The Financial Times has an extraordinary admission in a lead article this week called The Seeds of the Next debt Crisis. This is an important mouthpiece finance capital in the UK and sometimes they are more honest when speaking directly for their masters (and don’t expect working people to read):
The shock that coronavirus has wrought on markets across the world coincides with a dangerous financial backdrop marked by spiralling global debt. According to the Institute of International Finance, a trade group, the ratio of global debt to gross domestic product hit an all-time high of over 322 per cent in the third quarter of 2019, with total debt reaching close to $253tn. The implication, if the virus continues to spread, is that any fragilities in the financial system have the potential to trigger a new debt crisis.
In the short term the behaviour of credit markets will be critical. Despite the decline in bond yields and borrowing costs since the markets took fright, financial conditions have tightened for weaker corporate borrowers. Their access to bond markets has become more difficult. After Tuesday’s 50 basis-point cut, the US Federal Reserve’s policy rate of 1.0-1.5 per cent is still higher than the 0.8 per cent yield on the policy-sensitive two-year Treasury note. This inversion of the yield curve could intensify the squeeze, says Charles
Dumas, chief economist of TS Lombard, if US banks now tighten credit while lending has become less profitable.
This is particularly important because much of the debt build-up since the global financial crisis of 2007-08 has been in the non-bank corporate sector where the current disruption to supply chains and reduced global growth imply lower earnings and greater difficulty in servicing debt. In effect, the coronavirus raises the extraordinary
The inversion of the yield curve always precedes a recession. 10-year US Treasury bonds are now at a record 1.3% as spooked investors seek a safe-haven. This is below short term market returns. It is a vote of no-confidence in the system’s future by the class of super-rich bondholders.
Jim Paulsen, chief investment strategist for the Leuthold Group, told the Financial Times the situation was “scary” and hard to ignore. “A lot of investors have been worried for a while that the bond market knows something that stocks don’t,” he said. “Stocks have been foolishly rising, while bonds have been suggesting a more sinister outcome.”
Even before the outbreak of the virus industrial production and world trade had been stagnating and then declining towards the end of 2019. Investment growth in the G20 group of the richest countries (excluding China) fell from 5% annually to only 1% in 2019.
China has truly become the workshop of the world. It now has 28% of world manufacturing output. This is 10 points ahead of the US who they surpassed in 2010. China has accounted for 37% of world GDP growth since 2008. Much of that growth was also sustained by a massive expansion of debt, which doubled from 2008 to 2018. Total government, corporate and household debt now stands at over 300% of GDP.
The shutdown of factories, cities, and restrictions on movement have radically cut production. But China is not just a producer of finished goods, it is also a vital part of the supply chain for parts and semi-finished goods worldwide.
Shipping from China has collapsed with only half of the expected number being shipped in February, a cut of around 300,000 a week.
China is now the number one market for NZ goods in almost all categories. We exported $17 billion worth of goods and services and imported $13 billion worth – trade worth twice that of the US.
But now policymakers are running out of policy tools to deal with a new crisis. One key tool is the interest rate used by the Central Banks for core lending between it and the commercial banks. This is now close to zero everywhere and new cuts seem to have minimal impact. Many governments also maxed out their own debt to deal with the last crisis and further borrowing will simply push interest rates higher, not lower. Additional direct printing of money will also threaten a new bout of inflation that could further destabilise the system
But as can be seen in the Financial Times report the 1% just keep going as before. The Financial Times again:
Policymakers in advanced countries have over the past week made clear their readiness to pursue an active fiscal and monetary response to the disruption caused by the virus.
Yet such policy activism carries a longer-term risk of entrenching the dysfunctional monetary policy that contributed to the original financial crisis, as well as exacerbating the dangerous debt overhang that the global economy now faces.
The risks have been building in the financial system for decades. From the late 1980s, central banks — and especially the Fed — conducted what came to be known as “asymmetric monetary policy”, whereby they supported markets when they plunged but failed to damp them down when they were prone to bubbles. Excessive risk taking in banking was the natural consequence.
