By Bernard Hickey
Now the dust has settled on 'Double-Downgrade Day', it's worth looking at what it all means.
It's tempting to accept the government's dismissals and deflections of the Double-Downgrade as somehow an irrelevant or accidental mistake that means little in the great scheme of things and can't really be blamed on the government.
After all, the Government successfully sold a record NZ$1 billion worth of bonds just yesterday at record low interest rates. It sure doesn't sound like the bond vigilantes are about to gang up on New Zealand to force us into line. Bond investors are practically begging to buy our paper. It may be because we're about as far away from Europe as anyone can get, but it's hard to pull the wool over the eyes of these Masters of the Universe.
Surely there can't be that much of a problem?
Maybe we can just ignore the ratings agencies. After all, they rated all that toxic sub-prime dreck in America as AAA and Standard and Poor's credit rating downgrade for America was greeted by a mass rush into (not out of) US Treasury bonds. The US 10 year Treasury bond yield has fallen to 1.7% from 2.5% since the downgrade on August 5.
The New Zealand dollar fell about 1 USc after the Fitch downgrade on Friday morning and is only down about a further 20 basis points as I write this late on Friday evening after the Standard and Poor's downgrade. That's not a major fall given the recent history of much bigger falls after slumps on overseas stock markets.
New Zealand interest rates didn't rise that much, only edging around 5-10 basis points higher on the day. The New Zealand stock market even rose. See more here in our earlier articles on the Standard and Poor's downgrade and the Fitch downgrade in NZ's sovereign credit rating to AA from AA+.
'Goal posts shifted'
Finance Minister Bill English seemed relatively relaxed when saying the downgrades were more about the concerns of foreign investors about high debt generally, rather than a specific concern about New Zealand. He said the goal posts had been shifted on global debt. The implication was it wasn't New Zealand's or the government's fault.
English also said the agencies comments about a rising current account deficit were not concerning because he thought they were wrong about households getting back on the foreign debt-fueled consumption wagon.
He was also more confident about New Zealand's export returns because our links to Asia would insulate us from any recessions in America and Europe.
'Not embarrassed'
John Key, fresh from hosting a show on Radio Live, told reporters the ratings agencies seemed most concerned about New Zealand's private debt, which weren't new and had been built up before he came into office.
He said he was not at all embarrassed by the verdicts from Fitch and Standard and Poor's and believed New Zealand's economy and public accounts remained stronger than many others, and stronger than when he came to office. See more detail here in Alex Tarrant's article on the reaction from English and Key.
Before we look at the flaws in the goverment's deflections, let's look at what the credit ratings agencies actually said.
Fitch said it was concerned about New Zealand high net external debt and its consistently high current account deficit. It said New Zealand hadn't transformed enough into a producing/saving/investing/exporting economy yet to bring that current account deficit down.
Standard and Poor's said it was worried New Zealand's budget had been weakened by the earthquake and the fiscal stimulus used to sustain growth. It said New Zealand's sound monetary policy and stable political situation were good things, but:
"These strengths are moderated by New Zealand’s very high external imbalances, which are accompanied by high household and agriculture sector debt, dependence on commodity income, and emerging fiscal pressures associated with its aging population," said S&P's Kyran Curry.
So let's break this down
Firstly, both Fitch and Standard and Poor's are worried about New Zealand's collective foreign debt, including both private (which means bank debt) and public debt. Their unspoken assumption is that these two types of debt could become the same thing over time, if the government ever had to bail out the banks. The ratings agencies have begun lumping the two types of foreign debt together in the wake of the Irish crisis where the government guaranteed the banks debts as soon as they got into trouble.
The ratings agencies have worked out in recent years that private debt pretty quickly becomes public debt whenever banking systems hit trouble because politicians can't help themselves from bailing out banks.
This is the first sign that the ratings agencies are not confident in the government's avowed policy of not bailing out the banks. See more about that policy here in Alex Tarrant's article on English touting New Zealand's unique Open Bank Resolution or 'living wills' policy which would allow a bank to fail in an orderly fashion. The ratings agencies have recent form to consider here. The South Canterbury Finance bailout was actually a bigger bailout for New Zealand's economy than the collapse of Lehman Bros was for the American economy. And just last week the government confirmed a bailout of AMI.
Secondly, both think the government has not done enough yet to transform the economy from being a consuming/borrowing/importing economy into a saving/investing/producing/exporting economy. This has been the government's big theme since the election. Its big 'tax switch' package and its tweaks to rules on rental property were at the centre of this 'transformation' policy.
The trouble is it hasn't worked yet and doesn't seem to be working for at least a couple of years to come.
The ugly detail
The ugliest detail in the May 2011 budget was the Treasury's forecast the current account deficit would rise from 4.1% in 2011/12 to 6.9% in 2014/15. That's not a transformation. That's a deterioration. Bill English's comment that he didn't think New Zealand households would go on a spending spree and that New Zealand's current account deficit wasn't as bad as painted by the ratings agencies was contradicted by his own Treasury in the budget.
The high New Zealand dollar this year has been a huge disincentive to exporting anything other than highly priced commodities. The same old stuff is happening in the housing market. Central Auckland property is abuzz again with 95% home loans and houses sold before auction.. Household lending is up more than NZ$6 billion in the last two years, while farm lending is flat and business lending is actually down NZ$5 billion. See the RBNZ figures here. A real transformation would have seen a reversal of those figures.
Essentially, the New Zealand government has been running a structural budget deficit of around 3-4% of GDP since around 2005. This was created firstly by Labour, which cut taxes for middle income earners and delivered the middle class welfare of Working For Families and Interest Free Student Loans. National kept those policies in place and expanded the tax cuts to middle and upper income earners, slightly loosening fiscal policy as it went.
Of course the earthquakes and the recession are responsible for a good chunk of the near NZ$20 billion budget deficit this year, but a core portion of it is that structural deficit built up over the last 6 years and not removed by Labour.
One of the painful ironies of these Middle Class Welfare policies is that much of that money is being borrowed offshore and then recycled back into middle New Zealand is being spent on the usual stuff. Holidays, flat screen televisions, World Cup Parties, imported cars and, of course, more property.
