[OPE] US Pledges Top $7.7 Trillion to Financial Institutions -Bloomberg.com (addition)

I dug out from a PEN-L post I wrote five years ago what the head of the IMF investigation team in New Zealand actually said (NZ Herald, 19 Nov 2003 or thereabouts):

"There's a macro-economic issue about the longer-term sustainability of household debt which we are aware of but which goes somewhat beyond the mandate of FSAP [IMF's financial sector assessment programme]. But the overall vulnerability is not as much as in other countries with a similar debt structure because the debt goes to households, not the Government. It is market-driven."

It is an interesting philosophy - if individuals owe more money to private entities who in turn owe more money to foreign investors (more than half of these foreign debts being payable within terms of one year) they are "less vulnerable" than if the state regulates the debt burden on behalf of its citizens and protects their interests. I'm sure that the financial sector in New Zealand is "very healthy" - why? Because the whole population is in the hock to them. The net foreign debt is roughly equal to annual GDP. The outflow of interest & dividends to foreign investors is roughly equal to the income they earn from meat & diary exports. There's a lot of dispute about how exactly you should measure poverty (a norm for the "poverty line" is 60% of median disposable household income), but basically a quarter of the population nowadays experiences financial hardship of some sort, and probably another quarter can pay the bills, but is unable to save.

Home ownership in New Zealand reached 73.8 per cent of households in 1991 but by 2006 it had dropped to 54.5 per cent; in Auckland, the figure had dropped to below 51 per cent. Meanwhile, the banks are now stipulating that applicants for mortgages need to supply a deposit of at least 20 per cent http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=10545698 That figures, because residential property values are falling quite rapidly while the economic outlook is uncertain - houses are likely to lose about a quarter of the value that they had at the peak of the property boom. It looks like two-thirds of the next generation will not be able to afford to buy a home, at least not within the first twenty years or so of their working lives, since a couple would need to save something like $30,000 each - not easy to do if you also want to raise children, unless you hustle like mad or get an inheritance.

The odd thing is that while household debt conveniently "falls outside the mandate" of FSAP, in reality the largest chunk of bank business in New Zealand concerns residential property. Then you would say that it would be macroeconomically important to compile annual social accounts for household assets and liabilities, particularly because changes in the financial position of households have large macro-economic effects, but in fact they don't do this. Of course, the more socio-economic inequality grows, the more reluctant the bourgeoisie is to have the real total situation publicly revealed. Meantime, violent crime, destruction of property, illegal anti-social behaviour and fraud are all increasing year by year.

A "hard landing" for the New Zealand economy has become more probable, according to Fitch, despite New Zealand's AA+ credit rating, because of the "triple banger" of tightening credit conditions, adverse terms of trade for commodity exporters, and falling property prices. But nevertheless the ANZ National Bank said it was "flush with cash". http://www.nbr.co.nz/article/hard-landing-nz-possible-fitch-38445

J.

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Received on Sat Nov 29 15:11:16 2008