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Biggest risk to NZ economic recovery is Aussie housing market and slowing Aussie economy, NZIER warns

Biggest risk to NZ economic recovery is Aussie housing market and slowing Aussie economy, NZIER warns

The biggest risk to New Zealand's economic recovery is if a faltering Australian housing market causes growth to slow in our Tasman neighbour, NZIER principal economist Shamubeel Eaqub says.

Eaqub was speaking to a group of media and economists after releasing the NZIER's June Quarterly Predictions, which said the domestic recovery was taking hold in New Zealand, with growth forecast to jump from 0.3% this year to 3.7% in 2012, boosted by rebuilding activity in Christchurch.

The big risks to the recovery were global events, such blowup of the sovereign debt crisis in Europe, or his "biggest concern," a slowdown in the Australian housing market, Eaqub said. Australia is New Zealand's biggest trading partner.

"A slowdown in Australia would make me very, very nervous," Eaqub said.

Because growth in Australia and New Zealand was closely correlated, an Australian slowdown would "really be an issue to us".

Meanwhile, commenting on the New Zealand housing market, Eaqub said he would like to see activity "broaden out" into the regions, instead of there just being a strong housing market in Auckland.

Not rebalancing enough?

Eaqub also expressed concern about the structure of the economic recovery, saying there was evidence the New Zealand economy was not rebalancing as much as expected. New Zealand's external liability position was looking bad three years down the track, with the problem being private sector debt. Whatsmore, NZIER was predicting New Zealand's current account balance to blow out to 8% of GDP over the next few years.

New Zealand's current account deficit was 2.3% of GDP for the year ended December 2010, while net external liabilities were NZ$159 billion, or 81.7% or GDP.

"We're still quite indebted," Eaqub said. A sustainable rate of external liablilities would be around 60% of GDP.

"We haven't made as much of a correction as we should have," he said.

"We're really stuck in no mans' land right now."

New Zealand did not want to be in the situation Greece currently finds itself in where an outside body - in Greece's case the IMF - told the government how to collect taxes.

There was also the problem that the government's budget released on May 19 did not detail how New Zealand would deal with the growing costs of an ageing population - such as healthcare costs - as the baby boomer generation retired.

Deleveraging to continue

Household deleveraging was set to continue, while people's financial situations were still quite tough. Reduced discretionary spending would continue to hurt the already-hit retail sector.

"The deleveraging story has been very powerful," Eaqub said.

"Households are not borrowing as much as they were."

Inflationary pressures in the wings

Eaqub sounded a warning that inflationary pressures were about to start flowing through from businesses that had not been increasing prices as much as they had wanted to over the last few years, instead deciding to take a hit on their margins.

"Business margins have been under considerable pressure over the last few years," Eaqub said.

"There is a fair bit of pent up inflation that's sitting out there in the business community," he said.

Those inflation pressures meant NZIER believed underlying economic growth - that which excludes the Christchurch rebuild - was in the range of 2-2.5%, rather than upwards of 3%. That underlying growth would be "very sustainable," with the economy able to handle it without taking on too much extra debt.

The NZIER thought the Reserve Bank would be able to hold off lifting the Official Cash Rate until the start of 2012, but it would then have to hike to about 4% over the year, from its current record low of 2.5% as inflation pressures flowed through from the rebuilding of Christchurch.

On the Christchurch rebuild, Eaqub said the drop off in demand in Christchurch had not been as large as expected, with business demand pulled out of the CBD and into the subburbs.

Spare capicity out there

On the unemployment situation, Eaqub said NZIER considered there to be some spare employment capacity in the labour force, due to levels of under-employment and part-time employment. In terms of spare capacity, the unemployment rate was more like 11%, not the 6.6% currently.

That spare capacity would put downward pressure on income growth.

"Income growth will come through working more hours," Eaqub said.

In the May Budget, Treasury forecast income growth over the next three years would be about 2% above inflation as private sector demand for workers picked up.

Manufacturing feeling the heat, but rural ok

Growth in export volumes was encouraging, although less so was the small contribution to this growth from manufactured goods, as primary goods continued to dominate.

"We still have a problem in terms of how that manufacturing sector is growing," Eaqub said.

A high New Zealand dollar was a hinderence, and would hurt the exporting sector, bar rural exports. The rural sector was "too strong right now in terms of prices to be bothered by the exchange rate".

The New Zealand dollar hit of post-float high of 82.6 US cents yesterday on the back of improving business confidence figures.

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58 Comments

Nice to see someone take the Australia Black Swan seriously. July is going to be a very interesting month.

Would it really be a black swan if the Aussie economy went teets oop off the back of a housing market slump/China slowdown? (with consequent effects on NZ?)

I rather think that risk has been self evident for the past X number of years.

