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Opinion: The drain - dragged down by debt

Opinion: The drain - dragged down by debt

By Neville Bennett

Debt is dragging us down and contributing to our probable double-dip recession.

It condemns us to tough times for a decade. Perhaps the “age of austerity” might be the appropriate term for the era.

That is not fanciful; the UK has a government which is facing up to the debt problem, and austerity rules.

Our Government is shielding us by borrowing NZ$300 million a week, rather than slashing expenditure. It cannot do that indefinitely.

Let’s be clear; I am not saying why we are in a recession, but in the NBR print edition I blame the Reserve Bank for not increasing M3 in real terms over 3 years and also cranking up interest rates.

I am aware too of problems with productivity, the high dollar and the whole spectrum of factors dragging down economic growth.

My focus is debt and how it has been created.

Perhaps an analysis will reveal some surprises mostly on how we got into debt.

Living with debt, and reducing it, will be a new experience for many. Yet older Kiwis knew that from about 1870-1950, debt was the first charge on the national budget, and usually took the first 30% or so of expenditure. It constrained welfare and education.

These ancestors were mostly saddled with public debt. There was private debt too, but not on the present horrendous scale.

Our era has been unique in creating a mountain of private debt which we are all servicing. Vast amounts of capital flow out of NZ each year in debt repayments and dividends. Indian economists used to call this “the drain”.

The drain is an interesting concept. If I may explain: Indians resented the way, before 1947, they ran a trade surplus which supported Sterling for the benefit of the UK, Australasia etc. After 1933, Sterling needed US dollars to get some sort of trade balance and these came from Indian and Malaysian exports. Places like Australasia did not bother with trading with the USA - we sent everything to the UK.

The Indians provided a pivotal role. They also paid the pensions of the UK civil servants based in India and most of the Army costs. The Indian Army, which made the UK a great power, was funded by the Indian taxpayer.

Indians alleged that the drain kept them poor. I can see aspects of a drain in NZ as it services a high debt, and (I think) makes few inroads on its quantum.

Where did the debt come from?

I’ll start with the current account deficit. The current account has been negative since the 1973, and we make up the difference each year by borrowing. Housing is a problem but not all of it: in 2000, before the bubble, half our gross external debt was not from housing loans.

The detail is found in a Reserve Bank Bulletin

NZ is one of the most indebted OECD counties. Our debt has grown because - although we almost pay our way in trade - we borrow new capital, borrow to cover our services deficit, and to service debt. We do not save enough to manage without borrowing.

There is no end in sight as the graph is steep.

Our situation has much in common with the PIIGS. Fortunately, foreigners continue to lend us money and the Reserve Bank and Treasury are outwardly relaxed about the risk of funding becoming more expensive or even very difficult to obtain. I am less optimistic as Greece and the others are currently having difficulty.

I think a major New Zealand problem is the high cost of borrowing. The Bulletin has a graph of real short-term interest rates which shows that New Zealand has to pay the highest rate: more than Mexico and Hungary. This is a chilling graph as so much of our debt needs rolling over each year and this is a volatile time when markets panic.

Confidence in NZ would decline if public sector debt blew out (it is increasing moderately) or if economic growth fell below expectations.

The present probable double-dip is therefore quite worrying. The rating agencies could review us less benevolently. A continuing problem is we pay a higher rate of interest than our assets generate.

The current account deficit is a major vulnerability in those states (like the PIIGs, Poland and Hungary) which have seen their costs of borrowing rise sharply.

I believe the deficit is a major Kiwi problem and have tried to research it, but have not been able to access good data. For example, I think we pay huge sums in royalties each year. I recall looking at some fast food franchise accounts and calculating that about 15% of sales went abroad as royalties. Seeds are another area of high royalties. Research shows that a high deficit can lead to shocks, affecting GDP.

Profile of External Debt

NZ’s gross external debt peaked at 130% of GDP in 2008. About 60% of debt is bank borrowing, and it has relatively short term maturity. Government debt was 13% of GDP in early 2010 but is accumulating briskly.

Looking at the bright side, most of the debt has been hedged into NZ dollars. This is a terrific boon: as long as the dollar is high. Should the Kiwi go down to USD0.50 cents debt servicing would be harder.

In the Asian Crisis in the 1990’s countries like Thailand had borrowed US$ but debt doubled when their currency depreciated by half. I wonder if the RBNZ runs a high-dollar policy to help with debt funding?

Rolling over the debt is potentially problematic. This is compounded by 40% of borrowing being of less than 1-year maturity, and our reserves of foreign currency are low.

Usually, it is only countries with strong international markets that can borrow short-term (UK, Japan, Switzerland). The domestic banks lending also depends by 50% on foreign funding. The banks borrow short but lend long on mortgages etc, a practice which is dangerous when funding is tight or very expensive (this killed the UK bank Northern Rock). Our banks needed government guarantees to secure funding in 2008.

Domestic banks got a fright in 2008 and are moving to longer maturities and higher domestic retail deposits (helped by the demise of 50 finance companies). Bank maturities of 1-year plus increased from 34% in 2008 to 44% in 2010. The Irish example should spur the banks to greater prudence.

Domestic Savings

Our external debt is linked to low domestic saving. We also invest more than we save. Our saving is much below OECD average but investment (expressed in say gross capital formation) is average (see Fig. 13 in the RBNZ paper).

As saving is low, we depend on capital inflows. We have to pay higher than average interest rates on that capital. Foreigners require a premium to compensate for the risk of lending to us. That premium could increase if the problems of the PIIGS are contagious.

We know that households dis-saved massively this decade, often using the house as an ATM to finance improvements, holidays and life-style. Treasury says that in 2007 households spent about $1.13 for every dollar earned. Saving lifted in 2008 but we still spend more that we earn. We are the worst in the OECD. We still store our wealth in housing disproportionately, but readers know all this.

Let me add that NZ housing prices increased 2001-2006 about the most in the OECD and we have an horrendous ratio of household-debt-to-household-income, peaking at about 180% of debt-to-income where we beat the Americans and Aussies hands down (see Fig. 21 in the RBNZ paper).

The decline in house prices has been a modest 10% from the peak - like Bernard, I expected more. But most mortgages are to better off households who can service them and not create a flood of sales. Housing is still vulnerable to shocks in interest or foreign exchange movements.


Rebalancing can occur through:
- Tolerating inflation
- Reducing imports
- Increasing exports
- Increasing economic growth.

None are easy and are subjects for another time.

Meanwhile we are dragged down by debt.


* Neville Bennett was a long-time Senior Lecturer in History at the University of Canterbury, where he taught since 1971. His focus is economic history and markets. He is also a columnist for the NBR.

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Good thought provoking piece.

Agreed, and thanks Neville.

I have qualms about relating things to GDP, though. It's a pretty flawed measure, and I'm also wary of graphs relating to it as if it were static - "as a percentage of".

Nice work, In regards to re balancing getting the xrate down would be a huge help with this...maybe the words back in recession will help bring this down.

