Monday, September 1, 2008

IOUNZ worse than IOUSA

There's more to life than Whale Oil and Scampi, like more bread and butter issues, like debt.
And after nine years of Cullenomics , our debt record in New Zealand is even worse than that of the USA.
Today, some time after I referred to the movie 'IOUSA' on No Minister, Bernard Hickey, the Patron Saint of Taxpayers, looks at the movie and the finances behind it.
I'm tied up with a major busienss conference today to assess Bernard's comments in any detail, but it does seems a worry we are in this mess. Here are his closing comments:
"The only problem is that our households have been more irresponsible than those in America.
If we’re lucky we will pay for this with a long period of subdued economic growth as we work off the debt and cut back our spending and borrowing. There have been signs this is happening this year as our mortgage borrowing has collapsed (see chart left) and retail sales growth has slowed to a trickle.
If we’re not lucky we’ll have some sort of financial crisis involving a spike in interest rates, potentially some sort of a run on our currency and a wobble in one of our major financial institutions. I think this is unlikely because our banks are well run, well regulated, highly capitalised and less exposed to the US subprime crisis than most other banks.
But this is a risk and the inevitable result of a debt-fuelled property investment frenzy that we will come to regret in years to come."

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