The central banks’ quantitative easing since the crisis, which involves the purchase of government bonds and other assets, is, in effect, a continuation of this asymmetric approach. The resulting safety net placed under the banking system is unprecedented in scale and duration. Continuing loose policy has brought forward debt financed private expenditure, thereby elongating an already protracted cycle in which extraordinary low or negative interest rates appear to be less and less effective in stimulating
One important difference between the current debt mountain and that of 2008 in much of the world is that corporate debt has increased even more dramatically than other forms of debt – doubling to $13 trillion. Much of this is of doubtful quality and the companies would quickly find themselves unable to service debt if renewed world recession hits or interest rates rise once more.
The Financial Times points out that the system has become less stable in recent decades not more stable as wealth has become more centralised into fewer and fewer hands.
We need an emergency response to the coming economic catastrophe that is not just business as usual.
After the 2008 crisis, money was literally printed and handed out to those who had created the mess in the first place. Banks were effectively nationalised in the UK to save them from collapse. Even the mighty General Motors in the US was nationalised to save from collapse. Of course, these nationalisations weren’t designed to impose democratic socialist control over finance capital and the big capitalist commodity producers and have been reversed whenever the state can once the situation had been stabilised.
The massive expenditures required the state to take over as much of the bad debt as possible to protect the class of financial vampires from their greed and folly. The cost of that bailout was then imposed on working people through extra taxes and cutbacks on social spending.
As in all capitalist crises, the greed of the big banks, insurance companies and other holders of financial assets had led them to reckless over-extend credit. Debt levels for individuals, corporates and governments kept breaking new records. But as soon as this debt pyramid started breaking at its weak links (AIG Insurance in 2008) the entire system of credit seized up and there was a cascading series company collapses in the financial sector.
A credit crunch and a deep world recession followed.
The collapse into a new period of crisis like the Great Depression in the 1930s may have been averted, temporarily, by the bailouts, spending and debt expansion but the system was not challenged. So a new period of recession or depression we seem to be entering into now is the inevitable result.
The virus is simply the trigger, not the cause.
As soon a new crisis breaks out we should demand that a government that claims to be representative of working people as the current Labour Party-led government does, should put our interests first not the capitalist mismanagers of the system.
That means we need to prioritise the needs of ordinary people to access healthcare, educational opportunities, housing and jobs above those of the banks, insurance companies and commodity producers who were bailed out at the expense of working people the last time capitalism had a generalised crisis of overproduction just over a decade ago.
Doing what we did in 2008 again is not the solution. Giving money to the already rich to produce more debt and commodities that we often don’t need, is not the way out of a crisis of the system. The system needs to be challenged. The system needs to be transformed. The system needs to be overthrown and a new system based on production for human need rather than profit established. That new system also needs a radically informed and engaged citizenry empowered to make meaningful decisions in their workplaces and communities.
We need a Green New Deal that prioritises people and the planet above the pursuit of profit by the 1% class of private owners of the monopoly corporations that dominate all economic life. A Green New Deal can be the step towards the new system we need. It already has a name.
That system is called socialism. We just need a 21st Century version.
Lucky we still make toilet paper in Kawerau!
https://www.youtube.com/watch?v=lEWBM6mQHEM
Greens were clearly ahead of their time, when they advocated buy NZ and keep NZ assets in NZ hands!
Very handy in a disaster of which there seems to be one, every few years now.
keep NZ assets in NZ hands!
You mean, like our water and our land?
Yes
However so many new citizens running our businesses are “NZ’er’s” granted by our bovine laws, such as Richard Yan https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12271022, and Peter Thiel.
The right have the left in checkmate.
The ‘Three Year’ terms are crippling too, for a situation as we have now. It has not yet been even two and a half years! Yet already they have to go into election mode, with loud sounds already from the present opposition that “We’re going to undo this” and “We will reverse that”. (Can search the examples – they are out there.)
If they had another year ahead, they could now go into action mode and start really ringing in the changes. But they’re hampered by the short term limit.
