Are We Heading For An Economic Depression?

This is a complex matter, so I will approach the topic with this analogy:

In early days, folk would frequently use gold or silver as hard currency. The downside being that gold or silver is awfully heavy to lug around.

For convenience, a person would ask a goldsmith to look after that person's hard currency. The goldsmith would then issue the 'investor' with a paper receipt. The goldsmith would then wait for someone else, who was in need of some gold or silver, to turn up on his doorstep. The goldsmith would then lend the gold or silver he'd obtained from the investor to the borrower and charge them interest.

Furthermore, the goldsmith would then think, "Hang on a minute, I could make even more gold or silver out of this scheme." Subsequently, another person wanting 'a loan' would turn up and the goldsmith would issue this 'borrower' with a paper receipt in lieu of hard currency, and also charge them interest. Furthermore, he would similarly issue yet another paper receipt to a third borrower in much the same manner.

Now the first borrower who obtained the hard gold and silver would use it to purchase a horse and cart. This would enable the borrower to travel from village to village in order to sell his corn. Unfortunately, The horse slips on a wet embankment, breaks a leg and destroys the cart.

This borrower, now unable to sell his corn, has no idea how he can pay the interest due to the goldsmith (never mind the actual loan).

The other two borrowers have their wheat crops destroyed by a storm and an accompanying flood.

The investor, who lost his roof in the storm, now wants some of his gold from the goldsmith to pay for roof repairs.

So what have we got now?

We have one greedy goldsmith, who was charging interest on currency he never owned.

We have one investor and three borrowers, who are now virtually broke.

The investor is chasing the goldsmith for return of his investment(along with interest) and the goldsmith is chasing the borrowers for payment plus interest. However, there is no gold or silver to be found amongst any of these folk.

In the United States, there are banks that have actually lent up to 40,000 times their capital value to borrowers! During times of prosperity, banks and financial institutions are so enthusiastic about lending us money they don't actually have. These lenders need to be start being more proactive in avoiding over saturated lending. This would allow for a softer impact on people and business during economic dips.

In 1928- 1929, during the run up to the Great Depression, the issues facing the United States weren't too far removed from what they are facing now (massive government/business/ personal debt, deflating property prices, banks foreclosing on mortgage and business loans, workers being laid off, car prices plummeting, consumer spending and confidence diving and the value of the U.S. dollar pushing the currency markets off balance). All we need now, are people, nervous about losing their homes or businesses, pulling their money out of Wall Street, which will in turn cause more financial ruin for businesses and banks.

Unfortunately, whenever the U.S. (being the world's largest economy) coughs and splutters, many other nations end up catching a cold.

With the global economy being more integrated than ever, whatever happens to large economies overseas, will have a greater bearing on what happens here in New Zealand, especially since we are so reliant on our exports in agriculture and tourism. Our agricultural products are fetching good prices overseas, due to high food prices. Unfortunately, because of international pricing, it is becoming harder for the average Kiwi family to budget for food prices that have inflated 28 percent in the last year! Ironic, given that we produce more than we could eat nationally. Thus, consumers are cutting back, and the owner of the average family restaurant is struggling ('Eating out' is one of the first sacrifices consumers make, in times of economic decline).

The current food pricing situation appears to be driven by increasing demand in China and India, but also by the diversion of food crops (particularly U.S. cornfields) for the production of bio-fuels. This is ironic, given that the oil prices are also contributing to food price rises through the increased cost of transportation.

In the 1930's, the Great Depression, brought on what could retrospectively be called international trade wars. An example of this was when the United States, desperate for cash, slapped tariffs on imports. Canada, who was a big exporter to the United States, retaliated by slapping on tariffs on all imported U.S. goods. What saved Canada from absolute ruin was the fact that Britain offered Canada, a preferential trade deal (India, Australia, New Zealand and the rest of the British Commonwealth were part of this deal as well). Canada' s production levels still fell to almost 50 per cent ... and Canada's unemployment rate shot to 30 percent by 1932.

