PART 1 | - Flash back, the world is ending and its all Americas fault
So I have been researching the current global markets and have been asked on numerous occasions to give my two cents for what it's worth, on the impending “Global Slowdown” or the R word -Recession, and what that might mean for New Zealand, and New Zealanders ,the average Kiwi is who I will be referring too, not the 1% of the 1% of the 1% super wealthy Kiwi, or the imported Kiwi or the unfortunate Kiwi.
Disclaimer | - No I am not a qualified economist, with a doctorate in global politics this is just my interpretation of the facts as they lay, and not all of the icky details otherwise this post would be the Encyclopedia Britannica series X long. This is just a simple dive into the average-kiwis likely impact from the next, slowdown, meltdown, insert-a-cool-name-like-brexit. The stuff that is likely to hit the headlines in the next 12 months.
I have broken this blog down into three parts, so it stands an actual chance of someone reading this commentary in its entirety. Part one is a flashback into what happened, and when, in 2008 and what the fallout was. Part two, who profited, and how that has affected the average Kiwi. Part three, based on part one, and two, my crystal-ball-gaze into the next 12 months.
BACKGROUND
Like most things that happen in New Zealand, not much really happened after everyone said some really, really, bad things were going to happen globally the last time around. On this occasion I’m talking about 17 September 2008 , around 11 Years ago, almost to the day. That was the day that the market started to choke on its cheese and crackers at afternoon tea time.
FLASH BACK FOR A QUICK OVERVIEW OF THE GFC (Global Financial Crisis) IN 2008.
7 September 2008, Fanny and Freddie the two largest mortgage providers in the USA get placed under conservatorship. This is flash language for the US Government took them over at a cost of $187 Billion. This was when the markets got a little piece of cracker caught in their throat, and the first of the unsinkable companies started to take on water.
15 September 2008, Lehman Brothers filed for bankruptcy, at the time, this bank was considered to be one of the “unsinkable” banks. But so was the Titanic, and that ended up a depth of 3500m off the coast of Newfoundland. This was the day when the world started to flip out. Safe to say the market spat out the cracker it was eating. Sticky cracker crumbs were all over the place.
16 September 2008, The US Federal reserve buys AIG for $85 Billion. Basically this was the insurance company that was supposed to insure mortgage losses should they occur. Now that was getting bailed out too, so, now the hand holding the next cracker is wobbling.
17 September 2008, The cracker is now at a precarious angle and the cheese is starting to slide off the cracker; people start selling off stock at a record rate. $144Billion in a day, that was a record. Now people are running around with their hair on fire (still holding crackers and cheese of course, the cheese is still on the cracker at this point.)
19 September 2008, Federal reserve advised to insure money markets by politicians or its told the cheese will fall off the proverbial cracker. (everybody still running around with their hair on fire)
20 September 2008, US Government tries to sign off an a $700 Billion bailout package. That's a-lot-of-money, but it would turn out to be not even the tip of the actual fiscal iceberg. It doesn't pass.
21 September 2008, The “greed is good” era is officially over when Morgan Stanley and Goldman Sachs, become regular banks so they can be bailed out.
29 September 2008, US Government reject the advice to insure the money markets. NOW the Cheese falls off cracker properly and onto the floor along with the US Stock markets in the biggest day of trading losses on US stock markets index EVER.
3 October 2008, US Congresses passes the bailout bill for $700 Billion, so someone can pick up the dirty cheese off the floor and put it back on the cracker.
6 October 2008, GLOBAL stock markets crash. Basically the whole cheese and cracker plate falls off the table, and onto the floor in the biggest single cheese and cracker mess in history.
7 October 2008, $1.7 TRILLION dollar bailout signed off to pay for the cleaners to turn up. Sweep away all the smashed plate and cheese and crackers called the “old global economies”
8-14 October 2008, Global Central banks coordinate for the first time ever. Basically cheese and cracker cleaners from all over the world are hired to clean up the whole stinky mouldy crumbly cracker mess.
21 October 2008, US Federal reserve throws another $540Billion in the pot so money markets actually have some money, so they aren't just “markets” with cheese and cracker crumbs mushed in the carpet.
21 November 2008, Car manufacturers in the US request bail out too… ugh.
22 December 2008, Zero central bank interest rates for the first time in history, start to spread globally.
So for the simple people in the room (me being one of them) the financial markets globally, changed irrevocably in less than 6 months, and the USA being the biggest and baddest consumers on earth. The USA the most dominant financial powerhouse on earth. Almost, and we were talking, in a very real way, was literally days away from going broke. This would have been the actual zombie apocalypse. So believe or not the GFC was an actual bullet dodged.
SO HOW DID THIS AFFECT YOU?
Let's consider how this affected you here in little old New Zealand... Interest rates on residential mortgages went from 11.25% down to 5% over similar period. Ummm, no one really lost their job. Oh and since then property prices in New Zealand have all basically doubled.
This in stark contrast to the rest of the world. Who is still drowning in debt and running on subsidies from the bailout packages. Oh and “bailout package” is generally a term, for a country printing more money, which normally would cause inflation issues, and devalue their dollar. But because basically everyone in Europe and America did it at the same time, neither happened. Again is stark contrast our dollar did rise against the Euro, USD and Pound, not because we were particularly flash but because we WERE NOT printing money, and the reason we were not printing money, is because our government did not have significant debt. Our government also did not, and still does not, guarantee our banking system.
Oh and you know how all those banks in America and Europe went broke. Ours became some of the most profitable businesses on earth. We will talk about this in part 2.
Remember how Greece declared bankruptcy, and greek people couldn't get cash out of the banks, and the European Union had to bail them out, before all out anarchy took them over? Oh and how unemployment in Europe, and America hit historical highs not seen since before the world wars? Yeh most people have forgotten that, because well, it didn't happen here.
But some people did lose some money in second and third tare lending companies like blue-chip-some-thing, and, han-over-rover, and, the South Canterbury Finance subsidiaries because the government bailed out South Canterbury Finance investors, so those investors in Bill English’s constituency were ok.
Yep it's fact the GFC almost levelled the globe financially and NZ and Australia actually started to prosper.
WHY?