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Opinion: Here's three charts showing how the foreign profit and interest drain has made New Zealanders poorer since 2003

Opinion: Here's three charts showing how the foreign profit and interest drain has made New Zealanders poorer since 2003

By Bernard Hickey

Ever wondered why it seems New Zealanders can't ever seem to get ahead despite apparent growth in Gross Domestic Product?

The simple answer is that any growth we saw in the last six or seven years was being gobbled up by either population growth or the ever-growing drain on our economy from profits sent offshore to foreign owners of assets here or interest payments to foreign creditors.

An analysis of the national accounts since the early 1970s shows that the share of GDP accruing to foreigners has risen from around 1% to as high as 7% in 2008.

A combination of asset sales to foreigners and increased foreign debt has seen the net investment deficit (it has always been a deficit) rise from NZ$79 million or 1.2% of GDP in 1972 to a record high NZ$13.34 billion or 7.4% of GDP in 2008. This is referring to dividends sent back overseas to foreign owners or rising values of assets owned by foreigners or rising interest payments on debts owed to foreigners.

This has meant that while New Zealand's total Gross Domestic Product (GDP) has been rising through this period, our Gross National Income (GNI) per capita (which subtracts the earnings sent offshore and accounts for population growth) has been flat to falling since the June quarter of 2005.

After a substantial slump through the 2008/09 recession, GNI per capita is still below where it was the September quarter of 2003.

Here's the chart showing how the foreign share of New Zealand's income has grown since the 1970s.

The acceleration started in the early 1980s in the final years of the Muldoon government. It reversed itself slightly in the late 1980s before heading lower again through early 1990s as state asset sales and foreign borrowing by banks and others took their toll.

It widened again after the mid 2000s as bank borrowing offshore associated with the property boom worsened the situation.

Those foreign asset sales and the foreign borrowing through the 1980s, 1990s and 2000s are now expressing themselves in a continual leeching of dividends and interest payments that have essentially stalled per capita growth in income domestically.

Essentially, any GDP growth since 2003 has been gobbled up by interest payments and dividends. We are essentially now borrowing to pay the interest on previous debt and the rent on foreign-owned assets. We have passed the point of no return.

This chart below shows how GDP (total national output) has diverged from GNI per capita since the early 1990s. This is partly due to population growth without the associated GDP growth to go with it (due to flat or falling productivity growth), or because of the growing drain from dividends and interest payments.

This next chart shows GDP per capita and GNI per capita.

This essentially abstracts out the population growth issue.

It shows a widending gap since 2003.

So what?

So what does this mean for economic policy?

What should voters and politicians do with this information.

It shows clearly that New Zealanders have been living beyond their means since at least 2003 and probably earlier. It's clear now that any growth we produce is going offshore to service debts and pay the rent. We are already tenants in our own land.

Since the early 2000s we have been kidding ourselves that we are worth higher incomes and we did it by borrowing even more offshore, firstly through our banks and now through our government.

We withdrew from our housing ATMs from 2003 to 2008 and increasingly since 2005 we have withdrawn from our government ATM in the form of Working for Families payments, interest free student loans and other increases in spending.

So what can and should we do?

Firstly, we have to stop borrowing more. That means turning around the budget deficit much more quickly than the government is planning.

Here's 5 ways in which we could turn around that debt. See my earlier opinion piece.

We should also do everything we can to stop selling more assets.

This is difficult because it essentially means either forcibly stopping asset sales or (more sustainably) making sure we generate our own capital surplus.

That could and I think should involve formal bans on large sales of assets to foreigners.

We should be very careful during any part privatisation of state assets to ensure they are sold to New Zealanders.

We should be obsessive about increasing our exports and reducing imports. In the long run this slow slide to penury is a result of consuming beyond our means in a national sense.

If that means venturing beyond the orthodoxy of free floating exchange rates and completely free movements of capital we should do it. Virtually no other central bank or government in the world runs such a laissez faire monetary policy or trade policy.

Thinking the unthinkable

Now for something a little more controversial.

One solution for getting rid of debts you can't afford to pay is printing money.

This a last resort, but it is not unprecedented and it's something that the leader of the western world (America) is doing right now.

The Reserve Bank could buy these bonds currently being issued by the government and essentially inflate the debt away. That punishes both local savers and foreign creditors (who hold our debt in New Zealand dollars) but it does fix the problem of indebtedness. It would also immediately cause a slump in our currency.

This would have been unthinkable a few years ago.

But when it's good enough for America, maybe it could be good enough for us too.

I welcome your thoughts.

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85 Comments

We cannot sell houses to each other and filling up shelves in warehouses with imports – that creates more real estate agents and low wages jobs – what an economy ?

We should create highly skilled blue collars workers, working in sustainable industries and not white collar workers calculating why Olly get’s richer and Bolly more stupid.

Gosh Bernard this really scrapes the barrel.  Stop and look at your 1st graph and then try to imagine a trend line. Clearly the rate of increase in GDP going to foreigners according to your graph has decreased over the last 10-15 yrs. The part of the graph with the greatest fall, has been conveniently omitted in your subsequent analysis.

