Here's our summary of key economic events overnight that affect New Zealand, with news about Australia's 'cost of living' Budget.
But first, in the US last week's retail data wasn't flash again, coming in with a gain well below the inflation level. The expanded payrolls don't seem to be helping this sector.
And a couple of second-tier American confidence surveys, for SME business and investors, were both negative. Both think a recession is due.
Maybe a big order received by Boeing overnight from a European airline will help.
They need to get their debt ceiling issue behind them because it is a growing drag on sentiment. But that will be tough because hard-line Republicans have weaponised the issue.
And the US Fed's Financial Stability Report released late yesterday has them watching office building loans and other commercial real estate borrowing as the next big economic threat.
In China, exports rose strongly for a second straight month in April (up +8.5%) confirming international demand remains healthy. (Taiwan reported similar growth.) But China's imports shrank (-7.9%) which enabled them to post a larger trade surplus.
But despite that, China's SME confidence index is retreating too.
In Australia, lower March retail sales means that retail sales volumes fell -0.6% in the March quarter 2023, according to official data released yesterday. The fall in the March quarter follows a -0.3% fall in the December 2022 quarter. Nominal sales increases are less than retail inflation.
Accounting firm PwC is embroiled in a growing scandal about how it exploited its insider knowledge as a confidential contractor to the Federal Government on tax policy issues, leveraging this knowledge for the benefit of its wider high-income client base.
On the policy front in Australia, with household incomes are under intense pressure from higher prices, rising debt servicing costs and additional taxation payments, their Federal Budget was released overnight. That shows an economic windfall from stronger employment and incomes, some of which the Government is using to provide cost of living relief for the most vulnerable households. But their outlook is challenging, with economic output growth set to slow as higher interest rates bite.
The key household relief measures are a AU$15 bln package of welfare increases, bulk-billing incentives and energy bill discounts. On the other side, they are going after tax dodgers, and the wealthy who have superannuation balances greater than AU$3 mln which will be taxed at 30% from July 2025, up from the current concessional tax rate of 15%.
Their budget deficit profile has been revised lower reflecting the windfall from those stronger incomes (higher inflation and higher commodity prices) and the ongoing labour market strength. The cumulative deficit for the four years 2022/23 to 2025/26 is reduced to -AU$81 bln, down from -AU$182 bln in their October Budget, an improvement of AU$100 bln.
For 2022/23, the budget position has improved by AU$41 bln to be a wafer-thin surplus of +AU$4.2 bln or +0.2% of GDP. The last time the budget was broadly in balance was immediately before the pandemic, in 2018/19. But this surplus is a one–off, with the budget returning to deficit in 2023/24, a forecast -AU$14 bln deficit. It then widens to -AU$35 bln in 2024/25 and to -AU$37 bln the year following, or -1.3% of GDP in both those years.
The UST 10yr yield starts today at 3.52%, and unchanged from yesterday. Their 2-10 yield curve is fractionally more inverted at -51 bps. Their 1-5 curve is little-changed by -139 bps. But their 3 mth-10yr curve is more inverted than yesterday, now by -198 bps. The Australian 10 year bond yield is now at 3.46% and up +5 bps from yesterday. The China 10 year bond rate is up +1 bp at 2.77%. And the NZ Government 10 year bond rate is now at 4.21%, up +2 bps in a day.
On Wall Street, the S&P500 is down -0.3% in its Tuesday session. There are some softer earnings reports around. Overnight European markets down -0.6% except London which was unchanged. Yesterday Tokyo ended up +1.0%. Hong Kong ended its Tuesday session down a sharp -2.1% and Shanghai went the other way, up +1.1% on the day. The ASX200 closed Tuesday down -0.2% while the NZX50 ended down -0.4% on the day.
The price of gold will start today at US$2035/oz and up +US$12 from this time yesterday.
And oil prices have risen +50 USc from yesterday to be just over US$73.50/bbl in the US. The international Brent price is just over US$77/bbl.
The Kiwi dollar is little-changed against the USD and now at 63.3 USc. Against the Aussie we are still at 93.7 AUc. Against the euro we are marginally firmer at 57.8 euro cents. That means the TWI-5 is now at 71 and basically unchanged from this time yesterday.
