Over at his blog Roger Kerr shows a graph of net external liabilities for a range of different countries – showing that in March 2009 New Zealand was pretty far out there.
It is true that our net international liability position is pretty big, it is also true that even though it might be exagerrated in the statistics (due to what is counted, and what is missing) it is something that is concerning – and worth keeping an eye on and trying to understand. However, I’m not going to do either of those things here.
Furthermore remember that “net debt of 90% of income” doesn’t sound quite as scary – even though that is what any ratio of GDP will be. There could be a number of demographic reasons – reasons that may not really matter (especially if the debt is tied to say, young individuals), there could have been a big temporary negative shock to incomes (which there was), and there could be a number of other reasons why the stock of debt was so large relative to current income. However, I’m not going to go into this either.
Here is a graph, that shows this position between 1989 and 2011 (although the 2011 figure is estimated, I used the quarterly NIIP data and the current price expenditure GDP data to fill in the gaps for the March 2011 year).
Source (the excellent Stats NZ infoshare site)
To start with, note that the position mentioned in March 2009 was the most extreme on record.
Now, the position looks like it improved a lot – but a bunch of that was earthquake related (given that future claims that haven’t been paid out yet are counted as an “asset” for NZ). The key thing I want to point out is that this elevated debt position figure is a longer terms phenomenon then is being suggested in some places – it didn’t turn up during the housing boom, it has been sitting around all along. As a result, if we want to understand it, this is an important point to keep in mind 😉
One thing I will bother to mention – “high” debt is the symptom of an issue, not the cause of a problem. The difference between those two ways of viewing it is substantial (and less pedantic then you may think). This is why we need to understand what is going on – and if there is a problem deal with it directly – rather than just arbitrarily trying to tackle debt.