Undoubtedly we are in a mess, but trying to concoct a story based on the false premise that our troubles didn't start until 2003 is a bit of a stretch, based on the evidence you have supplied.

You must be blind.........the trend is clearly -ve....about the best you can say is there a sign of a slight flattening of the trend...if you want to project that it doesnt look like its going to be flat let alone trend upwards for a decade or more. On top of that our National govn wants to sell the few assets left to throw into their operating deficit....a waste of time....and that would send that trend back into the dive...

It would be interesting to put the Govns terms in office into that, red for Labour and blue for National.....

regards

 

 

So you had trouble reading my post. I'll try and explain it as if to an 8 yr old.

1. so yes the line tracks negatively, well done for spotting that.

2. The steep drop for the first decade or so starts to shallow , particularly so for the last decade.

3. If BH is trying to prove that the less shallow drop is more responsible for our current reduction in wealth than the preceding sharper drop, the later analysis splitting out immigration, interest payments etc, should be tracked from further back.

4. So 2003 is an arbitrary date chosen by Bernard to spin an argument.

5. When you talk about  "if you want to project that...etc " I suspect you mean extrapolate forward. However, I made no comment regarding that, other than to agree we are in a bit of a hole right now.

So shut up and think before responding.

 

 

The problem of the deficit got much worse when the Labour government encouraged immigration at a higher level. Our economy does not depend upon large numbers of people to produce our exports anymore so extra people just increase the national economic overhead which in turn reduces our efficiency. I think maybe 2 million is what we need.

Do people not understand that when you automate industries like agriculture and the down stream industries to the level that we have, you do not need as many  people.

 

The best thing for us is to do is reduce our population by sending people to Australia as fast as possible. The Australians have the same problem as us but do not understand it yet. Follow this up with removing passports from New Zealanders living overseas after 5 years if they do not live here for at least 1 year in the 5.

Well certainly encourging more immigration doesnt seem to have achieved much....my comment was the curve is maybe flatening.....possibly thats because more ppl are leaving these days?

I dont know about 2 million, but certainly I cant see any value going above 4million, and yes it should decline.....with un-employment where it is we dont need to import labour....just day no.

Automate agriculture, that takes fossil fuel energy, of which its going to get expensive, in short supply and not give the return needed....on that point maybe we to need the numbers we have.

I wonder on the passports myself....if you dont want to live here why retain one...

regards

 

"I wonder on the passports myself....if you dont want to live here why retain one..."

Plan B or bolt hole?

One immediate thought is that the supply of temporary housing for Christchurch needs to come from NZ companies and not outsourced to companies abroad. Support “New Zealand Made” campaign.  This would boost the need for  “blue collar workers”  as Kunst suggests. As more housing is predicted to be required in Auckland in the next 15 years their employment/skills would continue to be required. It would increase the demand for locally sawn timber and better utilize our forestry resources which are traditionally exported as lower value unprocessed logs. Oh yes, and in the process we might wake up to the fact that we can create/export value added products.

While we foolishly may think we can keep up with the Joneses of the US, I don’t believe printing money is a solution to our problems. I’d rather see an instant 25% devaluation – devaluation’s been done before. Even the whisper of it would see the speculators scamper. But wouldn’t we be better to educate the next generation to be better money managers, investment strategists and encourage the innovative “kiwi can do” attitude, instead of “more please” hand out attitude that our welfare system has become over the years. I wonder if the man on the street really understands the situation our economy is in. Shallow TV programmes could be replaced with educational documentaries for the generations of adults who have missed the boat in knowing about what’s going on.

We should be very careful during any part privatisation of state assets...

Actually, we just shouldn't be selling state assets at all and we should be looking at re-nationalising some state infrastructure that was previously sold such as Telecom. Privatisation and attempts to introduce competition to these areas have made them far more inefficient than they were before. Telecommunications is a good example: Multiple networks and their supporting bureaucracies are far more expensive than a state owned monopoly. Where you want the competition is in R&D which is provided by Motorola, Nokia, Ericson (sp?) etc etc.

We should be obsessive about increasing our exports and reducing imports.

Actually, we want to look at changing our product mix from farm produce to more high-tech products such as computers etc. We also need to stop exporting raw product such as logs and then re-importing them as finished products such as tables.

One solution for getting rid of debts you can't afford to pay is printing money.

The government should never borrow money - the RBNZ can print it as it's needed and then adjust taxes so that excess money doesn't enter the system. Of course, with Fractional Reserve Banking, there's an excess of money in the system anyway due to the banks prinitng it hand over fist so we need to stop that first. Once we have control of our currency we can adjust it's value as required.

:-)

Farming is very valuable and brings in good money....and the world's growing population will buy it.......Computers, no point, made cheaply elsewhere, but high tech, yes, we seem to make good and sort after software...to be encouraged, trouble is the not very bright ones cant do this work.....down on the farm is where they are suited.....

Never borrow, agree, we dont need to print either just build rainy day funds in the boom periods that we draw down in the tough times....

regards

Now we are seeing the hard choices put on the table by thinking commentators.

