In 1971 a nuclear physicist Ralph Lapp used the phrase “China Syndrome” to describe what might happen in an extreme example of a nuclear power plant meltdown. His theory was that the molten core of the reactor might be so hot and toxic that it would burn through the floor of the power plant and sink through the earth’s crust before exiting the other side of the earth through China.

This has never happened in the various nuclear accidents, but it’s a powerful idea that spawned the 1979 movie called The China Syndrome, which was released just 12 days before an accident at the Three Mile Island nuclear power plant in Pennsylvania.

I only mention it because the idea captures quite nicely the potential economic impact here of a Chinese economic slump. New Zealanders underestimate the impact of Chinese economic boom on the global economy generally and on our own economy.

I couldn’t quite believe it this morning when I thought I heard Reserve Bank Governor Alan Bollard say the recession was over and may actually in time be judged to have not been a recession at all.

I listened to the tape again. I checked my notes. He really did say the recession was over.

Dominion Post Business Editor James Weir asked Dr Bollard at the bank’s press conference about whether the recession might end after 18 months and what it might mean for unemployment and house prices.

“We’re a little bit more optimistic,” Bollard replied. ”If you want to be technical about it we believe the recession has ended and we have positive but very low growth for the next 4 quarters. It’s only towards the second half of next year that one can be sure that we’re getting solid growth,” he said.

“Those numbers in New Zealand can jump around and historically they tend to improve rather than getting worse. You may find that in a couple of years Statistics NZ says we didn’t have a recession. That’s quite within the bounds of statistical probability,” he said.

Bollard said the recession was actually quite shallow and a lot shallower than in the past.

Really?

It feels like a bad one.

Losing money is not the end of the world, but it can often feel that way.

Mums and Dads currently have almost $6 billion frozen in over 177,000 accounts in 43 finance companies, mortgage trusts and investment funds, according to this “Deep Freeze” list.

These numbers tell only part of the story. They represent countless sleepless nights, tears, shocked phone calls, family meetings and all sorts of stress on marriages and families. Of course, this sort of financial loss can’t be compared to the loss of a loved one, but there are similarities. There is a grief of sorts.

What a fantastic weekend for New Zealand sports fans. I’m conveniently ignoring the cricket. It did get me thinking about how well New Zealand companies do competing against Australian companies. Usually we’re crap. Just think of Air New Zealand, Telecom and The Warehouse and wince.

But maybe there’s hope. 

I’m a huge fan of TradeMe, as are many New Zealanders, but it is essentially a domestic company when we really need very big international companies if we are to catch up to Australia and grow incomes fast.

We need a Nokia. Fonterra was supposed to be our Nokia, but its high debt load, its disastrous Chinese foray and the reluctance of its farmer shareholders to allow in outside capital has shut down that prospect for now. Maybe TradeMe could become our Nokia.

There were various murmurings when Fairfax bought TradeMe in 2006 that it might be launched in Australia. But the nature of auction sites makes it extremely difficult to break into a market once a player has established dominance, as TradeMe has here and as Ebay had - apparently - in Australia.

This wonderful mashup of polling booth results in Wellington and Google maps by the wellingtonista and some excellent statistics released today by the State Services Commission on staff numbers and salaries make for some interesting reading.Have a good look through these statistics. They show a few things.

First, this report should have been publicised last Friday, not a week after the election.

Second, it shows the Labour-led government’s line that public servant numbers were increasing at the coal face rather than in the office blocks of Wellington was simply wrong.

Numbers at the front line in the core public service, which includes social, health and education workers and contact centre workers, actually fell by 29 to 10,034 in the last year, while numbers of administrative, policy advice, HR, legal, managerial and support staff rose 1628 to 35,900.

Those shocked by Act’s strong showing in the weekend’s election and its likely influence in any National-Act-United Future government should look off the beaten path for the policies Act is likely to push for.

The first assumption after any such result is that Act would want to restart privatisations, slash government spending, drastically reform health and education delivery, and generally turn back the clock on Labour’s policies through 1999 to 2008.

I think that’s unlikely. Firstly, John Key really is a centrist and also wants to be re-elected. Secondly, Act are a bit more subtle these days and like doing things that are likely to stick (i.e. past the next election).

