Saturday, June 23, 2012

New Zealand has put public assets into a fire sale

The trick behind a firesale of public assets is to create a false liquidation crisis e.g. by saying NZ is in impossible debt (an 'unsustainable' budget deficit).

The panic this creates, creates the political conditions for public assets to be sold. The outcome of a sale of state owned industrial capital is, like the current liquidation crisis in the wider private sector, for the asset to be sold under valued. The private sector is in crisis because of its indebtedness. Assets sold in the private market are therefore all likely to be undervalued.

The undervalued asset is then consolidated with other similar capital assets by its big purchasers. This can serve for example, in the case of New Zealand's Mighty River energy sale, the energy interests that Goldman Sachs consolidates. Goldman Sachs is part of a financial energy consortium that owns industrial energy capital. Goldman Sachs have been employed by the government to sell Mighty River Power.

Once in the hands of finance, industrial capital is then inflated/highly leveraged for exploitation in financial markets. In the case of Goldman Sachs, we call this its 'giant squid' operations.

Any industrial capital liquidated in this way disappears into the abyss of dark or shadow finance.

Funny, one minute Mighty River lights our dark, and the next it can extinguish our light through financial instability and collapse.

Note well, that New Zealand public finance is not in a liquidity crisis. It has not been since our currency was taken off the gold standard and our currency floated. We are unrestricted in the issue of our sovereign currency. Our government cannot be iliquid since our government sector deficit is in the currency that we issue. By pretending it is not, this has become the basis of the trick behind the asset sales that the National Party, ACT, and Peter Dunne are undertaking.
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