By Bernard Hickey
This week the government quietly went to its bankers and asked to borrow a record NZ$1 billion in one week.
The Prime Minister did not jump into a helicopter so he could be there in time for a photo opportunity with the New Zealand Debt Management Office announcing the results of its latest bond tender results at 3 pm on Thursday. There wasn't even a press release or an announcement in parliament.
It just happened. No one was outraged. The opposition didn't call for a vote of no confidence in the government. There was no riot. Everyone seemed fairly relaxed on Thursday afternoon.
Even the bankers were happy. They were so happy they offered to lend us almost NZ$3 billion in the tender. And they were willing to pay a higher price (which means a lower interest rate) than in last week's tender for NZ$700 million of bonds. See Gareth Vaughan's article on the bond tender for more details.
I suspect the NZDMO was thrilled. It has managed to borrow NZ$7.8 bln inside four months, getting in ahead of any credit rating downgrade for New Zealand
It was as if your retiring parents went into the bank to increase the mortgage on the house to pay for the NZ$50,000 once in a lifetime round the world trip and the bank was so keen to lend them more that they walked out with an extra NZ$20,000 to buy a new boat. And they did it without telling the banker about the hip replacement the main income earner will have to have.
That is effectively what this government is doing.
It is re-mortgaging an already indebted house just as its retirement costs are about to surge and the ability of its taxpayers to support that cost is about to sag.
The results of Bond Tender number 394 on Thursday are interesting reading if you have a thing for spreadsheets, which I do. They show that the government sold NZ$800 million worth of bonds maturing in March 2019.
How will we repay that debt in 2019? By then many of the baby boomers making the decisions to borrow now and pay later will be retiring, asking for their 'free' national superannuation and 'free' health care. Those working to pay for those ongoing costs will also have to service this extra debt or try to repay it.
One way ticket?
That inevitably means those in their 30s and 40s and 50s in the 2020s will have to pay higher taxes or cut government services. That's because there will be relatively less of them (the workers) for those that are retired (the pensioners).
No wonder John Key and those on both sides of politics are not holding photo opportunities and announcing these massive new debt issues. They will not be around when it has to be paid off and the really tough decisions will have to be made. John Key and Phil Goff will be happily retired with their knighthoods or in their dotage in the US embassy or the London High Commission.
They may argue this extra debt now is simply to pay to rebuild Christchurch and to deal with the recession after the Global Financial Crisis. This is wrong.
That is simply not true. Less than a third of the NZ$16.5 billion being borrowed this year will go to rebuild Christchurch. Most of this will go to fund a structural budget deficit created by the bribes to middle class voters issued in the last 7 years by governments of both colours. They include Working for Families, interest free student loans, 'free' early childhood education, tax cuts for the wealthy and corporate tax cuts.
The current generation in power is living beyond its means. They are hoping the youngsters generating into the workforce don't notice.
If they do notice there is a risk they will revolt in the only way they know how: by purchasing a one way ticket to Australia or Britain.
Government debt
Select chart tabs
190 Comments
Borrowing money is no problem as long as it is used to buy assets that generate an income over the long term. We should be borrowing to buy overseas assets that earn income to help pay for future expenses. If we are borrowing just to pay current expenses then that is a sign that cuts need to be made. Does this government or the opposition have a plan???
... and before someone (Gummy) has a pop at BH for "gloomsterising", see:
Nation at mercy of age crisishttp://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10721190
Les, I’m amazed you representing the NZMEA making comment here, but no one does on the issue of “Trains build in Auckland” ?
Les, explain how important is it for members of the NZMEA, the government allocating infrastructure orders to NZ companies the NZworkforce ?
Les : Whenever does moi have a pop at the high priest of gloomsterisationalysing ?
............ Point of fact , Bernard is on the munny this time . We are living beyond our means . As I have been banging on about for years .
Both National and Labour are propping up a swathe of poxy toxic policies designed purely to bribe voters . And Don Brash called it correctly in 2005 , when Cullen's WFF and interest-free-student loans were used successfully to beat National's prudent economic policies .
......... Both of the current major political parties are operating on a 3 year horizon only , neither has a vision beyond that .
[ I shall sulk now , Les , how little you think of me ...... where's the mangos ....... no point in being hungry whilst I sulk . Yummy tummy mangos ]
"Foodie"; I had to look that up on google. I wouldn't have thought so but when I read the definition I have to say I guess "maybe".
Alas, I am carefully maintaining my ideal weight so the high cal treats are few and far between but I find greek yoghurt and mango is as good as ice cream and mango. Chopped up apple isn't bad either and papaya is fantastic so you can almost have your cake and eat it too. ;)
[ Ka-Boom ! ............. Wow , mega lightening hit , and everything went out . .......... Powered up , again . ]
.......... The finest Greek yoghurt I've enjoyed was in Australia , but at 10 % fat content , you gotta be careful in ladelling it upon the Weaties ! ....... Bloody awesome , but !!!
Had some local papaya today , at lunch , and it was fantastic . ............ You really have to come to the countries of production to fully appreciate the grandeur of these fruits ....... The imported stuff that rocks into NZ with venomous snakes & spiders in tow , is a pale imitation of the authentic produce .
......... San Miguel beer and cassava roots for dinner : Now this is living . And so romantic , sculling beers with the buddies , by candle-light .
[............ Hmmm , interest.co.nz ............. meant to be aboot munny & stuff , ...... be back on track tomorrow ! ]
http://www.realeconomy.co.nz/97-kiwi_jobs_bill.aspx
Try to keep up Walter, tut.
Cheers, Les.
PS - Happy Easter.
PPS - am back off to make some more widgets, hope your'e happy now.
Bernard - Excellent article. However I think the solution that the NZ Gov't has (whether National or Labour) is simply to sell NZ to the Chinese. They will bring in a few million of their excessive population to pay those superannuation and healthcare costs in the future - simple really.
NZ needs to keep borrowing money, it can either be public debt or private debt. Spending cuts by govt + a de-leveraging private sector would mean a contraction of the amount of money in circulation. Increasing taxes doesnt solve this. It's the way money works and unless you come up with a system that doesnt use fractional reserve banking + interest you are always going to have to keep borrowing to pay your debts otherwise you run out of cash and go bankrupt.
$NZD monetary supply = 200billion
At an estimate 5% interest you need to borrow 12.6billion just to cover the interest, just to keep the monetary supply the same.
Private sector de-leveraging needs to be balance with public sector borrowings, it's simple maths.
We will keep seeing govt deficits and low interest rates untill the private sector sorts out its balance sheet and starts borrowing again.
The govt doesn't want the public to stress over it because most people don't understand how money is created, or the effects of interest on created money, so they try to slide it under the radar, good on ya BH for bringing it up.
Bernard, I put it to you that one of the primary reasons the NZ DMO is selling bonds is not to fund spending, but to influence the target OCR.
Selling bonds can be, in of itself, inflationary and it is driving up demand for the NZ$, which is not ideal.
As a thought experiment, imagine if the Govt just credited the bank accounts of people in CHC or AMI without selling bonds, who would notice or care?
And finally, in 2019 when $800M of bonds mature, I put it to you that the Govt will just credit the bank accounts of the bond holders - most of whom will probably choose to reinvest the principal.
No one is worried about the solvency of the NZ Govt - which is why interest rates are so low.
Bond sales are just corporate welfare.
If you look at Greece, Portugal the interest rate on Govn bonds climbed in about 2 months...so I would suggest it cant be ignored....
Govn debt is about 16% of GDP while corporate debt is 111%....thats huge and where is the money being spent? if its being invested into expanding/growing a company where are the results of that? with spending like that why are we so bad off? why is productivity so low? got me wondering.....
regards
The 'PIIGS' do not issue their own currency and are therefore subject to the whims of the unelected members or the European Union Central Bank or the IMF.
Lending money to the PIIGS is therefore much riskier than lending to sovereign currency issuing countries which are never revenue constrained or at risk of solvency.
You cannot compare the PIIGS' situatuon to countries which issue their own currencies (Japan, USA, Australia, NZ, Canada etc).
Most of the bond traders know this - that is why long term insterest rates for USA & NZ bonds are so cheap compared to the PIIGS rates.
I thought each of the PIIGS issued it's own 'Euros'? Isn't that why people do not want to hold the actual notes issued by Athens as opposed to ,say, Paris? ( they have different letters on the notes to show who printed them. Holding ones printed in Greece may prove costly if those Euro notes are 'devalued?)