The bitcoin price is also little-changed today, now at US$27,629 and down just -0.7% from this time yesterday. Volatility over the past 24 hours has been low at just under +/- 1.0%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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101 Comments
No virtue signalling in Au regarding taking the moral high ground on natural resources! Good on them. They’ll push forwards whilst we’ll continue to get further in debt, propping up those that don’t want to work whilst crippling our farmers and businesses with ideological rules.
Yes exactly why the future is grim for NZ, especially when the idiots hammer farming, the lifeblood of the economy whether you love it or hate it
Farming has little room for growth, we need to let it keep rolling and work on developing some businesses that produce far more economic value than producing simple raw product.
You must be a city slicker, NZ leads the world in rural RnD and productivity.
But yes, we produce and export PRIMARY goods. NZ need to develop the value add industries to turn these into secondary goods instead of shipping the raw materials to China, then buying the finished goods back.
We could also produce significantly more electricity, but you are not allowed to build hydro dams any more, ironically all the greenies hate them 😅
Rural NZ leads the world in claiming they lead the world.
Some of us value wild rivers and rather than destroy them so you can run a tv in your toilet, would prefer we try and live a little more modestly.
We convert imported oil and phosphates into making our primary products btw. NZ would produce export little without these add ons.
I value wild rivers and the outdoors, but you need to be realistic. The country cannot be wealthy without exports. I value safety, societal wellbeing and that requires money. NZ won’t do well selling houses to each other for ever increasing amounts. A smart government would be drilling for oil. That’s how the pride of the left Scandinavian countries got where they are.
Discussion really needs to be had about taking a user-pays approach to the clean-up cost of all pollution. No one should feel entitled to pollute society for profit and expect others to pay to clean it up.
Good point re the stupidity of selling houses back and forth for ever increasing amounts. A catastrophic failure from our greedy speculator politicians of the last couple of decades.
And yet our GDP from Agricultural is pretty much just keeping up with inflation in the long run.. hmmm.
https://tradingeconomics.com/new-zealand/gdp-from-agriculture hit 35y or MaX, then run your numbers.
As for your quip about hydrodams and the greenies, i'm not a greenie, can't stand the (rotten) watermelon party, particularly with their recent racially divisive positions. But I think the biggest problem with more hydro dams is that all the easy fruit has been picked, there aren't a lot of places it make sense to try to build hydro, nothing close to the scale of the existing hydro schemes with huge catchments and good head.
Matt09 - then what?
Oh, we've got lots of money.
Now we'll spend it on?
Reminds me of Bluebottle - he was clueless too.
.. better education, infrastructure, healthcare, public spaces- the list is endless really!
Yep let us hit people in New Zealand with the increased clean car discount fees while Australia continues to ship coal.
Travelling now towards our old haunts in the USA, driving I95, would wager this interstate on its own would in 24 hours would match NZ’s total emissions for a year.
And Trump found guilty of sexual assault...what will that do for his electoral chances?
Mistakenly had always thought a criminal conviction barred any individual from the presidency. Not so and if necessary Trump will run the nation from a jail cell. Just like Capone ran the mob, at least for a while. Not even Hollywood or Bollywood would consider such a plot.
This was a civil case not a criminal case.
5million usd awarded
He wasn't found guilty. Just civilly liable on the balance of probabilities. (Not defending him just clarifying).
Your comment about the debt ceiling is interesting. Do you think they should just keep on raising?
They have no choice ..it's based on the game Jenga..
their is no such thing as a Debt ceiling lol
Yeah the whole posturing thing is a joke, you know they are going to raise it, someone just has to tap a few numbers on a keyboard and Woo Hoo its done. You do all realise its been done 78 times before right ?
Read this fascinating article on this the other day:
https://www.smh.com.au/business/banking-and-finance/we-are-getting-clos…
In the least-worst scenario, 200,000 jobs would be lost, real economic growth would be trimmed by 0.3 per cent and unemployment would rise by 0.1 per cent.
If the outcome were a “short default” half a million jobs would go, real GDP would be cut by 0.6 per cent and unemployment would rise by 0.3 per cent.
In the event of a protracted default, the cost would be 8.6 million jobs, a 6.1 per cent fall in real GDP and a 5 per per cent increase in unemployment.
It's really hard to see the republican congress coming to some sort of agreement. Kevin McCarthy is so beholden to extreme fringe groups to hold this position of power, who would rather cause a severe economic shock than back down.