It's no coincidence that the biggest rises in property prices have been in the wealthiest parts of Auckland where some of those tax cuts have been leveraged up to buy more expensive homes. The value of home loan approvals was up 28.8% in the 12 weeks to September 23 from a year earlier, largely because the average loan size (rather than the number of loans) is up sharply. That suggests a good chunk of those tax cuts are being used fund upgrades by home owners into more expensive areas with a good extra lashing of debt. See the Reserve Bank figures here.
Not much has changed
This, for me, is the chilling realisation from today's double downgrade verdicts.
Not much has changed.
English and Key also accidentally acknowledge this in their slightly mystified comments wondering why Standard and Poor's and Fitch have downgraded New Zealand now. Why the downgrade when nothing new has happened, they asked.
Here's Key's comments this afternoon:
"They are still expressing concerns about our private sector debt, and those levels are high. The good news is we are starting to get on top as a country of that private sector debt. The third factor that they’re worried about is that so much of that private sector debt is owed to foreigners. That position’s not new. That private sector debt was built up over the period of 2003 to 2008."
That's the real problem. Nothing or not much new has happened to solve those problems built up from 2003 to 2008. In fact, you could argue the giant tax switch and the governments continued heavy borrowing has made it worse, by pushing up the currency.
The government hasn't really addressed the problem of all the tax and lending incentives to invest in property. It has done nothing to improve the incentives to export and the disincentives to import. It could have done so much to improve national savings by removing the middle class welfare and simply reducing the government's own borrowing. Even the Savings Working Group said the fastest way to improve national savings and reduce the current account deficit was to cut the budget deficit and government borrowing.
But so far John Key has chosen not to spend any of his now-enormous political capital he has built up with all that easy charm and near ominpresence in the media. He is determined to win a second term and stay on as Prime Minister, an ambition he has apparently held since the age of 10. He seems to be enjoying the adulation as he opens World Cups, meets world leaders, hosts radio shows and attends royal weddings. He really has come up in the world.
But has New Zealand come up in the world since he came up in the world? Today the ratings agencies judged the nation's credit had gone down in the world.
'You haven't done enough, John'
Today some cold hard facts splashed in his face. They are facts he should understand all too well as a former foreign exchange trader.
These agencies are telling him he has not done enough to turn around the New Zealand ship. The agencies and investors believed the promise he gave in his Wall St Journal interview in March 2009 that New Zealand "can't spend its way out of a crisis."
Ratings agencies don't accidentally or routinely downgrade sovereign credit ratings. This is New Zealand's first downgrade in 13 years. They matter. An ANZ study showed how previous downgrades preceded significant downward pressure on the currency and the economy.
No one should forget also that the government argued in the 2009 and 2011 budgets that its supposedly tough measures were designed to avoid a credit rating downgrade. This is clearly an 'epic fail' as the programmers might say.
The price we'll pay
It's possible we won't pay much of a price immediately.
The New Zealand dollar does seem to be falling more sharply in early London trade as I write (nearly down through 76 USc), but the fall is unlikely to push up petrol prices much, particularly if a global recession also pushes the oil price down. If it does fall a lot then imports will be more expensive.
The Reserve Bank has already warned that higher bank funding costs because of the global economic turmoil could drive interest rates higher here, even if the Official Cash Rate does not rise.
Bank economists also gave gentle warnings today that was a possibility. It may take a long time and the banks should be careful to use up the 'fat' built up in their higher net interest margins in recent months before they pull the trigger on those rate hikes independent of the OCR.
Bill English said in a May 2009 release titled "Borrowing costs would rise under Labour" that Treasury had estimated the cost of a credit rating downgrade at around 1.5% added to the interest rates paid by mortgage borrowers and businesses.
We'll see whether that happens, but if it did it would be a significant cost.
To get an idea of how much funding costs have already risen, check out this chart below of Australasian Corporate (which means Australasian banks) Credit Default Swap spreads. It shows these spreads, which are a proxy for longer term borrowing costs, have risen back to Lehman Crisis levels.
No chart with that title exists.
85 Comments
Default...such an old fashioned idea. Try this as an idea instead....
"That plan will see the EFSF working with the ECB to create what amounts to a vast CDO (Collateralized Debt Obligation). This ‘CDO’, which the banks and the Fed want so badly, will be a supra-national version of the CDOs which brought us to this state in the first place. What I think would happen, is Greece would be forced to put up assets as collateral. These could be parts of Greece and its infrastructure and/or the income from them, and future tax receipts as well I imagine. This ‘income stream’ will be the promise written on new bonds/debt which the CDO will sell to investors. Those ‘investors’ will probably be the central banks and even the self same insolvent private banks who are being bailed out in Europe and beyond.
The trick is that the money paid will now not be a ‘bail out’ it will be an ‘investment’. We won’t be bailing out the banks, they’ll be bailing us out (with money we have given them and to asset strip the Greek people – but we won’t talk about that will we). We will have all been pulled through the financial looking glass. And better yet, the amount of return will not be simply what the banks could get by forcing Greece to flog its ‘assets’ today, but will be the whole future income from those assets as well. Rather than give Greece what it needs or even just force it to sell what you want as payment of its debts, even better is to force the nation and its people in to a long term debt peonage."
Hateful, and I truly hope the author (Golem xiv) is delusional/wrong...
First they came for the Greeks, but.... or something like that.
Hi,
Never read Keynes? how about the military build up to WW2 which was massive Govn spending that got us out of the GD? A very clear case of spending our way out can work....the problem is using debt to do it.....and the assumption there is a return to "normal" which with Peak oil wont happen. So for me its household economics, or economics 101, you save for a rainy day in the booms and then spend it down in the recessions....that way you are a creditor and enjoy extra income....
So actually if he said that he's in the failed neo-classical school that got us into this mess....and when you consider he said last year that with the OCR so low etc he was expecting a 6% growth and with none and he didnt understand why not then its clear he's in-competant.
