In this section
Offers for readers
The comment stream
Recent comments
- 1 of 19105
- ››
Editors choice
- 1 of 276
- ››
Finance sector jobs
Successful applicants will have the opportunity to work with this leading Australian Advis...more
Australia
Think Global Recruitment is working with this exceptionally respected Australian Boutique ...more
Australia
Sought after opportunity to move to one of the most beautiful westernised countries in the...more
Australia
The news stream
Latest news
Most commented
- 90 seconds at 9 am with BNZ 116
- Wednesday's Top 10 with NZ Mint 78
- Friday's Top 10 with NZ Mint 28
- The problems with NZ's energy use 19
- Amanda's Take Five for Wednesday 19
- More bank mortgage rate cuts 16
- Govt lifts minimum wage 50 cts to $13.50 an hour 16
- Thursday's Top 10 with NZ Mint 15
- 90 seconds at 9 am with BNZ 14
- Full time jobs fall 13,000 in Dec qtr 14
Most viewed
Interest on Twitter
Opinion: The expected economic recovery in 2009 may be a dead parrot
By Neville Bennett New Zealand bank economists interviewed by NBR for last week's front page generally asserted that the economy will turn mildly positive this year. In the spirit of robust debate I will oppose their "dead parrot" recovery (see Monty Python). Essentially, my previously published articles have indicated that New Zealand depends upon the world economy and has never emerged from recession on its own accord. It needs to be pulled out of the mud by a buoyant world economy. Unfortunately, a growth in world trade is unlikely this year. Sources of resurgence New Zealand may have fared better than most, but it has had a year's negative growth. Confidence is falling, and business intends laying off more labour, reducing costs and investment. Moreover, households have reduced spending, so demand and consumption are fragile. An earlier construction boom and shopping-spree have faded away. Internal demand is insufficient to pull this country out of recession.
Could external demand do it? The world economy is slowing. Air travel has been slashed, so tourist receipts will be down. Agriculture? Most prices have fallen. Manufacturing suffers from volatile exchange rates and intensified competition. All exporters of goods and services are battling falling demand, pressure on prices and tense competition. An export boom, strong enough to pull New Zealand into strong growth, is unlikely. There will not be a recession-breaking increase in aggregate demand in the short term. Meanwhile, there are clouds over the world economy. The US and UK Housing Weakness Perhaps a second wave of weakness of the housing market will damage the world economy, especially the financial sector, in the months ahead. There are accumulating losses and dysfunctions in credit markets, and accumulating toxic assets. Despite large stimulus packages, the world economy is struggling, profits falling and unemployment surging. Global demand is slipping. Compilers of the UK's authoritative Halifax Index note house prices fell by 17.7% y-o-y with a huge -1.9% drop in March alone. While house are only 4.34 p/e, the compilers anticipate a "tough" year ahead because of increasing unemployment, failing confidence and dislocated financial markets. US house prices are down 19% y-o-y, and more is expected with I"“in-8 mortgages are "under water', and 1-in-9 houses vacant. The least risky prime mortgages have shown the greatest jump in serious delinquencies. Downward pressure on house prices in the UK, US, EU and even Australasia is anticipated to mute demand and delay financial recovery. The US economy According to the Federal Reserve, industrial production in February was 11.2% lower y-o-y and has fallen to its lowest level since 2002. Consumer goods production has fallen below 2002 levels. Car production has fallen 35% in the year. Capacity utilization is only 70% and this is the lowest figure since December 1982. The US economy has fallen off a cliff. US employment is grim. Official statistics count only the insured, a survey shows 1 in 9 are actually unemployed or under-employed. The minutes of the last Fed meeting shocked markets, as it revealed growing pessimism about the downturn. The US consumer is important. Sales dived in February. 1-in-10 Americans now receive food aid. Since 2000, the population receiving aid has increased from 17 to 32 million. The IMF has downgraded global growth estimates again by 1%, saying that it is the first global contraction since 1945. It is preparing another assessment of toxic debt which it estimated at $2 trillion in November. The Times says the IMF new estimate is $4 trillion. This toxic debt will be a severe test for Washington's policy makers. They also have to cope with the up-coming bank "stress-test". March saw the largest number of corporate defaults since the Depression, according to The Economist. The default rate is 7%, up from 1.5% a year ago and predicted by Moody's to top 14.6% in the final quarter. Incredible if nearly 1-in-6 corporations default! Bloomberg predict that profits will fall by 37%, the seventh straight quarterly fall-- the longest stretch since the 30's. This is at odds with the stock market's rally. Bond traders like Mohamed el-erian of Pimco call this an" equity death-trap". Other indicators The UK economy will decline