Thanks to an amazingly strong Kiwi dollar, most of the hi-tech gear you might
want to purchase is selling at all-time low prices -- but don't expect this to
last beyond the New Year.
Several weeks ago, in a discussion with friends, I suggested that the Kiwi
currency, and indeed our whole economy, could take a tumble early in 2006. I'm
actually picking some time in January or February at the latest for this
"adjustment".
Now I'm no economist and don't have a crystal ball (although I do walk funny)
but I did predict the timing of dot-com crash with scary accuracy. In that case
it was obvious that people would start demanding real returns from their
investments once they realised that the world would not end with the effects
of the over-hyped Y2K bug.
The Kiwi dollar has been very attractive to overseas investors largely because
we have the highest interest rates in the developed world -- and those rates
continue to climb as the reserve bank vainly tries to cool the local housing
market.
As a result, huge amounts of overseas investment has poured into NZ, placed
by institutions and individuals who hope to reap returns far in excess of those
they can secure within their own country.
Unfortunately, that money has gone into largely unproductive sectors -- such
as the housing market.
So what happens when things start to unwind?
As interest rates go up, the cost of servicing a mortgage increases --
to the point where people stop trading up or borrowing money to buy things.
This means that the demand for products and services falls, effectively reducing
employment levels. That produces a greater number of people who can't meet their
loan repayment obligations and are forced to sell their property which, in turn,
starts to drive prices down.
Thus starts the fall of the economy.
When overseas investors see that the NZ economy is slowing or even falling,
they'll want to pull out their money before the Kiwi dollar also falls to the
point where all their earnings are lost to the faltering exchange rate.
The end result of this is that we'll have a nation living in houses they can't
afford and with an overseas debt that grows enormously -- just as a result of
the declining value of the Kiwi dollar.
Smart people have been warning us for some time that this *will* happen but
we've carried on regardless -- living beyond our means on borrowed money.
Quite frankly, I think we have to do something about addressing the Kiwi fixation
with bricks and mortar. If just a quarter the money that's gone into the housing market had
been spent on building sustainable knowledge-based industry here in NZ we would
not be teetering on the edge of an economic precipice and facing some very
hard times ahead.
My prediction for today?
Well let's just say, if you're planning to buy any imported goods (be they hi-tech
or otherwise), you're probably best advised to do it this month - but don't
mortgage the house to do so or you may regret it very soon.
Has NZ's fixation with bricks and mortar rather than investment in the productive
sectors put us in the dire situation I've described or am I just a doomsayer?
Is one of the key factors to our poor performance within the OECD simply that
we aren't prepared to risk our money on things that actually earn money and
create jobs -- but would rather just buy a nicer house or rental property instead?
Tell us all and see what others have to say in
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