TROUBLE AHEAD: The Reserve Bank has twice in a month put the kybosh on National’s “look how clever we are, we conjured up a surplus” mantra as the solution to all economic ills. I doubt Finance Minister Bill English feels any less smug. He admits one is not on the cards this year.
The Bank raised serious questions about the big issues of liquidity and stability, the housing market, our foreign owned banks and their insatiable appetite for borrowing. Dairy prices are expected to drop further, farmers who have taken on big debt may be in serious strife. Fortunately, established farmers took the opportunity to pay off debt from the high returns last year. The Canterbury rebuild, slow to get going, is going to slow off too. A tiddly surplus can’t hide the elephant in the room, our huge indebtedness and trade balance problems. Banks make money (literally and in the form of profits) by borrowing and lending, the more the better it seems. Prudential risk management still seems a quaint idea instead of a fundamental obligation. So the Reserve Bank is trying to keep them reined in. Sadly I don’t think its short, simple messages percolate far.
I see David Cameron (in whose company I am deeply discomfited) warned about the Eurozone while patting himself on the back for the UK’s improved position as if that will save the UK or the rest of us if things go belly up again. Are we to believe UK banks now leaders in prudential risk management?
Apparently many happy Aucklanders seized their new property valuations and rushed off to borrow against increased equity in their houses to buy a boat, have an overseas holiday, do some renovations and the like. My legal offsider delivered pretty brutal advice to clients in the 1980s who did the same, but it didn’t make a jot of difference. We had to bail out the by then half state-owned BNZ in 1990.
Treasurer Bill English lives off the fruits of inheritance and a well-paid job to boot. I too live off the fruits of capital inheritance (very modest compared with Bill’s), national super, a small amount of rent and a $15 dividend. Savings may be called on to top this up. Many years ago a successful businessman asked me if I knew what a capitalist was and I smartly answered ‘Me. I live off interest, a rental and dividends’. I may have had a job at the time. I believe a capital gains tax long overdue. How quickly we have re-established a class system but one, it appears, that may have less sense of noblesse oblige and social obligations than the previous one. Continue reading