High NZ Dollar, Exports, Economy, and Housing

[ithink]

Hi Experts,

Going back to basics here..!

Can someone please explain to me how the 4 things mentioned above (High NZ Dollar, Exports, Economy and Housing Boom/Crash) are related and how the change in one causes the others to fluctuate.

I vaguely understand these things, but some clarification in simple words will really help.

Thanks in advance!

[ithink]

Wow, am a bit surprised that this is such an important topic of today and no-one wants to write about it... Come on please guys..!

[Winston001]

Hmmm...the importance of the first two cannot be overstated but there aren't any pithy one line answers that I can think of.

Please realise that the "economy" is a whole basket which describes the financial position of a country. It is a snapshot, a result of what happens in the other matters you raise.

Housing is minor. Industry (including tourism) is far larger and more important. Housing is a social and political issue. Go to Africa with its teeming billions living in shanty towns - they have houses and their main worry day to day is making enough money to buy food etc.

[eri]

if you knew

and could correctly and accurately explain

how the 4 interact

you would be better working for the reserve bank

that wasting your life away on internet forums

[Keithw]

Can someone please explain to me how the 4 things mentioned above (High NZ Dollar, Exports, Economy and Housing Boom/Crash) are related and how the change in one causes the others to fluctuate.

It seems to me that you are looking for some mythical mathematical formula that shows how these things are related,
such as "Boom index" = Economy x Exports / NZ Dollar, when there simply isnt one.
Despite all the models created by Treasury, the Stats dept & Throngs of Economists, to my knowledge nobody has come up with any model that even remotely works, otherwise we wouldn't be in the crap we are today.
There are many measurable factors but there are also always unpredictable factors such as human nature response, ie how people actually react when the effects on them are felt & become real.
Eg A farmer or manufacturer knows that a high dollar will eventually affect their returns, but dont know by how much until the next time they are paid. And even then, they stiil have to wait to see what the effect on their inputs are. eg does the price of the imported components they use drop by the same as their returns, ie they remain effectively in the same place.
But more likely, the import cost will reduce only a small amount due to business trying to make up for lost margins, (look at petrol prices- still over $2. Today in Perth I paid A$1.22 per litre, a year ago I paid A$1.48, while in NZ respective prices NZ$2.04 & $2.18 A$1 ~ NZ$0.82). Hence the farmer / manufacturer goes backwards. Reducing spending, perhaps laying off workers, perhaps ultimately forcing them to close down, resulting in even less spending & less employment, an ongoing vicious circle.
From memory i think there is a flowdown factor of about 3 involved when it comes to flowdown of employment, ie for every dollar someone earns & spends it results in 3 dollars of transactions,
ie employee makes a purchase & pays $1 for a loaf of bread.
From that $1 the retailer pays $.60 to the baker & $.20 to their employees $.15 to the Govt & .05 to the shareholders.
From the $.60 The baker pays $.20 to his suppliers, $.05 to the transport company $.22 to their employees & $.09 to Govt & $.04 to the shareholders
etc
So lowering the wages earnt / number of earners, flows down to the rest of the economy and that is exactly what we saw when Govt decided to attack the housing sector a number of years ago because they believed houses where too "unaffordable"
So what happened ?
Releastate agents lost income, Lawyers, Conveyancers lost income, Valuers lost income, Maintenance people lost income, Builders suppliers lost income, Builders lost income so stopped building, Tradies gave up waiting for the CHCH boom so packed up & left for Aus.
The Realestate Market became depressed (& volumes are still only around 1/3 of the peak volumes of 2007) so people didnt bother to sell up, but rather sat tight & perhaps did some rennovations ( if they could find a builder that hadn't shipped out to Aus or CHCH).
When people don't feel their prime asset is appreciating (which they had witnessed during the boom times) or at least keeping up with Real Inflation, they cut back on spending in other areas such as luxuries, new appliances, holidays etc, so all the seemingly unrelated businesses (to the housing sector) suffer downturns as well.
Try expressing that in a formula !
Quite simply, you cant attack one sector & think that it will not affect all other sectors, everything is interlinked, including Govt sector (since less business turnover & less wages means less tax paid).

And the other most important factor that you haven't mentioned is immigration.
Despite mass outflows to Aus, NZ immigration is still positive, ie there are more people wanting to live in NZ than are leaving.
It is well documented that Housing prices are closely linked to Immigration, so with more people entering NZ, hardly any new properties being built, & disinscentives for people to own rental properties, while at the same time property prices being out of reach for many, in a large part due to Council taxes, Govt taxes, and now rapidly multiplying insurance premiums, huge pressure gets placed on rents for the remaining rentals.

So then you get the Do-Gooders, who were instrumental in trying to slow down the property market, trying to "Help out First Home Buyers" by coming up with inane schemes to build "Affordable Housing". They do this by trying to bypass the very laws that they helped put in place and that have been a major cause of build cost increases, such as RMA, or by forcing Councils to reduce their development fees, which where put in place because the Do-Gooders decided that Councils needed to be more accountable for the developments they allowed and for liablities such as Leaky Buildings, largely due to changes made by Do-Gooders & Greenies to building codes.
This brings up 2 issues that have a major impact on the Economy, Leaky Buildings and Earthquake Strengthening. I can tell you from experience that you don't want to find yourself with a Leaky Building, & I imagine that a similar situation is/ is about to occur for the thousands of owners of brick buildings that have stood for many years, yet now are going to have to undergo Earthquake strengthening. This is going to become another Leaky Building gravy train and suck billions from one sector of the economy & pump it into the Earthquake Remediation business.
Alternatively thousands of buildings will be abandoned in the next 10 years, creating even more of a shortage of rentals.
A great time to own a non leaky non brick rental, but a bad time for tenants who will be paying an even higher proportion of their income in rent, a bad time to be a ratepayer (Councils spending ratepayers money on strenghtening council owned buildings and still paying out millions in Leaky Building settlements), bad times for Govt income / budgets (lower tax revenues & more demand on unemployment benefits), bad times for retailers (less money in circulation) etc.

