Opinion: Why the 'new normal' means years of deleveraging, slow growth, lower consumption and a new frugality

Opinion: Why the 'new normal' means years of deleveraging, slow growth, lower consumption and a new frugality

Bubbles burst quickly, but the fallout from the boom of the 2000s will take years to be worked out.

By Neville Bennett

The concept of a “new normal” is transitory. A better phrase could be “the era of debt and deleveraging”, contrasting with the previous “era of moderation”.

“Moderation” is an ironic name for an era which was characterized by the central banks creating an tsunami of cash which surged around the world, pumping up assets prices into bubbles, especially in housing.

Credit was easy, consumption flourished as never before and the central bankers congratulated themselves on keeping inflation in check. The bulk of their research was on inflation as they assumed markets would correct anomalies.

The New Normal is about contracting economies and households changing their behaviour to pay down debt.

Governments will wrestle with mounting debt-servicing costs and be forced to make severe budget cuts, especially in welfare and education. High structural unemployment will endure in the West and will fall heavily on youth, the unskilled and even mature workers.

High unemployment, higher taxes, foreclosures, and very tight credit will encourage a new frugality to consumers.

The share of consumption in GDP will decline. Savings should increase but savers will find yields low, especially in the deflation prone Japan and the USA.

The “L-shaped” Recovery

I stand by my 2008 prediction that the western-world recovery will be “L-shaped”. It took many years to build up to the crash, and deflating prices of assets will take a long time.

New Zealand prices deflated between 1874-1895, and 1919-1938.

Reihart and Rogoff in “This time is Different” show that financial crises have enduring effects.

In the decade following the crisis, growth rates are significantly lower and unemployment significantly higher.

Housing prices take years to decline and then recover. Households and business take around 7 years to reduce their debt to more comfortable levels. The big lesson of history is that crises were preceded by a decade-long expansion of credit and borrowing and retrenchment took almost as long after the crisis.

Massive deleveraging is taking place in many assets, including housing and commercial property in US, UK and New Zealand, and in many securitized products such a mortgages held by many institutions and of course the Fed.

Government indebtedness has reached unsustainable levels in Japan, the US UK and much of Europe. These societies will suffer fiscally to repay this debt and also forgo many services.

Debt competes with new investment. This scales down business growth and may limit yields on equities. There are rebounds in a downturn, sometimes the recovery seems near to complete, but then there is another sharp correction and the trend remains bearish until deleveraging is nearly complete.


The chart shows how abnormal US consumption patterns had become.

While the US consumers accounted for 70% of GDP recently, the historical average was closer to 60%.

The recent trend is anomalous in comparisons with other countries where consumption share of GDP is 64% in the UK, 56% in Germany, 55% in Canada, 36% in China and about 60% in New Zealand.

New Zealand will be greatly affected by the new normal: household debt will decrease, personal savings will lift, and consumption’s shares of GDP will decrease.

The effects of this transition will shuffle though the economy, notably by reducing the bloated retail sector, and encouraging a greater export focus.

The magnitude of the change is uncertain. But a correction is necessary as debt-fuelled consumption ran amok in NZ, the USA and elsewhere where shop-till-you-drop dominated.

Household debt increased even faster. US household debt was around 60% of GDP in the 1970’s but then it took off to 102% in 2008.

More accurately, personal liabilities in 2008 exceeded 130% of personal income.

New Zealand was worse: Household debt increased six times in dollar terms between 1990 and 2008 to a massive 160% of disposable income.

Debt servicing took 15% of disposable income. The magnitude of debt provoked few concerns until about 2008.

Banks were anxious to provide 100% mortgages, and consumers often enjoyed the “wealth effect” of rising home values and stock investments.

Consumers used their homes like an ATM: taking loans for home improvements, cars, furnishings and even holidays.

Personal savings virtually disappeared. They were about 10% of income in the 1970’s but by 2008, Kiwis spent $1.13 for every dollar earned. Americans behaved similarly.

What now? A Frugal Future?

Wall Street worries when consumption is lower. I would tell them to get used to it. Consumers will spend less.

Treasury thinks Kiwis may spend only $1.06 cents for every discretionary dollar. I think people are already being more frugal in Christchurch.

A formerly popular food hall is now very quiet at lunchtimes: my guess is that office workers take a cut lunch and used the firms Nescafe. \

Life is tough for the unemployed, beneficiaries and students. As some of their fixed costs are rising they have to be even more frugal.

The pressure on charities is intense, and demand for community housing is growing as rents are not abating.

There are many riots in the US where thousands queue for a handful of rent vouchers. More than 39 million people are on food stamps.

The growing fiscal difficulties and rate-payer vigilance is reducing amenities just when demand is rising. Meanwhile, US households are often paralyzed by debt. See more here.

70 % of Americans are economizing. This is slowing down America's recovery.

The US could roar out of some recessions, like that of 1981-2, because the baby-boomers were young (many in their 20’s) and high earners with heavy spending on homes, furnishing and cars.

Consumer spending rose 7.2% in 1982. The demographics are different now with many people scrimping in retirement. Personal debt is US$124,000 per household and that takes a lot of paying off, especially as house values have plunged and stock markets been volatile.

I believe that there will be considerable social change.

There was a good link in yesterday's Top 10 to “baby boomers” who have unemployed resentful children living with them.

In brief, my 'New normal' includes:

• Decline in retailing and construction sectors as drivers of growth.

• greater emphasis on export-led growth.

• Bi-inflation. Rising prices for commodities and gold, deflation in much of the economy.

• Structural change: high unemployment endemic in West except for successful exporters like Germany and Australia.

• Structural change: tight credit in the West limits consumption and investment.

