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Forbes 'bubble-ologist' jabs back at Steven Joyce

NZ may or might or might not be in a bubble, but it's certainly in a slanging match.

Forbes contributor Jesse Colombo has hit back at criticism by Economic Development Minister Steven Joyce over Easter.

The economic analyst contends NZ is in a housing and credit bubble which, when it bursts, will take down our whole economy.

In a new Forbes post, he says official denials, such as that issued by Mr Joyce over the holiday weekend, are all part of the bubble he's come to expect (a theory that does rather damn the Economics Development Minister either way; Mr Joyce has to agree NZ is in a bubble, or conform to the alleged dupe stereotype of denying the obvious).

"Let’s not forget that Ben Bernanke denied the U.S. housing and credit bubble’s existence just a few days before he was nominated as Fed Chairman in 2005, at the very same time that I was warning about it. Even the IMF missed the warning signs that led to the Global Financial Crisis, and these are the same warning signs that I am seeing once again in countries around the world," Mr Colombo writes.

There a a couple of substantial developments.

In his new post, the Forbes contributor addresses Mr Joyce's criticism that he under-estimated the contribution of agriculture to NZ's GDP by ignoring the directly-related food and beverage sectors. "I did further research and found that food and beverage manufacturing’s share of New Zealand’s GDP is only about 4.35%. Agriculture combined with food and beverage manufacturing accounts for only 9.45% of New Zealand’s GDP, which is just one-third of the finance, insurance and business sector’s contribution to the economy," Mr Colombo writes.

And in comments to NBR Mr Joyce did concede the Forbes man had a point about NZ's high house hold debt (although he added it was starting to recede, and dismissed Mr Colombo's theory overall).

But on the whole, things are heading toward name-calling. "Steven Joyce studied zoology in university and has no background in economics before 2011," Mr Colombo mocks on

On Twitter, Mr Joyce snarked, "Gosh. I see David Cunliffe has endorsed the bubble guy. Is he serious?"

What do you think? Is NZ's economic bubble about to burst? Click here to vote in our subscriber-only business pulse poll.

POSTSCRIPT: When will our bubble burst?

Taking it as read for a moment that NZ is in a bubble, when will it burst?

"As far as the timing of the bubble’s popping, neither I or anyone can give you a very specific time like April 16, 2015, because the popping of these bubbles depends on the actions of policy makers," Jesse Colombo tells NBR.

"I believe NZ’s bubble will pop when the current low interest rate environment ends, which I assume will occur some time within the next few years," he says.

"I have to emphasise that this bubble warning is not a call to short ASAP nor a call for an imminent crash. I am warning that NZ’s economy is going down the wrong path."

The economics analyst elaborates on his bubble theory — and the need to sound the alarm as soon as possible — here.

More by Chris Keall

Comments and questions

While I have great admiration for Steven Joyce and John Key their main policy is not to make any changes.

I notice that their opposition to working for families(WFF) and many other policy matters has not been followed through by change as they hold the treasury benches.

I also notice how John Key scoffs at Roger Douglas but changes nothing of what he introduced.

Under MMP of course its too dangerous to do anything because the slightest change can see you removed from office. Such is the MMP scenario.

Lets start with a massive reduction in WFF payments and remove welfare to our fittest, most able bodied who are now conditioned to expect their decisions to be financed by someone else.

The billions being borrowed to keep welfare alive can now reduce debt and the exchange rate and have us pointed in the right direction.

are you forgetting the 6 billion a year in handouts to the wealthiest in the country? No probably not just dont mention them because the natives might get upset and lynch your ilk

Lloyd, 6 billion to the wealthiest, please elaborate?

Reducing tax is NOT giving handouts - it is what good governments do.

Increasing tax relentlessly is what Labour and the Greens want to do - to entrench welfare dependency and so, political dependency on the career politicians of the left who have never done an honest day's work creating work or employment or wealth or business.

Giving people back their own money by not taking it off them in the first place (lower top tax rate) is hardly a handout. Subsidising unprofitable green technology firms would be an example of a handout to the wealthy.

"Recent research also confirms that the legal system treats beneficiaries more harshly than tax evaders.

In a pilot study comparing three years of tax evasion and welfare fraud, Victoria University lecturer Dr Lisa Marriott found welfare fraud was significantly more likely than tax crime to be prosecuted, even though the sums involved in tax offences were far larger. In 2010, it was calculated that tax evaders cheated New Zealand of up to $6 billion.