The "grow from austerity" is doing the rounds at the moment....so we get to watch that failed experiment, if lucky we dont participate....the supply side (i wont even call it a model) is an abject failure....and has been for 30 years.
I fail to see any relevence between we cant spend our way out of a recession (if you even accept that, I dont because of peak oil there is no back to as it was) and directly to affordable housing....and in addition the National Govn has actually made some changes that have improved things, if marginally. If you accept house prices are 40 to 50% over-valued on the wages to price scale then anything too severe could cause the bubble to pop....and that would see us like the USA a basket case....at which point your fringe land drum probably becomes irrelevent....not that it isnt anyway IMHO.
Someone said well, when fixing a problem I wouldnt start from here.....but here we are...(paraphrase)....
So rather than harping on about what will never be maybe spend your energy and intelect considering where we will be with peak oil and how to position Chch as best as possible for that.....its a pardygm shift however I dont expect you will make....
regards
To be fair the quake was a major blow and they did inherit some issues. But i still give the nats a c- fail in their first term. If you follow key's logic about nz being tied to aus and China then why didn't we prosper over the past few years. They have been poor on chch and have generally been uncreative and uninspired. They have been pathetic in addressing nz's housing issues and their rma "reform " crap
Well maybe give us your idea of what they had to do for a B or even a A?
I think when you take in the context that this was and is the biggest financial event since the GD if not the LD you should cut National some slack....Im going to award them a B- all be it they have mostly done what they have done for the right thing for the wrong reasons. If Labour had stayed I think we'd be in a worse state, hence B-
Labour would have been a D....
regards
Now in difficult times - where are the most needed “Hands on” NZpoliticians” – all bloody lawyers, bankers, accountants, bed- sellers and other over weight and grey armchair - cluers ? We should reduced them urgently - now.
As I many time described economic imbalances are far too great and the current government not performing to a high standard – I’m sure our society will experience the downgrading of our standard of living, a massive number of bankruptcies with unemployment increasing fast in 2012 and as a consequence riots in the big centres.
At least 4-5 ministers (incl. minister of tourism) not performing should be sacked straight away.
Im not sure we want "hands on Pollies" because that suggests more short term views....we have enough of that....What we desperately need are good, clear and un-blinkered medium and long term strategists and thinkers....oh and you missed ex- Real Estate agents, I think our local National list MP was that.....so she's un-employable anyway....more to the future dole queue "or lifestyle change".
From my point of view I expect we will be seeing a downgrade of our standard of living the Q is how much. We use 17TW of energy globally per annum, to support and grow it....but energy output is in decline.....ergo so will our wasteful society....
So good thinkers will be able to determine the state in 2050 and minimalise the drope in the standard.....unfortunately we need some Muldoon moments and need to move to renewables and fast....so scrap the billions for roads and build dams....
Wont happen of course, this is a canute moment and we wil fail....
regards
Bernard,
So, let's get this straight... last week English goes to New York and the Beltway... he meets with ratings agencies, World Bank, IMF, Reserve Bank... he comes home and this week we receive a downgrade. This reminds me of what happened to Canada in the 1990's.
In 1992, Canada was downgraded by Moody's, setting off a national panic about debt. In her book, The Shock Doctrine, Naomi Klein quoted journalist Linda McQuaig, who tracked down the analyst at Moody's, a fella named Vincent Truglia. Truglia said he downgraded Canada at the concerted urging of Canadian banking interests, through their think tanks. The downgrade set the stage for a change in government and the most severe austerity programme in Canada's history. It was a classic case of Problem, Reaction, Solution.
If the same pattern hold true, Kiwis better brace themselves for a massive reduction in government employment and social service spending, and greatly increased costs (hardly news, but maybe faster and more intense than we thought) in the form of fees and taxes. In any case, I find it incredulous that Key and English should express surprise about the downgrade. Clearly, National is getting ready for their version of Shock Therapy.
We have entered the economic dark ages. Now it is survival of the fit and the fast. We have never and will never be told the truth by our own govts. Lying will be normal which will mean no change from the present pattern.
Watch for a start to voting fraud on a mass scale carried out by govts and sold as necessary to protect democracy. I expect this to begin in Germany and to emerge in the usa.
I also expect the police and court systems and the media to join in and follow the 'govt' line. Which means you should expect an attack on the WWW to curtail the communication between peasants. The violence will be labelled as 'terrorism'. It will not be safe for anyone thought to have been involved in causing the collapse.
Geez Wolly you missed all the fun yesterday. I expected you out from your corner guns blazing, but there wasn't even a whimper.
Oh well as least you are off to a good start today:)
You know I was thinking during the week that some sort of collapse in Europe or crisis in China would actually open the door for Benny and the Inkjets to let loose again without it fueling the commodity bubble.
"One of the painful ironies of these Middle Class Welfare policies is that much of that money is being borrowed offshore and then recycled back into middle New Zealand is being spent on the usual stuff. Holidays, flat screen televisions, World Cup Parties, imported cars and, of course, more property."
The problem with Bernard is that he is a closet Socialist and deep down really cannot stand the idea that some people are more equal than others. The Bernards of this world live in some Utopian haze where everyone is equal, where everyone has little or no debt, and where everyone has saved up a nice little nest egg for their retirement.
Paying down debt and saving is a nice idea but is totally flawed. Saving and debt reduction, the new mantra in these times, is a rock solid guarantee that the recession will get worse, unemployment will get worse, and stagflation or even deflation will haunt the economy for decades.
By way of example Fred who works all day making widgets for his employer, believes the current theory that saving and paying down debt is the way to go. So he and all his fellow workers, brain washed by the Socialist clap trap, start the program that the propagandists are pushing. So what happens next ?
(1) The banks get more money as savings increase.
(2) Now the banks have fewer and fewer people to lend to and risk going broke themselves and interest rates go lower and lower as a disincentive to savers.
(3) The widget maker that Fred worked for sells less and less widgets and starts to lay off staff,
(4) Fred and his fellow workers lose their jobs because the demand for widgets had dropped off the cliff.
(5) Fred and the others get the benefit and now can afford nothing, eat up their savings
and become a drain on the public purse for ever.