Jeez, i hope they can find a way around this
That's one hell of a way to bring down inflation...
On the policy front in Australia, with household incomes are under intense pressure from higher prices, rising debt servicing costs and additional taxation payments
Quick everyone, book your relocation flights over the Tassie!
Still better off then here!
Multiples better! Personally at least 5x, even though I have paid more than 30k in tax and I have been over here less than a year...
What industry and what area are you in?
"...the wealthy who have superannuation balances greater than AU$3 mln which will be taxed at 30% from July 2025, up from the current concessional tax rate of 15%." I'm curious about the wording of this DC. Are they taxing the savings, or the income derived from them? This could backfire surely if it is the savings?
Plus one would expect that tax had already been paid on the income from which those savings were produced? So this is a move to dissuade people to save for their own retirement?
Governments don't want the population to have any more money than is absolutely necessary.
That seems to be increasingly true, especially in NZ. It needs to be changed!
Super taken at 9% of salary in AU. To get 3 mill of super you would have earned over 30 mill over a working lifetime, salary would then be around 740K Pa for 45 yrs. I know that's not super accurate as assumes no return on super balance, no topups from salary, but I would think its accurate enough to suggest that these people will be quite okay, and have much more money than absolutely necessary. Annual 6% return on 3 mill is 180K. without drawing any down the balance. Seems sensible and to me.
Oz has "self managed super schemes" which can include for eg investment properties & share portfolios. It's more likely the larger super balances come from these types. They enjoyed a tax benefit in that super structure which is being closed off.
"...these people will be quite okay, and have much more money than absolutely necessary" says more about you than them.
Salaries there are also advertised - plus super- whereas here it’s deducted from advertised rate. Makes a big difference
Compounding returns make it more than possible, quite likely in fact if you have had a high paying position from early in your career.
You have to remember, those returns were and still largely are based on economic systems that were able to socialise all the costs of burning fossil fuels endlessly. Now that the tab for that recklessness is starting to be picked up as climate change bites and effects the less well off worse, its only fair some of those returns are taken back as tax to deal with the consequences.
Your math is way off as you've totally disregarded compounding returns over a 45 year period. To save up $3mil of Super over 45 years, assuming Super is 9% of salary before tax, and average returns on the investment are equal to long term S&P 500 (9.3%) - you only need to earn an average income of $55,000 per year over the working life. Which is a total income earned over the working life of about $2.5mil. By the 45th year, you're still only adding $4,950 each year ($55k * 9%) but compounding interest means you're earning $254k in returns.
Plus one would expect that tax had already been paid on the income
Not the case. In Australia (and most civilised countries) contributions to Superannuation schemes come from pre-tax income. New Zealand likes to clip the ticket at both ends though so you could be forgiven for assuming everyone was as terrible.
You made me smile at the implication that NZ was somewhat less than civilised! But I think you make an interesting point. Our politicians certainly seem to have an attitude towards living standards that is becoming more apparent, and concerning towards the ordinary people of NZ. Where are the media on this?
The mainstream media are in the pocket of the government labelled PIJF.
Driving living standards to the lowest common denominator is socialist policy, embedding their dependent voting constituency.
Try that forwards.
Both socialism (actually it never stays socialist, it goes autocratic within months) and capitalism are mechanisms to draw down the resources of a finite planet. Both are therefore temporary, in the medium term.
To not draw down the resources of a finite planet, has to be the goal. But that cannot be done under neoliberal conditions; ' freedom to' just results in open slather (as we've witnessed since WW2). Only a sustainable society can sustain itself long-term, and the only format which fits sustainability, is egalitagian-beneath-identified-limits.
Just logic, really - tends to beat self-justification most times.
Your comments are very true with respect to political ideology PDK. The reality is that political power is at best only very rarely serving the people. Mostly it is about preserving power and privilege, and today that will be more about cornering finite resources for themselves. Hence a reason behind the driving down of living standards. But that attitude is entirely ignorant of human history too, as you don't have to be very bright to realise that no good can come from it; "Can you hear the people sing, singing the song of angry men, its the music of a people who will not be slaves again!...."
I've been reading about Charles I of England. In his trial for treason the charge laid against him was
[the activities of] the said Charles Stuart, have been, and are carried on for the advancement and upholding of a personal interest of will, power, and pretended prerogative to himself and his family, against the public interest, common right, liberty, justice, and peace of the people of this nation.