Benefit fraud involved an average of $70,000 and the offender had a 60 per cent chance of being jailed. Tax evaders, with an average fraud of $270,000, had only a 22 per cent chance of being imprisoned."

To be fair, the tax cheaters actually created their wealth and a whole heap of value for those they sold to and those they bought from in doing so. They may even have created some jobs.

To be fair, the average Joe pays tax on every cent he/she has earned.

Compare the tax break the top 10% received, or the tax dollars hidden, or goods and services funneled through businesses. Beneficiaries are a drop in the ocean. And WWF without it what used to be middle class families would not be able to survive on their low wages.

So he sees bubbles everywhere, and only in 2008 did the significant 'bursting' of one occur (which resulted in others that were suspectible to burst also).

His logic could be used in predicting lotto winners. Eg say the biggest lotto winner in states brought her ticket on a tuesday, after buying a dozen eggs at the supermarket and picking up her kid from school. Now he could look around the world at people doing these exact things and claim they are on track to win lotto any week now! And they too deny that they think they are about to win lotto, just like the lotto winner in the states. Hmmm

Steve Keen, whose work I am a supporter of, has been unfairly criticized for his long-time warnings about the dangers of Australia’s housing bubble (which I am warning about as well). ...

For years I’ve pointed out that whereas the huge house price run-up in the US was reversed after 2006, house prices in Britain, Canada, Australia, and New Zealand remained at lofty levels, after a similar rise in prices. Indeed Australian house prices moved still higher. Commenters kept insisting “you just wait, the Australian housing bubble will burst one of these days.” Australian economist Steve Keen was so sure the bubble would burst that he bet his reputation on it ... Of course he won’t have been correct about there being a bubble, as bubbles don’t exist. Asset markets move up and down unpredictably. ... .

if they deny that they think they are about to win lotto, then would they hace bought a ticket???

Hubble, bubble, toil and trouble!

Jesse Colombo's warning is a timely one and should be taken on board with the same caution as the comment that NZ enjoys economic rock star status.

The airtime given to his warning however is disproportionate when when one considers he has been issuing his bubble warnings on just about every economy and country around!

"With a similar doomsday theme, contributor Colombo is warning about “growing bubbles” in countries like Canada, Australia, the Nordic countries, China and the emerging markets.

Colombo wrote lyrical but tragic articles on Thailand’s impending “1997-style crash,” the perceived “Iceland-style Meltdown” of Singapore’s economy, the noticeable “Malaise on Malaysia’s Bubble Economy,” Indonesia’s “Worse Yet to Come Epic Bubble Economy” and “Why the Philippines’ Economic Miracle is Really an Economic Bubble In Disguise.”

Everything in perspective, folks. No need to reach for the gun.

There is also the small matter of most housing finance being supplied by Banks owned offshore.

NZ in common with most of the Western economies has un affordable housing, rising public & private debt , a tax take that seems consistently below forecast so unless incomes keeps pace with inflation & interest rate increases falling disposable incomes will negatively impact economic activity increasing the potential for a minor event to trigger an over public reaction that will burst the bubbles. As an aside NZ has increased public debt by 600% since the GFC and at $60 billion will likely take decades to reduce to more sustainable levels without much increased taxes or productivity.

Or Rumpole, we could dig up some gold or drill some oil. That'd help.

He might have been on the money - but he has missed one big factor in his equation - the sellout of NZ to cash rich Chinese.

BTW. Australia’s been running big current account deficits for decades, and they can continue doing so for many centuries to come. (When I lived there in 1991 one pundit told me that Australia had a bleak future because of its CA deficits.) Australia gets some cars and TVs built with Chinese labor, and China gets some retirement condos on the Gold Coast built with Australian labor. Believe it or not economists call that sort of mutually beneficial business deal a “deficit.” I’m not kidding. Don’t be fooled by words, focus on reality. .

You can't compare Australia with New Zealand like you once could. The two countries have been on divergent paths in many areas for some time, defence, migration, income to name but a few.

Australia hasn't allowed it's domestic property market to be driven solely by offshore demand. Australia hasn't allowed its immigration policy to be run by Beijing. Australia has rising income standards. Australia is a commodity price maker not taker. And if anyone northwest of the South China Sea gets too stroppy about territory that doesn't belong to it Australia has lots and lots of yellowcake too.