• Investors scared of shares: very low bonds and bank yields

• Low economic growth in the West, partly because of:

• High Western debt leads to fiscal austerity.

• Fiscal austerity has severe consequences for much of the population in reduced entitlements and services. Negative feedback loop on employment

• Structural change in the West: less spending on consumer goods. This will compress Funding Western debt crowds out investment.

• Household saving in West moves from negative to positive, but net yield very low.

• Cultural acceptance of frugality and thrift

• Endemic youth unemployment employment

• Ethnic tensions.

• Growing popular resentment of austerity, sometimes expressed in riots and disorder.

• Confrontation between right wing groups and collectivists.

• Criticism of globalization and calls for protectionism

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.


Nothing to disagree with their Nev - please forward to Nelson Council so the bozzos can wake up to the fact they can no longer milk ratepayers.

By the way I think there is a typo - should it read 'endemic youth UNemployment' ?


Many thanks. We've fixed that.



Yes I agree...I would add the ongoing exodus of skilled labour and families across the ditch to aus...a move that will take some pressure off the dole costs but also hammer the construction sector! As well we will see an exodus of capital to aus if the returns on savings here continue to be pressed down by the RBNZ. Finally, look for equity bargains in about 5 to 7 years when the bottom arrives.

The only counter to all of the above would be a return of the 'progressive socialists' with plans to boost the population by a million in just 3 years and order the RBNZ to remove the core funding rate to open the gate to cheap hot munny...a sure fired way to fake some growth and sucker the voters into giving Labour snouts more time in the trough. 

Neville, I was at a David Caygill lecture today. He didn't address what you don't, and he took two hours without an 'um' or an 'er', doing it. An entirely capable intellect, an entirely logical mind, and one who thinks (and there aren't many I say that about).


I asked him a pair of very simple questions, and he dropped the ball.

First was: "can you think of any economic activity that could happen in the absence of energy?"

He couldn't - there aren't.

So I then asked him if he had it right way round, to try and control an energy supply system (by his own admission neither a good or a service) using fiscal instruments, given that the underwriting was the other way around.

He gave a sort of 'autopilot' answer - as trained ex-Cabinet Ministers are wont to do. The doctrine is so ingrained, that he didn't hear (in both senses of the word) the question.

And certainly didn't answer it.

Back to your article:  you've got the sympton absolutely taped - and advocate an expectation of a long convalescence.

I think, with the utmost respect, that is where we differ.

I'd advise booking the global 'economy' a place in a hospice - one  without that godawful nescafe, though.

There are limits.


Oooh, no ers or ums...

Wasn't there some research recently that found that CEOs who lied didn't use ers or umms. Their patter was so well thought out in advance they didn't have to give themselves time to think. They also used statements like "it is widely recognised" rather than "it seems to me".

Now where was that link??

Hey Paulo...you putting in for that vacant position as the Dept of Defence Chief Scientist...pays good man...heaps of hundreds of thousands....all you have to do is talk bullshit and the jobs yours....you get a Top Secret sticker to put on your forhead too. So many perks man...free trips to rub up against the other defence chief scientists and exchange bullshit.

Did I leave an E out there somewhere?....hey no worries Paulo...you can tell em you worked alongside James Bond and went to the Moon with the Yanks..all very hush hush of course...throw in the time you helped Albert work out e=mc 2....anything goes mate..the biggest bullshitter gets the top secret over paid job as chief scientist for the New Zealand Defence force.....the whole world is pissing itself with laughter...even the Cubans!

Funny as hell to know Queen Helen got her economic advice from a crook...probably explains why we are so stuffed. Wonder what Treasury thought of Helen's adviser! As for the gargantuan cockup at Defence...think of all the real talent they said "no" to...will heads roll...will they hell....it'll be the grandest whitewashing you have ever seen...even Huck will lend a hand. 

Didn't think you would like to sacrifice your family, and rightly so, but if we need to cull 4billion people then who do you greenies want to kill off?

I believe we don't need to cull any, and that technological advances will continue, allowing better farming systems, less waste, more wealth and Greenies forbid, greater population, with better living conditions.

The govt shifting assets amongst itself, and what is the real reason for this other than to insulate the loss leading Green producers, and divy up the carbon credits across all the SOE generators? Trustpower generates 100% of its power from cost efficient renewable sources, so they achieved what wind generators have failed to. Contact took the opportunity to shut down the thermal towers in Taranaki while the lakes were lowish so that there was an argument to be able to raise the spot price, and so naturally it went up. You didn't see the SoEs ramping up their capacity to take up the slack, instead they just reaped the profits from the increased spot price.

I don't have an issue with the SoEs making a profit, what I do have an issue with is Monopolistic behaviour. You can't tell me that when the Govt demands greater dividends of its generators (which it used to fund fanciful schemes, rather than improve the power supply network), and then prices rise by 400% over the next 10 years, and SOE profits rise accordingly (that is until their wind generation kicks in and then their profitability drops awa;: go figure same old assets producing same electricity, why the sudden decline in profitably?), and lo and behold $600M dividends become a normal payout, that there isn't monopolistic behaviour? Did the consumer just get bilked? Damn right they did.

400% inflation? where did you get that from?

On the face of it your maths is proving dire.

I Bought my house in 1997....I seem to recall paying about 10cents a kwh then, today about 12 years later I pay 20cents.

Lets do simple / rough math (by all means someone to a better calc)  say that is a doubling and in a decade...compound that, probably 7% per annum....

Inflation over the last decade, 3%?

So we have to account for 4% by,

a) Lack of spare capacity, the old supply and demand problem....

b) The rest comes down to Infrastructure replacement and enlargement...its quite simple 15 years ago the Govn could see that a huge investment was needed and they were liable, that would cost votes. So They decided rather than putting up PAYE tax, they would push the increases into a different "tax" which actually makes sense from an energy saving perspective, or if you will user pays, the old right wing flog a dead horse answer.  Most of the increases are for this replacement of end of life plant with bigger....

