The coming checkmate of capitalism moment: Understanding how the new Government was birthed & who they should save when the economic meltdown hits

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I studied the global financial crisis of 2008 when I was at University for some post graduate studies and it has been a fascinating journey of capitalism in denial.

What is most interesting about where we are today is that NOTHING central banks in the West did to avoid economic apocalypse in 2008 has done ANYTHING to stop the next implosion.

And the next implosion is not only coming, it will be far worse than anything we’ve experienced before.

The failure of neoliberalism has been looming for sometime, but the questions we should be asking as the global economy continues to dance spastically on the lip of the volcano is what does this mean politically for New Zealand and what should the new Government look to do as a response.

 

GFC Legacy

TDB Recommends NewzEngine.com

Like any GFC geek, I stayed up late last week to watch the CNBC 10 year special with Pulson, Bernanke and Geithner reflect on use how close the entire international banking system came to total systemic failure. Even here in NZ we saw the potential of NZ running out of cash in ATM machines, in his book ‘Crisis‘, Former Reserve Bank Governor, Alan Bollard, points out we were weeks away from a total crash of liquidity.

What was interesting about the CNBC special was how limited the same tools used then would be in trying to see off another collapse now.

Central banks around the world responded to the Global Financial Recession by printing billions and pumping them into stocks and bonds. This falsely created the lowest interest rates in 5000 years. The entire last decade of growth has been built on hope wrapped in snot.

The legacy of the GFC was that it transferred the private loss of capitalism to the nation states themselves. Huge debt now over hangs every developed nation and as the interest rates move up, developing markets get crushed and the debt drenched economies with over inflated stocks and assets crash.

The ticking time bomb that could trigger a new financial crisis

Soaring global debt has analysts predicting next big crash

Italy edges to recession as it readies for EU fight

Ten years after the global financial crisis, Alan Bollard warns of new risks

A decade on from the GFC, the world is less equipped to cope with the next crisis

The next crisis is still lurking in the financial system: ‘We never addressed the root cause’

Comment: Think 2008 was bad? Next crash set to wipe $15 trillion off stock and property markets

So back to the question at hand, with an economic depression looming what does this mean politically for New Zealand and what should the new Government look to do as a response.

To answer that, we need to reflect on the birth of this new Government.

 

The break down of the 12 day new Government negotiation:

Labour Party strategists during the 12 day negotiation unable to explain why the fuck Peter Dunne is trying to hang out with them. Most pictures say a thousand words. This one says 3, ‘fuck off Pete’.

I was privileged enough to be talking with those involved in the negotiations and added my 2 cents worth when required and the entire behind the scenes machinations deserve to be made into a film one day.

First 5 days: Winston is convinced an enormous economic crash is coming, Labour Party Mandarins in Wellington freak out at how much Winston wants to change the neoliberal hegemonic structure of the country. Do everything in their power to set uncrossable lines so as to spike the negotiations. NZ First are confused and are privately left wondering if Labour are serious about forming a Government. Openly let Labour know they have no problems with Greens joining into make numbers. Still no response. National are convinced all they need to do is offer Winston the right price.

Next 4 days:Sensing no real appetite from Labour to fundamentally challenge neoliberalism, starts leaking that Winston hasn’t actually stipulated what kind of Government he actually wants and the horror that he’s considering the cross benches causes vast depression. Rumours circulating that National are just opening their chequebook and have offered Winston most of Western Civilisation in return for support.

Final 3 days:Suggestion is made that because Labour can’t out bribe the National Party, they should appeal to Winston’s real passion which is dismantling Neoliberalism. Wellington mandarins are pushed aside and stakeholders talk face to face.

To understand what the new Government might do in an economic depression, you need to appreciate the circumstances of its birth. Winston is old enough to remember a NZ that wasn’t free market and he knows this is his last throw of the dice to change that. He believes a huge economic crash is coming and wants to use that opportunity to make those changes.

I argue that he should.

 

Economic Armageddon & who the Government should look after:

With all the conditions ripe for meltdown it’s a question of what will trigger it. China’s shadow banking, Trumps Trade war, Brexit in early next year, Italy going into free fall.

Once triggered though, interest rates climb while stocks and property valuations crash, in NZ Kiwis would suddenly see their Kiwisaver accounts evaporate while their houses crashed in value but cost far mote to debt service.

This will be crucify many and they will turn to the government.

What should the government do? Once the event is moving, Grant can dump his budget restraints nonsense and borrow to keep NZ afloat. Luckily for us we have one of the lowest public debts around and have room to move that other Governments won’t. With that extra money, I suggest creating two lists – those you save and those you allow to burn.

Dairy Farmers: They are up to their eyeballs in debt from dairy intensification. To get them to agree to helping everyone else, you need to help them and this could be a once in a  generation move to get them to change their allegiance to National. Underwrite all Dairy farm debt on the agreement that they revert from Dairy to planting forests.

