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Tuesday, June 27, 2006

Going negative

NZ Herald report:
By the end of the year the [Reserve] bank expected house prices to "go negative" [...] The Reserve Bank raised borrowing costs nine times between January 2004 and December last year, taking its key lending rate to a record 7.25 per cent. [...]
New Zealand house prices increased 69 per cent between 2000 and 2005.

The RBNZ inflation calculator has inflation over 2000-2005 as 13.1%. So the (average?) NZ house price net rise over those 5 years is 56%! That's why people invest in property, Mr Bollard despite the high interest rates. It's something dumb and effortless enough for New Zealanders to comprehend.

According to this UK website he ain't convincing the canny Brits either:
All of the above would suggest that New Zealand is increasingly becoming a buyer’s market as far as property is concerned - which is good news for those looking to emigrate to New Zealand...

If we keep importing 50,000 people per year plus students then housing demand will keep rising and so will house prices... Mungo smart. Mungo economic genius.

The reports of our poor position with the rest of the world continue to intensify:
New Zealand's record $14.5 billion current account deficit is the third worst in the OECD, knocked by rising oil imports, overseas travel and hearty profits earned by overseas owners of Kiwi firms. [...] Such a huge deficit means there is a risk of another big fall in the currency, economists say. [...] International credit rating agency Standard & Poor's said yesterday that the current account deficit was high and unsustainable. That put pressure on the credit rating for New Zealand.

I've said on numerous previous occasions that a real trigger for a currency collapse (like we haven't been drifting there already) is a credit rating downgrade. Once S&P & co. figure out that our inflation targets are never going to be met without some cold-blooded, ideological hard-arse as Governor, (like Dr Brash who would have hiked the rate immediately two years ago rather than vascillate) and will drift ever upwards way beyond the supposed band because Bollard doesn't want to root the economy by pouring an 8%+ interest rate bucket of freezing water all over it, and these credit agencies see our value in inflation and exchange rate terms eroding in the long term then those agencies will be the ones who will pull the plug. All that extra issued cash from the Reserve Bank in the international market (I described it as their way of "exporting inflation") will come back. The Aussie banks have made a mint out of it and the RBNZ can be in the top dozen traded currencies and pretend to be competent so long as the tenuous leveraging holds up. When our 5c pieces are liquidated for all time at the end of next month and lighter, cheaper coinage I think there will be a psychological effect of inflation amongst people generally.

As far as the RBNZ's lending and international exposure policies go I can only quote from what departing US Federal Reserve Chairman Alan Greenspan once said in private to Don Brash in an unguarded moment of candour during an IMF meeting that was recorded by an MFAT official:
"Wanna step?! Yo trippin! Yo betta get real. Yo ain't no playa, bee-atch! Yo an ugly fucked up white boy on my block pimpin trailer park crack hoes like they Manhattan high class. Get yo skinny-ass back in da crib or I be fuckin widyou a'igh! Get yo rip-off Gucci outta my face - that shit ain't Prada - it's Lada mother fucker, yo still a Polack fuckin' shipyard. If yo bitch ain't doing no lap dance yo betta be gone now a'igh - I ain't waiting for no lunchtime. My niggaz gonna pop a cap in yo ass when you still eatin yo cornflakes, Cracker. Yeah - that's how we roll in the U S of A, mother fucker!"


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