The Dim-Post

May 22, 2013

Chart of the day, ‘Rock star status’ edition

Filed under: economics — danylmc @ 9:27 am

Via Stuff:

While parts of the rest of the world are still wallowing in recession, New Zealand in recent months has had a significant number of economic bright spots that could see the country reach “rock star status” within the next four years.

That was the view of ANZ bank chief economist Cameron Bagrie speaking at a post Budget luncheon briefing in Christchurch yesterday.

Here’s a graph sourced with historical figures from statistics (in blue) alongside Treasury’s budget projections (in red), showing our net international investment position, ie our assets as a nation minus our liabilities. (That temporary reduction in borrowing over the last two years is the influx of payments after the Christchurch earthquake.)

niip

Where are New Zealanders borrowing that additional $10 billion a year in perpetuity from? Why, we’re borrowing it from foreign banks just like the one Cameron Bagrie works for, which is, presumably, why he thinks we’re a rock star. If you convert our net international position into a % of our GDP we look even worse. Spain is less indebted than us by this metric and Portugal, Ireland and Greece only slightly more doomed.

Whenever opposition finance spokesmen talk about ‘re-balancing the economy’ they’re really talking about reversing that grim, downwards march into eventual fiscal oblivion and an IMF bail-out. They never get to do that when they’re in power though, because re-balancing towards real wealth creation and the tradables and export sector involves re-balancing away from the finance sector, real estate speculators and other rent-seeking agents, who are too politically powerful to allow such a thing to happen. So we get to stay a ‘rock star’ like Greece and Ireland, ie the kind of rock star that drowns in a bathtub.

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42 Comments »

  1. Well said Danyl. What should be worrying everyone is that our current account deficit continues to weaken DESPITE our “rock-star” growth when many of our trading partners are in recession. The implications of our poor savings record over the past 40 years loom ever larger.

    Comment by TerryB — May 22, 2013 @ 9:34 am

  2. Without wanting to get too technical about it, most of NZ’s external debt isn’t in New Zealand dollars. It’s in USD, Euro, Yen, and AUD. The chart you’re showing is in NZD.

    So, the decline in net IIP Treasury is forecasting is largely driven by their assumption that our exchange rate will weaken over the next 5 years back toward it’s average level. As a consequence, it takes more NZD to pay off a dollar of USD debt, and makes the chart look worse. I’m not convinced our exchange rate is going to fall far at all, so if I were making that projection it would be flatter.

    W.r.t. the comparison vs Greece etc, it’s important to remember that the tenure of the debt is as, if not more, important than the level of debt. The PIGS debt was predominantly short term government debt. They got in trouble because they didn’t have the ability to repay what was owed today. NZ debt is mostly longer term. To put it in a personal context; my mortgage (my “IIP”) is waaaaay bigger than what I earn (my “GDP”) but because I’m paying it off over 20 years, it’s manageable. If I had to pay it all off next week, I’d be up shit creek.

    Comment by Phil — May 22, 2013 @ 9:56 am

  3. Phil I can see your point about the tenure of debt but you are overlooking the fact that the risk relates to the banks borrowing short and lending long (to you). Our overseas liabilities relate not to your mortgage (and mine) but what the banks have borrowed to onlend. This is why we very narrowly avoided a massive credit crunch during the GFC (Alan Bollard’s book very interesting on this part) and it is why the Reserve Bank began requiring the banks to source more funds locally.

    Comment by TerryB — May 22, 2013 @ 10:38 am

  4. @Phil I like your analysis, the only thing that troubles me about it is that we’re always borrowing more, aren’t we? When we get to the point where we do have to repay that long term debt we’ll be in even deeper. So in the personal context: sure the mortgage is way bigger than what you earn. But if you are also borrowing more on a weekly basis you’re still screwed. I would much prefer you were right though, so help me out here.

    Comment by Roger Parkinson (@RogerParkinson) — May 22, 2013 @ 10:40 am

  5. Which do we most approximate, though? Are in a brilliant haze of drugs, in a slow and terminal decline into prescription medication, sitting in the living room with a loaded pistol, or engaged in auto-erotic asphyxiation using a door-handle?

    It’s better to burn out than fade away. Can we have a space program?

    Comment by George D — May 22, 2013 @ 10:58 am

  6. They never get to do that when they’re in power though, because re-balancing towards real wealth creation and the tradables and export sector involves re-balancing away from the finance sector, real estate speculators and other rent-seeking agents, who are too politically powerful to allow such a thing to happen.