I'm seeing a tendency in western democracies for this kind of behaviour. It didn't end well for Charles I.
On the other hand, it's a natural consequence of punishing productive work and leaving land speculation relatively untaxed. We fall in living standards because we don't reward innovation, only lazy speculation on land.
It's not socialism, just entitlement mentality.
(Especially when you see the folk ranting about socialism also having their hand out at the slightest provocation. )
> New Zealand likes to clip the ticket at both ends though
No, NZ only clips the ticket on the way in, not on the way out. When you withdraw your kiwisaver, there is no tax to be paid.
Compare with e.g. UK, money goes into the fund untaxed, but when you take money out at retirement it counts as income and is taxed (first 25% is tax free). So in UK if you took a large amount out, you will find most of it is taxed at 45%. Though if you drip it out year by year you'll generally be better off.
The 30% rate is only applied to earnings of the Super account. At the moment a concessionary 15% rate is applied to earnings to encourage people to invest in super rather than other investments e.g. term deposits which would be taxed at marginal tax rates (the highest of 45% on income over $180k).
Government thinks if you have a super account over $3m it is probably hard to justify a 15% tax rate to "encourage" more saving.
It is not double taxing of the money invested, only taxing the income it generates.
Cheers G, that is the perspective that I too have. But high levels of saving for super, irrespective of individual balances are still to be encouraged right? Why not just asset test the super payments that focus's on bank balances?
If we had compulsory Kiwisaver like we should, it should be completely tax free. For money going in, earnings throughout and exiting.
"The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.” (Jean-Baptiste Colbert)
To encourage investment in super so people can invest enough to support themselves in their retirement a concessionary tax rate is provided and the tax take takes a hit. Once people have $3m plus set aside (I understand around 0.5% of investors) no need for concessions for them as they are well able to support themselves in retirement. Government has bills to pay so time for the wealthy to step up and contribute more. People with $3m plus in super paying 30% on income which is still well below top marginal tax rate of 45% will not illicit much hissing from the majority.
The epic destruction of public trust, the economy, education etc. put into context by this latest Cell paper (similar to what Olliaro et al. were saying in the Lancet in early 2021.) Peer review finally getting it’s pants on. Too late for the mandate victims.
“The two major RCTs of mRNA vaccines, produced by Pfizer and Moderna, included 74,193 adults (>16 or>18 years of age) (37,110 vaccinated; 37,083 placebo), among whom there were 61 deaths (31 vaccine recipients, 30 placebo recipients). These vaccines were not associated with lower overall mortality, the overall RR being 1.03 (0.63–1.71).”
For 2022/23, the budget position has improved by AU$41 bln to be a wafer-thin surplus of +AU$4.2 bln or +0.2% of GDP
Regular reminder that if a Govt is running a surplus, then one or more of the following has to be running a deficit: (a) 'rest of the world' (b) households (c) businesses.
Looks like in Australia's case, it is the rest of the world. That's a benefit of a positive current account balance.
In NZ, we are in an increasingly deep deficit to overseas, households and businesses have basically stopped borrowing (net), and Govt is determined to balance the books. This is a literally impossible position - the numbers can't add up like that. Either imports will collapse, or households, businesses, or Govt will have to start getting into debt quickly. Which will it be?
Is that first sentence of yours really an accurate statement JFoe? When the sovereign owner of a currency can just create funds at will these days, does the old balance equation still hold true? Should that discussion shift to focus on what the Government expenditure is on, and whether it is worth the return (Cost/Benefit), and then consider the deeper focus of EROEI and the issues of climate change and finite limits?
Yes, the balance between sectors is an accounting certainty. If the Govt runs a surplus, they take more dollars out of the economy than they inject into it through spending, and the non-Govt sector has to give up some dollars (get poorer). When the Govt spends dollars into the economy, they go into 'debt' instantly and the non-Govt sector gets wealthier. Under the current system, Govt starts to pay interest immediately to the commercial banks on every dollar it spends (interest on settlement account balances).
I agree of course that what matters is what Govt spends money on, but if Govt spends big money into the economy without due consideration of the impact, then (some) households get rich quick, and our trade balance blows out as everyone starts importing luxury goods and bidding up the price of financial assets. Govt then sends more and more interest abroad to overseas investors, who buy up more Govt debt, and so it continues.
