Quote Originally Posted by SBQ View Post
Japan's problem of high debt to GDP is due to inflation in the 70s and 80s. They Yen got too strong due to high productivity that it rendered their country uncompetitive. 20 years later and they still struggle with getting their debt down to be comparable around the world.



Not a strong believer in this statement. You need to look at inflation figures for which IMO, inflation in NZ has been way to high for the past 30 or 40 years (notably caused by excessive high housing prices). The Keynesian move to adjust interest rates won't apply anymore with record low central bank interest rates. Look for the unemployment indicators from this COVID crisis ; if we were to hit 30% unemployment, watch out! the NZ gov't can not borrow indefinitely to keep the banks holding long. Pretty much ALL banks in NZ (except Kiwi Bank) are foreign owned and they hold the mortgages. When mortgagee sales start flooding, it doesn't matter what level interest rates are.
Using round figures, $500,000 at 8% costs the same as $1,000,000 at 4%. Second hand house prices will always settle around the median weekly affordable figure. Therefore doubling the interest rate will over-time, halve house prices. Halving rates will double prices.*
*Principle repayments will mean this is not strictly accurate - but it's a good rule of thumb.