for another year and then take another two years to recover according to the prestigious think tank, The National Institute of Economic and Social Research. It reports that the economy has declined by 4.2% since May 2008. Car sales fell by 35% y-o-y in March. The World Bank reports that Asian growth has halved this year. It expects East Asia to be very hard hit by the crisis as richer nations cut back their imports"”a line of reasoning relevant to New Zealand. Note that in Japan, our fourth-best customer, GDP fell 5.5% this year. New Zealand's biggest market is also showing some signs of stress: Australia's unemployment jumped to 5.7% in March from 5.2%--its biggest monthly rise in 18 years. St George Bank expects unemployment to jump to 8%-9% in a few months. The Reserve Bank has responded with an interest rate cut, but expects recession. Other indicators cast doubt on a rebound. The Baltic Dry index fell 96% from May to December last year. It trickled up in February a little but has been down a third in recent weeks. Commodities are still low: indices about half of last year's peak. Gold has retreated and oil is fluctuating around a $50 a barrel. IATA says the situation is "grim" and our Asia-Pacific Region the hardest hit and expecting a recovery in 2010 "would require more optimism than realism". Conclusion I cannot see any source of domestic or foreign stimulus to NZ aggregate demand sufficient to push the country into strong positive growth. Stock markets are strong but this is ebullient. There are few bargains as the US market's p/e is 14.5 and the dividends on the S&P500 is 3.2%, and likely to fall. As the Economist observes, investors might be showing exceptional foresight or "they may be spotting imaginary signs of life in a dead parrot". "”"”"”"”"” * Neville Bennett was a long-time Senior Lecturer in History at the University of Canterbury, where he taught since 1971. His focus is economic history and markets. He is also a columnist for the NBR where a version of this item first appeared. neville@bennetteconomics.com www.bennetteconomics.com
It's pining for the fjords!
It's pining for the fjords!
Heres the other side of
Heres the other side of the story.
http://www.webofdebt.com/
FWIW, my pesos are on
FWIW, my pesos are on the L-shape, too. It's no coincidence, either, that China is buying copper (see AEP in the Torygraph) rather than T-bonds: in these times, stockpiling Useful Stuff makes more sense than trying to shake the Magic Money Tree (unless, of course, you are Goldman Sachs).
However, food isn't going out of fashion anytime soon, and NZ via Fonterra does have something of a lock on certain markets. But you are right not to see 'green shoots' - a phrase that will haunt certain politicians....
Beautiful plumage, Guv.
People still happy to spend
People still happy to spend up large - Ten thousand Simon and Garfunkel reserve seats with prices of up to $369 have been sold for the June 13 Auckland date, which went on sale at 9am today. That's nearly $4,000,000 from one concert!
Recession! - what recession!
people love security, having credit
people love security, having credit is security.
the massive deleveraging reality is a very insecure concept which is easier to just disregard as a doomsaying rhetoric or as some sort of conspiracy theory.
Probably one of the best
Probably one of the best articles on why we are doomed to another few years of recession. It's just pity this type of piece is drowned out by the stupid 'house prices are heading back up' rubbish we have got in the last few weeks.
NZ is dependent on the rest of the world, and they have stopped spending. Unemployment will go above 10% in the next year and it will take a long time to come down. But deluded, economic illiterate kiwis will continue to act like the grasshopper and party while the world melts down, and then wonder why they are stuck in the cold.
But hey houses have doubled in value so we must be rich, right?
And now for something completely
And now for something completely different..........
http://www.youtube.com/watch?v=e6Lq771TVm4
I agree Neville" basic common
I agree Neville" basic common sense
What goes up must come down, there has been a huge 'drop' and right or wrong huge efforts to reverse 'gravity' that have slowed the drop somewhat. But still a long way to go and a long period to recover.
Just because the stats show some slowing it just means that it has a parachute, but ground level still remains the same...yet the so called 'experts' cant see common sense and interpret/expolate the stats to mean early recovery before 'ground level' is reached.
Can't not agree Neville. Sobering
Can't not agree Neville.
Sobering evidence in support of your thesis here: The Fake Recovery.
Quote:
You should be under no illusion that the coming rebound is permanent. Much of it is not. What we are seeing is the makings of a cyclical recovery that might begin as early as Q4 2009 or Q1 2010. How long or robust that recovery is remains to be seen. Moreover, it is still questionable whether we will get any meaningful recovery at all in spite of the "˜green shoots' because the banking system in the United States is severely undercapitalised and more asset writedowns are coming due. This is a fake recovery underneath which many problems remain.
