*The following article is by John Bolton, principal of Squirrel Mortgage Brokers. It first appeared here on Squirrel's website. It's used with permission.
I’m an optimistic guy, and even I am uncomfortable with how much we are talking up our NZ economy. There is still plenty of risk on the table, so it’s quite possible for someone or something to ruin our 2014 party. As Lee Child said, “Hope for the Best, but Plan for the Worst.”
As a small economy, bank economists largely dominate our media. They’re smart, articulate and often funny commentators. But they are bank economists and so with that comes conservative and orthodox views. Any forecast is based on the short-term relationship between production, exchanges rates, inflation, growth, and interest rates. It is rare for us to get insight into the risks lurking in the dark recesses of our party.
At the moment we are being told that New Zealand is the new economic success story. Buoyed by growth, we are told that interest rates will increase by at least 2.00% over the next two years. Then, somewhere along the line, the media translates this into mortgage rates rising to over 8.00%. I’ll touch on mortgage rates later, and in much more detail in this post (Mortgage Rate Strategies for 2014).
Kicking the can down the road
What makes me uncomfortable with the sole focus on domestic news is that none of the structural problems that led to the GFC have been solved. All major economies have done, is kick the can further down the road. We all know that if you ignore problems, they get BIGGER.
We have a world awash with printed money. A lot of this has flowed into assets like property, shares and bonds and as a result dropped yields. It has become commonplace in big cities to buy properties at gross yields of less than 4.00% which is what happens when money has nowhere else to go. In a low interest rate environment, cheap money ends up chasing low yielding assets.
It is LUNACY to expect property prices to broadly increase faster than incomes infinitely, yet that is how many investors behave. If debt grows faster than incomes, then borrowers have to borrow proportionately more of their income, until eventually there simply isn’t enough income left.
Over the past ten years house prices have increased about 40% more than incomes. That would suggest that house prices have become about 25% over-valued in a relatively short period of time. This of course assumes they weren’t under-valued ten years ago, which is a safe bet.
There have been a number of drivers that have allowed this disconnect to first happen and now continue:-
Lower interest rates have improved servicing.
Easy access to credit.
Reducing rates of home ownership. Investors have been prepared to top up rents to cover servicing shortfalls.
Landlords have been prepared to accept rents (or yields) below prevailing interest rates.
Baby boomers were in their income earning sweet spot. With adult children their discretionary income was peaking. Read anything by Harry Dent for in-depth discussion of this trend.
A routed middle class
Meanwhile, the consumer middle class has been routed. Across the Western world, real wages have not increased for 20 years. We have an ageing population, and we have run out of capacity to borrow and spend.
Luckily New Zealand is in a relatively good position. We are a fairly stable food based economy with abundant natural resources. Technology is reducing market barriers and allowing our small businesses to act bigger. Mobility and NZ being a great place to live are becoming our biggest assets.
That doesn’t mean along the way we wont get hit by an unexpected major economic event. That black swan could come from the potential collapse of the Chinese shadow banking system. It could also come from deflation risks, or from what happens when the United States stops printing money.
Meanwhile we’re oblivious to any of these risks, and set to party like its 1974. Back in 1973-1974 we had a soft commodities boom. But … the party was quickly ruined by the OPEC oil crisis and our economy tanked overnight.
So let’s have a party. But the lesson from last time is to not get too drunk, so when the party is gate crashed you can get out the back door with your shirt on.
My attempt at a cartoon. We party whilst a meteorite hurtles towards earth.
'Five years of flat house prices'
You can’t live life based on the small probability that something goes wrong. Buying an owner-occupied house is fine, just don’t over extend yourself and take a longer-term view. If you’re buying investment property make sure your numbers stack up and don’t over-leverage. If you can’t find the right property, then wait. Be very wary of buying development projects (or trading property) at this point in the cycle. Accept you missed the boat, take the learning and be ready next time around.
I don’t think house prices will fall (and if they did, then not by much.) In all likelihood you’ll see a period of around 5 years of flat prices similar to what we’ve saw over the last 5 years before the current run on house prices. If prices significantly increase this year, and they might, then that will increase the size of any eventual correction. Right now, stable house prices would be a good thing.