I see the Aussie economy contracted -1.2% in the latest measured quarter (but that is principally down to the floods etc). Aussie construction and services are technically in contraction according to PMI's I have seen recently, its mining/extraction/farming which are holding the economy up it seems.

IMHO.

A black sawn is an unknown and unexpected event....and also possibly a somewhat smaller event that triggers something bigger.....sort of like kicking a snow ball down a hil and getting an avalanche....the result is all out of proportion to the start.

So for me I dont see the OZ housing market as a black swan.....more like a murky white one....its known and its big and its effect can be gauged....

regards

 

 

Uhm...well by your logic you could have said the something thing about the US housing market in 2006. But we all know that wasn't true. Only a very few, (myself included) we’re lucky enough to spot that crisis. My problem was that the finical instruments I needed to buy were not available to that average consumer. There wasn’t an ETF on  the housing market. So I had to make bets on the peripheral industries and wait for the collateral damage. It took both a financial phase change (money going from water to ice) and substantial change in the critical mass in the way people thought about real estate to finally get the housing market to implode.

So the OZ housing market is still a Black Swan...it might be Gray or even self-evident to like-minded individuals such as our selves. But i can assure you that we are very much in the minority right now. You might be able to see the OZ housing bubble but you may not know the real effects of it bursting. Also it still fits my criteria of a black swan since eth money is still liquid and a vast majority of Australians have deluded themselves into thinking real estate always goes up exponentially.

Only a very few, (myself included) we’re lucky enough to spot that crisis.

Two things: First, luck had nothing to do with it, because (and second) anyone who wasn't an utter gibbering moron completely blinded by greed could see the inevitable collapse of the American 'To Good To Be True' property bubble.

That is a very naive comment since hindsight is 40/40 and of course it obvious NOW. It's is very difficult to make any bet against a monster that big and keep both your sanity and solvency. 99.99% of the world is betting against you, so no it wasn’t that obvious. It’s one thing to have it on good authority and "consider" there is bubble. But it's an entirely different animal to actually "know" there is a bubble. There is also the secondary problem of having the funding to outlast the market sentiment. It may take years for any bubble to burst.

.

How was it not obvious?

The fact that people such as yourself still attempt to convince everyone (including yourselves) that it wasn't possible to foresee the demise of the bubble(s) is the very reason these bubbles - and crashes - continue to recur with depressing regularity.

Markets cannot be sustained on hype alone.

Some of us at this site are very successful, financially-speaking. Some of us have zero debt and plenty of non property-based capital and investments. We are in this happy position because we weren't retarded enough to believe that bubbles, such as the recent one, are not foreseeable.

Some of us understand fundamentals.

Market bubbles are the antithesis of economic fundamentals, and the mechanisms involved are easily recognisable and understood by those WHO ARE NOT FINANCIALLY RETARDED.

Just think back to 1987. Remember all those arseclowns sitting around wailing about how somebody else lost all their money for them? Remember how those arseclowns piled into a market they knew absolutely nothing about on the assumption that there was free money for the taking and they couldn't possibly lose?

These are the same kind of people - and in many cases the actual, same people - who said the exact same things about the residential property market. You know, how prices and capital gains can only ever go up, and will do so forever, and nothing could possibly go wrong, so borrow! Borrow! BORROW! and buy! Buy! BUY!

They believed that you couldn't get into the sh*t, because the market would continue sailing upward indefinately.

A lot of people said and thought exactly that. They are the people who now claim that the collapse wasn't inevitable, or foreseeable, or even likely. The same crap was spewed out by those who lost everything when they gambled on the X Corps back in the Greed Is Good '80s.

When your income increases at least as fast as costs and prices, you can be forgiven for being tempted to play the game. But when people are still earning much the same now as they were way back when, only the mostly imbecilic think it's a good idea to borrow a lot of money with which to pay outlandish - and unsustainable - prices. Financial retards, in fact.

So take your own naivety and get out of the economy, because you've done enough damage already. Cheers.

Growth, growth, growth and more growth. Do they all add up to the NZIER having tunnel vision, or believing in neoclassical economics?

@Colin

Agreed Mate! 

How can Christchurch rebuilding be considered growth? If it is good for the economy, try this analogy. Go home and put a sledge hammer through your TV. That must be good for growth - after all you are buying a new TV.

All Christchurch is doing is forcing money to be spent on rebuilding, when it could have been employed in real economic growth. And to those who say that the money is coming from the insurance companies, we are all paying for this with increased premiums and higher excess payments - money that is being sucked out of the general economy.

"How can Christchurch rebuilding be considered growth?"

It isn't considered growth by anyone who understands anything!

http://en.wikipedia.org/wiki/Parable_of_the_broken_window

it can be considered "growth" when your economy is sick and cannot rely on the tradiitonal housing inflation dynamic to stimulate domestic growth 

"Meanwhile, commenting on the New Zealand housing market, Eaqub said he would like to see activity "broaden out" into the regions, instead of there just being a strong housing market in Auckland."

