Economic and property outlook for NZ

[tim360]

According to the budget crown debt, as a % of GDP, appears to peak at just over 50% in 3 years. We were sitting around 20% prior to COVID-19. To give you a comparison here are some 2019 figures:

• The top 10 highest debt-to-GDP ratios feature Japan at 237% (#1), and some of Europe’s more concerning economies: Greece (183%), Italy (132%), and Portugal (121%).
• The world’s largest economy, the United States isn’t far behind at 106%, with China at 51% and other major economies such as the UK and Germany at 87% and 60% respectively.
• The average for the EU is 82%, which compares to the EU’s Stability and Growth Pact requiring debt-to-GDP below 60% – or at least declining to be within acceptable limits.
• The IMF’s “Advanced Economies” (which includes NZ) average 103% and “Emerging Market and Developing Economies” at 51%.
• Australia’s debt-to-GDP was reported at 41%.

These are all much larger economies than ours, so we should be aiming to have a more conservative debt to GDP ratio.

Was it the right thing to do? What were the other options?

[OnTheMove]

The govt has been borrowing tens of billions of dollars over the last few weeks and is set to continue the borrowing.

Is that the right thing to do?

What are the implications of this borrowing on normal people (those outside the top 1% of the wealthy)?

Jacinda does it for vital reasons. John Key does It to stop property plummeting 40%, so we then put the 36% he saved back into property as inflation instead of learning a lesson from it.

I feel the implications are unimportant when it comes to saving a generation of boomers. Despite many of them being I the 1% and still claiming your fiscal tax derived pensions.

I use to be a national voter because I thought that meant putting the interests of the nation ahead of corporate and the 1% ultra wealthy you refer to. When in fact it turns out Labour/NZFirst/Greens are putting the little guys that under pin this countries economy and our own incomes as priorities. So have swapped camps. Gareth Morgan had a LOT of good policies too, especially in combatting social wealth inequality and the environment, nor does he claim his pension and he puts his money where his cat claws are into ecology.

So the outcomes are, our elderly stay healthy and wealthy, we retain more jobs and personal income. We end up in debt again nationally. We have paid it off many times before and we will again imo. If anything NZ is a safe haven for business and we should be doing everything we can to promote that and snear as many as we can to stay permanently to replace growing lambs and sending tourists out into the 95% deforested 100% pure NZ.

If there is any tax implications, hopefully it is at the high end. I have no qualms about having to pay a bit more for the right things to be done as a collective people. Even though Im not in the 1% my tax would be for salaries.

If the footballers can take 80% pay cuts, so can large business, to keep the tax off small business and individuals.

I see NZ coming out of this better than most. I read an article of the cost to nations who went into semi lvl 4 lockdown, much like Aus did. With a drawn out return to full domestic economy.

What is more of a worry at a personal level is the 150% personal debt inc mortgages to our GDP, prior to the virus. (driven by the inflation caused by Keys borrowing being reinvested/borrowed against)

In all honesty, I think its not without good cause and is for the betterment of the small guy and the individuals.

Ideas on increasing GDP;

The big green Xmas tree.

Now we just need to think of how we can generate tax outside personal. Oh, tax a plant harmless to the majority of 20 and over, create cafes (more small business), create farms of scientifically grown strains to treat specific ailments, own these farms before the pharmaceuticals do like in the US, replace costly harmful medications with it saving countless amounts to public health, save $80m PA on incarceration's. Of course regulate it heavily, tax it,not consumed in public, keep it NZ owned, basically do everything the DRAFT already says. There you go, that's how you help pay off $10s of billions. Of course Alochol tax helps, but the flip side the cost to health of this product is probably majorly in the positive not negative considering nobody dies from it, it replaces costly medications to Public Health (I cant imagine how many $100s of millions that is surely). A right no brainer.

It doesn't make people lazy, people are lazy with no vices, people are lazy with alcohol. Plenty of VERY successful people consume it. Roadside death tolls potentially go down (supposedly Colarado). People between the ages of 10-18 who were previously "trialling it" are halved (statistic from Canada). And most of what I have read is it highlights people prone to psychosis, it doesn't create their pyschosis, especially if this is with adults 24 and above, but even 20-24 the development slows rapidly I believe (disclaimer do your own research don't quote mine). Of course if you are a bit mature in age you may believe an HONEST President Nixon, who basically demonised it without any scientific studies like we have 60 years later but of course his Alcohol was harmless in comparison (sarcasm inserted).

A YES vote does not end the process from being further refined, it just means the start of refinement, which possibly could include things like raising the age to 24.

