Thursday, May 26, 2011

Bank Funding Strife and Housing Debt

Recently, Moody's downgraded the long-term rating of the four big Australian Banks from AA1 to AA2. The main reason being their heavy eliance on overseas funds rather than local savings.

New Zealand Banks also have an unhealthy habit of borrowing overseas to fund the local mortgage market here. With their parent banks being downgraded, the cost of that borrowing has just gone up slightly.

This may in fact be a good turn. Perhaps the NZ Banks will be more careful in the way they lend money. After all, if the NZ Banks fail, then the Aussie Banks will need to bail us out. But the costs of that scenario for them just got higher also.

Moreover, the property spruikers in Auckland were at it again yesterday. Talking up the huge increase in prices they are getting for properties in the Auckland Grammar zone. This is not indicative of a Nation-wide trend and they know it. But a little sales-talk and panic amongst propective buyers never goes amiss to drag them into the market.

It makes you wonder just who these Grammar buyers are. Perhaps they are Asians, particularly the Chinese, willing at any price to get into the zone and into the country. Market forces truly at work.

And this leads us back to the Banks. Banks are very secretive on where they source their funds overseas.  However, it wouldn't take rocket science to realize that a majority of those funds are sourced in Hong Kong, China and Chinese interests in Singapore. Just this week, the NZ Finance Minister is in Asia seeking buyers of Government Bonds.

If Banks continue down this easy money road (and Moody's is warning against that) then New Zealanders will continue to borrow to fuel their obsession with owning property for investment purposes. Our savings rates will continue to fall and we will have less use of our own capital to fund innovation and existing business expansion.

What will it take for us to change our debt-laden ways?

Perhaps more foreign ownership of our assets?

Gold in New Zealand dollars: $1913.31 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $47.45 per oz
Previous all time high: $48.58
per oz

Articles of interest:

Silver's tightness could take it to $125, Embry tells King World News

See article here
King World News

Gold Revaluation & Seasonals

See article here

The Anglo-Far East Company
The Original Private Bullion Custodian
Your reference: an-001

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