KEY POINTS:
Come gather 'round people, wherever you roam
And admit that the waters around you have grown
And accept it that soon you'll be drenched to the bone
If your time to you is worth savin',
Then you better start swimmin' or you'll sink like a stone
For the times they are a-changin'.
-
Bob Dylan
New Zealand has not been immune from the biggest global financial crisis in 80 years.
But our major commodity export base is food - which is far different from that of Australia (minerals), China (cheap manufactured goods) and Japan (automobiles, electronics).
So you'd expect New Zealand to be less susceptible to falling consumer spending in places like the US and the UK where those goods have been highly sought after.
And let's not forget we have been partly insulated from the drop in commodity prices by the falling New Zealand dollar. In March 2008 our dollar was worth US82c - now it's worth US50c.
Contrary to some of the negative sensationalism we see in the press, the latest reports from economists like Rodney Dickens are quite positive about New Zealand's position in the world.
In the executive summary of his latest Monetary Policy Briefing, Rodney says "when we assess how the global economic shock is impacting on NZ currently and the extent to which it may impact given the peculiar nature of NZ's export base and the role the exchange rate plays in insulating NZ from global shocks, we conclude that the RBNZ is most likely and yet again over-estimating how badly the local economy will be hit.
"In addition it is possible the major mechanism by which the crisis has been hurting the NZ economy - the freezing of overseas funding by local banks - could be on the mend over the next couple of months. So provided a fresh batch of nuclear bombs aren't delivered to the door of Chicken Licken's bomb shelter by the crisis, we believe the biggest surprise this year could be how strongly the economy recovers."
(By the way, the nuclear bomb that Rodney mentions above, would, in my view, be the introduction of "protectionism" that turned the severe recession of 1929-1931 into the depression of 1931-1933. That's a digression and another story, but if you'd like to see how politics could upset everything, read this article by David Kotok.)
It you're looking for funds for property or business there are investors and lenders out there. To obtain money it's back to basics. Knowing where to go, the criteria they're looking for, and a proper presentation are all essential.
There's one good thing about this global credit crisis - it's so bad it will just have to be fixed. So I think we'll come out of it quicker than many people do.
But a result will be a shift in the developed world's attitude towards spending and debt. At the margin households will be concentrating on meeting mortgage payments, having enough food on the table for the family, ensuring the children's educational needs are looked after, and their retirement nest egg is replenished. Attitudes towards non-essential spending and debt have changed.
And both lenders and investors will realise cash flow is king.
This is not just a cyclic event. It's a far more secular shift like that our parents or grandparents experienced from the great depression of the 1930's. The 2001-2007 experience of cheap money and easy credit has proved to be a nightmare for many.
Yes, the times they have changed. And some of us will have to start swimming - or sink like a stone.
* An extract from John Paine's newsletter Global View. He is a consultant with independent finance brokers' firm Global Pacific Ltd.