Where profits come from? they run a business, its there to make a profit off customers, which is us....they carry risk so the profit margin must be above the no risk rate of return, not un-reasonable.

Do I see you complianing about Brisco's margins? they have 25~50% sales, and still apparantly make a profit....

SOEs losing profitability...this is due to political pressure, you cant attach the cost of wind to that...loss.  Didnt one power supplier (Contact?) lose or make little profit last years because of the cost of maintaining backup infrastructure and the cost of fossil fuels in their generation?

Wind technology fails with no wind, indeed it does, fossil fuel technology fails when there is no oil or coal.  It is simple we are used to power and clean water coming out of the wall we simply dont understand or care about its provision but bitch about its cost, yet by ipods and TVs at the drop of a hat....and get miffed if money gets spent on essentails instead of toys...we act in other words like spoilt brats....hello Mother Nature will cure that...

Wear rates, dont matter when compared with the TCO...so what if something lasts 10 years v 20 years if its 40% of the cost of the 20 year unit...the resultant power cost is lower...that is all that really matters. This is assuming your assumption of a higher wear rate is true....I also recall a comment that eventually the man made lake behind the turbine fills with silt, so becomes useless at some point in the future....a wind farm will never see this event....so simple looks at all the aspects of the generation solution before jumping straight in.

There is also incrimental repairs, a typical hydro station could have 3 or 4 power units, so one out means a 25~33% drop in output.....wind farms are 20 or 30 units...its cheaper to have a hot spare and the impcat of being off libne from a fault is less....but yes statistically thats more likely to have a fault at any one time.

Solar efficiency is actually quite good, indeed its probably one of the better possibilities for home "generation" in the right climate...there is a very interesting new(-ish) solar panel which is a flexible sheet, you just throw it over your roof and connect two wires...simple....and its quite cheap.

Fossil fuel...we export low sulphur content crude and import high sulphur crude as its cheaper and we are one of the few places in the world that can do that....I'm not sure of the quantities of that....Im not aware its up to a 1 to 1 ie self-sufficient....but m happy to be corrected. net exporter? no not likely and certianly not long term.

Example of the short term view you have.  the USA was I think the world's biggest exporter up until the 1950s? now it imports oil at a horrendious cost....so it sold it for $4 a barrel (inflation adjusted) and now imports it at $80....that makes so much sense doesnt it?  err...not...

Hey Mort, here's a thought, how about citing URLS to substantiate your cliams? because Im having trouble finding something to understand your writings...if that poolenergy crap is the standard you are working on....








the poolenergy thing was merely 1 example of someone using technology to gain efficiencies from existing motors. (In the article I watched on TV, real people and councils were saving hundreds of dollars yearly , and in some cases monthly off their power bills to run their pools. So you can call it a scam but Australia has fair trading laws too, so I guess we can watch to see if the ACCC or whatever their agency goes by, closes them down). Given human innovation is at it is, someone else will come with more radical solutions to todays' problems causing quantum shifts inthings like energy generation and use, such that we will look back and think, 'OMG did we worry about running out of oil?', the same way that people at the turn of the century looked attheir predecossors and thought, OMG why did we ever worry about running out of whales to light our homes?

you want some links ok


In response to your sheet voltaic technology, its still not cost competitive yet, (which was my point) although admittedly it has improved immensely on where it was, and in 5 years or so might be cost competitive, at least we can hope it will. Until then I won't be installikng it in my house. I might look at one of those BlueGen units for it though.


PowderD your closing rang so well I thought I'd ding it again....nice.!

Back to your article:  you've got the sympton absolutely taped - and advocate an expectation of a long convalescence.

I think, with the utmost respect, that is where we differ.

I'd advise booking the global 'economy' a place in a hospice - one  without that godawful nescafe, though.

There are limits.

"There are many riots in the US where thousands queue for a handful of rent vouchers"


where thousands queue for APPLICATIONS for NONEXISTENT rent vouchers

Thanks for the commonsense  commentary Neville. I cant find anything at all in it that isnt perfectly logical and well reasoned. Looks about spot on to me.

In Europe where the economic system is different from the USA and rather recovering, EU-experts are currently attracted by the “Swedish economic model” Growth is forecasted up to 4.5%, unemployment is decreasing and state finances are in balance.

http://en.wikipedia.org/wiki/Economy_of_Sweden Especially dealing with  the labour market has a different meaning. http://econpapers.repec.org/paper/wfowpaper/y_3a2007_3ai_3a302.htm

Because there is a similarity in many ways between the Swedish and our economy, I recommend everyone interested to read more and share opinions.

Looking at the growth dynamics in the various types of models, the long-run dynamics are all very similar. Taking 1960/1990, for example, the long-term growth rates range between 2.6% and 3.6% for three European models (Anglo-Saxon, Scandinavian and Continental Model), as well as for the Anglo-Saxon Overseas group (3.6%). It is higher only in the Mediterranean

Model, and there is little variation within models (with lowest growth rates for the UnitedKingdom and New Zealand; see Table 1). Performance in the nineties (1990/2005) howeverdiverged1). A striking divergence occurred between the Scandinavian group with enjoyed a growth rate of 2.4% fort these 15 years − despite of a severe crisis in many countries in the early nineties, while the growth rates of the countries associated with the Continental Model

plummeted to 1.6%, due to low growth in Germany and Italy. France, Austria, and Belgium

surpassed the group average, but did not reach the level of dynamics attained by the

Nordic group.