Or the British during the 1960s and 70s, or the Americans & Japanese & Australians during the 1980s and 1990s.

Who now owns the banking system in NZ?

Get back into your xenophobic racist shell

Are you Winstonin in disguise - blaming the Chinese or Asians for NZ housing woes ? I bet you wouldn't be be xenophobic if NZ assets and properties were sold to Imperialist white men , ie the British or Australians or Americans ?

The day China leaves Tibet, and stops harassing Japanese Senkaku soveriegn land then I guess China won't be seen as an Imperialist xenophobe.

What concerns me is the name calling. To his credit, Mr Joyce joined the debate, with a few substantive points, but the main message seemed to be name calling, "bubbleologist"; if there's really nothing in it, engage in debate, but if there is, name call, hmmm. And the media seems to be trying to inflame it; labelling it name-calling when Colombo notes that Joyce's expertise is as a zoologist, not an economist, which is presumably both correct and pertinent to an economic debate. Either way, this is important, it would be great if the politicians and media treated it as such; let's have open, honest, transparent, robust debate. If there's something in what the bloke says, our policymakers (and other parties in their election year pitches) can learn and adapt with policies that help kiwis, and if there's nothing in it, we're all more comfortable with why that is.

Well said. I wonder what Mr Joyce would be saying were he on the Opposition benches? Ad hominem attacks seldom enhance the debate. Address the issues, put up research-based evidence to refute the arguments, develop constructive grounded arguments - or stay silent. I doubt that the sky is about to fall, but there needs to be informed comment rather than puerile name-calling from our employees in Wellington.

At the end of the day he's obviously fairly skilled at social media, he actually sets goals for himself to get more followers on twitter etc.

Bad news has always created a lot more attention than good news, or infact reality which is often very bland and somewhere in the middle of all the 'rockstar' or 'burst bubble' media hype.

Nothing he looks at is in his 'anaylsis' is in anyway sophisticated; Maybe if he had developed a new model and/or used new inputs and had arrived at the unique conclusion that NZ was in a bubble then I'd bother to look further. He's just looking at basis parameters and have a shotgun approach guess across many ecomonies so that in a few years time he can say 'I predicted the gfc and the bursting of country X's bubble'

The left will love this. Like drowning men they'll desperately clutch at this straw.

Of course New Zealand is in a credit and housing bubble. The entire west is. There's nothing new or revealing to be seen here. New Zealand is also a rock star economy. They both, as it happens, are correct. If the sun is shining in the days before an approaching storm, the existence of the storm itself doesn't in any way negate the fact that the sun is shining. And more importantly, storms don't always hit.

There are significant differences between New Zealand and the US pre the GFC that Detective Colombo is missing. The most important one of those is the drivers of the US housing bubble were very different from the drivers of the New Zealand housing bubble. The US housing bubble was fuelled by excess credit, dodgy lending practices and a failure of risk management and in risk analysis of the many exotic financial instruments (mortgage-backed securities MBS and collateralized debt obligations CDO) that were created to profit from (and that in turn drove) the subprime mortgage bubble. It was only a matter of time before it was found out the Emperor was wearing no clothes. The US housing bubble was not driven by supply restraints.

While New Zealand certainly has had an excess in credit that has contributed significantly to our increase in house prices, it doesn't have the dodgy lending practices that the US had, or the toxic financial instruments that ultimately undid the US housing market and brought about the GFC and the great recession. In fact we now have the LVR, which the Federal Reserve or the US Govt. would have been very wise to have introduced in the US in 2005. Moreover, our rising house prices are also driven by severe supply constraints, a feature that was not present generally speaking, across the US pre the GFC.

If our bubble bursts in the near future, it will indeed be nasty. But it will burst for very different reasons than the ones that burst the bubble in the US. In the meantime, lets make some hay while the sun is shining so if that storm does hit, we'll be well prepared for it.

Housing Prices in NZ too high (part of the bubble?) - If China has a slow down, investment will slow down here in NZ also - as I think we under estimate the volume of House buyers from Asia particularly in Auckland, and we may even see Chinese investment funds returning to China to shore up their investments there?
But there is always the Reserve Bank lever of lowering the 20% deposit to 5% again to keep things going?

