Of Interest

Kia ora,Welcome to Friday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.I'm David Chaston and this is the international edition from Interest.co.nz.And today we lead with news central banks in both China in the EU have been active overnight, both dovishly.But first up, initial American US jobless claims last week came in little-changed at +220,000 so there are now 1.69 mln people on these benefits, also very little-changed. Their long-awaited labour market stress still hasn't arrived. It surely will, but has defied the gloomsters for nearly two years now. They may have a long time to wait yet before their stopped-clock position is achieved.American retail sales rose +0.6% in August from July and easily beating forecasts of a +0.2% rise. Year-on-year these sales are up only +2.9% however which is less than inflation. But the recent rises point to good consumer spending despite high prices and borrowing costs. But part of the recent increase is due to higher fuel costs. Excluding those fuel costs, retail sales only rose +0.2% in August from July, but they were +4.3% higher than year-ago levels which bests inflation by +1.0%.On the factory floor, producer prices rose by +0.7% in August from July, the highest level since June 2022, and higher that analysts expected of a +0.4% rise. On an annual basis however, producer price inflation reached a four-month high of +1.6%, while the core rate actually eased and to +2.2%, which interestingly was its lowest level since January 2021.Meanwhile, neither wholesale nor retail inventories are rising, so there is no inventory stress building in this economy.In Japan they recorded a drop in new machinery orders in July. This series does not include orders for ships or electric power systems. Including them, orders rose sharply. The decline in core orders was driven mainly by a -5.3% decrease in the manufacturing sector, while the non-manufacturing sector posted a +1.3% increase. Industries in the manufacturing sector with the sharpest falls include for petroleum & coal products where orders fell a startling -57%.Overnight, the People's Bank of China has announced a -25 bps cut in their reserve requirement ratio for all banks, taking it to a weighted average deposit reserve ratio of 7.4%. The banks already on 5% however got no change. At the same time they doubled down on defending the yuan and the managed rate they want to see.The ECB hiked its policy interest rates for the 10th consecutive time overnight. But it also signaled that it is likely done with its tightening policy, as inflation has started to decline. After this change, their main refinancing operations rate reached a 22-year high of 4.5%, and the deposit facility rate set a new record at 4%. According to the projections released with this policy change, average inflation is forecasted to be at 5.6% in 2023 and 3.2% in 2024, both higher than previous estimates, primarily due to higher energy costs.In Australia, there was a bigger than expected surge in employment in August but most of it was for part-time jobs. Full time jobs grew by a tiny +2,800 while part-time jobs grew by +62,100. Their jobless rate stayed at 3.7% in August as expected but that remains a 3 month high matching July's rate. There are now 540,500 people without jobs, up +42,600 from a year ago. (For comparison, Australia has 69.5% of their employed workforce in full time jobs, its lowest level in 10 months; New Zealand has 80.0%, a level we have been at for five years and the best since the 1990s.)And a new report out from the Australian Productivity Commission shows that almost all (95%) of workers got pay increases equal or better than productivity increases. Internationally, last week there was a sharp drop of more than -7% in global container freight rates. It was particularly noticeable in outbound rates from China to the EU. Meanwhile bulk cargo freight rates are on the move up.The UST 10yr yield starts today up +5 bps at 4.29%. The price of gold will start today at just on US$1909/oz and down -US$1 from yesterday.And oil prices are +$1.50 higher from yesterday at just over US$89.50/bbl in the US and back at its ten month high. The international Brent price is now over US$93/bbl.And perhaps we should note that the price of uranium is rising fast now, approaching a decade high on rising demand.The Kiwi dollar starts today little-changed from this time yesterday at 59.1 USc, still settled in its tight range. Against the Aussie we are softer at 91.9 AUc. Against the euro we are +½c higher at 55.6 euro cents. That all means our TWI-5 is actually little-changed at 68.7.The bitcoin price has moved higher from this time yesterday, and is now at US$26,627, a net rise of +1.9%. Volatility over the past 24 hours has been modest at just over +/-1.3%.You can find links to the articles mentioned today in our show notes.You can get more news affecting the economy in New Zealand from interest.co.nz.Kia or

New Zealand ought to change its political party funding system so it encourages politicians to connect with as many ordinary New Zealanders as possible, Max Rashbrooke argues, whilst noting it's not in political parties' interests to do so meaning such a change probably won't happen anytime soon.Rashbrooke, a senior research fellow in the school of government at Victoria University, spoke about political donations in a new episode of interest.co.nz's Of Interest podcastas the October 14 election looms. Rashbrooke, and his Victoria University colleague Lisa Marriott, last year published a report on political party funding in NZ called Money for Something.Rashbrooke says work on the report gave the authors "a glimpse into quite a murky world" of access and influence. One where party leaders, including prime ministers, fund raisers and big money donors, are in each other's company through a socialisation network featuring big fundraising dinners and other encounters.This enormous and informal access to party leaders is something the rest of us wouldn't hope to enjoy, he says."So there's an immense socialisation and during that process I think it's fairly obvious that the views and interests of the donors and the politicians are to some extent going to become aligned," Rashbrooke says.One of five key recommendations from the report is for the introduction of state funding in the form of tax credits and democracy vouchers, plus lump sum payments to smaller parties.Rashbrooke notes NZ already has state funding for political parties via a broadcasting allowance, and money for parties to run their parliamentary wings. The question is whether we would benefit from a small increase in that, when the public has "massive distrust" in the current system given research shows more than 70% of New Zealanders say they don't trust the way political parties are funded. "The thread that I think holds together all of our recommendations is that we as New Zealanders would all be better off if we shifted from a system that relies on large amounts of money from a small number of donors to a system that relies on small amounts of money from a large number of donors. You are preserving peoples' freedom to donate to a political party of their choice, but what you're doing is creating a world where political parties aren't beholden to any one donor because no one is giving them a very large amount of money. And actually they are incentivised to go out and connect with a huge range of ordinary New Zealanders, which is what we want political parties to do," Rashbrooke says."Whereas the current system for their funding just encourages them to spend a huge amount of time on a small number of very wealthy people."The report recommends a version of the Canadian system where for small donations, up to about $2,000, the donor gets a tax credit for a proportion of that donation."So basically through those tax credits the state is subsidising people to give small amounts to political parties, but capping the subsidy at a very low level so the incentive is just for those small donations," says Rashbrooke."We're talking about maybe $5 million to $6 million a year, that's it. So my pitch is for probably for less than $2 per person in New Zealand, $2 per voter, we could just clean big money out of the system completely and remove the potential for influence that it brings."In the podcast he also talks about why he doesn't think such a change is likely in the short-term, the unprecedented situation where National and ACT are getting way more money than Labour, what a donation is, who can make one, how important donations are to political parties, what we know about the people and entities that donate and what they want, whether it's possible to draw a direct line between donations and policies, whether there's an advantage for the party or parties who raise more money, and more.*You can find all episodes of the Of Interest podcast here.

The Commerce Commission should be looking closely at banks' overall interest margins in its market study into personal banking services, says David Cunningham.Cunningham is CEO of Squirrel Group, a mortgage broker that also offers lending and investing products and services, and a former CEO of The Co-operative Bank and manager at Westpac New Zealand.In the latest episode of interest.co.nz's Of Interest podcast, Cunningham talks in detail about how interest rates are set for borrowers and savers, and the key area the Commerce Commission should look as it assesses competition for deposits and home loans.Banks ultimately manage to the overall interest margin across both sides of their balance sheet covering their lending via the likes of home loans, and borrowing via the likes of deposits, Cunningham notes."Banks use something called transfer pricing, where they use the wholesale [interest] rate as a benchmark and then they assess the margin above that for loans and below that for deposits. But of course those margins on loans and deposits move in and out through the interest rate cycle. They're wider on lending at the lows, narrower in lending at the highs," says Cunningham."I think what the Commerce Commission should be looking at is that overall margin."He says it's "disingenuous" for a banker to say margins are low on home loans at the moment without looking at the other side of the balance sheet because margins could be high on deposits."Unfortunately right now we're actually having that behaviour where we've got some banks setting rates with only reference, it would seem to me, to the wholesale [interest] rates.""The key point is margins move in and out but you've got to look at the total. And that's what I think the Commerce Commission will be looking at, that quantum of the whole pricing decision. Not just a pricing decision on an individual product in isolation," says Cunningham.The record low 0.25% Official Cash Rate (OCR) through most of 2020-2021 followed by a rapid increase to 5.50%, has allowed banks to expand interest margins by about 20%, Cunningham says."It's a lift in the price of the net margin you're charging on your product of 20%, which actually most New Zealand businesses would love if they could do that as an industry. And that's an oligopoly in action, and that's what the Commerce Commission will be exploring."In the podcast Cunningham also talks about why he doesn't believe banks' net interest margins are justifiable at the moment, what to be wary of in a high interest rate environment including break fees, the role of bank capital in driving decisions on sectors banks like lending to, secured and unsecured lending, and how interest rates are set on everything from the OCR, to the bank bill benchmark rate, swap rates, home loans, term deposits, personal loans, car loans, credit cards, business lending, rural lending and bonds, and his own role in making fixed-term mortgages more popular than floating rates.

New Zealand's anti-money laundering (AML) regime could be simplified and improved, although care would need to be taken to avoid jeopardising our good standing in the international community, not to stop information flow to the police, and to avoid creating loopholes criminals can exploit, says leading AML lawyer Gary Hughes.Hughes speaks about the Anti-Money Laundering and Countering Financing of Terrorism Act, which has just notched up 10 years since taking effect, in a new episode of interest.co.nz's Of Interest podcast.The Act's impact is widely felt. This isn't surprising given the police describe businesses operating in the financial, legal, property and high value goods markets as being at the frontline for countering illicit activity, while describing themselves as the last line of defence against money laundering and terrorism financing. As an election approaches, both the National and ACT parties are making noises about lessening the AML/CFT burden on businesses, which the Ministry of Justice estimates costs NZ about $260 million a year.Hughes, an Auckland-based barrister who chairs the AML and Sanctions Experts Committee at the International Bar Association, sees "a good deal of scope for simplifying and improving the regime," thus potentially making compliance for businesses easier. He gives the example of a code of practice around identity verification for small businesses, noting there can be too much tick box regulation and a one size fits all approach.But he says care needs to be taken."You don't want to lose the benefits of good standing in the international community. We're now seen by the FATF [Financial Action Taskforce] and others as doing very well in this regard. And also you don't want to lose the information flow to the police or create loopholes that criminals are rich enough or cunning enough to exploit. So it's always a balancing act," Hughes says.In the podcast Hughes also talks about how to measure the extent to which the Act is preventing money laundering and terrorism financing, what the impetus behind the Act was, why FATF is described as "the most powerful international body you've never heard of," how the Act is instrumental in collecting key data and evidence for police, why he thinks NZ should have one AML/CFT Act supervisor instead of three, what happens to the thousands of suspicious activity and transaction reports, whether the regime is outcomes focused enough, financial exclusion and more."People say it's too costly and it's a handbrake on business. And yes it is partly. But equally some of those businesses, if you look at the banking sector, are making enormous profits and have very good information that I would think why shouldn't they be forced to actually use some of that and pass on the intelligence to support the law enforcement efforts? I don't think you can take all the cream out of the economy and not offer something back," says Hughes.*You can find all episodes of the Of Interest podcast here.

