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Friday, January 30, 2009

Economic meltdown denial over now is it and where the hell is National (they do know they are the government right?)


IMF warning: It's going to get a lot worse
How much more the Reserve Bank cuts interest rates will depend on how much worse the world economy gets, Governor Alan Bollard says - and the International Monetary Fund is warning that it is set to get a whole lot worse. The IMF yesterday slashed its forecast for global growth this year to the weakest rate seen since World War II. It expects the advanced economies, which include most of New Zealand's major trading partners, to shrink by 2 per cent, and to claw back only half of that next year. And with growth in China and other developing countries expected to fall sharply, overall world growth is forecast to be a scant 0.5 per cent this year, rather than the 2.2 per cent the IMF expected just two months ago. The International Labour Organisation said that global unemployment and poverty are set for a dramatic increase in the coming year. The UN agency added that in a worst-case scenario, recorded unemployment could rise by more than 50 million from 2007 levels to 230 million, or 7.1 per cent of the world's labour force, by the end of this year. The IMF's downbeat view found agreement among the elite financiers and economic thinkers gathered at the World Economic Forum in Davos, Switzerland. Nouriel Roubini, professor of economics at New York University, said: "There is nowhere to hide. We have for the first time in decades a global synchronised recession. This is not your traditional minor recession."

“This is not your traditional minor recession” – okay so can we dump the denial that there is no economic meltdown now can we folks? Apparently not on Close Up, I just watched tonights promo and it’s about a cat that traveled a long distance to get home to its owners – incredible isn’t it, we face an economic catastrophe that has been growing for some time partly because of our total denial about a consumer culture of SUVs, plasma TVs and cosmetic surgery all paid for on credit cards from money borrowed from the developing world and partly because the entire banking industry in America formed Enron-esq financial structures in an unregulated greed cluster fuck that has collapsed, yet Close Up have as their main story tonight a cat who traveled a long distance. Add a property speculation bubble where middle class NZers pretended they weren’t and politicians too frightened to step in between the trough and the greedy little piggies with a capital gains tax and we get an equation that promises a ‘correction’, but you wouldn’t know that from the bullshit we are fed from the mainstream news media.

I remember debating with some of my right wing friends that a global economy focused myopically on growth was simply unsustainable, and that at some point we will run out of credit to keep buying stuff that we are consuming faster than can be replaced, their response was that I was a tree hugger who needs to accept that capitalism is never wrong and stop spoiling the gang bang, followed by a rousing USA! USA! USA! Well those right wingers are a wee bit quieter now, but I still see Governments focused only on trying to reboot the entire consumer credit cluster fuck by trying to goad NZers into spending more with credit cards already maxed out. How is this a strategy, well none of us are sure because National have been AWOL while the economy sinks. They assure us they haven’t been on holiday and Paula Bennett broke up a fight and John Key broke his arm and…………….and fucking nothing else. Look I know it’s terrifying National, but you’re kinda the Government now and promising big speeches and a conference NEXT MONTH doesn’t really telegraph the deep, deep, deep urgency required to tackle this. We are looking to double our unemployment rates within 18months, the social cost of that alone is going to be immense and I argue that the unemployment rate will be much higher as Australia goes through its own environmental and economic crises which will drive many NZers to flee back home, bloating our unemployment rates even higher.

Does slashing the interest rates help? We were one of the few Governments who had such high interest rates, won’t this move aimed at helping homeowners simply start a run on our currency as investors leave us, won’t that put pressure on our credit rating leading to a downgrade meaning that mountain of debt NZ has acquired will explode uncontrollably putting us on the slippery slope of Iceland? Bernard Hickey has little time for the move, he clearly points out 5 reasons why the cut was a bad idea and it seems National are simply trying to look after their electorate of well to do NZers who are now facing poverty for the first time in their lives with an interest rates cut will lower Mortgage repayments as those previously well to do NZers have to gear shift down in living standards. That’s neat for National to look after their lot, but there are a lot of other NZers hurting and that hurt is going to be reflected in a crime rate that will start to soar.

Bottom line is that we are fucked, fucked so bad we are still in denial how badly fucked we are, the entire game plan has to be reviewed, sustainability has to be the touchword in every industry and those skills will become more valued than any good we export, those skills will be the future and there has to be a paradigm shift in what we expect as standards of living and there has to be change in how we pursue those standards of living.

20 Comments:

At 30/1/09 8:43 am, Anonymous sdm said...

Yep. We are fucked.

