The government has authorised Housing NZ to borrow $2.9 billion to build more state houses. The objective is, of course, a worthy one. But “we” the taxpayer-owner of Housing NZ will end up
paying millions of dollars more money servicing those loans that “we” need to.
The reason for that is that Housing NZ will pay a higher interest rate than the government would have had to if they had borrowed it directly.
The government “couldn’t” borrow directly because they had imposed an arbitrary limit on themselves that belongs in the realm of voodoo economics rather than science.
Some people have called for us to relax our borrowing rules or simply spend more. We won’t.”
– Jacinda Ardern to the Westpac business breakfast, Auckland, August 28, 2018.
Yeah, nice in theory but in practice we’ve got really low quality price signalling that can screw this. So the government borrows for housing and Mike Hoskings loses his shit, they borrow for welfare and the entire commercial media cyclops goes into collective WTF syndrome, try and borrow for infrastructure and all of a sudden all these risks magically pop up. But if borrowing for the Christchurch City rebuild its all cool like.
Journalists and politicians. They can’t admit they were wrong about anything, lest their rent seeking opportunities disappear due to upsetting their masters. Hard money will benefit poor people more than any social justice program or well-intentioned charity ever will. Governments will make gigantic mistakes that ultimately doom them because they are centralized. Bringing along the people who voted for you, with you, has lots of small failures but will ultimately become more antifragile as a result.
The irony. Labour has long opposed, on the grounds of a greater cost to government, private funding of various projects, transport, prison, school buildings etc with the government paying later for this, and or leasing.
Yet their dual caps, debt and spending, mean they either do less or resort to similar means – and at greater cost to government than the derided “borrowing and spending”.
They could do more to distinguish between capital and other spending, and reference to debt to assets/asset types, rather than just GDP. So they could build up the number of state houeseas as affordably as possible, without any negative connotation.
Grant Robinson is a neo-liberal not really a true labour Party icon as Michael joseph savage was sadly.
Robinson believes in serving the big banks and financial oligarch’s instead of using the Government’s own “Reserve bank act” as Labour Party founder Michael Joseph Savage did in the 1930’s to dig NZ out of the worst depression in our history.
Sovereign Money: The Precedent Set by Michael Savage in 1936
Grant Robinson is setting us up for another “Greece” style failure come the next Global Financial crash abut to arrive this decade.
Fools the lot are, they did not learn anything from history.
https://www.eventfinda.co.nz/2018/sovereign-money-the-precedent-set-by-michael-savage-in-1936/new-plymouth
Maybe. A chunk of New Zealand’s public liabilities is intragovernmental, i.e. government funds investing in each other. Most of the governments debt is in the form of non-tradable bonds held by the Reserve Bank, our Social Security equivalent (except individual retirement accounts instead of PAYG). The Councils also hold large chunks of intragovernmental debt, but no where near the scale of the government (since it takes funds from general tax revenue instead of being fully funded by individual savings). Thus the government has negative net debt — more is owed to the government by external entities than it owes.
The rub is that government finance is extremely complex and subtle. The quantity of debt does not matter by itself. What matters is who is holding the debt, what interest rate they charge, when they want their money back and what currency the debt is in, i.e. counterparty risk, interest rate risk, duration risk and currency risk. Japan has public debt approaching 200% GDP, yet is sustainable because all these sources of risk are under control (supine heavily regulated counterparties, zero or negative interest rate, long duration, and own currency). The European PIIGS have much lower debt and are in crisis because the risks are uncontrolled (hot money investors, unsustainably high and rising interest rates, short duration, and currency under external central bank control).
The situation in New Zealand resembles Japan’s more or less, so I guesstimate that it can sustain at least half the level of debt the Japanese can, until the situation changes — 100% GDP is roughly a 5x increase of current debt to $100 billion or so. But as I eluded to earlier. Who gets to decide who spends this money, voters, Politicians or journalists. Each one will have vastly different priorities and I suspect no one will agree.
Reminds me of Douglas’s era when to address a debt of $12B or so incurred by Muldoon they called our assets SOEs and separated them from the government account, and transferred the debt to them; pretending that they had reduced government debt. But in the meantime govt debt went up to about $80 B anyway.
First they assured us that the SOEs would remain in State hands but be run more efficiently along commercial lines. Then Prebble told us that anyone who couldn’t see that they were set up for sale was stupid.
Is this what will happen to the new houses?
D J S
It’s time we stopped blaming Grant Robertson for this – if he does what we want (which is totally the logical thing to do). The markets and business community will attack the economy. If we want this to happen we need to create a popular movement so Robertson is left with no choice. I imagine he’d love to say to the corporate elites that he’d like to do what they want but the people are leaving him with no choice.
Well said AARON
It’s time to start a ‘NZ Peoples Shared Economic Movement’ (NZPSEM)
Can you arrange a website on a social resourcing site like ‘give a little’ to begin funding for our chance to start the movement please? as i am in this this 100%
How’s that popular movement working out in Venezuela?
Thus let us remember Grant Robertson is doing a standard job which isn’t difficult thing to do when John Key sold his family home in New Zealand to foreigners so we know what to expect from an opposition seething with guilt.
More Kiwi greed and business stupidity:
https://www.newshub.co.nz/home/new-zealand/2018/09/chinese-giant-alibaba-lists-south-island-destination-on-its-travel-service.html
Ask the common voter debt slave, they will put more ‘trust’ in Nats, of course, as usual.
In the event of Winston’s predicted Big Crash, Grant & co will have plenty of ability to borrow which will then be viewed as good planning.
Comments are closed.