Ten years from now Kiwibank CEO Steve Jurkovich wants New Zealanders to be thinking about their big five, rather than big four, banks, with Kiwibank in there mixing it with the four Aussie owned banks and not the smallest among them.In the latest episode of interest.co.nz's Of Interest podcast, Jurkovich speaks about where the now 21 year-old Kiwibank has come from, where it's at, and where it's heading. This comes with the bank having just posted a 34% increase in annual profit to a record high of $175 million."I'd certainly like New Zealand to be thinking about its big five banks. And I guess my stretch goal is that we're not the fifth biggest, we're the third or the fourth. And I don't think there's any reason we can't be that. Whether I'm here running it or not, I hope I've played my part in getting it there. I'd like people to look back and go 'remember when it was only making $175 million? Remember when it only had a million customers? And look at it now'," he says.Speaking about the Commerce Commission's market study into personal banking competition, Jurkovich says if they want a bigger Kiwibank and more bank profit staying in NZ, New Zealanders need to exercise their choice."Because leaving it up to the Government, and we have lots of people in New Zealand who complain that the Government does too much, I don't think is going to change anything. We have to be good enough to earn your business, and you have to be fired up enough to make a move. And if we can get those two things together, then we'll have a way more competitive market place." Jurkovich also reveals he has been meeting weekly with the CEOs of the big four banks - ANZ NZ, ASB, BNZ and Westpac NZ - for about the past month to discuss mounting concerns about scams and frauds being committed against their customers. The New Zealand Banking Association's CEO Roger Beaumont has facilitated these meetings."If I think about the things I really worry about, scams and fraud are definitely one of them. Our own fraud rates are growing at north of 100%," says Jurkovich. "This needs to be a joint arms race otherwise we've got no chance."In the podcast he also talks about tough times in the housing market as customers' mortgage payments jump, the potential for a partial government sell-down of Kiwibank via a share market listing should the Government change in October's election, Kiwibank's plans to grow and build capital and what a requirement to pay a chunky dividend would mean for these, how the bank has moved on from an expensive, failed core banking system upgrade just before he joined as CEO five years ago, why Kiwibank won't be entering the institutional or rural banking markets anytime soon, and the bank's role in a decarbonising economy."I really feel like a 21 year-old. We're just getting started," Jurkovich says.*You can find all episodes of the Of Interest podcast here.

New Zealand survived a tight electricity supply situation on Friday morning - the 12th so far this year. It happened after Transpower warned the residual quantum of electricity available for use was sinking towards the 200 megawatt danger mark between 7 am and 9 am. In the end, the 200 megawatt level was not breached, and even if it reached zero, unused reserves would still be available.But it is a predicament that keeps Transpower on constant alert, which it warned about in May and again a month later. This subject and other energy problems are the subject of the latest interest.co.nz Of Interest podcast. *You can find all episodes of the Of Interest podcast here.

Like it or not banks are a cornerstone of our economy, meaning they'll need to be a key influence in the push to decarbonise.One of the ways BNZ is trying to do this is through membership of the Net-Zero Banking Alliance (NZBA).Speaking in interest.co.nz's Of Interest podcast Rebekah Cain, BNZ's Chief Sustainability Officer, describes the NZBA as "a group of banks committed to transition the finance sector to net-zero." Finance, she notes, is "a key lever to pull in order to shift the real economy.""Part of the reason for this is because if something is funded it happens. And if it isn't funded it doesn't happen," Cain says.The industry-led, United Nations convened NZBA has 133 bank members from 43 countries holding a combined US$74 trillion in total assets, which is estimated to be 41% of global banking assets. BNZ's the only New Zealand member, although the Aussie parents of all NZ's big four banks are members, as is the Dutch parent of rural lender Rabobank NZ.BNZ's NZBA targets disclosureinitially features2030 targets for the coal mining, dairy farming, power generation and oil and gas sectors. For dairy, which contributes 23% of NZ's annual export earnings and 22% of its annual gross emissions, the target assumptions include reducing dairy cow numbers, lowering milk production, and less use of nitrogen fertiliser.For BNZ Cain acknowledges there's both derisking going on and lending growth opportunities being eyed. In terms of the latter, in the power generation sector BNZ's assuming a 50% increase in electricity demand between 2020 and 2050."I think the focus needs to switch from what's being taken away to the opportunity that exists," she says.NZBA criteria features 10 sectors banks needs to have targets for. That means by November next year BNZ must also have targets in place for other parts of the agriculture sector such as sheep and beef, and residential real estate where it has its biggest lending exposure.The NZBA has been criticised with Germany's GLS Bank quitting in February over concerns about US bank members continuing to support oil, gas and coal projects in emerging markets. "Any of these initiatives are only valuable if they are interrogated and criticised. Otherwise it's really easy to sign-up, set and forget, not really report on it," Cain says.Due to being part of the NZGA and NZ's new mandatory climate-related disclosure regime, Cain says BNZ's having internal conversations they were never having before."So that has got to be good."

At the heart of suggestions the so-called BRICS countries may develop a new international currency system based on gold that's separate from the US dollar are some simple necessities, according to Nathan Lewis.The United States-based Lewis spoke about this issue in a new episode of interest.co.nz's Of Interest podcast. Lewis runs New World Economics, is an author, a former analyst and money manager for institutional investors, and a fellow of the wealth and poverty programme at the Discovery Institute think tank.As Lewis puts it, the BRICS countries - Brazil, Russia, India, China and South Africa - need or want some plumbing for trade and debt financing for their governments and corporates.These countries have been coming together at least in part because their trust and satisfaction with the US-led global financial order, which has the US dollar as reserve currency, has been declining. This has increased as tensions between the US and China have heightened, and following Russia's invasion of Ukraine, which saw it locked out of the Western financial world including the SWIFT international payments system."What was low level grumbling for a long time now has become active efforts to create a new alternative," says Lewis."The first basic need is just to be able to buy stuff.""Most of these countries' currencies have a history of mediocracy or outright failure, which means they tend to fall in value a lot. So no one wants to borrow or lend for any length of time in Russian rubles," Lewis says."They need a currency that's reliable enough so they can access the world debt markets, that international lenders will buy these bonds and their own people will buy these bonds. Historically that has meant 'pay me in dollars'."So why gold?"They want to land on some kind of internationally acceptable medium...There's one thing that everyone's always been able to agree on and that is gold," says Lewis."The reason why it [gold] has been the basis of money for literally 5000 years is because it works. And the reason it works is because it does not vary in value very much. The basic premise is that gold is stable enough [so] it doesn't really cause a problem."The 15th BRICS Summit scheduled for Johannesburg between August 22 and 24 will be watched closely. Basically these countries want a financial system that functions even if the US does not approve, says Lewis.If such a system gets off the ground, what might it mean for a small trading nation like New Zealand, that's close to the US but has China as its key trade partner? Lewis expects pragmatism. Ultimately, he suggests, you could; "just go down to your local office of the [Industrial and] Commercial Bank of China and open an account and you're in."Lewis envisages a scenario where; "99.99% of the time you're just trading gold checking accounts, it's all digital. But if push came to shove yeah, 'you've got to deliver some gold buddy'.""So I think there are ways of minimising the need for international cooperation," says Lewis.*You can find all episodes of the Of Interest podcast here.

2023 has become the year of AI. Hype and doomsaying about AI, or artificial intelligence, is hard to avoid.A key catalyst was OpenAI's release of AI chatbox ChatGPT late last year. So should we be excited or fearful about the rise of AI, or both? I discussed this with Michael Timothy Bennett, an AI researcher at the Australian National University, in the latest episode of our Of Interest podcast. Bennett is recently returned from a major Artificial General Intelligence conference in Stockholm where he both presented and won an award.He described the mood at the conference as "feverish and exuberant," noting "suddenly there's a whole lot of money and power at stake" in the AI industry.So what are we to make of all the hype around AI, and what might it mean for our lives?"It's sort of the next step in the industrial revolution more than a lot of what we'd see in, say Terminator," Bennett says."AI is like a collection of black swan events that are going to play out over the next several decades as we see different sorts of jobs and industries hit with a lot of automation. Things will get much easier for some people and a lot harder for others."In the podcast he talks about just what AI is, its origins, ways we've been using it for years, predictions of AI-derived productivity gains and job losses, and whether the New Zealand government should be looking to regulate AI technology.He also offers suggestions on how young people heading into the workforce or considering career options should think about AI, how middle aged workers should think about it, what it means for business owners, and how investors should be considering AI.Bennett also weighs in on the debate over whether AI is an existential threat or could be humanity's salvation.

Central banks' use of monetary policy to fight inflation is working, but in New Zealand we need to look at evidence demand and prices are being impacted rather than current inflation data, says ANZ Banking Group Chief Economist Richard Yetsenga.Speaking in the Of Interest podcast, Yetsenga says news of an inflation fall in the United States suggests the Federal Reserve is close to an extended pause having increased its Federal Funds Rate to between 5% and 5.25% from 0% to 0.25% since March 2022.US consumer price index (CPI) inflation rose 3% in the June year, down from 9.1% a year earlier. Yetsenga expects another 25 basis points increase from the Fed, after which he expects a period of pause."It's not obvious that pause will be followed by further hikes, but neither is it obvious that that pause will be followed by cuts. And I think that's a good signal," says Yetsenga.In New Zealand, where March quarter CPI was 6.7% and June quarter CPI, due out July 19, is expected to be about 6%, Yetsenga says the current inflation rate isn't necessarily the key thing to look at in the inflation fight. On Thursday Statistics NZ said food prices rose 12.5% in the June year, a 35 year high."When you've hiked [interest rates] by 400 or 450 basis points, the current inflation rate, yes it's still important, but it's less additive to your information set. What is more additive is can we see the signs that demand and price pass through is being crimped by the policy moves that we have done? And the answer is unambiguously yes," Yetsenga says.He acknowledges higher interest rates are a blunt tool and may not impact the economy the way we'd ideally like."Certainly there are other policy tools available. But in the absence of somebody else stepping up and delivering those other policy tools, it's up to our central banks that have their inflation mandates. And so far I think they're doing a good job at trying to balance getting inflation back to target without crimping the economy too much."In the podcast Yetsenga also talks about the Reserve Bank of Australia's approach to the inflation fight in comparison to the Reserve Bank of New Zealand, evidence central bank monetary policy is working, whether central banks need more inflation fighting tools, China's "remarkable" 0.0% CPI, and the impact of a higher frequency of extreme weather events on inflation."We are talking about deflation there [China]. We need to separate our expectations for China, I think, in the next 20 years [from] what China has looked like in the last 20 years. I don't think those two things will be in any way comparable," says Yetsenga.Climate challenges, meanwhile, are "a supply side shock which will tend to boost inflation and will tend to worsen incomes. And so it hits productivity as well, and it reduces standards of living."*You can find all episodes of the Of Interest podcast here.

