Households repairing balance sheets in 'sombre' market despite late-November pick-up, the National Bank says

Housing market sombre !

Great then let’s talk with the PM,  minister Hide, Brownlee and Joyce about the real economy - production in this country - shifting “Chair Polishers” into real jobs.

Jeez they come out with some crap don't they....." a weak and patchy economy implies that interest rates are likely to remain low for a while yet"....no mention of events in the UK or in Obamaland....in both cases rates are expected to rise and not by a teeny bit either.

Are they saying Bollard determines their floating rate, fullstop...and the fixed term rates?....what rubbish.

The households deeply in debt are barely managing to fund their debt...they are not able to clear their debt...they were 'banking' on rising prices...capital gains....fat chance. The banks are hiding the losses under their carpets....mortgagee sales are being 'managed'....

As English and Key drive the ponzi scheme deeper into public debt...will rates pressure be for going up or going down?....think hard now!

As for expectations that "fickle demand" across the economy is set to explode into a consumer splurge some time in 011....what utter twaddle.

Alex , I have 2 Questions about longer term interest rates :

1) What about inflation becoming  factor in the next two years, thus pushing up rates ? 

2) What if the Govt is forced to borrow  at higher rates on the bond market to finance the the budget deficit next year and 2012?  This will have an upward effect on rates and possibly a crowding out effect on the domestic market .

I still think that fixing may be the way to go , especially if inflation creep starts 

And here's an example of domestic rates falling

http://www.interest.co.nz/news/marac-finance-and-rabodirect-cut-deposit-rates-what-are-you-seeing

Mate, there is a sombre mood everywhere I go. I have only come across one or 2 businesses who reckon they are "recession proof", everyone else has had record low turnover, and everywhere I look shops are disappearing, with "to let" signs blossoming. Even in my immediate circle of friends I know several people who have lost jobs. The resilience in house prices is the absurd thing, in the circumstances.

I frankly do not believe statistics that say we are in flat or low economic growth. Adding government spending into GDP dollar for dollar is one of the most foolish tricks that has ever been allowed to be played with economic statistics. Government spending really IS "low quality", most of it does not have to justify an appropriate level of benefit like in the rest of the economy.

We are in a recession that really started years ago, thanks to the RMA and the Local Govt Act, Working for Families, higher real income taxes, and Punitive anti-Employer workplace law, to name the most significant few things. This "REAL" economy, which shrank a quantifiable 12%, was concealed for a while in a "bubble economy" based on consumption based on mortgage re-fi debt. Michael Cullen basked in "bubble" tax revenues, and found things to spend every last cent on, thus digging his successors into a perfect hole - something that Kiwis remain largely ignorant about.

If we are unanimous that the "construction" sector of the economy is now a dead goose, then we either have to replace it with something other than borrowing, or cut our cloth to suit our new economic level. It is pointless arguing about the reasons WHY the construction sector is a dead goose if we are not prepared to confront the consequences of the fact that it WAS a significant driver of the economy.

If there is demographic justification for abandoning "construction" as a viable part of the economy, and we cannot bear to allow mining, and we must stifle all potential new export industries with overpriced land and red tape, then we had better start working out what spending, especially government spending, we can do without. Or are we as stupid as those Greeks who riot, murder, and set fire to buildings when confronted with any harsh realities, like spoiled brat children?

I have proud memories of David Lange, "the great communicator", taking the unpleasant truth to the nation, and pulling together a sensible, mature consensus at least for a time, about "means", living within them, and the options facing the nation. I see little evidence of any similar kind of national maturity in NZ today.

Demographics is more than just superannuation liabilities. Colin Clark's magisterial 1967 book, "Population Growth and Land Use", analyses numerous positive feedback loops in economies as populations are rising, that go into reverse when the population growth levels out or falls. This is far more significant in its economic effects, than resources like oil becoming scarcer and more expensive.

I am only saying what I do here, not to argue for "more growth", but to try and alert people to the kind of tough political options we are going to have to confront, that will go way beyond superannuation liabilities. The end of growth, either planned or unplanned, means serious recession and falling income, not equilibrium at the "status quo".

