In an article today Bernard Hickey actually made an attempt to counter Jesse Colombo’s 12 point list as to why we were not heading for an economic bubble bust of epic proportions and in doing so showed once again how NZ economists really haven’t got a clue about what is going on globally and I will show this by taking his talking points and show them for the misleading uniformed trash they are.
1. NZ has a floating exchange rate and flexible interest rates
There are plenty of candidates to generate a shock to New Zealand’s economy that could cause our house prices to start falling. The IMF warned in March that a sharp slowdown in China could do the trick.
In this point he is arguing that the IMF predicted the same possible down turn but they mitigated the prediction by stating:
Hickey says: However, the IMF rightly points out in the very next sentence that New Zealand has some automatic stabilisers (SIC) to deal with just such a shock.
The authorities have monetary and fiscal policy space to respond to shocks. The RBNZ has scope to adapt monetary conditions to help buffer against a downside scenario, and the free-floating New Zealand dollar provides an additional cushion against terms of trade and other external shocks. New Zealand’s modest public debt gives the authorities scope to delay their planned deficit reduction path in the event of a sharp deterioration in the economic outlook.
My response: First of all Hickey is not denying the possibility of a down turn and that is wise. What he argues is that in order to delay a planned deficit reduction path (read austerity for the 99% but more for the 1% like in Greece, Ukraine, to name a few) there is space to borrow more.
This is not a sensible response to the risk of a global cascading financial down turn. This is just more of the global bankster kicking the can down to road fraud. And while it may postpone the inevitable collapse of an unsustainable collapse of the fiat currency system which at the moment has to print money by the trillion to keep going.
What is equally misguiding is his notion that we can cut the interest rates which unlike the rest of the Western world are being raised making it more difficult for people to pay their mortgages.
So far it hasn’t materialized in higher interest on bank savings for example.
The real reason why interest rates in the US, UK and other Western countries are next to zero is that they are so for the rich. Those of us who have to buy a kitchen appliance on a credit card or GE pay 20% – 30%. The interest is not a tool which is used for the betterment of New Zealanders but to make a whole sale wealth transfer of the 99% to the 1% possible by preventing deflation and encouraging inflation. The only people suffering under this are those on fixed incomes. The rich, the bankers and others close to the reserve banks lending spigot sea their incomes rise with the money creation level. A very comfortable lace to be to be sure but the rest of us will find it harder and harder to make ends meet and that includes the mortgages that keep the bubble going.
2. Our Government has room to borrow to cushion the blow
Jesse diplayed (SIC) an alarming chart showing a tripling in the Government’s overseas debt in nominal terms between 1993 and 2012. Unfortunately, that didn’t show the net and real value of that debt in relation to our economy, which is the most important thing.
New Zealand’s net government debt has risen from less than 10% of GDP to under 30%. US Government debt is over 100% of GDP, Britain’s public debt is over 70% and Ireland’s debt to GDP ratio is over 120% of GDP.
As the current government proved from 2008 to 2012 when it kept spending high to cope with the recession and the Christchurch earthquakes, there is a buffer there to cushion the blow and stop a slump turning into a collapse.
This is just more of the same. The Government can borrow more to cushion the blow. Here Hickey showcases that he still thinks that an economic down turn will be a temporary situation and that by preventing and all out collapse and making a slow curve down we can somehow mysteriously prevent the end of a global unsustainable financial system.
What is really interesting and misguiding in Hickey’s response to Colombo’s piece is that he makes the allegation that Colombo fails to comprehend that the Debt is only 30 % of the GDP. This untrue. Colombo points out that the Government debt is only 30% of the GDP while also suggesting that the tripling of the GDP started to accumulate from 1993. (In fact the graph shows that from 1993 to 2008 the National debt was brought down by Labor) The graph in Colombo’s piece clearly shows that the rise of Government started in 2008 when National came into power and he doesn’t explain why we had to borrow so much after what should have been incentive to start curbing expenditure instead of spending more. Neither does he mention that in the same time the government invested heavily in CDS which where discredited as prudent investments around the same time as the Lehman collapse and the downward spiral of Greece.
