Bollard pleads
April 9th, 2008Keep going guys, Alan Bollard pleads. He asks banks and businesses not to hibernate. What?!
Is he suddenly the Finance Minister? It’s really quite odd to see a central bank governor talking like this especially since the last few years he’s been going on about house prices and overborrowing without doing a great deal about it.
Now he’s saying don’t let credit constraints get in the way.
At the same time the Commerce Minister tells investors to get savvy or get “burned”. I love it especially from a Labour government where many ministers have invested in property themselves. Financial literacy? We’d certainly like some.
The facts are very simple. Too much leverage, much of it unseen, caused an asset bubble. That bubble is now deflating and there will be some major fallout. Add to that concerns over global food and energy prices and you have a perfect storm. So for banks now to put the shutters up whilst they count the cost is simply sound business practice.
Westpac has already adjusted its loan criteria. This just fuels the need for lower house prices and demonstrates the role that banks have played in the boom. Yes the interest rate is important but only at the margin. The real issue is how much will they lend: 100% or 65%.
It’s a big difference in what people can afford to pay. Now landlords have the power as they can raise rents and people will just have to bear it. So along with an increase in mortgagee sales we will see an increase in rent arrears if rents increase beyond peoples’ means.
So it’s a bit late for the officials to weigh in with their comments. They have had plenty of time to look at banking regulation and have completely missed the boat.
Tags: banking, credit, debt, housing, inflation, interest, money, new zealand, reserve bank of new zealand
April 10th, 2008 at 5:27 am
Hes almost doubled the cost of borrowing over the last few years in order to take the heat out of the housing market and he pleads for businesses not to stop investing! Is he kidding? Theres way more than credit constraints getting in the way in the current business environment.
I guess he hasn’t learnt the endogenous theory of money.
“It is created by banks and other financial institutions on the basis of expectations about the solvability of debtors. Those expectations depend of the debt level and the expectations in the future growth of debtors revenues and debtors wealth. Money creation is thus subject to herding behavior. Banks often trap their regulators. Therefore no exogenous control of money creation can be efficient. Private supply of money fluctuates in the short and long term. Central banks can only try to smooth these fluctuations.
I believe the above was an entry written by Steven Keen, a professor at the University of Western Sydney.
http://www.debunking-economics.com/
Have you heard of him?
I was just thinking the other day that to prevent the housing asset inflation of the last 5 years the government should have regulated required deposits on mortgages. Perhaps allow 100% mortgages, but require a 20% deposit on a second house, although I guess housing speculators would just pass the extra costs onto their tenants or have deducted it from their income tax under the LAQC vehicle. Or maybe only allowed 100% mortgages on new built homes?