After 40 yeas of external deficits - the stark reality is our currency has been and remains too high.

Very simple - but that's the way the maths works.

More of the same and it's Hullo Portugal - Goodnight currency nurse and it will not be a pretty sight.

Devaluation of our dollar will be inflationary for cost of living.  We've got it about right now, low enough for our major exporters to make their sales, high enough to curb the cost of imports, like oil, getting out of hand. Some of you guys are too hard on JK, and thank God you are not the PM, you'd quickly be out of your depth.  Stick to simply being a blogger !

What a great bunch of comments -

I'll add one more    :)

One thing that should be off the export-potential list, is our finite fossil fuel reserves.

As somebody once said, burning them for private travel, is like burning a Picasso for winter heat.  None of the other known sources of energy do anything more than supply electricity.

Fossil carbon gives is almost all our infrastructure (all things plastic, for a start) and is worth fatr more left alone, than sold at any given instant.

Plus which, when it's gone, what do you buy with your proxy? First thing on your list would be what you've just sold.....

Totally agree....buy the oil off whoever owns it and shut the valves..........we need buffers and that oil is one of them.....Build a few tallow to biodeisel plants, get tide in and going (I think its planned next year?)  cant find any current info....wonder if they went bust?

"The turbine has been designed in Britain, and will be built in New Zealand. It will be 14 metres in diameter and constructed of carbon fibre." so we are building it here as well, Kunst will be pleased.......

regards

Muzza,  

managing the exchange rate as do many countries instead if interest rates does not mean anyone is out of their depth.

Of course it  would be initially be inflationary - but so is  a default and that's where we are headed.

We are a long way off that, so don't get into a panic about that. Seriously, if some commentators here were in power there would be looking at a default, but thank goodness that will never be the case.

EQC are intent on making us poorer still.

Just wait till all the disillusioned Christchurch folk leave and head to Aussie, then you'll see GDP lower than you ever imagined.

No one wants to be reliant on the Government doing stuff for them and that's what everyones got in ChCh with EQC and Fletcher's taking over insurance payouts and Civil Defence deciding the whether we even have any buildings left and I for one don't like it at all.

At this rate everyone who can leave ChCh will.

The banks had better hope things get sorted otherwise they will be in for big losses.

My pick is GDP -5% for the year December 2011.  Any more big quakes and that'll be -10%. 

By next year NZ will probably be on it's knees and asking for bailouts from Australia.

Reading this article http://www.stuff.co.nz/the-press/news/christchurch-earthquake-2011/4839895/Sewerage-system-on-brink-of-failure, they (the "authorities") may actually want people who can to leave Chch. It doesn't look like the city can cope with too many people right now.

christ, thats not good Elley.  

Nope, it's not good at all. We used to live in one of the eastern suburbs and I'm glad we moved away in time. I can't say I was too excited about having to have our own septic system when moving to a rural area but I'm thinking now that it's not such a bad thing after all. I've got to go to Chch tomorrow for the first time since the February quake, it'll feel strange.

If I lived in ChCh and rented (ie. had no mortgage commitment) I'd be out of there. Bit harder if you have a mortgage.

The govt is not inspiring me with confidence on the rebuild

I agree. We have two future neighbours who bought a lifestyle block in the small 7-block sections where we live and who were due to sell their house and start building anytime. One couple lives in Brighton, the other in Lyttelton.

Although the Brighton couple's house only has minor damage, the entire area where they lived is a complete mess. They were going to put their house on the market the day after the quake and now their plans are put off for whoever knows how long. The Lyttelton couple have had their house red-stickered (although now they can live in it again) and they were told it'd take 9 months to get EQC/insurance sorted. I think that's probably optimistic. So they too have had their plans put off for a year probably and in the meantime, both couples are stuck in Chch because they needed to sell before they could start building and can't really go elsewhere in the meantime. It's a shame but it seems like we'll have sheep for neighbours for a while longer.

We live in an earthquake prone country....so we have a rainy day fund in the ECQ and it needs to be paid into, simple.

"No one" speaking for others isnt cool dude....just speak for yourself...I tend to agree, but still.

GDP, of -5% is this based on just NZ factors or global? Just for NZ I think we will hobble along slowly recovering maybe slowly down no worse than -0.5%. The things that will bite us and multiply that  are all external and there is little we can do to avoid it.....-5% GDP would be cataclismic and un-realistic unless we were dragged into a world depression very quickly by others, and thats possible.....

regards

 

Iain, again is straight to the point.

But it also demonstrates the need for public debates to learn and understand, the WHY’s. Often delays are happening because of too much bureaucracy and political scrapping. With more transparency and openness, forcing authorities/ politicians into practical and speedy processes.

Christchurch you cannot  do it without an informed NZpublic.

London-to-a-Brick that the majority of owners of Allied Farmers stock ( NZX : ALF ) are Kiwis , true blue dinky-die home-grown Mums and Dads ........... Bless 'em .

Bernard, ......"thinking the unthinkable"  "inflating debt away"  "When it is good enough for America, it could be good enough for us"

I cannot believe, what  I am reading.

