Two E words - Election and Economy

So this morning the make up of the next parliament. Since I was in Russia I have had minimal interest in politics. However I do observe that what ever group of parties is formed will be prety unstable. Maybe it will last a bit longer now the Nats have one less MP but I still do not think it will last the 3 years.

However it is not the finely balanced parliament numbers that will be the pressure point.

New Zealand, and a large number of other countries, have got themselves into an economic hole. We have very high interest rates. We have a very strong dollar. And we have ever increasing debt issues.

Some of you will know I have a Bachelors and a Masters in economics. Even with 6 years at uni I can not see a happy way out of this.

We are buying too much from overseas. To do this we are borrowing. We can do this because our dollar is very strong. In a normal system this would put pressure on the dollar to devalue. However we are trying to control inflation through interest rates. With all the consumption our inflation rate is under a lot of pressure. So we are hiking interest rates up to being the highest in the western world. This attracts a lot of overseas financial investment (not productive investment). This drives the dollar higher which fuels more overseas spending and debt.

Simply we have ourselves in a very bad circle and there is no easy way out. At some point the circle will burst. The problem is that it will BURST. It will happen overnight. Overseas investors will remove their money on mass, this will drive our dollar probably below 50 cents to the US dollar and in doing so our debt will gain 30% in value in NZ dollar terms. Our debt rating will crumble and basically we will have a recession.

Added to this, the cheap imports (due to the high dollar) are killing off our export sector. When it bursts, we will have a reduced ability to earn foreign currency. Only good thing about this killing off is that it will kill off the low margin work first so hopefully the high margin stable part of the export sector will remain.

So what can we do about this? Wait seems the only thing. Some might look to move $$$ overseas. But where to? The US has the same problem and their downfall will probably precipitate ours. I would not touch China and Asia in general at the moment. They are an environmental time bomb that seems to be going off with air pollution and viruses. Europe is Europe but does not inspire. The Middle East is where the $$$ are coming to fund much of this debt but that place is a mess. Australia to me looks the only solid economy by virtue of its low debt and lots of natural resources (essentially they can dig up more wealth and buy their way out).

Personally, the key is to not take on any more debt and make sure your job and workplace is secure. If you are a student, I would be saving so you can do an OE sooner rather than later. In 10 years time this might have sorted out.