Seeds of Things to Come - Arthur Yates & Co Ltd Seed Catalogue 1932

 

Arthur Yates & Co 1932 garden annual cover

 
Arthur Yates & Co Ltd Seed Catalogue 1932

Arthur Yates & Co Seed Catalogue for 1932, offering among other things, parsnip, carrot, radish, lettuce, cabbage, spinach, onion, cauliflower, beet, turnip, and swede seeds. 

Never a fan of brassicas, cabbage and cauliflower, let alone turnips and swedes, left me cold as a child. Of course, I was told they were good for me - and I have to admit the medical and scientific evidence seems to be pointing in that direction. Persuade me with science, not with blind faith & "because I told you so's" directing me to eat the stuff!

The advertising copy states that the combined price for the seed packets pictured amounts to 6/- (6 shillings to the whippersnappers among you), equivalent to about NZ$32 in end of 2009 prices according to the handy dandy Reserve Bank of New Zealand calculator found here. 

There Is No Depression in New Zealand - Reserve Bank

The Reserve Bank Governor Dr Alan Bollard chopped the official cash rate from 6.5 percent to 5 percent on Thursday, the lowest level for five years.

In perhaps the "famous last words" category, Dr Bollard pronounced that "We believe the recession has ended and we will have positive but low growth for the next four quarters."

He then jawboned trading banks to "share the pain" and pass on the interest rate cut to their household and business customers and to keep advancing loans in tight conditions.

Banks responded by passing on some of the rate cut but not the full 150 points.

Trading bank economists think the worst is not yet over and that a 100 basis points cut in the OCR is possible at the next review in late January.

The major export markets for New Zealand are now contracting at a faster rate than previously estimated and the drop off in demand is likely to make the Reserve Bank's pronouncement that there is no longer a recession in New Zealand a mockery.

Should things get worse, Dr Bollard says the Reserve Bank has "a lot of ammunition in this box" to cut interest rates.

A pity the Bank didn't look around hard enough in that box for a tool (other than ammo) to squeeze the speculative bubble out of the New Zealand housing market a couple of years back. At the time it seemed the Reserve Bank was standing around saying it's all very terrible but we can't think of anything we can do about it.

More of the same inertia was exhibited in the recent deposit insurance policy fiasco when New Zealand got backed into a scheme because Australia had announced back in mid year it was going to pass legislation instituting its own scheme.

Did no one at No. 2 The Terrace think then that New Zealand would likely have to act to stem a tide of deposits following workers across the Tasman? Or that global financial meltdown would precipitate the conditions where New Zealand would be compelled in an open economy environment to match competitively overseas deposit insurance schemes?

Ideology rather than clear thinking still seems to guide policy in Wellington. And it's not just limited to the Reserve Bank.

So with apologies to Blam Blam Blam, 80s Kiwi rock band: There Is No Depression in New Zealand, Dr Bollard...

New Zealand Gains Currency Swap Facility with Federal Reserve as New Zealand Election Looms

Much under-reported by the New Zealand news media and certainly overlooked for its significance, the Reserve Bank of New Zealand announced on 29 October in a short press release that the US Federal Reserve's Federal Open Market Committee had approved a US$15 billion (NZ$26 billion) temporary reciprocal currency swap facility.

The currency swap will permit the provision of US dollar liquidity to New Zealand markets up to $15 billion through to 30 April 2009.

The currency swap, though modest by international standards, is similar to those used in the past month or two to ensure liquidity in the European Union, Japan, and elsewhere, where the Fed has essentially adopted a de facto international lender of last resort function.

When combined with evidence of tightening liquidity in New Zealand and the mis-management of the introduction of the recent introduced deposit guarantee system, the currency swap facility is no doubt an important lifeline for the Reserve Bank in its liquidity management in the months ahead.

Evidence is mounting of emerging liquidity problems. Expectations are that New Zealand trading banks which raise loan funds from issuing short-term commercial paper in London, a market that has effectively dried up in the short run, are very likely to have problems raising funds in the months ahead.