As for interest rates, I think the market is getting carried away with its growth story. I suspect that as interest rates increase (and with our strong dollar), inflation will stay low. I think there is a tough time ahead for retail businesses, and a tough time for many industries grappling with disruptive technology – watch out banking, real estate, professional services. We are in an exciting, rapidly changing world that requires us to respond to change faster and faster.
My final thought is that these headwinds, uncertainties and shifting sands will help keep interest rates relatively low for some time yet. For me, I still think we are in for a long period of relatively low interest rates.
80 Comments
Finally, somebody talking sense.
The Rock Star economy is connected to a big big world. That world faces deflation , continued QE, zero interest rates, Chinese risk, GFC non-resolved hangovers, volatility, etc. Despite what the bank economists are getting over excited about.
Interest rates will be flat to mildly increased. ...
John, have you asked what underwrites that 'income', and for how long it can do so?
http://www.peakprosperity.com/blog/84393/endless-growth-plan-there-no-plan-b
"Luckily New Zealand is in a relatively good position. We are a fairly stable food based economy with abundant natural resources."
But according to the 'independent research institute' *cough cough* yesterday we need to increase immigration / population levels to get richer!?!
Look at the UK, their economy must obviously be failing because they have too few people?! They must need to grow from 60 million to 120 million!!!! I must remember to ask all of the brits moving here why they are leaving so much prosperity behind to get a taste of the kiwi life. I bet they miss living in shoe-box houses and being stuck a country bursting at the seams. Funny how many stay in NZ....
It is because while you can claim a trend line that more immigration leads to higher GDP per capita, you can also get a trend line that a higher total population correlates to lower GDP per capita as you hit various limits.
Clearly, the optimal ecomonic solution is for everyone in the world to move to a different country, as that must lead to a massive improvement in GDP (as everyone will be immigrants) with no overall gain in population. With a insight as cunning as this, I should get a job with a "independent research institute".
Is this guy after my own heart or what? Brilliant piece. It's almost as if I wrote it myself. And this guy's a mortgage broker?!
"It is LUNACY to expect property prices to broadly increase faster than incomes infinitely, yet that is how many investors behave. If debt grows faster than incomes, then borrowers have to borrow proportionately more of their income, until eventually there simply isn’t enough income left."
I try and tell property enthusiasts this week in, week out, to no avail.
Yep, good common sense commentary. Only thing I read twice and thought about was the line about NZ and its abundance of natural resources. Abundance is most certainly the wrong word when you look at the state of our inshore fisheries, our aquifers and many of our freshwater stream/river flows. Aside from the sea, there never was a great deal of natural food sources in NZ.
Yup, you're right.
I don't think the average Kiwi has any idea just how bad our rivers are. Half the population of Auckland have probably never seen one.
I went swimming in the Motueka river a few months ago and came out looking like I had been sneezed on by a Blue Whale with a horrendous Cold.
JB: Half the Auckland population have probably never seen one (and probably never will, and probably dont care)
Now that is a revealing statement in more ways than one
You see, anyone who is not a native of Motueka, or anyone who has never been to, or, seen the Motueka River, as it once was, and now seeing it for the first time would think .. that's normal .. it's always been that way .. how nice
As time goes by ....
Time, as they say, .....
Tough time ahead for retail businesses? Anyone here familiar with the tides of Newmarket? Was there before xmas and then again last week, an aweful lot of empty space has appeared in that time. Not to mention there are three specialist stores to buy a yoghurt should you want one.
"abundant natural resources."
and how many generations does that have to last?
Look at the UK its mined out...tin, copper, iron, caol, gone, oil going.
So your advice for NZ is effectively, "lets mine it out all in a genertaion or 2"
I agree on the GFC not being fixed, totally....and its getting worse but our resources are a one time use so, mine them out then what?
Anyone who thinks this is a future is an economic cretin frankly.
regards
Steven - one short blog post doesn't sum up my world view. It's pretty hard to sum that up in 400 words and what would I write next time. Economic cretin, really?
