By Bernard Hickey
Finance Minister Bill English has criticised ASB's decision to withdraw pre-approvals for high Loan to Value Ratio (LVR) mortgages, saying the bank should have listened to the Reserve Bank's warnings six months ago and not made promises it couldn't keep.
"The Reserve Bank was talking about this kind of policy from earlier this year. It looks like ASB weren't really listening. They seem to be the only bank that's got themselves in that position," English told reporters in parliament.
"All of this is a bit tough on first home buyers in the short term. In the longer term though, they are best served by lower interest rates that helps them with their borrowing and by the government's main initiative on housing affordability, which is to get the supply working faster," English said.
He pointed to the Government's passing of legislation and a finalised agreement with the Auckland City Council to set up special housing areas.
Asked if ASB was being unfair, English said: "It's really a debate between ASB and their customers and ASB and the Reserve Bank. I'm making the point six months ago the Reserve Bank Governor was talking about bringing in restrictions on low deposit loans and this seems to be the only bank that's got themselves in the position where they're letting down people who they gave approvals to."
English said he didn't expect other banks to follow suit.
"It's pretty tough on first home buyers who had expectations of getting loans," he said.
English said the government was working to improve housing supply.
"The good news for first home buyers over the next two or three years is we are taking action to increase the supply of housing on the ground because in the long run that will make signficantly more difference to house prices than the current policy of the Reserve Bank."
English also pointed to the government's moves to increase income and house price thresholds for first home buyers withdrawing money from KiwiSaver schemes and using Welcome Home Loans.
"The ones who are caught in this now have an argument with their bank, not with the government. It's their bank that gave them approvals knowing it was quite likely policy was going to change so I suggest those first home buyers who will feel let down take that up with their bank."
'Runaway house price inflation damaging'
English said one of the most damaging things that could happen to an economy was runaway house prices, which could damage the export sector through pushing up the currency and could damage the economy when they come back down.
"The Reserve Bank is taking a long term view about financial stability and in the longer term that will serve the interests of all home owners and buyers better if we have a more stable housing market," he said.
"In the next two or three years the increase in supply will take some of the steam out of the price increases, it will give us more financial stability and it may provide the opportunity for the Reserve Bank to relax those restrictions."
(Updated with more detail)
61 Comments
That Bloomberg article is bad for my blood pressure.
Yes, it is good the Reserve Bank is taking a nuanced approach. And, yes, in other countries restricting lending would limit house price increases. But in New Zealand it is about protecting the banks from the housing bubble, as household lending can in no way be driving house price increases.
Because I'd gotten some feedback to dumb my analysis of house prices down, this is as dumb as I have been able to make it.
https://www.dropbox.com/s/gpuhxvs4apfhz7s/bubbles.pdf
Stephen - If 65 % of houses are debt free - does that mean our debt to income ratios for those with mortgages is not ~ 150 % but a mind boggling 450 % as the Govenor has already confirmed the houshold debt ratios are for all households - which I find simply amazing.
Is this what you are referring to ?
It could be. There are at least three explanations for the difference between household debt and prices compared to Ireland.
1) quotable value have been overestimating house prices since 2003- consequence: house prices are not in a bubble, everyone thinking there is a bubble has been mass hysteria, and houses are actually a rubbish investment against inflation.
2) the reserve bank have been drastically underestimating household debt- consequence: we are all f*<£ed, as debt would need a massive increase to explain prices.
3) the house price / debt relationship does not explain the NZ market in the same way as Ireland. Consequence: the market is being driven by something not linked to household debt- either offshore funds or commercial investment seem the only real candidates.
Indeed .. but what you don't explain is Wall Street and Hedge Funds and Institutional investors are climbing on board with syndicates snapping up foreclosed homes
Wait! There’s a looming rescue for this problem in the form of bulk sales of foreclosed homes to investment groups. While the pilot program from the FHFA mostly involves properties that are occupied, we’re told that this will, if successful, move into those vacant properties. And this solves everyone’s problem, we’re told. It reduces shadow inventory, increases supply for rental housing (which should lower rents) and allows prices to stabilize. Plus it’s a great investment opportunity:
One of the most bullish investors is Carrington Capital Management, which has teamed up with Los Angeles-based OakTree Capital. They have created a $450 million fund to buy foreclosed homes in bulk and rent them out.
