Nicky No-Boats crashed the economy – what’s the solution?

Look at this…

Investor confidence at lowest level in nearly five years amid global financial turmoil

Global financial turmoil triggered by US tariffs and trade uncertainty spooked investors sending confidence to its lowest level in nearly five years, according to a new survey.

ASB Bank’s quarterly measure of investor sentiment for the three months ended June fell to a net 1 percent believing their returns would improve in the coming year from nine percent in the previous survey.

That was the lowest level since the third quarter of 2020 as the Covid-19 pandemic struck.

ASB senior economist Chris Tennent-Brown said a mix of global and domestic pressures were cited for the slide.

…and this…

Cost-of-living crisis: Almost half of Kiwis going backwards financially

Almost half of New Zealanders say their financial situation has worsened in the past year as cost-of-living challenges bite for many, according to a new survey.

It comes as rising inflation and unemployment, along with economic uncertainty, continue to erode both household spending power and confidence.

Recent data from fintech Revolut found 42% of Kiwis said their financial situation has worsened over the past year.

…following the news that the Government crashed the economy with the appalling GDP numbers last week.

Who is to blame?

The National Government, Bernard Hickey is scathing…

The rubber just hit the road. In a bad way.

This week the rubber hit the road on the Government’s pledge for 2025 to be the year of ‘growth, growth, growth,’ but not in a good way.

Stats NZ reported on Friday GDP fell 0.9% in the June quarter to $69.850 billion. It has contracted 1.5% in the six quarters since the Government’s election.

Finance Minister Nicola Willis blamed Donald Trump’s April 2 ‘Liberation Day’ global tariff shock for the slump.

She said New Zealand’s economy had an ‘outsized reaction’ to the global uncertain and it had ‘knocked the stuffing’ out of the economy’s psyche. She said the economy was now growing and the Government wouldn’t change its strategy of spending restraint to ‘bend the curve’ down on Government debt.

Former National Prime Minister John Key said the Reserve Bank had not been enough of a ‘mate’ to the Government and should have cut much more and much sooner. Economists for Westpac, Kiwibank, ASB and Rabobank all called on the RBNZ to deliver a ‘bazooka’ rate cut of 50 basis points in just under three weeks time.

Former National Finance Minister Ruth Richardson and former Labour Finance Minister Roger Douglas called on the Government to more aggressively cut spending and Government borrowing. Douglas said Willis should resign.

Prime Minister Christopher Luxon let Willis handle questions on Thursday, but said on Friday he backed Willis and the Government’s strategy was ‘full steam ahead.’

In my view, the Government’s abrupt halt in early 2024 to discretionary capital spending on housing, roading, hospital planning and school building shocked the construction, infrastructure and local government sectors. It triggered thousands of job losses and hit the psyche of investors and consumers much harder than anything Trump posted on Truth Social.

The Government’s initial rhetoric around ‘belt tightening’ to deal with a fiscal crisis and its announcements of thousands of job losses both chilled consumer spending appetites through 2024 and hammered particular regional economies, including Wellington and Auckland.

The timing of the Government’s fiscal tightening in 2024 could not have been worse, arriving just as the Reserve Bank’s monetary policy tightening from 2022 and 2023 was at its most severe, and right at the bottom of a 20-30% slump in house values.

…Bernard is 100% right.

The reason these austerity tactics aren’t working the way they did right in the 1991, 1999 and 2008 recessions is because private debt levels make it impossible for people to take on more debt.

All Nicola’s austerity programme has done this time around is attempt to shift debt to people who can’t afford any more debt!

That’s why result has been an economic crash.

You can nit blame Labour’s borrowing for Covid on this, it was National who slashed the infrastructure budgets, it was National who borrowed $15b for tax cuts, it was National who hollowed out public sector budgets.

This is all National’s fault, their neoliberal austerity experiment has failed and we are all paying the price!

The solution is more taxes aimed at the super wealthy and the speculative economy while more Public Borrowing, back to Bernard…

The economy is now stuck in two balance sheet recessions. Firstly, there’s the wealth effect of the housing slump and the inflation burst of 2022 and 2023, which shocked consumers into spending restraint that has created a four-year-long recession in the retail and hospitality sectors. The tax cuts that were supposed to encourage households out of their shells were delivered mostly to those who save a good chunk of their earnings, either in term deposit form, or by repaying mortgages early.

The second balance sheet recession is self-inflicted by the Government, which believes wrongly that it has too much debt and faces the punishment of higher interest rates by financial markets if it doesn’t ‘bend the curve’ of public debt down. That is just plain wrong. After including the very real assets and earnings of the NZ Super Fund and ACC into the calculations, as other Governments do, New Zealand’s true debt position is miniscule compared to others and the interest burden is tiny, both in actual terms and relative to that of households and businesses.

The Government’s net interest costs in the just-finished financial year were forecast to be $2 billion or 1.17% of expected Government revevenues of $169.5 billion1. Any homeowner or business going to its bank to borrow would not worry if their current interest costs were 1.17% of their revenues, especially if they were able to say to the bank they had a net worth of $183 billion, as well as ownership of NZ Super Fund and ACC investments worth nearly $150 billion.

There is no serious justification for a fiscal tightening that has driven an already stressed economy into a deeper retail and construction recession. The Government use its balance sheet to borrow and invest to grow the economy to help the Reserve Bank stimulate spending back to growth mode, rather down downward spiral mode.

…we have the ability to borrow a lot more public debt without any real damage to the economy, but what National have done by locking us into the debt straightjacket is to pretend that we can’t borrow more WHLE ALSO cutting revenue, that is creating a structural deficit that is impossible for the credit ratings to ignore.

The Government have zigged when they should have zagged and they are compounding the problem because of Luxon and Willis’ egos!

Meanwhile we all bleed because of this economic vandalism.

 

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