Neville, what if the real rate of inflation was higher than the cpi captures? Steve Netwriter did an article on this -

To me we have the symptoms of interest rates that have been far too low for a long time. There has been a disincentive to save and every incentive to borrow. It seems ridiculous to me to have a working party look into this problem when the answer is self evident.

The inflation target of 1-3% is effectively a target of 2-7% because the RBNZ wet themselves at the thought of falling below 1% but are complacent at "looking through" 5%.

To me the OCR needs to be at least 2% higher now to change behaviour. So far we have chosen not to change behaviour until someone else makes us.

To the charge that higher rates mean a higher exchange rate I believe that only applies until we start to borrow significantly less, ie until our behaviour changes. If it really is a problem the RBNZ could just buy a tonne of gold a day with newly issued dollars until the currency corrects.

It seems to me no one actually wants to solve this problem and keeps looking for weak analysis that justifies not doing anything much about it.

Roger, Your 100% right.

They simply won't solve it because they know the political repercussion if they attempt too. Until the general mass sheeple out there become more accepting of their own plain stupidity in believing the BS of Banks, PI's, RE's, their moron neighbour  or brother in law and the fact they fell for a global ponzi scheme for nearly a decade then nothing will change.

The government (all of em) and the RBNZ are too chicken shit to do what must be done because it will mean shitting in their own nest for starters, and admitting failure. They would all rather just keep 'spinning' and hope the sheep don't t get too ruffled with the new costs of living

Roger - see my 12.37pm reply to Steven. Thoughts? Cheers, Les.

Crikey .. never knew that .. everytime someone eats at Macca's or KFC, 15% of the price goes overseas in royalties and increases the Foreign Debt .. easily fixed .. slap on a 50% obesity levy .. or a 50% nutrition levy .. oops .. no that wont work, their sales will go up

Not to mention that its bordering on more unconstitutional nannystate solutions. I love my KFC and I'm in no way obese or unhealthy. Everything in moderation and daily exercise are key.

Maybe no GST on non imported fruit and veg would be a better idea? .........slowly but surely though the price will keep going up regardless.

Macca's and KFC do employ many NZders so I wouldn't be too harsh on them

"NZ is one of the most indebted OECD counties. Our debt has grown because - although we almost pay our way in trade - we borrow new capital, borrow to cover our services deficit, and to service debt. We do not save enough to manage without borrowing."


This statement should be read to the NZ public every night!

PM – wait an see – see and wait – again endless – to the end.

He has a cut tax....cut tax mantra, but he cant justify that at present, so he does nothing.....he cant see the paradign shift that is occuring........he's obsolete IMHO, mind you so is Goff....about the only ones Ive seen who have open eyes are the Green's.....


Boy - we need a revolution in this country - before some start the war.

Neville, if the exchange rate was managed in favour of the exporter then you say the cost of servicing our current borrowing would increase.  Yes, I understand that but surely currently we are subsidising the foreign country workers by having a high dollar.  With a low dollar imports would cost more but that  would enable goods to be made here again and give people jobs.  If there was a Tobin tax then that money could be used to reduce the debt and if there was also control on how much the Banks could lend as a percentage of the value of a house then surely that would reduce their borrowings and it is these borrowings which form such a large part of our overseas debt.  Apart from ineffectual Governments who just sit and wring their hands, as I see it the Banks are the main problem.

The problem with managing the rate is exporters are a tiny % of the capital inflows/borrowings....the result is a net loss. 

Foreign jobs v NZ ones, foreign workers earn a fraction of NZ minium wage...the drop in the exchange cant compensate for that. Also factory work is at best semi-skilled work...this isnt the sort of work we want IMHO...and in fact it looks like the semi-skilled are leaving for OZ...I suspect that's actually a win-win.

Tobin tax is for stability, removing the volitility, generally though I am very much for a one way (inward) tobin tax....reducing debt, the amounts I dont think are very big....or wouldnt be once traders went elsewhere........

Texas has some quite strict lending laws, 80% and you cant use the house as a ATM, on the face of it this seems the major reason Texas didnt have a crazy boom....

Ineffectual Govn's, think of King Canute....or if you will only fight a battle if you have to and can win it.....Govn's cant right now....they have economic blinkers that has left them blindfold...

Banks are tha main problem, yes indeed, Steve Keen is quite clear on that and the recent tidy profits during this almost worst of recessions are yet more proof he's right IMHO, the only ppl profiteering are the banks....interestingly Im seeing more and more shops dropping CCs or charging 3.5% (ish) on top....I suspect the banks are screwing them on already paper thin margins....the only thing keeping that going is that some ppl have no choice but to use CCs..........When the going gets really tough I suspect CC use will nose dive......and the adjustments going on that are worying the Govn are nothing yet compared to what I think is coming (a depression).........


I don't see the problem with encouraging manufacturing jobs.  Lets face it there is a large proportion of the population who will never become a scientist or a brain surgeon, many of those people are currently drawing government benefits or at best minimum wage.

By encouraging manufacturing jobs, even if they only paid just over the minimum wage the amount of redistribution to them would fall substantially giving far more surplus tax revenue to reduce borrowing or whatever else.

You can increase the GDP per person by bringing people from far below the average to only slightly below the average, you don't need to bring everyone to the top.

I agree with Bullitt, Steven  It is better to create jobs for people than to let them feel useless.  Years ago we had the freezing works and the railways which employed people with semi skills.  The men went to work and the children to school.  You can imagine the conversation at home in the mornings.  Now neither of them go to work or school.  Neither has any self respect and both know they don't belong to the New Zealand of today.  Now we out source semi skilled jobs out and increase the foreign debt.  For eaxample the other day I had a call from Australia asking me if I wanted a free hearing test for a LOCAL audiology Clinic!!  To make a phone call to EQC you are answered in Australia.  Its mad.  If the semi skilled are going to Australia it is because Australia now recognises that it has lost its manufacturing base because of its reliance on minerals.  I think it is called the Dutch Disease.

If by this you mean the Govn creates the jobs, no it isnt better....Businesses creat real and hopefully long term sustained jobs.  If private busineses choose to outsource jobs overseas, that is their right....

" If the semi skilled are going to Australia it is because Australia now recognises that it has lost its manufacturing base because of its reliance on minerals."

I cant see the sense in this sentence, ie Im not sure what you are saying....OZ is having a mining boom....the greatest ever? that is creating jobs.....NZ doesnt have such a boom....and I cant see the problem in the [any]skilled moving to jobs....I moved around the world.

Hearing clinic.....most jobs like this are based in India, and they speak with non-indian accents........So a call centre takes a contract to phone x thousands of phones, they have the scale to keep ppl employed.........

At one stage EDS was trying to bring in call centres, they just couldnt compete on cost.


Steven, you are missing the point.   There can't be absolute freedom to do what you like when it means other people suffer.  When NZ has such an horrific overeseas debt then private or government's right to use the cheapest possible source of labour (whether it was India or Australia - and my phone screen said Australia) must be curtailed. 

".....Years ago we had the freezing works and the railways which employed people with semi skills...."