"Eaqub also expressed concern about the structure of the economic recovery, saying there was evidence the New Zealand economy was not rebalancing as much as expected. "

hmm - contradiction anyone? I thought the whole idea of rebalancing was to rebalance AWAY from debt and housing.

Why rebalance the economy when you can rebalance the economy?

Thanks for the links Hugh. So the US is the place to be then when it comes to housing affordability. They have it about right.

That's ironic considering so many mortgages are underwater over there. 

Sydney is a classic example of dysfunctional planning with suburban apartments being the substitute for what otherwise would be a brick and tile house on a lot for the working/middle class family.

 

How times have changed. 

Mike M - I assumed your first comment was a piss-take. This one has me not so sure.

Sydney?  All coastal cities started by being a port, it was the only bulk transport interface at the time. Immediately, that precudes half of the potential to expand peripherally - it's too wet, and a tad too salty.

So they all expanded in a half-moon manner, until they came up against geographical obstacles, or servicing ones. Or both.

30 years ago, that process broke past Penrith, and stretches from Gosford to Cronulla.

So, you go up - as every city, and every stack of shipping containers, does. Every port on the planet is in the same trouble - notice? The only answer to increased shipping demand, has been (and can be) yet-more-bigger ships, deeper channels, and taller stacks. The underlying lesson is that they're not making more harbours. Or land, adjacent to city hubs.

So you get high-rise accomodation, displacing the back-yard 1/4 acre with the Federation home.

It's all physics, geometry and logistics. Even those councils - they have to produce cost-effective services, every one of which gets more expensive with distance.

Realists understand this,

Ideologues don't.

I categorise posters accordingly    :)

 

HP said: ''All through middle North America and Canada, they did not experience a housing bubble''.

Canada has not experienced a housing bubble? Either you are joking or you are not the housing expert you think you are.

http://www.theglobeandmail.com/globe-investor/investment-ideas/experts-p...

We refer to the markets in New Zealand, Australia, the United Kingdom and Ireland as "straightjacket markets", with the same dysfunctional planning systems strangling land supply and triggering housing bubbles.

Hugh Pavletich

.....

You use Houston as the benchmark but what would you have said to calls not to build on flood plains, liquicifaction zones etc and if C02 is going to harm the planet then maybe Houstons model is a no -no. Would you castigate the Houston model if you were to believe the official version on climate change.

 

 

and a case study close to home: residents of Arrowtown are opposed to more expansion. Would you like to see more housing beyong Arrowtown?

 

 

Hugh, I’d be interested to get your take on the Aussie housing market. Do you think there will be a correction to their housing bubble, and if so, how much do you think the prices over there might come back by? What do you think might trigger it?

And perhaps most importantly, what do you think declining Australian house prices will do to those here in New Zealand?

Hey Hugh,

Pump up your bicycle....Christchurch dreams of more cycle lanes.:)

http://publicaddress.net/southerly/one-hundred-and-thirty-one-million-re...

This guy gets it. Good on him.

What bank does he work for?

Eaqub is one of the few economists in NZ I respect.

He's quite right, any significant slowdown in Aus would have a big effect here.

The NZ dollar would strengthen, meaning bad news for exporters who currently enjoy a weak NZ dollar against the Aussie (one of the few shining lights at present for exporters)

We'd see less Aussies coming here as tourists - again, the Aussies have been propping up our sick tourism industry    

The Aussie banks would be affected, which would have implications here

We could get quite  a few kiwis coming back, out of work. = drain on NZ and more benefit expenditure 

Luckily, I suspect, the Aussie house price slump will be relatively mild, and we'll have only minor impacts. My only caveat being if China's econmomy slows down a lot there could be quite a big slump in Aus    

 

It speaks volumes about how cr+p mainstream economists are that folk feel the need to laud this guy for stating the bleedin obvious.........

true true true!

For some "bizarre reason" the bank economists seem to look past likely offshore influences like slowdowns in Aus and China (they WILL both slow down, the question relates to the quantum) and Europe's sickness 

oh yeah cos the RWC cup and Chch rebuild is coming!!!!

twats......

  

New Zealand's monthly goods trade surplus hits a record high for April - $1.1 billion. Ok, its the rural sector that's behind it (but not entirely), and you have to take your hands off to Fonterra who have masterminded a great business over the last few years, always in touch with their market on behalf of their shareholders - and delivered results with a strong KIWI $$. Basically, thats how you want any business driven, and this is where Eaqub let's himself down.