In a marketing document for one of its funds, Carrington claims that without using leverage or borrowed money it can generate an annual yield of 7 percent ....... YEP, CASH ONLY
foreclosure-bulk-sales-allows-banks-hedge-funds-buy-low ......
which links to Reuters here
us-usa-foreclosures-investors
"one indeed takes the escalator down from where the lofty heights achieved courtesy of Fed-funded stairs."
Indeed so far we have managed to avoid that second Great Depression....I wonder how long the Fed can keep that up escalator moving, and just how far down is the basement....10% of current house prices?
Thats going to be fun.
regards
You also have to take into account volume of sales.... Sometimes in mkts.. if there are no sellers price can be moved on very light buying volume.... and often is in the early stages of a bull mkt.
Maybe your data suggests that there really is a supply issue..??? That all the new debt is going into just a few houses..??? ... which lifts the value of all houses.
I know of several people who have shifted their wealth out of savings into Real Estate over the last 3 yrs...
Thats' the trouble with statistics.... they are really no more than lights in the dark ...and one still needs to find the truth of things... still needs to connect the dots
I know of several people who have shifted their wealth out of savings into Real Estate over the last 3 yrs...
That hasn't happened on a large scale though- I checked for signs of households pulling wealth (household assets) out of other sources to put into the housing market, and the New Zealand figures show no decrease in household assets accompanying the large rises in house prices. (I realise that is not in the PDF I linked to, but that is a simple version that shows the core of the problem).
"One mans debt becomes another mans income" and that then is considered neutral so is ignored. Steve Keen and Minsky have a totally different take on this...
oh and look at his charts on this.....then consider Nicole Foss's 90% drop in the context of the Minksy chart.
http://www.youtube.com/watch?v=XZKjQtrgdVY
Further,
http://www.debtdeflation.com/blogs/2013/09/10/famous-models-of-chaos-in…
http://www.debtdeflation.com/blogs/2010/06/13/empirical-and-theoretical…
ouch...
DH... I get the feeling that u know how to crunch data..
Why dont u compare M3 money supply from mid 1980s to present... with house price increases during the same period..???
I'm guessing that there is a strong correlation.
Maybe house prices are a better proxy of monetary inflation than is the CPi..??
Head to Head comparison (so avoiding feedback/ intertwined relationships), Quarterly House Prices, Quarterly CPI, and the M3 data from the reserve bank C1 series (I used column X) Quarter 1 1988 to present, selecting the Months March, June, Sept, and Dec as being representative of the quarter.
House Prices ~ CPI adjusted R squared 0.9325
House Prices ~ M3 adjusted R squared 0.9723
CPI ~ M3 adjusted R squared 0.9793
so the tightest relationship is between CPI and M3. I will also note I only have annual data for household debt, but on an annual basis it is a better model for house price movements than any of the above.
DH... thks for that.
I like M3 ..... I think House prices are a better proxy for measuring the effects of Money supply growth.. ( Monetary inflation ) So if M3 grows buy 20% ...then I would look for house prices to rise about 20% over some period of time... ( all other things being equal.....which of course they are not )..
After all... we measure house prices in $dollars... so if we double the money supply then a $dollar is no longer a constant unit of measure .... ie. it is being debased.
Except if the money is effectively doing nothing, there is no inflation....as we have seen for the last 5 years. Now if you want to conclude that there is huge inflation while most of that increase in money isnt in main street and being spent (its hidden in bank vaults), well OK,not me though. I'd suggest that house price increases is due to speculation and a shortage and not M3 changing. For instance to support that we'd have to see house price gains across NZ of the size we have seen in some areas of Auckland when in fact thats not the case (or some areas under equivelent significant deflation). Further in effect house price inflation of 20% as a sector with a CPI of 0.9%? suggests some huge deflation in some other sector(s) which would lead to its collapse. I dont see much evidence of that....and its been 5 years.
regards
Steven,
There are zillions of transactions everyday..... credit and money is flowing everywhere..
Once credit enters the economy and is spent... it can end up anywhere... There is no rule to say how it should manifest as price changes in any particular mkt, or in aggregate Consumer prices....or that house prices all over NZ should do this or that..
I think we have different views on what inflation is.... I am talking about Monetary inflation.
ie. growth in Money supply (credit ) and how and where the effects of that growth may manifest in an economy.
To my own satisfaction ... I have found that there is a relationship between house price growth and Money supply growth... ie. Money supply growth is one of a few determining factors in house price changes....