Sam Bankman-Fried was a nerdy billionaire and rockstar of the crypto industry, living a lavish lifestyle in the Bahamas, with celebrities advertising his cryptocurrency exchange FTX as he gained influence in Washington DC.Then it all went wrong. FTX collapsed, leaving an US$8 billion hole and lots of angry customers. FTX was placed in Chapter 11 bankruptcy protection. Worse for Bankman-Fried, he was charged with fraud and extradited to the United States.He's alleged to have used billions of dollars of FTX customer funds for his personal use, to make investments and millions of dollars of political contributions to federal political candidates and committees, and to repay billions of dollars in loans owed by Alameda Research, a cryptocurrency trading company he also founded.After being released on a US$250 million bond and placed under house arrest, Bankman-Fried, who has proclaimed his innocence, is now living at his parents' house in California ahead of a trial. Speaking in the Of Interest podcast, San Francisco-based Bloomberg crypto, venture capital and startups reporter Hannah Miller, says if you wanted to make a technology company founder as a science experiment, it would be Bankman-Fried. Miller hosts, writes and reports on a six-part podcast from Bloomberg and Wondery called Spellcaster: The Fall of Sam Bankman-Fried."He [Bankman-Fried] basically grew up on the campus of Stanford University. The big joke is that if you wanted to create the perfect tech founder, he's it. He grew up in Silicon Valley. He grew up in the heart of the tech industry, he was right down the road from some of the people who would actually go on to invest in FTX as venture capitalists," Miller says.In the Of Interest podcast she talks about how Bankman-Fried embraced effective altruism in his student days at the Massachusetts Institute of Technology, early working experience at Wall Street trading firm Jane Street Capital, and launch of Alameda Research and arbitrage trading of bitcoin between the US and Japan.Then in 2019 FTX was founded and questions emerged over whether it and Alameda Research were really the separate companies Bankman-Fried claimed they were.Miller talks about encountering Caroline Ellison, Alameda Research's co-CEO, who had been in a romantic relationship with Bankman-Fried at a mutual friend's bachelorette weekend. She also talks about how big and high profile FTX was at its height, how Bankman-Fried sought to be seen as "the good guy of crypto" in Washington DC, and the company's demise."I try to focus on the fact that there are people who trusted their life savings with FTX and now have no idea if they're ever going to get that money back. I think you have to look at the consequences here," Miller says."This is someone who really got a lot of people to trust him. And the fact of the matter is FTX is bankrupt and there are people with way more questions than answers."*You can find all episodes of the Of Interest podcast here.

The world needs to move to a new economic system where growth is replaced as the ultimate goal by meeting human needs within ecological limits, argues Gaya Herrington.Speaking in the Of Interest podcastHerrington explains how working at the Dutch central bank, De Nederlandsche Bank, during the Global Financial Crisis led to her realising how interconnected things were.When subsequently studying sustainability at Harvard University, she decided to revisit the famous 1972 book by a group of Massachusetts Institute of Technology (MIT) researchers, The Limits to Growth for her thesis.As Herrington, now Vice President for ESG Research at Schneider Electric, puts it, the book; "indicated that our peak welfare levels would be around now, globally. And we would have a choice to maintain it or go down." Her research found we are most closely aligned today with The Limits to Growth authors' business as usual scenario."Growing forever on a finite planet is simply not an option," she says.We don't have a lot of time but do have an opportunity to align ourselves with something like the stabilised world scenario from the MIT team.How would we do this, what will it mean and can we do it? A new economic system must, first and foremost, replace growth as the ultimate goal with something else."I think it should be meeting human needs within ecological limits. That doesn't mean you're anti-growth. If growth then contributes to human wellbeing and can do that with a low environmental impact, we'll still do it and if not we won't bother," says Herrington.One way or another, she argues, growth will halt.In the podcast she also talks about what she believes the "very loaded word collapse" would mean, what the world might be like if The Limits to Growth warning had been heeded in the 70s, what system dynamics is, the difference between needs and wants and how this has become muddied, what the role of technology, finance and agriculture could be in a new economic system, how vested interests including billionaires have to give things up, why she sees a significant role for credit unions, whether human nature could allow such change, and whether we will actually make the change."I don't know because we've seen in history that it can go either way. I do think that we'll stop growing one way or another. I think what we're seeing already is a destabilisation of the system," Herrington says.You can find the original The Limits to Growth book here, Herrington's Update to The Limits to Growth here, and her book Five Insights for Avoiding Global Collapse here.(Note, this podcast was recorded via Zoom. While Gaya comes across clearly, for some reason the start of my questions sometimes doesn't. Apologies for this, we're not sure why it happened).*You can find all episodes of the Of Interest podcast here.

If we were building Auckland from a blank canvas with the knowledge we have today there are lots of places where you wouldn't build, says Martin Brook, Associate Professor of Applied Geology at the University of Auckland.Speaking in the Of Interest podcast, Brook says this year's spate of extreme weather events means we are talking more about the dangers of floods, slips and landslides, but there's a lot of work to do to better prepare ourselves for future such events."Generally if we were planning we'd avoid slopes and flood plains and obviously that includes a lot of Auckland. In fact GNS reports in 2009 stated that most of Auckland is at moderate or high risk of landslides...That encompasses a lot of the landscape of Auckland and it would mean that we wouldn't build in a lot of Auckland," says Brook."If you look at the Auckland Unitary Plan it doesn't encompass the geomorphology [the study of landforms and landform evolution], if you like, which is the land forms and the earth's surface processes that are currently shaping our landscape.""I think we build too close to slopes. We love doing that, we cut trees down, we love building mansions on slopes so we have wonderful views. We have a history in New Zealand of building on unstable land, and part of that is the 1981 Local Government Amendment Act which absolved councils of civil liability if they permitted building on unstable land," Brook says.He says landslides have killed more people in NZ over the last 150 years than earthquakes.In parts of Auckland Brook says there's a lack of adequate building set-back distances, being the distance between a dwelling and slope or cliff, with set-backs from the bottom of slopes also very important.Ideally, Brook says, a house on a 30-metre high North Shore cliff should be set-back about 100 metres from the cliff edge.Brook suggests we have a general issue of politicians not liking to make difficult decisions, but is encouraged by Finance Minister Grant Robertson recently providing risk categories and definitions for properties affected by flooding and cyclones."People are talking more about hazards other than earthquakes and volcanic eruptions. Storms do cause floods and landslides and we seem to get them rather often unfortunately. So people are talking about this which I think is great. So let's hope some good does come out of it," says Brook.In the podcast Brook also talks about managed retreat, places becoming uninsurable, the idea for a national geotechnical control office perhaps within the Earthquake Commission, warning systems and monitoring of moisture levels in slopes, and why he'd prefer "a more holistic storm based approach" than Auckland Council's Making Space for Water initiative.**And you can find all episodes of the Of Interest podcast here.

If you're looking for profit-led inflation you should probe consumer facing industries rather than look across the whole economy, says UBS chief economist Paul Donovan.Speaking in the Of Interest podcast, the London-based Donovan says profit-led inflation, whereby companies are able to expand profit margins and convince customers it's fair to do so, is the third wave of inflation experienced in developed economies since the Covid-19 pandemic. It follows a demand shock as developed country economies reopened and consumers had a "stockpile of savings" they spent on durable goods such as furniture, electronics and cars, and an energy supply shock after Russia invaded Ukraine, energy prices surged and demand reduced."What it [profit-led inflation] has really done is prolong the inflation. If we had not had the war in Ukraine I don't think we'd have got the profit-led inflation because Ukraine has been an important part of the story that companies have told to convince people to accept higher prices. I think if we hadn't had the war in Ukraine we would be sitting here talking about falling prices today," Donovan says."Right now we're starting to see profit-led inflation be challenged in a number of countries. But I'd say that it has probably accounted for about half of the inflation that we've experienced over the last six-to-eight months."Lobby group Business NZ issued a report itcommissioned from consultants this week on profit-led inflation, or "greedflation" as it put it, saying it was "an imported narrative not supported by the evidence." Looking at data from 14 industries over the three years to December 2022, the report said 71% of price increases came from input costs, 15% labour costs and 14% gross profit increases.Donovan says three years is too long of a period to look at for profit-led inflation, and you wouldn't expect to see it across the economy as a whole."I think this is one of the problems with a lot of the analysis that we've seen on profit-led inflation. There is this assumption that every company is raising profit margins and that absolutely isn't the case, it's a subset of companies that raise margins. And so if you look at economy-wide data you're going to find less evidence of profit-led inflation," says Donovan."In the case of New Zealand, if you're going to get profit-led inflation coming through, you don't look at the entire economy, you look at the consumer facing sectors [such as retail, restaurants, clothing brands or food brands], and see what's happening with margins there. That's the critical story."In the podcast he also talks about how to spot profit-led inflation, consumers' naive views about what causes inflation, why he doesn't like the greedflation term, why central bankers should talk more about profit-led inflation, why it took off in the wake of Covid-19, and the role of social media."Two things made profit-led inflation easier this time. Consumers did have more savings, sort of a windfall of savings during the pandemic. No one's going to describe the pandemic as a lottery win but it was a bit like that. You got a sudden influx of cash that you weren't expecting to have. So that meant that people perhaps became a little bit more indifferent to prices," says Donovan.*Donovan published a report on profit-led inflation earlier this year which we covered here. *And you can find all episodes of the Of Interest podcast here.

Following the spate of extreme, damaging and costly weather events in the North Island this year we shouldn't let a big disaster go to waste, Tower Insurance CEO Blair Turnbull argues.Speaking in the latest episode of the Of Interest podcast, Turnbull says the realisation from frequent and extreme weather such as the Auckland anniversary floods and Cyclone Gabrielle is that we are seeing climate change, and we need to understand it better and adapt."We're starting to rethink how to respond to some of these flood events. One thing's very clear, Mother Nature always wins. So we can't just sit there and try and pipe away this excess water, we have to think differently," Turnbull says.Auckland Council's Making Space for Water programme to help manage floods is "quite innovative," he adds.Turnbull says the spate of extreme weather events is changing the way reinsurers, who provide insurance for insurers, look at New Zealand, which will lead to further price rises."This has been a bit of a surprise to some of them [reinsurers]," Turnbull says.Parametric insurance and risk based pricing are two ways Tower's responding to potentially higher reinsurance costs.Parametric insurance is a type of insurance contract that insures a policyholder against the occurrence of a specific event by paying a set amount based on the magnitude of the event, as opposed to the magnitude of the losses in a traditional indemnity policy.Turnbull says a parametric insurance pilot in Fiji has gone well, with Tower set to also start offering it in Samoa and Tonga and likely NZ to."We do think it [parametric insurance] has application for here in New Zealand in areas that could have higher propensity for flooding and cyclones and where traditional comprehensive insurance may become too expensive for some households and communities. We would like to explore the option for offering parametric cover," says Turnbull."We're talking to a couple of iwi groups, which is quite exciting and they're giving us feedback."Tower's risk-based pricing, linked to the risks of individual homes, already includes earthquakes and floods, and is being extended to cover coastal inundation and slips. Turnbull says risk-based insurance for drivers, using telematics, could also follow.Meanwhile, Turnbull suggests NZ is moving closer to having areas regarded as uninsurable by private sector insurers after the recent run of extreme weather events."I think we are [closer than a year ago] ... I think it's really important that as a country, as insurers, as communities, that we do acknowledge them [the weather events], [and] don't let that big disaster go to waste. It's time to adapt and get out of the way of where there are flood prone areas," Turnbull says.In the podcast he talks about other issues, including Tower's recent interim financial results, how the insurer has responded to high inflation, the future for insurance, and the response to Cyclone Gabrielle and North Island flooding.You can find all episodes of the Of Interest podcast here.