Manufacturing feeling the heat

QUOTE -A high New Zealand dollar was a hinderence, and would hurt the exporting sector, bar rural exports. The rural sector was "too strong right now in terms of prices to be bothered by the exchange rate". 

There is a reason why the rural sector was 'too strong right now in terms of prices to be bothered by the exchange rate'....that's because the rural sector produces something the world demands at a price the world is happy to pay...and forgive me,,,,,how can any industry be too strong for it's own good? And I am sure the rural sector is investing for the future as well, as any prudent business would....shame the Government couldn't do the same!

I don't have to remind you, many years ago New Zealand had a highly regulated economy..fixed exchange rate / subsidies / import tariffs etc etc. The whole idea of freeing up the economy had one aim I believe. Let exporters stand on their own two feet in the big wide world, and thats exactly what Fonterra (amongst others) are doing, which drives employment and tax receipts.

And as for the headline; Biggest risk to NZ economic recovery is Aussie housing market and slowing Aussie economy .

Talk about insular. Its a big wide world out there that spreads beyond the Pacific Ocean and Tasman Sea. I suggest Eaqub takes a 'Gap Year' and does a bit of travelling. Places like South America, China, SE Asia (I am struggling to get out of the Pacific region), India.

 

 

 

 

 

A report I got from UBS's Sydney-based banking analysts this week makes some interesting comments on the Aussie housing market.  It's entitled Mortgage arrears - 2009 pig in the python.
They note the recent spike in mortgage arrears (90 days delinquent) to 60bp is the highest level in 15 years, at more than twice the 27bp median during the period.
They also say personal loans 90 days past due are also their highest since 1996 (134bp versus median of 95bp). Australian SME impaired assetse are also high at 239bp against a 95bp median.
Given the fiscal and monetary policy stimulus during the global financial crisis, 2009 was a boom year for the big Aussie banks in terms of mortgage originations.
"We estimate that 2009 vintage currently accounts for almost a quarter of the majors' mortgage books. At this large 2009 Vintage pool 'seasons' we estimate total mortgage arrears may rise further towards 85bp, even if 2009 vintage turns out to be no worse than 2008 vintage (it is likely to be worse in our view)," the UBS analysts say.
"If the RBA continues to hike rates (consistent with its hawkish tone) we estimate that total mortgage arrears of 100bp (or A$13 billion across the industry) are possible by 2012."

And this from Merrill Lynch on Australia:

Housing credit again posted a 0.4% gain for the month (6.4% yoy to Apr), but was unable to stop the 12 month growth from hitting an all-time low (since Aug-77).

Either you are joking or you are not the housing expert you think you are.

I know which one of those choices I'm going with.

Yes, we do need "freedom to grow", to maintain any semblance of productivity and efficiency. Even if we do not utilise that freedom to any great extent, it is absolutely necessary to have urban land price "safety valves" to keep urban land prices sensibly in proportion to incomes and GDP.

"Speculative" and "monopoly" components to economic land rent do nil good whatsoever to an economy. They might SEEM to involve "wealth" for someone. That is an illusion doomed to fail in the long run.

It is ironic that in cities where there is "freedom to grow", as Hugh points out, they actually have NOT had any house price inflation AND they have not built as many houses anyway, as parts of the world where there are massive planning interferences and massive rackets surrounding "planning gain". It is also ironic that in highly planned cities like Portland, Oregon, inflated land prices have been an obstacle to "infill development", and the hump in the population density "curve" has shifted towards the FRINGE. The same thing is happening in Auckland and Wellington.

Refer Alain Bertaud's studies on "The Spatial Distribution of Density", and Shlomo Angel et al, "Making Room for a Planet of Cities".

Inflated urban land prices lead to REDUCED efficiency of urban form, reduced productivity, reduced social mobility, and rising inequality. Refer to the papers done since 2000 by Prof. Paul Cheshire and colleagues at the London School of Economics, or read the books (2 of, published in 2004) of Prof. Alan W. Evans of Reading University.

Arbitrarily prohibiting growth does lots of harm and does not even do the "good" it is claimed to. If we let the market "restrain growth", through accurately pricing infrastructure and gathering the revenue as accurately as possible according to true costs (and let the private sector do infrastructure if residents prefer this - it comes to the same thing); we would restrain urban growth anyway WITHOUT introducing a whole lot of new inefficiencies that take us backwards by every measure.

There is, by the way, no correlation between "sprawl" and local tax levels. Some of the world's most sprawled cities have the lowest local taxes. It is nonsense to claim that a city that grew 16-fold in area in 70 years, (which is a typical average) suddenly can no longer afford to continue to grow an incremental 0.1% or so per year. Some of the LOWEST costs in taxes and infrastructure can be had in "edge cities" and sattelite cities built on green fields. It is "local taxpayer flight" to such cities that REALLY makes local politicians such ardent "conservationists". Refer "The Environmental Hustle" by Prof. Bernard Frieden. Inter-jurisdictional competition between many small local governments is a good thing, amalgamation is a massive mistake. Efficiencies can be gained in infrastructure provision anyway, by voluntary local buy-in to large-scale private or semi-private schemes.