The word "abundance" seems to have wraked a few people up. Fair enough.
I was recently in California. Middle of Winter and 26 degrees. Every day a blue sky day (ignoring the air pollution.) LA had 91mm of rain last year compared to Auckland's 1385mm. California has 38 million people and no water. Is 1385mm of rain an abundance? That we misuse it is something else entirely.
Last time I looked outside shit grows pretty damn well in my backyard.
I was in Thailand last year sharing a small beach with 2,000 people, most smoking and taking pictures of each other. Worst experience ever. Came home to beaches with nobody on them. We are very lucky.
When you have one time resources, this isnt wealth for one (or 2) generations. Which is how many seem to see our resources. Dig more and faster means expotential growth in its extraction rate hence exhaustion. Really once its gone like the UK we have nothing left but financial smoke and mirrors to support a population with expectations way beyond what they can or will get.
So the Q is do we dig it out in 1 or 2 generations to buy iphones or only consume what we really need and leave ample for future generations. It seems we are choosing the former and ur pollies and leading lights (news papers, talking heads etc etc) are guiding us that way as well it seems IMHO.
So frankly anyone who wants to use it all up in "one go" I consider an economic cretin as the effect is a one off boost to an economy/society that cannot be sustained long term, ie we will collapse...
To use another overly used word "sustainability" and afore mentioned "abundance" are mutually exclusive to "expotential" explotatation to buy silly and pointless toys to take snaps on over-crowded beaches.
Beaches, yes indeed, I value NZ as it is and you cant keep taking from it in ever increasing quantities without losing what it now has IMHO.
regards
You can't keep taking in ever increasing quantities. Indeed.
Over 15 years back I was in the Solomon Islands, living in a village, diving and spearfishing in some incredible waters. Speaking to the guy at the airport, his immediate goal was to sell the forest behind his own village. You know, make some money so he could give his own kids a step up, better health and education. What could I say to that as a Westerner who had managed to save enough cash to go and indulge my passion in his back yard? Don't do it. You don't understand what you have here. How could I dare say something like that to him? From the capital to the village we were staying at there was a road bridge over a massive river bed. Really massive. It was dry. I asked if it was just the dry season or something. No I was told, the river hasn't run since all the logging up in the mountains inland. Very sobering.
So, the whole preaching about how others should live their lives, I find pretty tiring. Sure, it'd be nice if we all had the same vision on what utopia was and could agree that this is how it should be. But how would that ever happen? Real day by day life is a bit more complicated.
I suppose as you become "enlightened" you realise what you did in the past was wrong. Some in here such as happy123 say well you cant tell others off as you did it. That frankly is nuts on several levels. a) You cant keep doing a wrong, eventually there is nothing left to sell/convert etc b) Discovering an issue/wrong and then fixing it and telling others is the only sensible way IMHO.
Preaching, well, the longer answer to the solomon man was he should have not had or had as many children, of course no one wants to hear that one. And yes we as the "developed" world also need to clean our own act up....
Tiring, well , so we'll keep on breeding and we'll send ourselves into extinction? and maybe fairly soon. I read a piece last week suggesting that fish as a food source due to a) AGW and b) over-fishing could be gone as early at 2050.
Oil will be gone by 2050, no mechinisation left for our agricultural systems as they now are. In fact looks more like 2030.
So at least I think pointing out to ppl this isnt going to work at least then when they say "oh my god" they cant say "no one told us".
regards
You’re right, I don’t get it, how can people lecture the rest of us (on a daily basis) about living sustainably when they don’t themselves. They expect others to make sacrifices they don’t make themselves; the hypocrisy is ludicrous. The only other explanation is that they are simply ranting… pointless, aimless rants about problems that are common knowledge. They might tell themselves they are raising awareness, of what, global warming? Degradation of our environment? We know, we all know, it’s no great secret. Until you stop being part of the problem and embrace solutions you are just, pointless.
Seriously, you would have told the man from the Solomons to his face that he shouldn't have had so many children?