Is this is the nightmare that the Bernards of the world want? I doubt it.
Socialism and Socialist thinking is a warm and fuzzy theory but only works for a short time as history has proven over and again.
The human mind needs challenges, wants risks, needs incentives and ultimately rewards.
The answer to the problem, whether you like the system or not, is to encourage spending, which in turns creates demand which in turn creates jobs which creates satisfaction and yet more success. ( and more taxes btw),
Savings should be only used to accumulate enough to re -spend as soon as possible on consumer items whether they be flat screen TVs, cars or houses. That is they way the Capitalism works. That is the way jobs are created. That is the way wealth really accumulates.
We are stuck with the Capitalist system so use it - or be careful what you wish for.
"Some are more equal than others"?
Surely the essence of our clsed loop society really means that the above should read
"Some are able to pick the fruit by standing/climbing on the shoulders of the rest"
Would anyone seriously suggest that Douglas Myers (example only) could have got his money without a silver spoon and the shoulders of the workers in his brewery who helped with lower wages and then spent some of that on his products.
Come on, get real!
Big Daddy learn to adopt your thinking to the world situation and not to your own ego - only.
http://www.youtube.com/watch?v=EQqDS9wGsxQ
Yes, we do need revolutionary ideas, but with different attitudes – new challenges, risks, needs, incentives and ultimately rewards.
Don't know what your utopian vision is Big Daddy but it can't be capitalism without capital i.e surplus or savings.
A major factor in the Western worlds propensity to spend forward tomorrows income is the sure and certain knowledge that the welfare state will support you. That's socialism mate and Big Business and Big Finance just love Big Government - the last thing they want is folk saving money and being free and independant.
Why save for a rainy day when there's state funded child birth, child care, domestic purposes benefit, WFF, health care, education, student loans, housing subsidies, travel subsidies unemployment benefit, invalid benefit, sickness benefit, superannuation, aged care etc. etc.
A little more thought required maybe.
Don't know what your utopian vision is Big Daddy but it can't be capitalism without capital i.e surplus or savings.
I have pointed this out to him before, but his lack of reply indicated he can't actually think.
And his comment about some being more equal than others points to levels of ego and arrogance the size of Greek Debt.
Actually Scarfie,
BigDaddy's got it right, at least in term of describing how capitalism works. Petit Bourgeoise capitalism like you and Bernard favour put the cart before the horse. Logically spending must come before saving, because without spending first, what is there to "save"?
A missing element in textbook economics is credit, which funds the development and expansion of the means of production. From bank credit comes the means to purchase industrial plant and supplies, pay workers and overheads until the firm is able to generate income, and pay for distribution costs until the products are sold..
Savings is just surplus funds left after all production and distribution costs are payed.
Where have I ever said I support capitalism? Just pointed out the fact we don't practice it.
Big Daddy doesn't have a clue, and you are off the mark also.
All civilisations have arisen from a surplus of food, with out the surplus the spare labour would not be available to build temples, build war machines, wage war etc.
All starts with the surplus buddy.
lol. Thats because it hasn't really been practiced since the 18th Century and never has been in New Zealand. New Zealand has been economically driven largey by a force James Belich calls the progress industry, where public and private figures in New Zealand secured credit in Great Britain in order to invest in public infrastructure development projects and private industrial development and expansion, though Belich is mistaken in his belief that it involved "spare" capital. Capital loaned by British investors would have largely been credit also.
The whole thing was funded by British credit. This was extracted from London to the extent of 71 million pounds between 1840 and 1886 by New Zealand entrepreneurs who didn't ask politely, but rather whistled south Britain's spare millions, like a pack of Pied Pipers. For 71 million, of course, you should read billion in terms of contemporary social impact.
http://nzhistory.blogspot.com/2011/08/progress-industries.html
"It is interesting to note that on July 19, 1844, under the auspices of Peel, England [sic - should refer to the United Kingdom] had adopted the Bank Charter Act, which represented the triumph of Ricardo’s Currency School and prohibited the issuance of bills not backed 100 percent by gold. Nevertheless this provision was not established in relation to deposits and loans, the volume of which increased five-fold in only two years, which explains the spread of speculation and the severity of the crisis which erupted in 1846."
http://en.wikipedia.org/wiki/Panic_of_1847
As you say, capital for investment largely involves the ability to marshal or command ownership over surplus food, but also energy in the form of fossil fuels, such as peat, coal, and oil.
Something for the weekend sir ... (you shouldn't have mentioned Belich).
Random thoughts on NZ 'sovereignty' took me back a bit to...
Edward Gibbon Wakefield / Karl Marx A View of the Art of Colonization / The Modern Theory Of Colonisation http://socserv2.mcmaster.ca/~econ/ugcm/3ll3/wakefield/colonize.pdf http://www.econlib.org/library/YPDBooks/Marx/mrxCpA33.html Bit of fun... must get out more....hey KW,
I'm right now reading James Belich's Making Peoples. A very contexual, mulitfaced and illuminating exploration of the early history of interaction between Maori and Pakeha and the development of New Zealand. Well worth the read.
Yeh, I came across Marx's analysis of Wakefield's work in Chris Trotter's, No Left Turn, also a worthy read. And I dismissed "real life" when I was young in favour of reading dramatic fiction. Real life history is in fact far stranger than fiction.
Liked the Belich, which prompted the look back at Wakefield et al. I liked the ease with which the Wakefield/Marx texts could be read alongside one another. Haven't read the Chris Trotter, I'd need more background to make sense of it, though I know he writes well, from my occasional visit to his current blog. I'll let you get back to your book....I won't tell you how it ends :)
So Kiwidave,
Would you prefer New Zealand become like China, the bastion of freedom and liberty and where all self-respecting Kiwis would love to emigrate to? China's high savings rate is largely due to the lack of a publicly provided social security and healthcare system, so people have to save what little income they're able to make, for retirement and as a precautionary measure incase of misadventure.
First, the Chinese save a lot because their social-security benefits are puny—a paltry $150 per citizen over a lifetime after retirement—and they need savings for old age.
