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The FIRE Economy

By   /  July 14, 2015  /  46 Comments

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How would New Zealanders respond if we faced a crisis of the magnitude confronting Greece today? Or that of Iceland or Ireland in 2009, or Argentina in the early 2000s?

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How would New Zealanders respond if we faced a crisis of the magnitude confronting Greece today? Or that of Iceland or Ireland in 2009, or Argentina in the early 2000s? That question is at the heart of my new book, The FIRE Economy. New Zealand’s Reckoning, published today by Bridget Williams Books.

There is a terrible complacency in this country that ‘it couldn’t happen here’. After all, aren’t we a ‘rock star economy’?  No one really believes that, unless they have vested interests in talking up the failing status quo. But it is the kind of fiction that sedates the majority of people and avoids confronting unpalatable realities.

The triggers of a crisis in Aotearoa New Zealand would be different from those in Greece, but our massive levels private – not public – debt in banks and households, and the massively inflated rural and Auckland property markets, mean we are prime candidates for a meltdown.

We have a chronically sick economy. The only way to make money is to borrow money to invest in the FIRE economy, where the creation of wealth is centred on finance, insurance and real estate. Real jobs, real production, ethical values, commitment to community – scarce at the best of times in a capitalist economy – are treated as relics of history.  Shareholder capitalism means maximising short-term returns, while running down the business, exploiting workers, hollowing out the economy and the community.

Researchers from the IMF – yes, there are dissident voices inside the IMF, alongside the reactionaries – have a checklist of triggers for recent crises. Four have been common causes since the 1970s:

  • A credit boom and rapid financial expansion;
  • Rapidly rising asset prices, especially housing;
  • Financial ‘innovations’ that rely on favourable economic conditions; and
  • Financial liberalisation and innovation.

Four were new to the GFC:

  • A sharp rise in household debt and defaults;
  • High leverage backed by illiquid assets;
  • The growth of complex derivatives in the shadow banking system; and
  • The depth of international financial integration.

New Zealand ticks almost every box.

As things stand, we would be lambs to the slaughter on the altar of austerity. Why is our economy so vulnerable? How have we become one of the most indebted affluent countries in the world?  Why have successive governments run down the productive economy and made us dependent on an economy of FIRE? Does it have to be like that? What are the barriers that lock us into that regime, and obstacles do they pose to a progressive post-neoliberal transformation?

Antonio Gramsci wrote from his prison cell, when observing the turmoil that enveloped Mussolini’s fascist regime, that when the old system is dying and the new is yet to be born, morbid symptoms of crisis appear. Change brews over years, even decades. The interregnum creates opportunities, but there will be resistance and forces that take hold can be regressive or progressive. We need to shape that future.

Waiting for Armageddon is hardly a progressive strategy. It makes much more sense for us to confront our challenges now and begin to shape a progressive alternative than to battle over models in the midst of a crisis. We will be caught up in whatever dynamics are unfolding offshore, but we can be part of a progressive movement that aims to achieve a post-neoliberal transformation.

In The FIRE Economy I argue that paradigm change cannot be conceived of piecemeal.The book sets out six pre-requisites to a progressive post-neoliberal er and the barriers we need to confront to achieve them: a new socially just economic model; momentum around an alternative ideological orthodoxy and ethical platform; rethinking and reconstructing an active and democratically accountable state; dismantling and reframing the policy and regulatory paradigm of neoliberalism; the political will to embark on radical change; and popular demand, backed by a sense of urgency, for transformation.

 

The launch for this book is here tonight.

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46 Comments

  1. Helena says:

    “Give me control of a Nation’s money and I care not who makes her laws”
    Mayer Amschel Rothschild

    Then humiliate that country (Greece) by telling them that they can’t be trusted.

    Time for us to all agree that all wars are bankers’ wars.

    It’s time for us to act and change things now!

    • Cagey says:

      Does anyone else think that the way that Greece is described by our media is much the same as how the poor in society are described?

      Bloody Greece and it’s trinkets, eh?

  2. gypsy says:

    What a depressingly inaccurate picture you paint. Let’s just deal with one of your erroneous claims:

    “How have we become one of the most indebted affluent countries in the world? ”

    Well, we haven’t. There are many affluent nations with higher debt to GDP ratios than NZ, including Japan, US, Singapore, Belgium, Switzerland, Holland, Canada, Germany….
    Here’s the full list…http://www.tradingeconomics.com/country-list/government-debt-to-gdp

    The truth is our economy is remarkably resilient, we have moderate levels of Govt debt, and, what very few other countries can claim, a balanced budget.

