Stephen Long from ABC News brought to my attention the fact that the Reserve Bank of New Zealand appears to be contemplating a return to regulating lending.
This is only hinted at at present, but it represents a major shift in Central Bank thinking–and a welcome one, from a debt-deflationary point of view.
I’m interviewed about it on PM tonight; in the meantime, here are some relevant excerpts from the Reserve Bank of New Zealand: Financial Stability Report, May 2:
This is another non-debt post. I’ve just heard Costello describe tonight’s budget as an “Education Budget”. There was a welcome “equity” bequest to universities, to fund infrastructure and research: but there was also a shallow “shell and pea” trick in the allocation of funding for University places.
The complicated CGS banding system–which determines what the Government provides per student, and varies depending on the discipline being studied–is being rationalised from 14 bands to 7. In 6 of those new bands, the amount being given in 2008 is slightly more than the highest amount given to the previous bands. For instance, the four bands of Maths, Behavioural Sciences, Education and Computing are being amalgamated into one band; the highest funding level per student in 2007 was $8,057 for Computing, and the lowest $5,381 for Maths; the new funding level is $8,217–a 2% rise for Computing, and a 52% increase for Maths.
It goes without saying that I’m a Cassandra amongst the Pollyannas crowing about Australia’s current economic performance data. Low inflation, low unemployment, and no sign of a wages breakout, are the usually-quoted sweet economic indicators (admittedly with some strange bedfellows, including a relatively slow rate of economic growth for these conditions, and a huge balance of trade deficit despite the best terms of trade in history).
So how do I justify the stance of a Cassandra? Because things can’t continue as normal, when normal involves an unsustainable trend in debt. At some point, there has to be a break–though timing when that break will occur is next to impossible, especially so when it depends in part on individual decisions to borrow.
I’m speaking at Reality Check, as part of the ALP Fringe Conference program, which runs parallel to the national conference and provides NGOs and other groups with an interest in influencing ALP policy with a platform to host discussions and seminars.
I’m one of three speakers and we have only one hour, so it will be rushed: if you want to participate, don’t be late:
Date: Friday April 27th; Time: 1–2pm; Venue: UTS Haymarket Campus, Building C, level 1, Room 31. Just up Darling Drive from the Convention Centre/down from UTS Library (view map) Enter via Block D next to the ‘Art of food’ cafe.
This post has nothing–well, almost nothing–to do with debt. But this is a blog, right? So I can post whatever I want.
And what I want is for you to see a new play called Hell’s Belles–or at least spread the word about it. It’s a comedy with the underlying theme of “Be careful what you wish for”: two divorcees fantasising about the ideal man accidentally conjure up a demon, who can only leave once he has someone’s signature on a contract that offers a wish in return for a soul.
Global economic attention has been focused on the sub-prime lending crisis in the United States recently, and many local analysts have made soothing noises to reassure Australians that “it couldn’t happen here”.
The USA’s sub-prime market is indeed a peculiarly American phenomenon; but the level of Australian household debt (the sum of mortgage debt and personal debt) is every bit as extreme as the USA’s. And contrary to popular opinion, our debt binge dwarfs America’s. As the chart below shows, Australia’s household debt to GDP ratio has been growing more than three times as rapidly as the USA’s since 1990. The ratio has grown at an average of just over 2% per annum in the USA; it has grown at over 6.8% per annum here.
Most conventional and unconventional commentators on money believe that money is destroyed when debt is repaid. I disagree–but explaining why takes some time. I received an email this morning from a Ecological Economics discussion list in the USA on this issue, and wrote the following explanation of my position. I thought that readers of this blog might find it instructive.
On the money issue, this is one where I beg to differ both with the response Josh put forward, and most of my fellow economists as well–non-orthodox and non-orthodox. I think it’s wrong to say that money is destroyed when debt is repaid–but to explain why, I need to both put forward a dynamic model, and find an appropriate analogy.
I was interviewed on the New Zealand TV3 current affairs program Campbell Live last night, discussing “Shared Equity Loans” (SELs). Click here to see the video. I’ll be writing a blog entry on this issue shortly.
As part of the background to the LateLine interview yesterday, I graphed the US household debt to GDP ratio against the Australian. All the news recently has been about the sub-prime crisis in the States, of course: but guess where household debt has been growing fastest? That’s right, good old Australia has out-done itself once more. The accompanying graphic tells the story, which I’ll embellish in the next Debtwatch report in early April.