Here one of the links:



The Scandinavian countries in general and Sweden in specific followed a three-pronged strategy with the following elements (Aiginger, 2004):

• to reduce or contain private and public costs, specifically to balance wage dynamics

and productivity as well as public expenditure and taxes;

• to reform institutions, and to make labour and product markets more competitive, but

not by means of a simple deregulation strategy, but by targeted reforms such as training,

education, and increasing geographical mobility and incentives to work;

• To boost long-run growth and productivity by supporting and encouraging innovation,

education and the diffusion of new technologies.


I remember some thirty years ago the Swedish were heavily taxed on revenues from savings thus encouraging investment and spending.... I don't know what is happening there now but I supose that whatever it is it is apropriate for the Sweeds. It is a bit difficult to copy systems that work for others, but I am sure that there is a New Zealand way and every country will come up with something creative and smart that suits it's needs. In times of crisis is when people get clever and ingenuity and creativeness are in bull markets, I regret that you are so close to Australia and reliant because that is turning to be the worst threat to New Zealand's recovery... wich by the way it is happening but, well you know how.  I also think that the Chch EQ is not a bad thing after all because it will shift your negativeness and concern about things that cannot be solved by now into positive and constructive action.

This is another interesting link


dealing with the current doom and gloom scenario..

As a simple, bloody artist - I do not understand everything, but I’m sure - you reader - as a clever person do.

Having watched clever Caygill not getting it, I think a 'simple bloody artist' probably has as good a chance as anyone!

Do you work with clay at all?  Get yourself a pile of it. Start using it, using more each day than you did yesterday.

Watch what happens from the half-way-through point.

I've done it with a group of students, a pile of gravel, and shovels.

It staggers you.

Caygill was defending the rising cost of power (which is energy, and as energy is required for everything, he was defending the inevitable rising cost of everything) saying they go for the cheapest generator option, then for the next-cheapest, then the next and the next.

So they're getting sequentially more expensive per megawatt. Can't not.

Which is exactly what folk like me have been saying for years - we drive Business As Usual using the cherry-picked, cheapest energy options. Meaning it gradually throttles itself.

Meaning there is no such thing as Business As Usual. Why is that such a hard concept for folk to grasp?

Even cherry-picking, we're in the 1.4 quadrillion debt situation we're in now. The economists/ideologues think they're having trouble because maybe they haven't got enough competition in the system.

The old NZED folk used to extrapolate exponential demand into the future, throw up their hands and say 'nuclear'.

Both suffer from the same problem - finite limits to exponential growth, via curtailment of good-quality easily accessed energy (you can call it 'cheap' , but that's not quite the same thing.

Nobody listens to Muggins - I've been spouting this to deaf ears for years - maybe you can get it across via art. Good luck.

Too much population, not enough energy.  It's obvious.  Break out those old iron blubber pots and start rendering humans down for their valuable hydrocarbons. 

That's hyperbole, but continue current trends and it inevitably comes back to consuming human labour rather than fuel.   And that requires a lot of energy in itself, from food, and that runs us straight into another finite resource problem.

That's for sure.  And wastage will bring about 'not enough' that much sooner.

Not on a global basis for 6billion to live like us...

In NZ what the energy companies are doing is installing new plant and what Transpower is doing is putting in new lines to avoid brownouts and even blackouts...in a dry year (winter) its highly likeky that there will be brownouts and maybe blackouts...

generation wasted, cite URL please? highly unlikely...


What the country needs is new generation and less government influenced pricing rationales, so the only way to do that is to create more competitionfor the existing generators. You don't need to sell off the SoE's plants, but new plants should be built by the private sector, thus diluting the government's dominant position.


As for more examples of microgeneration, the Aussies are bringing to the market these things, which were developed by the CSIRO


then there are the units that Meridian were developing for the European market.

The single biggest obstruction to new generation these days is getting Resource consent is it not? The RMA last time I checked was a restriction put in place by a Govt, Thus, the biggest impediment to new generation is the Govt.

As for security of supply for LNG, how is it that the Chinese can guarantee 50yrs supply from Australia's Northwest Shelf, and yet NZ, Australia's ally won't get a look in should we want to buy some of that gas? What about the new field in the Timor sea (the one that made Australia change its attitude to Timor, so they could claim 1/2 of it), or the gas reservoirs that have been discovered in the Northern Territory, and Qld? Not to forget our own fields off the Taranaki coast, with the speculated fields off the East Cape, Hawkes Bay/ Wairarapa, Westland or the Southern Basin (yes extraction down there will be expensive)

Neville another great article but you have forgotten one the most important point:



Optimal behaviors might in turn be revealed by cooperative attitudes towards society based on transparency. The objective is to allow society to observe how profitable consequences are attained.

Spot on Kunst, thank you.

Michael Krieger:

"what has become abundantly clear as of late is that if the society itself is immoral then capitalism will fail to function and it can be as destructive as any other system.  This is where I disagree with many libertarians AND big government folks. 

There is nothing wrong with some limited federal government and there is nothing wrong with capitalism, where we get into problems is when we view either as a panacea or a religion.  This is because they are both merely systems devised by imperfect human beings and as such will ultimately reflect the morality and ethics of the human beings interacting within that system. 

The United States has become in recent years, decadent, aggressive, immoral and brainwashed by television and mainstream media.  As such, should we really be surprised that nothing seems to work whether it be Federal government or capitalism?"  


I agreeon the internal state of the USA (but indeed I think most of the "1st world" is simply fickle).......

but the cost of energy is being missed...Capitalism is merely the most efficient system we have found to expoilt cheap/natural resources and grow the fastest...doing so....

Capitalism will fail (as will Globalisation), at least on its present scale because it cant survive on low margins and high input costs...we will go local and we will go small, NZ is ideally placed as the place to be in this situation....me, I thank my lucky stars I moved here and that my children were born here....