There's a far more straightforward and humane way to deal with the man's predicament, but you'll dismiss it out of hand because it actually makes eocnomic sense. That is, if eco-conscious Westerners value the guy's forest in its natural state so much, they should buy it from him and leave it in its natural state. Isn't money wonderful!?
Nice post John.
I do notice a lot of NZ'ers don't really understand how significant NZ is as a food producer. They think natural resources are things that are mined. NZ has been the worlds biggest exporter of dairy for a while now. China has 300million people (pop. of USA) moving from rural villages to cities in next couple of decades (ongoing long term trend). Protein demand is only going to increase, and unlike aussies iron ore, can not be stocked up on in advance (this is what's caused the stop-start commodities market we see over there.)
As for NZ property, interested if you agree with my take. I see similar, scaled down replay of 2004-2007, i.e typical later part of cycle action:
- Increasing interest rates put a lot more emphasis on income to meet mortgage payments.
- Auckland property values compared to both income and rents are already very stretched.
- Other parts of the country, no so at all. Often still cheaper to buy a house in palmy then to rent it, and PI's don't need to supplement rent income to meet mortage payments/interest as they do in auckland.
- All this means auckland property is much more sensitive to interest rate rises.
- Likely auckland prices will flat line, and provinces will play catch up. This is exactly what happened during later part of last cycle (2004-2007), 20% plus yoy gains for provinces (particularly farm/dairy centric cities) while auckland experienced 5% yoy gains. Could be 10% provinces, 2% auckland this time. We will see..
The food we produce is all organic? Otherwise its relying on minerals being mined/drilled for and dumped on the land or used to plant, grow and recover that food.
The cultivated soil doesnt deteriorate? get contaiminated?
In effect its an extraction process, just like mining.
regards
John I hope you keep exploring, learning and most of all thinking. It is why I frequent these pages.
Aristotle was perhaps the first to note that commerce (merchanting) was a parasite on production and that finance is a parasite on commerce. He also noted that interest is immoral. What I have worked out is that interest always results in a redistribution of wealth, it is the means by which finance is enabled in their parasitic behaviour. The effect of interest is also cumulative, so the wealth being redistributed grows over time, it is why New Zealand has become progressively poorer in relative terms sincet the gold standard was abandoned and finance unshackled. I have debated these issues with Don Brash and not only did he lose, he hasn't got a damn clue.
So by New Zealand having an abundance of natural resources to pillage we are of course of great interest to finance.
The most important thing that could be done for the wealth of New Zealand is to escape from finance. But since we import half of our energy needs via oil we need to stay tied to international finance until we gain energy independence. So to add to Steven's position our natural resources should remain undeveloped until we plug the offshore syphon.
PS. Housing is the main weapon for finance in New Zealand closely followed by farm debt. E3 is greater than M3, check it out.
But the centuries since Aristotle have proved his opinion on trade was wrong.
The old testiment stated interest was not a great moral idea thing well before Aristotle but the idea was dropped by western Christendom some time ago.
An obvious problem with your hypothesis is interest existed (and was cumulative) when New Zealand was growing relatively wealthier (regardless of monetary standards). At the very least the simple causal relationship you describe does not tell a complete story.
If we removed ourselves from the international trade and fiance system we could well end up as wealthy as North Korea, who is largely removed from both, not a prospect I would be a fan of. Although Steven and PDK may love it as Korea's carbon footprint is as low as anywhere, their energy usage is also close to zero and to put the cherry on the cake they seem to have periodical starvation to keep their population under control.
What a load of nonsense. Got some proof that Aristotle was wrong? It isn't so much Aristotle anyway, it is the principle of unearned income. Like I have said to Cowboy it isn't a hard concept to grasp, so the fact you can't speaks of the weakness of your opinion in general.
The old testament forbid the charging of interest and the document still exists. So whatever modern distortion of the scripture exists is nothing to do with the wisdom or veracity of principle laid down. A fallacy on your behalf.
You will notice in my original text about the gold standard I use the phrase finance unleased. The redistribution of wealth that was taking place was still in action, just moderated by the gold standard. Other financial instruments have leveraged the process. Another fallacy.
