And if the Democrats' complex, non-transparent and expensive spending plans turn to custard...

The new United States Administration's economic policies are the source of a great deal of heated debate in America.

 

Joseph Stiglitz, the Nobel Prize in Economics holder who was in New Zealand last year outlining the high risks of the former Administration's massive borrowing programme to fund the ill-fated Iraq invasion, describes President Obama's latest programme to salvage America's ailing banking system as clever, complex and nontransparent - a win-win-lose proposal: the banks win, investors win — and taxpayers lose. Joseph Stiglitz: Ersatz Capitalism

 

Adam Posen of the Peterson Institute for International Economics who is without doubt one of the world's most informed people about Japan's "lost decade" when its banking system over-borrowed and got over-exposed to over-rated assets before siezing up in the 1990s, outlines a number of parallels between the U.S. today and Japan in the 1990s, as wonders whether there will be a need for a "Plan B" in a year or two. http://www.thedailybeast.com/blogs-and-stories/2009-03-29/does-obama-have-a-plan-b/full/

Salman Khan tries to explain in very simple terms how the U.S. Federal Government's toxic debt management plan amounts to a massive gift to the banks - but his presentation leaves you wondering if the massive taxpayer generosity will deliver economic benefits to the wider economy or will in fact just delay, and exaggerate, the large underying economic and social adjustment Americans face. http://www.youtube.com/watch?v=n-arbfLTCtI&eurl=http%3A%2F%2Fwww.irvinehousingblog.com%2Fblog%2Fcomments%2Ffear-is-gripping-the-market%2F&feature=player_embedded

Hopefully the sceptics are wrong.

But there was a strange statement issued today by Reserve Bank Governor Bollard. He noted retail banks are raising their longer term mortgage lending rates Long-term interest rates out of line with RBNZ expectations Rising retail mortage rates are, Dr Bollard said, "inconsistent with the monetary policy outlook," - a strange statement because it only highlights how little influence our central bank has on long term interest rates in New Zealand and how dependent on off-shore lenders our retail banks are to be able to offer fixed term mortgages in the first place.

Maybe the rise in longer term retail mortgage rates is a sign of underlying investor confidence that America's plans are working and the global economy will recover. Perhaps, on the other hand, rising long term interest rates is just a sign of on-going stress in international debt markets, a sign of market scepticism in U.S. policies which manifests itself in higher charges by lenders to borrowers (which is bad news for the highly indebted of this world, like us Kiwis).

Only time will tell, but in the meantime the National Government's borrowing to fund today's $1 billion personal tax cut package looks like an unnecessary risk in these very troubled times. Finance Minister Bill English's statement doesn't mention where the funding for the package comes from http://beehive.govt.nz/release/government+delivers+april+1+tax+cuts+sme+changes and the decision to cut back on employer contributions to KiwiSaver (exactly what this indebted country needs more than ever), meanwhile, merely gets a footnote.