Friday, May 18, 2012

Debt Going Parabolic. Time to Take Stock.

New Zealand's public debt is doing what all debt plus interest is supposed to do. Go parabolic. Once you get to a certain point of debt increase, you need more and more debt to cover the last debt increases and the interest payable.

Four years ago New Zealand's net public debt was about $20b. Now it is around $50b, and we haven't ended 2012 yet. Forecasts show that in three years, it will be around $73b.

New Zealand Public Debt 2000 to 2016 (Projected) in NZ$billions

If this level of exponential increase continues, we will suffer enormously. We will cede control of our nation to those we borrowed from. The Chinese Government, private bankers and wealth funds worldwide. Like Greece and the other PIIGS we will have to make stark choices. It will happen.

Perhaps John Key and Bill English are doing the right thing by selling public assets here in New Zealand now. Are they being wise enough to see the 'debt' writing on the wall. You see, we do not want to be in the situation that Greece is in before realising we need to pay off the bankers.

A fire-sale of assets in New Zealand would be a disaster. A New Zealand in this position would mean an unstable living situation for all of us. Would we then see radical groups take their oportunity here to take advantage of rising public anger to sympathise with their causes? Maybe.

Asset sales are supposed to lower the crippling public debt to more comfortable levels. But I say it will not be enough. What are the other choices for New Zealand? Perhaps we devalue our currency to lower debt value. But imagine the hardship on the ordinary citizen that would result in. But it's probably the best political option. Stealing from the masses always has been. Just do it quietly.

Greece is currently going through the pain of austerity. Greece is the first 'developed' nation example of what it means to be over-indebted. Simply put, it means you don't have a nation anymore.

Is it any wonder that right and left wing extremist parties are capturing up to 20% of the vote there. This cannot bode well for Greece. When you threaten to take away someones livelihood, that's stressful enough. But when the people see unelected eurocrats backed by private bankers, run your country and want to sell your assets at bargain basement prices, then you run the risk of awakening the ire of ordinary citizens.

Private interests are seeing bargains galore coming up in Greece (New Zealand?). This is what happens when you get into too much debt. You pay with your past wealth accumulation, but you pay whatever the piper offers because your power to bargain is zero.

Greece and now Italy and soon others will have to make some dark choices soon. Going back to the Drachma will be paramount to ongoing success in Greece. Yes, it will be a difficult few years after, but if Iceland's story is to be admired, then Greece should only look in that direction.

New Zealand , are you ready for what is coming?

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Previous all-time high: $59.19
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