One of these more subtle and more sustainable policies is a Taxpayers’ Rights Bill. Act leader Rodney Hide pushed this quite hard during the election campaign, not that many people noticed. Most voters didn’t get beyond the yellow jacket and flat taxes.

The Taxpayers’ Rights Bill is designed to limit government spending growth to inflation plus population growth. It would effectively do for fiscal policy what the Reserve Bank Act did for monetary policy. It would be one way to take the politicians out of government.

I don’t know if this is a Rodney Hide bottom line, but I wouldn’t be surprised if it was very near the top of the list.

Your views?

I love Wellington. Really, I do. It’s where I met my lovely wife and where I’d live if I had a pure, unimpeded choice. Great people. Amazing landscape. Compact city. Great arts. Wonderful cafes such as my favourite, Midnight Espresso on Cuba St. It’s got it all. In fact, it’s got too much.

Wellington has become utterly dominated and powered by the most rapacious government in the history of New Zealand. This is not something I’m saying lightly or for the first time, although this is the most direct I’ve been.

Wellington has become a living, wheezing symbol of an economy where an all-consuming government is gobbling up resources and dragging down productivity in such a way as to transfer wealth and income from private employees and businesses to government employees while kneecapping economic growth.

This current government is eating the economy and it needs to be stopped before it drives away the productive and entrepreneurial classes that eventually create wealth for everyone. Just look at the migration stats to Australia.

I don’t want to make it too much like a class struggle, but it’s starting to look like that.
Here’s a few examples of how a surfeit of government is distorting the Wellington micro-economy, which in a way is a microcosm for the New Zealand economy.

Here’s a picture of a crucial period in our history.  

The nation is at an unfortunate but not completely unusual political and economic crossroads. New Zealand is having a financial crisis at the same time as an election campaign. Big decisions that affect all New Zealanders for a long time will have to be made in the heat and smoke of an election campaign while it is unclear exactly who is in charge.

The protagonists are a Prime Minister who has ruled the machinery of government with a velvet gloved fist for nine years and a popular newcomer who is widely expected to win. The Prime Minister’s attacks on the newcomer have become vituperative and personal. The Prime Minister has successfully bullied and corralled the ruling party and the mandarins in the bureaucracy into accepting the Prime Minister’s views. The Prime Minister appears to be personally driving economic and financial policy.  

I argued for bank deposit insurance scheme bank in March and at the beginning of last week. But I’m beginning to wish I hadn’t encouraged the politicians to get busy because this deposit guarantee scheme dumped on us is an unholy and dangerous mess.

I realise things had to be done in a hurry because Australia was about to announce its own deposit guarantee scheme and all hell was breaking loose on global markets, but the scheme proposed by Prime Minister Helen Clark in her re-election campaign launch on Sunday is a dogs breakfast. It  must be cleaned up before it putrifies into something so ugly and painful it could:

* Kill the stock market stone dead.

* Trigger a massive shift of cash from managed equity funds and corporate bonds to banks.

* Unleash a new generation of toxic finance companies.

* Vastly increase the cost of government borrowing.

* Mean deposit rates are all the same, or to be regulated to the same level, regardless of institution.

* Wipe out the financial advice and funds management businesses.

* Destroy the mortgage trust industry.

* Reduce our sovereign credit rating.

* Spark a run on institutional bank deposits

* And, for good measure, cause a collapse in the currency.

Back in April on this blog I called for a bank deposit insurance scheme.

It didn’t get much traction at the time. Finance Minister Michael Cullen and the good folk at the Reserve Bank have been of the view for a long time that a deposit insurance scheme is pointless and potentially dangerous. Their arguments are broadly from the left and the right. Cullen is not keen to be seen giving a “get of jail free card” to bail out fat cat bankers. The Reserve Bank, meanwhile, doesn’t want to use the state to bail out private companies or to create a “moral hazard” where bankers believe they can do anything with impunity because the government will always protect them.

Quietly both of them know that any government would never let depositors lose money in any bank failure in New Zealand. It is simply unthinkable. It is a convenient fiction that the Reserve Bank would have us believe that they would do the Darwinian thing and let the weak and bad fall over. A bank may indeed fail, but the regulator would ensure a managed takeover by a good bank or make sure that depositors would not lose out, even if shareholders and other debt holders were wiped out. Our banking system is too concentrated and our banks are too big to be allowed to fail.