I really don't think the Reserve Bank "lever" has any relevance in the housing market to offshore investors. The foreign investors finance their housing purchases with loans from offshore facilities. The effect of the lever is to keep domestic consumers out of the market by decreasing domestic affordability. Domestic consumers don't contribute to the shadow brokerage/finance industry so their presence in the marketplace only crowds out incumbent interests. The NZ Reserve is doing a great job keep NZers out of the market thank you.

Economists are not easily accepted in court expert witness statements. But also Governments spin stats and information, especially in voting years. All this economist is doing is warning of a risk. Therefore the negative-reaction from Joyce is more than interesting. Charts show there is risk. Christchurch rebuild and related loans have been engineered into GDP. Dairy has propped up GDP while commodity prices are high. But commodity prices do not stay up forever. In the meantime debt keeps climbing and interest rates will rise, while spending continues at large with the likes of more Treaty settlements and extended pay-outs made. Debt has a sneaky way of not hitting hard until its too late. But NZ mortgage debt is a little different to USA. Maybe this economist missed that point. It is a major business in NZ. The banks have it covered with personal guarantees and mortgage rights that are not the same as in the USA where homeowners walkaway. If the market tanks, few owners want to face mortgagee sales and so do their best to not sell. Then the banks try to control sell off to control price/equity security/LVR levels...otherwise called market manipulation that the Government is supposed to penalise but turns a blind eye to as its in the interests of the country to not let property markets fail. Then the banks can sell their mortgage portfolios to the RB at secret windows of opportunity that no one is told about or which bank is at that window. It would need a perfect storm to cause a collapse. Interest rates rising, exports die, stock markets collapse, unemployment rising. The real issue at present is that there is supposed to be positive economic trends and a 'rock-star' economy, but the Government is tightening up on public sector department expenditure to the detriment of services and infrastructure, has sold off assets, is pursuing small tax loss companies, and generally doing things that are not consistent with the so called positive economic trend.

The problem is that the Government/Treasury does not act until there is problem, and in the meantime turns a blind eye.

Jesse Colombo sounds like our very own Olly Newland. Back in 2004, I bought Olly's new book 'The Day The Bubble Bursts'. After reading the book (that sounds just like the book of Revelation btw), I was totally convinced that the overheated market would burst soon. Auckland house prices will freefall by 30 to 40% and I would be the one rubbing my hand in glee getting bargains. I didn't buy any house and continued to rent. My friend didn't believe in the 'bubble crap' story and bought one house in 2005 and another in 2007.

We are now in 2014. The same house I had my eye on 10yrs ago has now increased by $290k. That friend of mine continued to play the buy-sell-buy-sell game to this day. He now owns 3 houses with 1 nearly fully repaid. Guess who was the smart bloke..... one bought a book, one bought a house.

Not a day goes by that I don't feel regret. I look back on myself the way I was.... a stupid kid who bought that accursed book.... I wish I could talk sense to him. Tell him how things are now. But I can't.... That kid's long gone and this middle-aged man is all that's left.... and I have to live with that.

To all you renters out there: pls don't be emotional. Don't listen to 'experts', naysayers and doom predictors. Do your own research and figure things out for yourself. Use some logic. If Auckland house prices didn't collapse during the greatest economic slump in the past 80years that took out half the world (ie the 2008 global financial crisis), chances are there are strong fundamentals propping the Auckland market. Know that sometimes there are poor people out there who wants you to remain poor (like themselves). They don't want you to prosper. They want you to stay poor, without a home and without a future.

I still have that accursed book - if you want it, please leave a message here and I'll snail mail it to you within a week (the book is discoloured, earmarked, scribbled and old though). Thanks for reading.

"Know that sometimes there are poor people out there who wants you to remain poor (like themselves).

Are...are you serious? Where exactly did you learn that little factoid?

I have responded to Jesse Colombo’s perspective with a Top Scoop article “New Zealand’s bubble economy is vulnerable” …

Hugh - you need to stop droning on about 3x price to median income being THE accepted end all norm of house prices. That ratio is simply an outcome of a various number of components driving demand and supply. Ultimately housing affordability comes down to the proportion of wages that are required to service debts and interest. The observed 3x multiple occurred when interest was extremely high - c 20% - which limited the debts households could take on, and thus house prices. But the proportion of wages required to buy a house then, with those rates, is the same that it is now, with higher prices by far far far lower servicing costs.

