GUEST BLOG: Bryan Bruce – Banking On ‘Business As Usual’
I heard Finance Minister Grant Robertson say on Morning Report today that he ” wasn’t expecting another financial crisis any time soon”.
Well, he and his advisors may not be expecting it, but surely one of the lessons of the 2008 financial crisis was that being so locked into maintaining ‘business as usual’ means we often fail to ask whether the usual way of doing business is the BEST way of doing it.
So while we should welcome any review of the activities of the ANZ Bank,it seems to me that’s a bit like getting a dent on your car fixed when the engine needs a complete overhaul.
And the two big problems with our economic engine are :
(1) the massive and growing amount of personal debt the system has encouraged us to take on
(2) the enormous and growing gap that has been allowed to develop between the haves and have- nots in our country.
The Minister should therefore be asking his advisors:
(A)What happens when the day comes that the majority of us cannot afford to pay back the private debt we have accumulated?
The Great Depression of the 1930’s was triggered by a debt fueled US stock market bubble and in 2008 it was private debt again that sparked the crisis through the mortgage market.
Private debt has never been as large as it is today.
(B) What happens when the gap between the rich and the poor becomes so great the majority of us cannot make ends meet and own so little of worth that we cannot get credit?
Right now 10 % of us own 60% of our nation’s wealth .
40% of us now own less than 3% of it .
What is going to happen when that very wealthy 10% shrinks to 5% and the numbers of poor and struggling grow from 40% to 60% or 70%?
It seems to me that once the great majority of us cannot earn enough or raise sufficient credit to put food on the table and/or pay for the roof over our heads, then we WILL be facing another financial crisis…and sooner, rather than later.
Bryan Bruce is one of NZs most respected documentary makers and public intellectuals who has tirelessly exposed NZs neoliberal economic settings as the main cause for social issues.
No one ever seems to know where the next economic crash is going to come from and when it will occur. It is like the butterfly wings chaos theory scenario. A butterfly flaps its wings in one part of the world, and this leads to dramatic events in another part of the world. It could be the seemingly most innocuous event in the world that tips the scales. Some people are predicting that it is the level of debt on their private vehicles that is likely to burst. Certainly, there must be a lot of people who have borrowed thousands for huge SUVs and Utes that have become so ubiquitous.
EP, if the breaking point is going to be SUV’s, I suggest that the moment of truth will occur when the owners find that the rapid take-up of electric cars will make their very. very expensive SUV’s unsaleable at any price.
Of course the next crisis is just around the corner – ETA anytime within 24 months based on inverted yield curve (HT Martin North, of DFA YouTube channel or other woke YT channel In The Interests of the People)
PS – first home buyers should definitely not buy right now.
agree with Z the houses are over priced and not worth the money being asked.
Yep, once those interest rates get back to usual average levels (nothing too high, just a few % rise on the mortgage.. not this alltime low stuff we have now), there will be a lot of pain.
It ain’t gonna be pretty.
I’d say in the short term interest rates are fairly stagnant, as places like Japan are having deflation. Our interest rates are still high by world standards.
The ‘pain’ is more likely to come from the sharemarket which is overpriced and which people’s Kiwisaver are invested.
The other ‘pain’ is the return of the finance companies offering much higher returns than banks… remember all the finance companies that went into bankruptcy taking everyone’s savings during the financial crisis?
Also property is halting in places like Auckland but immigration is still extremely high, so my guess is that people are moving to other places and thus there is the house price escalation in other areas like Wellington.
So the speculative apartments and McMansions in Auckland will be under pressure as they were built for the new comers who now don’t seem to be rich enough or want to or buy middle type property in Auckland but moving on to cheaper areas of NZ to buy in.
Saw a 2 bedroom apartment in Three Kings for $750k. Not sure what the body corporate is, but lets face it, Auckland wages do not allow many people to purchase apartments at that price point who want a 2 bedroom apartment. 6 years ago you could buy a bungalow on full section in Three Kings for $450k…
I’m sure we will see a lot of developers go bust and then be crying Wah, wah to government to allow more migrants in to try and keep them in profit… and blame government for everything… people now live in cars and containers in Auckland so the rents can’t cover the price at that price point, let alone buy one on average wages!
Not even looking at when all the new builds start to have leaks or the BC goes up 20% per year once they sell the apartments.