Reserve Bank data shows that $100 million of funds have been drawn down from the Reserve Bank's mortgage-backed securities liquidity facility recently. And the major trading banks have been quick to sign up for the government's deposit guarantee system.

Managed funds outside the deposit guarantee system are now experiencing a flight of funds to guaranteed deposits in other institutions, causing AXA New Zealand to freeze three of its mortgage-backed funds with $225 million under management.

Problems with the coverage of the Australian deposit guarantee system has seen Australian managed funds freeze more than A$24 billion in order to remain solvent.

Within the next 24 hours, the New Zealand government is also expected to announce its plans for a guarantee system for wholesale deposits to shore up the liquidity concerns surrounding the inability of the trading banks to secure funds in the London market for their lending operations within New Zealand. This should, perhaps, have been a first step in any deposit guarantee system rather than the retail deposit guarantee, especially as there was no imminent threat of a depositer run on banks.

Reserve Bank Approves Purchase of Mortgage-Backed Securities from Two Banks

The Reserve Bank has agreed to purchase NZ$8.7 billion of residential mortgage-backed securities from the ANZ National and Westpac banks should they require a liquidity injection.

Tightening liquidity in New Zealand does not stem from problems with domestic residential mortgage-backed securities since the problems of US-type sub-prime lending have not been permitted to occur in New Zealand. The problem, however, is in banks re-financing their needs in global financial markets where credit has become extremely tight. The parent companies of the major trading banks in New Zealand, headquartered in Australia, have, however, been writing down bad loans in recent quarters.

In early May this year, the Reserve Bank expanded its lender of last resort facility to trading banks by permitting residential mortgage-backed securities to be posted as collateral in return for Reserve Bank loans.

Reserve Bank Chops OCR Interest Rate by Full 1 Percent

Comparative Central Bank Interest Rates - New Zealand, Australia, United States
Fairfax Media

Reserve Bank Governor, Alan Bollard, has chopped the Official Cash Rate by a full one percent to 6.5 percent in his October review of monetary conditions. It was the single largest cut in the rate since the OCR was introduced in 1999. The OCR is the rate at which the Reserve Bank lends to or borrows from the NZ banking system.

With the increasing impact of the global economic crisis showing up in New Zealand's domestic recession in the form of weakening export demand, the Reserve Bank's hand was forced into a large cut. Market sentiment is that a further 0.75 percent can be expected in the next few months.

Domestically, the weakening of the housing market, tightening credit, a decline in Fonterra's payout to dairy farmers next year, and increasing unemployment are combining to shift the Reserve Bank's concern to offsetting weakening demand from inflation control as price increases are moderating.

New Zealand Deposit Insurance Capped at $1 million Per Account

John Whitehead, Secretary to the Treasury, has announced that New Zealand's opt-in two year limited deposit guarantee scheme will cap the size of deposit that is covered by the guarantee to NZ$1 million per depositor per guaranteed institution.

The contingent liability of the deposit guarantee is estimated at NZ$450 billion.

The Reserve Bank and the Treasury have yet to announce whether wholesale deposits between banks will be subject to a deposit guarantee. Thus far, the government has held that such a guarantee is not necessary.

Inflation Surges as New Zealand General Election Nears

New Zealand's inflation rate, as measured by the consumer price index, spiked 1.5 percent in the September quarter.

The annual rate inflation is now 5.1 percent, clearly above the level of the inflation target of 1 to 3 percent over the medium term incorporated in the Policy Targets Agreement between the Minister of Finance and the Governor of the Reserve Bank.

Of course, the medium term inflation target has become secondary in the short run to the policy objective of combating the current economic recession and maintaining the stability of New Zealand's financial system in the present global crisis.

Inflation is expected to moderate as the global recession feeds through into the New Zealand economy and as oil prices in particular fall. Offsetting this trend may be the depreciation of the Kiwi dollar but importers will be under pressure to shave profit margins instead of passing on rising costs as domestic demand weakens.

Deposit Insurance to be Tightened Up for Finance Companies

In a sloppy exercise in policy formation, the Reserve Bank and the Treasury have belatedly moved to tighten up the deposit insurance regulations that will apply to finance companies following trading bank representations.

