Thursday, February 21, 2013

Is Bernard a broken record?

A recent column by Bernard Hickey in the NZ Herald entitled 'Buy now, pay later' brought forth the comment that 'Bernard, u are a broken record.'

The column was mostly about the benefits to consumers of the high exchange rate but did point out at the end that cheap prices for consumer goods were great for those with a job and income, or a good line of credit. 

Now I'm willing to wager that Bernard and I disagree on a few things but since he's a cyclist we're prepared to cut him quite a lot of slack. Plus...we think in this case he's right.

New Zealanders borrow a lot of money, and our total debt is among the highest of any country in the world. Contrary to what the government would have us believe, most of that debt is private debt. Private borrowing went into overdrive during the 2000s as Kiwis borrowed on the equity in their properties or simply borrowed to buy more property. Plenty of others borrowed just to stay afloat. As the economy continues its downward death spiral, Bernard quite rightly points out that the other side of cheap flatscreen TVs is an export sector losing jobs (the subject of another post when I get round to it).  

As nerdy types, Spider and I thought we'd look at what the data was telling us. The first thing is that, in a supposed sign that the economy is picking up, credit card spending picked up in December. This money was spent on 'consumables such as food, liquor and fuel'. Day-to-day expenses being put on the credit card by the newly minted unemployed, one suspects. Oops.

Statistics New Zealand's 15th February release on December 2012 retail sales (indexed to September 2010 dollars) shows from the previous December, while sales of groceries, food and beverage services and recreational goods sales fell, hardware and electronic goods sales jumped, as predicted by the 'high dollar cheap goods' thesis. (In fairness, it should be noted the data is presented in several ways and the actual unadjusted sales data presents a slightly different picture). But hidden away in the data (Sheet 11) is the fact that most retailers accumulated stock during 2012 (unadjusted dollar values) with the exception of recreational goods and electrical goods - expensive items that are largely imported. Tick for Bernard.

All of this is sort of ho-hum but for the fact that as exporting manufacturers close their doors, New Zealand is increasingly unable to pay for all those luxury cars and TVs we seem to like so much. Treasury's January economic indicators include a graph of New Zealand's current account deficit, which has been creeping up since 2010 (below). We're some way off the peak of 2006-09, but we aren't getting out of our debt hole, either. Another tick for Bernard.

Far more low-rent punters, you know, the ones with no credit cards and no or low-paid work, there's still plenty of opportunity to get into debt. Spotted across the road from the local high school was this gem:

Not exactly subtle.

Here's an outfit with a complex company structure that has undergone at least one name change flogging overpriced cars and expensive credit to people who can't spell.

Remember those finance companies that hit the wall in 2008-2009 losing the equivalent of about 5% of GDP? Many of them held debt on motor vehicles - sort of like New Zealand's version of the sub-prime real estate collapse.

Reinforcing the message that it's OK to bilk the poor, this popped into our letterbox a couple of days ago. 

Now it's true people make the choice to get into debt but you'd need to be desperate to pay $1,716 for a 7-piece dining set ($11 per week for 36 months) when you can get the same for about $400 on TradeMe. Who has that little cash on hand? Our growing army of the working poor and beneficiaries borrowing to stay afloat.

In other words we're behaving pretty much as we did in 2007 except that the number of low-income borrowers has increased and they are even more cash-strapped. And in a country with ever-diminishing options to earn a living, there's no shortage of sharks willing to prey on them.

Bernard might be a broken record but we think that's because we're back to borrowing and spending, tragically in many cases to cover basic living expenses. An emerging real estate bubble, cheap cars and expensive finance? We appear to have learned nothing.