As for North Korea, well that other fallacies on logical flaws you print could be overlooks but that one is a total discredit to you.
If you don't realise that history shows a reasonably clear link to trade creating wealth then you probably shoudn't use historical quotes. Or we could even try it in reverse if you like - show *any* historic example of a nation who became rich through a proxess of closing their borders to trade and focused on 'producton'.
Yes Scarfie, the old testament said it before Aristotle - that's what I said (rolls eyes).
Let's see - *you said* - "..interest always results in a redistribution of wealth.." and then claimed "..it is why NZ has become progressively poorer..". The inference being interest made NZ poorer.
*I said* that is a very simplistic theory -- and -- pointed to one fact that makes your theory impossible - and - provided one example of a country who has currently removed itself from trading and presummably focuses it 'production'.
And for the record I'll give you an actual fallacy:
Even if a person didn't in fact grasp a particular concept this does not mean all other things they say or thoughts they have are automatically wrong.
You think interest is immoral? Cool, can I borrow $1M in cash from you? I'll even take insurance to guarantee repayment in 20yrs.
Why is it people _without_ money seem to think interest is immoral?
I'm happy to pay modest interest for use of resources that people have taken the effort to set aside, when then do those not involved think they rate a say in the deal? Surely they should be more upset about things like taxes where parasitic redistribution of wealth is done under threat of violence.... (and without promise of full and personal repayment!)
You put up some great commentary at times Cowboy so I am at a loss to understand the gaping chasm in your understanding on the nature of interest, or unearned income in general. I can only assume it is the similar mental block that applies to a thief, who thinks there is nothing wrong with their own version of a redistribution of wealth.
Unearned income, it isn't a hard concept to grasp.
If you choose to give away your future by paying interest then good on you but why do you expect me to pay interest when I don't wish to? It is afterall right through the economy and money supply.
You say interest is wrong.
Someone wants to borrow a million dollars.
Where is your million dollars? Or are you just an empty mouth to go with an empty hand.
You don't have a million dollars, do you....
if you had a million dollars you would certainly know how hard it is to earn and build up.
And then you wouldn't be wasting everyone's time with silly empty platitudes about "unearned income".
You talk unearned income... that's anything that (C or L) government pays itself that isn't voluntary (ie that's theft, not earnings)
Yes, unearned income is exactly what it is not matter how you dress it up with fancy language. But remember that also applies to your other argument. You either survive by producing something, or you are a parasite on those that do. Interest is parasitic and I am not sure why you are willing to pay it and let others live off your hard work. Interest is currently a greater source of unearned income than tax.
So before I lend you a million dollars, what is it you wish to do with it that is so compelling that I would be willing to loan it? Ask yourself how else could you achieve your plans?
Whose being fancy.
Either you have money to lend or you don't.
If you don't then, and don't want to pay for borrowing it (interest), then why do you think you should have anything for nothing?
If you don't and don't want it, and don't want to pay. Nothing could be easier don't borrow it.
If you have it, and don't want to charge for lending it that's your call - but you don't get to make that call about other peoples' possessions. That's what private ownership is all about, I get to make the call on my possessions, you get to make the call on your possessions - can't get much fairer than that... unless you really want me making the decisions on your possessions (either way you don't get the call on mine.)
No fancy words at all there scarfie.
I am willing to pay for, for it is of value to me and I don't expect others to do things for me for nothing.
What I wish to do with it is my business, you would own the debt, thus you own the concern that I'm repaying it. The point of hiring money, or anything else, is I'm paying for temporary ownership rights - including the ownership right of "you have no business knowing or telling me what I may use it for". (I will use it to purchase half a dairy farm. If you have 2 mil then I can get the whole dairy farm. I already have 50% of funds available at 3%, though).
The other ways are to sell shares, which makes me at the mercy of bureaucrats and shreholders which is seldom good. Or I could spend the next 150years collecting retained earnings (without the leverage of borrowing) but there is a bit of a problem with this idea, as I do not particularily wish to spend the next 150years dairy farming....