    I’m not sure that framing this problem as Good vs Evil helps much.

    It might be more accurate to day it’s just a very hard thing to do for any govt as its been a long standing structural problem for our economy.

    It’s very easy to blame all our problems on anonymous Bad people – bankers, power company execs etc – but the reality is we have options, few resources and its going to a long hard slug of small gains over a generation or more.

    Unless we strike lots of oil. Like Norway.

    Comment by NeilM — May 22, 2013 @ 12:01 pm

  7. @Terry
    There’s sort of a chicken-and-egg element to this. Basically, the reason for the existence of banks is that it’s much more efficient for a group of specialist organisations to facilitate the matching of borrowers and lenders than it is for borrowers and lenders to ‘find’ each other themselves. The market for short-term bank debt (be it wholesale market commercial paper or retail term deposit) and secondary market trading thereof, comes about because most investors/lenders don’t want to be locked in to long term exposures and suffer opportunity costs if the environment moves against them.

    You’re right that the RB’s new rules around Core Funding (ie; banks have to have more than 75% of their funding from ‘stable’ sources like retail TD’s and long term market issuance) help to mitigate the risks of short-term debt markets freezing up like they did in the GFC, and most of the new offshore borrowing that banks are doing now is at dates reasonably far into the future. I would argue that a prudent bank should be borrowing from a variety of sources (retail, long-term wholesale, short term wholesale, and even covered bonds) because if one source becomes stressed, there are alternative channels available. The RB has come up with a policy that it thinks generates about the right mix of borrowing sources.

    @Roger
    we’re always borrowing more, aren’t we?
    Borrowing more, relative to what? If our borrowing is growing at, say, 10% and GDP is growing at 5%, then you’re right – that’s an unsustainable situation. But if GDP is at 10% and borrowing is at 5% then you could theoretically continue borrowing forever. This is effectively what the US is doing. I haven’t looked at the numbers recently, but my gut feel is that, post-GFC, we’re growing faster than our borrowing.

    Comment by Phil — May 22, 2013 @ 12:11 pm

  8. Neil, it’s actually rather easy. There are instruments for rebalancing the economy. Like a CGT. Like currency intervention. Like direction and regulation of banking. But because of a continuing ideological fixation on having ‘the most deregulated economy in the world’ (a fad that should have died out in the early 90s), we’ve disavowed almost all of them. The Cullen doctrine didn’t find room for them – in fact, they were quite strongly resisted by the former Minister of Finance. Things have got worse since.

    If we did strike lots of oil, you’d be sure it would be used to lower taxes greatly, huge amounts of money would poor into non-productive sectors of the economy (speculative property, speculative finance), the dollar would rocket up our remaining non-oil export industries would be killed even more quickly than they already are, and our non-oil current account would be sharply negative. Essentially, we’d take a completely opposite policy direction than that taken by Norway.

    Comment by George D — May 22, 2013 @ 12:22 pm

  9. It’s looks like we’re in the red by only 150k. Are you sure the figures are correct?

    Comment by Ross — May 22, 2013 @ 12:22 pm

  10. OK, so maybe it’s 150k times a million? Not sure why there’s decimal points…

    Comment by Ross — May 22, 2013 @ 12:23 pm

  11. OMG! Grover Norquist killed Jim Morrison!

    Comment by glasshead — May 22, 2013 @ 12:59 pm

  12. But if GDP is at 10% and borrowing is at 5% then you could theoretically continue borrowing forever. This is effectively what the US is doing.

    @Phil – Is this effectively what the US is doing though?

    I was under the impression – perhaps incorrect – that Bernanke was printing money hand over fist, pumping stocks and bonds as opposed to creating ‘real’ GDP.
    If ‘real’ GDP was growing why did the US market dip on positive retail news at the start of last week? It seems to be because the Fed has signaled it will begin turning of easy, no-risk credit established under QE.

    Comment by Gregor W — May 22, 2013 @ 1:39 pm

  13. @Phil Thanks for the answer, that helps.