It is not good for America.  Or is it?

If this would be a way to get rid of one's debt, it would have worked in Germany during the Weimar Republic, it would have worked for Zimbabwe, it would have worked for Argentina and several other states.

YOUR UNTHINKABLE IDEA YOU ARE THINKING IS NOT GOOD ENOUGH FOR NEW ZEALAND.

Without getting rid of the root of the problem (fractional reserve banking, money out of thin air lent out with interest attached), there can never be enough money, never result a healthy, balanced economy.

Bernard, your 5 ideas the other day were good, printing money definitely is NOT.
We all know that money wouldn't be used to pay off debt, but would be wasted.
The way they are wasting money right now with tax cuts that can't be afforded.

The US is basically destroying it's economy printing money, just to save it's banks
One day it will realize it hasn't worked and start actually fixing the real problems.

Is a mere 50 cent increase in the price of your daily latte any excuse for going bonkers , Bernard ? ......

... Print    $NZ and be damned you say  ! ........... Bonkers , Bernard .

........ Anyone else feel that what the country needs is actually less government meddling in the marketplace , rather than more ? .........

A robust economy is built upon small businesses , innovation , and a healthy population of well educated young people ....

Fecking hell , Hickey , it's not rocket science , how to set NZ back onto the path of prosperity . And it surely ain't Keynesian economics , neither .

We are just another one of the many and increasing number of countries the greedy globalist banksters have taken over.  Lets face it we are in a debt we can never get out of.  This is exactly where they want us.  umm maybe a third of Japan will want to come and live here soon as the radiation leaks continue and they run the risk of losing N Eastern Japan or refugees fleeing from Europe and the Middle East as the nut cases lead us into another huge war the way things are going.  

Our Land shaky as it is, is all we have and should  be protected at all costs and the IMF  and their overlords told to hoof it next time they come telling us what to do.  Maybe its time we get on our knees and pray if you know how to and if you don't , just go and take a walk on our beaches or out in the bush and get some quiet, look around you and be grateful for the fantastic country we have., this is kind of like a prayer i guess. 

Well Bernard, you should know my thoughts on this one by now, I've posted it repeatedly, but just for good measure I'll do it again.

Every day the NZD is above 75 US cents the Reserve Bank should buy a tonne of physical gold.

How simple is that.

It inflates the supply of NZD in exchange for a physical, easily traded asset. Whilst the supply of NZD is easily increased, the supply of pysical gold requires a significant human effort. This is the basis of its value - it is hard to increase supply.

The result is inflation can be targeted independently of its effect on the currency. (Actually I believe infaltion targeting is just a way of manipulating the currency but that is verboten of course).

The RBNZ does not need to target a particular currency level, it just buys a fixed quantity of gold each day the NZ dollar is above 75 cents.

This stash of physical gold just sits there and becomes core government equity. Not to be sold except in dire emergency.

The virtue of this solution is its simplicity.

So to repeat:

Every day the NZD is above 75 US cents the Reserve Bank should buy a tonne of physical gold.

Gold is valueless its a symbol of wasted energy....

Build a tallow to bio-diesel plant(s)....or several, a waste product turned to something useful, transprt energy now they would have a) value b) intrinsic safety ie indigenoous fuel production.

I will never forgive HC turning down the opportunity to build a plant here in NZ, the stupid, stupid woman....

regards

Apparently we export tallow to China that would supply 5% of our transport needs. 

I agree that it was almost a criminal act to allow not utilise this asset, it could cover essential services and food supply chains if the middle east goes to hell.

The thing is to ensure that we have the transport fuel for food, police etc. Biodiesel apparantly only keeps 6months, but there is nothing stopping it being used up on a regular basis as electricity generation....use that 155mw emergency generation to use it up...

Interesting that cuba uses its waste sugar cane stalks and generates 30% of its power needs for 3 to 4 months of the year....way neat idea.

There is so much we could do with so little effort and not much Govn spending to give a return instead its being frittered away i feel.

regards

 

Stupidity of Greed until the end.

 Yes – and after every world event, if it is a war, flood, tsunami, earthquake, Fukushima, Gulf of Mexico, cyclone, etc.we all talk about the share markets again in stead of brooms with bristles.

 I’m wonder how much the younger generation has to suffer under our “BB- Greed” ?

I seem to remember a polly claiming NZ could become like Ireland...now who was that dork?

 "Located in Dublin's main tourist drag, Temple Bar would have fetched up to €250,000 ($462,230) at the height of the "Celtic Tiger" boom.

But a studio flat in one of the busiest and best-known parts of Dublin is now on the market for €80,000 - a staggering fall in value that encapsulates the dramatic collapse of Ireland's property market."

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10717099

Get in there OllyN...you should be buying up all those bargains ..gearing up for the next Celtic fart.

 

And the risk is it could happen here......if it wasnt for the young families who simply wanted to own thier own home I'd say let ours blow up.....wipe out the greedy and stupid PIs....though maybe after the RBNZ's got its plan into place to allow banks to still operate if they go bankrupt...

