Friday, May 20, 2011

Belief in Miracles at the Heart of the Budget

The NZ Government delivered their Budget for 2011-12 yesterday.

Nothing to see here folks, move right along.

The Budget showed us again that we are succumbing to a slow debt-laden death spiral that the Government has no answer for.

The major points were cuts to Government contributions to our KiwiSaver programme, changes to a welfare scheme called Working for Families, and cuts to the Student Loan Scheme. All slicing small pieces off the debt elephant in order to get us to continue be part of the game. Let alone trying to pull the wool over the eyes of Standard and Poors. Good luck with that.

However, it has been fascinating to note the commentators on this Budget. Almost to a person, they sound frustrated that more has not been done or signaled.

But what really can a Government do to quell a ballooning debt problem that, let's face it, is all our problem.

Remember, a large majority of us borrowed cheap money in the 'naughties' expecting future income to cover the repayments. We literally brought forward our consumption of goods we didn't need. Now our Public and Private debt is humongous and soon the Creditors will be knocking on the door with their 200 pound Minders.

The growth forecast to cover the minimum we need, without regressing, is a 4% GDP target next year. This is a forecast from a bunch of Treasury officials that have been dealing us pie-in -the-sky figures for goodness knows how long. We can't trust these guys now. It's all a confidence game and time has been called.

I don't believe in these miracle workers and their nonsense forecasts. The only way we are going to get out of this is by sheer hard work and innovation or we default on our debt. Maybe a combination of the two. It cannot be repaid, we owe too much and the sooner we realize this the better.

Iceland recently defaulted on their obligations to Banks in Britain and France. It could be argued that Iceland is now coming out the other side looking quite sound. Is this an option for New Zealand?

Or should we ask the NZ Reserve Bank to buy some of the new Long Bonds on issue from the NZ Debt Management Office or Bonds from the new Local Body Funding agency. This would be tantamount to printing money, but at least it would deflate our debt away somewhat. Too bad about our reputation!

If I sound a little 'down in the mouth' then OK. But, as I said earlier, we are a great wee country with considerable natural resources. We can pull ourselves out of this.

Hopefully before the 200 pound Gorilla pushes our door down.

Gold in New Zealand dollars: $1888.26 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $44.17 per oz
Previous all time high: $48.58
per oz

Articles of interest:

Could Greece be the next Lehman Brothers? Yes and potentially even worse.

See article here
The Telegraph

Budget betting on flawed assumption

See article here
The NZ Herald

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

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