First home buyers: You can’t leave them for the wolves of the Market, under write their mortgages through Kiwibank.

Mum and Dad’s investment property: You can’t wipe out an entire generations wealth base, again underwrite one property over the family house through KiwiBank.

Corporations: Fuck em, let them burn

Banks: Only save Kiwibank, the others can burn.

Property Investors: Anyone with more than a family house plus one property investment can burn.

Tax amnesty for small and medium business: They are the ones who will suffer the most, allow a tax amnesty with the usual penalties cancelled.

Welfare: Everyone will be scrambling for some type of welfare, it will need to be increased, and the draconian punitive crap dumped.

Immigration Freeze: We will need to freeze immigration at a time of economic crisis because everyone will be fleeing.

This next collapse will shape NZ for the remainder of this century, this is to be Winston’s final battle and Jacinda and Grant have the smarts to make it work.

If they don’t, we are all fucked.

19 COMMENTS

    • It’s a catastrophe. It’s way worse than people think. We’ve had an expansion of credit for 70 years since 1947 to 2018. For the first time in 2008 we had an reduction in credit. The top 200 financial houses of the world has had a cut in value by around an average loss of 80%. We’ve gone through a bull market since 1982, in New Zealand about 1984 in the stock market and housing market to 2018. The IMF has got to go, the WTO has to go and we have to construct new political frameworks in order to manage trade.

      New Zealand is a far superior society to that of America. We don’t shoot people because we’re scared. We have universal health care and education and no ones trying to blow up the Sky Tower. If you look at U.S, U.K, France, Japan, and the rest of the G8 or G7 (if they can be bothered with Russia) They all think that they’re still great empires. And there’s no way New Zealand or China is going to hand over control of its currency and political fortunes to the Washington Consensus based, U.S based institutions. So unless there’s a complete reset, a totally new Breton Woods Agreement that pegs the New Zealand dollar to something that people trust then we aren’t getting out of it.

      At the heart of the government you need competent ministers that understand what everything costs, has total recall in their particular field, can make a contract an can honour it. Starting with the god dam treaty.

      • Mum and Dad’s investment property: no they paid far to much for them they be lucky to keep the family home a lot so called mum and dads have used the family as an ATM
        there part of the problem let them burn

  1. “The legacy of the GFC was that it transferred the private loss of capitalism to the nation states themselves. Huge debt now over hangs every developed nation and as the interest rates move up, developing markets get crushed and the debt drenched economies with over inflated stocks and assets crash.”

    Waiting for it all to unfold, prepare for the food banks, the social networks (if you have any), survival of the fittest skills, e.g. going bush and so, few are prepared in a largely urban society now, keen on take aways, lattes, easy and cheap goods made by slave labour elsewhere.

    I really mean it, get ready for NO cash from ATMs, get ready for NO money from WINZ, get ready for landlords putting you out on the streets, get ready for gang warfare, riots, looting and so forth.

    It will be a nasty situation, once the system collapses, you need organised solidarity upholding groups, you need to organise, but so many are deluded into narcissisim and selfishness, forgetting they are flesh and blood needing basic supplies grown by nature to survive.

    The supermarket shelves will eventually be bare and empty, where will you get your food from. Farmers will demand payments, at the gate even, if you cannot, they will shoot you if you dare steal from their fields.

    That is what capitalism and its collapse will look like.

    Who is prepared?

  2. Here’s my version…

    ——–
    Dairy Farmers: Nothing can save them. Once the wheels of globalism start to lock up, we won’t be able to give milk away. Farmers can sell farms to the government, to be converted to food farms for local consumption only, and they can stay on to work them. Otherwise good luck.

    First home buyers: All underwater family homes can be sold to the government as national housing stock at pennies on the dollar, and the banks should be grateful to get it. The former owners stay on as tenants. Introduce a new Rent Control regime, to avoid tent cities springing up like mushrooms.

    Mum and Dad’s investment property: No, their investments can’t be saved. Their flirtations with Feudalism were a massive multi-generational drain on the economy. They can keep the family home. The banks will have to wear it. This has to be the policy in all cases – only the family home can be saved. All other investments must be written off. The opportunity for Bankruptcy will be a blessing. Set up “robo-bancruptcy” courts, and get it over with. Let people move on with their lives, stop stalking them till death.

    Corporations: Fuck em, let them burn. Bring marshmallows.

    Banks: Only save Kiwibank, the others can burn. But turn Kiwibank into a quasi-Credit Union, so that all New Zealanders are literally part owners and receive dividends.