;]

Then houses would be affordable....the paper wealth some have got off the backs of others would be wiped, developers gone....hmm ....on balance yes, blow up....

regards

I am a bit more cynical over the RBNZ plan. I see it as a way for the banks wiping out all their liabilities but not their assets. I see it as a provision to make sure that wages can still be paid, thus the mortgages that those same wages service can constinue to be paid. All the executives would likely remain.

Rearranging deck chairs me thinks.

Why wipe out just the 'greedy and stupid PI's'?   What about the greedy and clever ones?

Or are all PI's brainless? - assume you are not a PI and therefore not brainless?

When the SHTF then all parties become less able to function with morality.  Behaviour is dictated by the 'lowest common denominator'.   

The economic problems NZ faces cannot be solved until the problem with the global currency is solved.  Whether NZ has any bearing in helping solve that problem is beyond me.

I do think that a lot of our assets have been bought by foreigners with 'printed' money.  And we are paying them returns on their 'printed' money with money earned by selling commodities.

Maybe we should be paying returns in 'printed money' on those assets bought with 'printed' money.

And as was suggested by Roger Witherspoon, NZers start saving with Precious metals.

Lets throw the worthless money back at foreigners.  Get ourselves out of harms way.

 

 

Jeez Westminster and you were doing so well for a while...."weve just been through"....bleeding heck....get the message Westminster.....pay attention now.....we have only just entered the "recession" or whatever you want to call it.....the 350 billion in private debts remain...they are still sitting on your head....

The great commodity boom you seem to see as saving us from ouselves and stupid pollys, is more myth than Alice in wonderland...those prices are balanced on the top of Bernanke's bloody bubble BBB. .....

Now go fill up your tank and ask the bank for a mortgage to pay for the gas.

I know who you are Westminster...you're that bloke what was in Dublin in the lead up to them getting to learn what they owed...you was preaching the same crap to them...."irrational fear"....tis true isn't it Westminster....you was telling them to buy property an that the prices never go down...........they are looking for you Westminster...lots of them are looking for you....

The GFC isnt over....you must be on a bucket a day of prozac to think it is....

Irrational,

1.

without the faculty of reason; deprived of reason.

2.

without or deprived of normal mental clarity or sound judgment.

3.

not in accordance with reason; utterly illogical: irrational arguments.

4.

not endowed with the faculty of reason: irrational animals.

 

There are huge amounts of data, maths  and logic to say the GFC isnt over....I would consider you way more delusioned than Wolly....

regards

Parksy ! ........ that's the first time ever , that I've been able to read and to understand one of your blogs , all the way through .

...... You're a Bumper Sticker Boy at last . Well done ..........Must tell  Wolly ..

.. oh , and by-the-by , Westminster is right , and you are wrong .

Yes , Iain , but when the interest rate is artificially held down to near 0 % , anyone can afford to run up a trillion dollar debt ......... now where's the harm in that , hey ?

Stop stirring GBH, and Westminster, what the hell are you playing at , play by the rules (as refereed by Wolly, Steven, Parksy (sort of), Nicholas A, Powerdownkiwi etc, or you are going to be sin-binned.

Parksy is a true Labour Party wannabe , he loves all that good stuff they did back in the 1930's .......... An is authoring a tome , the full history of the Labour Party ......

........ Now come on muzza , let us have our wee bit of harmless fun .

[ P.S. : Don't mention that the US economy is on the mend , I did once , and all hell broke loose .......... Stick to uncontroversial subjects , such as those buggers in the Labour Party and their Party Whip ]

Westminster - Stock markets are just a big collective of gamblers, very few of whom know anything.

They've climbed on wishful thinking. A mass need to make profit, if you will. Not based on any real correction that I can see.

Liquidity has normalised?   Bollocks.

Corporate profits?  Healthiest in years?   Where?

Unemployment? all govts cook those books.

Consumer spending?   Not where I come from.

It's very hard to reconcile what you are claiming, with reality.

Shares in a bank, perchance?

The limited liability company is the greatest creator of wealth , employment and innovation within any successful economy ....... And these little darlings are to be found on the stock exchanges around the world ........

........ Bloody brilliant , the capitalist system .......... Bloody brilliant !

 "... but we arent at primary school anymore.".....you should be!

The stock market rally is a Bernanke  Fed  affair....no substance

Banks have swapped their dead investments for 'public money' from Ben and many still hide hundreds of billions of shite off their balance sheets because the liars and crooks in the govts have said to do so is ok.

Of course the money is there now...Bernanke dished it out using a mouse...more QE anyone.

Corporates are bloated because ben fed them the toilet paper money and the lying govts dished out public money at no charge...hundreds of billions...TARP

Unemployment is not "recovering"...people in the USA lose their right to be on the list after so many weeks and so the bullshit numbers emerge...a mighty farce.

You either have a very poor understanding of what is going on Westminster, or you are being a deliberate pain in the arse.

Absolutely brilliant, Wolly calling someone a pain in the arse!