    Comment by Roger Parkinson (@RogerParkinson) — May 22, 2013 @ 2:09 pm

  14. “But if GDP is at 10% and borrowing is at 5% then you could theoretically continue borrowing forever. This is effectively what the US is doing.”
    What Gregor said. Plus, Phil, you are talking ‘NZ Inc’ nonsense. Just because NZ’s borrowing *may* be lower than our GDP, that does not mean we can carry on doing that indefinitely. Most of our GDP is being generated by a small minority of Kiwis, so they can borrow more, but a huge swath of NZ borrowing is ‘keep your head above water’ consumption borrowing (eg Instant Finance shark loans, mobile truck retail shops) , and those loans may collapse into bankruptcy even while NZ’s overall GDP is surging ahead. Aggregate growth and borrowing figures tell us little about the likelihood of individual borrowers ability to repay such loans, and the imminence of their defaulting.

    Comment by bob — May 22, 2013 @ 2:11 pm

  15. @ Gregor
    In the aftermath of the GFC, banks all across the planet pared back their ‘appetitie’ to lend – partly because new regulations forced them to hold greater capital and liquid assets relative to lending, and partly because they’d suffered losses on what they thought were good assets and needed to fundamentally rethink what is was they were lending to and how they assessed the risks they were facing.

    Bernanke, and the Europeans, and the Japanese, are now printing money primarily to improve liquidity in their markets. Their hope is that if the financial sector has enough liquidity on its balance sheet, then the appetitie to lend to (for example) business development and housing construction will improve. If it works (debatable) then all that activity adds up to GDP growth and employment.

    Somewhat paradoxically, I think an end to QE might actually be the best thing for the US economy. If (and it’s a big if) the Fed sees the economy improving and articulates that clearly when it turns off the tap, it’ll be a big economic story and may be helpful for business confidence.

    @ bob
    1) D-Mc’s chart is all about ‘NZ Inc’. All the conversation thus far (apart from a couple of analogies) has been about NZ in aggregate. No one has been talking about individual borrowers or loan sharks.
    2) Hardly any borrowing is ‘keep your head above water’ consumption.
    Total finance sector lending for …
    housing: $180 billion
    consumer: $13b
    business & agri: $129b

    Your ‘loan shark’ lending is part of the consumer $13b. Note that it basically hasn’t grown at all over the last few years.

    see:

    http://www.rbnz.govt.nz/statistics/monfin/c5/data.html

    http://www.rbnz.govt.nz/statistics/monfin/c6/data.html

    Comment by Phil — May 22, 2013 @ 3:25 pm

  16. Spain is less indebted than us? Oh, okay, so we’re that kind of rock star. Talk about a crash and burn!

    Comment by Dan — May 22, 2013 @ 5:20 pm

  17. Phil – evidence (junk bond yields, busting 15000 points, sustained structural unemployment) would suggest that this liquidity is not entering the productive sector, signalling that GDP gain is fairly narrowly focused on the rentier FIRE sector.

    Comment by Gregor W — May 22, 2013 @ 6:37 pm

  18. The main reason for NZ’s poor NIIP isn’t very high levels of borrowing – our borrowing rate is actually lower as a % of GDP than such economic stalwarts as Germany or Sweden.

    Comment by Hugh — May 22, 2013 @ 10:24 pm

  19. “D-Mc’s chart is all about ‘NZ Inc’. All the conversation thus far (apart from a couple of analogies) has been about NZ in aggregate. No one has been talking about individual borrowers or loan sharks.”
    Yep, I totally agree. And Danyl’s graph is useful for what he used it for, a discussion of NZ’s historic debt trend and comparison with other nations position. And your comments in that vein were fine too. I was referring to your response to Roger in your comment #7, where you related GDP and borrowing.

    Point being, the relation between GDP and borrowing is more nuanced than you said, as GDP can surge ahead of borrowing levels while our instability could increase if the quality of borrowing declines (think subprime – yes, I should have mentioned mortgages rather than loan sharks). I know far less than you clearly do about the quality of such borrowing – I just wanted to make the point that GDP growth is not a panacea.

    Comment by bob — May 23, 2013 @ 12:20 am

  20. Its obvious enough how this happens. Someone starts a good business. They build it up….and then sell it off overseas. Almost 45 years ago, Canada was in the same position….and set up a a foreign investment review body that could actually stop such deals…and did. But then the neo-liberals came to power and Canada resumed it’s downward slide like the rest of us in the smaller colonies of neo-liberalism. Only the oil and mineral wealth in Canada’s vastness sees the place not sliding into the gutter.

    NZ isn’t vast. The only thing that can stop us sliding into oblivion is repudiating neo-liberalism.