Wow slow down Kanuck....US Tbills pay out bugger all thanks to Bernanke's mousemoney games...he is the buyer of most USgovt debt...and he does it to keep the rates down..and he lends dosh to his mates in the too big to be arrested banks, so they can gamble on the commodities market. US debt is shite. Buy it and watch as your capital is eaten.
As for suggesting it's safe to lend to countries that issue their own paper...do the NZ bond buyers know we have 3 to 5% debasement policies in place!...dam sure I would want the loans to be inflation indexed...or demand repayment be in gold.
Imagine what will happen if the silly voters opt for Goofy either this year or for the next fill in come 2014.......think the rates would remain low!...not friggin likely.
NZ - NZ - US - NZ ????? I guess it is the same with smaller NZnumbers. Countries not producing - enough - anymore - and the right stuff.
Again you talk CPI....and the internal CPI with a temp step of GST increased is not a 3 to 5% policy....Also you take NZ in isolation to any other country where thay have a similar base inflation target (2 to 4%) Core and long term sit at about 2%....you only worry about blips if that CPI shows a clear indication of making it into core when in fact the opposite is true.
The bond buyers are not stupid Wolly, unlike you Im sure they know what they are doing and are way more balanced in their decisions.....you simply shoot from the hip....
Goffy....well right now Im more worried about Goffy than JK.....but Im not happy with JK, lets see what his election policies are. If they start to swing to the right me and thee get it in the neck, simple.....
Rates, low, yes OCR low and lower, nothing shows on the horizon to indicate a recovery, nothing in fact the opposite....Now mortgage rates might climb as the banks wholesale rates climb, and that feeds into mortgages, yes....thats if we continue to stagger alog with stagnation. Is it rerasonable to assume so? I dont believe so.....Deflation on the other hand sees moneyy's value recover but the great thing is of course the Govn cant tax it at source...there isnt more of it....
Wandering around some stores I see 40inch LEDs down to $1500, where they were $1800 back at the beginning of the year....bank holiday weekend deals 20% of whiteware and 12+months interest free.....
regards
"The bond buyers are not stupid"....I suspect you picture tens of thousands of rich savers overseas clammering to buy Bill's IOUs...they are not there steven...all you would see are blips on a screen..a few clerks mouseclicking on instruction to provide Bill with another load of loot, instructions that came from whom steven.................who manufactured the loot out of thin air to buy NZ IOUs....?
I knows a scam when I smells one steven...and this one has the stench of a dead ewe about it.
I think the reason it wont happen is the type of money that is created. If the RBNZ were to buy NZ govt bonds it would increase the monetary base which is potentially more inflationary then M2/M3 money. Govt bonds are not inflationary, it is the money, and the type of money that is used to pay for them that is inflationary.
So long as the govt continues to sell bonds to banks/super funds etc. it is no more inflationary then private debt, ie home loans or business loans.
The biggest thing for me is it has to be real or productive work and long term sustainable. For instance training up lots of carpenters/builders for the ChCh rebuild is great for say 3 years maybe 5, but what then do we do with the excess builders after that? but given the general shortage anyway it seems a good idea to have some more.....
To support your comment, there was an interesting point put out by a hedge fund manager (or similar bod), as he said there is a marginal cost for the Govn to employ someone, ie all its costs the Govn is the difference between the un-employment benefit and the wage of the real job and some of that comes back as tax. Which stikes me as true....the problem I have is as I said it has to be real work, and in effect rhe Govn is in danger of squeezing out the private sector employee...who ends up on the dole....who the Govn then employs.....potentially a nasty spiral.
So for me the thing is I dont believe the Govn can employ ppl efficiently or accurately...(putting them where and when needed) as well as a business....and I believe that private businesses dont do things like over-capitalise on plant.....they tend to keep a very close eye on that sort of stuff....
So the short answer is no, otherwise we end up like the USSR abnd China, emplying ppl in state run industries to make say steel wire which sits outside and rusts because no one wants it....some years later, melt it down and make more wire...huge loss of energy we really cannot afford to lose/waste.
regards
To do just what the US did with its QE 1 and 11 does not acheive much at all but to employ and train people when when the private sector is not keeps people employed and keeps an economy going. When the private sector is up and running it can employ the people. That is what has been done historically in most capitalist countries since the WW11 until now. Government is the solution in such circumstances. There is no "crowding out" of the private sector when the private sector is not doing anything. There are more costs associated with being unemployed than the simple difference you are refer to. When men are unemployed you get more domestic violence, more criminal activity, more drug abuse, more child abuse, more mental illness, more child truancy from school. The list is endless and they all COST
Well put, sir.
Increasing taxes and cutting the deficit (or worse - running a surplus) all acts to reduce the amount of money in circulation in the private sector.
All that accomplishes is reduces agregate demand, which slows the economy down.
That is what is happening in Britain now. They are shooting themselves in the foot.
Bernard suggesting we should move to a place where people are rioting in the streets over messed up ideological economic policy is contemptible.
Yep....however when stuck between a rock and a hard place the options are limited....for me the problem to solve is, is this a short term event? or a long term trend?....if its short term then Ok run a deficit, if its long term then doing so it really going to screw you over....I think its a very long term so raising taxes at least to a degree seems the least painful way out...
regards
Japan has had two decades of growing deficits with rising public debt issuance. Over that period, interest rates have been near zero and inflation hovering on either side of deflation.
Japan has consistently shown that the the neo-liberal 'panics' that public deficits and debt will “run out of time” and cause accelerating inflation and sky-rocketing interest rates are false.
Japan proves that rising deficits are not inflationary and that central banks can control interest rates (keeping them near zero) indefinitely.
Bernard is worried he and his kids and grandkids and great grandkids will be paying more in tax to keep the old farts in drinks..and the baby factories churning out the sprogs in the disfunctional 'families'..and the dole at WinzBank for the unemployable..and the bloated salaries to the state senior serpents and bums in Parliament..and the hoard of bureaucrats sucking on the public tit..and the plastic waka wonders....and to pay the annual cost on all the tens of billions borrowed by stupid politicians.........
Better start up a Kiwisaver account Bernard...you're going to need it...because unless you and the family find a country to emigrate to that isn't already buggered by bloody useless govt and thieving parasitic banks, then you are stuffed old boy...no escape!!
Wolly- among the media people, who in this country has teeth to bit into the political jungle ? Hardly anyone ask tough and intelligent questions.
The X generation is so brainwashed and lined up in a straight row – not much moves until consumerism is over and they face the books/ bills - when it is too late.
Well Walter, not even Bernard it would seem. Had his chances to buttonhole Tweak and Fiddle but 'bottled it' from what I recall.
Ditto when Lord Bollard calls for quiet so he can tell the 'media' reps at his meetings what they may report.
You have to accept reality Walter. The NZ media are as useless as tits on a bull..You are not going to get real journalism, end of story.
The last of the Mohicans was Tom Scott...and he scored tens with every cartoon...Piggy knighted Tom by booting him from a press conference.
"will have to pay higher taxes or cut government services".
or, Bernard, we could pay the public servants less. Which comes to the same thing.
"by purchasing a one way ticket to Australia or Britain".
Britain is in the same boat fiscally - it's a net energy importer. Australia will be in the same boat, but worse. She may get rich via resource prostitution, but in the end game, no energy-posessing country is going to sell - at any price.
"as this is an extremely important issue."......errr no Hugh it is not an important issue..at least not with the masses...the footy and the benefits are top of the list...followed by booze and sex...then ear shattering crap called 'music' and last up comes the wheels...get with the scene Hugh...who gives a rat's arse about what might happen in twenty years time!
Oh but High, you move in exalted circles...! Come on down to the street and see if the peasants know a fiscal hole from a govt liability....you will discover Piggy was right when he suggested your average punter wouldn't know a deficit if they tripped over one in the street.
I might have the order wrong..it changes as they age...they go something like this: Sex, noise,food, wheels, footy, drugs and sex again.
It's not so much that people don't care, but that they don't have a clue about the issues. From talking to people, many get their news from stuff.co.nz or the tv and that's it (and it's amazing the number of people who don't know the meaning of "OCR", even some with a mortgage!).
And the other thing is, many families actually have more than enough to worry about just making ends meet and holding on to their job to even start thinking about NZ inc's pbs and the consequences of our borrowing...