This whole story is a classic addition to the many previous ones where an elite class of "planners" has ignored basic economics and proceeded to wreck whole economies and societies. "Scientists" are the absolute worst people of the lot, if "religion" needs to be kept away from the levers of political power, the same goes, many times more strongly, for "scientists". The exceptions are the ones like Paul Callaghan whose minds seem to incorporate the necessary economic intuition as well as the scientific.

I stand by what I said the other day, too, about the future of civilization belonging to the conservative, heartland, Southern, and "bible belt" USA. Get the land factor wrong in your economics, and everything else will be wrong too. The parts of the USA I refer to are about the only part of the world today getting it right. Even China and India are going to implode very shortly under the burden of speculative and monopoly economic land rent, but sadly, so will NZ and Australia and the UK and Ireland and most of Europe. The role of speculative and monopoly economic land rent in previous "Asian Crises" is only just starting to become clear to a few enlightened economists today.

It is sickening that these wholly policy-inflicted economic catastrophes get "spun" by modernday leftwing and Green Dr Goebbels, with potentially even worse catastrophic results for humanity if the lies succeed.

"Yes, we do need "freedom to grow", to maintain any semblance of productivity and efficiency"

Therefore by your own words if energy supply is in decline which it is, our efficiency and productivity will decline and we wont need to worry about "freedom to grow"...it wont be happening.

""Scientists" are the absolute worst people of the lot, if "religion" needs to be kept away from the levers of political power, the same goes, many times more strongly, for "scientists"."

Religion and science are fundimantal opposites, the former rests on an unshakable belief in the non-existant, the latter on the fundimentals of maths and phyisical laws.  Religion and political parties have far more in common.

So who do we have ? right wing, libertarian, laissez faire, free market, neo-classical economists? the ones who have caused the greatest financial melt down in history? and still deny it?

absolute boll*cks is all I can say.

At least scientists have vigor in their analysis and have work that can be examined and checked.....a far better thing to consider is to take not only religious fanatics/fundies away from power but also the same for economists and wack political parties like Libertarians...

Far more likely to produce good results.

regards.

 

Typical economic ignoramus, completely unable to understand my point. Arbitrary regulations equals no growth, PLUS inflated land prices, monopoly and speculative land rents, reduced productivity, reduced efficiency of population density dispersion, reduced social mobility, etc etc.

Free market, with resources scarce and expensive, equals no growth, but land prices stay low, productivity remains high, etc etc etc. IF resources NOT scarce and expensive, growth continues. Problem self balancing.

I stand by what I say, ignorant people presuming to "plan" these things, always do far more harm than good. If you still don't get it, you are a prime exhibit yourself of the kind of person who absolutely should not have any input, just as millions of Russians would have been better off if Lenin et al had had no input into their destinies.

"........scientists have vigor in their analysis and have work that can be examined and checked...."

SO THEY SAY, Steven, so they say. Here is what it comes down to in reality today. Any left winger simply cannot be trusted, period, even in the non-political area in which he has particular expertise. I do not trust any left wing sociologist, criminologist, economist, historian, or scientist. Scientists presuming to meddle in economics, when they obviously have nil intuition for it, are the worst of the lot.

Crooked Left wing "scientists" are responsible for the climate scam. These people leave the medieval papists for dead, in appealing to their own authority over everything else.

See my post below about "free markets". There is nothing wrong with free markets. Just as "guns don't kill people, people kill people", free markets don't do harm, people do harm. The best principle is "caveat emptor", then people will "get it". Endless state guarantees, etc, are certain to be the death of our civilization; wheras "caveat emptor" merely hurts the people who b----y well deserved it.

You'll tell me those people are "greedy capitalists" expecting to be bailed out by the taxpayer. Don't try and tell me that is anything to do with MY ideology, pal, or anything to do with Ayn Rand's ideology, or the Founding Fathers, or Adam Smith's, or Edmund Burke's, or Winston Churchill's, or "free enterprise". "Capitalism" and "private enterprise" is not "free enterprise". The latter is the CHECK on the former. It is THAT that we do not have enough of.

Property development in Texas, for example. So competitive, so free of monopolistic practices, so free of corruption, so free of backroom deals; that it is hardly worth anyone bothering to save money by building their own home. Even well below average income earners can become freehold property owners within a few years of hard work and saving. Contrast that with the regulated-to-death alternative. Don't tell me that free markets are bad for people.