Second, they also save because they want their children to attend private school and because public health care is poor, requiring a buffer for sick times.
Third, there is little of a social safety net in China now that the “iron rice bowl” system of cradle-to-grave public services has broken down. Now you need a buffer of precautionary savings in case you lose your job.
http://www.thedailybeast.com/newsweek/2011/01/18/the-confucian-consumer.html
Responsibility is fragmented among too many competing ministries in Beijing, and at the local level, cadres still are judged on GDP growth. "If you try to tackle this with policies rather than deep changes in political institutions, the government won't be able to bring accessible, affordable health care," he says.
So many people go without. Huang cites government surveys showing that nearly half of Chinese say they can't afford to visit a doctor when ill, 70% lack health insurance and 30% refuse hospitalization due to cost.
http://articles.moneycentral.msn.com/Investing/Extra/BrokenChinaADysfunctionalNation.aspx?page=4
Sorry for the delay and since you asked, no, the Chinese model is not one I would wish for. In fact what we have now is far closer to my ideal but is under huge threat from the unholy trinity - big government, big business and big finance. Their explosive growth these past forty years is taking the people into debt and dependancy.
We have a monetary system that requires debt to expand forever, a social welfare system that encourages dependancy and multi national corporations dictating policy to governments ( e.g Warner Bros.) A nation of dependant, indebted, enslaved "consumers" is not what I want to see, thanks.
Good on you , BigDaddy . Bernard wishes for the impossible , as all well intended world improving socialists do ,.... a " fair share " for all . ... aha ha ha de haaaa ! .. Simple deluded souls , the socialists .
.. and it is complete bollocks , isn't it . We're not all born equal . To use government legislation to create equality just creates laziness and an " entitlement " mentality instead . Hence NZ's current predicament , as a welfare state , burdened by the structural deficit of Cullenomics .
... overlooked as ever is the Paretto principle ( the 80 / 20 rule ) . 20 % of the population will own 80 % of the assets . Don't ask me why . It just happens . And probably always will . Rather than trying to buck the rule , or to equalise it out , just accept the fact , and decide whether you wish to be amongst the 20 % , or the 80 % .
Walter : The 20 % richest are predominately first generation wealthy . Entrepreneurs , innovators , businessmen ...... I reckon that the majority of them didn't get where they are today without moral standards and ethics .
..... amongst the 80 % " poorest " there are some ne'er do wells who are nothing more than leeches , parasites upon the tax-payer ..... Ethics & Morals , Walter ?
Roger – the rate of the super rich: http://www.telegraph.co.uk/finance/personalfinance/8498759/Sunday-Times-Rich-List-2011-Fortunes-of-super-rich-soar.html
think about - there are now 55 hedge fund managers and commodity traders in the top 1,000, worth a total of £12.6 billion.
Roger – I do understand your anger about laziness and irresponsibility from people with regard to society. On the other hand the same is happening often from the super rich, which much bigger impact to society.
Today’s wide spread inequality in many counties is a clear indication for that. As we all currently experiencing, often driven by greed/ corruption among the powerful, this will have severe consequences for societies.
The (7) BBC video is just one of many samples in this terrible culture, occurring in a variety of economic sectors:.
http://www.youtube.com/watch?v=OS92xfN4PKg
Roger - I do not understand why you aren’t more critical about the super rich.
The reason I am not more critical of the super-rich is two-fold , Walter .
.... one is because many of them deserve their wealth , they're created businesses and products that improve our lives ( Microsoft founders , Facebook , Google ) , and they , not the government , create real jobs .... productive jobs , not freaking work schemes .
Which leads me to two , the second reason I'm not critical of the super-rich is because the true culprits for the world's economic mess aren't super-rich . Ratings agencies . Central bankers . Legislators ( governments ) . Regulators .
.... actually , the majority of the plonkers who got us into this shamozzle are either directly or indirectly in the government pay-roll . Funny thing , that !
There is no fairy tale ending Roger - your capitalistic system is broke.
It is obvious that capitalism is broken. And this new mood shows that the shock of ever-rising unemployment, ever-falling GDP, and crashing property and stock values is finally starting to recalibrate people's understanding of what the market system can do for them. In this there is hope.
Such a recalibration is essential if we are going to fix the capitalist system that has made the world richer. It is essential if we are going to preserve capitalism's reputation as a tool that serves us more than it hurts us.
read on:
http://www.cbc.ca/news/business/story/2009/03/03/f-pittis-brokencapitalism.html
Here's a little quote which you may enjoy , Walter , I think that it vindicates Iain Parker's views too :
" When the Fed was founded in 1913 , Washington took only about 5 % of the nation's income ( USA ) and the dollar was solid . Since then , Washington's percentage of GDP has increased by nearly 600 % , and the dollar has fallen 95 % . Do you really think that was an accident ? Inflation pushes people into higher and higher tax brackets and makes them think they are getting richer - just what Washington wants . "
( from " Mobs , Messiahs , and Markets " [ 2007 ] by Bonner & Rajiva , page 291 ) .
...... and you blame " capitalism " , Walter !
Notice how that quote could equally apply to how Michael Cullen mis-managed NZ's financial system 1999-2008 .
No system is without flaws . But some systems have less flaws and greater voter input than others . Gummy likes the non-party political system , where all members of parliament are truely independent , and each represents an electorate ( definitely no party list free-loaders as MMP has ! )
BigDaddy is evidently a disciple of the debt-driven capitalist model. One where very little capital is actually produced - but what little capital there is, is leveraged to unsustainable levels in order to keep a false economy ticking over. This ultimately serves one purpose: to make Bigdaddies even bigger while impoverishing Joe average. A sustainable capitalist system is built on a balance of savings and debt - where the ratio is skewed towards savings. This esures that a greater majority can benefit 'indefiitely' from the system - as opposed to the providers of debt and their associated debt-driven industries becoming enriched at the expense of the debt-enslaved.
The system BigDaddy writes of is not Capitalism. It's become a perversion of capitalism - a mixture of predatory capitalism and a growig plutocracy.