More tax, yes I cant see otherwise, highly progressive taxation, but the interesting thing is when you look at periods of high progressive taxation these were not bad/recessive, but actually quite good / booming....and when you look at low progressive taxation periods (Bush etc is a classic) its aenemic at best....

Tighten spending, I think its a challenge to do so...Im sure if the new National Govn could have made big savings it would have by now...and you only get one bite.

Debt, I agree....its madness, but these Pollies will pass it on to the next Pollies and JK will go live in Hawaii....and us voters are telling them to, we are fickle and spoilt and not living up to our responsibilities...



1) I'd expect highly progressive taxation.

2) I suspect PAYE taxation will be static or drop but GST taxation and even land taxation / property tax will come in...

3) Export sector and rates etc, this pain is felt by all businesses and not just exporters...but what will kill exporters will be transportaion costs....it is going to be significant and growing moving forward.

There was an interesting piece on rates (last year?) , the comment was within 25? years it was expected that rates would be un-affordable based on their current trajectory....mine jumped 15% this year....3~7% has been typical per year and indeed its more than doubled in 12 years...if that keeps up in 25 years it could be 5~6 times my original bill with ease...that cant keep on doing so.


As long as there is growth, it is exponential!

Rule of 70 = 70/ rate

At 2% pa it takes 34.7 years to DOUBLE in size.

e.g. Nominal US GDP @18 T = 36 T in less than 35 years.

Also can use doubling time = In2 divided by % rate or 0.693/ 0.02

But growth is not necessarily better! Because expenses can grow faster than income.

It may actaully be better to have expenses drop faster than a dropping income = bigger profit (while having a dropping turnover).

Population growth:

@1.6% pa = 43.8 years to double (US 320 million = 640 million in 44 years - 2054)

Oil consumption: @6% pa growth = 11.7 years to double current consumption! But production/ discoveries are declining

Money supply: M2 or M3

1995 - 2005 @ 132% growth (or in 2005 there was 2.3 times that of 1995 for M1), that is roughly 7% expansion p.a. It took 10 years to DOUBLE the money supply.



In 2008/ 09, M2 contracted


The world wont ever 'run out' of oil, but it will reach the point, and soon where the EROEI on extracting it drops below what is spent on extracting it. Canadian Tar sands are a good example of this, the EROEI is extremely low,  Read the wikipeadia http://en.wikipedia.org/wiki/Oil_sands page to get an idea of just how completely inefficient oil from tar sands is.
Some previously 'dead' wells can have oil extracted from them again as technology improves, but its simply the same case as is with tar sands. The extra technology requires extra energy, so the EROEI is continually dropping. So the world will get to a point where it simply costs more to get oil than what you get in return. Its arguable that is the case now.

..a fool and his money are easily parted....  if you aren't a millionaire by 40 this may well be the explanation. You don't seem to grasp that people invent NEW technologies which help improve the function of old technologies. Of course the manufacturers aren't going to put up how their system works, and perhaps they do need to explain a little clearer on their website how it works. What I saw on the TV article were real people, saving real money on their power bills (which by the way are 1/3rd of ours in NZ to start with).

As for your comment about water injection improving my car's fuerl efficiency..... perhpaps a link to this wonder technology is in order,  but as it stands, according to the Govt I already drive a relatively economical car. Still I am looking to replace my old one with the cashflow I get from my nasty wealth destroying investments which apparantly generate no wealth, and yet mean I have excess cash, and due to a trimming in depreciation allowances, now mean the govt has an excuse to take more off me, so I need to find ways to trim their claws, and perhaps upgrading the older beast may well be the answer.

Mort : You are 100 % correct , that new technology consistently ushers in greater efficiencies in resource utilisation . Indeed , we may stop using fossil fuels years before they reach " peak " ( however that is defined ) ......

......... But man , this is " interest.co.nz " !  The doom & gloomers don't wanna give up their tales of woe / war / armageddon ............ Us mild mannered optimists can look forward to the future ............ And leave the Chicken-Little Hickey brigade in their nuclear-fall-out bunkers  , munching organic GE-free  tofu , under the starry light of candles constructed from their own ear-wax .

Thank you Neville for another fine article.

You mention "Governments will wrestle with mounting debt-servicing costs and be forced to make severe budget cuts, especially in welfare and education".

As a good kiwi are you not overlooking what is euphemistically called "Defence"? The War departments of the nations became the Defence Departments somewhere along the way. Very Orwellian.

Many countries have enormous Warfare industries, in both the private and public sectors. This is a very expensive sector that is hard to cut back because of its essential nature. However it is surely the most out of kilter. It is very much a sacred cow. Even our own dear Helen spent millions on LAVs to equip our expeditionary forces (i.e.  for offensive warfare not defence).

These are big industries in the rest of the world and some economy is way overdue. The Greeks are up to their ears in debt for German submarines, French frigates and the like, all financed by generous loan packages from German banks and French banks. Generous to the banks that is, obviously including a suitable contribution to the Swiss bank accounts of all involved.

These large government debts are not as innocent as we tend to think. Just because we live in a society where fairness and honest is highly valued does not mean that is the case elsewhere.

I find it extraordinary that the warfare industries are not subject to the pressure to economise in the UK, US, France, Germany, Russia, China, India or Australia. It seems it is very much business as usual.

I read somewhere, possibly zerohedge that the Greek bail out was contingent on the the Greek government not stopping any arms purchases from France and Germany. Which is completely morally bankrupt.

More people looking!

"JPMorgan’s Jan Loeys, ... suggests ....Most vulnerable are clearly economic agents with high nominal debt relative to real assets. That means underweighting currencies of borrowing nations (the US and New Zealand, for example, against Japan or Switzerland).."

