Since 1991 the proportion of ethnic-Asians in our population has quadrupled to 11.8 per cent, the census found. That is not far behind the 14.9 per cent of Maori and the trajectory is much steeper.
Asia is coming to us. Those Asian New Zealanders make us culturally much more a part of Asia (though we remain distinctly Pacific in culture and geography). The more Asians here, the more Asian we will be.
Part of that Asian culture is that by and large Asian migrants and their children learn hard, work hard and save hard — qualities Euro-New Zealanders have mostly discarded and Maori and Pasifika have yet to fully ingest.
Household income statistics show New Zealanders have, after a brief reversion to net saving after the late-2008 global financial crisis (GFC), quickly reverted to habits learnt in the 1990s and honed in the 2000s. They are borrowing, much of it from foreigners, and spending more than they earn.
According to Reserve Bank figures, household debt as a proportion of disposable income roughly tripled from the early 1990s to the mid-2000s and, after the post-GFC shock, has recently climbed back to not far below that profligate peak.
This is not what Bill English had in mind when he came to office five years ago. We were to get individual debt under control and, by exporting a lot more instead of consuming a lot more, cut national debt. The tradables part of the economy was to take precedence over the non-tradables.
But have English and his monetary policy running mate, Reserve Bank governor Graeme Wheeler, matched policy settings to rhetoric? Are they inducing households to save?
English, John Key and other ministers continually trumpet low interest rates — economically because they help business invest and politically because they comfort mortgage holders, who might be susceptible to opposition parties’ pitches. Housing Minister Nick Smith intoned the mantra last week in question time in Parliament: “This government is very focused on keeping interest rates low for longer.”
But low rates have spurred borrowing to buy houses, which has helped push prices back through the roof. This bothers Wheeler, who has limited banks’ loans of more than 80 per cent of the house price (the “loan-to-value ratio” limits).
Low interest rates also don’t reward savers.
And the Reserve Bank has played a big role in keeping rates low. After the second Christchurch earthquake, Wheeler’s predecessor, Alan Bollard, cut the official cash rate (OCR) 0.5 per cent to a record low 2.5 per cent to insure against a sudden slump in business confidence.
That emergency low has stayed put since and will likely stay in Wheeler’s quarterly policy statement on Thursday.
The low OCR is New Zealand’s mild version of the war footing the United States Federal Reserve and other major central banks have been on since the GFC. The Fed’s official rate is very close to zero and it has been printing money at $US85 billion a month. That has driven up company profits, especially in the financial sector, but done very little for jobs or wages.
The Fed’s — and the world’s — big problem is how to end the war. When outgoing Fed chair Ben Bernanke hinted in May that he might in coming months begin to “taper” the rate of money-printing, there was a huge outflow of capital from emerging economies, which had been holding up the global economy and which then slowed sharply. Bond yields in the United States — and here — leapt despite official rates not moving.
The worry is that this life-support “recovery” in the United States and Britain, a manufactured limp in Japan and the crawl in Europe might stall, stop or reverse if the central banks mismanage their retreat from their wildly unorthodox policies and, as a result, business confidence tanks.
There is a subsidiary worry that not all too-big-to-fail banks are secure yet, especially in Europe. But nobody actually knows. This is new territory.
Since nobody knows, there is a fierce debate among commentators. They also disagree about how austere or expansionary fiscal policies should be. Getting budget deficits down dampens already damp economic activity in the short term but expansive budgets can’t go on too long because the resultant debt overhang limits GDP growth for years to come.
Many fret about “deflation” because most economists, as distinct from actual people, think if prices go down economies will stagnate. (In the nineteenth century prices did go down and economies expanded.)
English underlines this uncertainty in speeches, to argue for continuing caution and prudence. The fact that the 2008 GFC virus has been heavily dosed with drugs does not mean it can’t mutate into something just as destructive.
The message for households: save up a buffer. But Wheeler’s interest rates, extolled by English and Co, are telling them to borrow.
There are two bits of counter-news. Short-term, Wheeler has firmly flagged OCR rises over the next two years. Longer-term, the Asians are coming.