Coming from someone that wants other peoples labour for free. You have proved nothing except that you can't understand the concept of unearned income and flying off on some nonsense tangent is your usual style when you lose but can't stand the thought of losing. Take a break buddy, as I say you are brilliant when on your game but right now you are off.
I never asked for other peoples labout for free.
I have not flown off on any tangent, you want 0%, either you can put up or ....not.
As for your invention of "unearned income" just because you can defined it, and you can define it any way you want, doesn't mak it true or real. And if it's not true or real then it's garbage and should be trhrown away.
The problem with Brash's grain, it it assumes the initial grain is free and carries no cost. This is patently untrue.
Just like your inabiliyt to lend a million dollars. If you had a million dollars, or Brash's government had 1000kg of grain, then you could lend for nothing...it cost you nothing. But governments grain is stolen at threat of violence from workers - and you never had a million so you don't have the concept of where the work is to lend it. Without such understanding your definition/application of "unearned income" is erronous.
You can re-enter the discussion when you have a valid position ie resources available to lend.
You lose me sometimes. For instance there is a difference between fair interest and un-earned income, for me anyway.
For instance I consider a doubling of a house value above inflation as un-earned income. (It should also be taxed, all profit should be taxed, equally but thats another thread).
I dont consider lending a business capital so that business makes a good and a profit and in turn the lender making a % as un-earned.
Of course the world has got far more complex and frankly, yes much "interest/gain" is un-justified...I think the financial system has turned into a rod for our own backs and its killing us.
Dunno maybe we are on the same page, but I wonder...
;]
regards
PS Actually, yes I think we agree,
"It is afterall right through the economy and money supply."
Yes and that's the problem. The Q is how to get it out. Certainly when I look at the futures markets or the crazy profits hedge funds make (think 20% and a lot higher per annum jyust from trading financial instruments) for no real gain, well its wacko.
However I suspect that is all that is left really, lack of cheap energy and materials makes making real goods just not profitable enough these days.
Its going to come un-stuck isnt it. All these 1s and 0s will disappear, which is why I wonder on all the property buying etc, an attempt to turn the 1s and 0s into a tangable asset. An all but worthless asset mind...ie try gettng a return on it you can only live in one house.
regards
Phew I have given this the biggest thrashing I have had on here for a while. I don't hold any pretensions about being able to get it out of the system and believe we have to wait, as you say, for it to come unstuck. Yes even over priced Auckland property means you only lose 80-90% of your 1's and 0's rather than all of it, doesn't help the locals though.
FYI try putting something as simple as grain into equations instead of money, that is what Mr Brash tried with me and it broke down pretty quickly for him.
I think there is a "classic" mistake that ppl make as someone pointed out to me some years ago. ie workers v business, I think that is incorrect. Really its been a successful divide and conquer by finance. So for me really it is works and business together V finance, yet the first two dont know who the real enemy is. Finance is seen as the middle man, the "lubrication" when in fact its become the parasite now IMHO.
From what Nicole Foss says a 80~90% loss is on the cards for property and many other things. I think what we will see is either a Natioanl default or a debt jubilee, either way I dont think the debt will be repaid with real "value" (dunno what word to use here).
regards
We have been down the grain argument before scarfie. You accused me of getting off topic because I was referring to grain not money when I pointed out the "cost of grain" and value of developments.
I will happily part with some of my grain harvest, some to pay labours, some to pay engineers and inputs (fert, energy,weed control) and some to pay for the development of the property.
Sadly I do not have excess grain on hand.
So in return for a large amount grain to pay labours, enginneers, inputs etc NOW, I'm more than happy to part with a little grain each year until the person who lent me their large store of grain has their original amount back.
And yeah refusing a little grain to the person helping me out would be a said thing to complain about. Although it still passes me by why I need to give 30% of the whole borrowing to the government who has nothing to do with the operation....
I agree that the increase in capital value that is due purely to deflation of other markets does count as unearned. not necessarily "unjustified" but certainly without risk or labour. That's one of the reasons I'm having a bit of issue with gains through FX, entirely speculative, and doesn't seem to add value, as increase is from everything else devaluing at relative rates.