"Paying down debt and saving is a nice idea but is totally flawed. Saving and debt reduction, the new mantra in these times, is a rock solid guarantee that the recession will get worse, unemployment will get worse, and stagflation or even deflation will haunt the economy for decades"
This is probably accurate in that it is the price we must now pay for indulging in debt-driven 'capitalism'.
Spot on BigDaddy !" ...a rock solid guarantee that the recession will get worse, unemployment will get worse, and stagflation or even deflation will haunt the economy for decades." The demographic profile of our, and the Western economies, predicates your observation, and is unavoidable ( ie: we 'aint gonna stop aging!) and private debt levels have reached saturation point, after 40 years of non stop accummulation. So perhaps now you see why property prices are condemned to fall....and will do so for the decades you note. The ' importation' of a younger workforce won't work either, as that just guarantees the same problems later on, but in large.
And NZ isn't alone. I note in Australia, "..Across the combined capital cities the current volume of property listings is 36.9% higher than at the same time last year, while new listings are just 2.1% higher than last year...The number of new properties advertised for rent during the four weeks to 25 September is 24.4% higher than at the same time last year nationally and 22.3% higher across the combined capital cities. .." So that's a good indicator property has stopped selling, as older listing turn stale, and newer listings dry up and get put on the rental market, hoping for a miraculous upturn in prices.....that won't come! And then....the floodgate of disillusioned vendors wil open and their 'owners' willl hit the market, as they will here...and the decades long decline will have begun ( if inded it hasn't already!)
Great article Bernard...some people label you as a "glass half empty" sort of a guy...but I think you are just "realistic"...for me the disappointment with National has been the slow pace of reform...the tax switch was tame, they are pertpetuating Labour's election bribes, and there are still 1000's of property investors ready and waiting to pump the market up again...more needs to be done, faster...
But then again, pandering to voters is the Govt's job...they are politicians right...the root cause of the problem is that many voters make poor decisions when they vote (e.g. Winston Peters as an example)..that's the main issue here...you can basically blame Winston Peters (or his voters) for the reason that our super age isn't being gradually increased.
How much worse?
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100012332/n…-
union/http://www.telegraph.co.uk/finance/financialcrisis/8797958/German-bailo…
drjonathanwilson 21 hours ago Ambrose
I know that you are not in the business of speculation so let me fill in the gaps that you allude to. What happens next is abundantly clear if one sweeps aside what is said and looks only at the reality of what is done.
Mr. Barroso has made it clear what the EU Commission’s vision for the EU is – full executive fiscal control across the EU determining what is taxed, by how much and how it is to be collected. Then full executive control across the EU of how the taxes are spent. And full control of financial policy via a compliant ECB.
The leadership of the Bundestag has a similar vision to Mr. Barroso
except that they will man the key fiscal and monetary posts as Germany will provide the biggest share of tax revenues. German power over the whole of the EU will be exercised via the power of the purse.
This is the perfect marriage of National Socialism and Marxism – the result is the Brussels Reichstag.
So what happens next now that the EFSF fund has been approved by Germany as predicted? (a) The ECB will leverage the EFSF funds to 2 trillion to engage in sovereign debt operations in support of insolvent PIIGS (b) legislation will be passed to create the EU treasury and national legislation subjugating themselves fiscally to the Brussels Reichstag in exchange for debt funding (c) and this is the hidden part – guarantees from the US Treasury to support the purchase of bonds issued by the ECB.
The final catastrophe will be spectacular and global
Jonathan John Ward, what the hell is going on in the EU http://hat4uk.wordpress.com/
World is heading for 'Great Stagnation', says Goldman http://www.telegraph.co.uk/finance/financialcrisis/8798902/World-is-hea… then Charles Hugh - Smith http://www.oftwominds.com/blog.html
Brussels Reichstag? No, its that bastard Napoleon's Imperial Bureaucracy mate. The EU is an entirely French inspired delusion. The Germans just want a nice, orderly, functioning society, they are very reluctant to take charge of an Empire.
The French had two important foreign policy objectives post WW2:
One, dominate the half of Germany left in the civilised world by framing the debate about European economic issues and by integration with them economically and financially. In effect make them part of the French Sphere of Influence.
Two, maintain an independent nuclear deterrent. ( Look up the number of nuclear warheads by country http://en.wikipedia.org/wiki/List_of_states_with_nuclear_weapons if you think I exagerate).
Bloody clever lot those French Grand Strategists.
It is partly my own creation but the thinking is based on George Friedman's thinking at Stratfor. Their free newsletter is highly disturbing but only because of the ruthlessness of the analysis.
Ambrose Evans-Pritchard's views at the Telegraph are also an influence. The Guns of August is probably a big influence too.
Basically history did not start in 1945 as most analysis seems to assume. These cultural threads go back a long way and are partly based on the geographic situation of a people.
The French have been outwitting the Brits and Germans for a thousand years. It is because we listen to their arguments and check the details for logical consistency. If the logic is internally consistent we erroneously assume it is therefore true. Unfortunately we overlook the fact that the conclusion is in their interests but not ours. We fall for this trick every time. The Americans learned it and call it framing the debate.
Don't believe someone is telling the truth just because they are cleverer than you.
Actually I think the Guns of August is more important than I realise. It deals with the military build up to WW1. WW1 was a big deal, unless you have touched it's legacy directly it is hard to conceive of.
Basically before it there was a global currency, a British shilling was the equivalent of an Austrian schilling, a British florin was the same as a Dutch florin. It was the age of globalisation and massive progress. Then massive bloodshed. Humanity has not fully recovered from the shock of the wars of the last century.
Interesting comments on here about the downgrade. It was inevitable it was coming - Chch has had such a big impact and it's not over yet (expect $$$ to keep going up as they just seem to be intent on demolishing perfectly repairable buildings for the sake of it).
National have been completely hopeless since getting into power (what exactly are their economic policies ??!!)
Clearly Gerry & Bill's meetings with re-insurers and finance ministers respectively was pretty useless. The reality is that NZ is just too small for the rest of the world to really care that much.
