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Maybe New Zealand Can Solve Housing Bubbles
By William Pesek - Sep 23, 2013
As the world’s biggest economies search for ways to let the air out of giant asset bubbles, they might find some answers in tiny New Zealand. (NZOCR)
Fittingly, the nation that begins the developed world’s day and the central bank that pioneered inflation targeting will probably be the first to raise short-term interest rates. The move could come next year as growth steadily returns to levels seen before the collapse of Lehman Brothers Holdings Inc. in 2008. But something far more interesting is afoot at the Reserve Bank of New Zealand’s headquarters in Wellington.
Faced with a scary housing bubble not terribly unlike that in the U.S. five years back, Governor Graeme Wheeler should be tapping the brakes now, and hard, or so holds classical monetary theory. Doing so, however, would jeopardize the nation’s 2.5 percent growth amid general global uncertainty. Instead, Wheeler is conducting an experiment: limits on leveraged lending.
The idea, says economist Stephen Koukoulas, is to “contain the house price bubble without inflicting collateral damage to the rest of the economy.” Koukoulas was an economic adviser to Julia Gillard, Australia’s prime minister until June. And it’s significant that he’s recommending that Australia’s much larger economy emulate New Zealand’s experiment.
What about the rest of Asia, including China, home to some of the biggest property bubbles in modern history?
Crisis Lessons
If the world learned anything from the crises of the last 20 years -- from Latin America to Asia to North America to Europe -- it’s the folly of one-size-fits-all remedies. Nor is there obvious utility to comparing a $160 billion first-world economy like New Zealand’s with an $8.2 trillion developing one managed by Communist Party bureaucrats and a state-run central bank.
More at
By William Pesek - Sep 23, 2013
As the world’s biggest economies search for ways to let the air out of giant asset bubbles, they might find some answers in tiny New Zealand. (NZOCR)
Fittingly, the nation that begins the developed world’s day and the central bank that pioneered inflation targeting will probably be the first to raise short-term interest rates. The move could come next year as growth steadily returns to levels seen before the collapse of Lehman Brothers Holdings Inc. in 2008. But something far more interesting is afoot at the Reserve Bank of New Zealand’s headquarters in Wellington.
Faced with a scary housing bubble not terribly unlike that in the U.S. five years back, Governor Graeme Wheeler should be tapping the brakes now, and hard, or so holds classical monetary theory. Doing so, however, would jeopardize the nation’s 2.5 percent growth amid general global uncertainty. Instead, Wheeler is conducting an experiment: limits on leveraged lending.
The idea, says economist Stephen Koukoulas, is to “contain the house price bubble without inflicting collateral damage to the rest of the economy.” Koukoulas was an economic adviser to Julia Gillard, Australia’s prime minister until June. And it’s significant that he’s recommending that Australia’s much larger economy emulate New Zealand’s experiment.
What about the rest of Asia, including China, home to some of the biggest property bubbles in modern history?
Crisis Lessons
If the world learned anything from the crises of the last 20 years -- from Latin America to Asia to North America to Europe -- it’s the folly of one-size-fits-all remedies. Nor is there obvious utility to comparing a $160 billion first-world economy like New Zealand’s with an $8.2 trillion developing one managed by Communist Party bureaucrats and a state-run central bank.
More at
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