I honestly have no interest in consuming it but once I realised how scientific strains are medicinally and the safety in comparison with brain killing pharmaceuticals and did some real studies on the harm factor, Im just miffed at how it is illegal outside people not challenging 60 year old "he said she said" rhetoric as they sip on their heavy cost to public health home medicine ;-p. But of course people are entitled to believe what they want, they will anyway no matter how much education you provide them (especially if they are Mike Hosking and or Kate Hawkesby 1%rs)

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Another concept is NZ being a Satellite business hub for many countries unable to operate and constantly going in and out of lockdown, shutting down economies. Its not like we don't have the room.

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I refuse to believe those are the only 2 other ways we could generate and or save large large amounts of GDP.

But borrowing these billions now to keep the small guys going means with these future prospects to increase GDP/Save on Public Health etc, the back bone of our economy is still up and running.

My 2c. Im sure people will disagree. Its a Democracy. Like they are smarter than Jacinda or Helen Clarke. Of course they are. ;-p

[OnTheMove]

I guess least it wasn't the Chinese they are going around lending Billions to many nations and getting deals owning many key resources and ports tech etc ..

I read an article somewhere and I wish I had saved it, but what you point to is 100% true, lending unpayable terms and seizing ports. Well if it is deemed they were Negligble internationally and take a international Sovereignty perspective (ie don't pay for negligence), the US will reclaim its costs by seizing the ports by force. It didn't sound conspiracy like either from memory. If I find it I will post it.

[PC]

Spending is increasing by 30%.
So taxes need to increase by more than that - Government overheads and inefficiency to pay for.
The middle class will once again be screwed over.

[Frezzinghot]

Is there really a middle class anymore, more like the 1%ers & the rest of the plebs! Looks like the elites are going to grab it all this time.

[McDuck]

Is there really a middle class anymore, more like the 1%ers & the rest of the plebs! Looks like the elites are going to grab it all this time.

One of the daughters of a leading industrialist once told me she was embarrassed to be driven to school by her chauffeur
in a luxury car.
She would have the driver stop a block away so she could walk the last part.

Now you have people from working areas like Linwood, lucking into a cushy govt supported career, just blabbing and showing off their flash cars.
It's a crisis of integrity and humility.

People often seem to overrate their contribution to their financial advantage and underrate the role of the supporting infrastructure and skill sets.

[klauster]

Remember, this is the damage likely in a country that will be covid free. How can other countries fare any better?

A misconception, instead of being corona-free people have to learn to live with the corona flu virus that is known since 2011. Covid-19 is a mutation - how can you prevent further sprouts in coming years?

Indeed an isolated island has the best chances to be infection free but ask yourself - why did covid-19 arrived here in the first place?

True, corana has been a trigger point but the real economic and financial problems look differently if you look the shift of power and who absorbs the wealth of the losing middle class. Is that not the end of the post WII world order?

[jack2016]

does this Aussie article appply to NZ? https://www.abc.net.au/news/2020-05-...-line/12259322

[Perry]

Hi-Ho Shafter

It may be. But the most worrying thing is the lack of 'connecting the dots.'

E.g. If LL's reduce the rent, will all the LL's opex suppliers commensurately reduce their charges?

Rates?
Insurance?
Body Corp fees? (if applicable)
Mortgage fees?
Etc., etc.

Council seems to be very reluctant, so far, going by the Hastings DC example.

Insurance coys - the same.

Banks - creaming it, big time, just later, rather than now.

Will comrade socialist Cindy come riding over the hill - cavalry-like - to the rescue?

Probably not.

[OnTheMove]

Covid-19-Saver

Anyone know what sort of roller coaster ride the various kiwisaver groups are having?
Have had?
Will have?

Going on my Aussie Super, post GFC it was horrid for 1 year, but bounced back with 15% 3 years in a row and most years have been similar since in my managed fund.

However being a Self Managed Super Fund, I can do what I want which is going Gold for a few years.

Post Apocalyptic economic crisis, I will then borrow 70% on my SMSF and cash in for 10 more years before I give up and spend my days sailing and freediving :-).

You wouldn't have any Kiwisaver would you mate?

[Perry]

You wouldn't have any Kiwisaver would you mate?

No. Never had any time for someone else managing my assets in shaky things like shares. (For a fee - win-or-lose - of course. I.e. They always get paid; I don't.)

But I do have a young friend who is quite worried, which is why I asked hereabouts. Said friend had a kiwisaver plan for a first home soon-ish, but now sees that option fading into the future, after kiwisaver became virally infected.

[OnTheMove]

No. Never had any time for someone else managing my assets in shaky things like shares. (For a fee - win-or-lose - of course. I.e. They always get paid; I don't.)

But I do have a young friend who is quite worried, which is why I asked hereabouts. Said friend had a kiwisaver plan for a first home soon-ish, but now sees that option fading into the future, after kiwisaver became virally infected.

Gotcha Pez.

Are we allowed to manage our own funds in Kiwisaver?

It is a worry as you know they are going to at least one year lose, where at least the bank covers some inflation, totally sucks if you are locked into being forced to lose money.

Another example of how far we have to go to be close to the level of Aussie Super.