Another point he does not discus is the fact that the increase in borrowing is not down to our government but a function of the global money creation by the Global Reserve banks system.
3. The Reserve Bank and the Government would help the banks again
In late 2008 and early 2009 the Reserve Bank provided emergency funding to our banks because they couldn’t roll over their wholesale foreign funding when the markets froze after the Lehman collapse. This Term Auction Facility (TAF) helped prevent the banks having to force marginal lenders into mortgagee sales, and again avoided a housing slump turning a housing collapse.
The Reserve Bank lent the big banks more than NZ$7 billion between November 2008 and June 2009. Here’s more detail in this Reserve Bank paper.
The Government also gave the banks a helping hand by giving a Government guarantee for NZ$10.3 billion worth of bonds issued from November 2008 to February 2010. Here’s more detail on that scheme, which has now ended, but could easily be restarted.
My response: Our Reserve banks did not provide liquidity to the banks. The Reserve Bank of New York did. (Sorry don’t have time to find the video of the official hearing in the US) This was in order to prevent the entire system from collapsing. While the reserve bank officially only received some $700 billion they actually printed several trillion to keep the system going.
When Hickey says that the government and the Reserve bank will help the banks again to keep from falling over what he really means is that we the 99% will have to pay more taxes, more rates against less services and that is all else fails the banks will be permitted to loot your accounts to make up for their losses.
I don’t know about you but if banks gamble and as privately owned entities behave irresponsibly I don’t see why you and I should pay for their losses. Do you?
3. The Reserve Bank has already acted to reduce the risks of the housing market to our banks
Jesse’s piece appeared not to have noticed the Reserve Bank’s imposition in October of a speed limit on low deposit mortgages, which has slowed house price inflation significantly and reduced the amount of ‘riskier’ mortgage lending.
The Reserve Bank itself is well aware of the risks that an over-valued housing market poses to our banks, who are heavily loaded up with mortgages, as Jesse pointed out.
There’s still an argument to say the banks are still more loaded up than they should be with high Loan to Value Ratio mortgages, but it’s clear the authorities have not ignored this and have done somethint. (SIC)
What Hickey ignores is that the change in lending rules which took place like everywhere else in the late 90s when the Glass Steagall act preventing investment banks and commercial banks to merge to prevent what is currently happening was repealed in the states. IN for example Holland France Germany and England state owned houses were privatized selling them off to the muppets living in them and the same happened here. This is not an accidental event.
And while it may have prevented first time Nieuw Zealanders from buying a home it hasn’t stopped the Chinese and other investors with tons of cheap money from buying lots of houses (1 in 4 and expected to go up) forcing those young Kiwi’s to become tennants in their own country to people living overseas. So yes , World bank Wheeler has done exactly what he wanted. Made more real estate available to people with more money to waste and launder!
4. New Zealand does not have the over-supply problem that contributed to other housing crashes
One of the reasons the US housing slump was so severe in some states was that America’s house builders are much better at rolling out large numbers of a ‘cookie cutter’ houses onto ample land supplies than we are in New Zealand.
Plentiful supply of new homes and a slump in demand equalled much lower house prices. That was also the case in Ireland and Spain.
Despite Jesse’s comments here in a follow-up piece on Forbes rubbishing the supply argument (‘it’s always a shortage and never a bubble’), New Zealand certainly doesn’t have the over-supply in its most over-heated markets of Auckland and Christchurch that would fuel a bursting of the bubble.
Auckland built around half the houses it needed in the decade to 2012 to cope with migration and natural population growth and is only now starting to catch up. There is a debate about whether there is a shortage, but I haven’t heard anyone argue there is an over-supply.
Christchurch’s housing supply was devastated in the 2010 and 2011 earthquakes. No one is arguing there is an over-supply there.
