Financial Instability Intensifies

In quick succession, the Bank of New Zealand’s parent company, National Australia Bank (NAB), and the ANZ Banking Group announced writedowns of bad debt flowing from the US sub-prime (read “junk”) mortgage meltdown in recent days.

On Friday, NAB, said it would be making a A$830 million (NZ$1.07 billion) provision for indirect losses incurred in the US housing market. This was followed by the ANZ Banking Group’s statement on Monday that it would be writing down a further A$1.2 billion, bringing its annual debt charge off to around A$2.2 billion.

New Zealand’s top five trading (or commercial) banks are controlled by large Australian retail banks such as NAB and ANZ Banking Group, which operates the ANZ and National brands in New Zealand. The major Australian banks have claimed in the past that they had little exposure to the US sub-prime market.

It can only be hoped that the financial news from across the Tasman has shaken the smug conceit of a panel of New Zealand economists who in a Radio New Zealand National interview on July 19 concluded that the New Zealand banking system faced little exposure to the US sub-prime market.

New Zealand does not have a deposit insurance system for bank accounts.

Time for Cool Heads at No.2 The Terrace, Wellington,
Home of the Reserve Bank of NZ
Photo: Kaihsu Tai, Wiki Commons

The day before news of the NAB debt write down, the Reserve Bank of New Zealand cut its Official Cash Rate (OCR), its lending rate by a quarter point, to 8.0 percent. It was the first cut in five years.

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, but a policy stance single-mindedly set in recent decades on inflation control holds monetary policy hostage to outdated eighteenth century ideas.

Admittedly, the Reserve Bank’s hand is constrained by not only a legislated primary monetary target of price stability, but also the need to keep monetary conditions tight to offset the effects of a widening current account deficit. High interest rates have encouraged international capital to flow in to fund the trade deficit, but that in itself has exacerbated the high exchange rate, reducing the international competitiveness of New Zealand exporters.

In early May, in a precautionary move, the Reserve Bank expanded its lender of last resort facility to trading banks by permitting home mortgage securities to be posted as collateral in return for Reserve Bank loans.

Meanwhile, in the United States, troubled banks drew a daily record US$17.7 billion from the Federal Reserve’s discount window facility on July 23, the highest sum since shortly after 9/11 2001 when $45 billion was borrowed on Sept. 12. Average daily discount window borrowing is running at 16 billion in late July, indicative of the deep financial difficulties in the US banking system.

All Blacks Crushed by Wallabies 34-19

The All Blacks were crushed by the Wallabies 34-19 in Sydney in a tightly fought contest. The ABs, without captain Richie McCaw, had problems in the loose forward department, but there was plenty of drama with a slew of tries, a coat hanger tackle from Brad Thorne that sent him to the sin bin, and solid tackling from both sides.

As The Sunday Star-Times headline put it, "A Dingo Ate our Soft All Blacks" in a reference to Robbie "Dingo" Deans, Australian coach. The New Zealand Rugby Union board must be ruing its decision in late 2007 to continue with coach Graham Henry after a poor AB showing at the World Cup and turning away Robbie Deans, successful Canterbury Crusader coach, who shortly thereafter took up a coaching contract with the Wallabies. Down in Canterbury Crusader country, there'll be bitter feelings about the NZRU's poor decisions, a board renown for never admitting its mistakes.

With their prospects of securing the Tri-Nations series or successfully defending the Bledisloe Cup against Australia fading away, the All Blacks and their supporters in the run-up to the re-match in Auckland next week might need a boost from this 1950s All Blacks Football Song , backed by the Woolston Brass Band.

Meat Pie - Kiwi Classic Put on Diet

That Kiwi Classic, the meat pie, has been slimmed down. In response to growing consumer concern about obesity rates, pie manufacturers are altering their recipes for the Kiwi staple which has clogged the arteries of generations.

Goodtime Foods claims its line of Metro pies are lower in saturated fat and sodium with higher fibre content. The PR flyer on their website suggests the total fat content of the typical pie back in 1963 was 30g., something less than the size of a golf ball. By 2007 the typical pie was down to 23 g of total fat, 13.6 saturated fat. Now, the average Metro pie has just 13 g of total, 7.7 saturated fat.

In comparison, McDonald's Big Mac (US version) weighs in at 29 g of total fat, 10g saturated. Throw in a small bag of chips/fries and it's another 11 g total fat, 1.5 saturated.