This doesn't mean you are wrong about affordability and what may happen with house prices. But you focus on the wrong issue which erodes your cred. Small increases to mortgage rates - both through unwinding QE increasing wholesale funding costs - and a rising OCR will have a disproportionate impact on household debt servicing costs. As mortgage rates start going up the ability of households to service those costs will implode with prices following thereafter.

But simple comparisons of price to income ratios ignore all these (and other) factors. Its like comparing earning multiples of different companies - a low growth mature company who consumes capital to grow (requing capex or working capital, like a retailer) will always trade on a lower multiple than a fast growing, profitable and highly scaleable business. Not every company trades on x earnings multiple and nor should they. You completely ignore the relevant factors behind housing affordability, and is why many economists and general public tend to ignore your diatribes.


Bubblewatcher … thank you for your comments. I stand by everything I said within the article above … being a structural assessment of Mr Colombo’s financial one. Mr Colombo is clearly correct.

The Median Multiple measure employed by the Annual Demographia Survey’s is an essential foundation structural measure, recommended by the World Bank, United Nations and others.

The evidence is crystal clear and irrefutable, that if housing exceeds 3.0 times annual household income, it is in bubble territory. Read what I had to say in the Sydney Morning Herald a few years back … Report: Housing affordability out of sync with incomes …

Of course there is a bubble, and of course it will burst. The root cause is fractional reserve banking.

The reality is with MMP the Government have been able to make only a handfull of changes they wish they could have. WFF and interest free student loans would have been first on the block for any rational person.

Jesse Colombo never finished his song:

I'm forever blowing bubbles,
Pretty bubbles in the air,
They fly so high, nearly reach the sky,
Then like my dreams they fade and die.

I find it almost incredible that anyone could say how much they admire John Key and Steven Joyce.

In the kingdom of the blind, the one-eyed man is king. And the money trader John Key is certainly severely out of his depth.

Either this, or he just doesn't want to know about what he doesn't understand - or couldn't care less about - the Communist-backed Chinese creeping commercial colonisation of NZ.

No- not xenophobia- a fact obvious to anyone who knows history, knows how Communist China operates, and isn't interested, as Key is, in apparently deliberately averting his gaze while he cozies up. )Oh, and Judith Collins too?)

But why? What's in it for Key, selling the country out? One thing we do know looking at his past history - he's certainly a forward thinker - as far as his own personal ambitions are concerned,

Is this the answer to his denial of the factors behind the housing crisis?

I think it is a shame that New Zealand has outsourced all notion of financial questioning / self critiquing to offshore publications. The fact that NZ is repeating many of well observed actions of other countries preceding their own pop / gradual deflation is not hearsay, and it's not anti business. Should we not question if there are other issues behind why we have the 3rd most overvalued housing market (relative to wages and rents) and the implications if it might be a bubble? should we not question and warn of the implications of a tech sector that the AFR described as a perfect example of hyper overvaluation?

This isnt just the NBR or aimed at them - but the entire NZ press. We have gone the opposite of the tall poppy syndrome - anyone that questions is nearly a traitor. But we have very unusual valuations and market dynamics - talking about it is good - and I want to hear more about it in our domestic press - not have to go to Australian and Ameerican publications to get any open discussions.


NBR economics editor Rob Hosking is continually writing detailed analysis on the state of NZ's economy, including robust criticism of the govt or opposition where warranted.

The Forbes critique was worth covering as well (coupled with critcism from Rob and Steven Joyce) given the publications' profile in the US.

Economist Steins' law is that if something cannot keep going it will stop. House prices cannot keep going up or the kiwi buyers will be paying 110% of their income in mortgage repayments which is simply not realistic so kiwis will stop buying. So well before that point, it will stop. But if your income drops and your house price drops, then that 110% is also the result. The government can manipulate the local market with the banks and the naivete of kiwi buyers but they cannot manipulate offshore influences. It is offshore that the trigger will be pulled. A credit glut can turn into a credit squeeze. Businesses will find it hard to borrow so lay off staff again. Sellers from offshore will be the trigger. Kiwi buyers will stop being so naive. We have a Financial Markets Authority to ensure orderly capital markets. Why do we not have a Property Markets Authority?

Joyce says debt starting to recede. Perhaps he'd care to occasionally reference RBNZ statistics: