Posted by Blogger Name. Category:
Bernard Hickey
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Economic recovery
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Housing bubble
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Jesse Colombo
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Ken Ring
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Moon Man
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Steven Joyce
Apparently, the New Zealand economy is a bubble about to burst. Well, that's what a lone "expert" thinks, but his views have been swiftly dismissed; Stuff reports:
The Government is playing down predictions published by powerful US business magazine Forbes that New Zealand is on the path to economic disaster.
Economic analyst Jesse Colombo yesterday labelled New Zealand's economy a bubble which will pop devastatingly.
The current housing bubble was creating a mortgage bubble, he said, with almost half of outstanding mortgages currently having floating interest rates.
Rising interest rates would eventually pop this bubble, banks would experience losses on their mortgage portfolios, "the country's credit boom will turn into a bust" and over-leveraged consumers will default on their debts, Colombo said.
"Not only is New Zealand's banking system dangerously exposed to the country's property and credit bubble, but so is the entire economy."
Acting Finance Minister Steven Joyce last night dismissed 28-year-old Colombo's theories as "alarmist" and described him as a "bubble-ologist".
"His view on life is that the whole world is pretty much in a bubble and there's no place he doesn't pick on," Joyce said. "I wouldn't be paying too much for that level of analysis. He's a little bit like [earthquake forecaster] Ken Ring. He's out there predicting catastrophe at every turn."
Whilst of course Labour and the Greens would secretly love to see Colombo's prediction come true (for political purposes only), it's not likely to happen. Colombo has appeared to cherry-pick his data, to produce his prophesy of doom and gloom, as is duly noted:
Infometrics managing director Gareth Kiernan said Colombo had picked out all the high-risk metrics he could find to build an "end of the world scenario".
If his predictions ever came to pass then the economy would be in trouble, but no one was really forecasting that to happen, he said.
"You would need a bit of a catalyst to kill off the housing market so sharply and I don't think, given the outlook for economic growth over the next few years, a lift of a couple of percentage points in interest rates is going to do that."
Even Bernard Hickey, no friend of the current Government thinks that Colomo has over-inflated his bubble; read on:
Interest.co.nz contributing editor Bernard Hickey said many of the risks identified by Colombo were real but they were old news to those who ran the economy.
"For him to come out and say we've got a bubble, therefore it's going to burst, which will lead to a crisis is a little bit simplistic," he said.
Kiwis had already seen the Reserve Bank step in to curb the risk of rising house prices by introducing a new loan-to-value ratio, he said.
"Should we all be running for the hills with our hands in the air screaming the end is nigh? Probably not."
Hickey added that it appeared Colombo's article had not been published in Forbes magazine proper, which was important when judging its credibility. Instead it was published on the Forbes website with a disclaimer saying Colombo's opinions were his own.
Those doom and gloom merchants who have an interest in talking down New Zealand's economic recovery will be salivating at the prospect of a bubble bursting. But it is not going to happen any time soon, and we think Steven Joyce's Ken Ring (the Moon Man) analogy is pretty accurate.
Mr Colombo have have alarmed a few people unnecessarily with his doomsday scenario, but we're not buying it, just as we didn't buy Ring's theory that he could predict earthquakes from the phases of the moon.