The Heart Foundation has been so impressed it's given a heart-healthy tick to the Metros. Goodtime does add the proviso that while Metros are a healthier choice, "they are an occasional food and should be eaten in moderation as part of a healthy, balance (sic) diet"

Apparently, Goodtime's other pie brands - The Classic and the Hub - are so nutritionally beneficial to its patrons that there is no need to post their nutrition facts on its website. Uni students can continue to eat them safely for breakfast.

Goodtime is reported to have infiltrated the Metro into around 500 schools as the nutrition revolution in tuck shops continues unabated.

There are reports, however, that school kids are slipping off the premises to local corner dairies to get a fix of fried chicken. The battle of the waistband continues...

Canterbury Agricultural Restructuring Continues

The Canterbury Plant, Silver Fern Farms’ meat works in Belfast, Christchurch is to close with the loss of 250 jobs. While some workers may get 70 jobs elsewhere in Silver Fern Farm’s operations, the net loss of jobs is symptomatic of the decline in the New Zealand sheep meat industry in recent decades.

A complex mix of factors has contributed to the decline: the removal of farm subsidies in the mid 1980s, a shift in consumer demand away from lamb & mutton as well as the complementary product, wool, high interest rates and an appreciating Kiwi dollar. Between 1990 and 2005, sheep, cattle, and wool output dropped by an average of over 0.5 percent per year, while dairy output expanded by an average 5.3 percent per average.

Sheep numbers in New Zealand have fallen 45 percent over the past 25 years, from a record 70 million in 1982 to 38.5 million in 2007.

In Canterbury, the province that acts as the hinterland for livestock supplies to the Belfast plant, there has been a pronounced shift from sheep & cattle farming to dairying in the past decade or so reflecting the relative profitability of the respective farming enterprises.

Strong international demand for dairy products, reflected in escalating export prices in the last few years, and the availability of irrigated pasture in Canterbury at cheaper land prices than in historically important dairying districts of the North Island have contributed to the “stampede” of cows to the South Island. (Or more accurately, the “land rush” of dairy farmers).

Higher land prices have exacerbated the problems of Canterbury sheep & cattle farmers trying to return to profitability. Increased competition for land use has also come from the rapidly expanding wine industry as vineyards have supplanted traditional sheep & cattle farming.

Sheep numbers in Canterbury fell 7.6 percent between 2002 and 2007, while in the same five years, dairy cattle numbers grew by almost 40 percent. Sheep and lamb numbers are estimated to drop by a further 2.2 million livestock units in the coming year.

The area planted in wine grapes in Canterbury grew by 125 percent over the same period to encompass an area of almost 1700 hectares, a relatively modest area compared to some 70,000 hectares in wheat and barley, but nonetheless a source of upward pressure on land prices in the province.

The influx of dairying into Canterbury has not been without its problems. Increased demand for water is highlighting the scarcity of water on the Canterbury Plains as well as the efficiency and effectiveness of the current water rights regime. There is also rising concern about the effect of increased dairy effluent and artificial fertilizers on Canterbury waterways and aquifers. It is likely this concern over runoff will result in higher costs for dairy effluent treatment.

Meantime, the meat processing industry continues to downsize, something that many Belfast workers anticipated over recent years. Substantial meat work closures and corporate consolidations occurred in the industry in the late 1980s into the 1990s. There is mounting pressure for the two major South Island producer cooperatives, Alliance and PGG Wrightson, to re-engage in merger talks that might further consolidate meat processing capacity in the South Island.

This may be small comfort to many of the workers laid off at Belfast. Many are older workers over the age of 50 who have worked at the plant for much of their careers. Their prospects for alternative employment, with a skill set no longer much in demand, in a rapidly slowing economy are likely to be slim.

Christchurch Past & Present # 2 Time Flies… Across Town

Clock tower looking south on Manchester Street, circa 1910

The Jubilee/Victoria Clock Tower was originally commissioned to be placed on one of the towers of the Canterbury Provincial Building. Designed by Benjamin Mountfort, it was made in England and arrived in Christchurch in 147 packages in December 1860. Iron tower and clock were separated when it became clear the structure was too heavy to be placed on top of the Provincial Building. The clock became the first “town clock”, curiously placed so that only the chimes could be heard but the face could not be seen. In the 1870s it was stored in the city council yard until someone had the idea to erect the clock & tower on the corner of High, Lichfield, and Manchester Streets to commemorate the 1897 Diamond Jubilee of Queen Victoria's coronation. The original iron tower was supplanted with a volcanic stone and limestone structure complete with ornate wrought iron work.