THE SYSTEM IS THE PROBLEM
I'm not sure I understand. Are you saying that without JK we wouldn't have a problem? Or JK is not fixing the problem, the problem. Or is JK trying to fix the problem, that he created by being JK, the problem?
The actual problem is that when you create money from thin air and then charge interest for it you create an economic perpetual motion device. You can't just stop borrowing. That is the position nearly every country in the world is in. Sure JK has been spending on some BS things, but you can't avoid the fact that he needs to spend the money.
If govt decided to balance the budget, even without a surplus, the economy would start to struggle. Businesses are paying down debt, households are paying down debt and unless someone starts borrowing you will run out of money. You also have the added bonus of deflation which is not nice when you are paying off debt, and don't forget interest.
There is no escape from the cycle of debt.
The real problem is that in school you are taught that 1=1, bankers know that 1=9. Money is central to society, yet most people don't even know what it is, and that is the problem.
Please excuse my ignorance but this fixation with a low kiwi dollar is counter productive to paying this growing government debt. I presume this debt is paid in US$ purchased by NZ Govt in NZ$. With the NZ$ at 0.60US$ would the NZ Govt not have to pay half as much again in NZ$ terms as it currently does with the NZ$ at 0.80US$ ? Also a stronger NZ$ also helps keep inflation low although it does encourage import consumerism. I think we should be striving for a more stable NZ$ so that this countries earners [exporters] can plan long term rather than deal with wildly unpredictable fluctuations. Is this acheivable ????
Yes, I think you are correct, so the Govn actually wants a pretty robust exchange rate....
It would seem there is a balancing act to be done, not to low and not to high. I think .80 is too high and .60 to low....its not a black or white situation clearly....and I agree price/exchange stability is important.
However just looking at the deficit's size is quite worrying....we have based our tax take on consumerism and churn....on the up swing that means more $s....on the down swing its severely less......If we had a short term problem like the Govn says it thinks it has, Ok maybe...but I dont think recovery and increasing tax take is around the corner, this I think will be long drawn out....which then becomes a huge issue.....and then we cant wait to address it.
regards
I'd love to see some better calcs as not being a numbers guru I cant work it well.....
Anyway I looked through the IRD and RB's spreadsheets...
So looking for debt per month, I didnt find anything concrete but it looks like about 1billion per month, say its 12billion per year...
PAYE tax looks like its 21billion per year...
So to hit PAYE's to balance the books up's the tax take by 50%.....so I cant see how it can be done....no one can go from 30% tax to 45% tax...hmm actually tahts worse....its all tax and not just the top bracket....everyone's tax goes up 50%...
So then we have to look at Business taxes....yet corporations have a debt of 111% of GDP...
NZ Inflation, showing its "instability"
http://www.rbnz.govt.nz/keygraphs/Fig1.html
Household debt and its servicing........
Econnovice, you'll find that NZ Govt bonds are issued in NZ Dollars meaning that, if bought by an offshore investor, they are the ones taking the currency risk - that said, you are right in so far as if NZ is seemingly trying to devaluale its currency, NZ dominated bonds will become all the more unattractive to such investors, and NZ long-term rates will have to rise to compensate that risk - and arguably higher taxes over time to pay off the higher interest cost.
All this talk of a ideal currency level, be it higher or lower, is wasted effort...fair value for a currency is only ever seen temporarily as the currency goes up or down through that level...with floating currencies, thats what you have to get used to...sure there are other alternatives to that as Bernard has pointed out (fixed, bands etc) but in the end they all fail as is currently occurring in China today with inflation heading towards 6% largely as a result of an artifically lower pegged currency.
And it's all 'your' fault, Ivan. Because 'you' voted in the successive Governments that promoted these policies; as there was something they were offereing 'you' that was more important than the background noise of social development. And here's the real problem. Come November, there is still no choice for you, other than to vote in another round of .....more of the same....
I tell you what the problem is.
Through a debt ridden housing bubble created in the early to mid 2000s kiwis have got used to a lifestyle that we haven't really earnt or deserved.
It is one based on a fundamentally unsustainable and incredibly weak economic platform - that of rising house prices and increasing debt.
The banks of course thrive on this. And so we get the so-called "independant" bank economists, who seem to be the darlings of the mainstream media despite their appalling track records, seemingly oblivious to the huge structural economic issues the nation and much of the globe faces, proclaiming return to growth of 4-6%, somehow.....so everything will be alright
And so we get a month or two of slightly higher house prices, a dead cat bounce on the back of a big OCR cut and a false sense of optimism about the economy , and we get the economists and MSM proclaiming that the housing market has turned the corner, that once again selling overpriced and under quality shacks to each other will return us to our rightful economic position in the OECD. Yeah right.
And the politicians start saying the right things in a round about way, but never follow up with meaningful action.
And we have a generally compliant MSM. There are few credible commentators who are challenging this situation, unfortunately. Fran O'Sullivan is about the only one I can think of. Bernard does a stirling job.
And we have an abysmal opposition in the Labour Party.
And whilst life is a "bit of a struggle" for many, rather than an overwhelming one, then things will drag along. Its only if / when unemployment reaches 8% plus, and inflation continues to bite, that this general lethargic apathy might turn into something more proactive. But of course by then it would be too late......
Which is why 'Ivan' isn't going to vote for any meaningful change; and why he will put up, gumpily, with single Mums on a benefit earning more than working Mums. Because for 'him' to vote for change, will affect the price of his most cherished possession - his house(s) and whatever financing arrangements he has in place. That, after all, is 'his', and the Governments default, retirement plan....
Most of our problems stem from the early to mid 2000s, and the lack of policy action to rein in the housing and debt bubble. Mind you, I don't know if policy would have been much different under National. After all, no matter who was in power in that period, the political benefits of a populace feasting on the illusionary fruits of rising house prices would have been hard to quell.
Unfortunately the damage of that period is going to be very hard to undo.
Bernard
It may be of some merit, at this juncture, to consider the concept::
Fiat money is a tax credit not backed by any tangible asset.
The following article while old and deficient in some respects goes a long way to discrediting some myths about government deficit spending/borrowing in a fiat money system.
Read here: http://www.gate.net/~mosler/soft0004.htm
Exclamations of 'rubbish' duly accepted.- nonetheless, discussion has to move on to the matters which need addressing.
Mosler concluded in 1994 ,"The major economic problems facing the United States today are not extreme. Only a misunderstanding of money and accounting..." GIven the 17 odd years in the interim, and the increase in the national debt that the USA has experienced,( resembling Mosler's suggestions ?), I cannot see where 'expanding the debt' has at all worked for them, or indeed, us.
More analysis needed I think re how much is debt being rolled over, how much is new debt, how much is cyclical, how much is structural.
Although the article does identify a range of issues re the level of debt and the particular choices made by previous and the current givernment. Crudely:
the previous government favoured paying down debt during the good part of the business cycle plus some corporate welfare (WWF keeps wages pressue down for businesses) but lost the plot as the economy tanked post around 2005 and rejected some tax options like CGT and land tax.
the current government has proceed to choose a strategy of unaffordable tax cuts, a future $100 billion tax payer subsidy to famrers and big business through the ETS; plus quite a bit of other corporate welfare along with necessary borrowing because the business cycle ain't at a flash stage.
What is missing is any big picture look by either labour or nationalat revenue, spending, borrowing and social and corporate welfare to establish what is the desired levels of these. The greens and act seems to be the only parties with coherent intergated strategies.
"The greens and act seems to be the only parties with coherent intergated strategies."
true, but although both parties have some good policy, they also in my view have a lot of unrealistic and / or daft policy
but I guess your point is they have coherent strategies. Both the Nats and Labour are stuggling in that respect aren't they. They seem so determined to try and win over "middle NZ" that their policies are little different at the end of the day
But is that really so shocking? We all know that politics is a popularity contest, and when the pollies do something which is necessary but unpopular they usually lose power....
Maybe we all need to just accept the reality of politics. After all its like most things in life isn't it, the future generations are not properly considered in the actions and policies of today....