I actually think Business is ahead of government on this. Business seems to have moved its focus from profit to survival. In my industry hours are being cut, work is drying up and so margins on tenders are dropping. Ironically, if you have the cash, its not a bad time to build.

Re housing

BNZ economist Tony Alexander had this to say yesterday

There should be a capital gains tax on investment property. The absence of such a tax (on all but the family
home) means there is an incentive for investors to purchase property rather than supply funds to other areas
including direct investment in businesses, purchasing shares on the sharemarket, purchasing corporate
bonds, and even placing money with banks on term deposit. And because most of the money used to
purchase property is borrowed our dependence on overseas money is increased.
But a key fundamental here is that in spite of this incentive for people to purchase and build properties New
Zealand's housing problem is one of a shortage of affordable property. We do not have a massive housing
oversupply as currently exists in many northern hemisphere economies and which the bias in the tax system
would imply.
Incentives usually create an oversupply of something if that thing can be built. Why hasn't this tax incentive
created a continuing building boom? Because restrictions exist on the availability of land for housing,
construction compliance costs have now become so high that builders and investors earn the best returns
from constructing expensive properties rather than cheap ones affordable to first home buyers, and apart
from the current crisis there is an underlying shortage of tradespeople.
If there was a capital gains tax imposed on housing one would expect the reduced attractiveness to
investors of purchasing and building property to lead to lower prices for existing houses and a freeing up of
resources for the construction of owner occupied dwellings. However the impact may not be as positive on
housing affordability as people may think.
First, we need investors in order to build rental properties and one would expect the reduced returns
available from such construction would lead to reduced availability of rental property. This along with the
higher cost of renting a property would place upward pressure on rents and in the short term make
accommodation (versus housing) affordability worse.
Second, although this would free builders up to construct dwellings the incentive for these builders to
construct smaller more affordable properties rather than the current large ones would be unchanged - unless
relative prices shifted. That is, unless their relative return from building a smaller dwelling improved. This
would only happen if the price of rental-type property went up and this is probably what would eventually
happen as a shortage of rental property developed.
The endgame would be this. Because of the constraints on construction, land availability, and the incentive
for builders to make large houses the downward pressure on rental property prices would be temporary.
Eventually the prices would rise more on an annual basis down the track than would otherwise be the case.
In even simpler terms however, if a tax on investment property was the answer to housing affordability,
Australia, which has such a tax, would not be suffering an even worse housing affordability and availability
problem than New Zealand.
The only answer to improving housing affordability in New Zealand is opening up land supply and slashing
compliance costs. Even current plummeting interest rates are not a permanent solution. Soon these low
interest rates will attract investors back to the market and because they will tend to be older and less likely to
be laid off from their jobs during this downturn their ability to purchase property in the coming year is going to
improve. Younger people without 20% deposits and facing a greater risk of job loss will again fall by the
wayside.

*******

Agree with it in part but it does raise a few issues

1) Do you put a CGT on other forms of investments - shares for instance
2) Do you allow any loss in property to be offset against income (in the way rental loss is offset)

 
At 30/1/09 10:00 am, Anonymous Anonymous said...

I recall when that clown Bollard declared that the recession was over just before Christmas 08. lol

I'm not sure if anybody took him seriously or not. The news reported it. He should have had a huge "Mission Accomplished" banner hanging behind him lol!

 
At 30/1/09 10:09 am, Anonymous Anonymous said...

Not sure what episode of Close Up you watched last night, but the lead story yesterday was a grim reminder that the interest rate cuts would be of no help if you can't hold on to you job, followed by an interview with gareth Morgan and Ganesh Nana. The second story was about the surviving family of a murdered Afgani refugee taxi driver.

 
At 30/1/09 11:00 am, Anonymous Anonymous said...

what episode of Close Up you watched last night

He was talking about tonight's promo

 
At 30/1/09 12:07 pm, Anonymous Anonymous said...

"Bottom line is that we are fucked, fucked so bad we are still in denial how badly fucked we are, the entire game plan has to be reviewed"

Um no we are not. We live in an isolated low population country with the protect of a superpower and have an ample supply of food, water and energy.

Maybe Bomber, if you had a little more experience of the world and other countries you'd be realise how strong a position NZ is in.

Fortunately most NZers don't share your negative attitudes towards life.

 
At 30/1/09 12:29 pm, Blogger Bomber said...

Um no we are not. We live in an isolated low population country with the protect of a superpower and have an ample supply of food, water and energy.

Maybe Bomber, if you had a little more experience of the world and other countries you'd be realise how strong a position NZ is in.