You mentiion the railways....  there was so much inefficientcy, perhaps some of those jobs did not deserve to exist. I recall visiting a railways workshop when they were operative, during the month of May and was shown a small sub workshop in which a panelbeater/bodybuilder was building/fitting a tray with side partitions & tool locker boxes, onto a small truck Cab & Chassis. I returned in November the same year - it was still there, incomplete and the panelbeater no where to be seen.  I also returned during May of the the following year and yes, it was still there, unfinished.  I was advised that a private bodybuilding company in the wairarapa, had built the same design tray in A DAY AND A HALF !!  From that example, I concluded, that such people seem to take their jobs for granted and do NOT show ANY diligence or initiative .  Although I have only given one example, I could give many more. Bus repair work that does not pass a COF inspection and several rechecks later, still cannot be passed.   A new lathe ordered and no operator.  Q " Why do you need a new lathe when you dont currently have an operator ?? "   A.  " We need it for for our perk jobs" !!  Enough said.

If you base everything on the bottom line or efficiency then most people I know would be out of jobs.  Probably you too.  While these  things do matter they are not the most important.  They can be remedied through appropriate systems. Getting rid of these jobs caused enormous social problems and so extra cost to the State.  The cost is the same.  I am willing to put up with the cost of inefficiency and the bottom line, which  can be remedied, rather than the enormous costs to the social system and the extra costs associated with that to the state which cannot.

"the problem with encouraging manufacturing jobs"

Neither do I where there is a business supplying a real demand. One you start to talk Govn subsidies or tariffs then yes I do have a problem.

GDP wont be [substantially] increasing....there isnt the spare cheap energy to do fact GDP will decline.


Texas - free frozen markets?

" Should the Kiwi go down to USD0.50 cents debt servicing would be harder."

Sums up why the Govn is ignoring Les's writings...we cant afford to have it drop....


steven - indeed, you cannot avoid the essence of this realisation when considering how a 'Carry Trade' works. Roger Kerr commented on same last week, here:

"He [Bill English] also cannot pee-off foreign investors into our Government bonds (who are funding his fiscal deficit) by doing something that causes the NZD currency value to slide dramatically - that is, the investors lose money in NZ."

Then more recently a professional and independent economist familiar with bank funding dynamics confirmed this for me:

"For the banks in NZ, their interest and repayments cash-flows come in the form of NZD, and their big outflows are USD and Euro.  That gives them a strong vested interest in stability or appreciation of the NZD, it makes them very unhappy about depreciation, and keeps them relaxed about the carry trade."

So it seems like 'rock and hard place' stuff - at first sight. 

Down to 50c in the blink of an eye would be trouble. What could be achieved however is a more gradual decline with less volatility by using a Singaporean like approach. (Refer previous discussions and remember we don't have to be Singaporean to learn some simple lessons from them. Plus the reserves objections is hogwash.) I also agree with those calling for higher interest rates(!) to incentivise savings, however, that could be achieved by a couple of prudential measures while leaving the OCR as is, or reducing it. For instance, a development of the a Texas like LVR regime (that you cite here) where the RB varies LVRs across asset classes as well, this would have less impact on financial efficiency for banks, the, "it'll cost borrowers more" objection offered by the banks if one wants to modify any reserve/adequacy type ratios. 

Also, RB to specify and vary the proportions of offshore and domestic funding; this would certainly have the banks objecting on the basis that borrowing would cost more, well, they mean margin shrinkage for them - say, anyone seen any profit statements for the banks lately? How are they doing? However, it'd not actually cost borrowers more as they'd simply borrow less, especially if applied with an LVR regime as well. These measures, done gradually and purposefully, would get us out from between the 'rock and hard place' situation and leave us less as importers of other countries' loose monetary policy and more reliant on our own savings.

If we really wanted to go for some fine tuning, deal to the lag effect caused by fixed rate borrowing by one of these modifications:

1) abolish fixed rate borrowing,

2) allow the RB to vary the principal repayment rate of fixed rate loans,

3) only allow up to 50% (say) of a loan to be on fixed rate terms (that's a new idea I came up with the morning while painting the side of my house.)

This kind of approach would be my preference, as it would mean we decorrupt the price signal that the OCR is meant to be. Some would object (who?) that borrowers would have lost some/all of the security for managing their debt, meaning they'd not borrow as much. Yep, that's right, borrowers wouldn't take on as much debt because of any or all these measures - is that such a terrible thing? Well, it might be for some. That reminds me, anyone come up with any profit statements for the banks yet?

Cheers, Les.

With the door shut on Bank's ability to source long term cheap money from offshore and the RB via Core Liquidity Ratio forcing Banks to fund more of its lending domesticaaly from retail deposits you will see the trend from fixed to floating loans continue and reinforced by a postive yield curve. This positive yeild curve will mean that even if rates start to move the floating will remain lower than fixed (which is the way of the world under normal market and economic conditions).

Sure, but:

I wonder why they do this? Maybe it's because people will be prepared to buy more of their product as they are more insulated from monetary policy? Maybe. Have a think about this critisism of the OCR mechanism:

"We have an engineering control theory analogy for this, that is, the economy is a hydraulic pump and the OCR mechanism is modelled as a differential-pressure actuated input flow control valve, where the differential-pressure is determined as the difference between the pump output (read via CPI) and a system set-point pressure, the PTA's CPI band. Inertias in the flow control valve and in the pump create one aggregate component of response-lag. However, the differential-pressure signal is moderated by the inclusion of a damper (a gas accumulator say*) in the signal transmission line that creates another lag ('pure time delay') which is essentially the 'blunting' effect of fixed rate loans. Hence the price signal is corrupted and the market is not made aware of conditions that the price signal is meant to communicate. (Oh, but response in NZD is pretty much instantaneous** .....)

* - an appropriate degree of damping reduces instability brought about by under-damping. BUT, systems become similarly unstable if control signals are over-damped - because they do not meet their purpose of correcting output, via modifying input. It's a time problem and econmists seem programmed to ignore the time context, in all manner of ways.

Let's try to put this in Austrian speak (I think). Austrians are very keen on pointing out the difference between price inflation and money supply inflation, and how the latter begats the former. With the OCR 'price signal' based mechanism we assume money supply inflation (demand) can be sensibly controlled, indirectly, by changing the price of debt. Perversely this is not the case, see above, hence it'd be good to compare a plot of OCR, private-debt growth, the three inflations and currency. We maintain the PTA target by killing tradeables** - it's perverse. Either sort the price signal, or find a more direct control of debt growth - and "there are reasonable alternatives" we could use to supplement OCR.

Cheers, Les.

steven - As Neville says above, "In the Asian Crisis in the 1990’s countries like Thailand had borrowed US$ but debt doubled when their currency depreciated by half. I wonder if the RBNZ runs a high-dollar policy to help with debt funding?" It's no wonder, hasn't been for a while:

'More uridashi sales would be useful, Bollard says'

"Bollard embarked on tightening monetary policy last week when he hiked the official cash rate a quarter-point to 2.75 per cent, the first increase in three years, and narrowing the interest rate differential between New Zealand and Australia.