It wasn't until armament and mobilisation ramped up leading into World War II, that many nations were able to shake off the effects of high unemployment and low productivity, albeit that prosperity did not eventuate for many until well after the war and the associated rationing had ended.

As a side note, the Soviet Union was virtually immune to the effects of the 1930's economic shambles, due to the fact that it's economy operated in isolation. After the 1919-1920 revolution and civil war, the U.S.S.R. enjoyed continued industrial expansion that continued for decades. The U.S.S.R eventually struck it's nadir in 1990.

With housing, food and oil prices being so high, it is only a matter of time before international deflationary pressure is brought to bear on these products, squeezing the margins of many producers. Meanwhile, people and businesses will continue to struggle with the increased costs.

Developing nations are already feeling severe effects from rising food prices, with an even greater threat of starvation looming over many countries on the African continent. Fuel prices obviously exacerbate food prices even more, through the increased cost of transportation.

Another potentially nasty side affect of rising food prices, is the increased likelihood of riots across the world and even the overthrow of governments. The Prime Minister of Haiti has already lost his job, due to high food prices.

The Great Depression of the 1930's lead to the election of extreme governments in many nations. Some were Socialist left wing and others were far right. Governments with extreme policies had a tendency to send some nations down rocky paths during the 1930's 1940's. However I think I could blab on for hours on this one, so I'll stop here.

In short we need to remember what happened during the 1930's, and initiate strategies to avoid a repeat of what is essentially a nightmare scenario. We need to consciously moderate borrowing and thus avoid a run on banks and financial institutions, during times of crisis. We need to save money. We need to stop living of our credit cards and create financial plans to pay off our debts. We need to view housing as a steady investment and not a quickfire cash crop. We should look at reducing/removing tax on essential items such as food. We should have an alternative plan thought out, in case the global market collapses (e.g. sell and produce more for the domestic economy).

Please note, I am not an economist, I am an economic layman!

Thanks for reading.

Nervous Flyers and Seat Space Invaders

Have you ever sat next to a fidgety person an airline flight? Or sat next to someone who slumped their large elbow across the top of the arm rest and encroached your seat space?

Early yesterday morning, for the purpose of attending a meeting, I caught a flight to Wellington. My boarding pass stated that I was allocated a window seat. Kudos, I thought. Once I boarded the aircraft, I slung my backpack in the overhead locker, grabbed my book in anticipation of a good read , and made myself comfortable on my allocated seat. However, as the flight was preparing to take off, I quickly learned that my tranquility was to be shattered, by this middle aged lady who occupied the seat next to me. She started knocking me persistently with her arm and shoulder. I then noticed that she was constantly fidgeting in her seat for most of the flight. I know this wasn't deliberate, but she was very annoying all the same.


Ladies and Gentleman, this is your captain speaking. Firstly I would like to say thank you for choosing to fly Mandarin Airlines. As we Taxi out to the runway, please make yourself comfortable ... and for those of you sitting on the right side of the plane, please look to your LEFT.







I have learned over the years that when you travel, there are 4 main types of airline passengers to be aware of.

1. The Seat Encroacher (a.k.a. The Seat Space Invader): These passengers are usually well built people with stocky arms. Their effect is greatly exacerbated, when they indulge in reading a full size newspaper. Symptoms: A large elbow or foreman may slump over your forearm (worse if you have a short sleeve shirt on) Occasionally, the passenger may take a deep breath or sigh, before wriggling around slowly to find a more comfortable posture. This may happen several times during a flight. These passengers occasionally work on laptops, which can be annoying as well, as they will constantly rub the side of your arm or shoulder as they type.
Warning sign: A well built person walking along the isle with a laptop or newspaper. Cure: Ask them politely to give you more room. This does not work in all cases.