( and that could be because credit growth is probably the most important factor in regards to, so called, economic growth ...GDP )
One could have switched their money out of savings and into Real Estate , a couple of yrs ago, when one saw that NZ was not going to have a "deleveraging" ... and that credit growth was resuming..... and that we were in the early stages of another business cycle....
The last 30 odd yrs M3 has grown a 6% per yr .... and strangely enuf house prices have also grown at about 6% per yr.
What is really disturbing thou.... is that wage rate inflation has been much lower than that.... and that becomes really noticeable and very problematic, due to the nature of exponentital growth , after a long period of time...
ie.. today the average person is finding it much harder to make ends meet. The middle class is an endangered species... the next generation will struggle to afford a house...etc.
just my view on things of course....
If you look at rates my rates have grown on average 6% per year, so oh look its M3! Some years though I had 17% others 2%. Seriously, the gains 1997 to 2007 I'd suggest is a bubble and not inflation...ditto the last year or so. If you look at the South Sea saga or tulip mania then these were not inflation but delusion, personally I think we see this again in housing.
Sure ppl moved money out into property and into shares, futures etc, that was the whole idea of the Fed...make bank deposits while safe worthless for gains. So ppl are specualting madly and the Fed is hoping that will lift the economy and we'll see a recovery, we have not. However as you say the lower and middle class have not seen wage increases and in fact job losses so they are the bulk of the economy and they are not better off in fact, even worse....
Nicole Foss said an interesting thing...she expects house prices to collapse, maybe as much as 90%. The interesting bit is that ppls wages will also go bye bye, so yes afordability will be worse...just not as you view it......same answer/result, totally different paths....to get there. While your view is in effect BAU and houses become un-afordable that way, my view is no way can BAU continue.
For myself I look at expensive fossil (and within 5 years rationed) transport fuel with no alternative, no scale even if we had an alternative and no time to impliment even if it was scalable, oh and no 10s of trillions to do it. Hence our world economy is going to shrink, a Greater Depression, 10+ per year...that and BBs getting old, high un-employment and debt overhang means we have to correct....the losses in paper wealth I think will be staggering....
regards
Nicole Foss said an interesting thing...she expects house prices to collapse, maybe as much as 90%.
Is that ur view as well Steven..?? You seem to be predicting some kind of Armageden.
I hold the opposite view.... I think we are in a "lost decade" as the world goes thru a messy deleveraging process.... but relative to the rest of the world , NZ is in a good position. ( only relatively... we are also digging a debt hole)
NZ as a food producer will benefit from higher food prices over the next 10 yrs.
I think that the end of this current cycle will be the big crash in Real Estate... but nothing like 90%.... How on earth did Nicole Foss come up with this number..????? I will google to see what sort of track record she has had over the last 20 yrs... Is she a real Estate expert..??
The beauty of the Mkts is that it seperates fact from fiction very quickly....and a fool and his money can be quickly parted...
Also...what is BAU.??
Yes its my view we will see a significant revaluation....and by that I think 60%+.
Nicole is talking about the US, which now its used most of its natural resources has little to work with....Im hoping here in NZ it wont be anywhere as bad for as long.
The debt hole NZ has is already dug, in private property....the only Q is whether we do an Ireland and transfer that loss to the crown, or let the gamblers and stupids take it on the chin. With the OBR I hope for the latter.
Higher food prices depnds on a) ppls ability to pay and b) the cost of shipping it, c) cost of growing (excess). I'd suggest if ppl cant afford to pay for the goods and/or the transport these higher food prices will be not bought at. On top of that if food output is down then I suspect or hope that a Govn will throw on export tarriffs to ensure NZers get to eat.
If you look at the so called Irish Potato famine, there was actually potatooes just that the producers got a better price in the UK. The "good" thing is of course the transport costs might be so bad exports wont happen and NZers get to eat.
Nicole Foss came up with this number as the size of the deposit ppl save to buy but then excluding a mortgage as no one will be prepared to borrow. It also correlates quite well to house prices pre-industrial revolution.
She's no real esate expert.....
Id start with Crash Course by Chris Martenson - 38 minute condensed version
series on you tube as back ground to oil etc before reading her,
This is his condensed crash course,
http://www.youtube.com/watch?v=eidQTDjQ5gw
After that background she is at,
and youtube,
http://www.youtube.com/watch?v=Dfb42JB_jQk
Then you'll understand where Im coming from, even if you dont agree.