But NZ, is different." Here comes the Budget Pain. For Australia’s governments, the golden era of credit-fuelled revenue growth that was 2000 to 2007 appears over, replaced by an age of frugality. And the headwinds facing government revenues will only intensify as the baby boomers retire and pare back their spending...It is becoming clear that the state governments will be hit hard from the combined slowing of the housing market, credit growth, and household expenditure"
Well put.......this of course raises two huge questions about revenue...
a) During the boom/growth we took in a level of tax that was based on GDP that was boosted by credit....say thats 10% per annum of GDP....so for arguments sake 10% of the tax take is based on quicksand....anybody taking tax on that basis knows full well its short term gains, sure make hay while you can but you have to recognise if you are competent that in the future at the very least that 10% will decline and vannish and indeed is probably going to be paid down....so here we are with in effect a 20% loss of tax revenue and this is exactly what has happened..........National really bribed us with a tax reduction that was not sustainable long term....in effect National are fiscally irresponsible and incompetant....no two ways about it..........
b) Labour were not better, they spent it of gave us WFF as a counter-bribe to Brash...
c) Where was Treasury in all this? where are/where the warnings that a % of Crwon revenue was likely to disappear in the not to distant future? absolutely no where....why? because they are neo-cons and wear political blinkers....Frankly in the last decade Ive concluded Treasury were useless this just drives tha last nail in that coffin.
Now if BE wanted to save many millions I would not only go into Treasury with a scapel, actually I'd use a chain saw....and gag the rest. Good riddence to Whitehead...useless.
regards
It seems to be a world wide phenomenon....
Take a gander at this -
http://www.youtube.com/embed/VtVbUmcQSuk
this is really horrific! This will most certainly affect us here in the bottom end of the South Pacific!
fair enough Wolly ... herewith in precis -
US currently paying
- US$ 413 Billion interest alone in debt per anum
- since 1988 US govt spent US$ 8 trillion in interest payments
- by 2021 (just 3650 days from now) US will be spending US$ 1.1 Trillion a year on interest alone.
- By 2046 (lots of days) every cent of tax revenue in the US will have to go on interest payments alone.
Yip NA it surely is ...
But of course thiswill be good for the NZ economy, because we're different, right???
The best part is you can't stop it..... unless you default.
You create 'money' from thin air, then charge interest for it, (unless you create interest from thin air too, you have a negative number) how did you think it could possibly end?
'Ya gotta keep dancing 'till the music stops'.
(edit. you can only create money when you lend it out)
Hmmm.
Somewhat concerning on oil production from Saudi, basically they cant produce any more for years if ever.....and this is the country with the mostest....saying its flatoutest.....
http://earlywarn.blogspot.com/2011/04/disquieting-saudi-oil-indicators-…
The graph thast says it..
http://1.bp.blogspot.com/-fqR6PTDcbhE/TbAgqPJkuYI/AAAAAAAABsM/OMVMddG0M…
regards
And what bugs me Steven, this has been obvious and coming for some time, and little has been done to prepare for it. What's worse, as more energy is through necessity consumed via electricity, Fukushima will only cause further delays in pushing ahead globally with one of the few viable alternate energy sources currently available in volume
Interesting that so many, including on this forum, focus so much upon core inflation, as if food and energy prices are cyclical - food is directly linked to energy/oil prices, and the latter sure isn't heading lower on average in the next few years
Im not sure what you are saying here....move to CPI? its simply of no use IMHO.
Core inflation is (or was) a good predictor, its focused on in order to determine the OCR for instance so you dont get fooled by noisy data........this has done well for decades....now will it continue to be so good? dont know....Im pretty sure it will because we have push inflation with oil and energy but wages are not increasing, so spending has to come from somewhere else.
Consider,
a) what % of a family's spending is food.
b) what % is Energy
c) what % is other goods.
d) consumerism is or was 70% of GDP.....
e) In the past food has been cyclical its cost is dependant on the season...
f) Energy has been generally until 2004 very predictable in price, ie the best predictor of future oil prices was its previous price....
so food while it might go up, that isnt a huge a % of the total consumer spend....
The kicker is though that ppl dont have more money, they have spending limits....so OK pak-n-save continues to do OK....Brisco's?, DSE? these suffer as consumers have no money left....
For instance, Energy went from $147 to $35, what good would CPI be? take a look at somne graphs, if you worked in $35 and the recession we had massive CPI deflation....yet we didnt, no look at core....still doing a good enough job.
So at present I still think core will do a good job, but more importanlty there is nothing better. Food and energy will flow through quicker or maybe more effectivey to core...yes I can see thats possible....the problem is you cant control CPI using the OCR, its way to volitile and OCR way to laggy try to and you will make your economy way more unstable....thats bador business for instance.
In terms of concentrating on core, actually Im not so sure...wolly etc certainly does not, I certianly do.
Also, why not, why not do your own thing, if its more accurate you will profit....
All this (above)makes my head hurt! ;o)
China might just be right. Managing the exchange rate to undervalue the labours of the citizenry has done them no harm. We may have to pay the truly mobile workforce more (Doctors, nurses, teachers etc) However letting a few accountants and lawyers out of the country's payroll would do very little harm.
I'm just enjoying a nice quite evening here in Melbourne's northern suburbs. It's a lovely Autumn evening here.
I only occasionally check into interest.co.nz these days. Australia's economic up's + down's keep me interested enough, New Zealand barely warrants a glance for me these days.
The NZHerald article mirror of this article caught my eye & I decided to check on the commentary on the article on this site. I have to say, I think a lot of the commentators have been on the grog, much of the arguements are very difficult to make sense of.
Here's my 2 cent. 1 Billion of Debt is a large amount of money in anyone's language. Clearly, this will never be repaid, just as Ireland's debt to the EU for their bailout will never be paid. It's just mickey-mouse-money. The global financial crisis sparked a frenzy of money printing which has clearly now gotten out of hand. Money is so freely available that a small remote island economy like New Zealand can borrow a bill at the drop of a hat.
In fact anyone can borrow money these days. Walk through any shopping complex here in Melbourne & you will see 'Zero Fees' home loans at teaser rates with just 5% down. I work with a kid earning $55K a year who was allowed to borrow close to 1/2 a mill for his first investment property. The government loves it of course, they got $16K stamp duty straight off the top, no risk there.
Anyone who seriously thinks this can continue is dead wrong. Staggering amounts of money have been created from thin air in the last few years, leading to what we see today, spiraling food prices. I saw tomatoes on sale here last week for $8 a kg. Bananas are $13 a kg at the moment. No trouble for me as I'm not stuck but what about those on fixed incomes that are eroded daily by steadily increasing inflation?
Those in the know turned to Gold & Silver when all this started & have seen their purchasing power keep pace with inflation. The rest of us suckers with money in the bank are getting royally screwed.
I think it's all going to turn horribly bad myself, sooner rather than later. Happy Easter New Zealand.
This is turning into a foodie blog. Maybe we should ask Bernard to put up a recipe page :)
My dad tried planting a banana tree (north-west of France) when I was a kid...but it never produced a banana (but all sorts of other fruit trees did well)! Good luck with it.
Bananas can be grown in cooler climates , even in Christchurch , but given the effort to do so , why bother . .... Aside from being a garden curiosity , the yield is minimal .
....... Strictly speaking they're not a tree , but a pseudo-stem . After fruiting the stem dies , and new ones ( off-shoots ) develop .
The base of the plant is actually a corm , not unlike a gigantic gladioli bulb .
............. Hey Bernard , can we have a Gardeners' Corner too , 'cos there's sweet bugger-all happening in the financial markets ............
We had some successfully growing against an East facing fence but I foolishly cut them down because they were looking really ragged. A lady I know further up the coast a little grows quite a lot of them successfully. So I figured I'd give it another shot. I have it frost covered for winter. Hopefully it will take off in the spring. We put it almost right where the old ones were.
Easter is a slow time for us pagans ! ...
..... The wife hid eggs for the kids ( 18 rock rats here on Saturday ) ....... But because it's so hot , she hid real eggs , instead of chocolate ones ...
... Little tykes were bloody lucky that they weren't balot eggs , the ones with the half-developed chicken cooked inside them .
Maybe Seddon recognised a dork when you arrived steven...best home made pies to be found there...great place to generate power with a turbine...lots of low cost housing....vineyard work to be had...great little rural primary...endless flow of tourists passing through to sell stuff to...a beach nearby to fish off...
and all you could think of was to walk across a shitty old bridge....
We've always made a point of stopping in Seddon . The food is fine , the scenery sublime , and the locals friendly ........... Not sure what steven's problem is .
......... But my original comment to Walter was a jape .... And a different jape-ape fell for it .... My new off-sider , steven .
[ why are the lefties so earnest and serious , Wolly , they seem to take no joy from life ]
Chris Trotter threw this little gem out , as a reason why Goofy and Klinger are polling so poorly ....... The left are annoyingly earnest in making changes to our lives , 'cos they know what's best for each of us , more than we as individuals do ! ........ Shades of " Animal Farm " there . ....
