One of the ways to ensure a reduction in spending is to allow tax credits for investment in a 10 year 5 % p.a interest bearing non-tradable Government bond. The money raised can be used for infrastructure development.

IMO if everyone cuts back too much then it will exacerbate the recession, or turn it into something worse. Yes, reduce debt, but don't stop spending.

Hah ha. MP's voting to can LAQC's? Ha ha ha.

Where do you think all their 'housing benefits" go to?

Seriously though, I'm bloody worried for a small trading nation in the middle of nowhere with loads of debt financed off the back of easy cash, high interest rates and a commodity boom.

Bernard

You have to be careful here, The problem essentially is the split between the real economy and the non essential economy, What you are suggesting is fine if you are based in the 'real' economy but will cause a contraction in the other, which then spirals downward.

So my suggestions, Spend Prudently, Reduce Debt, Reduce consumption of imported goods, no latest cellphones, New VW Golfs, LCD TV's. Renovate your house to be more energy efficient and dig a veggie garden.

Debt servicing may not be the problem you think as high inflation and artificially low interest rates will make this more affordable, as long as you have a job.

Looking back it makes taking a student load to do a degree in Video Game design a little foolish doesn't it.

Neven

I heard David Slack discussing "cutting Back" on RNZ: "first to go should be gym membership, latte, broadband..." I told my wife she didn't need to spend $100 getting her hair dyed (didn't go down well). All these things (of course) are part of our wealth redistribution system (I'm reminded also of women selling crape paper flowers in Tijuana).
One thing we could do is use less oil (ie get on cycles). Imagine also if we had a master prescient property developer saint who had built houses that were energy neutral, laid out on new urbanist lines (where social factors provide positive benefits) and we had areas to produce food. The out of work time could be spent in walking, reading and visiting the zoo to see the Ferrari owner and his mansion.

paying off debt and operating on a cash only basis is the only way to survive but will ensure that others will fall over.we have already cut off credit especially to corporate bullies like fonterra that take 100+ days to pay.dont want to cut up my credit card though!

So how exactly do you pay off debt if the money supply has been cut back ? (reduced spending /lending)
With higher costs of liviing eating into incomes, there is no money to pay off the debt, & increasingly there is not even enough to pay the bills.
If you don't pay me, I can't pay them & they can't pay the others, who can't pay the banks, who close down the business that employs you, so now you have my outstanding bill & no job !!!!!

Bernard replies;
Keith. Yep. That's a risk we've thought about. One of the things we've got going for us is that with less spending there will be more saving. Banks and others will need to advertise for term deposits. Depositors will need information and independent analysis of where interest rates and the economy are headed. They will also want information on the safety of banks, building societies, credit unions and finance companies. We hope to provide that.
But fundamentally you are right. This is what happens when we all borrow too much for too long. Eventually the day of reckoning arrives. That is what the Credit Crunch is. A global day of reckoning. cheers/bernard

"We hope to provide that."
As much as I may agree with the need for "Professional advice" it is in direct contradiction to your advice to cut back on unnecessary / unproductive spending !

Anyway, with the govt guarantee on deposits, why would i need to pay you to advise me where to put my millions that am going to save rather than spend ?

BTW if you firmly believe residential property is dead for 20 years, you will gladly enter into a contract for me to buy your current Epsom house at 30% less than last Nov valuation, and I will pay you that price plus the CPI increases in 20 years time, because of course it will be worth even less then, so you will be making money on the deal. $10 deposit OK ?

compounded cpi interest rates keith? over 20 years, on capital of what 900k?

thats a tad over 2 mill cash. should we mark that to current nzdusd rates?

Keith,

That is precisely what will happen more and more as the screws (external at the very least) tighten continuously from now on for quite a while. Unfortunately for those thinking that they can go on forever spending more than they earned, it will become a tough reality. I agree, because I have experienced it myself to a small extent some time ago through simple youthful stupidity, and luckily at a time when the general economic conditions were better than they are right now. Humans need to have a painful experience to really learn. Just like when you learned that the stove top is hot sometimes, particularly when something red shines brightly somewhere... (swap financial reports with stove top example here if you like)

To the point of how you pay off debt? Ask yourself every single time you look at every single dollar you are about to hand over to ANYONE, do I have to spend that dollar to survive (eat, sleep, some kind of roof over the head, even if it is a little rusty, think). Otherwise, declare yourself bankrupt and see if that is any better.

Perhaps another thing to do, email, call, write to, or go and see those people that can help you. Like your city council, your electricity supplier, your landlord (or your bank, if you have a mortgage) and anyone else that gives a regular bill, and tell them clearly that if they don't substantially reduce their costs billed to you in xyz timeframe, you are going bankrupt! Ask to get from them in writing (although you won't get it, if you ask for answers in writing, people think more carefully about what they would write than what they say) what they plan to do to quickly and substantially reduce their bill to you. Tell them what you are forced to do if they don't. This merry-go-round downward spiral is only just beginning. For example, I have just written to the Auckland City Council to remind them of the fact they are elected by me and others to serve us collectively, and that they better start to think different than in the past about their spending! Why? BECAUSE I AM CONTRIBUTING TO PAYING THEIR BILLS AND SALARIES AND EVEN THOUGH I HAVE NO DEBT, I AM NOT PREPARED ANYMORE TO PAY FOR SOME THINGS THAT ARE UNNECESSARY!