That said, they could at least have put up some sort of protest, some sort of call-out about the mining, the land sales, the water sales and expansions, and other things. BIG disappointment, and feeling sold out.
Greens never used to constantly think their election campaign was about donations and that they had to concentrate more on campaigning than policy and results. Funny enough they were a lot more popular then!
Money does not make people vote for you and the Greens who now think it does, is a big part of the problem of their growing discontent of their voters.
As for wanting 4 years to get something done in parliament, a significant amount of employees in NZ face a 90 day trial when they have to ‘prove’ their worth in 3 months. Imagine if NZ had MP’s on 90 day trials so we can all be under similar working conditions!
COL’s problem is that they did the wrong things aka signed TPPA very quickly and Greens did not campaign very hard to stop them. (Although to their credit they at least did not vote for it).
So they clearly our COL government can get neoliberal things done together, just not environmental things for that nuclear free moment planned for action in 2050 after the talkfest with business, that they seem to need another 3 years to get around to it.
The word “Kiwi” meant something when I was growing up. Now, it’s lost it’s meaning and is virtually pointless. “Kiwi” applies to our Chinese friends who arrived on Thursday and are now being called “kiwis”.
Some places around the world are extremely “competitive” with others within their own country. That’s a euphemism for widespread selfish dog eat dog. That’s NOT the “kiwi” way. When I was younger we cared a lot more about each other. We ran Telethons to help those doing it hard. How that has changed. New “kiwis” are happy to do supermarket panic buying of everything even if that means nothing for other “kiwis”. Always the usual demographic. This situation also includes housing etc so easy to see what born and bred “Kiwis” are not welcoming and embracing the changing dynamic in NZ. That sort of shite will happen when the only value put on who can come here by politicians is $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$.
“Kiwi” applies to our Chinese friends who arrived on Thursday and are now being called “kiwis”.
Nah only if you play the game they social engineers want you too. “Kiwis” means BORN IN NZ.
Can someone go to the US, UK or China and become one of their nationals in 11 days, and call themselves an American , British or Chinese with the same rights and benefits as their nationals…. nope… NZ government and public thinking is so far removed from goes on in the rest of the world, we have crazy rules, like voting rights for everybody, benefits for 2 years stays, free health care for entire families based on a fake low paid low skill job. NZ is bonkers and not seen elsewhere and why we have more people who want to be a “kiwi’ here than accomodation/hospitals/roads/sewers available….
BUT you, ah, we, do have Jacinda, do we not???
Let’s do this, get on with it, don’t worry and be happy, have a hug perhaps.
+1 Jacindafan
Don’t forget ‘Kiwis’ are also now criminals that came on Tuesday but now reported as fellow Kiwis in sentencing.
Since the Kiwi passport use to have a good name, obviously a Kiwi passport is good one for criminals to collect and use internationally in their crimes.
Seen it before with the Isreali / Kiwi passport frauds. Now they don’t have to illegally collect them, you just turn up and in as little as 11 days to 5 years you are a Kiwi too!
And our energy companies.
Councils need to be able to take back CCOs and run affairs and services themselves.
Creeping privatisation is planned and implemented with officers willing to take incentives and bribes.
And our energy companies.
Eg, there could be grants or zero-interest loans for people/ individual households, to switch to solar or other green energy sources.
Isn’t that what was done for insulation? So why not for solar conversion, eg. …if they are serious about taking steps to slow climate change, and also just to make AO/ NZ more secure for the future.
At the moment, a major quake at certain points along the country (and it’s a question of ‘when’, not ‘if’) would mean that whole cities could easily lose power for long periods of time. Whereas if households are already prepared in advance, with individual solar systems eg, then such a quake would have a less disruptive impact on the wider population.
use kiwi saver to buy back the country and invest in our own future eg why couldn’t kiwi saver fund housing associations infustructure projects even the water system i think that would protect the assets from nact as well
that prioritises people and the planet above the pursuit of profit by the 1%
Absolutely.