Fortunately most NZers don't share your negative attitudes towards life.


I don't deny Anon that we are in a better position that the rest of the planet, we produce enough food for 55 million people in NZ, but that is only a marginal plus for us, the currency is on the skids and we are starting to look more and more like Iceland.

 
At 30/1/09 12:36 pm, Anonymous Samclemenz said...

A couple of small realities you over looked Scotty me boy-

1. Though interest rates are dropping that will allow existing Mortgage Rates to fall into a more affordable range. You have to have the benefit of an existing house in order to piggyback the equity into another property, OR, you come up with a 20% deposit for your purchase. There aren't a hell of a lot of Kiwi's that have $50K CASH sitting in their bank accounts in order to buy a slum-property for $250K in Auckland, or anywhere else for that matter.
2. Another small consideration is - How do you come up with a valuation for Financing in a rapidly falling market? Banks are advertising lower rates for Mortgages, but they are counting on re-finance of existing Mortgages, rather than making NEW loans to un-proven credit customers in these uncertain times of long term employment worries. AS a new credit customer - if you lose your job, they end up holding the bag with the house in it! Not a good return prospect would ya think? Getting NEW financing might prove to be VERY difficult to say the least - especially in light of the reduced pool of money available to NZ Banks within the International Financial Markets that are already sinking under bad debt from their previous Greed Grabs. We've (NZ) been downgraded on the IMF Credit risk table, and that means a tightening of capital available for investments which at the end of the day is what a Mortgage represents to a bank!
Banks can charge a re-finance "hefty fee" to free you up from the higher payments of higher interest rates. Generally, the fees aren't paid up front by the re-financing credit seeker, they are rolled into the Principal of the loan, and are designed specifically to protect the bank from a loss of revenue that granting lower interest rate loans that offset their profits from higher "locked in" rates would have meant to their returns.

Another little blathering point you make about availability of land and resource consent costs as being an obstacle has only a slight amount of acutal fact to it - the part about the costs for gaining resource consent.
I would agree that Councils seek revenue for their coffers from Resource consent costings, and they have, especially over the past 6 years, been escalating this way beyond their costs to assess the environmental impact of new building in relation to existing structures. It's called "Gouging for profits", and it's created an exceptional amount of unecessary Beurocracy to cover the fact that you're getting screwed for any new construction or improvements that you want to do that will alter or expand your land use.
I disagree with you on the lack of availability of land though! There's plenty of land available, it's just been driven out of site in costs through greed from speculator's, trends to Corporate Farming in the Dairy and Wine Industries, and the extreme cost of resource consent building - making it unaffordable for anybody other than those with loads of cash to play with to be able to afford.
Times are becoming increasingly tight in the disposable cash and income markets Scot. Bomber is spot on with his statement about Consumer-aimed economic spending drying up. Global supply has exceeded demand and it has brought our (et al) economy to a screeching halt! People no longer believe the Globalist Banker and Corporatist line that they can credit-spend their way to properity. The bubble that world Fanancial Brokers and International Corporatist's tried to perpetuate through Globalist-trade and outsourcing has burst. You have to face that fact lil fella -Free Trade Capitalism is a failed State. We are left adrift to come up with solutions and new methods of survival in the 21st Century, and nobody has a clear idea of the direction out of this dilemma, other than dumping the entire system and starting over from scratch. Until we do figure out a fix to this crisis we all (have and have nots) will continue to flounder - until the "have nots" completely stop spending on anything other than bare-necessity items, and default on their credit obligations in order to continue to afford even those basics they need to survive, as the "Haves" try and cover their arses and assets with Government aided interventions of mass bailouts by placing the burden of their salvation onto those taxpayers that are fortunate enough to hang onto their jobs while all this usury greed driven bullshit buries itself in the History Books next to the other great depressions and re-allignments of humanity.
Face it Scot - your Idea of Capitalism and Free Market Trade has lead you down a dead end street. You've been sold a can of worms and told it was Caviar, and you believed it to the last bite! This is going to all come down to survival of the fitest, not the wealthiest - if we continue on the current means of currency and credit exchange that have been stuffed down our throats by world banker-elites, and their greedy little Corporatist and Political enablers.
The well has run dry, and we're going to all have to work to drill a new one in a different location, or die off trying to get the old dead horse to pull the worlds wagon to market!

 
At 30/1/09 12:49 pm, Anonymous Anonymous said...

Fuck you write a lot to say nothing sam.

To sum up your rant
Capitalism=bad.

