Here's our summary of key economic events overnight that affect New Zealand, with news central bankers are coming to realise they are just getting started in their inflation fight, and we are far from past the worst.
But first, US mortgage applications rose strongly last week from the prior week in an unusual burst. That still leaves them -37% lower than year-ago levels. But mortgage interest rates were little-changed with their 30yr fixed still at 6.18% plus points.
In late-released data yesterday, the American appetite for consumer credit slowed unexpectedly in December, rising a tiny +US$12 mln in the month, when a small +US$25 bln was expected. Their appetite for consumer credit is unusually restrained at present, perhaps because interest rates rises are making it unattractive. This comes despite a key optimism index improving sharply (well, getting a lot less pessimistic).
Fed officials continue to point out the upward pressure the strong US labour market is putting on inflation. One key voice, the NY Fed's John William, noted overnight that policy interest rates were “barely into restrictive” territory at current levels. His comments are consistent with what Powell and others are saying.
The Reserve Bank of India raised its key repo rate by +25 bps to 6.5% during its February meeting yesterday. This was their sixth rate hike in a row, and comes amid signs that inflation is easing mainly because of food prices. It was a rate increase that markets expected.
The Turkish economy is facing new pressures from the earthquakes in the east of the country. Inflation had been easing recently, down to 'just' +58% pa but that 'progress' is now at risk. Their exchange rate has worsened to its worst ever. They just don't need these financial pressures on top of their struggling humanitarian disaster response.
In Australia, cost pressures, especially in their construction industry, are becoming intense. Pressure is on the renege on fixed price contracts. Major material suppliers leading the effort to raise prices across the board. Essentially, there is little evidence the RBA’s tightening cycle has dampened demand, and although they think they have been "aggressive", probably much more will be needed in Australia to defeat their growing inflation problem.
Ahead tomorrow, January inflation data from the EU/Germany and China will inform the view about whether any progress is evident globally.
The UST 10yr yield starts today at 3.68% and up +6 bps from this time yesterday. The UST 2-10 rate curve is slightly less inverted at -78 bps. But their 1-5 curve inversion is unchanged at -106 bps. And their 30 day-10yr curve is also little-changed at -90 bps. The Australian ten year bond is down -2 bps at 3.62%. The China Govt ten year bond is little-changed at 2.92%. The New Zealand Govt ten year is starting today at 4.17% and up +5 bps.
Wall Street is ending its Wednesday session down -0.8% on the S&P500. Overnight, European markets were bookended by Frankfurt up +0.6% and Paris down -0.2%. Yesterday, Tokyo ended its Wednesday session down -0.3%. Hong Kong fell a minor -0.1%. Shanghai ended down -0.5% yesterday. The ASX200 ended up +0.4% yesterday and the NZX50 was up +0.7% yesterday with a late surge.
The price of gold will open today at US$1875/oz and down just -US$1 from this time yesterday.
And oil prices start today up +US$1 at under US$78/bbl in the US. The international Brent price is now just under US$84/bbl.
The Kiwi dollar is little-changed at just over 63.2 USc. Against the Australian dollar however we are lower at just under 91 AUc. Against the euro we are lower at 58.8 euro cents. That all means our TWI-5 starts today at 70.4 and soft from yesterday.
The bitcoin price is now at US$22,914 and again, very little-changed from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.7%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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116 Comments
Pollyanna chorus sang for their supper but way premature. Negative rates cannot control inflation led by USA. Will take another year and some to get rates higher than inflation
I'm sure if we just do the next OCR rise slightly higher than anticipated that'd sort things.
Indeed.. its better to raise by a larger amount while the economy can still handle it than when the recession begins to bite harder.
Check your history. in the 1980s Roger Douglas hammered us with high interest rates, which kept our dollar high, and made it easier to pay our overseas debts, and they also cranked our inflation way down. Then his government looked after the people who would have starved and become homeless because of this policy. It worked. But we didn't have P, Meth and other stuff continually distributed and sold throughout the country by a network of gangs, who are either being supported by corrupt police, ar being enabled by incompetent, lazy police, or being enabled by overworked, underpaid, stressed out police. So we didn't have as many bad decision making poor people in the 1980s as we do today, who still have to be looked after. But the high interest rates do work on inflation, as long as the opponents of high interest rates are not listened to.