Nevertheless, banks are going to earn a lot of money and that is bullish for their shares - at least in the medium-term. Yes, the stock market is overbought right now. However, if banks put together some decent earnings reports over the next few quarters, their shares will rise.
'Nevertheless, banks are going to
'Nevertheless, banks are going to earn a lot of money and that is bullish for their shares"
Depends on the texture of the shroud. Read more:
http://www.bloomberg.com/apps/news?pid=20601039&sid=a6sv0hG.nW7g&refer=home
and more:
http://www.bloomberg.com/apps/news?pid=20601103&sid=atwu65G62peY&refer=us
Say whaaaaat? One in nine
Say whaaaaat? One in nine US houses vacant? And one in ten yanks receiving food aid? Surely not - where can we find these numbers Neville?
ak, there is a site
ak, there is a site called "DrHousingBubble" that has lots of this sort of information.
The problem in the USA is mostly confined to California (by far the worst), New York, and Florida. The ludicrous thing is that the empty houses in California are still refusing to drop in price to levels at which the quite middle class people living in shelters can afford them.
I just said THIS to Matt Nolan on his blog a couple of days ago, and it applies here:
What I really fear, Matt, is that with the aid of new low base interest rates, NZ will be back to "business as usual" regarding property; and all we will be doing is tracking the US experience from about 2002 onwards, only starting from a net household debt situation that is already worse than the US when its bubble burst.
We can kiss any real economic recovery goodbye when most of our potential productive investment money remains sucked into the black hole of a housing price bubble. These bubbles actually worsen the likelihood of income increases enabling a catch-up of the fundamentals that underly home affordability. Business investment simply could not match the returns,(temporarily) from property investment. Interest rates that would prevent a property bubble would kill business. Reserve Banks are pushing on a string once the bubble mentality takes over.
We are surrounded by people talking the house buying market UP again, and persuading us that the time is good again for making that purchase. This is balls. It is economic Darwinism. Here we are, with some of the world's most unaffordable house prices, a situation that developed mostly in 4 years, 2002-2006; graphs that show what can only be described as one of the world's worst house price bubbles; here we are surrounded by house price bubble collapses all over the rest of the world; here we are with our economy in recession; and we are talking home buyers INTO the market and talking price expectations UP?
I am personally acquainted with various family friends who I have been unable at any time, even with all my background knowledge, to persuade them that buying a house 2 years ago or now, was not and still is not a good idea. We still see on interest.co.nz, comments from people who should know better, that "NZ is different"; "Buy"! "Buy"! "Buy"!.
You tell me what is going to fix this?
(Matt said) ""¦..When the building industry starts running again, prices will fall again"¦.."
You tell me what mechanisms are going to result in new homes hitting the market at a price that reflects the value of land for other uses, plus development costs, plus profit. Where are the $40,000 sections now, even after half the property development industry has fallen over? Why are even the bankruptcy sale prices attached to an invisible skyhook?
Some commenters are pointing out that homes are for sale in Atlanta Georgia for US $20,000, and using that as evidence of a housing bubble crash in Georgia. But this is missing the point. Brand new homes on the urban edges of Atlanta were always available for as little as US$120,000. Oversupply and economic downturn has resulted in bankruptcy sales for a little less than this. But tumbledown old dumps in ghetto areas were also always available for $40,000 or less. Why would a first home buyer pay 7 or 8 times average annual income for a tumbledown old dump in a ghetto area, when there are brand new homes available for 3 times average annual income? This is the option that has been denied to the first home buyer in California - or NZ.
Or look at it this way. A subprime mortgage in Atlanta might be an unemployed solo mum with a mortgage of US $40,000 or $50,000. A subprime mortgage in California is a professional yuppie couple with a mortgage of US $600,000. (And that is for a tumbledown dump in what used to be a ghetto area). Where do you think the problem of toxic CDO's has really originated? Some of the studies I link to in my essays on interest.co.nz point out that California is responsible for 45% of all the mortgage related losses of equity in the whole USA so far - and New York is responsible for another 10% and Florida for another 10%.
New Zealand is tracking California, not Georgia or Texas. A high proportion of our mortgages ARE what the USA would call "subprime" - we are just insensible to it. Our younger and poorer people are being screwed by having to pay hundreds of thousands of dollars for ANY home, whether on the outer limits of cities or for tumbledown old dumps in ghetto areas. Californians could emigrate to Texas much more easily than Kiwis can escape the property price trap. Are you aware that California spent years leaking population on net even as their house prices escalated, while Texas attracted large in-migration while houses remained well-supplied and cheap?
