Sunday, 26 October 2008

Big capital wants profits guaranteed, or they'll pull plug on NZ economy

by Peter de Waal The fact that the NZ Reserve Bank is being forced to cut it's interest rates from 7.5% to 6.5% shows the folly of years of wage-growth restraint and it's destruction of the savings potential of New Zealand's workforce. The Reserve Bank has kept interest rates high to attract foreign "hot capital", just to keep the lights on. This has had a punitive effect on business investment and has lowered productivity. Home owners also pay through the nose for the privilege of mortgage borrowing. In 1987 the rich were able to soak the workers through user-pays as most families owned a home. This time most families under the age of 50 rent – despite the cooked figures the government likes to advance showing around 60% home ownership – there is no spare cash to be mopped up (a reminder to Maurice Williamson, National’s road-toll extraordinaire). Once people are laid off in droves and defaults on mortgages begin in earnest (likely to be shortly after the election) it will start a free-fall in prices, particularly housing, as the money to lend out dries up and mortgages come up for renewal. The fall in returns for farm products and the end of tourism will severely limit the ability of NZ to offer high interest rates to foreign lenders. Hence the call from the right for government guarantees of inter-bank lending. Without guaranteed profits the world’s big banks may just pull the plug on the NZ economy. [Like National, Labour has announced it will guarantee inter-bank lending (see Banks: We will help struggling borrowers, NZ Herald 3 Oct 2008). The Australian owned banks have in turn made some weaselly promises about supporting mortgage borrowers in trouble as a result of the floundering economy. These same banks have made billions of dollars in profits in recent years. Will the banks look to maintain their high profit margins by putting a slow squeeze on New Zealanders mortgaged to the hilt? - UNITYblog editor]

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