Interesting isn't it. Presumably the Chinese are buying yen to put the Japanese export machine out of action. The question I've been asking since 2007 is when will Japan monetise its debt?

That will be a very interesting time.

An excellent article, Neville, but it leaves out one scenario which I outline below.

A large natural disaster occurs in New Zealand. Within days large institutions, involved with insurance, eg EQC, start the process of selling huge quantities of bonds, driving interest rates up. Without many of the usual investors, the bond market stays depressed for a considerable period, encouraging private savings.

After a week or so, northern hemispere reinsurance companies start to buy kiwi dollars to remit to their NZ clients. This is spotted by currency traders who recommend purchase of the kiwi, which rises over 10%. Purchases of kiwi continue for years while reconstruction progresses.

Reconstruction of buildings and infrastructure causes a boom in the construction industry. Many expat Kiwis return to help.

Charities receive increased Government support to deal with the aftermath.

Unemployment falls below 5%.

The positive Kiwi 'can do' response engenders mutual respect among all ethnic groups.

Etc., etc.

Of course it will never happen...

This is worth the read:


"As Western societies are based on continuous economic expansion, reaching these limits is likely to herald alarming consequences touching all aspects of life as we know it. As long as societies perceive economic growth as the most important thing and link this growth exclusively to increased consumption, the resulting disillusionment will be exceedingly painful, with globalization likely making this a pain felt by all".

When it comes to retail, there's a lot of room for people to stop buying without experiencing any real hardship or privation.   The shopping binge of the last 20 years has left garages, cupboards and spare rooms bulging with unused goods.  If we play out the thought experiment of some kind of enforced embargo on imports, how long would it take to use up the stockpile, and what consumer goods would run out first?  I hate shopping, haven't been inside a mall or branch of the Warehouse in years, don't buy stuff I don't need, and don't replace things that don't need replacing, but would still be perfectly fine for at least five years of a total cut-off from buying new things, and probably ten years if the scenario was WW2-style rationing.  If imports of say, rice and petroleum  were stopped, we'd miss those fairly soon, but for things like clothes, shoes, furniture and household items we've got enough for years. 

I said a few days ago that NZ and several other economies have made a kind of transition in the last decade, to "the British way" of handling land use and urban development. This resulted in a one-off opportunity for amazing speculative gains as property prices increased. This will never be repeated. We have now done the transition. Here is what is ahead, based on Britain's experience.

Seeing Britain enacted similar highly restrictive limits on urban growth in 1947, we can see the result in the long term. They have a cycle of bubble and bust in land values that takes 13 to 16 years to run through. At NO stage, not even during the peak of the price "bubbles", does construction of new homes reach a level that is remotely "adequate" to cover population growth and replacement of dilapidated old homes. Construction drops from "inadequate" to "non-existent" through the "bust" phases.

At no stage, not even the bottom of the "bust", do property prices reach a level that is "affordable" by comparison with the lightly regulated markets in the world, or historical norms prior to the tightening of regulatory nooses. These phases, furthermore, are accompanied by high unemployment and tight credit, making fresh difficulties for first home buyers who have waited out the inflationary phases of the cycles.

Counter-intuitively, even in economic disaster zones with high unemployment for decades, property prices remain unaffordable as a consequence of actual definable shortages - the proportion of housing that is "social" is high and waiting lists for such housing remain long - and the burden to the taxpayer is high because of the sheer cost even to the agencies of government, of land and properties.

The amount of floor space per person in Britain today is the lowest in the OECD,  lower than Japan. The average age of a first home buyer is 38 years.

Is this where you want to see NZ headed?  This is very much a political issue, not just an issue of the financial decisions and attitudes of individuals. I suggest that the recent gains for investors, from, say, 1999 to 2006, were ONE-OFF and never to be repeated; as our property markets moved from a relatively free, affordability-promoting model to a strangulated "planned" model along British lines.

As Hugh says again and again - get the land wrong, everything will be wrong.

You've been given the homework.

Stop spouting like a broken record, and do some.

Finite lands available, and your nonsense about "only 1%" being used - well, go for a drive....look out the window.


With respect, a relative deck-chair argument.

Have a wee think about relative scarcity, particularly of quality.

Quality of land (the most sheltered stuff is gone - so on average, more chill-factor in new subs) quality of service (longer lines / more pumps) quality of supply (water, power)

This is what David Caygill mentioned -  but didn't recognise - when he defended the rising cost of power. You sequentially cherry-pick the cheapest/best, followed by the next cheapest/best, and so on.

So at or so near it doesn't matter) peak oil, peak copper, peak gold,,,,,you get things being more expensive. yes, there is a 'booster' element to some of these things (oil went up not just through demand, a wash of hedge-fund dosh got sent there by computer programme too) but that's symptomatic, not causal.

Society as a whole (reardless of who is Peter and who is Paul) is in trouble at this point.

This article http://www.theoildrum.com/node/6924#more is a sobering look at the worlds carrying capacity, which of course has a bearing on economic activity. Look at the role of oil and factor in peak oil. Sobering indeed.

And, populations never ease up to carrying capacity and comfortably level off.  There's always a huge overshoot, followed by a proportionate die-off, then a continuing cycle of overshoot/die-off.

Sheesh. The Texan theory. 

Big Boom in the late 1980's.  Savings & Loan bust.  Many banks bankrupt.

Fast forward to mid 2000's.  Memories of burnt fingers still linger in Texan bankers minds, so the credit orgy that occured elsewhere didn't get going to the same extent as elsewhere, for example, California.

See http://money.cnn.com/2009/08/26/news/economy/banking_texas/index.htm?sec...