Seems to still be trending down in the right areas.
https://www.wsj.com/articles/new-white-house-wage-data-show-slowing-pre…
I'm still surprised our lot haven't shifted the tax brackets yet.
Well not surprised... "resigned to a constant feeling of disappointment" might be more accurate.
Chippy is in "out with the old" mode at the moment.
"In with the new" will likely happen at budget time.
I happily lives overseas for a few elections (and if Labour stay in will go again).
Do National attempt gamesmanship and announce some tax policies like this ahead of the budget to force their hand?
I'd say they'll wait to see Labour's as the budget sort of locks a bunch of it in.
I say "sort of", because everyone's only got a 70 second attention span and if things aren't popular enough we'll just stop doing them.
I would say National are worried that any popular policy they put out will be taken by Labour - hence they have released very little. I think Labour will take the wind out of their sails by increasing tax brackets for sure, but much closer to the election, so it isn't forgotten. It will be interesting to see the level of election year promises made by Labour in an attempt to stay in Government. So an election year battle between Labour and National who don't really follow any strong ideology any more, they are just keen to govern.
Are National going to bring some policies forward that are actually popular? It's hard to be believe trickle down economics and tax cuts for the rich will cut it right now, especially after the UK's mini-budget disaster.
it's hard to believe that there are hold-outs who persist in believing that those policies have some substance in fact when they've been resoundingly proven to be rubbish! I note in an interview the other day that Liz Truss still refuses to accept her policies were flawed.
Why Trussonomics failed so quickly:
National are not going to feed the monster.
They will hold back and boom 💥💥💥💥
Luxon is keeping his powder dry!
OK buddy.
Bookmarked for future apologies
Please make an actual predication; what popular policies do you think we're likely to see from National?
You can't just say "oh boy they're going to have huge ideas! The best ideas! I've bookmarked this and you'll be sorry!". That's so vague and meaningless.
I think 'Hemi' might actually be Henry from the Botany branch of the National Party...Michel Boag must be doing some consultancy work with them, giving them a few tips on getting things out into the media.
Tax cuts for property speculators. It's up to working Kiwis to bear the load for everyone.
It's a tongue in cheek comment.
I support ACT!
So a fearless defender of NIMBYism, Wealth & Privilege and a supporter of no limits low skilled immigration?
Are you landlord too?
When I saw the Act billboards "Don't like speed limits/Don't like crime, We hear ya!", I hoped in my heart that they simply reflected the Act party's cynical advertising team, and not what NZ has become. Both in the purposeful miss-spelling, and the hollowness/stupidity of the messages.
Nats only polling at 32% in latest poll The latest Roy Morgan Poll – Labour up, National down – Maori Party/NZ First Kingmakers | The Daily Blog
Team blue/yellow - 45.5%
Team red/green/maori - 46.5%
Neither have a majority currently.
The way things are going, I think National and Luxon are just hoping to ride in on the coat tails of ACT.
Act has been doing all the heavy lifting the last 5 years. Thankfully they have forced labour to shelve their hate thought laws.
Are National going to raise the eligibility of super to screw those who are now late 40’s?
Check the total super payments as a percentage of total tax take over the last 50 years. my figures show total tax take 2009, 52 billion roughly. Super 8 billion. 15.4% . 2017, 69 billion and 13.7 billion. 19.8%. So only increase other spending by a bit less and it is covered. Note that I didn't say cut anything, but only have smaller increases in spending. We all know that the government will have total tax take increases projected forward over the next few years given to them at regular intervals, and they will know exactly when super will become unaffordable.
The enormous lead time on tax rate changes, and them being left until the last budget of the term means we won't likely see any relief until 1 April 2024, at which point they will be 7% or 8% out of date already, depending on how inflation keeps tracking. 7% or 8% would have taken years under previous Govts which let you get away with things like ignoring basic tax admin, but at this point Labour are a bigger threat to low income earners than National is.
Easy. Index the tax brackets to minimum wage?
I mean that would make the most sense, but the minimum wage is up by basically 30% since Labour came in and I can tell you there is zero, zero chance of them actually acknowledging how much they've undermined it by indexing for it now.