Everything is a balancing act, there is no formula and Govt actions always have unintended consequences.

[GenY]

House prices and the unemployment rate tend to run inversely to each other. For example when unemployment figures are reducing, house prices are usually on the rise. Disclaimer: I'm not an economist at the Treasury

[Perry]

Well Said

Nice summary, KeithW. What you refer to as a "flowdown factor"
may be what I've heard called the "multiplier" or "multiplier effect."
Seven is the figure. That seems close to your loaf-of-bread example,
as you've laid it out.

However, there are wrinkles in the multiplier effect calculations, if
I recall aright. The dollar-loaf must be bought with earned income
for the multiplier to work out as it should. If the $1 is borrowed,
not earned, nasty consequences flow through your entire scenario.

[Keithw]

Thanks for that Perry, a multiplier of 7 (which is probably right) makes low level changes have even more effect, as do high debt repayments for any part of the chain, as money gets siphoned off to the banks before paying anyone else (including Govt).
& if the Banks hold onto it like they have in recent years, instead of putting it back into the economy. it acts the same as less jobs or less salary.

A perfect illustration of how inter-related everything is, is the performance of restaurants as an indicator of the health of the local economy. My friend owns a mid level restaurant on Aucklands North Shore and between the conversations he has with his patrons & the turnover & type of meals ordered, he gets a good indication of the "feeling of wealth" in the local area.
Less business lunches/ dinners indicate business cutbacks.
Simpler meals less often indicate cutbacks by earners that still want a night out but feel they cant afford luxury, but can still afford some basic enjoyment.
Low numbers indicate everyone is suffering.
Conversely, sometimes while the press are spouting doom & gloom, the local economy can reflect a lot more optimism.
The Chamber of Commerce business survey is always interesting to see.
Just shows that human nature is so hard to put into a formula.

[McDuck]

Hi Experts,

Going back to basics here..!

Can someone please explain to me how the 4 things mentioned above (High NZ Dollar, Exports, Economy and Housing Boom/Crash) are related and how the change in one causes the others to fluctuate.

I vaguely understand these things, but some clarification in simple words will really help.

Thanks in advance!

It’s an interesting question.
More of a starting point really.

The word “economy” is really about things related to swapping goods and services but you need to specify the area this happens within… global or local or intercompany.





The high dollar and exports are really about swapping New Zealand Goods and Services for Goods and Services from other countries.
The basic idea is that overseas people will want to swap our goods and services more if they are cheaper.


Most swaps aren’t done directly; they use paper money (say) it’s a convenient medium of exchange.
This is where the problem arises.



Since the dawn of money, Banks have been manipulating this system to grow rich, thus distorting the system.
You have several magnitude of banks. A “high or low” dollar is caused by manipulation of the medium of exchange by various parties.


A housing bubble is when the manipulation of money goes unchecked, causing the whole system to fail, fail for the everyday person that is, while leaving those at the top of the system relatively unscathed.


The curious goings on within this six hundred year old money system is complicated and ever changing.
For example, I could create a new money tool out of thin air by offering to pay anyone a dollar for every bird dropping on the town hall roof minus the number of chewing gum spots on the pavement out front and vice versa. If enough people or institutions took me up on that deal, the whole economic matrix would shift accordingly.

[McDuck]

Wow, am a bit surprised that this is such an important topic of today and no-one wants to write about it... Come on please guys..!

Any clearer?
For you to figure out a basic interaction model, you can start by understanding that you can lend money to our government, in return they will give you a decorated piece of paper called a BOND. They will give you your money back (plus interest) later.

Since all money is in the same interconnected matrix, a bond is a good starting place to see the form of the matrix and the way it moves.

Remember the economic matrix obeys Newton’s three laws. Sometimes it’s difficult to see where the loss of transfer occurs, but have faith in the three laws and keep looking and you’ll figure it out.

[TheLiberalLeft]

I can give you a simple, personal view of the impact of the high dollar. I export 100% in my business. I charge in foreign currency meaning I get less NZDs upon receipt/conversion. Despite my best efforts to correct the balance of payments, I have less to spend on flat-screen TVs thus my contribution to the overall economy is reduced and my ability to buy housing also reduced.

[speights boy]

Fear not TLL.
Wall St reckons QE starting the wind back soon, so USD will benefit.
If you are all GBP exposed, you're on your own there.

www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10883479

[TheLiberalLeft]

What a turn around, when jobs pay more in NZ than in London. Amazing.

[TheLiberalLeft]

If the USD turns, so will the GBP. Face? Bovvered?

[speights boy]

What a turn around, when jobs pay more in NZ than in London. Amazing.

.................

"Everything here is more expensive. We're renting at the moment in Epsom ... We've got a two-bedroom apartment in London that we're renting out, and the rent here is substantially more than we're renting out our apartment in London for."