Clock tower looking northwest up High Street, circa 1910

A wider view looking in the same north-westerly direction.

The dog would be in violation of leash laws a century on, leaving its owner liable to a fine and the dog to the animal control officer.

With the growth of motorized transport, the clock tower came to be viewed as a traffic hazard, reducing vision at the intersection. The solution was to move the clock tower to the corner of Victoria Street and Montreal Street in 1930 where it remains to this day.

Clock tower at Victoria Montreal Streets - clock must have been stopped or broken this day because this picture was taken around 9pm in January 2007.

In 2004 at a ceremony unveiling restorative work on the clock tower, then-Mayor Gary Moore, conceding the word icon had been overused in New Zealand in recent times, observed that the clock tower was truly deserving of the iconic descriptor given its place in Christchurch tradition. It was also, he said, “a victim of many a committee decision over the years. It has known both glory and exile. It is one of the great political survivors of our city.”

And what of the former corner at High, Lichfield, and Manchester Streets? Phil Price's "Nucleus", flapping in the wind, er, kinetic sculpture. According to the artist, "the artwork is a celebration of place. The simple singular form made of four equal parts is a reflection of Christchurch, with its well planned and laid out built environment.... The plinth, with its exposed structure and beauty through function, is a celebration of Christchurch’s engineering and industrial base." A less fortunate committee decision, perhaps?

Price, "Nucleus"

The Last Voyage of the Loch Lomond, July 1908 - Part 1

The sailing ships Loch Lomond and poop deck of her sister ship, Loch Katrine at Geelong, Victoria, Australia, circa 1887.

The barque Loch Lomond, a three masted sailing ship, was purchased by the Union Steamship Company of New Zealand for ₤3,500 in May 1908. The Union Co. planned to either use the vessel as a training ship for its officer cadets or to convert it to a coal hulk to be positioned in Fiji. Determination of its future role hinged upon its arrival in Lyttelton, Canterbury from Australia where it had been berthed, at which time it would be assessed in competition with the Dartford, another sailing vessel the Union Co had purchased with similar intent.

The Loch Line, previous owner of the Loch Lomond, had a reputation as an “unlucky” line: 17 of its 25 vessel fleet over a half century sank in accidents, disappeared, were wrecked or torpedoed in oceans and ports around the globe. The Loch Line ran general cargo schedules between Glasgow and Adelaide, South Australia. By 1908, the Loch Lomond was 38 years old.

Captain C Angus, recently chief officer of the Union Co’s Maheno, was given his first – and as it turns out last – command. The vessel was refitted and sailed from Melbourne to Newcastle, NSW, Australia on June 6, 1908 to load a cargo of coal for Lyttelton.

On July 16, 1908, one hundred years ago today, the Loch Lomond sailed from Newcastle bound for Lyttelton, New Zealand. She and her crew were never seen again.

All Blacks Go Down in The House of Pain, 28-30

In an intensely-fought, see-saw Tri-Nations game, the All Blacks were edged out of a win by the South African Springboks 30-28 in Dunedin at "The House of Pain". The loss ended a world record 30-match home winning streak by the All Blacks and posted a first test win at Carisbrook for the Boks.

Dan Carter's golden kicking boot posted 23 points but it wasn't enough in a game of slim margins. The Springboks scrum performed much better than a week before in Wellington where the margin of loss could've been greater and kicks were followed up downfield more aggressively.

It came down to a spectacular try by Bok halfback Ricky Januarie who dummy passed from a ruck, ran downfield, chipped over AB fullback Leon McDonald, then raced for the ball that bounced just right, gathered it up & dived over the try line to put the Boks ahead in the last minutes. That try will go down in Springbok history!

Springbok high tackles, tackling off the ball, and eye gouging by Bok hooker du Plessis marred the game some, but congrats are due to the Boks for their close win. They now face the Wallabies in Perth next week. A young All Black side will now have to play just that bit more harder & creatively to stay in the race for the Tri-Nations title.