Finance companies that are rated BB or below or are unrated will now have to pay a fee set at 300 basis points each year on cumulative deposits to receive a deposit guarantee.

Non banks will also face tighter regulatory requirements, reporting standards, and be subject to government inspection.

Non-resident depositor accounts will be covered by the deposit guarantee but they will be capped at the 12 October account level plus 10 percent per year (for the two year guarantee period) to allow for interest and deposit variations. Foreign depositors note: there is, therefore, a limit to the guarantee on your deposits! Reserve Bank revised regulations press release here.

No doubt this limit on the guarantee on non-resident deposits will have a chilling effect on foreign deposit inflows into New Zealand. This is hardly a reassuring signal at a time when credit availability is tight in NZ financial markets and offshore funds are necessary to continue financing credit lines in New Zealand.

The Green Party has criticised the failure of the monetary authorities to regulate lending by finanicial institutions and the institutions themselves for profligate lending (Green Party statement here). The Greens have also demanded that deposit guarantee regulations be accompanied by reciprocal guarantees of responsible lending practices and social responsibility by financial institutions.

As argued in a previous post, a privilege granted by a government - a deposit guarantee - should be accompanied by a duty - including a risk-based fee - on the part of the financial institutions to comply with tightened regulations on lending activity and balance sheet management, something that was largely missing from the first draft of the deposit guarantee policy released to the public.

New Zealand To Introduce Shonky Deposit Insurance

PM Helen Clark has announced the Labour government will now introduce a deposit insurance scheme that will provide coverage for the next two years. Fees for the insurance will be assessed for institutions with $5 billion or more in total retail deposits.

Update: read details released by the Reserve Bank of the "opt-in" deposit insurance scheme here.

Deposits in banks and non-banks such as building societies, credit unions, and finance companies will be covered, but each institution must choose to join.

The voluntary nature of financial institution participation underscores New Zealand misunderstandings of the policy objective of deposit insurance: it is designed to protect the financial system from systemic failure - a run on the banks; it is not designed to protect individual institutions from illiquidity, however much individual depositors may focus on that.

Permitting individual institutions to opt out of deposit insurance coverage is to turn your policy charged with ensuring financial system stability into a very leaky boat.

The major trading banks will very quickly get the message. To fail to join the deposit insurance system will tag their deposits as unsafe and uneasy depositors will start moving funds to insured accounts. Poor policy design, however, will create unnecessary and possibly costly uncertainty at the onset of the scheme. The "loan sharks", however, will be left to prey on unsuspecting depositors.

Thus, deposit insurance is a condition of obtaining a banking licence, not an option. Moreover, with deposit insurance - a socialisation of bank liabilities as the government through the insurance fund guarantees to back bank liabilities - must come tighter asset standards to be supervised by regulatory authorities, otherwise bankers or at least the shadier kind of financier has the incentive to take the depositor's money and run - into more speculative lending practices.

Let's hope someone at the Reserve Bank and the Treasury gets the picture on this and is persuasive enough to turn the policy around on this point.

Update: It appears that the policymakers were either in agreement with the politicians or were overridden because the Reserve Bank has announced the details of the voluntary system that is euphemistically being called "opt-in" insurance.

The National Party, in opposition but leading in the polls, was not consulted on the insurance proposal, according to leader John Key. But Key and National Finance spokesperson, Bill English, have welcomed the proposal. They do, however, expect a bi-partisan process to be followed in designing and adopting the scheme. English will be briefed by the Reserve Bank on Monday.

Given the critical importance of deposit insurance to maintaining the nation's confidence, and that of internatonal lenders, in New Zealand's financial system that is a reasonable and proper course for both political and economic reasons.

Blog comment: this blog pointed out the absence of deposit insurance in New Zealand and the vulnerability of New Zealand's financial system back in July soon after the blog's creation. In recent weeks we've called for deposit insurance to be introduced. Global events have made such a scheme inevitable. It is unfortunate that the insurance system is only a voluntary one. As argued above, carrying deposit insurance should be seen as a duty or obligation of obtaining a banking licence in order to promote the public interest in a sound and stable banking system.
Stay tuned...