#1 Recommendation, – that they remove the GST, or at least wind it back to 10% for starters, to where it was before mr key saw fit to raise it. It is a tight cord that’s strangling the poorest. And it needs to be removed completely from food, and other essential products and services. This would simply bring us back to par with places like Aus and Canada. Yet we should be ahead of them in such matters, not lagging so far behind!
Correction: Before anything else, we have got to stop selling our land and water. It has to stop.
Foreign companies are now our biggest private land owners, – as of early October last year. Link here
Stop selling out Aotearoa!
Kheala,
Solid suggestions as per usual.
The upcoming election year budget will be VERY interesting for many reasons. It will be a re-election type budget.
Now the hospitals can’t even run property as their staff self isolate. Another blow to our waiting list and emergency care.
https://www.stuff.co.nz/national/health/120095024/coronavirus-assurances-falling-on-deaf-ears-for-atlimit-nz-health-workers
Globalism does not work, we have had countless crisis that are made worse the more NZ tries to become tied at the hip to other countries and use what they have in NZ instead of understanding NZ’s natural advantages and using them appropriately for social and economic gain.
NZ is so stupid in our rules, we give our natural assets away, tax payer grants of millions to foreign companies, subsidise their activity in NZ and then worship them while abusing their own people and businesses here and making them bankrupt and accusing them of being lazy, drugged out, racist etc etc. Worldwide in NZ we are one of the most educated, well regarded and least racist nations in the world. Yes it is all relative and we can micro pick trivial examples of transgressions and obvious the treaty is a massive one to solve, but in general NZ (was) considered a pinnacle in many social areas. The neoliberals could not have that and have been brainwashing an alternate view ever since 1984! Now they seem to have infected the unions, COL, god knows who else who all work together for some sort of bizarre negative view of self, with a glowing, non critical view of other, that they want us to emulate.
From the Global Financial Crisis, to fall out from 9/11 and global terror attacks (globalism and free borders in NZ means CHCH massacres), to the coronavirus which is closing down the world. The problems have come from outside and now is NZ’s problem.
New rules to stop the world risks are needed and a pluralism approach not a monoculture approach, with the rise in cheap, global travel and economic migration and tourism around the world that is spreading pandemics, social unrest and undermining democracy and collaboration. AKA Brexit.
The left and woke are losing elections all around the world because they will not address the problem of mass immigration and tourism and financial rerouting which is still thinking it’s 30 years ago, and only 5% of people are moving around and the risks are still minimal.
They are also thinking that global trade can continue they way it is going. It will not because the amount of disasters happening with climate change is going to increase and keep disrupting the supply and economic conditions.
They need a plan beyond, seemingly make NZ a third world country by having everyone a working poor or beneficiary, giving their questions to the Natz to be virtuous and our water to Chinese business fro nothing, because that is less racist in woke eyes.
The 1% LOVE woke thinking, cos the above example is more profits and control to their interests!
Tourism and Kiwis taking overseas holidays are both activities that are killing our resilience and the planet for the younger generation.
There is no positive with either of these activities as they are degrading the environment for utterly selfish misguided ends. Commercial grooming of travel is beyond reality.
Well, chalk one ‘plus’ up to the coronavirus, eh?
It’s at least starting to put a dampner on that.
Sweet if you have a private jet though.
https://www.stuff.co.nz/national/health/120066023/waiheke-island-boltholes-luxury-holiday-homes-sought-after-by-coronavirus-escapees
The ‘solution’ is easy.
Steal our farmers away from the entanglement of the head fuckery the Natzo’s have them trapped within and offer them sanctuary by way of writing off all bankster debt then conducting a very public royal commission of inquiry into the relationships between our past and present politicians and big banksters and the urban businesses who suffocate farmers daily.
BNZ Fay/Richwhite anyone? One of many, many examples.
You know what happens when one takes a double dose of magnesium sulphate in a glass of warm water?
It involves a long suffering toilet and a lot of “Oh My God’s! ”
AO/NZ MUST take a triple dose of magnesium sulphate and blast the foreign banksters down the toilet.