What Govt need to do is think about how they spend without creating a boom - e.g. does our response to our climate challenge involve blowing our trade balance on a million new subsidised Teslas / BYDs, or would we be better off investing those dollars in building a world class electrified public transport system within and between our major cities, with massive offshore windfarms?
..our climate challenge...?
Listen carefully, very carefully. This is the most important climate change clip you will ever watch - and only 4mins long. Watch and judge yourself. ABSORB the graph shown. THINK on it. USE your brain. Everything else I will explain over the coming months. Link
I'm an environmental engineer - I know a lot more about climate change than I do about finance... and, frankly, if someone of your intellect is falling for this hogwash, we are all doomed.
Jfoe... Your attitude sums it up for me. A certain kind of religious zealotry ...so to speak. ... that holds his "science " as some kind of truth and that "heretics" should be spat on... burnt at the stake.
History of science is one of an evolutionary process...where , so called , "truths" can change and evolve as we learn more. History of science is scattered with a few embarrassing beliefs... that took time and knowledge to change. I kinda think it pays to be open minded.
I thought the video was very interesting.... What is hogwash about temperature changes in Greenland over the last 30,000 yrs ?
I cant comment on the efficacy of how they determined this... I dont have the knowledge.
If the Graph of temp changes is valid.... then I find it interesting and maybe meaningful.
A chemical engineer turned health food guru and covid-19 sceptic is perhaps not a great bloke to listen to on climate change.
The history of science is indeed evolutionary - data and evidence synthesised and processed, discoveries built upon; the standing on the shoulders of giants discipline. It's one of the reasons I love my job. We now have 50 years of rigourous research that has led us to the concrete conclusion that our brilliant but flawed species is destroying the planet we are living on by burning millions of years worth of stored carbon like it is going out of fashion (and it is). Those who question this reality are often doing so with nefarious intent because they have an interest in preserving the status quo and profiting from it. However, some people question the reality because they struggle to accept it can be true - it is pretty confronting after all.
Further evidence of religious zealotry exhibited by attacking the messenger and not addressing empirical evidence provided, instead reverting to the verses of the bible...
We now have 50 years of rigourous research that has led us to the concrete conclusion...
You are right, with intelligent people falling into this trap, we are doomed.
May I also borrow from PDK's vocabulary - vested interests perhaps?
Nonsense... I was was alluding to Jfoes' attitude towards the poster of the video and the video... ( After all, Jfoe did not really say anything, apart from that he is an environmental engineer. )
read what u have just written... I would never "smear" ...by suggesting someone has a vested interest... You use that as a weapon to discredit.
What trap are you talking about,,? That intelligent people are openminded and questioning ??
One can have 100 years of research... so what.. It is still not the "truth". It is just solid scientific research .... that gives a concrete conclusion.
Maybe the findings of that Greenland research team can add to things ??? Why attack it ?
Its possible that we are being fooled by randomness in the current correlation between the increased use of fossil fuels and temperature rise - but it is also entirely possible that they are highly correlated. We may not know the real 'truth' to these issues until after the fact so that the data can be view retrospectively.
e.g. view climate change relative to the increase and then reduction in use of fossil fuels (to a zero state again in the future - if this ever happens).
It will be something that is solved after all the current generations are dead.
By 2500 or 3000 AD it might be possible to look back at climate change and the use of fossil fuels and the subsequent change in temperatures - and then go 'oh look at the high correlation...temperatures starting dropping again 100 years after we stopped burning fossil fuels'.
That's crazy. We are not looking for correlations! We are looking at whether wrapping the world in increasing amounts of insulating gases has the result that we would expect - i.e. the trapping of more heat and the destabilisation of weather patterns etc. Guess what? It does.
It could be that I didn't convey my thoughts clearly enough.
All I was pointing out, in agreement with you I thought, was that Jfoe dismissal or that valid research was due to the source linking it (Ivor in this case) and not the discoveries themselves. By vested interest, as attributed to anyone not towing the AGW lines, I would just point people to a billion dollar a day that Climate Change industry has become, together with the political aspect of it.
I have come across this research before and certainly find it worth noting and sharing.