Neville ...while I enjoyed reading your article I found myself thinking that you have taken the position ...in relation to future outcomes... of an acceptance to the changes that historically have occurred ....by the wider global community

 In essence I feel the human dynamic of ..who we are now ....as a species...compared with.. ..who we were then.... will have a greater bearing on posturing for recovery outcomes.

Is your theory largely based on minimal global conflict..? would it differ if there was in the short term an escalation in both global and civil conflict...?

I agree with your point that frugality may become the order of the day but then that is because.....I... am accepting of the notion and prepared for it's eventuality.

There are literally millions of Global citizens that would be required to alter their behaviour and adopt  a more sustainable "frugal" lifestyle only to find that near a return to business as usual position they are still south of nothing.

If it is "different this time" it is because the human psyche itself has altered / evolved  to interpret their environment differently.

The shake it out of a packet syndrome may not tolerate...(initially) a return to grinding it out as it  were.

The... I want it all and I want it now.... has become the new norm in many developed economies.

 In the periods you mentioned in your opening paragraphs the world had what I would perceive as clear power bases with enough financial authority to lead.

This currently is not so clear....and may need some clarification prior to  "The Medicine" being administered to reassure any reluctant patients. 

That is not to say I disagree with much of what you have had to say given a difficult but pointed journey that has a certainty about it.

But I fear there is a great deal of uncertainty and the road paved with imponderables. 

The most dangerous human is still the one with nothing to lose.

Neville stated last time, that he had "read Jack Diamond"

But not understood, obviously.

He should have a go at Heinberg and Orlov.

I think what drives this denial, from even those who 'get it' really, is the awful thought of what it will mean to our kids, and theirs.

I've been to a couple of lectures recently, where older Prof's showed their grandkids as their last powerpoint pic.

You don't do that unless you are actually - even if it's subconsciously - worried for/about them.

If the aim is to guide the mass in the right direction while not scaring them into mass dysfunction, fair enough.

I don't sense that, though.

Neville the question remains.... would an  escalation in global and or civil conflict have caused a different factoring in your theory.....?

While the potential for conflict may not be as calculable  as the formula you have proposed, it should nonetheless be a major consideration in "future" planning.

I'm no bookmaker....but I'd have to give it odds on.

Sorry, Neville, my apologies.

I see anyone patting the back of those who advocate growth, as being unhelpful - and my tolerance of the Simon Says disciples shortens exponentially with time!


well ain't that the truth..!

An interesting take on the same issues from a US point of view. Brain needs to be in gear though.


Roger W an excellent link for the specialist or the academic who should comprehend the information therein ......myself not included.

Might I ask you to forward a copy to Dr Bollard for his thoughts on the matter.

Nonsense, Cristov you're quite up to that. - it's a great link, the best for a long time. Try Stuart Staniford's blog 'Early Warning', too.

Annon.....it is probably quite irrelevant  what you or I  or anybody for that matter thinks about the opinions of what you term doom sayers as long as apathy is the prevailing emotion among the masses.

There will be however...be.. an event in the not too distant future that I'm sure will alter the mindset of the most apathetic among us .

Survival is just a word until you are faced with it's cold reality.

If you have no offspring then your line of thinking is probably there or thereabouts normal if somewhat a little selfish and lacking empathy.

If you do indeed have offspring....get help.... because the thought of their future safety is Primal.

I had not noticed anyone single you out here for a special rant...I apologise if I missed it.

While many of the people who hold peak this or that theory... who's intention it is to enlighten........ and so hope to initiate change... may leave you feeling a disconnect....their continued prodding at the veil of truth is absolutely required in the interests of  testing the veil's authenticity.

P.S. 100 years back yes...easy.



 I have read a number of your threads.... enjoyed some  not so some others  but you don't seem evil to me . a little selfish perhaps but that's no crime and certainly not uncommon.

annon - this is what you need to read.


It's what started me thinking, back in 1975.

Neville had probably been teaching if for 5 years already, by then.

 Another reason not to invest in a business in Noddy...as if you needed it!

 "Section 292 allows liquidators to claw back payments made up to two years before a company fails, on the grounds businesses trading with it should have known it was insolvent."

Yes you guessed it folks some real super stupid brainless bloody garbage passed into Law by the idiots in wgtn. Who the hell would invest here when you have crap Law like this. Go check it in the Herald.......  

So SCF payments made up to two years ago can probably be clawed back....how funny is that!


A must to read....ta 4 the link....The Fed being the first lender of resort...(GREAT PASSAGE)...I think if they can get their heads around that little passage it will open the doors and let some air in ....clear the stinking smoke from the room.

thanks Iain.....some interesting and alarming input.

I can't see the tax rate becoming so high. What would be the incentive for people to come, or even stay, in NZ with our already low salaries (and earthquake risks that everybody in the world has now been reminded of)? And if there is hardly anyone to pay taxes, well, the high rate becomes a bit pointless. Even if people did stay, there'd be very little reason to work hard, innovate, be productive etc. Might as well go part-time and have more time to enjoy family and hobbies.

As far as retail dropping 50%, I dare say it'd be a good thing. I find the mentality of "having to have everything and having it now" a bit sickening, especially seeing that so many people in the world barely manage to survive. About time to go back to what really matters in life (and no, that's not your big flat-screen TV in case your were wondering!).

I think NZ will look pretty attractive once the world realises what is going to play out with regards to Peak Oil. I tell all my UK friends to plan emigrate, they of course think I'm crazy. Time will tell.

None of which run to well without energy.....oh and what do you do about food?  Japan for instance only grows 36% of the food it needs, it imports the rest, in an oil crisis where does the oil come from btw?...NZ has surplus food and a mild climate, think Maine is a nice spot?.....if it gets that hairy this is probably the safest place......