Sure, we've got commodities. But will we be able to hold on to them for long enough or 'add value' enough to actually make some decent money out of them? There's still this horrible sell-it-all ideology hanging around in the background like a bad smell, just like it has been since the 80s, and with the IMF now buzzing around like a blowfly...

With the push to sell off public assets in the energy sector (I can't say I really trust the government to keep the 51% ownership if the debt crisis really got bad), for how much longer are we going to be owing them? Perhaps in 10 years it'll be Chinese mining companies and Indian foresters running these primary export industries.

I just can't help remembering what happened back in 2006 when President Morales of Bolivia re-nationalised the gas fields there and negotiated that the government get 82% of revenues from the two major fields, and 60% from others. Right-wing ideologues around the world hated him for it; the US was very concerned about the 'left turn' in South America at that time, and Morales represented that left turn to the full.

So, yes, we've got the stuff. We just have to use it wisely...

Amazing isn't it how we have record commodity prices yet we are poorer...

Any idea about why that is?

cheers

Bernard

If you dont ask the right questions you wont get the right answers ...
Parzival leaves the castle, to begin his quest ... The gate was open and the drawbridge down. He galloped across, but when he got to the end of the drawbridge, someone yanked the cable so abruptly that Parzival was nearly thrown, horse and all, into the moat. Parzival turned back to see who had done this to him. There standing in the open gateway was the page who had pulled the cable, shaking his fist at Parzival. "May God damn the light that falls upon your path!" the boy cried. "You fool! You wretched fool! Why didn't you ask the question?". "What do you mean? .. Question?" Parzival shouted back at the page. "What question?"

It's because the economy has been mismanaged by successive governments, and people have been progressively encouraged not to save, but to take on debt.

Bernard : Excessive consumption of imported Gummy Bears ?

I gave you the answer months ago Bernard. You are getting so forgetful in your middle age. Fat commodity prices that are caused by Bernanke playing hanky panky at the Fed, mean we cop the rising import costs which reach the peasants with more gst slapped on top...ie higher prices which bring a further slowdown in retail spend and thence to English collecting less loot by gst and corporate tax if any at all since many avoid it.

This is not balanced out by any splurge on the part of exporters because they are eyeball deep in debt and so the extra goes to pay down debt. Any farmers not in debt were prudent managers before the bubble of debt madness and they are not going to splurge when they know bloody well prices are falling for land. They also see the Kiwi$ being destroyed 30% plus every decade and have been investing the returns overseas...smart farmers Bernard.

Meanwhile the govt spin machine churns out the same old bullshit although of late they have stopped with the 6 part strategy garbage. Even the catch up with aus waffle has gone.

Bolly has reverted to form by making debt cheaper. It is bound to fail. He has yet to accept the fact that the public know the country is in the shit. It has taken a good two years for this fact to sink in but once deeply in the cabbage between the ears, changing the thought patterns of so many will take years. And he has only weeks to an election. The best news is Labour is falling apart...running hither and thither, naked as !......Key and fellow fools are looking a gifthorse in the gob..they can drive through the changes that have to take place to get rid of the property ponzi madness and redirect effort into export production and real wealth generation......watch carefully now as they make a massive ballzup of this one in a million chance...nothing will change!!!! hahahahahaha

 

I could turn this around Bernard and ask since when did being commodity rich ever mean wealth for the ordinary man.

Looks like it has been all downhill since Ruth Richardson and her puppeteers wrecked the economy.

Bernard - didn't you hear that mercantilism is dead?  Alas not here at interest.co.nz, home of nativist, anti-intellectual movement.

Finally, Bernard, you are thinking outside of the box.

Keep thinking along these lines and encouraging debate about the true reasons for and the effects of the NZ Govt selling it's bonds to overseas buyers.

The NZ Govt will always be able to meet it's NZ$ debt obligations (paying interest on loans) since it can always credit the accounts of debt holders in NZ$ and Govt bonds are always sold in NZ$.

The real question should be: Why go through this charade in the first place?  I say print the money to get CHC back on it's feet and spend the money wisely to avoid any unwanted localized inflationary pressures. Taxing as required to withdraw excess liquidity.

As long as the economy has available capacity to produce products & services, inflation will not be a problem that cannont be maonitored and controled.

The current NZ economic climate has absolutely no resemblance to the Weimar Republic or Zimbabwe hyperinflation scenarios. So please don't try and hyperventilate with straw man arguements.

So your quite prepared to destroy people's savings with printing money? and people wonder why no one saves money in this country.
"the government bonds are always sold in NZ" you forgot no one here saves money, so no one here can buy them.
As the government prints more money, the dollar drops, so the government has to pay more money back anyway, so it's a catch 22, that achieves nothing other destroy peoples savings and benefits those irresponsible enough to take on debts they couldn't afford.
 

Please correct me if I am wrong but I thought that NZ debt is in NZD , if  so Bernard is right  about printing. Printing would shrink debt. But I think that NZ's big problem is that it is just to small to survive as an industrial country, dispite having very smart and well trained people scale economy does not exist. At the same time the floating currency hampers exporters due to it's roller coaster nature, why not pegging the NZD to AUD or better to the USD and default hand in hand with the USA ? Though it seems a bit late to peg to the USD.  So far not one of the troubled countries has defaulted, what if NZ did ? For any of the piigs it would be much cheaper to default than to be in the claws of the IMF. In the near future NZ will get the Japanese tsunami that has already hit the Australian economy... that means 40% of NZ's exports will soon be in a gray area. To much to think about in an elections year.