Dork...LOL...yeah right....
Ever done vine work Wolly? bet not or you wouldnt comment like this. 8 hours bent over in the sun, not allowecd to talk, minimum wage.....
Seddon, Ive spent weeks there........I know the place fairly well...
Cheap houses, used to be yes....
Beaches, yes....
regards
As it happens steven, yes I have. Done the lot. A young persons job and way too tough for long term winz 'clients'.
Seddon is still ok though..Not flood prone...no fault lines beneath it...far away from the tsunami coast...and all the wind a greeny could want.
Next time you rush past, have a local pie.
I normally stayed there for weeks....bloody freezing in the winter......Who's make of pie?
I much prefer the Renwick side, Jones's fruit, Bush Honey, greta apricots, yum, highly rated fish and chip shop....though the pub food is again awful....and over to rye valley wetter, more lush not so wind swept.
regards
Cold yes but jeez at least that leads to great fruit. Trout in the Awatere. Forgot the pie maker's name but they are still there. Kids bussed to high school in Blenheim. That bloody hill is the killer...some day a tunnel will be bunged through them Wither hills...
Yes I heard about the fush an chups in Renwick....funny the pub food didn't go down well...how long ago was that steven...
I agree totally with you Iain. Not many people have the inside knowledge like you, but we can still follow the BS, which are produced by bankers/ politicians/ media and a high number of bloggers can connect the dots and see what is coming, respectively what is hitting us and especially the next generation.
Iain - the world has all sorts of problems – we all contribute in different ways to educate/ inform and try for a better world. To be humours from time to time is part of it - especially by listening to link below and other stories.
http://www.youtube.com/watch?v=TMXvpWoHzeE&feature=player_embedded
http://www.energybulletin.net/stories/2011-03-26/dr-helen-caldicott-nuclear-disaster-japan
Iain, we have to clean up the world on so many fronts - "Broom Time" all over.
I agree that borrowings by the NZ Govt. are too high, pose a threat to the economic welfare of the nation going forward, are unsustainable and they need to addressed and addressed urgently. I also agree that the National Govt. is doing too little to address this and it is in danger of starting to lose support from its traditional base if it continues in this direction for too much longer. I don’t however agree that there will be no money to pay for National Superannuation in the future. How much have we already put aside for it so far? $19 Billion, Cullen Fund + $3.5, Billion Kiwisaver = $22.5 Billion and counting. So we have no money to pay for our retirement. Yeah, right, whatever you geniuses say. Maybe stick to predicating the real estate market??
Anyway let’s engage in an act or realpolitik here instead of a indulging in a lot of the voodoo economics and tin foil stick pointing we’ve seen written so far.
How much should the Government cut from its spending?
What should it cut?
What debt levels should the Government be aiming to reduce our current burden to and by when?
What is an acceptable level of total NZ debt (both public and private)?
Numbers (dollars) please.
Hullo DB : The gumnut needs to get down to just 25 % of the nation's GDP . That's nearly one half of the current level ..........
......... Before you have conniptions over that , recall that Labour ( 1999-2008 ) raised gumnut expenditures by 50 % ........ Far outpacing the nation's GDP growth ............
[...... ummmmm , gotta go , the little Boss wants to " talk " , we'll continue this later , if you wish so........... cheers buddy . ]
yeah I think there is a case for that for people earning over 100K - return taxes to what they were before the tax cuts. I'd personally lose my extra $80 or whatever a week, but I think it would be in the nation's best interests, and ultimately those of my children
and of course supplement that tax income with a land tax
And wipe WFF for families earning over 100K
but this is all conditional on other things being done, including introducing restrictions on LVR, and maintaining interest free student loans. the latter may have been a Labour bribe, but I think we need to be doing all we can to upskill our population and minimise the debt lots of students are entering their working lives with
When you look at the sixe of the difference to be made up and the fact that I dont think anyone who can look and think without political or self-serving blinkers cannot see we have structural/permanent problems, yes the top rate just has to climb again.....35% or 40% with ease including business tax. NZ is actually in the bottom third of taxation according to the OECD.....yet this doesnt seem to have paid off and other nations are doing as well or better....
I cant see why a land tax wont come, simple....just looking at the debt and the collapse in tax take it cant be met by raising PAYE taxes, so it has to come from somewhere else and it has to be broader based.
I can just not figure out how a family can get WFF when they earn $100k that is simply silly...
Student loans and up-skilling, indeed....I cant dis-agree.
regards
Yes but it'd be easier to set up (make it acceptable to people) during a time when house prices are stagnating/falling. Rather than actually providing extra income for the govt, it may at least serve to turn people away from their obsession with property and looking at other investments.
We were talking to friends this week-end and they were saying how now would be a good time to buy houses for a bargain in Chch, do them up and flick them onto someone else while making some $$$ in the process. People still see this as a good way to get ahead financially. Also briefly touched on the economy as a whole & govt deficit and the answer was that NZ was one of the less indebted countries so where's the problem (and that from very well educated people).
Steven, looking at the IRD info on WFF, you need 4 kids to get WFF above 105K.
Depends on the size of your mortgage I suppose. That said, larger families are often not the ones on the highest incomes so cuts for incomes above 100K probably won't affect many of those anyway.
Actually I just did a quick calculation based on our expenses (we have 4 children, no mortgage). Living expenses are about 55K / yr. A 105K income on this year's tax rates leaves you with just under 80K in your pocket. So based on our expenses there would actually be room for a 2K/month mortgage repayment., without govt help.
ok modest mortgage and zip opportunity for early repayment, zip for contingencies, investments for retirement or money set aside for education opportunities for four children...
And that what you get for a modest six figure income in NZ very sad. Not a sustainable situation.
I think its unlikely that our wages will rise that much or our COL drop very much.
the key is for the disparity between the two to not diverge any more, and hopefully contract a bit.
The best way that could be done is to ensure house prices don't get away on us again.
The policy solution to achieving that is simple - restrict LVRs, free up planning regulation, be more restrictive on immigration, and introduce a land tax.
Much harder to regulate cost of food and petrol etc - those things are based on international factors beyond our control
Maybe it's not so much an issue of raising tax rates, but of making sure that people do pay the tax they owe. There are many stories about people earning (very) large amounts of money who make the most of the loopholes to dodge their share of tax (or even claim WFF) and it makes me think we should probably address this first.
I agree with the rest of your suggestions though.
I looked at a correction needed to get the tax take up to stop the deficit increasing...and while I admit I cant make a decent spreadsheet on this becasue I just dont know enough, my calculation was to meet deficits we actually have to increase all PAYE tax by 50%....I suspect Im wrong but I caqn see no other info. Now one of the comments on Greece is that there is a huge un-taxed economy, on the other hand NZ is supposed to be on the other end of the scale, so a "clean up" doesnt strike me as anywhere big enough.
The loop holes are mostly done by those who earn enough that emplying a tax professional to dodge tax makes sense...ie they get a return....say individuals on $150k plus...not many of them actually.
So since we cant seem to or want to cut services, there is only 2 ways out, borrow more or raise taxes....in fact its both the same thing as with borrow more we kick the can down the road and later end up raising taxes anyway....but even more as there is interest to pay down.
regards
I agree that SOME cutting would be good, but where does one start?
I personally don't want to see cuts to essential services such as health, education.
Some of the bureaucracy could undoubtedly be trimmed back, but I'm not convinced that would save a huge amount, especially as many who are cut would go on the dole.
I think the Nats will do something like cutting WFF for those eanring over 100K in this year's budget, and thats fair enough.
So I can't really see anything other than fiddling around the edges.
Increase tax revenue through an increased top tax rate, and a land tax. The former will never happen from National though. So its down to the latter - a "maybe" under the Nats
What are your thoughts on spending cuts Kermit?
Matt im not a supporter of slash and burn, but we have to start somewhere.
Putting bureaucracy under the microscope is a given. The "nice to haves" cant be afforded and need to go.
At the risk of being accused of beneficiary-bashing id be looking very closely at WINZ and its "clients". I have no problem with supporting those who have fallen on hard times (the safety net approach)...but I have a major problem with shovelling piles of cash at people who make a lifestyle choice to be beneficiaries, commit crimes, breed like there's no tomorrow, raise their kids to be future criminals or beneficiaries (the hammock approach).