Jeez Steven...you gave fod two ohs why not two for too!


Tax rate high

"so high", dont be too fixated on a particular %....but I dont think its a 2 to 5% thing, 10% plus, yes....how high? I dont know.

but more importantly,

Think globally,  as an example, some countires are saying they need to de-value because they will then be able to export and recover....however in a global situation and everyone's in it, where exactly do they export to? its just a race to the bottom.

So the point is,  ppl are not thinking in terms of globally....you are correct in that if NZ was alone it wouldnt happen.... (however Im not convinced that rising the higher tax rate is that signficant unless the difference is excessive...unlike the right wingers claiming otherwise, ive yet to see something aproaching proof rather than their retoric)

But and I think and this is critical, you cannot think in national terms only, this is because I expect (or agree with others that say) taxes will rise globally, so ppl could leave NZ but to go where? answer nowhere every other country is in dire straights or worse than us.  Also high taxes are a tax on discretionary income, so you end up with less discretionary income.....but I am not saying no descretionary income....

Also is there any real indication that the highly paid are the most productive or beneficial to NZ? not really....in fact apart from some specific business ppl ie someone whos's company is in the real economy and makes a good as opposed to financial ponzi schemers the reverse could be true, so no loss....

"Little reason to work hard", I work at what I do because I enjoy it. In fact there have been studies clearly indicating that more money is not a good incentive method....ditto inovation, often ppl do it for other reasons than money......they dont get fixated on the $....I dont think good inovatros do myself.

"go part time" well you are only alive once, for some the $ counts above all else. If that was me I wouldnt be here in NZ, I'd still be in the UK earning more, but I wanted a life. I have one now....that to me is worth the loss in $.......more than compensates in fact.

Interestingly aside, two instances....1) when I was 17 I was involved with the welsh miners (family) . They worked overtime on weekends ie 1.5 times pay on Saturday and double time on Sunday and then phoned in sick on Monday and Tuesday...So they were better off and worked the same hours, glad Amggie sorted that one, it was a scam.  2) ten years later I became a manager of the engineering wing of a hospital, I found that the fitters and electricians were pulling the same game...so I made a simple rule if you were sick during the week I didnt want you working the weekend in order to ensure you had recovered....funny thing sickness dropped...markedly...I has some issues with ppl not turning up at all en-mass but I got contractors in and actually got more work done even though they cost more.....when they saw that, that tactic didnt last long either.....I did then get cases sabotage and theft...very hard to prove....

"having to have everything and having it now" This strikes me that we are spoilt and mother nature will fix that inside a decade....









Bernard ...have you got yourself an adware bug replicating all over the site....get on it afore it gets on you...

It's another aspect to the 'new normal'...". An accounting firm is warning New Zealanders earning revenue overseas an Inland Revenue crackdown could catch them out." herald.

Beware peasants...do not take risks with your savings by investing overseas..least ye end up in the IRD torture chamber....best to spend it before the govt destroys the value of what you have left over after paying paye and gst and govt charges and govt fees and council rates.....spend it. Save nothing and be safe.

I hope they don't waste time with foreign term deposits....in particular U.S.  ha ha.

Cheers Wally.....I 'll get ready for the runner.

I know it seems daft Christov but I knows of people who opt to earn as little as possible on any savings they have so they don't end up feeding the govt tax grab. The tax on interest earned on savings saved from paye taxed income...really pisses people off. They hate govt and they hate IRD and they opt not to save!

You are soooo right there Wally......while I now find the I.R.D a pleasant and outwardly flexible bunch to deal with .....

They would still need to change their first rule of charter in order to change the perceived cult of personality.

Still credit where it is due.....these days I'm not finding an anal retentive on the end of the line who believes you are somehow related to his/her in-laws and is not going to miss....this opportunity  to inflict maximum pain with infinite prejudice.

They'll be backkkkk.....oh and you do have to wonder at the govt attitude...they really think peasants will increase their savings effort....when the peasants will know they will pay even more in tax....!!

  Momentum Consulting....didn't they do well....how often is a real life Walter Mitty discovered and appointed to a most senior top secret overpaid shiney arse job...rewarding all 'Bonds' everywhere with a gut busting laugh.....jeez that's some momentum they generated!....pinheads

You will find bull-sh%#ers in the best of places occupying  the highest of positions according to their level of skill in prevarication .

 Case point I doubt he would have slipped screening in the U.S. or some others it's a fair reflection on our Backwash Billy defence set up... not to mention ...........

a bit of a giggle for some foreign powers who include us in their alliance...tee hee..

I seriously wonder why foreign interests had not vetted him already.....? that would seem par for the course...that is unless we don't really have access to ..."sensitive" information.r

P.S. Wally  I'm off to do some actual work.... tell Bernard  as many times as you have to ...He has an Adware bug replicating through the site as a post.

jeez,wally..what sorta drugs are you on...do you have reds under your bed and stacks of " the peoples voice" up in ceiling?

some of your raves border on the delusional ?!

It's either the coffee or the local water...could be the water as it's from a mountain stream and all manner of wildlife pees and craps in the stream...sometimes I gets extra chewy things swimming in me coffee.!

Yep local water, giardia then....



That'll be the Giardians of the Lake, then

it's a commie conspiracy..doncha just know it, mr wally?

Is it.?....the buggers are everywhere Big Don but I didn't expect they would stoop to poop in me stream...mind you...I should have expected it....I'll have to use two spoon of coffee per cup in future. ...Bzzzzzzzzzzzzzzzzz

we'll send you some burgers and a McCoffee if things get to bad.

stay off the pooter and stay vigilant..the bastards are everywhere!!!