New Zealand's record current account deficit is significant in both a NZ and global context, and there are interesting comparisons to draw between 2023 and 2011 when S&P Global Ratings last downgraded NZ's sovereign credit rating, S&P's Martin Foo says.The current account deficit, reflecting we're spending more than we're earning overseas, swelled to its highest dollar value of $33.8 billion last year. As a percentage of Gross Domestic Product (GDP), showing its significance in the context of NZ's overall economy, it weighed in at 8.9%, the highest it has been since the 1970s.Foo, director and analyst at credit ratings agency S&P Global Ratings, spoke to interest.co.nz in the latest episode of the Of Interest podcast about this and more.Foo talks about why NZ's current account deficit is so big, why it could get worse before it gets better, what a country can do to try and reduce a current account deficit, explains S&P's existing NZ sovereign credit ratings, why NZ scores lowly in S&P's external assessment, NZ's international investment position, how S&P would signal a potential downgrade, whether an upgrade's possible, and S&P's assessment of last week's budget.*PLEASE INSERT AUDIO HERE* "We [S&P] are raising our collective eyebrows and raising some serious questions. The current account deficit is an indicator of underlying economic conditions, or underlying fiscal conditions, and we have to think about what's causing these record imports," Foo says."New Zealand's external metrics do look quite weak compared to other comparable countries right now. As a simple example, last month the International Monetary Fund released its world economic outlook and the current account deficit at 8.9% of GDP was actually the largest of any advanced economy with the possible exception of Greece. Perhaps what's more interesting is the IMF is projecting that the deficit will stay quite elevated at about 8.6% of GDP in 2023, which would make New Zealand the worst performer on this particular metric."S&P upgraded NZ's sovereign credit ratings in February 2021. They're now an AA+ foreign currency rating and a AAA local currency rating, both with stable outlooks. They're the highest and second highest credit ratings S&P issues. (In the podcast Foo explains what foreign and local currency ratings are).S&P last downgraded NZ in September 2011, lowering the foreign currency rating one notch to AA, and the local currency rating a notch to AA+. Foo says there are some interesting comparisons between then and now.That was a long time ago and the world was a very different place but there are some striking similarities to what's happening today. "New Zealand was facing a rising current account deficit and that was occurring in conjunction with earthquake related spending pressures, as well as fiscal stimulus to support growth. And if you look at today's situation, if you substitute the word 'earthquake' with the word 'cyclone,' then you have a situation that's airily familiar."Nonetheless Foo says S&P still sees NZ as having "very, very strong credit metrics.""We currently have New Zealand on a stable outlook. If we were to move we would typically signal that with a change of outlook, perhaps to negative. Right now we're still comfortable with the stable outlook," Foo says.

Economists Eric Crampton of the New Zealand Initiative and Craig Renney of the Council of Trade Unions share their views on what Budget 2023 got right and what it got wrong.Crampton explains why giving subsidies to the game development industry is a sort of mutually assured waste of taxpayer money, and how tobacco tax could mean the government books take an extra year to return to surplus. Renney tells us how S&P Global Ratings said NZ government debt was not unlike a designer Hermès handbag and makes the case that Budget 2023 is not as inflationary as some have claimed. But neither think that it matched up to its 'No-Frills' moniker.

Another round of political brinkmanship is playing out in Washington DC over the United States government's debt ceiling.There are predictions of global financial chaos if Democrats and Republicans can't agree on a deal to raise or suspend the debt ceiling, currently at US$31.4 trillion, soon. Treasury Secretary Janet Yellen says if something's not done the US government won't be able to meet its financial obligations as soon as June 1. That includes salaries for government employees and the military, pensions and making interest payments on government debt.President Joe Biden says if the US defaults on its debt "the whole world is in trouble."There is, however, a silly sounding yet simple and constitutional solution available. It involves minting a very high value platinum coin. In the latest episode of interest.co.nz's Of Interest podcast I spoke with Rohan Grey, Assistant Professor of Law at Willamette University's College of Law in Oregon, about the debt ceiling, the platinum coin and more.Grey explains how and why the US federal government came to have a debt ceiling, when the debt ceiling become a political football, what the idea of minting a US$1 trillion platinum coin is all about, and where it comes from."It sounds ridiculous, it almost shocks the conscious, but it is legal," Grey says, adding that the US government actually minting the coin would be "a public education moment.""If there's one thing that the president and the Treasury Secretary are not allowed to do it's default. There's no constitutional authority to default. The 14th Amendment says you cannot do it, the existing laws say you cannot do it, Congress did not give them an option to default. They gave them multiple pathways to finance spending and they told them they had to spend. So at the end of the day even if Biden really hates it, even if it really makes him feel stupid and silly, the coin isn't a choice. It is the last option before an unthinkable, prohibited option," says Grey."What a coin represents in my opinion, is the bringing back of the budget to a level that the public can understand. No complicated bond markets, no complicated debt instruments, it's something that you can talk to your seven year-old about. And to me it's only silly to people who think sounding very serious is being very serious."You can find all episodes of the Of Interest podcast here.

The cost of the Reserve Bank's buy-up of government bonds during its 2020-2021 quantitative easing (QE) programme has come into focus as interest rates have risen.Notably the balances of exchange settlement accounts held by banks and others with the Reserve Bank soared as the central bank bought government and local government bonds off banks in the secondary market, peaking at $56.4 billion last December after averaging about $7.5 billion in the decade up to 2020.Holders of the settlement accounts receive interest on their deposits at the Official Cash Rate (OCR), which has risen to 5.25% since the 0.25% Covid low.Treasury says its best estimate of the expected direct fiscal loss from the Reserve Bank's QE, its so-called Large Scale Asset Purchase (LSAP) programme, is about $10.5 billion. It notes this has been partially offset by the fiscal benefits of the LSAP through stabilising the NZ government bond market and providing economic stimulus at a time of heightened uncertainty in 2020.From a whole-of-government perspective Treasury says the LSAP withdrew fixed-rate government bonds from the market and replaced them with floating-rate settlement cash balances. This means the Crown has more floating rate liabilities, becoming more exposed than it would have been to rising interest costs.In the latest episode of interest.co.nz's Of Interest podcast Paul Tucker, former deputy governor of the Bank of England and now a research fellow at the Harvard Kennedy School, speaks about the impact of QE on the public finances. Tucker's also the author of a recent paper called Quantitative easing, monetary policy implementation and the public finances."This has turned out to be a bad thing in many countries specifically because of how low world interest rates were during 2020 and 2021. Although it was essential for governments to protect families and protect small firms from the ravages of Covid and economic lockdown during 2020 and 2021, they would actually have done better to finance that by borrowing in the markets because long-term interest rates were remarkably low for states with a good credit rating, which includes my own and includes yours," says Tucker."Instead they exposed themselves to the path of short-term central banking interest rates."Speaking to interest.co.nz on Thursday, BNZ Chief Financial Officer (CFO) Peter MacGillivray said BNZ currently has about $10 billion in its settlement account. And on Friday ANZ NZ CFO Amanda Owen said her bank's settlement account balance would be bigger than BNZ's.Asked whether receiving interest at the OCR would now be lucrative for settlement account holders Tucker says; "Broadly yes. It depends on whether they pass it on to their customers. The banks are sitting on this large pile of cash with the central banks and suddenly that's paying a healthier rate of interest."You can find all episodes of the Of Interest podcast here.

New Zealand's $33.8 billion record current account deficit was a shock to overseas investors in NZ government bonds, but is ultimately probably not something people will lose a lot of sleep over, says Sydney-based interest rate strategist Martin Whetton.Statistics NZ last month reported the annual current account deficit reached $33.8 billion last year, equivalent to 8.9% of gross domestic product, the worst ratio since measurement began in 1988. In response credit rating agency S&P Global Ratings told Bloomberg the deficit was; "catching our attention, the persistently weak and worsening current account position of the New Zealand sovereign, particularly given that it has been quite weak the last year or two and our forecasts are for it to narrow.” This led to fears of a potential downgrade to NZ's S&P sovereign credit rating.In terms of overseas investors who buy NZ's government bonds, Whetton says the current account deficit is something they'll look at."And obviously when that number came out recently there was a bit of a shock to the market because there was the immediate response from S&P that suggested that the rating could be under threat as a result," Whetton said in the latest episode of interest.co.nz's Of Interest podcast."A decision on that can take some time, And I think if we just cool down for a moment and say 'New Zealand is in a very solid position, it has got a strong economy, and it does have very low debt-to-GDP at the government level,' then it's not something that people will lose a lot of sleep over.""There are investors who simply have hard mandates around credit rating, but when you're starting at the top of the tree in ratings, very few people would not be able to buy New Zealand [government debt] so that's not an issue if there was a downgrade," said Whetton.S&P has an 'AAA' sovereign domestic currency rating with a stable outlook on NZ. This rating assesses the country's capacity to meet obligations denominated in the NZ dollar, which almost all government debt is issued and repaid in. (See more on NZ sovereign credit ratings here, and credit ratings explained here).In the podcast Whetton also talks about the attraction to overseas investors of NZ government bonds, the NZ yield premium over other similarly rated bonds, the big issues in sovereign bond markets at the moment, why he thinks NZ government debt is at a sustainable level, and finally how countries get into trouble with their sovereign debt."Typically it's borrow in a foreign currency. The benefit of countries like Australia, New Zealand, the UK, Japan, Italy, [is we] borrow in our own currency. So we pay it back in our own currency and you can always print more of that currency. Now the purists would recoil at that comment and I understand why because it can be inflationary. But if you need to solve it that way you can," Whetton said."You also, as we in Australia and New Zealand have found in the last couple of years, can get your central bank to buy [government] debt. I would not say that is the way you do things. Having a fiscal programme that is credible over the medium to long-term is probably your best starting point."*This episode follows a recent one with Kim Martin, Director of New Zealand Debt Management which is the Treasury unit responsible for managing the Government's debt. And you can find all episodes of the Of Interest podcast here.