You commit a crime = no benefit. Little Johnny commits crime and or doesnt go to school = no benefit, you've got MySKy and a $20k harley in the shed = no benefit. You want an emergency grant = prove that you have exhausted all other avenues (ie families, additional income, selling assets) before you go to the State.
Pension up to 67 over time, and bring back the surcharge (at a reasonable level). Ive heard of pensioners with all their assets in Trust getting both the pension and WFF.......
WFF goes and is replaced by a tax cut targetted at the lower -middle tax brackets.
Student loans interest bearing with a rebate for repaying within a certain time frame.
Toughen up on fine and child support dodgers...perhaps discount the book and sell it to Baycorp
Cut deals with the revenue authorities in Aust, UK, USA etc to collect cash from student loan, fine, child support dodgers happily working offshore and not paying a cent back.
Id also resource the tax dept to collect a bit more of the cash that goes through the black economy.
And then id go after local govt......before it bleeds the country dry.
The list goes on but hows that for starters ?
pretty good!
My only concern with getting tougher on some of our less well behaved beneficiaries is that it may have some nasty side effects...more crime and looting? Maybe not, they'll be doing it anyway. Then again, maybe we just have to accept that there may be some crime side effects - we shouldn't be cowardly and not be tougher because we are worried of a bit more crime? Its just I think we need to be careful with these things as the net result and cost to society may be just the same. And end of the day I'm not convinced we'll save much anyway. I suspect your point is more of a philosophical one rather than one intended to save the country big money?
But your other thoughts are good - pension to 67, replace WFF with some tax cuts etc etc
I think its a case of making sure every sector of society contributes to the turnaround, and the lessening of the burden on the state.
Raising taxes is a last resort...its like balancing the houshold budget...you cant simply keep going to the boss for a payrise.
On the prison issue...(apologies to the Architects out there)...no more architecturally designed prisons. Make them more unattractive places, build them on surplus land at Waiuru. Id love to see an analysis of the cost of keeping a crim inside for a year against the savings made in property damage, medical costs, Police & Crown law time, legal aid, insurance premiums.
Make health insurance premiums tax deductible ?
On and while im at it compulsary 3rd party as part of the cost of registration.
End of rant, im missing Desperate Housewives.
Steve - the answer is food and energy are going to be FAR bigger cost in westerner's budgets in the future, whereas it was incidental until now..the fact that you quoted the Saudi situation made me assume that you're up with what's changing. The two are going to become a far bigger percentage of your personal budget Steven and you will quickly become tired of core CPI being quoted at you, as are the populist from emerging nations and increasingly the likes of the US and other western countries
Yes maybe the OCR isn't perfect at controlling inflation, but to date there hasn't been anything proved to impact it quicker than a bout of higher interest rates and currency that goes with it...unless you have other suggestions.
Food and energy, yes far bigger, I think its about 10% right now, 30% seems likely.....despite what ppl say about food costs they are still lower than most other time periods....its only really the last generation that have got used to cheap food. The problem is that 20% has been taken up and spent or committed with debt....so unwinding that cant be done quickly...
FFS, I know full well the impact of peak oil on my budget........No I wont get tired of core being thrown at me because I understand what it is used for....Core and CPI are different animals and used for different purposes, simple. Ive spent the last two years seting myself up as well as I can to weather this....minimised debt and I wont take on any more...my total debt is <10% of my assets...best I could do....now im a save and cash junkie....I want a new kitchen, I will save for it.....if I take on some debt it will be for 12months max and minimal...
The point is to control inflation we use or change the OCR and to know how to change the OCR we have to base that decision on not only where inflation is today but where it is 1, 2 even 3 years out, CPI cant be used for that.
NB, Ive said this before but I will repeat, OCR is now finished as a tool to control inflation, IMHO it only worked with pull inflation and not push....
Let me say why I think this is so,
So with (traditional) pull inflation wages rise and ppl have more money to spend, that means all goods can rise in price, ppl expect rises so core inflation rises, hence OCR rises to take the money out of the system...(which is then handed to foreigners, as extra interest, dumb really )....
With push inflation wages do not rise.....some goods where the seller has the power to do so or simply has to, rise. Consumers though dont have any more money so have to spend less elsewhere....the result is there is inflation in some sectors, but in others there is deflation.......the effect on core is negligable, and in fact un-employment rises....even more deflationary....core inflation then can be expected to drop or at best stay flat....The point here is the money supply has not increased....
Now if the RB raises the OCR to fight CPI, the result is even less money in ppls pockets, so thats defaltionary....its piling up the pressure on core inflation..and risks us going into a recession, more lost jobs, less money supply, negative spiral....nasty....
Controling inflation before peak oil could have actually done by a very direct method, instaed of giving the RB the OCR tool give them the raise (or lower) the tax rate tool. So as the economy expands too fast, the RB tightens. The money goes into a rainy day fund, its taken out of circulation and stored.......so at some point the boon is over, then the RB starts to lower the tax rate.....at some point it looks like a recession so the rainy day fund is broken into and is used for infrastructure works....sewage plants, rail, roads etc etc....this keep construction going which also employs a lot of semi-skilled ppl....
However we are now past peak oil, all bets are off....
This is a great piece by Automatic earth, it explains finance after peak oil, if ppl watch this and dont realise their lifestyle is going down the tubes.....well....
http://www.youtube.com/watch?v=BJKZT5TNjYw
regards
A great piece for Westminster etc...
http://www.youtube.com/watch?v=4fPAx5MEviA&feature=related
Canada's housing bubble....
regards
RE: Iaine's http://www.bendyson.com/one-good-cut-our-new-campaign/2011/02/
Huh! That seems like a really GOOD idea. The gov. could use all that interest instead of taxes and all the debt-generated wealth goes right back into the NZ economy as well as all the money we get into our pockets because we no longer need to pay taxes.
There's got to be a catch.
Where does all that real money (paid by people via interest) go that the banks earn on the money they make up?
Steven: "The money goes into a rainy day fund, its taken out of circulation and stored.......so at some point the boon is over, then the RB starts to lower the tax rate.....at some point it looks like a recession so the rainy day fund is broken into and is used for infrastructure works....sewage plants, rail, roads etc etc....this keep construction going which also employs a lot of semi-skilled ppl...."
What money? If I understand it right, it's the banks that make all this non-existant money. How is the RB supposed to get its hands on it? According to this video: http://www.youtube.com/watch?v=Eg5N_QSoojw&feature=autoplay&list=PL2145… the gov. probably only produces five percent of the money.
Also, this is a good video: http://www.youtube.com/watch?v=nUChuUo0ZhY&playnext=1&list=PL2145BF6263… similar to Iain's link.
Im not sure what you mean....Im talking about the RB controling the tax rate and not the OCR....the OCR stays at some nominal %....say 5%...
So the OCR ceases to matter as a monetary tool....mortgages wouldnt go up or down in interest %, they would be essentially fixed at say 7%....or some margin above the OCR...
"what money" So lets say the PAYE tax take is 33%, that gives us say $4billion....we are in a boom so the RB wants to cool it a bit so raises the tax to 34%, that means the tax take is $4.4billion.....$4billion is passed to the Govn as per normal....the $400million is put in a rainy day fund.....such as the Cullen fund we now have....the bankers as such dont see the money, the RB holds it in a fund managed by others.
Probably also have a land tax of say 0.5%...the RB can vary that as well to cool or warm the economy. Also do the same with GST....the Govn wants say 20%, the RB can add or subtract %s as it sees fit.
regards
Oh now I see what you are saying. That doesn't seem fair...it means the RB can have its hand in my pocket squeezing my pay cheque whether I am one of the people spending money and causing the problem or not. At least the OCR most directly effects the people taking out loans or who took out loans.
What did you think of that link to the idea of the RB taking over banking functions and the interest going into infrastructure instead of into bank pockets? Or vaults or wherever they put it.
The problem with the OCR is it takes time to have an effect as ppl take fixed terms, we are now in a period of greater volitilty so the tools used have to act quicker be that on or just as importantly, off.....I can see your point of view except housing is just one aspects of inflation...the idea is to cool inflation. These are macro tools, some will be hit harder some less so...