What you leftists hate most, is working free markets that obviously benefit people. There is nothing you MORE want to stamp out. You love flawed, distorted markets with political tampering all through them, that you then use to "blame free markets". There was NO house-price-induced financial crisis in any city with a genuine free market in housing. There would be no global downturn at all if there everywhere were genuine free markets in housing alone.

 

 

"It is ironic that in cities where there is "freedom to grow", as Hugh points out, they actually have NOT had any house price inflation"

Arizona? Nevada?

me think you jest.

regards

The Heritage Foundation report listed Phoenix and Las Vegas as "controlled" markets.

 

http://www.brookings.edu/reports/2006/08metropolitanpolicy_pendall.aspx

 

This might be because they are hemmed in by government owned land, and the government acts as an abuser of monopoly power to maximise revenue from land sales.

See also:

Las Vegas:

http://www.demographia.com/db-lvland.pdf

Phoenix:

http://www.demographia.com/db-phxland.pdf

 

The myths (lies?) about these housing markets being "free" have been most unhelpful to the emergence of truth.

The Heritage Foundation is a loony right wing think tank (what an oxymoron that one is) who said the ryan plan was just fantastic.....part of its impossible claims for fixing the deficit was an unemployment rate of 2.8%.....maths obviously isnt their strong point....dogma sure is.

If you base your decisions or outlook on that lot....well tahts one huge mistake......

regards

 

In Arizona and Nevada the land supply for development was loose enough to allow massive overbuilding, far beyond non-speculative demand or viability, so the 'restricted land supply' argument doesn't really hold up to scrutiny in the case of those states.  In any case, the real limiting factor for population carrying capacity in  those desert locations is availability of water supplies rather than availability of land.

Although, from what I've read, the bubble demand in Arizona, Nevada, and other western states was largely based on the spread of wild speculative buying as an overspill from California.  As established cities on the coast became too expensive for bubble buyers, development spread into the Inland Empire/California desert, and then to neighbouring states.  But that has little to do with rational real-world factors like demand for dwellings or available land.  Was just the need to provide more and more trading tokens to feed the bubble hysteria.

 

You got it.  Had a valuer friend who indeed moved from S Cal to Phoenix for exactly the reasons you describe - and suffered the effects of the fallout big time.  What amazed me was that that profession itself couldn't even see the bubble through the trees - so convincing was the property ponzi in the US.

And what I found really fascinating there (and a lesson for Auckland, I think) was just how quickly prices fell once the bubble burst, and how wrong most everyone was/is at predicting the bottom.

That exchange between "Troy" and "Anon Good Nurse" is one of the most intelligent discussions I have seen appear in interest.co.nz, period.

Anon Good Nurse is right, there are far too many financial illiterates out there playing with speculation and then crying when it all goes pear-shaped on them. There were no LACK of wiser heads warning, warning, warning.

Troy is right too, though, shorting this market took massive balls and very few saw it through. "The Big Short" by Michael Lewis is essential reading. Yes, 99% of market participants were betting against the short-siders; that is what made "shorting" so profitable ultimately.

Derivatives are actually a good idea as a form of insurance, but what really went wrong was the pricing of risk. The "pricing" ended up being set by the great mass of idiots willingly taking the "long" side. It is like mortgage underwriting with too many people keen to provide the underwriting.

The more I understand all this, the less I am convinced about "market failure" and the more convinced I am that the market is an extremely efficient mechanism for translating idiocy and unreason into richly deserved disaster - a form of Karma or Nemesis.

But this forum is turning into "The Standard" or "Frogblog"; most of what I say is "pearls before swine" stuff. Even Kiwiblog has more economically smart people commenting on it, which is sad given what THIS site is MEANT to be.

PS See this list of people credited with "predicting the crash":

http://www.economicgrowth.org.nz/artman/publish/article_1336.shtml

22,625,235....population of Australia..land mass........big and plenty of space to build a couple of houses.....  USA 307,006,550 (2009) population of USA - land mass - still big and plenty of space to build a couple more houses.....housing market - collapased. do u see the link?

And now even the banks are getting a bit worried

http://www.theaustralian.com.au/business/industry-sectors/rising-mortgag...

A RECENT pick-up in mortgage delinquencies in Australia is concerning and unlikely to be fixed quickly, a top ANZ Banking Group executive said today

"It's a problem that's going to stay with us for a while," said Philip Chronican, the Australian division chief executive of ANZ told reporters in Sydney.

Have you read anything about the short sellers targeting Aussie banks?

See my rant above about all the idiots who take the "herd" bull market position in all this, then come crying to nanny state to bail them out. 

Time for mass unreason to just COST the idiots. No-one FORCED them to leave their brains at the door. There is FAR less excuse for people in Aussie or anywhere else now. We like mocking the stupid Yanks, but HEEEEEEYYYYYYY, where do we stand if we mimic their stupidity a few years later? "House prices can't fall" "Urban growth constraints don't cause the underlying housing market problems".