It's basically been a transfer of working Kiwis to the government to give to those who receive transfers that are indexed to something, anything. And if they want the credit for being 'pragmatic when living costs are front of mind' then they need to start taking ownership of all parts of that, not just the bits they want to look clever for walking back on.
How much is minimum wage up since we last fixed the tax brackets?
$13.75 in from 1 April 2013 to... $22.70 as at 1 April 2023.
Over that time RBNZ's calculator tells me there's been a circa 20% loss of purchasing power against general inflation.
Almost as good as housing which doubles every 10 years
2 corrections: 1) Minimum wage is up 44% since Labour took office.
2) Current tax brackets came into effect on 1 October 2010, when minimum wage was $12.75. This means minimum wage earners are grossing 78.3% more than they did 13 years ago but their PAYE has gone up 129% at the same time.
Ah, I'm a couple of years ahead for the first full tax year after those changes happened then. 1 April 2011 would be the anchor point for those changes.
I'd be keen to know how those numbers work out at the respective median income levels over the same timeframe.
E: I vaguely recall some childcare rebates as well as a redundancy tax credit disappearing over that time frame as well, all more useful to those at the lower end but I suspect few claimed without professional engagement.
Most of the increase has been syphoned off by landlords and banks.
- Minimum wage has risen 78% since 2010 ($12.75 to $22.70)
- Average rent has increased 81% since 2010 ($320 to $580)
- After tax, the average rent represented 71% of minimum wage in 2010 and 78% of minimum wage in 2023 (assuming no Kiwisaver).
If you are complaining about minimum wage increases, you true target should be housing policy.
Spot on. No one is living the life of Riley on minimum wage in NZ.
And if the minimum wage hadn't increased over the years, do you think those rents would be any less?
I'm guessing,hard as things are,those on minimum wage are glad they aren't still on $13 odd dollars an hour.
Landlords provide a much needed service by taking out a $500k mortgage on an existing house that cost $100k to build 20 years ago. It's only fair that renters remunerate them accordingly for removing such a burden that is home ownership.
And it is only fair that the Govt subsidises and encourages those selfless landlords who provide shelter for those who can't afford the ever increasing price of an existing asset that is slowly rotting into the ground.
$3 billion per annum in landlord rental yield welfare subsidies, not even counting subsidies for boosting house prices. And definitely not counting Reserve Bank handouts to property speculators.
NZ's most generous welfare scheme, yet they screech in entitlement if asked to contribute just a little in tax.
They'll probably come out claiming it's "a tax on a tax" because their tenants pay income tax.
Yep. When it comes to cost of living we keep hearing about food prices and petrol etc. but the reality is that rent is by far the biggest problem.
As noted elsewhere, the minimum wage hikes push minimum wage earners close to the 30% bracket if they work extra hours. That just should not be.
That is a bit crazy I agree. I think it is time for bracket adjustment although I’m not a fan of auto index unless tax rates are also auto indexed to core government spending like nz super. Otherwise we will just end up with less government investment at a time we need more. Give tax back to people (especially the rich) and they’ll just invest it in property.
Hopefully they shift the GST bracket for Small SMEs to 80k, drop company Tax rate now they pushed min wage up to stop that being passed through.
How would you pay for this then: https://www.nzherald.co.nz/nz/the-front-page-should-new-zealand-raise-the-superannuation-age/PQT36W6MUFFXNK3SANXW2BJ5AE/
Increasing by $1 billion a year: The superannuation battle facing New Zealand
Stop paying 16m in bonus payments to those who are paid to do their job to begin with.
Super fund? If you want the best investors you have to pay the best bonuses. Or should they save that 16mil and put some amateurs in charge of $58 billion?
Ah, the old active vs passive management debate.
Not sure about recently but when Orr was in charge the super fund was incredibly successful. Bill English thought it was stupid for the government to borrow at 2% and invest in super fund making 20% for some crazy reason.
Why pay when you can leave it for following generations to pay?
Especially when you consider they didn't have as many children as their parents did. They couldn't find any of the savings from less mouths to feed/clothe etc to put towards paying for their own retirement? Nope, just saddle the kids with the full burden when they grow into tax payers and import the difference from poorer nations.
Logan's Run.