    Property Investors: No, anyone with more than a family house can burn. As soon as you say, “plus one”, you immediately drive NZ Home Ownership rates down to 50%, and prices start going right back through the roof, recreating the entire cycle! No! Houses are not businesses or investments! In a fair and equal society, everyone can’t have “plus one”, that’s impossible, do the math. No one should “need” an “investment property” if resource revenues are shared, pensions are restored and residential properties are affordable, and used exclusively as homes.

    Tax amnesty for small and medium business: Amnesty. And while we’re at it, why do we still collect taxes like the Romans did, as if we still used gold? If governments can bail out banks by magiking up money, then governments can just as easily issue all the money they need to run the country responsibly, without borrowing, and without an elaborate tax system. We need to finally admit that the only people who pay taxes are the middle class, the working class and the poor. We also need to admit to ourselves that the actual reason for the current tax system is to maintain the hegemony and keep workers from accessing Capital at wholesale rates like the rich do.

    Welfare: Finally, make companies pay royalties on all NZ natural resources mined, sold and used, and pay part of those royalties to the people, like they do in Alaska. The other part, place into a national development fund to pay for training and education and infrastructure to ensure the development of our resources, to preserve their value for all future generations.

    Immigration Freeze: Freeze immigration, allow emigration.
    ——–

    Of course sadly, none of this will ever happen, because we are not a Sovereign nation. We will discover to our horror that we are far more in debt than we ever knew, and what happened to Greece will soon be happening to us.

    The real bottom line is, will we have the courage to repudiate this debt, and become financially independent?

    In other words which road are we on, the road to “Athens” or the road to “Reykjavík”?

  3. Martyn, your link talks of the lowest interest rates for 5000 years , not the lowest inflation rates. The result is cheap money added to QE that is driving up real estate prices, shares and bonds, not to mention derivatives like never before.
    Just how the apparently inevitable crash plays out , or when, is a bit of a puzzle to me at least. It should have happened in 2008/9. QE arrested it. Creating unlimited volumes of fiat money to fill the void formed when anunpayable debt bubble burst had never been done before. Fiat money is created all the time by reserve banks as a management tool, but in relatively small amounts and not previously as a massive rescue operation.
    Temporarily it has arrested the collapse that would have occurred if it hadn’t been done.
    Now that it seems to have worked without the sky falling it is established as a tool to use more freely in the future ,and according to this
    http://www.informationclearinghouse.info/50258.htm, are doing so in ever more adventurous and profitable ways.
    I have thought a crash must still be coming as the QE wares off without doing anything for the real economy and I have read lots of experts predicting it as does that link. But I have not read how or when, or what will exactly make it happen. The reserve banks now seem prepared to quietly enter the stock markets themselves with fiat money, either directly or through proxies. Not even only to prevent a bear market, but in good times to make profits for their private shareholders which according to the link actually own or partially own the reserve banks that we imagine our governments own on our behalf. But if the act this way in the future whenever a major market is threatened by a run, and just feed money into it in whatever quantities are needed to keep prices stable of rising, what can stop this going on indefinitely.
    What I can see happening is the wealth so created , and it is being created in as much as we all have to use the same money to buy our food, but most of us have to earn it by providing some service to society. But what we can earn will remain more or less static or reducing while more and more of the same stuff is being created to feed into the participants , the beneficiaries of the market rescues and speculators. This buying power will become more and more an imperative to invest in something real but not anything to sell to society as there is no money to be extracted from society, it will all be in speculative markets. So all real assets, farm land, houses , water, will as a secondary investment for those in the game become priceless to the rest of society that uses and needs them.
    It will not be going into the hands of government any more than into the hands of us. It’s us the government gets it’s money out of, and we won’t have any. So without an extreme takeover by government of the actions of the banks, at least the reserve bank in each case , they won’t have the power to provide anything. Health services will be available only to the few , schooling only to their children and housing will be increasingly inadequate.
    So my thinking is now that the whole stack will not collapse for the fewer and fewer enormously wealthy end ever wealthier but only for an ever growing proportion of us, with the plight of the poorest becoming ever more like it is for the people of Yemen , but everywhere. A little book I bought long ago called “Poverty and the Planet” describes how in nearly every famine situation, people starve to death not because there is not enough food to feed them but because they cannot establish any right to have any of it. There had always been enough if it were evenly distributed.
    Thats how I think it will go. That’s how it is going.
    Nothing good will come for most of the world’s population, including in New Zealand until the money supply comes back under the firm control of responsible , courageous , cognitive elected government. The power to control the world’s wealth without industry or effort is not going to be relinquished willingly. It won’t fall into any government’s lap.
    D J S

  4. Capitalism runs on oil and coal (which is why nothing meaningful is done to address emissions).

    Maintaining current living arrangements in NZ requires the importation of huge amounts of oil. One week after imported oil stops arriving the urban sector of NZ society collapses. Without cheap fuel, people will be unable to get to work or obtain food. Supermarket shelves will empty and deliveries will cease.