How much NZ debt does our government have? I wouldn’t think much at all in comparison to overseas debt. Where do you think they are borrowing all the money from at the moment? It’s not here. No one here saves money, so there is no money to lend the government.

So if you go and do something that will obviously decrease your currency (Bernard points this out) isn’t it simple maths that what you already owe overseas all of a sudden becomes much more?

The point is that all NZ Govt debt is sold, bought & held in NZ DOLLARS.

So before anyone overseas can puchase it, they must by NZ DOLLARS, which increases demand for the dollar, and therefore drives the exchange rate up.

 

While anyone that has lots of NZ dollars with half a brain is selling them like mad, because they are being printed, driving the NZ$ back down again.

I have never ready anything so crazy. Printing money has always been the road to collapse, why do you think it's called the "last resort". The US will pay the price, as did Germany and Zimbabwe it is only a matter of time.

If currency depreciation is the solution to increase exports it is only because the exporting industries productivity is not competitive. It's liking accepting gold coins watered down with copper, instead of only accepting pure gold coins! When you go to spend them you need more watered down gold coins than you would pure gold coins, the effect of a depreciated currency is it only makes you feel good you don't increase your real weath. 

Printing money and depreciating curreny solutions are only ways to hide the real problem. The NZ economy is not competitive nore of sufficient productivity to maintian the standard of living we expect.

In my mind the government is the problem not the solution, the goverment needs to get out of the way. Let individuals take responsibility for there well being and let individuals with the desire to improve their lot become the driver of this countries success.

Why do Kiwis think the men or women from the goverment will have the answer?  Government departments are full of people who cannot get a job in the private sector, they are motivated by the cushy job where its almost impossible to be given the boot. In fact the bigger the cock up the bigger the reward, especially for those at the top of the heap.

We  pay near to 40% of GDP to the government sector, its like towing a huge bucket behind your racing yacht!

Lets stop saying the government needs to do or do that and start saying the goverment should do less, tax us less and let those that want to improve there lot not be hamstrung by employer levies for ACC, complicated tax payment systems, filing GST returns, minimum wage rates and every other do gooder law that is designed to protect us from ourselves.

I agree with most of what you're saying.
But I think you do need government to play a role, you don't want it to be overly influenced by the lobbyist with the biggest cheque.
Otherwise you have what happened in the States, with virtually no regulations on the banks, they just go completely stupid, and lend 20 times more money than they have, setting up an almightly crash in the future.
What this country needs is regulations to make sure that what is borrowed is no more than what is saved in this country, ie completely stop banks from getting ANY funds from overseas, it's the only way this country is going to get off the debt drug.

But Philthy, how do you ensure you get 'good' govt. You would be wiser to expect the madness to continue and put your time into looking after your family. Even if Key and Co rebalance this farce over the next ten years, you can expect the benefit bandits to buy a return to the pig trough and then set about buggering the economy once again. They have no option but to do that to ensure they have a steady supply of poorly educated, low income, benefit dependent voters.

If National have any quality thinkers on board, they will prepare the ground to ensure Labour et al are not able to easily boost the State splurge, to borrow beyond rigid controls, to buy a permanent position of power using taxpayer money to do it.

So we need to see Govt measures toward this aim. An incoming Labour govt in 7 or ten years time, must face a wall of legal problems that must force them to go to the voters to gain 75% majority vote before they can raise taxes. Ditto before they can increase the % of borrowing by the State.

We have the technology to allow online voting by registered voters. Any tax increase or borrowing increase by govt must go to a poll. The govt would not be allowed to use taxpayer funds to sell the changes. It would then become a real democracy and the farce would end.

I’m not overly convinced increasing taxes is any worse than spending money you don’t have, then going to borrow it.

I’m no fan of Labour, but at least the money they spent, they had, and they paid back some debt, and got some savings going with a super scheme.

I have to say I am with Robo. Reduce the size of government and they will have less influence.

Less money to run and less ability to tell us what to do. 

I think this is going to happen anyway because we can't afford to pay for what we have and nothing on the horizon is coming to change that.

So if government spending being high per capita or GDP is the indicator for a country being unsuccessful, why do other much more successful countries than ours have much higher spending per capita than us.

Going by the government spending less = successful country theory, it's absolutely amazing how countries like Chad and Mali and Tajikistan aren't very successful, such a surprise that.

That was not really my point. Besides success being a relative term, I was just pointing out that at some point we are going to have to cut back to balance the budget.

I can't see that the amount we spend on governance is value for money. Too many people now telling us how to live our lives, it has been a dramatic change within my life time. If cutting back on government services means a bit less intrusion into our lives, then I see that as a good thing.