    As a nation we make our income from a wide range of goods and services, including dairy, meat, tourism, technology, etc etc.

    The economy you describe is not one I do business in. It sounds more like the command economy of the Muldoon era, that thankfully Labour kicked to touch for good.

    • …we have moderate levels of Govt debt…

      That is so far from the truth as to wonder where you’re getting your information from.

      Government debt stood at $18 billion when the Nats took office at the end of 2008. It is now a colossal $60 billion. Much of National’s borrowing has been used to fund two unsustainable tax-cuts – essentially paid for by overseas lenders.

      Source: http://www.interest.co.nz/Charts/Government/government-debt

      Household debt is even worse, as we fund ou housing bubble with billions borrowed from offshore; http://www.rbnz.govt.nz/statistics/key_graphs/household_debt/

      There is nothing “erroneous” about these facts. Not unless Treasury, the RBNZ, economists, etc, are all lying.

      We are in deep debt. We’ve just masked our parlous situation better because of our exports (and our dairy sector has just taken a major hit).

      The truth is our economy is remarkably resilient…

      Remarkable how that sounds similar to phrasing used by Steven Joyce, Bill Englsh, et al. Same script writers?

      • Byron says:

        NZ actually does have moderate levels of public debt RELATIVE to other OECD countries. Private sector debt is where NZ stands out, which Jane clearly states. Your use of nominal/gross figures (i.e. $60 billion) is where your problem lies. It should be looked at both relative to the size of the economy (as a % of GDP) and, more importantly, in net terms (i.e. with the $60 billion offset against government assets). These measures provide a more accurate measure of the public debt burden in terms of serviceability and actual size than raw gross figures.

        • Blake says:

          Paint a fictional economic rosy picture, Byron, after we have a huge deep sea oil rig disaster and tons of oil is dispersed into our seas ! or another unexpected disaster or huge accident.
          Your fuzzy logic defends your lying master yet does not serve us and supports the continuation of take and take and take and putting profits before people. Your govt. led by mostly wealthy white men is slowly turning us into another Greece instead of the people rising up and slowly working towards what Iceland has accomplished. That being putting these corporate crooks and fuzzy logic propagandists and criminal politicians in prison. If Iceland can get more economically healthy and move towards lessening poverty and growing peace and sanity, we can too.

          Want another helping of your rock star economy for lunch?

          • byron says:

            Blake, you clearly misunderstood my post. I was pointing out a problem with a measure of public debt quoted by frank. None of what I said was untrue and completely accords with jane’s thesis. That is, this country’s main vulnerability is pte sector debt, not public debt.

      • gypsy says:

        I provided a cite to where my information comes from. Any analysis of Govt debt is meaningless when expressed in $$ terms, and when expressed in isolation from the global economy.

        • Blake says:

          gypsy, any site or link can provide any array of biased and untrue information and researchers and statisticians are often owned and controlled by those they represent. Much of the research data that is coming out is just garbage and twists the truth to defend whomever is paying them and financing the research.

          So just because you are referring to some info online – does not make it true or accurate or depicting the realty of any given topic.

        • Any analysis of Govt debt is meaningless when expressed in $$ terms…

          I must remember to tell my bank manager that, Gypsy.

          If that is your impression of an apologist for this government’s mishandling of the economy, it’s fairly pathetic.

          Prof Kelsey is pretty much on the much when she states;

          Four were new to the GFC:

          * A sharp rise in household debt and defaults;
          * High leverage backed by illiquid assets;
          * The growth of complex derivatives in the shadow banking system; and
          * The depth of international financial integration.

          New Zealand ticks almost every box.

          I would add to that, a sharp reliance on commodity exports (highly vulnerable to price falls in international downturns) where we risk becoming price-takers rather than price-setters.

          Australia is a case in point.

    • Stuart Munro says:

      I see that you are heavily invested in National’s primary economic policy – wishful thinking.