AO/NZ,it should be remembered, is only 5 million people. 52 thousand of those people are, according to the Dept of Stats, primary industry agrarian souls who can, so it’s been written here, feed 40 million people. I’ve also read 20 million.
AO/NZ is also famous for innovation and creative brilliance and the ONLY thing that crushes us back and down are our politicians relationships with the big four foreign banksters who now own us via the BNZ.ASB.ANZ.and WESTPAC.
They must go! AND we must remember to insist they leave our money and assets behind as we slam the door on their fat greasy arses.
Fuck the US treasury.
Fuck Wall Street.
We shouldn’t care because they really don’t matter.
They will tell us they are constantly with flash ads injecting their awesome selves into our brains via their all bought and paid for msm but what? You never been lied to before? Are we, like, three year olds??
I once made the mistake of telling a three year old that earthworms were really just little snakes so whenever I dug the vegetable garden over Ms 3 year old let out a blood chilling shriek then stumbled off to hide in the shower.
We must remember. To them, we’re like three year olds. graham heart was a panel beater until he went to university and got an MBA at Otago Uni.
Now? With a net dollar worth of 11 billion and rated as 173rd wealthiest person on our suffocating biosphere?
And we don’t see a problem with that? We can’t see a problem with people like heart becoming educated to take advantage of the less so just to get their money? Right under the noses of our well paid politicians who should take care of those many who don’t want to be absurdly money riche but just want to hang with the Whanau in peace and make a wage?
Corona virus is just one thing to lift the lid on the nasty little Kiwi-As can of snakes.
https://www.melaniephillips.com/real-western-civilisation-emergency/
Ric Lala land devoid of any discussion of what is happening and why.
“We need a Green New Deal that prioritises people and the planet
above the pursuit of profit by the 1% class of private owners of the monopoly corporations that dominate all economic life.
A Green New Deal can be the step towards the new system we need.”
(I just think it bears repeating …a few more times, preferably.)
Ministry of Health are reporting good news today. No new cases of the virus confirmed.
Epic example of going the early crow and enjoying a false sense of security. We can look forward to many more cases of the virus here…perhaps “millions” more. UK doctor saying he confidently expects 60 to 80% of the UK population to become infected by the virus and it will be the same in your country.
NZ population is around 4.8 million. If we go with the more conservative number we are still talking around 3 million people. Most of us will easily survive the virus but around 15% of our 80+ population will succumb to it. They are huge numbers.
Interesting that the wording coming out of the Ministry of Health is evolving. It’s a subtle but significant change. Prior to Friday it was “we are very confident we can prevent an outbreak”…..now, it’s “we are very confident we can deal with an outbreak”. I’m calling bullshit on that. It’s clearly designed to avoid a panic but by doing that via bullshit, they destroy all important confidence in everything they tell you. Reality check time.
I have multiple family members and extended family who are health professionals. Most are in Auckland. Our health system has been over worked, under appreciated and under funded for years. It’s been “unsafe” for many within it and was in crisis, hence the strikes last year. It’s only marginally better now. You take dozens of front line hospital medical staff and put them in self isolation, I can 100% guarantee the loss will be felt. This situation will only worsen and the staffing numbers will result in major issues. We need to budget and plan for that. Bullshitting the people of NZ is extremely unhelpful.
Population control is necessary and inevitable.
The longer we leave it the harder it will get.
NZ is not doing any good by taking in more people.
NZ families of zero, one or occasional maximum of two children and with a good pension scheme funded by taxation over a long period.
Corporate tax increase and tax any dividends that leave NZ.
NZ needs a state bank which is the sole creator of new money for loans.
BTW @ Mike Treen. I forgot to write; Superb analysis. Dead on target.
Yes, Mr Treen, we are fast heading towards the inevitable global financial collapse, as dropping interest rates ever further will only increase debt levels again, and debt must be repaid one day, i.e. be balanced out with what the money lent will create as new assets and revenue created and earned.