The development of free markets and the creation of wealth requires, along with

a culture that encourages trust and co-operation; "connections" via transport

and communication, between potential participants in exchange and trade. These

connections can be the result of proximity (through density), as well as by

roads and other transport infrastructure.



There is a limit to how much density is achievable as a substitute for transport

infrastructure, because the production of low-density rural areas, especially

food, has to be transported to the workers in urban industry. There is actually

a correlation between the "density achieved" in urban areas throughout history,

and the provision of roads.



Population growth is one way in which densities are increased, and "demand

pressures" result in rural land being used more intensively and efficiently.

Population growth disturbs a certain "status quo" that might have existed

previously, where rural production levels were regarded as "satisfactory" to

both the producers and the consumers of the produce.



As population densities increase, and rural production increases, a number of

efficiencies are realised.



There is increased competition, and reduced oligopoly, monopoly, and monopsony

exploitation.



Increased specialisation becomes possible, because of a viable number of

customers for the products of the specialist. "External efficiencies" are

realised by increasingly networked producers.



Economies are realised in infrastructure, social institutions, and government.

Roads, bridges, harbours, etc, can be utilised by increasing numbers of people

without capacity increases being immediately necessary. The same goes for

churches and clergy, courts and lawyers, hospitals and doctors, other

professionals, government bureaucracies, public buildings, educational and other

institutions. This also allows for important advances in sanitation and health.



Labour productivity growth occurs, and less additional "capital" is required for

each additional unit of output. The utilisation of land and resources previously

underutilised, is a "substitute for capital".



Nevertheless, return on capital increases, AND capital formation is also

increased. A rising population results in increasing returns to existing

investment, encouraging more investment. Less investments "go bad", because

there is a rising number of customers for whatever products or services the

investor and his competitors provide. More production capital is utilised (and

even worn out) before it becomes obsolete.



The products that result from new investments, inventions, and efficiencies, are

easily absorbed in a rising population; as are the redundancies and relocations

that might be necessary. Younger people, of which there are more, are more

mobile and receptive to change. The increases in wealth creation and demand,

make society more amenable to changes in employment patterns as the result of

advancing technology and methods. There are more valuable "positions" to go

around, so that change is less regarded as a threat by those occupying positions

of advantage.



Younger people tend to accumulate capital, while older people tend to "draw down

on it". Larger families result in pressure on the parents to save more, and on

the children to provide for themselves because their inheritance will be split

more ways.



(Note: Julian Simon added a further thesis to Colin Clark's: that a higher

population includes both more inventive geniuses, and more people to purchase

and enjoy the fruit of those creative geniuses).



A high proportion of government spending is inflexible to rises and falls in

population. This spending is more efficient if population is higher. Much

government spending is extremely difficult to reduce even when falling

population justifies it.



If population is falling, there is much greater pressure on politicians to cheat

by inflating the money supply, as the fewer numbers of young simply cannot

sustain the taxation levels necessary to keep the government running, apart from

the burdens of caring for larger numbers of elderly.



Younger people are rendered less able to save, capital is "drawn down on",

returns on investment decline, more investments fail, investment declines.



Population increases demonstrated beneficial effects in Holland in the 1500's,

Britain in the late 1700's, and Japan in the late 1800's. Holland and Japan were

economic successes while importing most of their food. A LOWER percentage of the

workforce in agriculture, correlates to wealth increases. These increases in

population and in wealth, result in a freer, more mobile society.



Ancient Rome in its decadent phase, illustrates the effects of falling

birthrates, including increased taxation burdens and monetary debasement.



Declining populations, in ancient Rome and in Europe in the 1400's, brought

about a simultaneous shortage of workers, and yet lack of demand. Many people

clung to their source of diminishing income, becoming protective and demanding

restraint of competition; others had serfdom imposed upon them by the

government, their freedom to relocate and change their livelihoods being

removed. These seemingly contradictory effects are the result of a reversal of

the "virtuous cycle" described earlier, that occurs when population is

increasing.



France, in the period from from the revolution onwards, also illustrates economic decline

consequent on falling birthrates.



In underpopulated lands, and where population is falling, the people themselves

become more "protectionist" in sentiment, and more vulnerable to illusions

regarding "planning" and regulation of production and prices. This only worsens

the vicious circle of decline.