What do you think the flow-on effects are throughout NZ society, of unaffordable housing?
That is why I argue that the inhabitants of particularly desirable areas should NOT be "entitled" to prevent further in-migration to their area through policies that make property unaffordable. If greed and selfishness on Wall Street requires legal restriction to prevent damage to whole economies resulting, then so does greed and selfishness in green and pleasant local communities. People have to live somewhere, and these selfish policies at root are saying to people of the next generation and poorer people, ""¦do us a favour"¦"¦don't exist"¦.no, you can't live THERE"¦"¦.no, you can't build THAT"¦.yes, that is the cheapest accomodation you are allowed to live in"¦". The bottom 3 rungs have been knocked out of the social mobility ladder. But "combating inequality" is all about "transferring wealth" via taxes and government spending, isn't it"¦. not about ensuring that homes are affordable.
But Hugh P. tells us that there is good cross-party progress in getting a grasp of these issues in our current parliament. I wish him all the best, the consequences are of paramount importance economically and socially.
I think that NZ can
I think that NZ can get out of this. The underlying problem is the same here as in most other countries. If we address the problems, we will get the jump on countries that don't.
We need to be prepared to utilise resources, and utilise them efficiently. We need to make it less hassle and less risky and just plain less unpopular to be in business and make money. We need to reduce if not abolish corporate tax; we need to abolish the employment grievance shakedown industry and wind back the holiday and maternity leave and so on that we thought in the years 1999-2008, that our economy could afford. And we need to wind back the toxic combination of the RMA (Resource Management Act) and the anti-development powers bestowed on councils that are responsible for the double whammy of restricting productive investment and allowing house prices to bubble by interfering with supply, and also wind back the fee gouging by councils.
Our economy could NOT afford it in reality even then. THIS assessment, which I have just read, is exactly applicable to our situation; I have been looking for a long time for this sort of assessment:
http://www.dailyreckoning.co.uk/economic-forecasts/the-mystery-of-britai...
Fred Harrison: "The Mystery of Britain's Missing Recession"
EXCERPT:
(You could change "Gordon Brown" to "Michael Cullen" and it would still be true)
""¦..If the business cycle had played out in the way that we would have predicted on the basis of historical trends, the price of houses would have deflated in 2001-2. This would have been the outcome of a mid-cycle recession. Instead, under Gordon Brown's stewardship, the residential sector was allowed to bubble. This set new benchmarks for prices: the next housing bubble would have to inflate to stupendous levels before finally collapsing and driving the economy into the Depression of 2010.
But in the meantime, Britain's consumers were on a spending spree. They borrowed like there was no tomorrow to finance the purchase of luxury goods, holidays in exotic locations, new cars, and improvements to their homes. Following the election of New Labour in 1997, consumption grew faster than output, with retailers sucking in imported goods to make up the difference. Between 1999 and 2001, consumption grew exactly twice as fast as Gross Domestic Product (GDP). Unsecured consumer debt rose at an annual average rate of nearly 11% over the five years to 2004. While Gordon Brown preened himself with declarations about his virtuous "˜prudence' in handling the nation's public finances, he sanctioned private bingeing that undermined the culture of thrift"¦"¦"
PhilBest adds:
While Michael Cullen preened himself about fiscal prudence, NZ consumers went on a spending spree that artificially inflated our GDP and our business turnover and profits and the government's taxation revenue. We SHOULD in reality, going by what was happening to NZ's productive capital and productivity, have been in recession already and tightening our belts and the government should have been cutting wasteful spending, not embarking on new binges; and the government should also have been freeing up the productive sector, not imposing new burdens on it.
I honestly believe that our
I honestly believe that our economies in the Western world will not recover this time unless we completely rehash our whole approach to the utilisation of resources.
ALL real wealth has been created through the utilisation of resources. Think about this. Any wealth that we are redistributing or spending on non-productive items, was created only through resources being utilised somewhere further back along the chain of economic activity.
The efficient utilisation of resources is one part of this question. Free markets must be allowed to operate. The other part of this question is utilising the resources at all in the first place.
We need to wind our political clocks back to the era of our grandparents when the utilisation of resources was regarded as a positive good in its own right, not something to be balanced against quality of life issues that carried economic costs that we could not afford in those days. We are now back to those days: we have been living beyond our means for at least a decade and payback of debt will require facing economic reality. We THOUGHT that that debt was secured against asset values. Actually, it hardly matters whether it is or is not, when those assets are not productive and we are eroding away our ratio of productive to non productive assets.
Philbest - "You tell me
Philbest - "You tell me what is going to fix this?"
People losing their jobs, houses, cars and lifestyle. That will change it.
Have to agree with Neville.
Have to agree with Neville. I have been reading the positive news and politicians spouting on about "green shoots of recovery" and have been thinking it is capitalist propaganda. PhilBest you scare me because I think you are right.
I bought into the bull and purchased a residential property in Tauranga at teh end f 2007. The twist with my investment was it was with a 5+5 year lease with HNZ. While I knew I was paying too much - $435k, interest only mortgage, for 4 bedrooms and a study, double garage, etc - I wasn't too perturbed because of the bubble and falling into the trap of believing, not that it would always go up but, that I could get in and make some money before it all turned tits-up. I did this even though I consider myself relatively intelligent and had been reading about the coming sub-prime tsunmai for a good year before this the fact that it hadn't arrived fooled me into a false sense of belief that it would be confined to American shores so I jumped in not wanting to miss the property growth we had seen in NZ since 2002.
PhilBest - I think I am going to experience some pain whatever I do but have you got any words of comfort based on my circumstances above or if I am poked, maybe some advice as to what I should do about the albatross I feel I have put around my own and my families neck?
http://www.youtube.com/watch?v=lAkjaVqO67o&feature=related A
http://www.youtube.com/watch?v=lAkjaVqO67o&feature=related
Are we different ? Most Western countries are now talking about increasing productivity - but who buys and for what price - when millions of people will be forced to save money. Are we not already in a vicious cycle ?
@Philbest ALL real wealth has
@Philbest
ALL real wealth has been created through the utilisation of resources. ??? DEPLETED ! http://www.thedailygreen.com/environmental-news/latest/6628
Think about this.
A fine summary Neville. I
A fine summary Neville.
I think we, along with the rest of the world, have been sold a lie. That increase in wealth through asset price inflation is the same as increase in wealth through increased productivity.
A recent question Michael Hudson posed was would you rather own your house outright worth $100,000 or own 60% of your house worth $250,000?
The essential difference is in the second instance you will have to pay the bank $6500 per annum.
No wonder the banking industry worldwide has become so dominant.
The only solution I can see is to cut off the fuel to the fire by making all interest charges non deductible for taxation. They are really a capital expense relating to how ownership is funded, not a current expense related to cost of production. It's a pretty fundamental con job.
I am arguing against my own self here!
This can only work if applied to ALL interest charges though, not just housing related ones as the corporate (corpulent?) types might argue.
@ Roger - "The only
@ Roger - "The only solution I can see is to cut off the fuel to the fire by making all interest charges non deductible for taxation. They are really a capital expense relating to how ownership is funded, not a current expense related to cost of production. It's a pretty fundamental con job."
If you fund working capital with debt (and most businesses do), interest costs are a very valid current expense - and rightly should be tax deductible as the expense is used to create taxable income.
@Trev - you are getting
@Trev - you are getting the cart before the horse. Most businesses choose to fund working capital (? - surely a misnomer) with debt for precisely this reason, the interest expense is tax deductible. If it wasn't, more businesses would provide working capital out of the pockets of their owners.
You can argue that the interest charges on all debts of an enterprise should be deductible because the borrowed money is used to generate taxable income, there is no special case for working capital. In the absence of a capital gains tax there may be some merit in Roger W's idea however how would you apply it to the likes of banks and finance companies?
......... and taking the political
......... and taking the political worldwide destabilization process into consideration economic recovery is in question anyway.
As an example oil and other commodity prices can jump up tomorrow and we are even in bigger trouble.
........ and hardly anyone is talking about that - already forgotten.
........ and I cannot see serious education/ information and warnings from the government for the public or preparation for contingency plans. Some actions should already be in place.
........ and I think that is a serious lack of leadership.
..... and nearly 900 articles
..... and nearly 900 articles about housing (Most commented)
..... and hardly any comments on the other most important two - primary & secondary sectors of our economy ?????
..... and I'm concerned, because we are avoiding important issues.
..... and I'm worried, rolling up the expensive "Persian rug of Aotearoa" by end of 2009 time only uncovers a lot of dust.
> "The IMF ... is
> "The IMF ... is preparing another assessment of toxic debt which it estimated at $2 trillion in November ... new estimate is $4 trillion."
Gee, that means their estimate has increased $128,000 per second since their last estimate. Something must be pretty bad.
hi, "ak" asked for a
hi, "ak" asked for a link about 1 in 10 yanks on food stamps....financial times
http://www.ft.com/cms/s/0/ed49b5de-1a30-11de-9f91-0000779fd2ac.html
cheers