    Without diesel, the collection of milk from farms ceases. Without petrol, operators of processing plant will be unable to get to work. Shortly after the urban sector has collapsed, the rural sector collapses.

    Therefore, The Powers That Be will ensure that there is no interruption to the supply of oil and will do whatever it takes to maintain current global financial arrangements…until they can’t.

    That said, it may well be environmental collapse that triggers a global financial and societal meltdown.

    I look at the rainfall in Australia every day. And what I see is pretty horrific.

    Of course, it is quite possible that rains will return and the currently parched regions will return to abundance.

    It is also possible that the catastrophic drought in eastern Australia will get a lot worse and the region become essentially uninhabitable within a year.

    http://www.bom.gov.au/jsp/awap/rain/index.jsp?colour=colour&time=latest&step=0&map=totals&period=daily&area=nat

  5. Money is the creation and justification for a State, and it’s the lubricant that allows the wheels to keep going around. But unfortunately during our Neoliberalism venture the Govt pretty much gave control of money away. Our youngest and brightest were sent off to work in the fields of money creation, planting, weeding, harvesting money and daydreaming they came up with more money products that produced nothing else but more money either credit or debt, it did not matter.
    We sailed past the last financial crisis as if we were God’s chosen people and embarked on gathering more debt, selling off our houses land and trees to overseas. And also rely heavily on over cashed people around the world idlely spending here. Falsifying our GDP with immigration to ensure we can borrow more than we can hope to pay off.
    In short we have ensured that the next Global Crisis will hit us full on, and we have given away all the tools we may have had to bunker down and survive it.
    We will see how sharp the other edge of the Globalist sword is. When we rely on a Govt preoccupied with hanging on for dear life and a Neoliberal Minister of Finance.
    Plant more potatoes I think.

  6. It’s looking increasingly likely the next crash is going to be sparked by a collapse in the retail sector. Small retailers are getting increasingly squeezed by the likes of Amazon, E-Bay and AliExpress. The shock in employment and tax revenue when these smaller retailers go belly up will spark massive market dislocations which will then cascade throughout the economy.

    • the retail apocalypse has already started the warehouse isn’t making the profits they used to but to me the melt down in new Zealand will be private debt mortgages just like America kiwis have been reckless and the banks down right irresponsible we have built an entire economy fueled on credit.its only a matter of time before the masses of debtor sheepeople work out there fucked and the music stop a year ago.
      the indebted former middle class sheepeople will be looking to blame everyone but themselves fuck them let them burn the gfc was a warning to get rid of debt those selfish people driven by greed and living the high life deserve everything they get.

      +

    • no i think here in new Zealand it will be private debt and rising globe interest rates. the banks sourced a lot of the housing debt from off shore rbnz has limited control over interest rates we are very vulnerable to the international credit markets has anyone read up on the cover bonds issued by banks in NZ. all the best collateral goes to cover bond creditors before depositors we have already been sold down the river by national

  7. A good description of all activity in this present time where people keep on having babies oblivious — spastic dance on the edge of the volcano. And yet, and yet, no one does anything apt to the volcano lip. They did act aptly in 1939. Because that was a straight sear rather than a slow boil. We and frogs decease from the same source.

  8. The RBNZ remains unique in the banking world by allowing prime NZ residential mortgages to be ring fenced for overseas investors while imposing the OBR scheme on NZ depositors to ensure that their deposits will not be returned should there be financial instability in one or more banks. APRA and the RBA are far more protective of Australian depositors.
    new zealand has issued covered bonds

  9. The RBNZ remains unique in the banking world by allowing prime NZ residential mortgages to be ring fenced for overseas investors while imposing the OBR scheme on NZ depositors to ensure that their deposits will not be returned should there be financial instability in one or more banks. APRA and the RBA are far more protective of Australian depositors.

  10. Unlike the Great Depression which ushered in Roosevelt’s New Deal and the likes of Michael Joseph Savage and a shift towards Democratic Socialism, it seems since 2008 they’ve just been papering over the cracks. In the 1930s they realised unregulated free market capitalism was toxic and they needed to change the fundamentals of economics towards Keynesianism. But since 2008 all we’ve had is a bail out, quantitative easing and an ensuing assett bubble in share and property markets around the western world. Now that the Federal Reserve has signalled it wants to turn off the tap and increase interest rates Donnie Boy doesn’t like it. In fairness to our current though, I know they’ve been criticised for not increasing our debt beyond the debt limit straight jacket, but I think they’re trying to keep their powder dry as they are expecting a melt down.

  11. […] …I’ve blogged about what the new Government needs to do when the economic shit hits the fan here, and the hope has been this is something that would trigger from a hard Brexit next year or the weight of American debt in 2020, but with the trade war between China and Trump speeding up and the new attempt to start war with Iran, the crash could be far sooner than we are ready for. […]

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