BAU, business as usual.
So one of the fundimentals of this is we continue on for the next 30 years as we have done for the last 30. This means expotential growth, this implies infinite expansion and materials use on a finite planet....it has to end at some point...the only Q is when....
We cant do this forever because,
a) Peak oil with no cheap replacement.
b) Baby boomers
c) Peak other minerals
d) Debt overhang.
Markets, quickly, yes thats their strength and thier weakness....they dont take into account the future years out, only weeks or months.
regards
The debt hole NZ has is already dug, in private property....the only Q is whether we do an Ireland and transfer that loss to the crown, or let the gamblers and stupids take it on the chin. With the OBR I hope for the latter.
Oh goody, you must be forecasting a bank run - that will gee up my chances of making a few bob when the Tbills mature.
Essentially, yes....or more exactly the ppl I take my queue from, are, ie Nicole Foss....Steve Keen...etc.
One thing Nicole Foss does say is have your money in cash and cash like things. I think deposits are dodgy for the OBR and housing bubble pop reasons, so "cash like things" is Govn bonds with a short term maturity, like 6 months I suppose.
However Im no expect in this detail. If I had cash and not debt (mortgage) I'd go ask a professioanl just how to invest to meet my criteria...ie minimise cash/capital losses and not "interest gains" ie making money. I wouldnt want or take his advice on the strategy, but on the tactics.
regards
I'm on the otherside of that trade.... deflation vs inflation
I think cash is the worst place to have ur money.... ( Savers will be/are being sacrificed on the alter of the Central Banks )
I think that Monetary debasement is the road we are going down..
All the things that u talk about... peak oil... finite resourses..etc ..etc are big problems the world does face... but that does not mean the outcome MUST be a deflationary depression....
My own view is that once the world works thru this .."lost decade".... we will be in a secular inflationary environment... ( All the things u mention will be inflationary forces ).
We will see.... lets compare notes in 20yrs :)
I agree with Roelof. I think cash is the worst place to have your money. Steven's posts read like the sky is falling in brigade back when house price drops of 30% plus were being predicted on this site's comments threads. Didn't happen then, won't happen any time soon.
The issues steven is highlighting are all important issues no doubt but suggesting cash is the best place to have your funds right now is madness in my opinion. Load up on debt today and wait for inflation to do the rest.
For the record I'm not saying this is a good scenario, just the scenario I am betting on.
Hey, fair enough. By the way that 30% drop was a long term indicator based on the Baby boomer retiring effect not "its going to happen tomorrow" it isnt over til the fat lady sings as they say.
Sky is falling, yes, when a drop happens then being illiquid means you are toast, your losses are staggering. Being in cash you just lose a bit of interest....very asymetrical...in terms of impact.
For the record, your scenario is the preferred one to my one, by a long way....those days however are history IMHO.
regards
Its interesting that ppl say we have "rational" markets, yet there are two sides to a trade, someone obviously isnt rational/correct.
Lets look at cash, do we have severe inflation right now? goods and services, no, wages no....we have some crazy property behaviour, yes. So if in cash have you lost a great deal? no. If "my" scenario happens liquid is king....its a big impact....cash is fairly immune. If significant inflation really does occur then you can quickly take your cash and buy into the assets of your choice...you miss some gains sure...but its not huge. Now lets say we hit bottom in "my" scenario then being in cash is silly you have to bail and the Q is to what.....precious metals is one, housing yes maybe, classic inflation protections.
MUST, um yes. My expected scenario is yes we'll see a deflationary depression....they only Q is whats before that and whats after that and how smooth and how steep. So its very possible we'll see a downward trend interspaced with small short recoveries, a saw tooth effect....but a downward slope. Now if we fall off this current peak oil output plateau very fast, say 15% in one year or two that slope might be bowl movingly steep......
So the way things are looking we might get a small upswing before we keel over, like an aircraft stalling if you will. or maybe we'll stagger on for some years, 5 at most 10....aka japan before a steep decline.
I agree there will be inflatioanry forces, fuel/energy, problem is if ppl have no more wages they wont be buying other things...hence whole sectors go bye bye, ie retail/consumerism....huge un-employment, huge tax costs....
regards
Steven... How do u define inflation..??
If u see a Country like USA Monetizing its debt ... do u percieve that as a debasement of a currency.??
