Crying wolf?

12 comments on “Crying wolf? ”

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1. gingercrush 1

   5 June 2009 at 11:37 am

   I would think it is obvious why the Airport are not worried. Because they don’t have a sizable debt in the first place. You can’t compare Auckland Airport to the Government’s debt rating anyway. Since a credit downgrade on New Zealand would effectively see interest rates for all New Zealanders go up by 1-1.5%. That is crippling in a time where you want confidence to return in the economy.
   • Kaplan 1.1

     5 June 2009 at 11:51 am

     However it does help expose the politically convenient excuse used to justify the budget.

     ‘crippling’? The unemployment figures, and lack of action to address them, are more worrying for the country IMHO.
     • gingercrush 1.1.1

       5 June 2009 at 11:57 am

       Um a credit downgrade does have an impact on unemployment as does government debt. The government has sizable infrastructure spending which will go some way to combat unemployment. here isn’t any magic bullet that simply stops unemployment. And those countries that spend billions on stimulus packages have little to show for them.
       • Ari 1.1.1.1

         5 June 2009 at 10:06 pm

         Yes, indeed it does, GC. The question, however, is if it has a bigger impact than failing to address the recession with a comprehensive recovery program. (And whatever team you’re batting for I’d be surprised if you do- we’ve essentially got re-jigged Cullen tax cuts and 150% of the insulation deal as our only stimulus, and I think both the left and the right can agree that one’s not enough, and the other is too poorly targeted to have a meaningful effect)
2. cocamc 2

   5 June 2009 at 11:38 am

   Because Marty – Auckland Airport doesn’t carry as much debt as the Government would, secondly Auckland Airport is not the whole of NZ so their rating wouldn’t flow to home owners and business as it would if the whole country was down graded.
3. Lanthanide 3

   5 June 2009 at 11:53 am

   I also think there is rather a bigger difference when you slip down from the higher rankings, rather than slipping from something like A to A-.

   After all, lots of investors (hedge funds etc) only invest in the top rated securities, so losing your top rating will have a bigger impact on the number of investors willing to take a risk on you, vs going from A to A- where it probably wouldn’t scare as many investors away. To paraphrase – the bigger they are, the harder they fall.
4. OhPlease 4

   5 June 2009 at 12:19 pm

   And if we had any economic journalists worth their salt they would asking some bank economists about now the following:
   – whether the rise in the NZD in the last week is due to the change in our credit watch status;

   – what this has done for our “export led” recovery;

   – whether after the “prudent budget” NZ is now at risk of becoming a safe harbour currency. Although the latter sounds nice, its actually a disaster for the volatility of a thinly traded currency such as ours.

   As most economists know, there is no free lunch. Farmers are paying for the fiscal prudence of the budget.
   • gingercrush 4.1

     5 June 2009 at 2:22 pm

     Farmers on the whole are conservative and therefore believe in governments that are fiscally prudent. Hence why most will have supported the governments budget. When things get tough for farmers. They don’t spend more, they cut spending back. That is exactly what they want in a government. For them to cut debt levels.

     The dollar rising has little to do with the credit status of New Zealand, its to do with the strength in our economy compared to many of our trading partners. Farmers certainly wouldn’t want to see New Zealand get a credit downgrade since that would have real implications for them. Of course the New Zealand dollar is a concern. But it has nothing to do with New Zealand’s credit rating since the dollar was rising even before the budget. That is why economic journalists aren’t blaming the credit rating.
     • OhPlease 4.1.1

       5 June 2009 at 7:14 pm

       The idea is that the demand for a currency is the demand for the underlying economy that it represents. If that economy seems less risky, demand goes up and this has an immediate increase in the price of that exchange rate. It’s based on a sort of International version of the CAPM model.

       To the extent that the budget made the underlying economy “safer” (as proposed by English) this improves the risk adjusted returns from holding the NZD. Therefore, demand should rise.
5. infused 5

   5 June 2009 at 4:36 pm

   wow.
6. SPC 6

   5 June 2009 at 8:24 pm

   Or put it another way, farmers are capitalists – they make their money on the rising value of the farmland – which they borrow against and make a capital tax free profit on when they retire.

   However some farmers are concerned that this system is what is preventing the adding of value to exports and the lack of R and D being financed by their industry (because new farmers have loaded up on debt and until their farmland rises in value they cannot borrow to contribute to farm co-op investment).

   In our economic terms – the real contribution of farming is falling because of this lack of investment in adding value. Thus we are all poorer because of this flaw in our major industry.

   One way to cope is to tax capital gain on farmland values – and for the money collected to be reinvested back into farming (R and D and investment in added value).
7. Gordon Shumway 7

   5 June 2009 at 8:43 pm

   Isn’t that a bit like saying “Fred Smith is not worried about his credit score being downgraded. If Fred isn’t worried, why was the Government?”

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