Though Bollard told MPs the currency needs to come down from its elevated level, the major factors, such as China opening up the sensitivity of the yuan and the US adopting a more accommodative monetary policy, were out of his hands. Still, he said he was confident the economy's rebalancing towards increased savings will help keep the kiwi dollar from getting too over-valued in the long-term."

Snigger. Yeah right. 

We cannot keep borrowing, and cant cut services so the Q is, when do tax rates start climbing.........Labour has already signalled the it accelerate......


So with the exchange rate needing to be lower, we are damned if we do and damned if we don't.

So the problem isn't the exchange rate, it is the stupid borrowing that went on.

But the process of declining asset prices as people try to cash up to pay down debt appears to be well established in economics.

And you are right on the money with tax increases. A strong precedent also exists for that from the last depression.

Just as well I don't have any debt.

But according to the neo-classical and austrian economists and right wing Pollies who engineered this fiasco (and didnt see it coming) its private debt which is therefore of no consquence.  Govn debt bad, private debt invisible........

So by ignoring that private debt for 30 years it has know grown to gargantion proportions......

It could even be curtialed now, with pretty simple things,

1) Mainly as Texas, legislate a max borrowing %, say 80% and allow the RB to regulate that up and down as it see fit....

2)Put in an incoming capital tobin tax....where real businesses such as manufacturers are excempt. ie we tax $ coming into banks that they lend to housing....

Consider a CGT and land tax...but given the weakness of the housing and farm market I suspect introducing that today maybe too much of a shock. When most of your economy relies on housing for its paper profit killing that would kill a bubble bursting...

Raising taxes Im not so sure thats a definate but I cant see any great alternative for the well being of the huge cuts are way worse and NZ already has a fairly lean public system....When I look at Ireland as an example of what could well happen to NZ I see,

1) "Other results of the budget included a new income levy being imposed on all workers above a specified threshold'.  So yes a tax is possible....its just called a "Levy"

2) GST to 23%?

3) Public salary wage cuts 10%? more?

Interesting comment,

"The recurring theme is arrogance and ignorance," Rogoff told us in the story linked above: "Ignorance that this has happened before in other places, in other countries and arrogance thinking we're special, this time is different, we have financial globalization, we're running our economy better. They're lending us a lot of money because they love us and we're doing a good job.

At the time, we asked Rogoff: what is history's lesson as to what comes next? Here's his prescient answer:

"Financial crises eventually can morph into a debt crisis. Debt explodes, government debt, it almost doubles within three years, on average.

Solman: Does that then raise the possibility of yet another crisis which is governments (even ours), not being able to pay off their debts?

Rogoff: Well, we can handle it if we're willing to tax ourselves and that's an open question. It's a problem for the world because all the governments are doing that, they're all trying to borrow. Right now it's okay but as things normalize it's going to get expensive. So the defaults, the actual governments saying: 'We're not going to pay' -- it might not happen in the United States, it might be off in the Ukraine, or it might be in Eastern Europe.

Solman: Ireland.

Rogoff: Could be in Ireland."

So the worry is, IF our private debt blows up on us, the Govn debt will simply double......well actually maybe worse....the govn ends up bailing private debt out to stop a financial collapse........and we are lumbered with it........

At that point two things happen, NZ business has held onto labour, they now see years of no recovery so start letting ppl go..that means tax take falls further and un-employment costs rise further...13.5% seems quite possible...(Ireland)

At that point the only two options I can see is a public service wages cut and tax rises for the top bracket earners, hellp 40%.....that of course all thid self feeds into a bigger slump/recession/depression.......

For me this is why our Govn appears to be doing little, anything it does could end up being the last straw that breaks the camel's back.....

I have debt but Im paying it down just as fast as I can....


When has Austrian economics ever preached that private debt is of no consequence?  As far as I am aware Austrian economists are the biggest critics of fractional reserve banking and cental bank managed fiat currencies.

Nah,  can't see that this drain's going to effect us too much. By the way the water's spinning, i'd say it has a good chance of being in the northern hemisphere. Far to far away to suck us in. Relax.

Here's more sand if you feel the need to move your head.


And...Italy has every a reason to do a Mubarak... on skipping Spain?

 Input prices at factories rose 13.4pc in the year to January – the strongest rise since October 2008 – driven by the soaring cost of oil and other imports, the Office for National Statistics reported.

Mervyn King, the Bank’s governor, has warned that the official measure of inflation, which came in at 3.7pc in December, could hit 5pc within months, well over the Bank’s 2pc target.

There's just one problem with this analysis, many NZers are not in great debt at all.True numerous lower paid and beneficiaries do go from one pay packet to the next. But much to the banks annoyance, a majority of Kiwis are 'freeloaders' who regularly pay of credit card balances every month.  Many house owners have no mortgage and those that do it 's usually very serviceable.  There are some 'investors' who may have a higher debt to equity ratio,most are not actually in this situation. The notion that many household are in great debt seems to have an unquestioned acceptance, it needs to be questioned.

That depends if you see the recession as mild, or a catastrophic full on depression.

The figure of people spending 113% of income was, I believe, a trend that went on over multiple years. At some stage is has to be paid back. Add in declining asset prices and burgeoning unemployment then the outcome could be bleak for a lot. There is a precedent for it, just pick up an encyclopedia.

But you are right, for anyone without debt they will most likely be fine.

Studying architecture I can tell you that one of the 20thC's most famous, Corbusier, designed a fine house for his parents, one of his ealiest works. Unfortunately in the 30's depression they couldn't keep up the mortgage payments and they lost it.

Not much happened in Architecture from 1930 through to the early 50's, just ask Architects out there now how it is. 


"Not much happened in Architecture from 1930 through to the early 50's"

He and the house have been my inspiration these many years!


Oh don't get me started on FLW. Arrogant SOB but god he was good.

Did an assignment of Usonia 1 or the Jacob house, which I even had to model.

Invented the carport, open plan, L plan or two zones, off centre within the site, centralised services and the modern era of under floor heating. All in one moderately priced house. There were more features than this also. He was the one exception to what I outlined above, with Falling Water and other seminal work in this period.

While Hugh harps on about Levittown, FLW was light years ahead and still is.

Modern housing is abolute trash in comparison.

He only did one years study, and that was in engineering.

He had the fortune to have the reputation in place before the depression, but I guess if I am good enough I will have commissions.

Scarfie - AGREED!

There will be an overwhelming demand - but a declining amount of money to pay you with.

You'll be on the pro bono's of your arse......       :)

Well it isn't all about the money, that is why I will be better than most. I have done some work at uni that I believe is right up there. I can't help myself anyway.

As long as I have enough to travel for the purposes of completing my training:)

My flick you an email and show you what else I have been working on.

I too am a big FLW fan.

his work had all the good attributes of modernism (efficient plan, clean lines etc), but still retained warmth, craft and comfort. I do like some recent modern work, at least on the pages of a coffee table book, but to live in??????? 

FLW's mother trained him from young to be an Architect, which I imagined helped.

If I have one similarity, if not an edge, is that I am stronly innovative.

To be honest when I pick up a contemporary Architecture magazine they don't hold me. A quick flick through and look for something more meaningful to read.

Great scientific 'assumption' that. Heard of the Current Account deficit Muzza? I think that little detail begs to differ along with many other 'fact' based indicators.