    Comment by Steve (@nza1) — May 23, 2013 @ 12:45 am

  21. Good to see you are getting your talking points directly from Greens HQ now Danyl.

    We are a growing country, and have always imported capital. Not all of that capital is in the form of bank borrowing. If it is all in the form of FDI there is very little risk to the economy – foriegn investors cant just dig up their NZ owned farms and building and ship them off. Of course the more we have xenophobic arguments around FDI, the more foreign investment will tend towards “hot money”, which poses more risk. So think about that.

    The question is around sustainability (although in some ways even that is moot, what isnt sustainable will not be sustained, the question is about the transient effects of any “transition”). To this end your graph is completely meaningless.

    Comment by swan — May 23, 2013 @ 12:53 pm

  22. George D @ 8 “Neil, it’s actually rather easy. There are instruments for rebalancing the economy. Like a CGT. Like currency intervention. Like direction and regulation of banking.”

    CGT? Ask the UK how they breezed through the GFC because of their CGT.
    Currency intervention? Ask Muldoon how that went for him.
    Direction and regulation of banking? Like our govt looking at fixes to help those on low incomes into their own home with insufficient deposits, a bit like the US Community Reinvestment Act and sub-prime crisis?
    If it were that easy, George, some country, somewhere in the world, oblivious to the religion that is Rogernomics, would have adopted these and we’d all be gasping and pointing.

    Steve @20 “The only thing that can stop us sliding into oblivion is repudiating neo-liberalism.”
    Whats the alternative, Steve? Seriously.
    After all, welfare states (like the Nordics etal) depend upon taxes for funding. If there’s no/a withered private sector, who funds the govt’s activities..?

    Comment by Clunking Fist — May 23, 2013 @ 1:23 pm

  23. “finance sector, real estate speculators and other rent-seeking agents”
    Sheesh. Danyl, take some time off from blogging and look up the definition of rent-seeker.

    Comment by Clunking Fist — May 23, 2013 @ 1:28 pm

  24. If it were that easy, George, some country, somewhere in the world, oblivious to the religion that is Rogernomics, would have adopted these and we’d all be gasping and pointing.

    A bit disingenuous, CF. There are plenty of powerful vested interests ensuring the economies of the world remain profoundly unbalanced.

    Comment by Gregor W — May 23, 2013 @ 2:33 pm

  25. Yep, you’re right: the neo-cons are in charge all over the world. They get together and have meetings and shit. Do they call that Agenda 21 or Common Purpose? I forget.

    Comment by Clunking Fist — May 23, 2013 @ 3:03 pm

  26. Yep, you’re right: the neo-cons are in charge all over the world. They get together and have meetings and shit. Do they call that Agenda 21 or Common Purpose? I forget.

    Silly old Clunking Fist. You’re mistaking neo-cons for climate scientists.

    Comment by Flashing Light — May 23, 2013 @ 3:12 pm

  27. Yes, my bad, I’m sure I mean neo-libs. Don’t I?

    Comment by Clunking Fist — May 23, 2013 @ 3:26 pm

  28. CF: Neo-liberalism is a self-serving faith system advanced and supported by the people who benefit from it. That it makes everyone poorer doesn’t appear to matter…even when their own economies being to implode. That’s because it is a faith system…and faith systems are immune to evidence as they never took any notice of it in the first place. The obvious answer is a return to pragmatic intervention in a social-democratic context where the people doing the intervening are democratically accountable. The majority of the wealthy countries with the best social outcomes operate on such a model today. Those who have moved away form it have been spending their legacy of economic stability at an accelerating rate…and the GFC was the first major failure….and a warning of more as those issues have not been resolved and the reduction in earning power by ever larger numbers of people is continuing unabated. The trend could not be more clear.

    Comment by Steve (@nza1) — May 23, 2013 @ 3:35 pm

  29. Cheers, Steve!

    Comment by Clunking Fist — May 23, 2013 @ 4:05 pm

  30. Yep, you’re right: the neo-(libs) are in charge all over the world.

    Reality based analysis would suggest this, yes.
    You could swap out ‘neo-lib’ with ‘extremely wealthy’, which removes the political bias which obviously irritates you.