    • Jane Kelsey says:

      You have engaged in the standard neoliberal elision – i am talking about total NZ debt, especially foreign debt, not government debt. The privatisation of debt and the reliance of the NZ economy on debt driven consumption and wealth creation through speculation with borrowed money is what has left us with a level of debt that is among the highest in the OECD, at a level both IMF researchers and the Bank for International Settlements says leaves us highly vulnerable to a crisis.

      • Gosman says:

        Private Debt is majorly different to Public debt. This is something you should be well aware of. New Zealanders can default on private debt quite significant;y without it impacting on our overall economic position. What will likely happen is that the lenders will either take a hit or sell any collateral asset associated with the debt. Sure the economy may well suffer but it is not like Greece who cannot raise any more funds if they decide to default on their public debt.

        • ThinkAboutIt says:

          “Quite significantly” is a very woolly boundary.
          Given the level of NZ private debt, the high level of leverage as a result of the housing and agricultural price bubbles (given the drop in dairy returns many are dangerously leveraged) the number of defaults given a moderate increase in lending rates without an accompanying rise in incomes would become “quite significant” very rapidly.

        • adam says:

          What are you talking about Gosman? I’m confused by your lack of understanding its people we are talking about, not abstract things.

          People can’t just default on private debts – apart from the obvious illegality of defaulting on student loans. But lets put that aside shall we, to make is simpler for you. A private citizen defaulting on debt in this country is quite a difficult process to go through. First you have to prove you can not pay your debt, easier said than done. Then if that becomes the case you may go through a “non-asset procedure” if you qualify. If not then you get assessed and audited. This is before you get to court to get decleared bankrupt or as you say defult on you debt.

          Do I need to raise the cultural issues around going bankrupt? Or the pressure that come from being a defaulter? Issues around masculinity? Or issues of class in relationship to defaulting and bankruptcy? You may be middle class and white Gosman, so I get you don’t think about these as part of the issue – but let me remind you that they are. And they make it more difficult to as you say – default.

          Your throw away comments, again puts you off side with humanity and show you think in abstracts – rather than in the real world. That’s fine your welcome to be stuck knee deep in ideology – god knows the left have a history of it. But the reality is private debt on a national scale we have is ticking time boom, precisely, because of the opposite of what you said. Private debt is more insidious -because it is difficult to get away from, plus it comes with a hell of a lot more baggage.

        • Private Debt is majorly different to Public debt. This is something you should be well aware of. New Zealanders can default on private debt quite significant;y without it impacting on our overall economic position.

          Are you serious, Gosman?

          Have you forgotten that the GFC was sparked, in part, by massive numbers of mortgage defaulters in the US resulting in the collapse of Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation)?

          The Bush administration yesterday prepared to take over the troubled housing finance companies Fannie Mae and Freddie Mac, after concluding the companies don’t have enough capital to continue to play their crucial role funding home mortgages…

          http://www.washingtonpost.com/wp-dyn/content/article/2008/09/06/AR2008090602540.html?hpid=topnews

      • Byron says:

        Thanks Jane. I think you just trumped the PhD thesis I am about to submit 🙁

      • ThinkAboutIt says:

        An accurate assessment.
        What is extremely worrying are the affordability ratios.
        At some point the long run of very low interest rates will begin to return to “historically normal” levels. There are signals that give the current track of the US economy the US federal Reserve is likely to start raising rates at the end of the year.
        Some appear to be suffering under an illusion that the RBNZ its the sole setter of NZ rates via the OCR – this is an illusion. When, not if, the international rates begin to rise NZ will have to follow.

        • Nitrium Nitrium says:

          I’m not wholly convinced interest will rise in any significant way, in the US or elsewhere. “The West” is effectively caught in the ZIRP (Zero Interest Rate Policy) trap in much the same way that Japan has, in that any appreciable rise in rates will instantly detonate the Ponzi scheme of “unlimited” credit that is now “required” in order to “stimulate” the economy. We’ve become hooked on cheap credit, and the world’s central bank’s interventions have all but destroyed a healthy market’s normal interest rate discovery mechanisms. It’s an incredibly worrying development that I suspect will continue for quite some time until it inevitably catastrophically unravels at some unknown future date.

          • ThinkAboutIt says:

            You may have a point but never, as they say, is a long time.
            The “Ponzi” scheme analogy is a good one which I shall use elsewhere.