To boost New Zealand's ability to fight inflation Auckland University's Tim Hazledine suggests broadening the Commerce Commission's powers, looking at extending the Pharmac concept, and cutting Goods & Services Tax (GST) to 10%.Hazledine, Emeritus Professor of Economics at the University of Auckland, discusses this and more in the latest episode of interest.co.nz's Of Interest podcast.Following Thursday's Consumers Price Index (CPI) release from Statistics NZ, Hazledine's assessment is the inflation tide is going out."It's receding, which is good. The question is whether it would've gone out anyway or whether King Canute in the Reserve Bank had anything to do with it," says Hazledine.His key evidence for improvement is the 1.2% March quarter CPI figure, down from 1.8% in the March quarter last year."That's the indicator that you really should be interested in and that's encouraging."Nonetheless Hazledine says there are signs a recession is going to happen, and suggests we ought to be looking at policy instruments to support the Reserve Bank, which has "a monopoly on inflation fighting almost by statute."This includes expanding the Commerce Commission's mandate so it becomes a price watch commission, potentially even with a mandate to roll back price increases if they think they're not justified."They really have to be finding out about prices everywhere and investigating costs, investigating pricing practices," says Hazledine.He also promotes the concept of tripartite pay talks, seen in parts of Europe, between the Government, unions and employer groups, exploring an extension of the Pharmac model to source other products and services at lower prices from international suppliers, and reducing GST to 10% from 15%."That [a GST cut] would immediately cut consumer prices...The biggest single beneficiary from inflation in New Zealand is the Government."You can find all episodes of the Of Interest podcast here.

New Zealand Debt Management, the Treasury unit responsible for managing the Government's debt, isn't seeing any notable increase in demand for its inflation-indexed bonds despite high inflation both in New Zealand and overseas.Speaking in interest.co.nz's Of Interest podcast, Kim Martin, Director of New Zealand Debt Management (NZDM), says you might expect more interest in inflation-indexed bonds when inflation is high. Statistics NZ releases its Consumers Price Index for the March quarter on Thursday, which is expected to show inflation above 7% for the fourth consecutive quarter, at a time when there has also been high inflation overseas."Inflation indexed bonds have a coupon that is indexed to inflation so the value of your regular coupon is protected against that high inflation period...We have seen our inflation indexed bonds outperform their generic equivalents over the past couple of years, but we haven't seen any significant change in demand," Martin says."We've heard a few rumours about retail demand for inflation protection products, but we really haven't seen anything that's of particular note, which is quite interesting when you think about how topical inflation has become in recent times."In the podcast Martin also talks about the impact of the Reserve Bank's quantitative easing, through which it bought around $50 billion worth of NZ government bonds, on the bond market and what might've happened without it.She also talks about how NZDM borrows and repays money, what options it offers for retail investors, how borrowing decisions are made, whether you can trace proceeds from individual bond issues to government expenditure, what currencies NZDM borrows in, who it competes with for investor interest, the importance of registered tender counterparties, the value of strong sovereign credit ratings, and the key risks for NZDM.You can find all episodes of the Of Interest podcast here.

Excess profits are unlikely to be a significant driver of inflation as business profitability has been declining as inflation has risen, an economist says. Speaking on the Of Interest podcast, principal economist at the New Zealand Institute of Economic Research, Christina Leung, said businesses have reported cost pressure becoming more intense as inflation has surged. Earlier, the unprecedented amount of economic stimulus propped up demand and allowed some businesses to pass on higher costs to customers. But as the Reserve Bank has withdrawn that support, it has become much more difficult to pass on costs. “The fact that with that softening in demand, businesses are at reduced pricing power, but with cost pressures still not moderating enough for them to recoup margin, you are in this environment where operating margins are still quite crunched in.”According to Reuters, data presented to policymakers at an European Central Bank's (ECB) retreat in Finland showed that companies in the euro zone were increasing profit margins in the face of sharp input cost increases. The Reserve Bank has said increases in both real profits and wages have contributed to inflation, although the data on wages was much more comprehensive than on profits. Leung said there may be examples of businesses that have been able to “take advantage, increase prices and bolster their margins”. However, NZIER’s quarterly survey showed profitability has been declining in aggregate. Most industries are fairly competitive and businesses in those sectors have been eating their margins, rather than risk losing customers. “If there was a lack of healthy competition within certain industries, then you would tend to see probably more opportunistic pricing behavior take place.”You can find all episodes of the Of Interest podcast here.

If things go well in four key areas where work is underway to tackle methane emissions from farm animals they could "make a big hole" in New Zealand's agricultural greenhouse gas emissions, according to Mark Aspin, consortium manager at the Pastoral Greenhouse Gas Consortium.The Pastoral Greenhouse Gas Consortium is a public-private partnership that has been working for 20 years to reduce agriculture greenhouse gas emissions. Speaking in interest.co.nz's Of Interest podcast, Aspin discusses the lessons and progress along the way.With the agriculture sector contributing half NZ's emissions, according to the Ministry for the Environment's greenhouse gas inventory, and methane 44% largely due to the digestive process of ruminant animals such as cows and sheep, Aspin talks in detail about the four key methane mitigation tools being worked on.These are methane inhibitors, genetic selection to breed low-emission cows and sheep, low-emission feed and forage, and a vaccine that could stimulate the animal's immune system to generate antibodies in saliva that target proteins on methane-producing microbes, or methanogens, in the rumen area of the stomach restricting their growth and ability to produce methane.The Government has a target of reducing biogenic methane emissions from 2017 levels by between 24% and 47% by 2050. Aspin says the four key areas of work have the potential to make a big dent in NZ agriculture's methane emissions."In a perfect world yes, we could probably make a big hole in the agricultural emissions if we could get them all to work," says Aspin.He acknowledges that the vaccine is "proving very tough," but continues to believe it could work.In the podcast he also talks about the challenges of being a livestock grazing nation, intellectual property related to this technology, regulatory requirements, what's going on overseas, NZ's international climate change commitments, and the position of NZ and its agriculture sector in the context of global greenhouse gas emissions.

According to Statistics New Zealand's Consumers' Price Index (CPI) inflation is running above 7%, its highest level since 1990. The Reserve Bank, tasked with targeting CPI inflation of between 1% and 3%, has been aggressively increasing its Official Cash Rate, which means higher interest rates flow through to borrowers and savers.Given the importance of the CPI as a measure of the changes in the price of goods and services for NZ households, do we have its settings right? What's in it, how is this determined and measured, and is a quarterly CPI release frequent enough?To address all this we spoke with Bill Rosenberg in a new episode of interest.co.nz's Of Interest podcast. Rosenberg, now a Commissioner of the Productivity Commission, is the former Policy Director and Economist at the Council of Trade Unions. He was also one of nine people Statistics NZ appointed to a committee to independently review the CPI 10 years ago.Rosenberg notes interest payments are excluded from the CPI. And while housing rentals and purchases of newly constructed dwellings excluding land are in, sales of existing houses are not. The CPI is "an index is designed for the Reserve Bank," Rosenberg says and the Household Living-Costs Price Indexes (HLPI), another Statistics NZ series, is a better measure of inflation for NZ households. It includes mortgage interest payments.The latest HLPI figures show the annual inflation rate in the December quarter for all households was 8.2%, significantly higher than the CPI's 7.2%. The HLPI breaks out different indexes for all households being the average household, beneficiaries, Māori, superannuitants, highest-spending households and lowest-spending households. The CPI, in contrast, measures how inflation affects New Zealand as a whole. Thus the HLPI is able to show highest spending households experienced the biggest annual inflation increase of 9.4% in the December quarter because they spend more on interest payments than other household groups."I think there should be more focus on the HLPI, the Household Living-Cost Price Index," Rosenberg says."It's more representative of the costs that people face and people can actually go to it and see 'roughly speaking I'm [a] middle income household, I can see how my costs have been changing'," he says.

There's no reason why a partnership between the Government and banks making equity investments in small and medium sized businesses (SMEs) wouldn't work in New Zealand, says the man who heads up such a fund in Australia.The NZ Government expects the major banks to be in a position soon to decide whether to join it as an investor in a business growth fund (BGF). This comes after last year's Budget proposed a BGF to improve SMEs' access to finance, with up to $100 million earmarked for Crown investment as a minority shareholder alongside banks.Speaking in interest.co.nz's Of Interest podcast, Anthony Healy, CEO and Managing Director of the Australian Business Growth Fund (ABGF), explains how the ABGF works and sets out why he thinks such a fund is easily transferable to NZ. Healy, now based in Melbourne, was CEO of BNZ between 2014 and 2017."There are no differences that I could identify that would suggest the Fund wouldn't work [in NZ]. And I think the banks in New Zealand, their parent banks obviously supported the concept here, so it's not unknown to them," says Healy. "...the economies, the market, the business environment, they're very similar. The banking system's pretty similar."Establishing a BGF was a recommendation made by the Government's Small Business Council in its New Zealand Small Business Strategy in 2019. The ABGF received A$100 million from the Federal Government, A$100 million each from the Aussie parents of ANZ NZ, ASB, BNZ and Westpac NZ, plus A$20 million each from HSBC and Macquarie Group.Healy suggests a $400 million to $500 million BGF feels about the right size for NZ."There are tens of thousands of SMEs that would fit the [investment] profile in New Zealand. They could be in every sector of the economy," he says.In the podcast Healy also talks about how he got involved in the ABGF, getting the banks onboard, why it fills a gap in the investment market, the ABGF's investment process, the returns it seeks, the investments made to date and lots more.You can find all episodes of the Of Interest podcast here.

Silicon Valley Bank’s meltdown this week was partly because it had been investing customer deposits in US Treasuries, considered one of the world’s safest investments, without hedging the risk of interest rates rising. Last year was the first since 1870 that bonds and equities both experienced an annual decline, as the interest rate shock destroyed the value of assets in almost all classes. Investors have been rushing to redesign their portfolios as the style of investing, which had worked so well in the years post-global financial crisis, somewhat fell apart. Speaking in interest.co.nz's Of Interest podcast, Greg Fleming, head of global diversified funds at Salt Funds, said fiscal and monetary stimulus during the pandemic had created several parallel bubbles which are now deflating. "We had an extraordinary amount of money sloshing around after Covid triggered that super-stimulus; not just fiscal stimulus but also central bank stimulus."“That amount of money sloshing around the system had to find a home. Many markets took that money, some as solid as residential property, others as ethereal as ethereum.” Bubbles in both dependable and speculative markets have been deflating and bringing investment portfolios with them. Silicon Valley Bank, for example, was at the heart of the venture capital boom which occurred in 2021 as cashed up investors looked for places to invest all the excess liquidity they found themselves holding. Deposits rushed into the bank as start-ups raised big funding rounds and Silicon Valley Bank invested that cash in treasury bonds. But it couldn’t last, start-ups stopped depositing money when venture capitalists stopped writing them checks in 2022 and sky-rocketing rates depleted the value of the bank’s bonds. It's a classic boom and bust story. The economy got too hot, the bank grew too fast, and it imploded when conditions suddenly reversed. Not all assets and investments have experienced the dizzying extremes that Silicon Valley Bank has, but most have charted a similar direction of travel. Accident waiting to happen“If you go back three years, and were constructing a portfolio from scratch, one thing you would see was horrifically expensive bonds everywhere, that looked like an accident waiting to happen,” Fleming said. “It is almost wearying to see people expressing surprise at the bond meltdown that happened last year, it was always going to happen and was just a question of minimizing your investors' exposure to it.” The meltdown was the worst bear market in bonds that has ever occurred, which coincided with a bear market in stocks. These two assets have traditionally had an inverse-correlation, meaning one would fall when the other climbed. That has not been the case in the past year and these two asset types have begun moving in the same direction, posing a challenge to traditional portfolio construction. It is possible both stocks and bonds could rally when – or if – central banks cut interest rates, extending the correlation between the assets. This might require investors to look for other uncorrelated assets to smooth out volatility in portfolios. Examples might include infrastructure, carbon credits, or even commodities like timber. In its quarterly Global Outlook Report, Salt Funds said the approach of building portfolios from hundreds or thousands of individual securities was reliant on broad multi-year market rallies such as occurred after the global financial crisis. “However, such rallies may now be found to belong to a vanished era, where central banks cushioned or prevented recessions by expanding liquidity and lowering the cost of activity through interest rate suppression”.With central banks now focused on price stability, and willing to induce recessions to get there, the era of “wave riding investment strategies” may have passed. “For instance, it is plausible to foresee a phase in which the main market benchmark indices move sideways in ranges, whilst individual securities within them still offer scope for better outcomes.”Fleming said his expectation for financial markets in the remainder of 2023 was that it won’t be as bad as it might have felt this past week. “We’re in more of a dilemma than a disaster,” he said. “It is a dilemma because the central banks do have to put a stopper in inflation, but they don’t want to break too many things that are reliant on yields not going through the roof”. “Be satisfied with the quality and the underlying balance sheet of anything you invest in; be very, very vigilant about that."You can find all episodes of the Of Interest podcast here.