    Comment by Gregor W — May 23, 2013 @ 4:06 pm

  31. “Do they call that Agenda 21 or Common Purpose? I forget.”
    They call it World Economic Forum, held at Swiss resort town Davos. They have a lot of military and police to protect these meetings, just like they do for the G8 meetings, including surface to air missile batteries (cos all good anti-capitalists have fighter jets, right?). :)

    “What’s the alternative?” [to capitalism]. One of the greatest victories of the capitalists is conflating the language of business with that of capitalism. While capitalism emerged with the creation of Limited Liability Companies a few hundred years back in Britain, the capitalists would have us believe that business, trade, money are all intrinsic properties of capitalism that will vanish if we scrap Rogernomics, or that we will revert to feudalism. Poppycock.

    No human economic system is perfect, and will require constant tweaking, but the cooperative of Mondragon (Basque country, Spain) are a good start. They tie jobs to the ownership of the firm, and put in place community responsibility measures like capping boss paychecks to a ratio of the lowest paid, etc. And in NZ we still have a large part of the national utilities (ie the natural monopolies) in state ownership – no need to change that.

    So there would be no collapse in tax revenue for govt Clunking Fist. No need to jump in our bunkers and hoard baked beans ;) Just time to scrap the failed capitalist system.

    Comment by bob — May 23, 2013 @ 6:05 pm

  32. Neil, it’s actually rather easy. There are instruments for rebalancing the economy. Like a CGT. Like currency intervention. Like direction and regulation of banking.

    A CGT hasn’t stopped Sydney house prices skyrocketing and its not the reason the Australians are better off than us.

    I’m warry of any argument that runs- we have problems which have simple solutions and the only reason these simple solutions are not implemented is because of bad people.

    It never works out well.

    Comment by NeilM — May 23, 2013 @ 11:39 pm

  33. NeilM, I guess simple people (with simple slogans and “the-ends-justify-the-means” world outlooks) look for simple solutions!

    bob, I like the sound of Mondragon! Tell me more: how do they cope with immigrants?
    Also, what if some young whippersnapper had a new idea and wanted to pursue it? How would she do that? Present it to the committee for new ideas? Or would she head overseas, somewhere like London or New York, and set up a new business there? But how would she do that if she had no property of her own that she could put up as risk? E.g., pay for flights, buy some raw materials, pay rent, employ an assistant, buy some advertising, etc? Do they make tractors in Mondragon? What has been the output (official and unofficial) in recent years?

    Comment by Clunking Fist — May 24, 2013 @ 9:00 am

  34. Actually, would she be allowed to leave… or would she be stealing from the group by taking her intellect away from them? Exit Visas make sense in collective worlds, don’t they.

    Comment by Clunking Fist — May 24, 2013 @ 9:02 am

  35. I’ve read a reasonable amount about the co-op movement and of Mondragon.

    When they work they work but I think there’s a reason why they’re more common and that’s because they require specific circumstances.

    Also, what maybe good for the members of a cooperative may not be good for other members of society. Being a part of a cooperative doesn’t magically extend people’s altruism past their immediate community. Fonteta springs to mind.

    Comment by NeilM — May 24, 2013 @ 9:37 am

  36. Thats:
    not more common

    Comment by NeilM — May 24, 2013 @ 9:38 am

  37. Nonsense, Neil, all it needs is an act of parliament or a “popular” revolution, and then it’s all down to enforcement by a special kommittee with it’s own police force.

    Actually, I’ve got to confess, I’m part of a collective. Well, we call it “family”. It’s quite a manageable size, members aren’t too unruly. And they’re free to leave, once they turn 16.

    Comment by Clunking Fist — May 24, 2013 @ 12:58 pm

  38. CF – if you want answers to your questions @ #33 re Mondragon, just Google it rather than being a smartarse.
    They even have a nice FAQ on their website.

    Comment by Gregor W — May 24, 2013 @ 1:48 pm

  39. Oh goody. Neil, Gregor and CF are having a wankfest.

    Comment by petey — May 24, 2013 @ 7:04 pm

  40. @Gregor W, this whole blog’s raison d’être is to be a smartarse (but only if you’re on the right team).

    Comment by Adze — May 26, 2013 @ 7:01 pm

  41. Can you tell us why we are worth off than spain? I dont understand that statement at all.

    Comment by nicolaas — May 27, 2013 @ 2:58 pm

  42. Certain irony in this line..

    “If this is really how people are thinking, economists need to do a better job of publicly describing what is going on with our NIIP.”

    ..given that I have no idea what NIIP even stands for.

    (I suppose this is not a problem for his regular readers have)

    Comment by repton — May 28, 2013 @ 9:49 am


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