Saturday, May 19, 2012

Hold those assets

The world has been watching Greece with a combination of incredulity, admiration and alarm as its people have once again responded to overbearing bullying with their traditional war-cry of resistance: "oxi (no)!"
The international finance community may not see itself in the same light as Mussolini, but the Greeks obviously do and given a choice between austerity and chaos, the Greeks are quite happy to choose chaos, and the result is cold sweat in Brussels, Berlin and Paris, as they try to work out how to reduce the size of the Euro Zone.
But dramatic as events in Greece certainly are, there are a number of other nations which while ostensibly developed are actually in a worse position even than Greece is. If you take a country's Government and private assets and deduct its debts and then compare this to the total turnover within its economy you get a statistic called the Net International Investment Position. The list on Wikipedia (derived largely from IMF data) ends thus:

New Zealand-90.1%

In other words Greece isn't the worst financial basket case by any manner of means. Spain, New Zealand, Ireland and Portugal are actually worse off. But balance sheets don't make for demonstrations, unemployment does. Greek unemployment is very high (21%), but once again it is not the worst.  Spain's is  22.9%, Ireland (14.5%), Portugal (13.6%). New Zealand's rate is a relatively low 6.7%. New Zealand's rate is probably being kept low because of it's economic union with Australia which actually has a labour shortage.
And just a note about Australia. While the "Lucky Country"'s economy is growing on the back of its minerals industry which feeds Chinese growth, Australia still has a negative (-64.3) Net International Investment Position. It is not rich like Singapore, Switzerland, Taiwan, or Norway. This may change in time, but what it does show is that generations of house price inflation and living beyond the country's means has not done 'stralia any good either.
It is also interesting to note that for all the gloom and doom about Britain that country's negative NIIP is only around -13.1%. Britain's long years as an oil-rich investor may not have been as cleverly managed as Norway's but the country is in a good position to whether a recession.
But what does this mean about New Zealand?
Well simply put we can't afford to buy anything that doesn't generate a return. If it isn't making the country richer it's making it poorer. We should be investing in cows, trees, productive businesses and all the other things we do well. We certainly shouldn't be selling those assets we still have to anyone else. If we do that, we will be in a race with Portugal for economic oblivion.

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