Haha. In all seriousness though NZ is sleepwalking into a crisis. Something will break. Realistically given our current demographics our options are. 1) Raise superannuation age to 68 and means test superannuation. 2) Increase income, gst and company taxes to pay for increasing superannuation costs 3) Capital gains or LVT to cover superannuation costs.
I don't think option 2 is really an option as our we allready have high income, gst and company taxes. This leaves us with option 1 & 3 to work with.
Housing gains by existing homeowners and increasing rents are effectively another tax on the young. I would go for option 3 and let the old eat their houses.
Then the old get reverse mortgages and pay less and less in tax. Come to think of it, a reverse mortgage is pretty much untaxed income for the asset holder.
Pretty hard to escape GST when spending money. Tax on super payments is not really tax anyway, just an accounting entry.
That's a tax on spending. I was talking about tax on income.
There is no effective tax on Super. If the government gives Super of $200 and take tax of $100, how is this different to the government giving $100k tax free? The tax is just to make IR's job easier when calculating tax on other income.
Means test alone should do it. Treat it like the welfare it is.
Not sure how you justify punishing those who have saved and gone without over their lifetime vs. some who may well have spent decades out of the workforce. It's a long bow but you get the idea.
I really don't have an answer but it's one of the major ethical stumbling blocks with introducing means testing. And then you'd have to convince the people currently working who pay for it to suddenly face life without the Super that everyone else got to get before them, in many cases after spending their entire working life paying down huge mortgages.
We effectively 'punish' people who go to work every day by not giving them the dole payment. What is the difference? If you can't look after yourself, the government steps in to help, so people have enough to keep themselves fed and housed.
People should be proud that they don't need help from the government, and are net contributors to society.
Considering a lot work comes with a huge physical price tag, either in labour or reduced exercise & the flow-on effects, or time with family lost to commuting etc, doing it for 'pride' instead of access to a pension like everyone else we're currently underwriting gets kind of seems like a bad deal for current workers.
Much better off to go somewhere like Australia, where not only are the pension schemes that pick up the slack in the private market more generous to make up for asset testing, but they also enjoy the kind of tax status that a sane country trying to manage state pension liability would need to promote, instead the 'have your cake and eat it too' approach to taxing Kiwisaver year-on-year.
Or - we have a 50 year transition plan to ditch national super and moving to 100 percent participation in Kiwisaver.
Not going to happen given our national obsession with borrowing over investing and five minute planning horizons.
The country doesn’t know where it’s going.
the whole immigration and busy building sector racket is a zero sum game
the immigrants need the houses and kiwis fall out the bottom of the system
great for the banks though….like a perpetual borrowing machine
it doesn’t help when National can’t tell us until six weeks out from an election what their plan would be.
we have some icebergs ahead for sure
Super is a universal benefit. KiwiSaver is a good idea but cannot replace a universal benefit. Your proposal punishes those who have worked hard on low wages and rewards middle income bum-in-seat civil servants.
First step, we need to announce (soon) that the age will increase to 67 within the next 5 years - to give people time to prepare.
I also believe you must have paid taxes in NZ 10-15 years to be eligible. With new residents coming into NZ bringing in their parents, they must prove they can support them.
5 years is nowhere near enough time to prepare. Quite a few jobs are out of the question for people to continue in their mid sixties. There was a reason the retirement age used to be 60. It because your body is failing to cope with physical work. Wait until you get old and you will understand.
Raise the age. reduce the amount - both reduce the cost. Introduce a means test and you create massive admin overheads, have every accountant and tax lawyer smiling. I've numerous ways of fudging or avoiding any means test for Super - if I can do it then anyone can. Just keep paying it as a universal benefit and leave it to income tax to claw plenty back from the wealthy.
Dropping the rate of GST on food basics would be very helpful. NZ is one of the only countries in the OECD that has full GST rates on food.
And while we're at comparing how out-of-step we are with the rest of the OECD - how about implementing a CGT?
Apparently it’s too ‘complex’…. But not too complex for much of the world!?
OK. Sure. Tell me what food is.
Every other developed country has defined this for tax purposes. We could do it too - would not even need to start from scratch, we could just adopt the AU method.
Definition of food | Australian Taxation Office (ato.gov.au)
I would rather we didn't, thanks. Here the actual food list in all its glorious detail:
https://www.ato.gov.au/law/view/document?DocID=GII/GSTIIFL1/NAT/ATO/000…
Happy scrolling.