Now capitalism per se isn't bad, it's the humans running it that is the weak link.

Now sam, pray tell what you would replace capitalism with?

 
At 30/1/09 12:51 pm, Anonymous Anonymous said...

"we are starting to look more and more like Iceland."

Iceland is bankrupt, people are rioting in the streets and the govnt has fallen and a 3rd of the country wanted to immigrate.

Last time I looked there were not car burning in queen st, john key was still PM, people wanted to come BACK to NZ and investors are still buying NZ govnt bonds.

What the fuck are you smoking?

 
At 30/1/09 12:58 pm, Blogger Bomber said...

Iceland is bankrupt, people are rioting in the streets and the govnt has fallen and a 3rd of the country wanted to immigrate.

Last time I looked there were not car burning in queen st, john key was still PM, people wanted to come BACK to NZ and investors are still buying NZ govnt bonds.

What the fuck are you smoking?


Yes we are starting to look like Iceland just before all of that happened, we are sliding towards a run on our currency and a credit downgrade with a mountain of debt on our backs.

 
At 30/1/09 1:34 pm, Anonymous Anonymous said...

Having lived through the depression of '91, the Asian economic crisis in 98, the tech crash of 2000 I find your rants about the end of the world amusing.

Are you stocking up on food yet, building a survivalist retreat in the waitakares?

Seriously, if S&P downgrades NZ what effect will it have on you personally?

 
At 30/1/09 3:16 pm, Anonymous Ben R said...

Just out of curiosity, where did the cat travel from?

Are we talking 'Incredible Journey' across country type distances, or simply from a neighbouring suburb?

 
At 30/1/09 4:23 pm, Anonymous Chris said...

I agree Ben R - I'll read material published by actual economists and people with experience in finance when I want a perspective on the global economy.

Bomber and Tim are more qualified for opinions on human interest stories in the local news.

So tell us more about that cat Bomber

 
At 30/1/09 4:55 pm, Anonymous Anonymous said...

Virtually all economists missed the current recession so why should anyone take their views seriously. All tim and bomber do is regergitate their views.

Its funny how infectious their fear is.

 
At 30/1/09 5:25 pm, Blogger Tim Selwyn said...

If you want regurgitation of views don't look at us. I posted back in early December that the retail banks were gouging on the margins at a stage when no-one else noticed or cared, but now suddenly - since Thursday's OCR - everyone is on the bandwagon. I have posted numerous times also from 2005 about our fragile monetary position and our currency weakness.

 
At 30/1/09 6:27 pm, Anonymous Anonymous said...

Warren Buffet says he got rich by being greedy when others are fearful and fearful when others are greedy.

Translation: Todays economic pessimists are idiots who should be ignored.

 
At 30/1/09 7:31 pm, Anonymous Anonymous said...

Bob Jones has pretty much said the same thing in a recent column. i'd rather trust someone worth 400 million than bomber anyday.

That's why I'll be laughing all the way to the bank. Wait till mortgage rates go to 4.5-5%, lock in for 5 years, be cashflow positive and the quantative easing in the form of inflation will go to work giving me tax free capital gains.

While Bomber is cowering about the next depression I'll be picking up property and equity investments for a song positioning myself for the next boom.

 
At 30/1/09 7:48 pm, Anonymous Anonymous said...

Bernard Hickey is a morn. If he says it then the opposite is probably true.

 
At 31/1/09 3:12 am, Anonymous tyneham said...

Bailouts and stimulus initiatives may help some. The post-mortems on the wrecked global economy, toxic derivatives, US market and dollar crash would continue for several decades. Is time to focus on viable and sustainable solutions? Businesses and banks need bespoke turnaround survival strategies to reduce losses, improve efficiency, increase revenue, gain sustainable competitive advantage, and outperform market competition. The results add real business values, attract investors; create new business opportunities and jobs. One FixyaExperts.com client was advised to reduce losses by 30% and increase production by 50% to attract investors who continue to target undervalued growth sectors, niche and captive markets where consumer demand still continues to grow in double-digits annually to 2030. What other solutions are out there for recovery? http://www.youtube.com/fixyaexperts, http://www.FixyaExperts.com

 
At 2/2/09 4:02 pm, Anonymous Samclemenz said...

No name said:
"Fuck you write a lot to say nothing sam."

Look anonymous, I'm sorry if your vocabulary is limited to single syllable words & text 'o grams. Not my problem - it's yours!
Maybe if you would spend more time considering and commenting on the points made instead of trying to play assassin - you'd get more out of following these threads!

 

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