When u see a country like Japan actually having a "policy" to create inflation thru Money printing ... how do percieve that in regards to inflation ..??
Do you define inflation as simply being changes in the CPI..??
If u do ... which is the accepted view... then I understand where u are coming from...
Thats' why I ask
What a hard Q.
Inflation is many things to different ppl....
So core inflation, excludes various things like housing and fuel, best used to set the OCR as its not seasonal. for me the idea is to establish a baseline everything else can then be measured against it.......so you pick up bubbles.
CPI, basket of goods, weekly shop. Measures household pain in a way....
but really these days there is CPIoap and CPIyouth. So CPIoap is the inflation say pensioners see in things like food, power, rates. CPIyouth, gadgets and toys like iphones, data connecions all getting significantly cheaper....so the CPI these two groups see is different....
How do you account for the exchange rate changing sending petrol up or down in price? one minute it can be inflationary, the next deflationary does it give a useful baseline? does it corrupt your baseline?
Then there is 2 inflations, push inflation and pull inflation....Pull inflation is where wages are rising and ppl are spending so goods rise. Push inflation is where raw materials are rising pushing up goods, even if ppl dont have more wages...these two have differing impacts.
Then we need to consider bubble impacts, so for me housing is a x2 bubble....so its been "inflating" for a decade to twice what it should be....but is that real inflation? I'd suggest not....is it painful? yes, clearly for some.
One classic thing on inflation is the expectation of inflation causes inflation....hence Japans attempt to get itself out by printing....or promising to....I dont think it will work....we also have the keynesian zero bound trap....where strange things happen in economics....unless you are not of the keynesian school, then you claim everyone is mystified and cant explain whats going on.....
Simple? no......hard and confusing....contradictory....
Another thought, if we accept the Fed's low interest rate is causing commodity bubbles and price rises for consumers, is that true inflation? or is that a private tax? We complain mightly on Govn raising taxes but dont peep when wall street does it?
wierd
regards
http://www.merriam-webster.com/dictionary/inflation
I tend to go with the dictionary definition...
There seem to be many different ways to try to measure it.... as u have listed....
I personally think while soul targetting inflation pre-peak oil was probably the best thing its now the last thing we should be doing...ie we should throw out the entire ethos of just inflation targetting. Why? because its going to be very hard to control and doing so will do a lot of damage as we are seeing.
The Q is then what do we target as our primary goal? I suspect we wont have much of an an idea until it dawns on our beloved voters and then leaders that we have this paradgym change....and that's going to be an ugly event I think.....
regards
Roelof, regarding M3 and houseprices- M3 suffers the same problem as every other long term good correlate with house prices, something pushed house prices up in 2003-2007, the prices have stayed up relative to the long term measure, the movements up and down since then to not match the long term meaure (so seem to be more to do with whatever is inflating the market than fundamentals), and we seem from 2012 on to be entering a second cycle of this.
Here is a graph showing if you were predicting house prices in Q2 2002 on the basis of the M3 relationship, what your predictions would have been (red) and what reality was (black).
https://www.dropbox.com/s/q4luom0xbczmzci/M3predict.png
Hi Dh,
I kinda try to look behind the statistics... M3 growth is new money entering the economy...ie. credit growth.
There is no rule that says it has to be spent in any particular way.... it can manifest as price changes in any particular mkt... or not... and it can do it at any time it wants.....
There is a famous statement by a famous Canadian Central Banker in the early 1980s.... "We didn't abandon the monetary aggregates...they abandoned us"..
http://www0.gsb.columbia.edu/faculty/fmishkin/PDFpapers/00BOMEX.pdf
There was a shift away from Monetary targeting to inflation targeting.... ( A new Paridigm)
And... inflation targeting is not a magical thing either.... Even thou it gives A central bank better Control and feedback mechanisms.... I think it is a really flawed way to control inflation. ( I don't define inflation as changes in the CPI )
I take a different view on inflation.... I accept that the vast majority of economists and Central Bankers call the changes in the CPI inflation...
But..I also still accept the view about Monetary inflation ( I think that view might come from the Austrian school of thought ... not sure ) ...
So.. if I see aggregate credit growth I start looking to see how the effects of that new money manifests in an economy..
So... in regards to House prices ... there are many forces that determine price .
Whoops .... race 2 is on... must go
I think some fundamental questions need to be asked relating to the divergence you've seen between house prices and household debt levels.