    • Blake says:

      What rock are you national supporters under ? Stats are one thing, gypsy and they can be construed any which way but the proof is in the pudding. Look around – hear the people; see the poverty and homelessness and inequality. GDP means very little if the quality of most peoples lives is in the dumpster and the suicide rates and depression in the lower 99% worldwide is skyrocketing. Capitalism has failed miserably and we need a new and healthy paradigm and that solution, I feel, dwells outside the failed and ineffective two party system. Fresh ideas; aware ethical leaders and new solutions are needed fast. Kicking out the corporate control of our government and media is a first very good step. Then putting people before profit is up there as well. Iceland – Iceland – Iceland ! ! ! !

      Try checking out Noam Chomsky for a bit of reality and sanity dealing with economics and world politics.

      • Dennis Dorney says:

        GDP is a useless measure of wealth anyhow. GDP measures the total value of all goods and services produced, regardless of whether those goods are beneficial to the economy or not. Crime is great for GDP because the cost of administrating our judicial system must be hugh and stolen goods need to be replaced. This shows up as a positive to GDP, but is crime really a plus to our economy?
        Also things that are unwaged but are clearly beneficial (volunteer work for instance) dont show up in our GDP and things that are highly destructive to our nation, such as environmental degradation, and which have a real cost also aren’t included.
        We dont just need a change in attitude towards ‘wealth’, we need better ways of measuring it.

    • wild katipo says:

      If you had paid attention you will have noticed that she was talking about PRIVATE DEBT – not govt debt for a start.

      You also mention about dairy …

      Dairy ???!!!

      Are you kidding ?

      Another dweller of the toilets , I presume ?….do you understand whats been happening to the price of milk powder lately ?

      China ring a bell , does it not ???!!!

      And technology ???

      After 35 years of denigration of industry’s in favor of relocating ‘ technology ‘ to offshore destinations whereby labour is cheaper?

      You dare to mention our dead manufacturing base and then in the same breath ‘ technology ‘ ???!!!

      L00L0L0L0L0L !!!! come back again when you’re sober , mate.

      • gypsy says:

        Dairy…yes Dairy. A major export earner for NZ. Terms of trade change, but they will bounce back, as they have before. In the meantime care to explain how without the affluence created by farming throughout the good times we would have paid for the welfare system I’m sure you are a fan of?

  3. esoteric pineapples says:

    Definitely a new progressive social and political paradigm needs to and is emerging, with the future of the planet at stake. But the danger is that it will soon be impossible for it to successfully challenge the status quo, such has been the speed of technological developments in the realms of mass surveillance and new military weaponry like drones etc backed by the wealth of those who stand to lose from it.

  4. Blake says:

    Thanks again Jane for another brilliant piece of work. You are greatly appreciated and your efforts are inspiring.

    Waking up from a mind field of untrue propaganda is a challenge.

  5. J S Bark J S Bark says:

    Goodness Jane! You seem to enjoy putting your hands inside wasps’ nests!

    The neolibs really have no sense of humour when their sacred cows are nudged aside (or even revealed!).

    It’s a good and interesting blog, though it does feel at times like a book review!

    I shall put a few shekels aside from my benefit and get a copy. This needs looking at carefully and being digested. My brain ain’t quite so agile, especially with economics.

    Good luck with the book.

  6. Ontheup says:

    hopefully if Greece sues both the IMF and Goldman Sachs, things might begin to change – but I wouldn’t hold my breath, I’ve been doing that for 30 years now ever since 1984.

    • Gosman says:

      Suing the IMF, mnow that is funny. Who pray tell would rule on that issue considering the IMF is a multilateral organisation on the same scale as the UN? Wouldn’t you need another multilateral organisation and if so couldn’t the IMF just refuse to recognise the authority of said multilateral organisation who is unlikely to have any enforcement mechanism.

      • So, what you’re telling us, Gosman, is that the IMF is beyond the law?

        Hmmm, no, I think not.

      • wild katipo says:

        Watcha talkin bout Gosman ???!!!

        Don’t they do DIRTY POLITICS over there like Premier KEE does here in New Zealand ?

        Sure you could sue the IMF if we employed the same tactics as Premier Kee does to the opposition and individuals like Mr Kim Dotcom. Sure we can sue em.

        Question is…do we really want to sink that low ???

        Or pull pony tails….

      • Mike in Auckland says:

        Dear Gossy –

        Have you heard the news? The IMF has condemned the conditions of the 3rd “rescue package” the Eurozone leaders and European Commission forced upon the Greek government and people to “agree” to!