Paying your CC balance every month doesn't bother banks in the slightest. As long as you have a mortgage with them they really don't give a toss. 


In 2007 my bank manager tried to talk me into buying property with a mortgage from his bank and I asked him if he was crazy: couldn't he see the NZ property market - indeed, the global financial system - was heading for a collapse?

He laughed at me and said such a thing could never happen, that property doesn't go down in value and I was mad to pass up such wonderful opportunities for enrichment.

He barely says hello to me now, but then he must be very worried about his own substantial property investment portfolio these days.

@ muzza There's just one problem with this analysis, many NZers are not in great debt at all.

Thanks, muzza, for injecting some much needed rationality into this debate. Because what you have said above is absolutely correct. Many, maybe even most New Zealanders and NZ households are not in any great debt at all. And the debt that they do have they are quietly going about making their payments in full and on time regularly and reliably.

And let’s face it, if I or my household had say a 25 year mortgage of $250,000 (which actually I don’t I’m just using it as an example) and I am regularly making my payments and have been doing so for the last five years and will continue to do so for the next five years, where exactly is the problem?

Answer - There isn’t one.

And that’s what the greenie-lefty ranty-ravers around here just can’t seem to get their head around. Private sector debt may well be 160 billion or whatever it is, but the vast majority of it is not at risk. In contrast to public sector debt which for all intents and purposes means Govt. debt, in the private sector it’s the bad debts that count, not the good ones.  

You always find some bad apples in the barrel, it doesn’t mean that when you do you start screaming hysterically and toss the whole bloody lot out as some around here would want us to do.

You're right, David B. Just like anyone who bought a plasma screen on terms from Harvey Norman TV 5 years ago for $7,999. As long as they make the payments ( remain employed), then it eventually will be theirs. But if they want to trade it in, say, and the price of an equivalent TV is much less today, then they have a choice: (1) Keep what they have or (2) take the lesser amount of the trade and upgrade.

 Me? I like to rent the sucker; swap it every so often for the latest screen and not have the capital outlay of the deposit or the long term payments on the old stuff, that I am, in effect, trapped with. Many people in New Zealand are going to end up trapped in their properties by falling prices, as they will not be able to escape/change and still have a deposit left to change with. It will have evapourated with the price falls. How do I know? Look at the velocity of sales at the moment; more people are becoming trapped by falling equity, every day. All they can do is 'make the payments' on what is historically overvalued property.

Yes, but you are misreading the situation.  Value of a house may have come down but vast majority  have a good equity and a 15% drop in value is not a problem.  Granted anyone who borowed 90% in 2007 could be in negative equity (and serve them right for being so cavalier), I would suggest that that's not a very big portion of the NZ householders.   Remember your bottom third of the population don't own and that's why we haven't had a subprime situation in NZ.  Again, the notion that a lot of Kiwis are in debt to their eyeballs is a 'conventional wisdom' that has been accepted without query and needs to be held to scrutiny.

yeah, but the big question is, of those who do have big debt, who are they?

And  I think the overwhelming answer will be younger people - student loans, massive mortgages etc. And its the 20-50 year age group that typically drives an economy and its housing market, so if those people are in debt, big trouble...

And unless house prices drop and / or wages significantly rise , young kiwis will continue over coming years to HAVE to get into big debt 

 Matt it is my experience the baby boomers are the ones with the large debts. In the early to mid 2000's they saw themselves with some equity in their homes and assets were cheap to buy and finance was cheap. They were like little boys in the candy store. Many could not help themselves. They did not know when to stop. Richmastery and alike were encouraging them to go for it. Some have done well. Some are in the proverbial. Many are trying to get their portfolio and associated debt reduced but it is not so easy these days.

Young people could only borrow so much even in the stupid days when bank staff were shoveling it out to increase their bonuses. Yes the BB's have a lot to answer for but they will not admit it as that would be admitting greed to their offspring.

Don't remember the details, but I'm sure there was a survey released within the past few months with exactly that result - high level of debt held by boomers.

 Matt it is my experience the baby boomers are the ones with the large debts. In the early to mid 2000's they saw themselves with some equity in their homes and assets were cheap to buy and finance was cheap. They were like little boys in the candy store. Many could not help themselves. They did not know when to stop. Richmastery and alike were encouraging them to go for it. Some have done well. Some are in the proverbial. Many are trying to get their portfolio and associated debt reduced but it is not so easy these days.

Young people could only borrow so much even in the stupid days when bank staff were shoveling it out to increase their bonuses. Yes the BB's have a lot to answer for but they will not admit it as that would be admitting greed to their offspring.

David B -

And that’s what the greenie-lefty ranty-ravers around here just can’t seem to get their head around.

Or could it possibly be the other way around.?

You are in debt every day of your life - you don't account for natural capital, and you're perfectly - ignorantly - happy to exponentially accelerate that process.

Read this. Please leave your ingrained bias aside as you do:

Then take a look at the second graph down (1999, you are here) in the following link :

Note the longevity line - global longevity peaked in 2007. Note the oil line - Peaked in 2005-on.  Looks like they got it right - and that they got it right in 1972.

You need to do some careful thinking. Never mind, new experiences are what life is made of........


 greenie-lefty ranty-ravers  

DB - it's actually John Key and Bill English leading the charge saying that private sector debt is too high and that puts NZ at large at risk.

So, I take it you mean that they're greeny-lefty-ranty-ravers?. 

Or, perhaps they're lying.

Which do you think?

Well, Comrade Kate, I think you’re misrepresenting what the Prime Minister and Bill English are actually saying there, (as well as what I’m saying) which is probably not surprising as I somehow doubt you are one of their natural supporters.

What they are actually saying is that household debt in NZ is too high, rather than private sector debt and further, that most of that household debt has been borrowed to purchase assets that are not particularly productive, i.e., that grow business, fund innovation and creativity, and produce jobs. And yes that places us at risk but I wonder if the nature of that risk is actually understood?

Most household debt in New Zealand is lent on long term contracts but it’s funded by short term borrowings from Europe, North America, and Asia. Those short term borrowings need to be constantly rolled over by the banks to maintain the status quo. We are at risk in two ways. Firstly, if another global credit crunch happens and our banks cannot borrow short term money to roll those loans over it leaves them with few options other than to go to the IMF or to default on the loans that have fallen due. And, secondly, if New Zealand’s economy turns really sour and Kiwi households begin to default on their loans, that again puts our banks into the position of potentially having to default on their short term borrowings from overseas banks which in turn would make it that much harder for our banks to borrow any more short term money to keep us going, exasperating the situation. The risk is not that we have so much private sector debt that we can’t afford to pay it back. The risk is that we have too much household debt to be able to borrow anymore. But it’s only a risk, it’s not a certainty. it's just like obesity. You are at risk of having a heart attack if you are obese; it doesn’t mean you are going to have one, and most obese don't.