Im sorry for your friend if there is no way out of managed fund into something more solid for a few years.

Don't get me wrong, Im still a fan of managed funds, if you know what you are doing and secondly its not your super annuation locked into some crappy fund with no choice over where the money goes outside of Low/Med/High risk.

Total shite sandwich.

[tim360]

No. Never had any time for someone else managing my assets in shaky things like shares. (For a fee - win-or-lose - of course. I.e. They always get paid; I don't.)

But I do have a young friend who is quite worried, which is why I asked hereabouts. Said friend had a kiwisaver plan for a first home soon-ish, but now sees that option fading into the future, after kiwisaver became virally infected.

Which is why most people need some good financial advice, particularly for Kiwisaver. If they knew they needed the money within the next 1-2 years then it should have been in a low risk fund well before the crisis hit. The higher risk funds have come back quite a bit since the initial drops, but if they get their money out now they're locking in their losses. Most providers have many different fund options and many with management fees lower than 0.5%.

[crashy]

I posted this to my Facebook group 24 hours ago (before the huge rally)

If you listen to the financial "experts" at the moment you will unanimously hear:
1. Stocks are about to crash
2. Deflation is imminent
3. Pay off all debt
4. Sell property
5. Buy precious metals
6. Hold cash

Here's why every one of them is an imbecile and wrong on all 6 counts.

1. Stocks already crashed, as I predicted. The fed has signaled that it will provide UNLIMITED liquidity into the market. This removes all downside risk, and anyone with brains will take that bet. Companies have been handed trillions of dollars in bailouts, and the fed stands ready to loan them unlimited amounts if required. These companies might be dog crap, but for now they are swimming in cash, and you literally can't lose money betting on stocks, so anyone with brains will buy this dog crap.

2. What is currently happening is money printing, and a plunge in consumer spending. Do you disagree with either statement? Here's the textbook definition of deflation "a decrease in the money supply, relative to the goods and services available to be purchased with that money supply". The money supply is INCREASING, and the goods and services are not being produced. It is therefore impossible to have deflation, and we have just identified inflation. Most people think inflation is rising prices. It is not. Rising prices are a symptom of an increasing money supply.

3. We are currently in a hyperinflation environment. We have not yet seen massive price inflation, because that takes a while to distort supply and demand, causing price rises. We have record low interest rates, and they will probably go negative. There has never been a better time to have debt. During hyperinflation, debt stays the same while everything else increases in price 10x. So if you have a house worth 100k and you borrowed 90k, after hyperinflation your house is worth 1m but you still only owe 90k. To think of it another way, your house didn't go up, but your debt fell to 9k. Are you going to say no to either deal?

4. Why would anyone NOT buy property with record low interest rates and the price of everything going up? Rents will not hit record lows, so it's much cheaper to buy than rent. People can borrow larger amounts with lower rates. You are nuts if you think property is going to crash.

5. Only idiots buy precious metals. Yeah, they go up during hyperinflation. So what? Everything does. Why would you buy something that doesn't produce an income? You could instead invest in stocks for dividends or property for rental income. Most of the idiots buying precious metals argue that you need it because you won't be able to afford food during hyperinflation. So why don't you just buy food while it's cheap? Precious metals often crash in price. Food never does. The idiots that buy precious metals sit on their losses for years, even decades. There has never been a long term period in history where gold made more money than stocks or property.

6. Let's say you have 100k cash. You can currently buy a house with that. But after a few years of hyperinflation, a house costs 1m, so you can only buy 1/10 of a house. To think of it another way, your 100k erodes to 10k. If interest rates go negative, the bank will charge you to keep your money with them, so you will lose even more. So who do you want to be? The guy who rents for $200 a week while you watch your 100k shrink to 10k and pay interest to the bank, or the guy who buys a house with only 10k, pays $100 a week mortgage and ends up with 910k equity?

Debt is money. It's every bit as real as cash. And right now, it's just digits on a screen. It used to be a reflection of someones hard work. Now it's just a number that means very little. It's printed out of thin air. Nobody had to work hard to produce a product or service to back those digits up. We have so much debt now that it's IMPOSSIBLE to ever repay it in today's dollars. The only possible way that debt can be repaid is if it shrinks dramatically, becoming insignificant. And the only way to do that is with hyperinflation. That's why it's going to happen. Because that's the only way out.

The other thing about unsecured debt, is you have a choice about whether you repay it or not. Think about what I just said. How long would it take you to save up that amount? And how long does bankruptcy last? Did you squirrel cash away in the back yard that you will spend over the next few years?

Want to tell me I'm a bad person for suggesting people not paying the banks back? Cry me a river of bailouts...

[Perry]

Where was it?

I missed something.

2. . . . It is therefore impossible to have deflation, and we have just identified inflation.

". . . we have just identified inflation."

Where? I could not see that in your post.