Just a couple of years ago there was huge excitement about buy now pay later (BNPL) companies. Via smartphone applications, or apps, their buy now and pay over installments service0 was drawing in consumers and worrying banks.The high water mark saw US payments company Square, now Block, strike a US$29 billion deal to acquire Australian BNPL service provider Afterpay in August 2021.But 18 months on the picture is very different with several BNPL companies in serious difficulties or shutting up shop. Latitude Financial Services has just announced its pulling the plug on Genoapay, its BNPL service. Openpay went into receivership, Humm pulled out of the New Zealand market and NZ company Laybuy has delisted from the Australian Stock Exchange.So what has gone wrong with the BNPL sector? And did its substance ever really match the hype swirling around it?To discuss this we spoke with Melbourne-based Grant Halverson, CEO of retail banking and payments consultancy McLean Roche, in the latest episode of interest.co.nz's Of Interest podcast.Halverson notes that BNPL services, in one form or another, have been around for centuries. The new twist was putting an app on a phone. He notes the sector, which both the NZ and Australian governments are moving to regulate, currently offers unregulated credit.A long time critic of the sector, Halverson describes it as: "Worse than payday lenders in terms of what they're doing, but they do it with an image that doesn't actually hold scrutiny."Whilst supporting moves to regulate BNPL services, Halverson suggests many of the companies won't be around for much longer as the rising interest rate environment has dramatically increased their funding costs.'I think it [the future] is very dismal. I think unless they can be bought by somebody most of them [ BNPL companies] will have disappeared by the end of this year. They're all in trouble, they're all in deep trouble," says Halverson.You can find all episodes of the Of Interest podcast here.

In a rare show of bipartisan cooperation, the Labour and National parties teamed-up to enact new housing intensification laws in late 2021.This came through the Resource Management (Enabling Housing Supply and Other Matters) Amendment Act. Pushed through a rushed select committee process to the protestations of the ACT and Green parties, it will allow the building of up to three homes of up to three storeys on most sites in Auckland, Hamilton, Tauranga, Wellington and Christchurch without the need for a resource consent.Councils in the five cities are now moving to adopt medium density residential standards (MDRS). But what does all this really mean, where's the process at, and is this actually the right way to tackle New Zealand's housing crisis?To discuss all this we spoke with Doug Fairgray, director at consulting and economic research firm Market Economics, in a new episode of the Of Interest podcast."One of the effects [of the changes] will be that the distribution of new housing supply is likely to become spread more widely across cities rather than focused around centres and transit stations as is intended under the National Policy Statement [on Urban Development]," Fairgray says."There has been a strong narrative, [over] the last decade at least, that planning is to blame for high housing prices. And that has led to a focus that therefore planning legislation should solve the problem. There's quite a debate about that because house prices have been driven above all by consumer sentiment and interest rates," adds Fairgray, who is also secretary of the Association for Resource Management Practitioners.You can find all episodes of the Of Interest podcast here.

Money laundering is a scourge of the modern financial world. Whether it's the actual dirty money stretching its tentacles and influence widely, or the US$210 billion annual tick-box compliance effort as people and companies strive to meet anti-money laundering laws, the impact is massive.In a new book, The War on Dirty Money, authors Nicholas Gilmour and Tristram Hicks detail the failings of the fight against money laundering and offer solutions designed to make the war more winnable.Speaking to interest.co.nz for the Of Interest podcast, Gilmour describes dirty money as all money deriving from crime, and money laundering as a series of transfers and purchases as criminals strive to distance the money from the crime. The war against dirty money needs a better global response, says Gilmour, with New Zealand one of hundreds of countries where dirty money sloshes around.Hicks points out the horrendously high death toll from the recent Turkish earthquake involves a "straight forward link" between corruption, dirty money and the loss of life because of corruption around building standards.So is the war winnable?"We think it is [but] it's going to be a difficult war to win. This is a global problem, it requires a global solution. But it is winnable and it's winnable in small increments. It's not going to be easy and it's going to mean that some people have to change their mindset completely, do a 180 degree change in their mindset," says Gilmour."The Financial Action Task Force [the global money laundering and terrorist financing watchdog] only looks at countries, it doesn't look at illicit financial flows between countries. We think that it could do that and we've proposed a way of doing it," Hicks adds. Gilmour, now a consultant/advisor working with governments and the private sector on financial crime, analysis plus information and intelligence sharing, previously worked for the NZ Police Financial Intelligence Unit. Hicks is an advisor on the operational effectiveness of asset recovery and criminal justice anti-money laundering regimes.You can find all episodes of the Of Interest podcast here.

After their Government's "clumsily conceived and executed lurch" away from its zero-Covid policy, the Chinese people are "back to work with real energy," says David Mahon.Mahon, the Beijing-based Managing Director of Mahon China Investment Management, spoke to interest.co.nz in the latest episode of our Of Interest podcast."China has to come some distance still to get away from the fear of this virus, the fear it may return. I'm sure that when we get into the autumn there'll be considerable concern amongst a lot of people. Nonetheless China has come through this reasonably well. People are back to work with real energy. They might be a little nervous, they will wear masks on public transport...but people are working, people are very keen to be back at work. Production has kicked in. The Chinese economy is beginning to really move again. So from that measure people have gone back to what they now perceive as a normality," Mahon says.In the podcast Mahon talks about his recent traveling experience in China including differences in rural and urban areas, the impact from the spread of the omicron Covid variant, and a perception in parts of China that they've been failed by their leaders with public confidence needing to be re-earned. He also talks about what banks are being told, his expectation for the property sector this year, why he sees a year of relative economic strength, and gives his take on changes at the top of the political pyramid following the 20th national congress of the Chinese Communist Party in October.Mahon also talks about China's relationships with the United States and Russia, suggesting the relationship with the US is "bad and getting worse," and that there's "fury" in the Chinese administration over Russia both initiating a war in Ukraine, and that it has gone on for so long.Overall he says the "trauma" of Covid has been considerable, but a positive is it's leading to more challenging of authority from the general population, in terms of an attitude of "show me the facts here, tell me why this is something I should comply with."

Auckland's unprecedented flooding highlights the importance of climate adaptation finance and the potential for parametric insurance, says David Hall.Hall, Climate Policy Director at Tohaand until recently Senior Lecturer in Social Sciences and Public Policy at the Auckland University of Technology (AUT), spoke to interest.co.nz for the Of Interest podcast.Hall says in events like the recent flooding he feels "a sense of grizzly resignation" with what has been predicted "playing out before our eyes."With the likelihood, as in post-earthquake Christchurch, for a long wait for people who've filed insurance claims due to flood damage to their property, Hall highlights potential for prolonged uncertainty as insurance claims are assessed.Hall, who recently published a detailed paper on adaptation finance, suggests parametric insurance could complement traditional indemnity insurance. Parametric insurance is a type of insurance contract that insures a policyholder against the occurrence of a specific event by paying a set amount based on the magnitude of the event, as opposed to the magnitude of the losses in a traditional indemnity policy."So it could be the severity of the event. [For example], if a flood event reaches a certain level of precipitation, or if an ex-tropical cycle event reaches a certain threshold in terms of wind speed, or drought reaches a certain threshold. Then that trigger is hit and a payout is made. And then people can use that money in a multitude of different ways. They don't necessarily need to use it to pay for replacement or repair of the assets lost or damaged. They might choose to use it in order to relocate, for instance. And so not only does parametric insurance have the advantage of being quick, it also has the advantage of being flexible," says Hall."I don't think this is necessarily a replacement for indemnity insurance. But it could be a complement which could give people greater flexibility and certain comfort after events like this." He notes parametric insurance is used in Fiji."When Fiji gets hit by cyclones or similar events a trigger is struck and a small payout is made to small-hold farmers and so on who are dealing with the consequences of those events. It gives you quick settlement and a bit of liquidity," Hall says.He goes on to say that parametric insurance products might work better for a public insurance scheme, rather than private insurers, such as EQC as it morphs into the Natural Hazards Commission.In the podcast Hall also talks about the difficulty of measuring whether adaptation finance is money well spent, insurance retreat, the urgency for climate adaptation and the politics of it plus much more.His fullAdaptation finance: Risks and opportunities for Aotearoa New Zealand report is here.Hall was also a contributing author for the Australasia chapter in the Intergovernmental Panel on Climate Change (IPCC) report Climate Change 2022: Impacts, Adaptation and Vulnerability. Additionally And Hall was co-Chair of the Mayor's Independent Advisory Group for Auckland's Climate Plan issued in December 2020.You can find all episodes of the Of Interest podcast here.

The Reserve Bank ought to move faster to offload the government bonds bought during its 2020-21 quantitative easing programme to unwind the distorted effect this has on the financial system, says John McDermott.McDermott, Executive Director of economic and policy research institute Motu is also a former Reserve Bank Assistant Governor. He says quantitative easing (QE) via the Reserve Bank's large scale asset purchase programme has proven problematic."I think we'll reassess history and decide QE turns out to be a really bad idea, apart from [during] the really emergency settings.""Under normal times central banks should not be doing this and they should be repairing the balance sheet. Because QE just seems to find itself in asset markets. It moves equity markets up, it moves house prices [up], it creates other distortions in the economy that we really don't need to have. It creates all kinds of financial stability problems. QE has proved very dangerous. Maybe we should have it for just in case, but understand the cost of using it is much, much higher than we ever anticipated," McDermott says.QE) is a monetary policy tool through which a central bank buys securities on the open market with the aim of reducing interest rates, increasing the money supply and bolstering economic activity. During 2020 and 2021 the Reserve Bank bought $53 billion worth of government and local government bonds from banks. It's now selling $5 billion worth annually to New Zealand Debt Management, the Treasury unit that manages government debt.QE, McDermott says, gets into the financial system where it has to work through asset prices."So it has over inflated asset prices. It creates a distortion in terms of wealth distribution, it distorts business decisions, and it creates financial fragility in the system so everybody is over leveraged, there's too much debt in the system," says McDermott.The exit strategy for central banks is tricky, McDermott adds, saying he hasn't seen any country do this well."The business model relies on keeping QE going. So I think we need to say that has not to be New Zealand's future, we don't want a distorted financial system. So it's important to reduce it before we get hooked on that really bad habit."In the podcast he also talks about whether inflation has peaked, good and bad forward guidance from central banks, the sport of Federal Reserve watching, the need for New Zealand to have monthly Consumers Price Index inflation data, the state of the global economy, including China, the US and Australia, and the three things he'd be watching over summer if he still worked at the Reserve Bank.

