Posts by Dismal Soyanz
Last ←Newer Page 1 2 3 4 5 Older→ First
-
OnPoint: Election 2011: GO!, in reply to Matthew Poole,
Ah, much care is needed when reading rating agency tea leaves, Grasshopper.
Sovereign ratings can act as a ceiling for private sector ratings. Moreover, if the threat of a government defaulting increases, the flow on effect (government runs out of money -> cannot pay for services, public sector etc) can be significant for the economic prospects of the private sector. For some economies this may not be a big risk (Japan) but for others it’s huge (the PIGS – Portugal, Ireland, Greece, Spain).
While the immediate ability to service (and ultimately repay) debt for government and the private sector are different, I’m not sure lenders would necessarily keep the two completely separate. It’s also important not to see the credit rating as the only determinant of sovereign (debt) interest rates. NZ has the same local currency long term debt rating as Singapore but we pay (basis unadjusted) around 3% more for the same term money.
-
OnPoint: Election 2011: GO!, in reply to BenWilson,
improving private savings
Do that, Ben, and I will gladly nominate you for a Nobel.
Seriously, that is our no.1 hurdle - and it is hugely disappointing to see successive governments fail to address it properly.
-
OnPoint: Election 2011: GO!, in reply to BenWilson,
Actually it can also apply to existing debt that is based off floating rates. Basically it will apply to any debt that is not currently fixed rate.
Estimating the chance of a sovereign downgrade is possible from historical data but given that the universe of sovereigns is a tiny fraction compared to the number of companies that get rated, it is probably a rather biased statistic.
-
OnPoint: Election 2011: GO!, in reply to Kyle Matthews,
the banks/investment companies are going to need to find money elsewhere to replace it so that they maintain their equity, and they’ll look overseas.
Not equity. What the banks would be losing is a liability (the deposit) and an asset (what they used the deposit to fund). The balance sheet would shrink but not equity.
The presumption you make here is that the bank would then say it needs to increase its balance sheet back to where it was before. But how would it do that? It can borrow from overseas (liability) [ETA or even issue more equity - possibly to an overseas investor] but lend to who (asset)? In our static example, there is no new project being undertaken so no-one is going to borrow more. Hence the bank will not be rebuilding the balance sheet.
-
OnPoint: Election 2011: GO!, in reply to Sacha,
Kind of like bonds, you mean?
Bonds are no more likely to be held long-term than shares, even by NZ investors. Certainly financially literate investors, especially institutional investors, will be ready to sell bonds if bond prices are high enough and can and do cycle in and out of particular debt issues.
There may be some marginal appeal to institutional investors through the fact that bonds issued by majority state-owned SOEs would have some form of credit enhancement but not enough to make such bonds the equivalent of sovereign debt.
-
OnPoint: Election 2011: GO!, in reply to Matthew Poole,
Something wrong with that link. Perhaps you meant this?
5% of GDP is a lot of money to play with - it represents around 10% of the current government expenditure.
As 1/6th of the current debt position that is also significant.
I don't see how you can say it's not a big difference.
Theoretically: If the shares were sold at a fair market value, then the price should be equal to the present value of the expected dividend stream plus residual value. From the government perspective, the loss of the dividend stream is reflected in the price it receives. So it is not a cost you add on at the end of calculation.
Given that working out this PV requires some major assumptions, it is always possible to fudge the numbers. Also remember that it would be necessary to sell at a discount in order to induce NZers to buy the shares (especially as they already own them indirectly) -meaning the actual price may end up slightly lower than fair value.
-
In terms of a meaningful justification for the partial asset sales, the only connection with government debt is that the revenue would allow for additional spending without adding to government debt.
Whether or not you think government debt is currently at sustainable levels, the elephant in the BoP room is private sector debt - to which the partial asset sales have no connection.
-
OnPoint: Election 2011: GO!, in reply to Lyndon Hood,
might they not sue us under the trade agreement for devaluing their investment?
A quick squizz at the FTA suggests not. Provided everyone is treated the same regardless of whether the investor is NZ resident or China resident (and also no worse than any other nation - MFN status), then there is no breach of the Agreement.
-
OnPoint: Election 2011: GO!, in reply to Matthew Poole,
Flogging off state assets to reduce state borrowing doesn’t change that calculation, which is at least some of Keith’s point.
Agreed. (ETA: And I said as much as well).I was pointing out that Keith’s assertion that there is no benefit is only true if you are talking about wealth creation.
I don’t see that (retiring debt) being proposed
Yes – that was not Key’s proposal. But Keith raised it as a hypothetical.
-
I'm not arguing about the value of the asset or how its distributed. I'm saying that if the proceeds from an asset sale were used to retire foreign debt and the equity was held by NZ residents, there would be a reduction in the outflow of the current account. The improvement in the current account makes us better off.
I took your response as disagreeing with that, but rereading your posts, I'm not sure that you actually saw what I was trying to say. I agree that the sale of the shares does not change wealth. What I am saying is that over time there may be benefits to the current account through reduced interest payments to foreign lenders.