Hickey here really goes beyond the pale. The housing crash in the US was not so much the result of oversupply as the fact that in their feeding frenzy the banks gave mortgages to Tom, Dick and Harry and their dog because they knew they would never make a loss. They would sell on the good with the bad and insurance against default so they would get paid double, triple of what these houses where worth. he building industry merely followed in the wake of these irresponsible bubble building exercises.
The same is happening here. I’m sure the people in Christchurch need more houses and there should have been more build already (cookie cutter or not) instead of allowing unscrupulous landlords to rob those in search of a house blind but thew population as whole has stayed pretty stable with all the people leaving for greener pastures over in OZ. The fact is that in Auckland with the cheap money from international investors money is pumped in emptying out state owned social housing and the building of expensive condos to sell to overseas investors pushing the poorer people out of the city like is happening in London, Brisbane, Sidney, New York and Paris to name but a few. The ridiculous rices on prices for the average house in Auckland have nothing to do with local economic reasons but everything to do with the international rich laundering money through real estate!
5. The Government has already acted to increase housing supply in Auckland to reduce over-valuation
The Government legislated last year to improve housing supply in Auckland, agreeing an Accord with the Auckland Council to speed up housing consents and free up greenfields and brownfields land to build new houses.
There’s some debate about how quickly these changes have flowed through to housing consents and actual building, but housing consents are up 85% from their March 2011 lows.
So the Reserve bank made it impossible for young earners to buy a house but building permits are up 85%? Well I rest my case. More green lands and brown lands (Read: The last bits of nature in and around the city) are to build on? I bet you my bottom dollar that there will be no average houses build but expensive condos for the rich and discerning investor. So they may have acted but not for you and me that’s for sure!
6. A fall in Chinese economic growth doesn’t necessarily burst our ‘bubble’
Jesse made the connection between a bursting of China’s own credit-fueled housing bubble and a bursting of our bubble. He is right to point out there has been an increase in flows of capital out of China and into the New Zealand and Australian housing markets.
Read the rest of this point here
Again Hickey put’s words in Jesse Colombo’s mouth:
The popping of Australia and China’s bubbles are two other external factors that have a high probability of contributing to the popping of New Zealand’s bubble.
Is what Jesse really says. That is not the same as China will pop, popping Australia and therefore New Zealand. Here is what John Key said in June 2012:
“Our big problem would be … if Europe goes, China could slow down, Australia would be very badly affected by the China slowdown and that’s the nightmare scenario for us – a slowdown in China, our second-largest market, a slowdown in Australia, our largest market, a weak United States and we’re in a diabolical position.” John Key, London, 7-6-2012.
So how many of these conditions are in the pipeline already:
- Europe? Yep, Every country including rich old Holland is cutting back on expenditure, the ECB has just announced that they too will print €15 trillion Euro to keep the system going and if the Ukraine as much as farts into the general direction of Russia, the Russian will close the gas spigot to Europe bringing it to a new dark age.
- China? bingo house market crashing, leaders leaving the country with their loot, the Chinese Warren Buffet selling all his holdings in China to name but a few of the signals.
- Australia? totally. Mines are closing, the real estate bubble is only kept going because the Chinese and other rich investors (Think Russian Mafia) are buying at ridiculous prices. They know the money is fake and they get real value back. A total win for them. Not so much for us. (Remember those big old empty cities in China?)
- The US? Holy shit, you been asleep all this time? A 100 million people on the government tit and every big city bankrupt. Millions of people cut off from every form of help and that includes food kitchens!. No industry anymore and no way out for Joe Six pack. thousands of shops and middle class businesses have closed over the last 8 years and what was left has left for China. Hell yeah, I’d call the US weak.
So not just the two conditions from Jesse Colombo are met but the 4 conditions from John “Derivatives King” Key he named himself in 2012 in London already are met big time. It is just a matter of how long he and his mates can kick the can down the road for the collapse to happen. Cause happen it will. That much is certain!
One last point Hickey was trying to make was the fact that Jesse Colombo published on a Forbes website and not in the actual magazine. I think tthat is childish and immature and disingenuous. His piece was also published on a website and we all know that the real media now live online and that newpapers are only owned by corporation propagandists.