on the NZ housing bubble and looming economic disaster

 

This article from Forbes is pretty interesting reading, essentially arguing that our economy is due to pop at some point due to our overinflated housing prices, the resulting exposure and risk our banks have, and the large borrowing National has been doing. Well worth familiarising yourself with.

One Response to “on the NZ housing bubble and looming economic disaster”

  1.   bruce
    May 24th, 2014 | 7:03 pm

    My american expat friends have been talking about this one. A few points– worth reading the alternate perspective, that NZ economy will be kicking ass:
    http://www.interest.co.nz/news/68632/hsbc-economist-paul-bloxham-who-labelled-nz-economy-rockstar-says-it-has-got-staying-powe

    the metrics I want to see regarding rent and home price to income would compare NZ to other developed nations, not to it’s own historical trend.

    http://www.numbeo.com/cost-of-living/gmaps_rankings_country.jsp

    what we see here is that NZ is not out of line with many developed countries. it comes in favorably on the rent index.

    maybe it is true that the financial services industry is bloated in nz– again i want to see it compared to other countries, since this is a world wide problem.

    Note the financial industry will be built upon some sort of primary production. In this case I expect it’s agriculture. Money borrowed by farmers at start of season to buy seeds and fertilizer and animals. Money borrowed to buy land, amalgamate it, knock down trees and install giant pivot irrigation systems. Money to buy capital equipment.

    Of course the gambit is that this money is all borrowed on expectation of current prices continuing into the future, and of course commodities that are at the top of their price cycle right now (dairy?) will likely fall in the future, resulting in defaults which put the land into the hands of the banks. And yes, that does correlate with seeds being sown for a financial crisis. But where in the world is this different? Based on a personal conversation with Rupert Sheldrake, in England they are taking good dairying land and converting it to grain, the opposite of hear. Same gambit– macro geoengineering to ostensibly produce a higher value product based on, I would guess, arbitrary lines drawn by trading blocks as opposed to worldwide supply and demand and efficient allocation of resources.

    Last thing in Forbes is the bit about how rising interest rates will cause this. nz already has some of the highest interest rates in the developed world. so they don’t have to raise the rates unless they want to? so if they cause a crash by raising the rates it will be arguably deliberate, though this is certainly a believable scenario, expecially with the current prime minister’s career affiliations, and yeah, the cyprus thing, where maybe you didn’t notice it but the same draconian measures passed in cyprus where private citizens will lose assets out of their savings accounts if banks have a problem, is legal here now, too.

    Also note where forbes gets its stats on the nz economy– a very simplistic nz govt created gdp breakdown which was created for god knows what audience for god knows what reason.

    again, is nz any worse off than the rest of the developed world? i think no, this game is happening everywhere.