No Recovery Can Be Guaranteed

 

A recovery from the global financial crisis can’t be guaranteed. There’s no reason why employment, consumer spending and business confidence have to recover in New Zealand.

The unwinding of what George Soros calls the “superbubble of credit” has barely begun.

For a while there I thought that we’d start to see some sanity around housing. But prices are on an upwards march again, absolving the need for the government to address rising superannuation costs.

 

Banks are relaxing lending standards and setting themselves up to pass stress tests. Financial stability is apparently high, but we can’t see the models the RBA and RBNZ use because that would reveal how precarious the situation actually is.

If banks stop the growth in mortgage lending, the whole house of cards will collapse. In order for perpetual growth to shine upon their balance sheets and executives to get their million-plus bonuses they can’t afford to stop lending on housing stock.

In order for a recovery to be called a recovery, hundreds of thousands of people unemployed or under-employed have to get something out of it.

It’s not like they control any capital with which to benefit from gains in technology, automation or inflation.

For those at the top of the food chain, there hasn’t been much of a recession. Only those who borrowed far too much had their wings clipped.

All the others have kept on benefiting from asset-price inflation and successfully watered down any attempts to reign in excess.

During the 2000s, rising house prices and easier credit papered over the stagnating New Zealand economy.

But interest-free repayment periods come to an end and the flow-on effect of a protracted downturn in construction hits people on lower incomes even harder than Radio New Zealand listeners could comprehend.

The exodus to Australia, driven by the working class and skilled tradespeople, can’t be permanent. Under the Special Category Visa regime Kiwis aren’t eligible for Australian welfare payments.

This means that when the mining bubble collapses and destroys the house of cards that is the Australian economy, the reversal of emigration will turn New Zealand into an even more screwed country.

I laugh when I read articles about “average pay rises”. The only people who get pay rises are connected to the public sector in some way, shape or form.

Out there in the real world, casualisation and sub-contracting arrangements that resemble old employer-employee relationships in every which way except name, have hollowed out the labour market and turned it into a project-specific skills market where the risk is borne by the contractor.

No recovery can be guaranteed because the risk/reward equation is so heavily skewed towards people who’ve already made a bundle, having no incentive to put what they’ve earned in the boom at risk by taking on additional investment projects.