Where is the liquidity coming from? Who is moving it? Why is it coming here? What could cause it to leave? What would the consequences be should it do so? Can it be managed to ensure it doesn't happen? Who else has spotted the discrepency and what do they presume to do about it? In light of the facts could the Reserve Bank's new macro-prudential controls be redundant and cause more economic damage with little gain from it? Are they solutions in search of a problem?
Well, Treasury noticed- they described the early-mid 2000s as a period when assets grew much faster than liabilities, there just doesn't seem to have been a lot of follow-up on the implications of that (noting I am not an economist and am not faimilar with the literature).
The discrepency is actually a bit tricky to spot - if you just run a linear regression on house prices and household debt, New Zealand seems to be a much, much better correlation than Ireland (because of the Irish collaspe and debt only following house prices down after some years of debt servicing hangover). To spot it I think you need to be familiar with techniques that assume the relationship you are testing is changing over time.
I sent my one page, simplified summary document to the Reserve Bank stats contact email address yesterday, so we will see what if anything they have to say about it.
Two things stood out in English's comments.
English said one of the most damaging things that could happen to an economy was runaway house prices, which could damage the export sector through pushing up the currency and could damage the economy when they come back down.
It is especially gratifying that he has finally made the link between a house price bubble, the exchange rate, and exports; as he has seemed in denial about this effect in the past. Sadly I think he largely has the cause and effect around the wrong way; letting huge capital flows in affects the exchange rate, and all trading industries, and blows up the housing bubble. Not the other way round so much. By the by if he was remotely serious about exports/import substitution, the exchange rate and capital flows the absolute last thing on earth he would do would be to sell power companies offshore. So you have to assume he is nearly all hot air, and at best just catching up with the effects of capital flows.
Related is his view that lack of housing housing supply is the only cause of the bubble; and so that fixing that will fix the bubble. Adding houses will be helpful no doubt, but the non increase in rents in Auckland suggests the underlying cause is the capital/credit flows. So he's ignoring the main problem.
letting huge capital flows in affects the exchange rate
Are these flows not a sympton of the necessity to finance past and present current A/C deficits? By default banks seem best positioned to undertake this task and get a return on the excess KIWI dollars importers exchange around the world in order to land foreign goods we obviously cannot fund from our own export endeavours.
Stephen,
Are these flows not a symptom of the necessity to finance past and present current A/C deficits?
With one very arguable caveat on cause and effect they are. This question is whether the capital flows are the cause or the symptom. Am willing to concede there is likely a bit of both. In my view the cause argument is the stronger, and goes like this:
The capital flows in cause the exchange rate increase which gives the price signals to buy foreign sourced goods and services over domestically produced ones; as well as hampering our exporters' ability to compete offshore. Related is that simplistically if capital flows in are greater than those out, then there has to be a current account deficit. The converse is true. Capital flows in balance, then the current account in balance. So have some control over the capital flows if we wish to grow our wealth over time. There would be I'm very happy to concede an effect in the short medum term on our consumption of foreign goods and services. The current account is actually my greater concern, but the capital flows are clearly a necessary part of the Auckland housing bubble.
The commercial banks may need to be leant on or regulated in terms of their source of funding, but I'm perfectly happy that they actually do the arranging within those limits. Or less preferred, do like the Swiss and have the Central Bank buy foreign assets to match any capital flows coming in.
My intuition as well. Just a way to recycle excess Kiwi dollars which have little other avenue for profitable investment in New Zealand. No one wants to be left holding the bag when the music stops. Its a classic case of monetary hot potatoe.
Perhaps the government's asset sales will soak up some of them. They'll be used to pay off part of the public debt and retired from "circulation".
Graeme Wheeler had better be careful not to disturb the tune with the introduction of those new macro-prudential controls.
Yes, my guess is it's the capital flows that drive the feedback loop. Basically if capital was flowing in and being allocated effectively into capital goods then the enhanced productivity would sort out the current account. As it is the capital flow ends up allowing us to bid the price of each others houses up, so we just end up with more debt and no increase in productivity to pay even the interest on the debt, let alone pay the debt off. So we keep borrowing more and more and more and more. Snafu.
Would a move to gradually adopt the requirement for banks to lend no more than 100% of their deposits be the answer?
My understanding is that the increase in national debt has been reflected in government debt since the GFC. So assuming household and business private debt was roughly stable in that time, then the current account deficit has roughly equalled the increase in government debt plus any net asset sales off shore.