We should actually respect the policy recommendations most of all, of  the only people remaining with any intellectual credibility, the financial market short sellers and the guys who picked the connection between land supply and land price bubbles. "Land" is actually a crucial economic factor, get the policy wrong on that and everything else will be wrong too. (A Hugh P saying, and a b---y good one too).

I have no respect for libertarian / free market loons who fail see the biggest causes of the housing bubble is cheap credit, lax lending criteria and in at least America downright fraud by private banks and entities.....simple....

Short sellers see a short term advantage, there is nothing bright in picking the inevitable collapse, its just a Q of when.

regards

I have no time for intellectually lightweight versions of history, such as that "easy credit" causes house price bubbles.

Firstly, there were plenty of markets WITH easy credit, and without any house price bubble. Secondly, Korea has always had some of the TIGHTEST credit in the world, yet they have had cyclical housing bubbles and economic crises ever since they put green belts around their cities in the 1970's.

There is no correlation between house price bubbles and credit. There IS an iron correlation with "supply" inelasticity.

I will keep saying this: this site might as well be "The Standard" or "Frogblog", for all the "bashing head on brick wall" I am obliged to do.

There are international sites where major progress is being made in understanding these issues. Interest.co.nz is largely a waste of my time.

"........there is nothing bright in picking the inevitable collapse......."

No, just that 1% of people were on the "short" end of the derivatives and 99% were on the "long" end; not bright at all, no.

I regard the idiocy of the 99% as the same idiocy and political hubris that fell for the "systemic risk" bluff. Reagan would have told them to go and take a running jump. Like he did in the 1980's sovereign default crisis. A bit of "toughlove" for banks and stupid investors does wonders. I don't believe for a moment that the world would have ended if the idiots had been left to lose their gambles, even if there were a lot of them. Leaving the few smart people holding the surviving capital would have been a GOOD thing for the world economy.

I am proud to be part of a "fringe", in the circumstances. I just wish I could say I was a successful short-seller as well, but I don't work that way. I care about truth, not riches.

"I have no time for intellectually lightweight versions of history, such as that "easy credit" causes house price bubbles."

Oh right......yet there would be more to read on this as the main cause than land prices....but then lets not let anything that might disagree with your already made up libertarian mindset conclusions get in the way eh?

 

regards

Sure the Australian housing market is an artificial, negatively geared tax incentive.  But if that is true it's no good moaning about the fundamentals of land size or affordability, financial bubbles ignore such trifles until the final payday arrives.

Even then -- at the first serious slide the Australian government will throw rebates and assistance like confetti at a wedding, just like they did last time.  Aussies don't just roll over you know, they at least have starch.

Bubbles are government policy in the western world and don't under estimate the lengths governments will go to.  Remember, it's not their money.

One of the harsh lessons that has to be learned from all this eventually, is that a limit on "what government can do", is "the total possible future revenue stream from taxation".

House price bubbles are simply "too big" for government as limited by that simple reality, to "fix". All they can do is reshuffle deckchairs on the Titanic and try and make sure that we all go down together, whether we were wise and contributed nothing to the problem, or stupid and part of the problem.

I love what Iceland did. Just let the banks and financial institutions fall over, stupid investors lose everything, bank shareholders and bondholders lose everything, start again with a clean sheet. The world hasn't ended in Iceland.

Take Ireland; how much is it that every household now owes? EURO 130,000 +/-? And all the investors, bondholders, etc, are still fat and happy. DUH, DUH, DUH.

Pity about the budget for health, education, welfare, defence, etc, in Ireland for the next 50 years while they pay the socialized debt off.

PhilBest - screaming at people, even calling them liars, doesn't alter things that can be worked out - proven - by coming at them from first principles.

Unfortunately, those first principles suggest that growth-based  finance is indeed a flawed construct.

If you made some decisions based on it's continuance, which are causing you grief at this point, well, tough.

Don't say you weren't warned. Just say you never listened.

 

 

Excuse me?  peak oil is a reality, simple engineering, maths and geological facts....not only that but the biggest single event to effect the world since the second world war if not since the Great Depression....is now here and energy prices is what is driving it....foaming at the mouth of building regulations being the substantive cause is wierd frankly.

Listen to what exactly? raving libertarian loons who have a fixation on regulation being the wrong way? or AGW is a lie by scientists, but scientists will save us from peak oil with as yet unknown or un-specified breakthroughs...even though in enginerring and project time frames we neeed 10 to 20 yaesr ie...even though they say they cannot......that is a fanatic in action, its certainly defies logic...like I said what's to listen to?

regards

Steven - you shared this a day or so ago, thanks:

http://www.youtube.com/watch?v=F-QA2rkpBSY&feature=BFa&list=SP6A1FD147A45EF50D&index=1

Really interesting, but (sorry), while he exposes the weaknesses in various growth arguements, in one of the early sections he outlined one of the natural remedies, I thought, that would become a natural moderator.

