Spam Journalism #7
Spam Journalism: The spurious use of sensational headlines to add spice to an otherwise pointless article. (MacDoctor definition)
Just for a change of pace a bit of business spam:
“The economy is in its worst recession on record, and the government faces a sea of red ink – will New Zealand end up like Iceland?
“Once a darling of foreign investors because of high interest rates, New Zealand appears almost like Iceland, judging from our current account deficits over the last three decades.”
This is a thoroughly silly article that fails to recognise that there is almost no relationship between New Zealand’s finances and Iceland’s finances except we are both very indebted. However, New Zealand’s indebtedness is an uncomfortable 86% of GDP, Iceland’s was an absurd 600% of GDP (and that was just their banks). New Zealand has almost no direct exposure to the sub-prime crisis; Iceland was heavily exposed to a variety of risky (high interest producing) instruments, many of which were linked to sub-prime loans in the US. There is also little or no diversity in the Icelandic economy (if you don’t catch fish, you must be in banking). New Zealand has a robust, diverse economy.
But, yes, let’s just fabricate a comparison between New Zealand and Iceland so we can do a little more fear-mongering and sell some newspapers…
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Mar 7 09 5:58 pm
Hi MacDoctor, I think you are mixing up total foreign debt and net foreign debt in your comparison. Iceland’s banks have high debts but they do still have some assets. NZ net debt is actually not that far off Iceland; one November 2008 comparison from Infometrics – http://www.infometrics.co.nz/article.asp?id=4629 – has it that NZ foreign debt at $160bn is $40,000 per person, and the only country in the world with higher debt per capita is Iceland at $100,000 per person.
Mar 7 09 5:59 pm
Hi MacDoctor, I think you are mixing up total foreign debt and net foreign debt in your comparison. Iceland’s banks have high debts but they do still have some assets. NZ net debt is actually not that far off Iceland; one November 2008 comparison from Infometrics has it that NZ foreign debt at $160bn is $40,000 per person, and the only country in the world with higher debt per capita is Iceland at $100,000 per person.
Mar 7 09 6:06 pm
Your captcha won’t let me link to it but if you google Infometrics “borrow and hope” you will see it.
Mar 8 09 1:59 am
Dave: I’m possibly not comparing apples with apples – it is difficult to get comparison figures. However, our banks are not like Iceland’s banks – 600% of GDP is 600%, regardless of the figure being net or total. If loans become due and can’t be refunded, there is no way for the Iceland economy to fund any meaningful bail-out.
New Zealand is simply not in that position. It is likely that the current deposit guarantee system will be adequate, assuming the criteria are tightened to exclude reckless finance companies.
Mar 8 09 9:38 am
MacD
You might enjoy a piece on Iceland in Vanity Fair.
http://www.vanityfair.com/politics/features/2009/04/iceland200904
While a bit light on serious financial analysis, the picture it paints is very different to NZ. Actually, it looks a lot more like NZ circa 1987, when there was a sudden explosion of financial speculation among people who had no bloody idea what they were doing.