RB taking over functions, I have not read it but I prefer to have banks independant of Govn....by all means regulate but allow private business to work within the limits set....Banks actually borrow abroad and then pass the interest on back to the investor, so Im not clear on where the RB would get the money from? Also Govn spending on infrastructure should be counter-cyclical, passing the money through immediately into construction of infrastructure doesnt cool the economy, taking out money does....so as the economy threatens to go into a recession then release money to spend on capital items like hospitals....the Govn will get a better deal on costs as no private company is buying/building....and in fact in a boom time the Govn isnt spending so its not crowding out private owners/developers who have to compete for the builders and pay more....
regards
".. if you are over 45 and can’t demonstrate how you will be able to repay a 30-year loan, then there is every likelihood you will get knocked back. With doubt about future price growth, your guarantee that you can sell the property if you fall on hard times is no longer a comfort to banks.... some borrowers who were given pre-approval at the end of last year find they no longer qualify because of the tighter regulations"
Okay. This is Aussie banks...but,also known as Our banks...
"Our" ( the Aussie) banks also used to do the same: " ..a growing number of property owners are facing the reality that their homes are now worth less than what they borrowed. The perils of the 100 per cent loan!" All it took was one small thing to increase lending standards - the National Consumer Credit Protection back in early January 2011.
Perhaps, Your Landlord, your observations are about to change?! Reverse Mortgages may become a thing of the past, if property prices are seen as 'stabilising'. After all, lenders are in business to 'get their money back' and a reverse mortgage in a flat-to-falling market may not do that. ( "You want the money, old fella? Sell the house and rent it back then! We don't want the exposure at any LVR" etc) Then we will have... buyers at the bottom ( the young, indebted) and those at the top( the elderly) missing from the ever shrinking pool of buyers.
"Those most at risk of being knocked back are older borrowers, self employed, pregnant women, retirees looking to reverse mortgage as a solution, and even those with high credit card debt."
They did do it once before, under Hawke/Keating. But as you say, the 'traction' ran out ( well Bob's did ). This time? Maybe it's a go-er....after all....The Governments have to raise their income from somewhere. And the 'wealth' in both countries is in it's property stock, although moreso in NZ. Aussie has that nasty 'side effect' of reduced stamp duty and capital gains receipts in a downturn. So I guess abolishing negative gearing is the place they will go......and us, of course :)
http://www.youtube.com/watch?v=nvoFJsqF1wQ&feature=related
12mins in.....25% collapse in GDP per year....
Nice....
regards
Personally I think fees have dropped? My impression is banks are aware ppl get p*ssed with these fees and leave....so better the get your $ in less obvious ways.....basically let the punter think he's getting a deal while you take your cut elsewhere....usually its a better cut...
regards
Deflation a nicely put piece and explains better it seems than I can why I think the way I do.
http://www.youtube.com/watch?v=MhtG85Fu2CA
The first chart and few minutes in particular, but its all good.
regards
The problem with increased income tax is you lose your aspiration class that are mobile.
Take Miss A on 150k, nearly a third goes income tax currently, third to live assuming she has no dependents, 50K saved p.a is not going to buy you much with every asset class overvalued and debasement in play. Squeeze that and she might as well give up hope of acquiring a firm asset base in NZ for her financial future.
"The problem with increased income tax is you lose your aspiration class that are mobile."
I think that's a bit of a myth. A lot of kiwis return to NZ after a prolonged OE for lifestyle or family reasons. In most cases they have sacrificed a much larger salary overseas. I don't really think whether the top tax rate is 39 cents in the dollar versus 33 has that much influence to be honest.
We will be facing a greater increase in margin tax rates of 6% for starters medium term. The point is the disposable income relative to the cost of assets...to secure financial independence is actually already stuffed for the example I mentioned above unless they are on that income at a very early stage in life or acquired assets prior to the last cycle.
Yes some come back...have a client couple coming back end of this year, they are the typical kiwi couple...the point is most hook up with foreign partners and can't/will not come back as a consequence. I have had 17 out of 223 ex-pat clients in Euope that have come back in the past eight years...doen't appear to be a myth from where sitting.
"mobile" possibly but that is no means certain, also look at the state of elsewhere...this is a global phenonmum.....just where do they go? add in in a depression a country will kick out its non-citizens first, ie those on work permits....Also just how easy is it to move? NZ is un-lucky in a way because of OZ where a NZer can jump on a plane...cant do it to say the UK.
I think this risk is over-rated and over-blown, so I agree with you.
regards
Totally agree, Armstrong is rite on the money, if there isn't a MSM announcement by this time tommorrow 'i'll eat my hat'..as the saying goes!..crazy as it sounds but its the rejuvenation the ACT party needs....But it is kind of ironic that in 2005 Brash lost the election race cause of the preceived connection with the Brethren...who don't pay tax!!
A-C-T...Association of Consumers and TAX PAYERS.
There is no other way !
Not economic growth, but living with less now - for the advantage for the next generation and beyond.
http://www.youtube.com/watch?v=UUmwy0VTnqM
..and we should tell Trump, Buffet, Hide, Key, Goff, Brazil, China, India, Monsanto, BP and Fukushima too - but they aren't listening still.
Not so fast Hugh, theres an old Chinese saying 'Make haste slowly' it is a mantra JK knows well more than most...i for one am prepared to give him a bit more time...see in a Democracy like ours, with the demographic we consist of' we need to take everyone with us when radical change is needed, that needs time!. For the likes of you and most commentators on this site, grasping the concepts is easy, but not so for most...
Totally..ACT will pole >7% under Brash..any bets??
Just what were you expecting? JK's mandate is and was to stay close to the centre....he's done that.....He's also probably not done a bad job of guiding us throught what looks like the start of the worst financial crisis ever...I think he and Natioanl deserve some credit, certainly I think he's done better than HC/Cullen/Goff would have.
We've had the Long Depression, The Great Depression and this is the thrid....the time of the Great Austerity......
regards
Trouble is what I see needing to be done and what you see needing to be done are Im pretty sure significantly different. So JK listens to whom?
With Peak oil, things like forget growth, its no more.....start moving to biofuels...forget urban limits etc, a non-event when there isnt the energy to waste on sprawl aka the USA.
Wind farms, tide, get them under way now....
Get taxes raised to balance our deficit, bring in a land tax....
So you concur?
regards
I agree Hugh that JK is failing to confront and address the issues.
Having moved on from property prices as being scandalously unaffordable for our young (even though the problem is still to be addressed), I can see that the two big issues our country now have are foreign borrowing and socializing bank / insurance company losses.
In your opinion Hugh does it matter who is in power as both Labour and National parties are puppets to offshore bankers interests.
I say this because when either the Chinese or Australian property markets collapse the certainty is that banks will want to socialize their losses again just like Ireland and we need the democracy of Iceland to avoid a generation of debt.
<5%
IF we see >7% it will be at the expense of National and their second term....dont under-estimate the disquiet if not anger ppl around the centre of the political spectrum feel, these are the swing voters, they didnt vote for a wild swing now did they?. This could do more to damage national's chances of re-election than anything else I can think of.....Goff mus have a grin from ear to ear...Brash puts his foot in it again....he's simply amazing....
"radical" I assume a swing to the right?....I think you are day dreaming....The world has lurched to the right for 30 years and its brought us to the edge of insolvency....ppl can see that....I dont think ppl will want any more of it.....but guess we'll find out on 26th November. pity that Hide was so silly, in some ways I didnt consider him too bad, way better than Brash taht's for sure.....
regards
The point of JK appearing to be centralist is that's what ppl want....They in effect voted for more of HC and Cullen but a different face and a bit of tax back please...
NB....radical...Where are all the advantages and benefits of the Roger Douglas etc reforms? OZ didnt do them and we left them in the dust? right? uh no.....we are in theirs....though I wonder how much of that is the minerals boom and not Govn...I admit...so now Brash, RD etc wants to go even further........
Ppl of NZ would appear to not want anything of the sort......Brash may have yet again put his foot in it and handed Goff the Election.
regards
Not being a betting person....no.
The point is, does Brash's move do the right more damage and costs what looked like a safe election for National, yes I think so I cant see it being good. I suppose Brash sees this as a dead cert so is jumping at an opportunity to drag National to the right with him being the mover and shaker? So really what ACT/Brash polls doesnt really matter....ACT can only do better by taking from National voters....which will be ammo for Goff, watch the polls....If indeed ACT starts to safely climb above 5% thats going to cause National's central voters to desert....IMHO. With MMP Goff then gets in....
regards
Ive always considered Don Brash an ACT escapee...so when we look back at 2005, National tried to dump us with an ACT PM.....nice one that....something that builds trust eh?...............not.....
5% maybe or maybe not and if not political wilderness......