Do you think he was right? Why did he spend so little time on it?

Anyway as I've discussed with PDK, this is all a Nelson lad's fault, so Kiwis should remember those who live in glass houses should not throw rocks, or ICBMs, or Cruise missiles - maybe it's a guilt complex thing?

Cheers, Les.

Tor lawn - crap?

Um - you had some brekky this morning. right?

You broke down a complex carbon linkage to something simpler, and the energy released in that bond-altering, is what powers you through the day.

No food (no energy) = you die.

Currently, we are breaking a lot of those complex carbon-chains down, ones that took millions of years to create, and we're chewing up the lot on a 200 year period. That breaking-down takes place in internal combustion chambers, but also via fertiliser-to-food, pumped-water to food, and want it to make plastics etc as well.

In that paradigm, one doesn't have to listen. One just goes with maths and science.

I would listen if you could point out one - just one - economic activity not underwritten by fossil (the very word should be a give-away) fuel. Or point to a disconnect between money, and the purchasing of goods/services.

Or of course, to a proof of the planet being infinite....  Flat would do it....

You may think this is funny, but I doubt it. Somewhere in behind your and PB's posturing, is fear. Think about it.

Then grow up and do somerthing proactive. I've demonstrated how we can live in comfort with energy efficiency - proving  a potential surplus from existing generators.

You? 

Lightweight posturing, to date. 

Not my idea of a satisfactory epitaph....

 

 

Yes, I DO have a fear, PDK. My fear is that Green Ecofascists will create a hell on earth, based on lies, to go with the Bolshevik, Maoist, and Khmer Rouge versions.

You can sneer all you like, but every time atheists and "science" and "reason" get the levers of power, look what happens. It will be no different once again.

I have "reason" on my side; I have Julian Simon, George Reisman, Bjorn Lomborg, Jesse Ausubel, Matt Ridley, Tom Rand, Kevin Cudby, Freeman Dyson, Indur Goklany, Steven Hayward, etc etc etc. I have comprehensively rebutted you again and again from the knowledge I owe to these people. I have recommended a few books; I recommend for anyone who is reading this: Matt Ridley; "The Rational Optimist". Start with that and follow up his references and follow his blog.

"Economists" and "business" people who have not made the effort to even read ONE good anti-doomsayer book, and whose default position on forums like this is to wimp out in the face of plausible "scientific" argument, are doing us all a major dis-service. People should come here to see the approved "The Standard"/"Frogblog" litany rebutted and buried, not capitulated to.

Thank you, all the rational guys out there - you know who you are. But we can't match the game of 24/7 lefty/greenie internet trolls who don't seem to have a "life" like we do.

Oh lets see,

Matt Ridley,

"By far the most significant reason for this long-term decline in food prices is that those beastly plundering capitalists have been inventing things like fertilisers, tractors, pesticides and new varieties to increase yields and cut costs."

Just about all of it based on fossil fuel and cheap stuff at that, so what we ahve achieved in 60 years is the ability to convert more and more fossil fuels to food calories.....this is no longer the case.

and he sums up the problem very well,

"Nor can it feed the world’s current population, let alone the nine billion of 2050. Because organic farmers have to grow their nitrogen fertiliser rather than fixing it directly from the air, they require a lot more land. If the world were to try to generate as many calories as it does without artificial fertiliser, it would need an extra five billion cattle grazing 20 billion acres of extra pasture. As an Indian biologist, C. S. Prakash, said to me once: “Sure, organic agriculture is sustainable; it sustains poverty and malnutrition.”

Missing the point of course that the other inevitable outcome is population reduction....

regards

 

Interesting stuff here from ANZ Australian chief executive Phil Chronican - http://www.businessday.com.au/business/bank-boss-questions-gearing-20110...

 "Real estate should not be regarded as a speculative investment vehicle to get rich, but as ''a place to live in, sleep, eat and raise your family''.

How long ago was it that the majority of New Zealanders thought this as well?  How many still believe this?  Could it be argued that tax policies favouring property investment are just as much to blame as the credit boom?

Another NZ refugee from unreason, eh?

The Phil Chronican speech is extremely WELL analysed HERE:

http://macrobusiness.com.au/2011/06/banker-makes-housing-sense/

There is hardly any BETTER blog coverage and analysis of housing bubble issues, than what that guy, "The Unconventional Economist", does. Follow him for a few weeks and you too will become wise.

LOL...alternatively buy my snakeoil and you can become wise overnight....

regards

 

great link philbest......    thks

Christchurch has had a magnitude 5.5 aftershock this morning.