The collapse of the Baltic Dry Index: What does it mean?

Since May this year, the Baltic Dry Index has collapsed (falling by 93%) – a movement that may be of concern for a small trading nation like New Zealand. The Baltic Dry Index (BDI) is effectively an index of shipping costs for 26 of the main "dry commodity" shipping routes. As a result, movements in the index give us some idea about how the cost of international shipping is changing. However, over recent years the index has also been used as an indicator of the outlook for commodity prices. This interpretation of the index is something we discussed in detail back in March

Borrow and hope

In a world increasingly wary of debt New Zealand is vulnerable, possibly very vulnerable. We are one of the most indebted nations in thedeveloped world with net foreign debt hovering around 100% of GDP. As a countrywe have been chalking up external account deficits for 35 years and now have anIOU bill to the rest of the world of around $160bn, or about $40,000 for everyNew Zealander. We are not the most indebted, but we are exceeded only by Iceland whose net foreign debt per head is a massive $100,000. But then Iceland is now virtually bankrupt.

What price trust?

Trust is the prime victim of the current global financial meltdown. Much is made about greed as a motivator of market behaviour, a la Gordon Gekko’s "Greed is Good" speech in the film Wall Street. However, what makes modern market economies so successful is not that financial markets are a "free for all" but that they have to operate within clearly defined restrictions. Ultimately it is the rules and protections that promote economic performance in the world’s rich economies.

History in the making

Most of us can recall what we were doing when major eventsoccurred like when the twin towers came down, when Princess Diana died orduring the stock market crash of 1987.  The global financial crisis of 2007/08 isfast shaping up to be one of the defining periods in world history.  But theenormity of what is happening on world markets can be hard for New Zealandersto comprehend.   Twelve figure sums are being thrown around by governments and massivecompanies are going bankrupt.  As we deal with our current economic challenges,the deteriorating world economy has New Zealanders wondering what else may bein store.

Why have GST on food?

The issue of GST on food is once more gaining traction amongst various political parties and social groups. New Zealand’s system of GST is one of the best in the world because it has only one tax rate and that rate applies to almost everything. We do not have the absurd situation that exists in some countries where, for example, bread has no GST, chicken has no GST, but a chicken sandwich does have GST. Or the situation where the chicken sandwich attracts GST if it is served warm, but not if it is served cold.

Sharing the fruits of growth

Real disposable incomes of Kiwi households have been rising on average for a considerable length of time even after taking into account increasing costs of food, fuel and mortgages. This was very clearly demonstrated by a colleague of mine – Chris Worthington – in this column some weeks back. But averages sometimes disguise differences across social strata. Have we all being been enjoying the fruits of growth?