Geopolitical tensions are playing a significant role in the growth of cybercrime and New Zealand should consider following Australia's lead and having a Minister of Cyber Security.That's the view of Adam Boileau, Executive Director of security, testing and assurance at cyber security provider CyberCX.Speaking in a new episode of interest.co.nz's Of Interest podcast, Boileau says it's clear cybercrime is getting worse. Criminal gangs can make good money out of computer crime, and when the likes of Russia won't extradite criminals, doing so has become a viable occupation, Boileau says."The world around us has shaped how computer security has become relevant to individual people and to businesses, to enterprises, to government," says Boileau.In the podcast Boileau explains why he's closely watching Australia, where Minister for Cyber Security Clare O'Neil pledges to "punch back at the hackers," taking the attack to cyber-criminals. He describes the Aussie approach as "a pragmatic answer to a very real problem"New Zealand, Boileau adds, should also have a Cyber Security Minister."Computers are so important to everything now. ..This is no longer a thing [just] for nerds."I have a message for all cybercriminals: Australia is fighting back.#Insiders pic.twitter.com/jEyk6rzgGj— Clare O'Neil MP (@ClareONeilMP) November 13, 2022

The Reserve Bank recently increased the Official Cash Rate by a record 75 basis points as it tries to engineer a recession to fight the highest inflation in more than 30 years. But is bashing the economy into submission with its big, blunt monetary policy tool the best approach? To probe this and more I spoke with David McLeish, Head of Fixed Income at Fisher Funds Management, in the latest episode of our Of Interest podcast.McLeish argues that monetary policy is largely focused on demand issues when supply issues are behind most of the current inflationary pressures. He also says he's quite optimistic about the alleviation of these inflationary pressures, arguing there are lots of reasons he can already point to as evidence monetary policy has done its job.McLeish also explains why he's skeptical about whether inflation expectations set inflation, talks about the role of government fiscal policy in the current economic environment, the difficulty of setting interest rates by looking in the rear vision mirror for an economy that's six, 12, or 18 months into the future, the distorted labour market, and much more.

With three months between the Reserve Bank's last monetary policy review of 2022 and first one of 2023, it will be watching "high frequency data" during the break closely, says Karen Silk, Reserve Bank Assistant Governor and General Manager of Economics, Financial Markets and Banking.Speaking in a new episode of interest.co.nz's Of Interest Podcast, Silk, also a member of the Monetary Policy Committee responsible for making monetary policy, says if the Reserve Bank's current hawkish outlook is to moderate it needs to start seeing a slowdown in the level of household spending.Thus the likes of electronic card transaction data, retail spending, credit card survey data, plus manufacturing and services data will be watched closely.In the podcast Silk also explains why inflation forecasts from businesses are important to the Reserve Bank, how close the Reserve Bank came to making a 100 basis points increase to the Official Cash Rate last week (it went for 75), and why core inflation when volatile food and energy costs are stripped out is such a concern.She also talks about what needs to happen in the labour market for the Reserve Bank to consider employment to be reined in from beyond what's deemed to be its maximum sustainable level, and more.

The Covid-19 pandemic has been a really challenging time, the likes of which we haven't experienced since World War Two. And it's against this backdrop that the Reserve Bank is waging its fight against the highest inflation since the 1980s, Kiwibank Chief Economist Jarrod Kerr says.Speaking in a new episode of interest.co.nz's Of Interest Podcast, Kerr says he expects the Reserve Bank to increase the Official Cash Rate by 75 basis points to 4.25% when it reviews the OCR for the last time in 2022 on November 23."It is an aggressive move but the war on inflation is far from over," Kerr says. "The deceleration back towards price stability is going to take some time."By the time the Reserve Bank is next scheduled to review the OCR, on February 22 next year, Kerr expects to see a significant slowdown in household consumption, further signs of a slowdown in global economic growth, and "hopefully" a slowdown in inflation."By the end of next year I think enough will have been done that we'll actually be in a situation where central banks, including the Reserve Bank, will start to ease monetary policy into 2024. So more hikes, more pain near term, a cash rate of 5% which sees mortgage rates staying around current levels if not a little bit higher. And then hopefully by the end of next year, the war on inflation will be won and we'll see central banks starting to reduce interest rates," says Kerr.In the podcast he talks in detail about the inflation picture including core inflation, the labour market and why the Reserve Bank wants to see a rise in unemployment, plus the role of government fiscal policy. Kerr also discusses just how disruptive the Covid-19 pandemic has been to the economy, when the world last witnessed shocks of this magnitude with war-time settings such as closed borders and disrupted supply chains, and the changes this has wrought on the economy.

New Zealand ought to move from an "ad hoc" immigration policy disconnected from other public policy settings to a long-term government policy statement to assist with infrastructure and other planning, Productivity Commission Chairman Ganesh Nana says.Speaking in the latest episode of interest.co.nz's Of Interest Podcast, Nana says the government's formal response to the Productivity Commission's inquiry into NZ's long-term immigration settings is expected before Christmas. Among other things the inquiry, completed earlier this year, recommends a government policy statement requiring governments to set a clear strategic direction for immigration policy.Nana notes the level of immigration influences the overall population, the requirement for infrastructure including transport networks, hospitals, schools, energy requirements, early childhood needs, and regional development. At the moment there's a "disconnect" between immigration settings and these other areas, and a disconnect between workforce training and skills development and labour market policy, Nana argues.He also wants to see a longer-term focus for immigration rather than the "ad hoc adjustments" currently made every few months or years. This ought to have a timeframe of at least 10-years.In the podcast he talks about these issues in detail, plus how often the government policy statement could be revised, the idea of holding a referendum on the population size we want, the recent slowdown in population growth and decline in areas such as Auckland and Wellington, the impact on natural resources and land use, why the population size isn't the answer to productivity or wellbeing, what he'd like to hear during election year, what the Treaty of Waitangi means to immigration, and more."Migration is always going to be part of our population story," Nana says."The world is going to be a lot different and if we continue to plan on the past we will be disappointed. I think we've got an opportunity to set our own path, and our own trajectory in terms of population, in terms of migration and population growth. Let's do that openly and explicitly rather than stumble into the rather large population growth we had pre-Covid."

Why do banks love housing so much? Is this good for the overall economy? And if not what, if anything, could be done to change things?We address these questions in the latest episode of interest.co.nz's Of Interest Podcastwith Martien Lubberink, Associate Professor at Victoria University’s School of Accounting and Commercial Law. Lubberink has previously worked for the Dutch central bank and contributed to the development of bank regulatory capital and disclosure standards both in Europe and globally.New Zealand banks do the majority of their lending to people buying houses. ANZ NZ, the country's biggest bank, has $104 billion of housing lending, which is 71% of its total lending. It's a similar story at the other major banks. At ASB 69% of total lending is housing lending. At Westpac NZ it's 66%, at Kiwibank it's 84% and at BNZ it's 55%. In the podcast we discuss how and why bank regulatory capital settings incentivise housing lending, how the political economy favours home owners, the potential of so-called fintech financial service providers to boost borrowing opportunities for small businesses, or SMEs, and more."We are very much focused on lending to residential real estate, our homes. We've got no capital gains tax, everything's geared up to supporting the home owners. And that is because we vote for that, we want that. We are not explicitly voting for SMEs, and SMEs themselves are fragmented, poorly organised. So they can not stand up against powerful politicians, [the] powerful interests of other parties. SMEs are in a way the wallflower of our economy and that's kind of detrimental because a lot of growth and great ideas will come from that sector," Lubberink says."The banking system in itself is not a problem, it's more the way that the lending is organised. And that's more like a political deal made between voters who want their homes. In fact these homes are subsidised because there's almost no risk attached to them. If something goes wrong owners will be bailed out or banks will be bailed out. That's the world we live in, which I think is very hard to change.""There is a bit of a trade-off. The banking system is safe. On the other hand the big problem still is the very large exposure to a single asset class [housing]. If something goes wrong in that single asset class it goes wrong very quickly," Lubberink says.

The resumption of overseas tourism isn't merely a matter of flicking a switch with everything then returning to how it was.Rebecca Ingram, Chief Executive of Tourism Industry Aotearoa, says the industry, dramatically impacted by the Covid-19 pandemic with the border closed and domestic travel restricted for periods of time, continues to face major challenges.Speaking in the latest episode of interest.co.nz's Of Interest Podcast, Ingram says there's no understating the impact of the last couple of years."This restart we're going through at the moment, it's really not just flicking a switch. You can't just shut something down for a couple of years and then hope that it will turn back on just the way it was," says Ingram. "So it's very difficult out there at the moment. People are having to make lots of choices with imperfect information."While the industry is feeling quite hopeful about the upcoming summer, flight connectivity isn't back where it was pre-Covid, and the industry lost 72,000 workers. Ingram says tourism businesses are recruiting for everything from beauty and massage therapists for spas and hotels, to mechanics for rental car companies right across the country.And in a world where climate change and net-zero carbon emissions is on the agenda, there's also debate about the types and volume of tourists New Zealand should be targeting.

There's no silver bullet law that parliament could pass to cover off all the good and bad aspects of the crypto and blockchain industry, according to an adviser to the parliamentary select committee running a cryptocurrency inquiry.Speaking in the latest episode of interest.co.nz's Of Interest Podcast, MinterEllisonRuddWatts partner Jeremy Muir discusses a wide range of crypto-asset related issues.A leading lawyer for cryptocurrencies, digital tokens and coins, non-fungible tokens (NFTs), and other blockchain projects, Muir is one of two special advisors to the finance and expenditure committee for its crypto inquiry."Our role now is to write a report that will be delivered to the committee. It has been taking time because it's a very fast moving space, so as soon as you write one thing something else comes along. But we are nearly done, that will be delivered shortly. Then the next stage will be for the politicians and the select committee officials to write their report, which will then be tabled [in the House] together with our advisers' report," Muir says."The thing to note, and this will certainly be reflected in our report, is that because this is a very fast moving area, there is not necessarily a great advantage to being a fast mover when it comes to writing new laws," says Muir. "New laws may become out of date almost instantly, or they will be compared to new laws in other jurisdictions perhaps favourably, perhaps unfavourably. But it is a real chess game to decide when it is actually helpful to do so.""We will certainly be counselling as part of our report that there isn't a single easy fix, there isn't a single crypto act which will make all of the scams and problems go away whilst also encouraging innovation in the industry," Muir says.In the podcast Muir also discusses the New Zealand blockchain scene, the Financial Markets Authority's attitude to the industry, NZ regulatory gaps, overseas regulations, stablecoins, and the "battle brewing over the future of money."