Excluding another credit crunch, the only pressing issue that New Zealand has to consider in relation to its overseas debt is can we continue to make our payments as they fall due, and the answer to that, at the moment is yes we can. Our overseas lenders and the ratings agencies understand that and that’s why there is no panic, comrade, except among the greeny-lefty-ranter-ravers who just can’t seem to get their heads around any of this.  (This could all change however if something bad happens and the economy tanks, interest rates that overseas lenders charge us go up, and/or the exchange rate tanks). Our debt gives us little cushion to sit through such events comfortably, but while we are making our payments our debts by themselves will not make those things happen.

Obviously, the more you borrow in a situation of static income, the harder it is to service a loan and the more you have to forego in order to service it. Given the size of NZ’s household income, there is obviously a maximum amount that can be prudently borrowed so that repayments can be comfortably made, and for many (but by no means all) NZ households that limit has been reached. Which is why the Government has prudently altered the landscape to discourage further consumption (raising GST) and this is working. New Zealand households are now paying down their debts.

So no, neither Key nor English are lying. Nor is either saying that debt is bad or that we are at imminent risk of defaulting because we have so much of it. That's not going to happen here. However that seems to be what the left and the lettuce lunatics are saying. Ironic given that most of that debt was accumulated during the wasted years of the Clarke-Cullen Labour-Green Govt.

By the way, did you check out Bernard’s link to Needed: Economics for Grownups?

I would be interested to get your response to this statement from Deirdre McCloskey in the context of her overall thesis. I think NZ and old Europe are the same here:-

We need to worry a little less than the average northern European does. Arguments about bourgeois virtue that strike most Americans as pretty obvious (“The middle class, not the clerisy or the state, is the source of good innovation”; “Making money is all right”; “We can solve environmental problems by invention”) are fighting words in the Netherlands or Sweden. Old Europe distrusts innovation. In the United States the task is to embarrass the anti-capitalist Left with facts, without arousing moralistic, anti-innovation fervor on the Right.

David B

The risk is not that we have so much private sector debt that we can’t afford to pay it back. The risk is that we have too much household debt to be able to borrow anymore


Borrowing is 'against the future'. If the future could underwrite indefinitely, there would be no such thing as 'too much'. It can't, therefore there is.

Spend a few minutes googling Prof Albert Bartlett - then a few more thinking.

You're an end-of-world nutter, powerdownkiwi, eh?

No, I study physics.

Word-association, no matter how much you indulge in it, alters reality not one jot.

Ever noticed that your kind throw around rhetoric and /or invective, in lieu of fact?

Says heaps.

Well I never. Talk about the kettle calling the pot black!

I think you'd better go and take a long hard look at yourself in the mirror, mate, before you start accusing anybody else!

Anyway, I'm not here to indulge you or to engage with obvious nutters (that's not what this board is for). So these will be my last words on this matter, and to you, other than to say I understand fully what your position is. But dude, you're fundamentally mistaken.

I'm a (non-bank) low-level down-at-the-coal-face economist. I have always considered economics a valuable tool for analysing and understanding past events. When it comes to guiding and directing the future path of an economic activity (read economy), it is not a good idea to be too doctrinaire about it. One can prognosticate about possible outcomes of various choices. I gave up forecasting outcomes years ago for the following reasons: (a) An "economy" comprises 1000's of input components (b) The international card game of bridge, each of 4 players receives 13 cards from a deck of 52. The chance of any player receiving the same combination of 13 cards again is 1 in 635,013,559,600. (c) Take 5 components, and using just one, there are 5 alternatives. Take 5 components and using any 2 together there are 32 possible outcomes. With 20 components the possible outcomes exceed 1 million. At any moment in time. And that assumes each component in each example is applied in fixed measure. I agree with PDK and Kate.

Well, DB - I read the whole interview with Deirdre and admit to being confused.  I'm familiar with all the philosophy/philosophers she draws from but felt the arguments contained within her overall thesis rather uncongruous.

So I looked her up - to try and get a better handle of exactly where she was coming from philosophically speaking, and here's how she describes herself;

She taught for twelve years in Economics at the University of Chicago, and describes herself now as a "postmodern free-market quantitative Episcopalian feminist Aristotelian." 

Me thinks she needs to reread Aristotle, Book XI on the intellectual virtues - as she has IMO lost sight of phronesis - practical wisdom.  She seems to be trying to define a more humanist angle to economics (kind of a linguistic angle to economics?) - but she seems to still be stuck in the old hubris of it (economics) being a "scientific" endeavour.

PS ... in other words, I'm with pdk, we (and she) ignore physics at our peril :-). 

I think one of the things she is saying is that language shapes our understanding of the world and how we move within it and that that applies to economics as much as it does to anything else. Frankly I don't think that there is anything particularly revelatory there.

I am interested more in her arguments that much of what passes for economic ‘truth’ is not as soundly based on hard science as economists would otherwise claim it or like it to be. I think what she is saying is that economic language is what is really constructing much of economic thought rather than the numbers and the correct understanding of them. I think this is a weakness though of all the social sciences. Subjective reasoning and bias can become far more manifest in social theory that anyone would care to admit, particularly the authors of it.  

But what I am most interested in is that as a feminist, she is no friend of the left. And she seems to be arguing that it is the rhetoric of the left that will ultimately hold back innovation (which she sees as a bourgeois virtue). And it is innovation and invention that has, and probably always will, advance mankind. I also find it interesting that she seems to be saying that left’s claims are not based on fact but rather on rhetoric. As you are on the left, I was wondering how you felt about that?

By the way, I’m not sure physics has a lot to do with it. If you’re talking about oil, you are actually talking about chemical compounds, i.e., you’re talking chemistry. The only physics that even remotely applies is in whatever force (e.g., pressure) you apply to it.

That's better.

Yes, the social sciences (interesting language for starters) can only be rearward-looking. Any prognostication about the future, can only be by extrapolation.

Nothing wrong with that, except - if it's based on the left-hand-side of a gaussian curve, it will hold little or no truth on the right-hand-side.

The trick is to take those prognostications, and overlay them on the gaussian. If they fit, fine. If they look shaky (as exponential growth underwritten by energy does) then they have to be seen as invalid beyond the plateau.

For my - money :) - that also renders the old concepts of Left and Right somewhat superfluous. Perhaps the better big-picture labels might be selfless and selfish.

Then we get to what you mean by 'advance mankind'. Given that we are a species, in overshoot niche-wise, we better define 'advance'.

How about - We aim to hand on the habitat (planet, country, sea, 1/4 acre, whatever) in as-good-or-better condition, in terms of nutrient, biota, erosion, ph, whatever. To that end, technology is encouraged. If it doesn't fit, it ain't.   ??????

The fine print would be interesting: If we agree on the need to reduce population to 1/3 of present, maybe F&P healthcare isn't the way forward.

Which I suspect the traditionally-understood Left might not like........... :)

To that end, technology is encouraged. If it doesn't fit, it ain't.   ?????? 

If I am interpreting what you're getting at here right, pdk - then Bruno Latour actually wrote a book called, "Politics of Nature" that attempts to provide a sort of decision-framework in this regard.

He too points out we need to redefine the 'old' positions of left and right.

