NZ ECONOMY IN CRISIS

As I mentioned in a blog post two or three days ago, Karl Marx (is he coming back into 'fashion'?)- pointed out that credit is the way that capitalism goes beyond its limits and provides the means to expand.

Here in New Zealand, easy credit has, more often than not, been the substitute for low wages and rising prices. And it has been easy to get with banks all too eager to give customers credit cards, all manner of attractive hire purchase schemes on offer, tempting mortgage offers, etc

A report by the Victoria University of Wellington showed credit card debt increased from $1.5 billion dollars in 1996 to $3.6 billion dollars in 2005.

At the end of August this year, all credit card debt stood at $5.1 billion. And we're talking a small country of just four million people.

And, now as the tough times getting tougher, more New Zealanders are using credit cards, not for a Fiji holiday or that plasma TV, but just to pay the bills.

Almost a third (31 per cent) of people aged 18-49 expect to use their credit cards to cover otherwise unaffordable expenses over the next three months, according to a survey conducted by Dun & Bradstreet, released last week.

This is the culmination of living standards progressively declining over the almost the decade-long reign of the Labour Government.

The average net worth of a New Zealand household declined by $2500 in the December 2007 quarter and $5900 in the March 2008 quarter.

In the same six months, average debt increased by 2.2 percent. More than one in five New Zealanders with a home loan, spend over 30-45 percent of their income on mortgage payments, while over one in eight spend this amount just on mortgage interest.

The value of the houses these mortgages rest upon is falling—the median sale price dropped by $5000 from May to June this year.

New Zealand households’ combined loss in the half-year was over $13 billion.

At the other end of the scale though, New Zealand's wealthy are still spending money, still living the high life

The National Business Review’s (NBR) 2008 Rich List, released July 25, indicated that the New Zealand's rich are largely insulated from the worsening economic conditions.

The 178 individuals and families on the Rich List control an estimated $NZ44.4 billion ($US32.6 billion)—a New Zealand $5.8 billion or 15 percent increase compared with last year, and $9.3 billion or 26.6 percent more than in 2006. This staggering increase comes despite the fact that, since 2006, the Rich List has shrunk by 44 entrants.

Indeed as the rich have just got richer, the National Business Review has had to regularly adjust the threshold for getting on the Rich List.

The first Rich List, published in 1986, had an entry level of $5 million. This was revised to $16 million the following year, $20 million in 1988 and $25 million in 2004. Last year the prerequisite doubled to $50 million.

And, bar a disaster, it appears that the next Prime Minister of New Zealand is going to be a Rich List member. John Key was a new addition to the list this year, with a total wealth estimated at some $50 million.

Indeed Key's wealth sums all that is wrong with New Zealand. He made his money when Merrill Lynch's share prices rocketed from $52 in 2001 to $93 in 2006.

This was due, in large part, to the US sub-prime mortgage boom, in which Merrill heavily invested. In October 2007, when the bubble burst, the bank reported a third-quarter loss of $US2.4 billion and wrote off $8.4 billion in bad debts linked to the sub-prime mortgage market. Merrill, of course, has now collapsed

The future looks even grimmer for ordinary people.

Sixty percent of the new jobs created in the last five years, especially in real estate, construction and retail, rested on the steeply rising rising house prices. But that bubble has burst and the economic tsunami about to sweep over New Zealand can only mean a further deterioration in living standards and rising unemployment.

There is no viable political alternative on hand with the two main parliamentary parties seemingly bewildered that the neo liberal model has collapsed and are now flirting with Keynesian - inspired policies they had once previously contemptuously dismissed.

Thery won't work and demands will grow from business and its political allies for 'spending' cuts - which will mean a sustained attack on the living standards of ordinary people. The right wing Maori Party's call for the return of 'work for the dole' schemes is a taste of things to come.