In the early 2000s the government had a surplus, but household debt raced up by far more than the fiscal surplus, hence a still large current deficit.
So in the nations' interest it is helpful to keep pressure down on the public debt to avoid crowding out, but not to enable or encourage through monetary policy the balloon to just pop out on the private debt side. It does work like a see saw I believe; and the solution is to address the capital flows/ exchange rate, and then the current account in my view.
http://www.interest.co.nz/charts/credit/housing-credit
It just goes up.
Look at the $million tab, not the % growth tab.
The National Government sovereign debt increased by ~NZD 50.0 billion in the ~4 years up to Dec 2012. According to the RBNZ foreigners held 68.3% of government bonds and 30% of Tbills.
Yep, at some point you get to a point that doing anything causes a collapse....by 2003 it should have been curtailed, Labour wanted another term so refused to reign it in. Then there are the external factors. Now today we see the Fed even talking about tapering causing instability and problems....and this is a field Wheeler has to play on and contend with when trying to cool and not to implode the system....so the externalities could catch him out and badly...and us of course.....
regards
Asked if ASB was being unfair, English said: "It's really a debate between ASB and their customers and ASB and the Reserve Bank. I'm making the point six months ago the Reserve Bank Governor was talking about bringing in restrictions on low deposit loans and this seems to be the only bank that's got themselves in the position where they're letting down people who they gave approvals to."
When will the Finance Minister demand that the RBNZ proactively warn depositors of their potential capital haircut exposure under OBR. Why else is the RBNZ belatedly rushing to close the credit spigot?
I fail to see why the RB should, I mean beyond its obvious there is a risk, unless your eyes are wide shut. To me if anything it should be more obvious bank deposits are not the safe haven ppl think they are.
Also If ppl are so stupid to think their money is 100% safe then would they listen anyway?
regards
Explicit warnings for the unwary are always wise - many would have been saved from the rigours of the finance company collapse if the regulators had been more forthright with explicit health warnings.
The eldery and unfirm lack the resources that you claim to be blessed with, when it comes to seeking safe alternatives to bank deposits - I don't wish to be bailing them out if they become dependents of the state through no obvious fault of their own.
and how many companies would have been sueing over such advice?
To start with I fail to see how the Govn can or should warn ppl or not about any financial undertakings. All such endevours carry risk and that risk varies company to company....sector to sector etc. Then there is the cost of doing so and the costs of not being right....some ppl accept risk for the gains....some wouldnt....its a personal thing.
Im not blessed with such an abundance of financial acumen and I dont claim I am, I have my opinions, just me based on non-financial factors. In some ways that appears to be good, ie Im not stuck in the situation of dont see the forrest for the trees....
Further no one has to listen to my opinion, yet lots of right wingers and finacial gurus seem to poo poo what I say...yet I do do engineering, I look at science, maths.
How many of the so called financial ppl such as yourself deny peak oil and wont even look at its effects on our economy? deny AGW and the insurance losses, or basic math like expotential growth on a finite planet?
All these are fundimentals...for all the financial wizardary and acumen of some in here, these things are ignored as inconveniant.
My engineering "acumen" 5 years ago said sell shares pay off debt and accept we are in for a hard time....few think along these lines......
good luck with your acumen is all I can say.
Hilarious...these comments from English illustrate that National were caught asleep at the wheel...they came into power in 2008 and housing affordability was terrible back then and they failed to put in safeguards to ensure it didn't get worse....as a result, once the wholesale markets freed up for our banks, ASB & friends further pumped up our housing bubble...English was caught napping...many people on this site, Bernard and everyone else were criticising National for about three years that they should address the housing issue...but no, they sat on their hands... English is trying to put the boot into ASB to lay blame on them, when the cause is his own incompetence.
Id suggest that by 2008 it was to late on 2 counts, a) HC and co should have fixed it, they ignored it. b) In 2008 many countries real estate sector was in free fall, so trying to slow at a time of risk of collapse could have caused the collapse.
Personally Im glad National didnt do very much, it was probably the best thing, I mean we could be like Ireland today.....
regards
English's rantings are of little consequence. Even the ASB put up a third-tier manager to respond to a direct attack. The CEO couldn't be bothered. Bottom line is they have horribly misread the LVR gambit and it is costing them, and it will make little difference to house price escalation in Auckland anyway. Look for a back-down once Key assesses the enormous self-inflicted damage.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.