Yes, I agree that economics has never been (and never will be) "provable" (or reliable in its predictive qualities) in the way the natural sciences are/have been.  And indeed the rhetoric of economics/economists is today, more than ever, more and more an important part of the professional career of an economist.  And she exhibits the same degree of bias that I find characteristic of most economists - in that brief interview anyway.

I guess the problem that I have with her (and most economists) is the mixing of economics with political philosophy.  She seems to imply that political liberals are neither "left" or "right" in a political sense ... which in turn gives them some moral/intellectual high-ground.

I'm neither "left" nor "right" in those traditional definitions.  I support the redistribution of wealth through progressive taxation, and I support the use of market mechanisms as well.  I'm not pro-equality, but pro-equity. I do not support the welfare state in NZ in its current form far from it - it is inequitable (i.e. discriminatory/means tested for some and not for others).

What I am politically concerned about is the pervasiveness of the ideology of globalisation acorss both the classic left and right politics in NZ.    

"And that’s what the greenie-lefty ranty-ravers around here just can’t seem to get their head around. Private sector debt may well be 160 billion or whatever it is, but the vast majority of it is not at risk."

Take a look outside and tell me where is NZ's productivity that funded that 160 billion dollar bananza now? Don't tell me it is not at risk! As reported today most of Sealord's processing is now done in China. There's but ONE example of risk if that trend continues.

Do you actually own a business or live in the real world? I thucking do and UNLIKE YOU 2 CLOWNS I was one of the very few who predicted the GFC back in 2003. Where were you lot? Ohh... at one of those sucker auctions Harcourts probably put on I bet..

Such a rightious lot even after you have been proven fools for a ponzi scheme.


LOL Justice, like in NZ, not many people here actually own or involved in a decent sized innovative business. Economics is one of the disciplines I trained in and it has its natural limitations..... but also has it place... I have found it valuable as a business tool in the real business setting.



Tha banks use the term 'freeloader' not as a term of endearment, have a relative fairly up in ANZ Bank and he said they have to charge huge interest rates on the credit cards for those stupid enough not to pay full balance each month, because it costs the Bank big time to carry all the 'freeloaders'

By the way, there is an article in the NZ Herald today, where quote "The image of NZ households as periously improvident and debt-laden is increasingly out-of-date"  It's suggested that level of household debt is not 160% of disposable income, but the ratio is really much closer to 100%. Previous calculations were flawed due to not taking into account mortgage interest costs attributable to landlords. eg I have say $80,000 of residential mortgages, which if I had a disposable income of $80,000 would be a ratio of 100.  But those mortgages are for 5 properties in a family trust, 4 of which bring in a substantial additional income to be disbursed.  I'm not surprised the convential 'wisdom' of calculating the ratio doesn't capture the true picture. 

By the way, there is an article in the NZ Herald today, where quote "The image of NZ households as periously improvident and debt-laden is increasingly out-of-date" 

You forgot to quote from the second paragraph of that article:

"Bank of New Zealand senior economist Craig Ebert says..."

If you're naive enough to believe everything the banks say then I sure hope you haven't leveraged yourself into the housing market.Take also the time to read this truly excellent article on the Irish meltdown that was recently posted by Philbest and you might get an idea of how fraudent and dishonest banks can be during housing bubbles.

“There is an iron law of house prices,” [Morgan Kelly] wrote. “The more house prices rise relative to income and rents, the more they subsequently fall.”

'nuff said.

The Senior Economist makes obvious points about NZ even the meanest of intelligence should grasp.  See my post above, households are not in such great debt as we have been assuming due to faulty calculation methodology.  But conspiracy theorists (who feed off each other on this site) won't readily accept that of course. Kiwis actually have an average ratio of about 100 disposable income /debt: that means if you have on average a disposable household income of say $60,000 you have on average mortgage and general debt of $60,000.  Like all averages, 50% will be below the ratio and 50% above, and for every extreme well above there are those extremely below. House prices may slide further as Marlarkey says (and hopes like hell they do), but it won't be due to lots of Kiwis being hopelessly in debt

households are not in such great debt as we have been assuming due to faulty calculation methodology.

This is how much overseas debt the private sector currently has, most of it taken up through the banking system ...

NZ$ 222,496,515,994 

(at 10.32 pm)

Good one muzza if you can just practice the cheesy grin that sort of positive spin just might make you PM some day


Mate you last die-hard property sprookers must have your heads up your bums if you refuse to see the reality and instead keep spouting the same old ridiculous drivel.

And I bet you are too gutless to read that Vanity Fair article linked above, and too silly to understand any of it, as gutless and silly as the property hypers who have damn near destroyed the Irish economy. And Iceland's and Greece's and Portugal's and Spain's and all the rest.

Now you sit there with your fingers in your earholes and shout the same bloody stupid property investor slogans over again because you can't face the facts.

What a bloody dimwit and there'll be blood in the streets if you've caused a PIIGS type situation here for the rest of us ---- and it won't be our blood mate.

External Debt to GDP Ratios ...  The wrong  metric ...

I am surprised to see one of   Neville Bennett's stature  using external Debt to GDP ratios.

This implies that by building prisons and fixing leaky homes  ( and now schools it seems) ie expanding GDP -  we can somehow address this problem  which is clearly a nonsense.

Implicit in using this ratio is the inherent assumption that export income rises in proportion to GDP  and I see no evidence for that in NZ's case.

Neville, Please tell me why export income  to external debt is not the appropriate metric to  monitor our indebtedness over time ?

Surely our ability to service the debt is what counts - not the number of prisons !

We had practical experience of this debts thing with the collapse of finance companies. Similarly they borrowed short and lent long and got into cashflow difficulties with a bit of deception their too.

I think the people who had all their money in bridgecorp had just a big a problem as the people who couldn't re finance because their loan was from bridgecorp.

surely it is the same at a national level, except certain assets have to stay in the country. Even if the worst happened what is the Japanese housewife going to do - send in baycorp to take an acre of land from queenstown to Nagoya, or scrap dealers to get some scrap metal from NZ's national grid?

Even if no one would lend us money they would still want our, milk, our lamb, our oil.

'Even if the worst happened what is the Japanese housewife going to do - send in baycorp to take an acre of land from queenstown to Nagoya, or scrap dealers to get some scrap metal from NZ's national grid?'

Mate it's not the Japanese! They have no interest in property these days and won't even buy land in Japan let alone NZ!

I guess what I am saying is the asset is still in NZ

NZ's proven oil reserves are only 80 million barrels ...... roughly enough to supply the entire world for .... 24 hours ! Indeed , NZ consumes 40 million barrels annually . Can't see that foreigners want our crude .

And regarding our agricultural products , we are a minnow on the world stage . We export alot of milk products , simply because other countries don't ramp up their production . The USA , China , or Sth. America could swamp our markets , if they chose to .

.......... NZ needs to stop making assumptions that agriculture and tourism will pay the current debt load of the country , and secure a bright future , because they always did  so in the past .

In the long run we have some breathing space with the coal we have, perhaps with a couple of tough years while we gear up the technolgy. South Africa was forced into useing Gas to Liquid technology during the trade restrictions during the apartheid era. We could do the same.