Six years after Auckland Council passed the Unitary Plan, with scope for increased housing densification to boost supply and improve affordability, what impact has it had?Quite a bit according to University of Auckland Associate Professor of Economics Ryan Greenaway-McGrevy.Speaking in the latest episode of interest.co.nz's Of Interest Podcast, Greenaway-McGrevy talks about a recent paper he co-authored on the impact of upzoning on Auckland housing construction, plus a range of other housing related issues.Greenaway-McGrevy explains why he believes Auckland leads the world when it comes to upzoning, the impact of the Unitary Plan on residential building consents, and where Auckland's at with housing affordability and rents.He also discusses land prices versus land costs and explains why he supports the concept of a land tax.We also talk about the Medium Density Residential Standards following 2021's Resource Management (Enabling Housing Supply and Other Matters) Amendment Act, and what these could mean for cities and towns around New Zealand, including Christchurch where the Christchurch City Council voted against the new housing intensification standards.

In 2005 Earl Bardsley wrote an article published in the Journal of Hydrology highlighting the possibility and potential of a pumped hydro storage reservoir at Lake Onslow in Central Otago.Fifteen years later Energy and Resources minister Megan Woods announced $30 million had been allocated to develop a business case to tackle New Zealand's dry year storage problem. This would mostly focus on a pumped hydro storage project at Lake Onslow.Bardsley, Honorary Associate Professor at Waikato University's School of Science, talks about the Lake Onslow pumped hydro concept in the latest episode of interest.co.nz's Of Interest Podcast.Should it go ahead the project would be a massive public infrastructure project taking years to complete, impact the local environment, and cost billions of dollars. Effectively it would involve soring energy like a battery, Bardsley says.Water would be pumped up to a high elevation from the Clutha River and stay there until it's needed."So the energy is stored in the form of gravitational potential energy," says Bardsley.The potential volume of water held, the capacity for generating power, and the actual energy stored would be massive. As potentially would be the impact on electricity supply and storage."I think the key selling point would be that it's an enabler to get rid of fossil fuel power generation, and secondly more than that it's an enabler of the green transition. So we can actually go ahead and move into EVs, maybe green hydrogen, because it's just not obvious to me that there are other mechanisms around by which we can actually do that," says Bardsley.Part of the NZ Battery Project under the oversight of the Ministry of Business, Innovation & Employment, advice on technical, commercial and environmental feasibility studies of the Lake Onslow option is scheduled to be provided to Cabinet in December. There's more from Bardsley on the Lake Onslow proposal here.

Following probes into the conduct and culture of banks and life insurers in 2018 and 2019, the Financial Markets Authority (FMA) is preparing to start regulating the conduct of financial institutions.The incoming regime aims to ensure financial institutions do what's best for their customers over the entire lifecycle of a financial product, and introduces a fair conduct principle through which financial institutions are required to treat customers fairly.Why is change needed? What problems is the conduct of financial institutions regime designed to address? And what changes will consumers and the public notice?To address these questions and other issues I spoke with Clare Bolingford, the FMA's Director of Banking and Insurance Conduct, in the latest episode of interest.co.nz's Of Interest Podcast."What the new regime does is it puts a legal obligation on banks and insurers to make sure they are treating customers fairly, that's the central principle," Bolingford says.

Paul Conway, the Reserve Bank's Chief Economist and former Economics and Research Director at the Productivity Commission, is optimistic that better times may be ahead for New Zealand's lagging productivity performance.Speaking in the latest episode of interest.co.nz's Of Interest Podcast, Conway says New Zealanders work about 10% more hours per person, but produce about 20% less output than workers in the average OECD economy, which is why average incomes and wealth in NZ are both significantly below the OECD average.Whilst NZ's productivity performance hasn't been great for several decades, in part at least because we're "a small economy that's the last bus stop on the planet," Conway sees optimism for improvement ahead."The reason I'm optimistic about productivity is because technology is changing everything. In the digital realm geography becomes less of an issue. It becomes less of a handbrake. So it's like technology is eroding those economic forces that have kept productivity growth low in New Zealand for so long," Conway says.He does acknowledge, however, that there's a long way to go.In the podcast Conway also talks about what productivity is, why it matters, what the transition to a zero carbon economy may mean for productivity, the concept of degrowth, how NZ can improve productivity and more.Figure 3 below comes from the Productivity Commission. Also see Conway's 2020 article on a pro-productivity policy agenda for New Zealand here.

China is far and away New Zealand's key export market. But this comes with risks.China is an authoritarian one-party state. Its human rights record came under fire from the United Nations this week, and China's growing international assertiveness is seeing it butt heads with the United States and increase its influence in the South Pacific.Against this backdrop, is it possible that NZ is too dependent on China as a destination for our exports? What are the risk to this relationship? And could we diversify by exporting more of our key products to other countries? To discuss this I am joined by Stephen Jacobi, Executive Director of the New Zealand International Business Forum, for the latest episode of interest.co.nz's Of Interest Podcast.

Against the backdrop of a sweltering summer, China's Covid-zero policy rumbles on, the country's commercial property sector teeters, and youth unemployment soars.To talk about all these issues and more, I spoke to Beijing-based David Mahon, Managing Director of Mahon China Investment Management, for the latest episode of interest.co.nz's Of Interest Podcast.On the weather Mahon says it's China's hottest summer since records began in 1961, and has exceeded anything he has experienced in the almost 40 years he has lived in China.It has also been dry leading to "a complete collapse" of key hydro-driven power from the Yangtze River and its tributaries. This has led to factory closures and limited electricity supplies to some cities, with the impact stretching from Sichuan province to Shanghai."It's having major ramifications on the economy," Mahon says. "This year's weather means the harvest in general will also be poor."In terms of the battle against Covid-19, Mahon describes the experience of being tested every three days, the challenges of business travel, clients in lockdown running out of food, and when and how he thinks the Government will start to loosen the Covid-zero policy."The Covid policies are baffling at the moment. I think China knows that whatever happens there'll be a death toll once they begin to relax as New Zealand is finding," says Mahon.In the podcast he also talks about how China's strategic reserves are helping it combat inflation, interest rates, supply chains, problems in the commercial property sector, high youth unemployment and general demographic challenges, plus what recent clashes between bank depositors and the police were about."The longer-term issue is that in general China won't have enough workers in industry, and they're going to have to look at a migrant worker programme, something which to date they never would've even begun to conceive of," Mahon says of China's demographic challenges.

In 2015 when he and his wife Selena published Generation Rent Rethinking New Zealand’s Priorities, economist Shamubeel Eaqub admits he was pessimistic about the housing market. That has now changed. Speaking in interest.co.nz's Of Interest Podcast, Eaqub, now of economic consultancy Sense Partners, explains why he's now optimistic about the housing market."I think there is a consensus across the political spectrum that there is a problem, and now we're fighting about what the solutions are. To me that's a really optimistic place to be when it comes to the housing market," Eaqub says."We've seen changes in the Auckland Unitary Plan which has led to significant increase in supply, diversity of types of supply in terms of more medium density [housing], high density, places that are infills, places that are greenfield. So we're seeing really good progress. We've seen changes in the Residential Tenancies Act, it's not perfect but it's heading in the right direction. Recently we saw an announcement for build to rent. Again it's not perfect, [but is] heading in the right direction. We're building more state houses, [which is] very, very good because we have a massive wait list of over 25,000 households that are waiting for social housing.""So I think we are heading in the right direction in that the balance has moved from apathy towards action, and we are arguing about what are the best solutions," Eaqub says.In the podcast he also talks about why a land tax - a "pseudo wealth tax" - is top of his housing market wish list, the psychology of the housing market, pressure on the Reserve Bank after it "misdiagnosed the [Covid-19] problem and flooded the housing market with money with predictable results," and perhaps what it should've done, outdated thinking in the public service, the needs of renters and requirements for affordable housing, consenting, the current difficulties for borrowers in attracting mortgages and how and when this might change, and much more.

New Zealand is poised to end its role as an international outlier when it comes to deposit insurance.The Deposit Takers Bill is expected to be introduced to Parliament in the third quarter of this year. Included within it are proposals for a depositor compensation scheme to cover bank depositors in the event of bank, or non-bank deposit taker such as a building society, failing. Depositors will be covered for a total of $100,000 per institution, per depositor.Speaking in interest.co.nz's Of Interest Podcast, Geof Mortlock explains what deposit insurance is and what its objectives are.Mortlock is an international financial regulatory consultant who undertakes work for the International Monetary Fund and World Bank, specialising in financial system stability, resolution of bank failures, deposit insurance and related matters. Mortlock also explains why it has taken NZ so long to adopt deposit insurance. According to the International Association of Deposit Insurers, at least 145 jurisdictions have some form of explicit deposit insurance.Additionally he talks about the $100,000 limit, how the deposit insurance fund will be established including how much this will cost and what this is likely to mean for the interest rates depositors are paid.Mortlock also talks about which products are likely to be insured, or covered by the scheme, and which are unlikely to be, whether a depositor preference regime should be introduced in the event of a bank failure, how the Crown's deposit insurer should operate, and more.The Reserve Bank expects the Deposit Takers Bill to be passed into law in mid-to-late 2023, with a depositor compensation scheme expected to be up and running in early 2024.

The Reserve Bank's response to the Covid-19 pandemic followed a misdiagnosis of the problem, and we ought to use an inquiry to develop a blueprint for managing future challenges, says The Opportunities Party (TOP) Leader Raf Manji.Speaking in interest.co.nz's Of Interest Podcast, Manji says any inquiry into the Reserve Bank's response to the Covid-19 pandemic should be as apolitical as possible."Let's look at what we did, could we have done things differently, what were the impacts of what we did, and could we have changed that response at an earlier stage? And I think clearly the answer to that is yes," Manji says."One of the first focus points was the misdiagnosis of what was happening. And I think for me when I go back, and it's important that we all reflect on what we said at the time, I was very, very clear that this was a liquidity crisis. It wasn't particularly a credit crisis, it was not a business cycle recession or depression, yet that's how it was being treated."In terms of quantitative easing, or the Reserve Bank buying up tens of billions of dollars worth of government and local government bonds in the secondary market from banks, Manji says he'd have preferred Treasury and the Reserve Bank to deal directly with each other rather than "providing huge amounts of profit for the banks.""New Zealand's problem, which is always our problem, is the huge focus on the property market and the impact that has. And there's no doubt that probably, whichever data you look at, probably a third of our inflationary impulse was from the housing market and the follow on effects of that, the renovations, the squeeze in capacity, and just the extraordinary rise in property prices," says Manji."I think if the Reserve Bank had looked a little bit more carefully at the outcomes of its policy towards the end of 2020 they might have gone 'okay everyone, let's get in a room, what has happened here, do we need to change our policy'?""We're in a position that could've been avoided to some extent," Manji says.In the podcast Manji also talks in depth about interest rates, inflation, government debt, overt monetary financing, the Government's fiscal policy response to Covid-19 and more.