Your scathing attack on JK isnt suprising is it really....an ACT supporter by word and deed, call a spade a spade.
The interesting thing is, just what has that done for National's chances of a second term?....many ppl supposedly voted National for little more than a change of face and a tax bribe........just what will they think? Oh dear if ACT get 5% they will have JK etc by the balls and most NZers will get screwed over....
Now its up to Goff to make the mileage....that and not drop the ball.....
regards
Interesting thoughts Steven
so Act get more than 5%, Nats may need them to stay in power.....
But prior to the election polling shows Brash above 5%. Centrist voters, scared of what Nats may have to give to Act, swing to Labour instead. Of course, sticking to their guns and staying with Nats would mean the Nats mightn't have to rely on ACT, but I suspect that is not necessarily the first instinct of the centrist voter
This could be a total blessing to Goff
I wouldn't bet against a Brash-led ACT getting to 5% at all
So ppls choice comes down to a [risk of] swing to the far right, or stay in the center by voting Goff...Lets look at the last election, JK got to be PM by being in the middle ground....a small % want to go to the right....a far bigger % want to stay where we are...
regards
Goff is NOT in the center!! DO NOT forget this when your voting this November. The NZLP consists of and is controlled by hardcore unionists and The Rainbow Grouping...No one else...The road to rebuild Labour as a Main stream political force (central) will be long winding and bumpy.... thats the price you pay for being controlled for is long by an Autocrat
Hugh - fair points, but I wouldn't underestimate any of the following factors:
- middle NZ is hurting
- the Govt's handling of the Chch disaster has been poor
- middle NZ is not interested in a lurch to the right: voting for Goff may be seen by some as the lesser of two evils!
- MMP allowing Labour to form a coalition with a whole bunch of misfits
Centralists.....would they risk that? if they did by sticking to their guns, wouldnt the right take it as a mandate to go radical when in fact the centralists hoped National would get enough votes to ignore ACT....and not go radical?
I see it as a blessing for Goff myself....what other angle is there? It will be interesting to see what the polls do....an uptake for Goff/Labour....or nothing......are there any out there yet?
Brash, wierd but Ive always considered Brash a disaster area.....I dont understand just what his supporters see in him....its like this guy is the best the far right wingers can put forward? I much prefer Hide....
regards
yeah I can't see much in Brash either. I think he's got the personality of a fish and is a right wing ideologue. I thought his time as leader of the Nats was very divisive and unconstructive, he cynically played the race game. The only thing I agree with him on is on the need to free up planning regulation
I always think PM personal popularity a joke...however when you look at Goff, JK, Brash, Hide etc JK stands out as the most likeable....Goff doesnt gel with me, Hide I dont mind, but Brash I really dont like he comes across as a slimb ball....even Whinny P beats him and that's saying something.
regards
New Zealand debt borrowing will continue unabated, regardless of downgrades and crisis.
You see, the government has taken a look around the world and decided that nobody will much notice the midget pocketing lollies from the bulk bin, because there is a robbery at the checkout counter.
A serious look at European, Asian and Western debt dwarfs any possibility of repayment. The whole financial complex is headed towards the Great Mother of all Financial Collapses. Post collapse; folks will simply invent a new currency. The resulting sorting out will keep the rest of us busy for the rest of our lives. Our debt is illusiory, so long as the big boys pop first.
uh no....yes, there will be a [financial] collapse and a depression....IMHO....what will happen is $s will not be lent out, credit will simply collapse/disappear....whoosh gone....even if ppl want to borrow they will not be able to easily....when that happens the housing market will simply implode, 70% losses seem not un-reasonable, when that happens no one will be spending....take a look at the roaring twenties and the then GD....the comparisons are striking, the outcome similar but worse because all the indicators comparing the 1920s to today are far worse....
Its going to be very tough and frightening for many....very high un-employment, 30% maybe, certainly past 20%...pensions will be wiped out....BBs will not be happy but there will be nothing they can do....Ie vote in the things they want because no one will be lending Govn's to spend...so it cant be paid for, simple.
regards
Disagree.
Today's money is not the same as the money the people of the Great Depression used, which was tied to a commodity (gold).
After Nixon disconnected the USD from Gold in 1971 the rules all changed. Today's money, systems & rules are different.
All that you predict in your post would have already happened, otherwise.
Most people don't understand the implications of the demise of the Bretton Woods system - and as a result, most people are pessimistic & scared by their ignorance.
The problem with Brash is that you have to be stupid to follow the mantra.
Sure, a small (and getting smaller) clique will benefit at the expense of the rest, and some outside that clique will support it in the delusion that they might one day join the clique.
The prblem that even the clique has, is that the system they wish (need?) to continue, is in overshoot.
Physically.
Hugh - now much more of that unlimited land supply did the earthquake add to Chch?
Correction,
NZ's biggest problem really is, you have to be among the small minority of the brightest, to follow the "mantra".
The alternative leads to sovereign default and Chavismo; and I see little hope today that NZ is destined for anything else - a sad end to a nation that was once part of the pre-eminent English speaking nations in the world community. World's first English speaking Anglo Saxon Banana republic - here we come. NZ making history again.
It's a bizarre wee land where the folks would rather see Winsome Peters return to politics , than to see Don Brash return . The lefties hate the guy of course , because he rips into their pets , particularly the " entitlement " programmes , the seriously dopey economic policies that Labour ( and now , National ) use to bribe voters .
....... And Dr Brash doesn't espouse policies to alter the culture of the citizenry , to match his personal belief in how they should behave as individuals . He will stick to getting the economy fixed , and not embark upon a campaign of social engineering , as Herr Helen did .
He is a shot-in-the-arm that NZ politics needs , to bust up the comatose meanderings of both Labour and National .
No Heckle without Jive, eh?
Interesting you both surfaced simultaneously. Was it a case of rising again on the third day?
Actually, I'm surprised you were both away at all, given your faith in the unlimited. Surely you could have been in more than one place at one time. After all, the subdivision possibilities in the shadows of the Port Hills are unlimi............oh dear.
FYI from a reader via email
Hi Bernard, an excellent article, very scary though. Where can I find the results of the latest Bond Tender 394? I am intrigued at how our bond sales drive the NZ Dollar upwards, making our export businesses and tourism more difficult, and imports of TV's, European cars etc more enticing...... Regards, Brian
Here we go
http://www.nzdmo.govt.nz/securities/govtbonds/latestresults
cheers
Bernard
FYI from former Social Credit candidate Trevor Crosbie via email:
Hi Bernard Read your contribution on debt overload with some interest given that I stood for Parliament in 1981 and the emphasis of our campaign was the danger posed by the use of debt as the primary source of money for economic activity. Of course both National and Labour were vitriolic in their condemnation of anything that smacked of an attack on the financial orthodoxy that they both used, justified and defended and labelled those warning of a coming crisis as cranks, snake oil merchants and drivers of Skodas Well here we are having just had a crisis of some considerable magnitude being told by economists, academics and people such as yourself that the driver behind the problem was the debt base of economic activity. In reality what is happening is that those who own, operate and profit from the debt mechanism realise that a tidal wave information about what has been going on for the past 3 centuries is being disemminated through the internet and confidence in the status quo is rapidly diminishing. Our money supply is constituted of two parts, the first is the debt free money e.g. notes and coins the second is the debt created by the activities of the entities that issue loans to enable economic activity to happen. The debt free component is, according to the Reserve Bank, around 3 percent, with the balance of the 'money' being injected into the economy, again according to the Reserve Bank, by the process of the banks in making loans to clients. Obviously from the above if everyone pays down their debt, which is an impossibility because that would require an unsustainable expansion of the debt base of the money supply, then economic activity would gradually wind down and everyone would be stuffed. Over the past 100 years there have been a growing number people warning of the perils of using debt as the primary source of money. They have been denigrated, discredited and marginalised but the old adage of every dog having their day may be about to come to fruition. The recent proposal from the UK to separate the speculative activity of banks from their retail activity is a sign that a shift is happening in what banks can get away with due to the ignorance of our elected representatives. There is no reason whatsoever why a government cannot provide a debt free facility for funding much of its public good expenditure and thus separate that function from the rest of the economy. Such a facility would provide an opportunity to back debt out of the economy, eliminate the deficit and reduce the tax component stemming from the current debt based methodology. Sticking to the present mechanism of debt as money is simply laying another tier of problems on top of those that we already have. Regards Trevor Crosbie Hamilton
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.