2. The Nervous Flyer (a.k.a. The Fidgeter). These passengers can turn up in all guises. Symptoms: Restlessness, a repeated tendency to jam their hands (either open palms or closed fists) down between their thighs and squeeze, Quickly slide their hands up and down their legs or arm rests repeatedly, a tendency to bump the passengers in adjacent seats with all that fidgeting. In more advanced cases the passenger will hold on tightly to the arm rests. Warning Signs: Passenger will have a very concerned look on their face. Passenger will ask flight attendants or fellow passengers questions, such as, " How long will this flight take?" or " Do you think this will be a bumpy one?". Cure: Three things reassurance, reassurance and more reassurance. Tell them something like "Don't worry it is quite safe up here. Down on the ground, your chances of being savaged by a pack of vicious or rabid dogs are far greater."[Joke].

3. The Seat Recliner (a.k.a The Dozer or Bouncer): This passenger chooses to recline the seat a fair way. Symptoms: Passenger reclines close to the maximum angle. Sometimes they won't sit still and this creates a bouncy motion that can be very annoying to the unfortunate passenger sitting directly behind them. Bouncing seats that hover directly above your nose or meal tray are not fun at all. Flights with seat mounted movie screens can make for hard viewing at the mercy of a bouncer. Warning Signs:Passenger boards the plane with the appearance of being tired and may even carry a cushion or pillow. Cure: Strong turbulence can cause The Seat Recliner to sit upright. Flight staff may also direct these people to place their seats upright in certain situations (aircraft landing or passenger discomfort).

4: The Talker (Have to admit that during earlier years, I have crept into this category) : Passenger will talk non stop to you during the flight, even if you are reading. Can be an overkill situation if you are tired or trying to study. It is good to be friendly and start a conversation, but hey, forgetting to pause long enough to breathe may cause these people to pass out.. Symptoms: Self explanatory. Warning Signs: No reading material. Cure: Interesting reading material for them or an Ipod for you.

5. The Screamer: I have only ever spotted one or two of these passengers. One was particularly memorable. Disposition: Has a serious fear of flying. Sympton: Self Explanatory - they scream loudly. Can also be exacerbated by any level of turbulence. Cure: Get them off the plane as soon as possible, or if they catch their breath between screaming long enough, tell them my stupid joke about rabid dogs and they'll ask you to leave them alone!

Library Books Are Not Amphibious Creatures

Last Friday night, I spent 3 hours flying home from Auckland. Upon arriving home, I enjoyed a fantastic roast meal cooked by Kat. However, I was feeling sore and tired from travelling, so I thought a hot bath would be a good idea. Whilst relaxing in the bath, I like to enjoy a good book. On this occasion, I was reading a library book.

As I was reading the library book, I started noticing that my eyes were getting heavy with tiredness. I started having thoughts about what might happen to the book if I dozed off.

Without warning, I snapped out of an unexpected micro nap, and realised to my utter horror that I had accidentally dipped one corner of this book in bathwater. Even library books are subject to the capillary effect!

A Survival Guide For Dealing With Drenched Library Books.

1. Quickly remove the book from the aquatic environment.

2. Take a few deep breaths, until your panicking subsides.

3. Carefully separate the soaked pages.

4. Open up all the other pages, so that entire book is fanned out.

5. Stand the book up on one end in the hot water cupboard.

6. After 2 or 3 days, flatten the book by placing it under a heavy object.

7. Continue reading the book in a dry place.

Daylight Savings, Hotel Foyer Scene and the Highlanders.

I went for a run up Mount Cargill earlier today. I now feel completely stuffed. Nearly sprained my ankle on the way back down.

Daylight savings ended last night, and it is now quite dark in Dunedin at 8:00 pm. The Autumn Equinox has been and gone. Therefore, in less than three months the sun will set in Dunedin at 4: 56 pm. This means that I can expect to head off for work in darkness and return home from work in darkness.

Hopefully, future winters in Hamilton will mean noticeably longer days, as Kat and I will be moving there in a few months.

Last week, when I was working in Auckland, my employer put me up in a fine hotel. On Thursday night, after finishing work, I was passing through the hotel foyer and noticed one of the hotel staff dealing with a visibly upset guest. The female guest was crying quite audibly and she mentioning something about towels . I thought to myself, "How could anyone get extremely upset over towels?"

Finally, the Highlanders won 29-20 over the Lions. As people often say, there are always those of us, less fortunate, further down the food chain.