Scarfie...
Aristotle was perhaps the first to note that commerce (merchanting) was a parasite on production and that finance is a parasite on commerce. He also noted that interest is immoral. What I have worked out is that interest always results in a redistribution of wealth, it is the means by which finance is enabled in their parasitic behaviour.
I disagree with most of the above... Next you'll say that the consumer is a parasite on the producer.. ( after all ...isnt that what a parasite does... consume )
The most immoral thing I've come across in Economics is the nature of our Monetary system ... That the Private Banking system can be able to increase the Money Supply thru the creation of credit.
In my view that is the main reason for the irrepressible redistribution of wealth .... and is the main reason for the incredible growth of the FIRE economy.
In "natural economics " interest would play a very legitimate role in balancing consumption vs investment..... in the same way the price of apples balances supply/demand....
Nothing immoral about that.
Agree wholeheatedly with you about credit creation. But that wouldn't be a problem if they coudln't charge interest on that debt.....
The trouble with interest is that you have to grow to pay it, that brings in the exponential factor.
I try to balance my rent paid for the asset, against the interest paid for usage of cash of same value. However cash tends to be more liquid thus more valuable and a little more expensive to pay for. Also cash tends to be higher risk than renting assets. If I fail in my rent, the owner only loses the time portion of the rental, with cash there is risk of losing the underlying asset as well thus most cash rentals carry an extra portion on each rent out arrangement that covers the inevitable occasional loss of asset. Good credit management maximises the return/minimises the losses against that surcharge.
Genuine trade is a symbiotic relationship between two producers, anyone else in the chain is a parasite.
You know what I would like you to attempt Cowboy is something I thing you would be good at. Argue your opposite position and find ways that an economy could operate without interest. Afterall for the bulk of humanity that has been the nature of existence.
I have done so with many models. They simply do not work, they require "magical" invention of first resources, or negative loss, or rulership by Plato's Utopiean Philosopher King as zero cost Perfect Government.
There is also interest, but usually it's paid as kind or built into taxes. Even simple tribes people, the elders "Give permission" to works in the community for anything to be done or for labour to be used. In reality it is not some divine social credit system! The elders act as totalitarian masters, all property and personal rights lie with them - the only personal freedoms are to leave the village. If the work is done, it does not belong to the workers! It is permenantly borrowed from the assets of the tribe on continual acceptance to their benevolence and perfect conformity to _their_ whims, any output ...there is no interest...because it is 100% interest, and the worker permitted only their ration as seen fit by the others.
Thus we end up with what is known as third world governance. And thus "third world economy".
First world governance recognises a persons' right to their product and ideas, and personal ownership of goods. That means the interest isn't 100% to State masters or feudal lords by default. In first world, everyone is not automatically a slave. This means if you want access to the property of another person you must enter into trade for it. If they have built up property by their endeavour, they will often name a price. In the First world, you are free to refuse the interest rate or bargin.
As I have alread stated, or implied might be more accurate, In the Western world you are not free ot refuse the interest rate. Interest is build into the price of everything.
This link is mainly for John, but it shows you Ralph that others are about that understand the effects of interest on an economy. http://vimeo.com/71074210
Interestingly, the writer believes that prices are unlikely to fall and a long-term view for house purchasers is necessary.
Why?
Part of the dream is that property purchase is based on magical capital gains above and beyond the inflation phantom. The whole take-care-in-old-age hook.
It is not diffcult for the fortune telllers to wave this the money tree effect into narratives. It's still up to the punter to dive in head first.
'Abundant' seems to have set off the standard sandwich-board sloganeers: 'We're All Gonna Die!'.
I can take you to cropping farms on the south bank of the Waimakariri which have grown wheat, barley, oats and the like for 140 years solid.
Just a little down the road, there are seed farms which produce half the world supply of. amongst other things, carrot seed.
Charles Mann, in '1491' notes that the Mexican 'milpa' system has seen some fields in continous production for over 4 millennia.
Seems to me that YMMV is the appropriate qualifier, here....all ag is exquisitely dependent on a huge mix of factors including growing degree days for the plant in question, lat/long, altitude, soil type, rainfall/mositure, prior crops, microbial health, available nutrients and cultivation techniques.
'Relative abundance compared to population and demand' - well, That's more like it.
and the amount of quality meat rotting on New Zealand hillsides every day. Rabbits, possums, deer, goats, thar etc. Poisoned or shot or run over....
Growing human obesity in many corners of the planet.
Food wastage that even my parent's generation would never have envisaged just a few decades ago.
Plenty of food to go round yet. The pendulum will swing the other way eventually and when it does will be forced on humankind. I can't see that swing back ever being mitigated on any level. Any nation that blinks first and offers sacrifice will simply be trodden on by others willing to step in.
Cheer up, the sun will still be there tomorrow :)
People hungry enough to want to get the game find it cheaper to buyed farmed food. Hunting, even trapping, like growing decent veges is very time and money consuming. And no, very few game processing butchers. And in many cases (eg hunting a pig or deer, even a decent size goat) most of it is heavier than people are prepared to carry out. (otherwise you'd have to hunt in groups)
With the milpa/Waimakariri what do they use to replenish the Phosphorus, Potash and Calcium levels?
In old Egypt the Nile flooded. In many countries farming methods were so inefficient that little resource was produced and thus resource consumption negligible, or stock/plants rotated on longer rotations so dropping yields were over such long periods that most people didn't notice
Yes, there are interesting times ahead I think. Personally I think the great worldwide tidal wave of easy money has started to ebb out again.
The money has been sloshing around the world pretty freely the last few years as it meant the big countries didn't have to make any of those nasty difficult reform things. New Zealand has addressed a whole heap of hard subjects over the years that most of the world has been able to put off. Just compare our health system to the US one, they are 70 years behind us. A modern economy needs well functioning systems for heath, education, housing, transportation and defence (not offense, note) and it falls to government to make sure the institutions are in place to provide this.
What happens when the money flow reverses, as it has in India, Indonesia, South Africa, Turkey, Argentina, Brazil? The list goes on, but when the money flow reverses it causes the currency to fall, so food and petrol prices rise and the Reserve Bank puts up interest rates. They say this is to prevent inflation but really it is to try to stop the currency going down further. What do the indebted people in that country do, the property speculators? They try to repay debt as fast as they possibly can, this causes foreign debts to be paid off, which pushes the currency down. What do people with cash do? They sell the local currency and buy USD or gold until the local Reserve Bank stops them. So you have a nice positive feedback system whereby a decline in the local currency sets in motion lots of processes that cause the currency to go down further and faster than anyone expects.
Ebb of money, yes there are signs of that, Turkey for instance....but I dont think its really started yet. Perversly it looks like the easy money will run as we get signs of recovery. I guess its moral hazard, ppl are gambling with others money because they are safe to do so and its cheap. collateral damage we have to accept bubbles in developing world countries as a side effect of the Fed trying to keep us afloat.
"A modern economy needs well functioning systems for heath, education, housing, transportation and defence (not offense, note) and it falls to government to make sure the institutions are in place to provide this."
Interesting how much I agree with you here, though I'd add utilities also. The Govn's job is to have these provided economically, effectively and in a resiliant manner, ppl and businesses can then get on with it IMHO.
I expect the money will exit in either panic when this goes really pear shaped or yes when the gamblers run....to the USD. In either case I think the NZRB is snookered, it cant raise rates as that would be a double whammy on top of extra costs from petrol, unless of course wages suddenly start to keep up....fat chance IMHO. Sp raising the OCR will cause a recession and a bad one.
"anyone expects" actually Im on the Nicole Foss camp and I think its going to go down a long way, 1930s Great Depression style, housing worth 10~30% of what it now is. The only thing is the catalyst...or the straw on the camels back maybe....but they have been able to keep fossil fuel on an output plateau for 6+ years and therefore the "financial" economy, not the real economy, that is a basket case. So maybe this death spiral in waiting has another 2~4 years to run....maybe even 6.
regards
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