The saddest thing about all this is that the general population of NZ is blissfully unaware of the serious implications long term of these downgrades. I was out all day yesterday and only one person who I came into contact with mentioned the downgrade. People are being lied to daily by Bling-lish and Don-Key and the thought of National getting back in for a second term truely depresses me.
NZ is going down the pan - standard of living going down the tubes / little wage growth or career opportunities / costs of living going up. Most people might be able to have a decent work / life balance - but what does that actually mean if in the future you'll be struggling to make ends meet ??
Best solution if you have any sense is to move to Australia as quickly as possible and just come back over to visit friends & family on holiday. NZ is still a beautiful country but not to live in long term anymore.
Interesting comments on here about the downgrade. It was inevitable it was coming - Chch has had such a big impact and it's not over yet (expect $$$ to keep going up as they just seem to be intent on demolishing perfectly repairable buildings for the sake of it).
National have been completely hopeless since getting into power (what exactly are their economic policies ??!!)
Clearly Gerry & Bill's meetings with re-insurers and finance ministers respectively was pretty useless. The reality is that NZ is just too small for the rest of the world to really care that much.
The saddest thing about all this is that the general population of NZ is blissfully unaware of the serious implications long term of these downgrades. I was out all day yesterday and only one person who I came into contact with mentioned the downgrade. People are being lied to daily by Bling-lish and Don-Key and the thought of National getting back in for a second term truely depresses me.
NZ is going down the pan - standard of living going down the tubes / little wage growth or career opportunities / costs of living going up. Most people might be able to have a decent work / life balance - but what does that actually mean if in the future you'll be struggling to make ends meet ??
Best solution if you have any sense is to move to Australia as quickly as possible and just come back over to visit friends & family on holiday. NZ is still a beautiful country but not to live in long term anymore.
One wonders what willingness currently exists in the New Zealand community to make the serious changes you highlight.
* To reduce government expenditure means a significant and material winding back of social welfare benefits and superannuation entitlements as they currently stand.
* To redress the taxaxtion of property will likely negatively affect most home owners in a significant fashion and for quite some years one would expect.
I paraphrase the great German statesman Otto von Bismark, "A politician... must wait until he hears the steps of God sounding through events, the leap up and grasp the hem of His garment."
Of this there is no doubt - that we shall be the authors of our own fate and live in a paradise of our own making. But politician are not authors as Bismack noted in turbulant times. They may simply harness the courage and direct the fortitude of a people willing to pay the price for it's children and their descendants.
If anyone has watched English or Key in the House recently, they would have noticed that they are now just as conceited and arrogant as Cullen and Clark.
Why do our politicians always become infallible?
Where is the humility?
And what ever happened to Key's promise that the earthquake recovery was NZ's challenge not just Christchurch's.
Just a glance at the Press reveals the seething anger on all issues relating to earthquake. It appears the Government is intent on turning opportunity into exodus.
Im sorry but our choice is what?
So on the left we have "liars, cheats and elitist scum" and on the right its at least no better and probably worse....
Gee thanks......
:/
Except you missed in-competant....short sighted, blinkered and un-employable elsewhere....
Maybe I should stand.....form my own party....if toady dunne can do it anyone can.
regards
The choice is simple i feel Steven. You just don't entertain them at all via your interest in voting. They crave that more than anything as this gives them the ammunition they need to justify their ridiculous logic and continue to enforce the route to Corporatocracy which is almost complete.
I know most will still go out and vote thinking they are doing "their part for democracy" (phhh), But........when your REAL gut feeling is that 'none are worthy' then who is kidding who here? What is to be achieved? Where is the progress of ideas?
A vote of 'no cofidence' surely is what is needed at this moment in time and I mean that GLOBALLY. We get no better opportunity to stick it to em all than at an election. And if they try to govern with say a 10-20% turnout then they would surely expect what they had coming to them as this would imply a total contempt of the public at large.
You have a referendum this year on MMP, no one would know cause the RWC is hi-jacked the media I'm sure. So where's the overwhelming political will to inform the public about their choices in this? I suppose that will come a month out?
I dont agree, I think Bollard stands clear of Key as he did Clarke & Cullen before him....
Insurance could turn into a huge nightmare....quite why anyone who was bombed out in Chch and has been paid out would stay and rebuild when they have a choice to go to OZ mystifies me....I suspect quite a few will not.
regards
To me, Olly Newland bears similarity to Kodak; a once proud and successful company that whilst it had its ups and downs over the years always saw its business grow on the back of ‘what worked, will work’. Did they see digital technology coming? Undoubtedly! And although they worked with the new environment, deep down they couldn't escape the sense that ‘what worked, will work’. This week, if not next, Kodak, who 20 years ago employed 220,000 people, will go broke. Likewise, I have no doubt that Olly sees the events of the economy and the property market unfolding, but deep down he still has that ‘what worked’ will work’ belief etched into his investment soul. His comments in the SST today, tell me so (as if I didn’t already know!). The world has changed, and even though Olly sees it he doesn’t, yet, recognize it for permanent change it is. If the world was easily savable, and things could have gotten back to normal, they would have done by now. New Zealand’s downgrade is symptomatic of a world evolving into a lower debt/higher equity system; and that will not give Kodak or Olly Newland, Andrew King, David Whitburn and others, the opportunity to revisit their successes of the past based on an unchanged model. The ratings downgrade is more important than many people think.
Mate the difference is that Kodak made useful things and still do. They are still by far the number 1 manufacturer of CCD chips (very important things in the world today) and also the number 1 researcher and innovator in that field. On the other hand, Ollie Newland has never been anything but a parasite.
Yes it looks like Kodak is on the way out.
http://www.csmonitor.com/Business/Latest-News-Wires/2011/1001/Kodak-bankruptcy-Investors-dump-stock
I am surprised you find them informative Gummy, because I haven't learnt anything from them that would change my opinion that property investors chasing capital gains should find themselves a place to live in the sewers, such is their value to society.
I choose my education from people that actually know something valuable, like the Gummy from time to time:)
" temporarily successful " is an apt expression , Mr. scarfie . Just as the Gold Bugs are crowing of their current cleverness , negating a century of unperformance in the precious metal , somehow " this time is different " they believe . Likewise with residential property . In each case the long term performance as investments is not flash .
