employers and Manufacturers Association.
Thompson is a constant critic of the high interest rate policies of the Reserve Bank, and is thus, in Sludge’s view
almost a brother in arms.
In reply to Sludge’s affirmation of his views on the manner in which the Reserve Bank has been strangling the NZ economy
of late, Thompson remarked that he had just received a strongly argued reverse position from the Business Roundtable’s
Roger Kerr.
As Kerr was, just then, flashing past, Sludge waived him down.
C.D. Sludge was rather surprised to hear that a representative of New Zealand’s largest businesses – many of which are
severely indebted - was cautioning a representative of smaller enterprises about speaking out against NZ’s cripplingly
high interest rates.
Kerr defended his argument saying there were risks of inflation lurking. And he could not be swayed by either Sludge, or
Alasdair Thompson from this view point on the matter.
So there you have it. From the horses’ mouth so to speak.
The NZ Business Roundtable, Dr Don and his Deputy Sherwin are in agreement - even though New Zealand has experienced of
late rates of growth around half those of the USA, and even though NZ money supply expansion has been at historically
low levels for two years, it is not only considered just, but necessary for NZ to have the highest interest rates in the
OECD by its luminous business people.
Anti©opyright Sludge 2001