        So having read your condescending comments on the Greeks and their troubles, at other times defending the IMF, where do you stand on this now???

        • Gosman says:

          Ummm… what are you meaning ???

          I have neither attacked nor defended the IMF in relation to Greece. I’m stating the idea of someone suing the IMF is laughable. It seems like many leftists you don’t really understand what the IMF is.

  7. Korakys says:

    My brother already has your book and I’ll be looking forward to reading it after him. So far his only report is that it is ”pretty dense”, thankfully I’m a bit more familiar with the FIRE situation than he is.

  8. Richard Christie says:

    FIRE yes, but what about the traditional NZ stupidity of relying on raw produce: dairy, frozen carcasses, wool and pillaging our natural resources for non-value-added return.

    As reliant on that as ever, in fact it’s got far worse viz dairy.

    FIRE is just latest development grasped at in recent decades to mask the true horror of our unbalanced economy.

  9. Mike in Auckland says:

    An economy that only really “grows” due to an earthquake rebuild, due to unconstrained immigration, and due to overseas “investment” in housing adding demand (seen especially in housing in Auckland), is a house of cards always about to be blown down any time.

    There was all this credit fueled growth about ten years ago, bold claims we would have endless growth for years to come, a shortage of labour and bla, bla bla, and what happened in 2007/08?

    We now have a government that has been feeding us the “rockstar economy” BS, and that we are doing just fine, with virtually insatiable demand for milk powder and baby formula, and other low end products from Mainland China. What is happening right now?

    Dairy boom to bust, some up north desperately digging up old swamp Kauri to turn into some quick bucks, forestry workers risking their lives for more “output”, our fish being caught by foreign owned and operated vessels, raping the oceans.

    This cannot continue any much longer, we will not be protected from something similar to what say Argentina suffered not so long ago, and may suffer again also shortly.

    As mainly still an agricultural exporter, and a tourism and education services exporter, and only some smart business ventures at a rather small scale, NZ is just ticking along, not steaming ahead.

    Joyce the Casino friend, he has turned the whole country into a gambling den, not much better.

    This book sounds very interesting, I will see how I can spare some cash to buy it. Thanks Professor Jane Kelsey, at least you are one voice of reason in the crowd of blinded, who have fallen for a charming prince of lies, given him a third term to sell us out.

    Where will it all end?

  10. DouglasRenwick says:

    FIRE comes out of the institutional goal of capitalism to maximize profit. From 1945-1975 the economy profited from the WW2 rebuild and expanding productive capacity, as well as a few other things. But the real economy couldn’t increase profits once the production capacity reaches a certain threshold. So now the economy is supported with debt fueled speculative bubbles, and whenever those bubbles crash the public pays the cost. the financial institutions in America have shaped the government to their own interests with over $5billion spent on lobbying.

  11. Pete says:

    How would New Zealanders respond if we faced a crisis of the magnitude confronting Greece today? Steven Joyce, Gerry Brownlee, Bill and john would simply change a few lines of their daily prayers.

    You know those nightly down on the knees sessions where they thank their God for the Christchurch earthquake and pray for more of the same.

  12. elle says:

    When the house prices started to rise in Auck because Chinese buyers came in and pushed up the prices, that’s when our own people had to borrow more and more.
    In USA house buyers were encouraged to buy houses they couldn’t afford,when they couldn’t pay the loans they were made homeless,its very likely to happen in NZ ,yes other people from overseas buy our houses have been for years,but they don’t usually have the buying power of Chinese, they can outbid most people.
    Jane is exactly right what happened in Greece could happen here.
    Public debt rises because we borrow money from banks,
    foreign owned banks belong to the same source as our government debt . The lender is the same ,so the debt is the same.
    Imagine if the government told the banks the private debt is nothing to do with government. Government by their policies create public debt.

    The fact that this problem is the same all over the world, its pretty obvious that the same people are creating the problem ,the banks and corporations.
    There is an excellent article about agenda 21 at Rema Marketing ,google it , it quotes a bit from the bible but the story is im sure true , the agenda is exactly what is happening worldwide, just look at the big picture.

    6-5=1 capcha

  13. Helena says:

    Did anyone in John Key’s Government tell us that we were members of The Club of Rome – Committee of 300?

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