Sovereign credit downgrades are occurring -what did I predict ?

NZ Business Round Table Chairman Roger Kerr just sent me this:- 

"A spate of Sovereign credit downgrades is occurring, with Italy featuring prominently this week following New Zealand's downgrades the week before.

This week's chart shows how fundamentally different the situation is in one vital respect between New Zealand and Italy.

In contrast to Italy, and the OECD as a whole, New Zealand does not have a public debt problem (yet, but watch this space given our underlying fiscal deficit).

Whereas 11 countries in the chart have net public debt at or above 50 percent of GDP, New Zealand's ratio is only 4 percent of GDP according to OECD projections for 2011.

New Zealand has been downgraded for external debt reasons, but since the vast bulk of this debt is between private borrowers and lenders–who have every reason in 2011 to balance risk and return carefully and judiciously–this is a very different situation from that facing Italy and the ten other countries in the chart where government debt is clearly the problem."

Last April 14th:(-http://lawisanass-wingate.blogspot.com/2011/04/people-fail-to-see-inevitable.html ) 

I wrote:-

The New Zealand Burden of Debt- Public and Private

People fail to see the inevitable connection between private and public debt. Both private and government debt directly affect GNP and GDP when the burden or even fear of burden becomes too great. 

Private debt matters. In New Zealand it represents the dangerous "bubble" like elements in the economy, which tend to be corrected in recessions like we are having now. That in turn creates a larger strain on public finances who have been growing based on larger tax collection from the good times when spending went up because of fictional wealth based created from inflated property values built up from the import of cheap offshore private capital.  

Therefore the real risk of national insolvency will come from the same strain of macro economic debts which are both public and private- both  caused by the lack of fiscal regulatory prudence.(- fiduciary law- regulatory governance- asset to debt ratios - etc) 

NZ is straddled with so much debt we face deflation is asset values that will trigger panic among banks as their loans are from offshore payable yet securitised locally – and without a backstop which after the Ireland fiasco, not a chance they will get one. 

The higher the debt burden on our economy the less likely we will to grow particularly in light of very real red tape strangling new or existing business growth. Add to that -Waitangi and other- no mining- no oil- no selling assets to offshore owners.

I would also not be surprised to see borrowing that doesn’t appear on government balance sheets yet exists as private debt. I have no evidence of this- but given the games I have seen, nothing would surprise me. 

Government are under pressure to tighten spending and it seems like the right thing to do given they are borrowing $300-$400m every week to pay the bills.  But it results in bigger deficits because it sets in motion a vicious cycle. 

Private sector already under pressure is already trying to correct spending due to concerns over the property bubble collapse. So that causes a slow up. Then when the public sector tries to correct its debt it puts even more pressure on households and companies because of less government spending. 

How does the government counter this?  New taxes which have seen recently with GST and when taxes go up private sector cuts back- jobs are lost, and the government's deficit increases so it must cut even more or borrow more which eventually kills us. 

As I have written before, we are in for a shocking ride ahead. The USA/UK/Euro/Asian stimulus of Keynesian styled measures or their latest- printing fake money which they call “quantitative easing” wherever they got that crap name from who knows- but what they have done has not worked. 

We are at the end of that economic stimulus oxygen. It seems calm right now but it's going to be much worse very soon.

People fail to see the inevitable connection between private and public debt. Both private and government debt directly affect GNP and GDP when the burden or even fear of burden becomes too great.

So how accurate have I been since that prediction in April 14 2011 ?