Went to the job expo in AK in the weekend and was talking to a mining company that has just purchased GTL technology from the states.

My pick is they will be setting up down the south island before too long.

Scarfie - you're smart enough to 'get' EROEI.

GTL and CTL and Shale to oil don't do what light sweet crude does.

So you don't fuel BAU globally,with equal volumes of them - far from it. 

The South Island is not even coal. It's lignite, half-way between peat and coal. Bad EROEI.

Yes, they will go for the coal - these nutters have no Plan B. They will tell the public that there will be carbon-capture, but (just like Yucca Mountain) it won't happen. It takes too much energy to do - which lowers your EROEI.

So expect more extreme weather events. And expect more funded climate denial - it's the only way they can justify killing off your grandkids so they can keep their 747's in the air.

The Hubbert curve (gaussian, really) applies to coal and gas anyway. Did you google that: Campbell 2004 scenario? That's the underlying depletion they need to replace.

Oh yeah I get it. End product cost double using the Sasol technology from what I have heard. Just saying we have a little more breathing space compared to most. But yes the world doesn't have that much and I have stated for some time now that we are going to face famine in a lot of places.

How rosey is NZ going to look compared to some places, and what will we be able to do to protect it?

People don't seem to be able to tell the difference between things which are assets and things which aren't.
For instance, just because something is expensive to buy doesn't mean it's an asset, yet that seems to be the sole criteria applied by a lot of people.

Excellent analyses, but any analyses are only worth as much as it can be used for. The equation is cruel simple. If you have debt, you must earn more money to pay it off, not borrow more to service the interst. To earn more, you must sell more, and to sell more you must engage and pay skilled people to do just that. New Zealand is only engaging more bureaucrats who all are clever systems and looking for someone else to do the job, on credit of course, they call it opportunity and commission. “Cut out that middle man bureaucrat”, get rid of them, and engage some really skilled expat kiwis who can do the job. harriss.rick@gmail in Hong Kong

Neco, Governor General would be nice

New Zealand is addicted to foreign debt and a lower cost of living off the back of an overvalued exchange rated driven by that addiction.  Unwinding that will not be pretty. 

The RBNZ have long had the regulatory tools to deal with this issue but have done no more than wag a winger and blame others.

What was it about Rome burning?

and there's more than one definition of fiddling....

Seriously, what we lack - as long as we're a democracy - is social maturity. Whether rich or poor, people vote for more in their personal hip-pockets, while quite happily ignoring any relativity to their share of the collective debt.

You only break that chain, by education.

or upping the average IQ - maybe the immigration criteria need adjusting?   :)

Sorry can’t spell finger or maybe it was a Freudian slip mixing a gesture with a behaviour pattern….

Has RBNZ been negligent?



I see no valid points to claim negligence....especially given just how badly other RB's are doing and are likely to do in the future, a definitive no for me.

Also the RB is a bit hamstrung....lets not forget a Govn holds by far the most power, often the RB has to try and undo the Govn's damage with crude MP.

I think there is a case to say they could have done better but couldnt we all? At least the AB appears to me more awake and less blinkered in neo-con economics than Treasury and forthright than most RB Governers....some such as the American and UK ones should be shot.........



"Has RBNZ been negligent?" is an interesting question, I think. Perhaps I should also have asked if yeas, why, if no, why?  

steven - you say, "I think there is a case to say they could have done better ..." - in what way, where, what areas?

Cheers, Les.

negligent? No ,because you can't be when you know exactly what the repercussions of your actions are or would be and I believe they did. How about down right dishonest and corrupt? YES

The RBNZ played a decisive role in building the property bubble and fuelling positive NZD exchange rates to encourage foreign funding for the NZ banks. They purposely dismissed all current account deficit warnings, all exporters and their opinions, and all local cash savers. They purposely helped fuel the NZ debt bubble just to aid the Aussie banks.

The property bubble was blatantly obvious very early on from about 2003 and it was also blatantly apparent to anyone with even half an economically sound brain that it would end in disaster if not dealt with quickly and smartly via a decent few OCR increases. I myself wrote to Bollard (2003) telling him of the problems he would face IF he did not do something NOW! He acted years too late as we all know.

I and many others were ignored and hence you now all face what we have now. A absolute global financial crisis that will have on going effects for maybe decades.

Some people just can't be told anything because their own perceived 'education' makes them so full of themselves.

Bollard and the clowns at the RBNZ with all their fancy economic degree's are such people.

All those degree's really didn't count for much did they? Same with Greenspan, Bernanke and Geithner all of whom have been PROVEN to be either utterly corrupt or utterly devoid of any real economic understanding. Textbooks can only teach you so much. Having a real sense and intuition of reality is worth so much more than any BS degree.


Justice - am keen to see the letter you wrote them. If you can share it could you send a scanned copy marked for my attention via:

As for acting earlier, agreed: 

I wonder why they left it so long when it must have been more obvious to them (RBNZ) with their specialist, professional knowledge and competencies, what was happening?

Cheers, Les.


It seems interesting to me this subject of debt. I am uncertain of what significance household debt actually has on our economy. Sometimes I get the feeling that Govt overspending is more of the problem. On household debt people of course will spend more than they earn if the advertised attractive credit is consistantly paraded before them.So in todays times we can all have what we want irrespective of whether we actually need it.Everybody has been used to living with debt as the normal and quite amazing Govt's have become used to it. Almost like the whole world has been living in a bubble.Trouble is periodically something you would liken to mother nature insists on a big correction and more frightenly for some, starts looking towards morality. People who have not been paying their way and have advantages not available to others are being exposed.  Anyway in NZ to deal with our current situation we will again tax the hardworking high earner, retirees and achievers, and basically give it to the low income earner and the remainder to the Govt coffers. Only problem is, when are the high income earners in NZ  going to get sick of this method? Actually I hope I am not around then . Can't be long.

Andrew Little, President of the NZ Labour Party, seems to be in denial re. NZ's indebtedness.  He recently made a public speech saying that NZ debt was no worse than many other countries. Not only that, around the same time, some one paid a Brit to come to NZ to state similar.  Such denial does not bode well for the NZ economy if a Labour, NZfirst, Greens, Maori Party coalition should UNFORTUNATELY, make it into Gov't later in 2011.   Undue union influence WILL prevent the Gov't from making the hard necessary decisions to  improve NZ debt and so improve the economy. Such a coalition will almost certainly ensure that NZ receives a credit downgrade..... resulting in a plummeting currency, stock market  and increased inflation.  If Labour supporters and others are disillusioned at the moment, God help them and the rest of NZ if voters bring such a scenario about.

Our public debt IS actually less than most other OECD countries public debt.. Our weakness is private debt..........There is a difference.....

You are making a political statement and not an economic / business one......

National are no better, they will just land us in a diferent pile of might smell a bit different, look a bit different but it will still be poo.

Indeed NZ has to make a decision this year....neither main party is fit to govern IMHO....neither of them is free from obsolete dogma, faulty economics and blinkered idelology or free from the collar and leash of their respective masters...and yes I consider the unions a potentially huge neg issue, but I also consider the back room boys from National to be as bad.