As we have a scenario resembling at least a moderate and medium to potentially longer term contraction, we will have a global recession, due to drop in economic activity.
If the debt in many countries were not so high, this would not be problem, but some large economies, including also China, have massive debt loads now, that can only be carried with reasonable economic activity that is sound and provides some growth.
The more crisis, now this one after the 2007/2008 GFC, the higher the risk of the system becoming overloaded with debt, that is globally, and eventually collapsing like a house of cards.
That is why businesses, corporations and the pressured governments will soon get us to accept the inevitable, that is, the new virus and disease is here now, it will cost some lives, but we must work, live and do business, so get on with it, just ignore the risks, and carry on as per usual.
NZ Inc may thing it plays a special role, is better prepared, due to low government debt levels. That though is misleading, overall debt, including private debt, is here just as bad as in many other debt laden economies.
And being such a small player, no matter how ‘sound’ your government books are, the over dependence on the global financial and economic networks and systems has locked us into the overall risk the rest of the globe faces. We will simply be dragged down with the rest, no matter what.
Corona, Corona, Corona, best medicine to treat the virus:
https://www.news.com.au/world/pacific/new-zealand-bar-slammed-for-cashing-in-on-coronavirus/news-story/d098bb7c5a28616f10dfe3da40d29767
Surprised no one has mentioned the new Super Dooper plan being trotted out in Grant Robertson’s circles – named “inclusive Growth. http://siteresources.worldbank.org/EXTPREMNET/Resources/WhatIsIG.pdf?resourceurlname=WhatIsIG.pdf
Everybody sing along…
I briefly learned about this wonderful new Algorithmic concept the day after I received a notice from Kiwi Bank that my every other Tuesday NZS payment time was going to be pushed out by 28 hours from it’s regular time of Monday nights after 7pm -to- Tuesday’s due date after 11pm, so that the Bank would have an extra 28 hours to play with my money before depositing it in my account. I guess the Aussie Banks have decided to let Kiwi Bank go first with this extended Super Payment plan to see if anyone noticed and retaliated before the stuck their oars in the water… How wonderful!
Inclusive growth seems like a wonderful new way that we can all chip in and help payoff each others mainly Corporate debt’s and make us all cleansed and fully vested l’il citizens in the eyes of those that create money from nothing, sell us refrigerators on drip’s and get their Chic’s for free. Yipee Skippe where do I sign up for this new world cleansing program?? When’s the (steam) rollout gonna be? Pre- or post the next full moon, or 16-September, that is the question!! ??
Aw shucks, maybe they’ll just hold off until the current Depopulation program (COVID19) finishes and the dust clears to see who’s left standing before the recruitment begins???
Reduction of poverty does not need nor depend on growth at all.
Poverty is sustained by the structure of capitalism in the form we allow in NZ.
There is plenty here for everyone but some manage to run the system that predicates a few hoarding and so denying others but using their consumer activity to profit.
The planet cannot remain habitable for millions of species including mankind because of human activity and particularly the human obsession for “economic growth”
If we wish to live a little longer then reduction of growth or de-growth is an important path urgently needed.
Grant is just waffling on to please Business NZ and its capitalist ecocide.
Is grant that stupid or is it his choice.
Our Kiwi community is not inclusive and this has become an inter generational structure.
Inequity is not an accident.
Socialism and the plague killed equal numbers last century, this Century’s plague has started in a socialist country, would you wanna live there?
Obviously you don’t understand socialism and plagues.
As often the case, some good analyses and valid comments from many contributors to the TDB.
But.
The bottom-line remains that without the logical organizational consequences stemming from these analyses the TDB is not more than the ‘Wailing Wall in the Land of the Long White Cloud’.
Three Basic Options.
1) Change the existing Green Party from within.
2) Establish a new eco-socialist political platform.
3) Facilitate and enhance cooperation and communication among civilian initiatives in AONZ.
Ms Jacinda and friends cannot do that .…. even if you vote for her.
System Change. Now.
https://www.youtube.com/watch?v=354KSku9i4I
Circling The Drain.
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