The current economic woes were quite predictable, and therefore the various governors of this country have failed in their duty of care to prevent it. Unfortunately that behaviour is also predictable and we will see a second cruch.

As far as I am concerned If you take the leadership you take the responsibility with it, but almost universally they don't. Get rid of them is the answer.

But I am not too anxious about it because the outcome is assured. Just make sure you are prepared for it.

" Government departments are full of people who cannot get a job in the private sector, they are motivated by the cushy job where its almost impossible to be given the boot. In fact the bigger the cock up the bigger the reward, especially for those at the top of the heap."

 

That's exactly what happens in the private sector, CEOs drive companies into the ground and laugh all the way to the bank. In the highly unlikely event they get the shove from their cushy job they get a 'golden parachute' pay out as a reward for their incompetence.

 

"Lets stop saying the government needs to do or do that and start saying the goverment should do less, tax us less"

 

Your peddling the same old tired neo liberal theories that have plagued the world the last generation,culminating in the biggest economic meltdown in nearly a century.

 

Do  you actually bother reading any of the articles here, Robo47?

 

 

 

40% is for Govn and public services like health.....when you take out things like health there is little left.

"goverment needs to get out of the way" same old same old.....it didnt work in America and in fact what it has caused is the biggest financial meltdown in history and has probably done more to put Americans into poverty than any othe event in the history of the US....

LOL....the private sector isnt a racing yacht, its a leaky, badly off course, pirate galley with slaves chained to the hull by debt...ie us....

The Neo-cons/liberatrians/Ultras had 30 years of timescale to prove that their way was the best, instead they have pillaged at will and brought us to the brink of [financial] collapse...and 90% of the ppl are no better or actually worse off....

The Free market experiment is an abject failure....

regards

 

Well said Robo. 

 

So Bernard reckons we should print money and inflate the debt away.

Clearly a clarion call to all...get out there and buy property big time, and await Bernard's inflation.

I'm ready Bernard.

NZ is in trouble because it has been aping for too long its idols in the UK and US with their love of ponzi type speculation schemes and their distaste for productive work.

So let us fix our problems by ... simply continuing to ape them by printing money, sounds good. Why didnt I think of it.

Except, of course, that NZ is a banana economy that is not important in the big picture so that foreign capital would flee immediately as soon as anyone out there figures that NZ is set to rip off its creditors. I wonder what would happen, if capitals flows into NZ would be cut off rapidly. It might turn NZers into reborn Christians returning to Protestant work ethics, but more likely it will lead to a major economic breakdown.

 

 

 

 

 

 

 

 

"NZ is in trouble because it has been aping for too long its idols in the UK and US with their love of ponzi type speculation schemes and their distaste for productive work."

 

Also known as neo liberal / right wing / New Right / neo con / laissez faire economic policy.

 

 

Here's one reason why we are poorer...

 "The Government giving an Auckland hapu almost $2million to build a plastic waka for the Rugby World Cup has drawn outrage from some MPs....The 60-metre long structure is expected to cost around $1,988,000 through Te Puni Kokiri, with $1.8 million provided by the Government.".herald.

What a friggin joke.

I doubt very much that any RWC tourists will want to waste their time looking at a plastic fake waka...no matter how bloody much some moron in govt wasted on it.

 --------------------------------------------------------------------------------------------------------------

"The $2 million being given to an Auckland hapu for a giant plastic waka is being defended by Maori Affairs Minister, Pita Sharples..........We will showcase the very best of Maori arts, culture, business and enterprise, right in the heart of the Rugby World Cup capital." tvnz

The very best of Maori culture....................................a piece of shite plastic boat that cost $2m

harrrrrrrrrrrrrrrrrrrhahahahahaha

Wally ....I had been saving to have a crack at this....and in keeping with the job summit...the cycle way......

John Boy called out

                                   MOA build me an ARK....! it should be 1.9 million cubit dollas

and be big enough to paddle our sorry asses across the Tasman once the hordes realize we spent their money on party drinks and table cloths.

It's a 60 metre long marquee , constructed out of PVC , along the lines of the giant rugby ball that Tourism NZ operated at the last world cup , in Europe .

....... She won't float ! ...the environmentally friendly PVC ( cough cough , ahem ! ) ought to keep the rain off the visitors .

Odd that they ( the government ) didn't put the project out to tender .

It certainly was odd GBH...but perhaps an attempt by our inspired leader to bring down our indigenous unemployment figures...............and I imagine Tohunga's don't come cheap......this has got a buget blowout written all over it.

Yes Bernard by all means print your way out and further compound the loss/theft of savings while almost no interest has been paid on them...........yes that's quite an incentive plan you got there...............

You know at least Piggy felt justified in devaluing 28.5% over a two year period because we had enjoyed exorbitant interest rates prior to that event......although to his credit he did manage to steal back almost all the gains made  that  had allowed the Moms n Pops of that period to invest so wildly into the " MARKETS".......

And that  good Sir was all she wrote.....we had been prone and too long in the sun......and Piggy....? well his goose was well and truly cooked.

I am so pleased that you have come to that conclusion Iain. Now off you go and do some work to earn enough to pay the mortgage.