Roundup on the Economic Crisis

Former Governor of the Reserve Bank & former Leader of the National Party, Don Brash, on the current global financial crisis, its impact on New Zealand, monetary policy settings, deposit insurance, and fiscal policy.

The second interview is with John Yeabsley, Director of the New Zealand Institute of Economic Research, the premier economic research institute in the country, on the Institute's latest set of forecasts and business survey.

Video is from the TVNZ breakfast show, October 8 or 9, 2008.

A virtual chocolate fish or buzz bar for the first commenter to identify who the figure is looking over Don's shoulder...

Manufacturers Call for Deposit Insurance in New Zealand

Echoing some of the policy changes called for on this blog in recent weeks, the New Zealand Employers & Manufacturers Association (Northern) has called upon the Reserve Bank to do the following:

"While the recent tax cuts will help, the Reserve Bank now needs to:

* Cut the Official Cash Rate (OCR) by at least one percent;

* Ensure NZ banks have access to sufficient Reserve Bank credit to ensure responsible lending can continue;

* Reassure business, depositors and lenders that our banks are safe and fully able to keep on lending.

"The Government needs to assure depositors that, should it be required, it will guarantee them even though all our banks are rated amongst the top 26 in the world.

"Now is not the time to maintain and overly narrow focus on inflation. Restoring confidence to ensure the recession does not deepen must take priority."

Friday, 10 October 2008, 10:15 am
Press Release: Employers And Manufacturers Association

Reserve Bank of Australia Slashes Interest Rates

The Reserve Bank of Australia cut its official cash rate a full percentage point to 6.0 percent overnight in response to tightening domestic credit conditions and stock market volatility brought on by the global financial crisis. It was the RBA's largest cut since 1992 and stunned financial markets because of the abrupt U-turn in Australian monetary policy.

Reflecting tight credit conditions, Australia's major banks only passed on 80 basis points (0.8 of the 1 percent cut) to their variable home loan rates.

Australia's OCR cut comes later than the two in New Zealand in recent months, but the Australian cut will intensify pressure on the Reserve Bank of New Zealand to cut its OCR further.

While You Were Sleeping... Federal Reserve Acts with Massive Global Liquidity Injection

The US Federal Reserve acted in the dead of night to try to stem the tide of the global financial crisis that rose to a economic tsunami level in recent days as major bank and insurance company failures in the U.S. and U.K. threatened a systemic failure of financial institutions around the globe.

In a press release dated 3 am, September 18, the Fed announced its Federal Open Market Committee (FOMC) has authorized a $180 billion currency swap with other central banks, namely the EU's European Central Bank, the Bank of England, the Bank of Japan, the Swiss National Bank, and the Bank of Canada. These arrangements will underpin the extension of greater liquidity to the financial systems of the respective countries in the hope that global financial markets will settle down after the wave of recent failures of large financial institutions.

No news yet out of the Reserve Bank of New Zealand as to its reaction to the moves.

On the good news front, the Reserve Bank Amendment Bill (No 3) was passed by Parliament on 3 September making the Reserve Bank the regulator of non-bank deposit takers such as finance companies, building societies, and credit unions. One fly in the ointment: the Reserve Bank will assign an important role to "reputable" credit rating agencies in the new regulatory set-up, the same kind of credit rating agencies implicated in failing to effectively monitor the sub-prime meltdown in the U.S. Huh?

Nothing like waiting till the horse has bolted. Shame on governments and policymakers both in the U.S and New Zealand for not having established effective regulatory regimes 30 years ago when they liberalized markets concurrent with a wave of new financial innovations in the form of financial derivatives.

Perhaps they would be singing different songs from these now:

Heard in many financial districts around the world this week:

Meantime, the Central Banker Chorus is wailing:



Wake Me Up When It All Ends...