There's a reason they wanted to copy our system, but they decided to sop to political pressure and now look where they are. Given the choice is our relatively simple principle-driven system vs. this mess, I'll take the simplicity. If you want people to spend more money on fresh fruit and vegetables then let them keep more of the income taxes we relieve them of. When we adjust those more than once a decade, then we can start looking at other options.
I remember write the computer code for VAT in the UK. Chicken is food (so is lobster), a full cooked chicken is food but half a chicken was processed, chicken drumsticks hot or cold were processed food. Just a nightmare. Easy for small businesses to cheat - almost everything being sold as fruit & veg and GST exempt. We did appreciate the no GST on childrens clothes - it led to the mini-skirt fashion.
Please keep it simple. If you want fruit & veg to be cheaper for poor people then subsidize the producers.
Banker's and deficit spending governments (most of the western world), have created this inflationary environment (just a tax on us savers and wage earner's), for their own benefit. They have no interest in stopping inflation, the end of fiat currency is near. Lucky for the grandkids, they won't have to pay it back. Greta will be debt free.
Oh sure and then the second coming of Jesus
He'll be needed to absolve us of our debt, or is that forgive us of our debt.
Turkey must be the richest county by now
It's a long way to actual deflation.
Timeline of stupidity....
RB need to lower inflation.
Hipkins knows inflation is a huge problem
Hipkins raises minimum wage!
every employer raise prices
Prices increase inflation grows
The poor get poorer
The rich get richer
FFS they haven't a clue and 40% of NZ voters can't see the insanity and still like these morons.
This is vote buying for the stupid!
I'm not sure if I like these guys, but I'm even more unsure about the alternative(s?).
Well to help clarify it for you, since you are so unsure about everything:
Either: Endorse the people you _know_ are incompetent idiots
Or: Kick them out and find out for sure if the alternatives are incompetent idiots too.
Well I want to kick out the current incompetent idiots but am having difficulty in finding the less incompetent idiots.
I'll try and rank the less incompetent idiots outside of the current. Starting with the potential least incompetent.
National and Act, a bit too close to call
Winston first
Greens
Greens worse than Labour.
Not including TOP at this stage. Would be prepared to give their economic policy a try but give them a miss for CC and kow towing to the Maoris. The latter from the founder's days.
Think MMP
If everyone voted for who they actually think is best. Not who they think is less worse than Labour. Then perhaps we could have a proper functioning cross bench democracy where issues are accurately debated and represented by our MPs.
Greens with a few seats, Top with a few seats, TPM with a few, Legalise Canabis....etc...
That is how MMP is meant to work. All parties can then vote on the PM and the portfolios - maybe then we can get the best MP for each portfolio, rather than the party hacks we have at the moment.
MMP ( Muppets Made Politicians) has created this cluster!
1. Allowed the wierdo minorities to much say..
2. Allowed back room non mandated deals to be done ( legalized mafia)
3. Put the peeps off voting as that now have less control over the outcome!
👿🖕👿🖕👿🖕👿🖕👿🖕🖕👿🖕
3. Put the peeps off voting as that now have less control over the outcome!
Yes, MMP is much much worse than when Social Credit won 20%+ of the vote and got 2 seats under FPP.
MMP might not be the best option, but it 1000 times more representative than the bollocks that was FPP. Gimme preferential/transferable voting on both my electorate and Party vote thereby eliminating the wasted vote problem and let the people vote for who they actually want to represent them. Or just cut the MMP minimum vote threshold to 2 or 3%, just enough to keep the more organised looney toons out but let some new parties in.
I liked the idea of getting rid of the Party Vote entirely and having multiple ranked candidates for each electorate. Three MPs each for 50 electorates and you can spread your vote any which way you want. If people want to split their votes or bloc vote then they can. Likewise you might see voters take a punt on some candidates.
Hemi (Henry from Epsom)I will agree with you on this post...MMP has allowed weirdo parties like ACT to prosper by getting a free ride into parliament via the Nats giving them Epsom every election...they would be no where without MMP,so you should be supportive of the system.
How much longer will this inane trolling account remain.
The abuse of emojis makes me wonder if its just Brock Landers trolling on a new account/persona. Except I haven't seen Australia mentioned yet..