A small beginning and just my 2 cents.

Stephen - do you read Noam Chomsky? Here's a recent piece;
http://www.irishtimes.com/newspaper/opinion/2008/1010/1223560345968.html

Although an interesting proposition - to determine NZ needs to spend $1.5billion less each month, or $375 per person, and then to search for ways of doing this, I don't think NZ will trade/save it's way out of this. In fact, I don't think the Western world will trade/save it's way out of this.

I think the whole economic and perhaps political world system will change - neoliberalism is a gonner. What will replace it - likely something more akin to socialism. But as Chomsky points out such change is most likely to come about as a result of popular struggles, not 'from above' ie. not from the State itself.

Kate

I used to be an avid reader a fews years back.

In respect of popular struggles, I now believe there will be a big push in the US to nationalise medicare and medicaid. The act of socialising the free-market banking system will provide the platform and model to fight this battle.

The days of private medicine financed by usurious insurance companies and milked by medical practitioners are at an end.

If we are to cut back on debt does it start with "unused debt"?
that is credit I have available to use eg $20,000 on my credit card (which the banks kept happliy giving to me that I never wanted and never used) or revolving morgages with unused credit that sits there unused for a rainy day.
Is this unused debit part of the figures in all this credit crunch or is it only real debit?

Joe
"With lower interest rates people will be looking at investing in their businesses for a real return "

It would be nice if that were so, but I doubt it will happen.
Lower interest rates help lower cost of borrowing & now that people have received a shock, they may look at reducing their personal debt.
If the numbers are to be believed, it is going to take a mighty long time for that to happen, or it will take something catastrophic to happen, that wipes out or reduces the debt.
Until then there won't be much money to invest.

For those that have money to invest, I agree, the lower bank interest rates will not be attractive, (& probably be exceeded by inflation, taxes & fees), but why would they risk it in the sharemarket, which has seen mass collapses, in the finance companies- same collapses, or in direct investment into companies, that are at huge risk of being wiped out by this turmoil.
With no protections in place for their money, apart from lower bearing bank deposits (for the next 2 years), once their personal debt is paid off, there will probably be more incentive use it before they loose it !
While business investment is what we need to have any chance of trading our way out of this mess, there is nothing happening that will encourage business investment, and the businesses themselves cannot get funding from lenders to carry on, let alone expand their businesses, so they either close up shop or move overseas.

My very socialist suggestions - lower interest rates to the same as the US, 1 -2% (that being just the banks working margin- the Govt should not be making any money from interest)

Force the differential between what is currently being paid in interest payments on domestic borrowing, & the new payments, to be applied to principle repayments.

Force banks to lend to businesses, using only the business as security - no property security.
If the banks fail to comply, retract their operating license, or increase their reserves requirement until they do so or move out.

Get rid of the stupid Mark to Market accounting valuation rules that have created the huge downward spiral.

Potential to create another subprime crisis- maybe- maybe not

Is it likely that any of the above will happen - Yeah Right

I disagree with you in Bernard. I do not think we can actually save our way out of this mess. The only way is to earn our way out - be productive and export. Of course I agree we should not increase debt, but we can not work our way out by killing off our economy because we all of a sudden do not employ consultants or lawyers, do not eat ice cream or drink fancy coffee's. No, we must buckle up, focus on being more productive and cunning in business, add more value, do more deals outside our borders. Our dollar is lower so our exports will benefit - herein lies our only salvation.

My accountant always says that only a business can pay the debts of a business - due to the relative size - same way only a country's collective productivity can repay its debts. Reducing its GDP to put more money into savings can not do it. Selling goods to ourselves (houses etc) is what got us into the mess - now we need to sell outside of our borders to bring in fresh money to solve the problem. Luckily our country is one big beautifull green farm. Yes, farm prices are ridiculously high - were.

As an immigrant I do not think NZ is a particularly wasteful society. Neither do I believe the low prodcutivity stats we get thrown at us from time to time. Also, I've been to the States and boy they are a hell of a lot more wasteful, so is Europe and a lot of other rich countries I've been to.

In summary my advice - buckle up and earn our way out of the mess.

frans,
How can we maintain or/ and increase exports and make profits when most countries are in recession? How can we maintain or/ and increase production and make profits, when worldwide consumption decreases? This isn't a short term scenario, but can last for years.
As I mentioned in another article life has changed. It is now far more important of having the ability of adopting to fast changing and challenging situations, then maintaining established business patterns.
America buckled up for 50 years. (read my article above 3:21pm)

Stephen, yes I agree with the likely push toward socialisation/nationalisation of medicare and medicaid in the US. I can also see some kind of regulatory reigning in of the pharmaceutical industry.

I had an eye-opening first-hand look at the private medical insurance racket in the US when a brother-in-law of mine suffered a sudden, massive brain injury and was brought back as a vegetable through surgery that never should have been performed by a surgeon who knew full well what the prognosis was but failed to explain it even remotely adequately to my sister in seeking consent to operate.

The private medical insurance racket in the States, in my opinion denies death with dignity time and time again in the name of the almighty dollar.