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20
MAY 11

Slip Sliding Away




Increasing foreign ownership and offshore debt sets up a flow of interest and profits out of NZ.   Given that: we either earn more with what is left or spend less, otherwise foreign ownership will continue to expand making surpluses ever harder to attain – asset sales are not material in this regard (they equal around 0.5% of the GDP in the budget projections).

Any current account deficit effectively demonstrates we are likely on a trend to greater pain and more cuts as history shows us unable to increase earnings.  This will not change until the policy framework changes and we effectively control domestic inflation and the value of the New Zealand dollar via capital controls or some form of foreign exchange transaction taxation.

Start thinking in terms of our National debt not Government debt and get real.  Currently our cost of funds is being tolerated, but if current trends continue the cost of offshore funds will begin to increase as will the cost of domestic lending (regardless of the OCR) compounding the debt problem (as more of whatever funds are available are soaked up in debt servicing) exacerbating the difficulty of investing and earning more.

We are on a slippery slope and it is getting steeper. 
 


tags: debt, current account deficit, investment
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