That was my first thought too, but "Hemi" was created a week before Brock went to the guillotine. I reckon its our mate Merv from Manurewa.
Brock Landers was dumped? Missed that - guess we'll just have to look out for other characters from boogie nights.
Insane suddenly he pegs wage raises to inflation which is out of control....and expects businesses to absorb this (maybe big ones but anything with 10 or less employees will not be able to do this)...just insane thinking. And No Mr Chirpy it's not just the bottom ones that will want a raise now, its the ones on 23 a hour or 24 an hour that turn around and say well if they got a 7% increase I want one too. Oh and then the unions...
I can see redundancies coming
it’s called right sizing the business in Corp speak
Hmmmm....
Super Fund pays $16m in bonuses, one staffer gets $500k
Guardians of the NZ Superannuation Fund board chair Catherine Drayton told the committee that a major contribution to bonuses was the fact that the fund had performed better than its benchmark over recent years.
Even in years like 2021/22, when the markets performed poorly, the fund performed better than its benchmark.
“A major contributor to bonuses is whether the fund has performed better than its benchmark.
“To put it very simply if the market is hot and the tide is coming in and we do better than the tide coming in, then there are bonuses.
“If the tide is going out and the markets are underperforming, if we do better than the underperforming market then we also give bonuses,” Drayton said.
Perhaps the benchmark is too low. Wonder if they use MSCI World Index.
It's rather opaque, this is about as detailed as i can see:
Asset class Percentage (%)
Global equities 75
New Zealand equities 5
--------------
Growth 80
Bonds 20
--------------------
Fixed income 20
Foreign currency exposure 0
Total reference portfolio 100
https://www.nzsuperfund.nz/how-we-invest/reference-portfolio/
Yes and if you turn it into a "productive or chargeable hourly rate it is north of $2.00 per hour - so charge out rates go up by another $5 or $6 per hour and the cycle continues (unless you are a soliciotor or Wellington consultant where the increase is $50/hr)
One of the problems this type of knee jerk policy making is unpredictability - you have just agreed a pricing rate with customers and the clowns in charge increase your costs -and if the minimum goes up it does tend to be across the board so yes very inflationary
But the 80% increase in minimum wage over last 10 years means that people are much better off right ??
Maybe not that doom and gloom for many businesses that were forced to pay workers a higher wage than minimum over the last 2 or so years due to labour shortages. Most industries were b**ching and moaning about having to treat their lower-skilled workers fairly and paying them a decent wage.
Now that low-skilled migration is on full throttle, we can expect wages at the lower end of the spectrum to ease back from the recent big increases, albeit to a higher minimum wage. This means bigger margins for businesses while workers get shafted once again.
If he didn’t raise min wage there would be less incentive to work. We’d get more of those dole bludgers you hate, the unemployment rate would go down, and that would cause more inflation.
Hemi,
So, given your argument that raising the minimum wage is inflationary, would you advocate reducing it?
That is some crazy mental gymnastics. Raising the wages of the poorest makes them worse off. Sounds like 'trickle down' economic theory to me.
Is there not a better chance we will just get compression of wage rates? Where the gap between the highest and lowest wages is less? Effectively reducing inequality?
Either way, I am not sure the poorest should be the ones who are squeezed first for 'the good of the economy'.
Agreed Joneses,I've always thought that with the power of compounding percentage rises,that it is unfair that the 'higher' hourly rates in dollar terms get further away from the minimum wages over time.Like you said,raising the minimum wage only is an attempt to compress that gap.It is greed and ego that creates the drive to have everyone go up by the same percentage.Just as in lower paid jobs,you get a agreed wage to do the task.In many higher paid professions they expect to get a bonus for doing what is essentially the job they were employed for...
Wages up as spending shrinks does not make jack a happy boy.
In late-released data yesterday, the American appetite for consumer credit slowed unexpectedly in December, rising a tiny +US$12 mln in the month, when a small +US$25 bln was expected. Their appetite for consumer credit is unusually restrained at present, perhaps because interest rates rises are making it unattractive.