Reserve Bank Chops OCR by 0.5 percent in 2nd Rate Cut

The Reserve Bank slashed the Official Cash Rate, its lending rate, 50 basis points - twice as much as expected by financial analysts - in its second rate cut in around six weeks. The cumulative rate reduction is now 0.75 percent. See press statement here. The September Monetary Policy Statement released at the same time may be found here.

With its primary policy responsibility as set out in the Policy Targets Agreement (PTA) as the requirement to keep inflation within the 1-3 percent range in the medium term, the Bank predicts that the "marked slowdown, led primarily by the household sector" will result in "lower inflation pressures in the medium term". An easing in world oil prices is probably likely to more than offset the depreciation of the Kiwi dollar that is taking place in recent weeks as the US dollar regains some strength.

The Reserve Bank points to tightening credit conditions within New Zealand impacting households and business as grounds for bringing forward its easing of monetary conditions. No doubt the Bank is mindful of the chronic financial stress in some parts of the financial sector (see yesterday's post) and the real estate market, and the high debt burden of the household sector that in the absence of monetary easing might precipitate an accelerated rate of foreclosures and personal bankruptcies. After years of low domestic saving rates and a consumption binge, "tomorrow" has arrived and the chips are falling where they may.

Edgy times at the Bank.

While this blog concluded back in late July that "A half-point cut, and some months ago, might have been more in order given the increasing gravity of the financial instability and weakening macroeconomic conditions", we are under no illusions that Governor Alan Bollard reads our scribblings. Still, we are pleased that through ESP or analysis moving in parallel he has reached the same conclusion albeit a bit later in the piece!

And Another One Bites the Dust…

Yet another New Zealand finance company, Dominion Finance Group (DFG), has nose-dived into receivership with some 6,000 investors owed NZ$224 million.

This follows closely on the announcement that receivers project payouts to Lombard Finance investors to be reduced to 19 to 40 cents on the dollar for the $127 million owed them.

While Lombard’s receivers have flogged off the managing director’s company-owned Maserati Quattroporte sports car for $97,000 and the former chairman’s Volvo for $19,000, such asset sales have failed to offset the write down as bad debts of the coastal subdivisions owned by the company. The real estate market has treated these properties as if they were so many sandcastles facing the incoming spring tide.

In the past two years more than a dozen finance companies have been placed in receivership with 30 either in receivership or under financial stress affecting in excess of $3 billion in investors money.

In related news, a World Bank survey reports New Zealand is ranked second in the world (after Singapore) in the ease of doing business. The small Kiwi investor must be greeting this news somewhat ruefully with the thought that they meant “ease in losing your shirt – and pants” while the managing director tooled around in the corporate Maserati trying to relive his days as a boy racer.

If politicians like Winston Peters, leader of NZ First, had spent less time tilting at windmills and doing a whip round for his legal expenses without regard to electoral financing laws and more time keeping the finance sector honest, some of the mismanagement and inadequate prudential supervision of finance companies might have been brought to the light of day.

Instead a macabre cannibalistic ritual is being enacted at Parliament to see which political party can disembowel the others first in the run up to the anticipated November general election, with Peters as perhaps the deserved first kebab on the spit. "This horrid practice", indeed, as Captain Cook might have put it.

Meanwhile, across the street at No. 2 The Terrace in the Windy City, the Reserve Bank is picked to cut interest rates by 25 basis points tomorrow (Thursday NZ Time). Don’t expect any mea culpas anytime soon from that quarter on the inadequacy of its prudential supervision of non-bank financial institutions. In true central banker smugness it reassures all and sundry that all is well with the financial system and its (regulatory) work is good. To do otherwise, in conventional wisdom, is to invite the barbarians at the door to the Governor’s whiskey and to precipitate financial crisis.

Expect, as in the US, a lot of finger pointing in the run up to the election instead of a thorough, honest policy discussion of how both legislatures and regulatory authorities in both countries dropped the ball repeatedly over the past couple of decades in the name of market liberalization. Let’s hope the All Blacks don’t take that page from the playbook when confronting the Wallabies in the final Bledisoe test on Saturday. It’s a losing strategy.