.... nevertheless , there's no harm in keeping an open ( albeit sceptical ) mind to Ollie's & BigDaddy's arguments .
But the Gummster is , to the jelly-core , a stockmarket / business oriented investor . Painful though that can be at times .
So..........hows NZs Super Fund going? you know all those BIllions of taxpayer dollars our politicians are "gambling" with?
http://www.stuff.co.nz/business/money/5711269/Market-turmoil-shakes-Sup…
"Newland should retire"??
His predictions are so accurate compared to the other ning nongs on this site that he should never retire. We need lateral thinkers like him.
His predictions that rent could double is coming true all ready ( and that was 12 months ago)
Then read Crockers latest market research for September 2011 which shows rents have increased by 30%-40% in parts of Auckland in the past year:
http://www.crockers.co.nz/media/48185/august%202011%20rental%20prices.pdf
Friday 1 October 2010
Rents are on the rise nationally, says auction site TradeMe, as the supply of rental properties continues to decline and residential property investors chase cash flow rather than capital gains.
TradeMe Property's Brendon Skipper said that over the three months to September, rental listings on the auction website were down 12% against the same period a year ago, and followed an 18% drop in the June quarter.
On the rents front, "the average national rent was up 5% compared to the same period last year, and on a par with the rent increase observed in the June quarter," he said.
"Auckland stood out as the only city to see rents increase by double figures: up 11%."
http://www.landlords.co.nz/read-article.php?article_id=3823
Newland also predicted this in 2007 :
http://www.stuff.co.nz/business/46521/Top-property-investor-selling-up
I thought his last statement was fitting in this article.
Point is Newland pretty much "cashed up". That's how good he thinks property is
Just shows how smart Olly was to cash up some of his properties ( not all) while the going was good- but that was 5 years ago!!
Since then he has been buying again, and I am told that he has bought several million of dollars worth of commercial property both in Auckland and elsewhere.
As he says- "there is a time to buy and a time to sell." Now is the time to buy while the fear mongers and losers just spew out their frustrations and envy on this site instead of going out and getting stuck in.
The only losers here are people like you. People that turn up with the same old mantra but never provide any information in support. People that further can't and won't answer to information put to them that shows the juvenile and criminal behaviour they exhibit.
I have called you out a number of times but you refuse to answer, so I my conclusion must be that I am correct in my assertion.
Funny thing on your defination...
Lets face it you are not bright enough to see the risks right now or the size of the impacts, so ppl like me sit on the sidelines with cash and good credit ratings and watch the market slowly declining in most areas and wait....there is no rush....a few % gain per year jsut about breaks even when you look at inflation....if we get deflation and a serious recession house prices will tank....50% seems likely....in which case you are wiped out and in a firesale....me im still solvent and can consider a lot of options....like actually buying when it makes a lot of sense.....
regards
Steven. The problem with the theory that house prices could drop significantly ( 50%?) is the fact that costs for materials and labour, (not to mention land prices and infrastructure) continue to rise. How can a market cope with a huge drop in house prices on one hand while land and building costs- not to mention GST- keep pushing up price relentlessly? You cannot have a market where an existing house is half the price of an identical new one being built next door.
But that's the point, BigDaddy. The house next door isn't an identical one. It's olde,; bought for less in times gone by, and has owners with different ( likely, aging) priorities. Those eystablished, often larger, houses will be sold, still at a handsome' profi't, to compete aginst the 'new builds' ( that will fall sharply) to be re-occupied by more people. Witness the boom in conversion property in other countries. What is coming to New Zealand is less building of new houses; more conversion of old, and lower prices across the board.
BigDaddy....
My experience is that most of the gain in value in a Boom ...and consequently.... most of the Loss in a Bust is in the LAND Value.
So it is possible for real estate to decline in value , in spite of the fact that building costs are high.
I'm not saying real estate is in for a big drop.... just saying that if it does , most of the movement will be in the land values
U said;
"You cannot have a market where an existing house is half the price of an identical new one being built next door. "
Yes u can.... In the late 70s' early 80s' Bob Jones predicted a doubling in House values.. The reason he was so confident was because of the "Gap".... Existing homes were half the price of a new ones... ( taking into acct land values..)
Cheers Roelof
And let's not forget, Roelof, that the Bob Jones prediction ( that on the face of it supports Olly Newland's call) came at a time when (1) personal debt and its servicing capacity was probably a third the amount it is today, allowing (2) a unionised workforce and a regulated financial market to negotiate wage rise inflation, meaning that (3) households that had less workers per unit than they do now, had spare capacity for additional income to be earned by a second income where necessary and finally (4) property bubbles had not formed in most Western economies, including New Zealand's, that threatend their very survival.
Yeah... I like the term .."Debt Super Cycle"... I'm still not sure if this is the end or if we sqeeze one more cycle in...
Of All the Commentators I follow I think Richard Duncan summed the problems up the best. ( He looks at the Global situation from the point of view of trade ).
" Credit Bubbles cause aggregate demand for goods and services to expand far beyond the point that can be sustained by the underlying income of society.... That is why aggregate demand collapses when the credit bubble pops."
Duncan is brilliant.... The above quote shows the utter stupidity of trying to stimulate aggregate demand thru low interest rates and deficit spending... at this end stage of the debt super cycle...
Duncan says...and I agree... that one of the "iron clad" rules of economics is that a credit boom is followed by a bust... An extreme boom is followed by and extreme Bust.
China has had the biggest credit boom in recent history... It is not IF but WHEN... it has its' bust.
This will have profound implications for NZ.... Keys' big hope is that trade with China will grow NZ out our problems.
cheers Roelof
Well just read 81 posts to learn................One mans food is anothers poison....disection and digestion has made ...will make...little difference to that statement.
The proof of the pudding is indeed only for the pallet that can digest it's content.....result good S%*t.............for those who cannot ...bad S#*t.
Did like Roger W's digression though....think your seeing a picture taking shape Roger.....inspired a little from Friedman you say......
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