As I pointed out yesterday the constraint in credit for this cohort is from the supply side.
by Audaxes | 12th Oct 22, 12:25pm
On our planet earth – as opposed to the very different planet that economists seem to be on – all markets are rationed. In rationed markets a simple rule applies: the short side principle. It says that whichever quantity of demand or supply is smaller (the ‘short side’) will be transacted (it is the only quantity that can be transacted). Meanwhile, the rest will remain unserved, and thus the short side wields power: the power to pick and choose with whom to do business. Examples abound. For instance, when applying for a job, there tend to be more applicants than jobs, resulting in a selection procedure that may involve a number of activities and demands that can only be described as being of a non-market nature (think about how Hollywood actresses are selected), but does not usually include the question: what is the lowest wage you are prepared to work for?
Thus the theoretical dream world of “market equilibrium” allows economists to avoid talking about the reality of pervasive rationing, and with it, power being exerted by the short side in every market. Thus the entire power dimension in our economic reality – how the short side, such as the producer hiring starlets for Hollywood films, can exploit his power of being able to pick and choose with whom to do business, by extracting ‘non-market benefits’ of all kinds. The pretense of ‘equilibrium’ not only keeps this real power dimension hidden. It also helps to deflect the public discourse onto the politically more convenient alleged role of ‘prices’, such as the price of money, the interest rate. The emphasis on prices then also helps to justify the charging of usury (interest), which until about 300 years ago was illegal in most countries, including throughout Europe.
However, this narrative has suffered an abductio ad absurdum by the long period of near zero interest rates, so that it became obvious that the true monetary policy action takes place in terms of quantities, not the interest rate.
Thus it can be plainly seen today that the most important macroeconomic variable cannot be the price of money. Instead, it is its quantity. Is the quantity of money rationed by the demand or supply side? Asked differently, what is larger – the demand for money or its supply? Since money – and this includes bank money – is so useful, there is always some demand for it by someone. As a result, the short side is always the supply of money and credit. Banks ration credit even at the best of times in order to ensure that borrowers with sensible investment projects stay among the loan applicants – if rates are raised to equilibrate demand and supply, the resulting interest rate would be so high that only speculative projects would remain and banks’ loan portfolios would be too risky.
The banks thus occupy a pivotal role in the economy as they undertake the task of creating and allocating the new purchasing power that is added to the money supply and they decide what projects will get this newly created funding, and what projects will have to be abandoned due to a ‘lack of money’.
It is for this reason that we need the right type of banks that take the right decisions concerning the important question of how much money should be created, for what purpose and given into whose hands. These decisions will reshape the economic landscape within a short time period.
Moreover, it is for this reason that central banks have always monitored bank credit creation and allocation closely and most have intervened directly – if often secretly or ‘informally’ – in order to manage or control bank credit creation. Guidance of bank credit is in fact the only monetary policy tool with a strong track record of preventing asset bubbles and thus avoiding the subsequent banking crises. But credit guidance has always been undertaken in secrecy by central banks, since awareness of its existence and effectiveness gives away the truth that the official central banking narrative is smokescreen. Link
Min wage up again is petrol on the inflation fire. Just underpinned a 100bp increase.
Interesting that Mr. Market chose this moment to fight the FED. The rally looks far too early to me.
A couple of consecutive quarters of declining inflation though and the fight would be on.
100% Agree. Mr Market is jumping the gun (black swan events excepted).
"the American appetite for consumer credit slowed unexpectedly in December, rising a tiny +US$12 mln in the month, when a small +US$25 bln was expected."
Confusion between mln and bln here methinks ... which is it?
Japan another country that never recovered from 2020 (or 2008; or 2001; or 1997; or 1994; or 1990). But unlike here or Europe, until recently they didn't even have the nominal increases to pretend the economy was fine as we all did here. Link
Bank of Canada just admitted one of the reasons for their early pause in rate hikes is high household debt. Well, of course. Today Canada has a higher private debt/GDP than Japan at the peak of their real estate bubble! Link
Household debt to GDP is 104%, so much of that debt is owed by the non-household private sector. Also, Canada is a creditor nation with a Net International Investment Position at 59% of GDP.
I would be more concerned about debtor nations such as Australia and NZ in this high interest environment, where households owe a much larger share of the private debt.
Going to see so much more of this in 2023:
https://www.nzherald.co.nz/business/asb-owed-54m-by-earthworks-company-…
Will see a lot of taking money and running, I'd imagine. Leave the subbies and others unpaid. Start again.
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