FFS! If you like spreading denier BS by all means do so. Your children will be grateful!
https://www.carbonbrief.org/factcheck-what-greenland-ice-cores-say-abou…
Problem is, this video doesn't represent " empirical evidence". The evidence tells a different story if you could be bothered with the truth, rather than confirmation bias.
https://www.carbonbrief.org/factcheck-what-greenland-ice-cores-say-abou…
for me, That video does not question your view of "that reality." It just shares its findings and ponders/concludes with the idea of natural variation vs man made.
I agree ... We are destroying the planet.... and I dont really understand why we have narrowed it down this single metric of "man made global warming".
AND....when something gets "highjacked " by politics I get skeptical. ( Its a contradiction for politicians to talk about GDP growth, and climate change, as if we can have both )
Might we not be better served be focusing on the ways we are polluting our planet ... and move away from consumerism/materialism ... toward each of us , as individuals, living more "lightly on the earth". eg.. I have stopped overseas travel, I use my car less, I've dont buy "stuff". etc etc.
The modern lifestyle illnesses of the western world ( diet/fitness/stress..etc ) seem like a symbol of what we are doing to the planet. Until each of us accepts and takes responsibility for our own health.... nothing really changes.
I kinda feel something is a little wrong with the climate change movement...and that it is getting corrupted and turned into another fear based .."ism."..
just my view.
The guy in the video is lying! The first clue is his assertion "we don't know". We actually do know and if you dig around into what these liars are saying, the truth surfaces.
https://www.carbonbrief.org/factcheck-what-greenland-ice-cores-say-abou…
Oh well, there is a lot of BS swirling around Greenland ice cores as a proxy for global temperature. The first obvious issue is one data point does not constitute the definitive answer to human caused global heating. Probably the biggest lie in this short video, intended to reinforce the ignorance of denierville, is the fact that snow takes a long time to compress into ice.
The site where the GISP2 ice core was recovered in fact had a last data point i.e. the point where snow had compressed into a useful ice sample, of 1850! So in fact when the distortionist in the video refers to "now", he is in fact referring to a temperature reading from 1850! 1.2degC of human caused global heating ago!
https://www.carbonbrief.org/factcheck-what-greenland-ice-cores-say-abou…
The organisation conducting this research is part of the University of Copenhagen:
At the Niels Bohr Institute's section for the Physics of Ice, Climate and Earth, we are world leaders in drilling deep ice cores from the Greenland and Antarctic ice sheets. We analyse the ice samples in our laboratories and study water stable isotopes, greenhouse gas, impurity concentrations, and ice properties. We interpret the data together with results from computer models of all parts of the climate system, including general circulation models and models of ice flow. We also work with theoretical aspects of meteorology, oceanography and complex system dynamics to understand both gradual and abrupt climatic changes of the past, present, and future.
They seem reasonably qualified to make statements in their area of expertise and add to the scientific discourse if you ask me. The fact that it was tweeted by a fervent climate denialist who thinks we have enough energy and technology to dig ourselves out of a whole should be irrelevant to the actual content.
Very interesting.. video.
Audaxes;
And you believe this? Try this; https://www.carbonbrief.org/factcheck-what-greenland-ice-cores-say-abou…
Omg, that video is a massive load of bollocks.
Using temperature measurements from the ice today to tell us what the temperature of the ice was when it formed 3000 years ago? Yeah nah. Makes as much sense as saying by shoving a thermometer today into the chicken I forgot to take out of the oven after cooking it last week will tell you what temperature I cooked it at.
I have to assume that video is heavily edited to make complete nonsense from what I assume is actually reasonable science being explained.
"Under the current system, Govt starts to pay interest immediately ......" That seems to be where the flaw lies in the current system? The government these days does not control or restrain the amount of money in the system because it has abrogated that control to the private banks. But paying interest to the banks on settlement balances? I'm not convinced that is needed and I have argued in the past that we seem to lack an adequate understanding of the monetary system post Bretton Woods 1971, or is it we are just too frightened of the big banks to challenge their power?
Paying interest on settlement balances is a key part of *how* RBNZ ensures that market interest rates stay above the OCR. The interest rate paid on settlement balances becomes the floor for market interest rates. RBNZ does not have to pay interest on all the settlement balances of course, but they seem to love giving Govt money to commercial banks so on we go.
My view is that RBNZ should just hold the interest rate at 1% to 2% permanently and use credit controls / interest rate premiums to manage the flow of credit to productive enterprise.
A recent Bloomberg article described central bank easing with the phrase “pumpingd money into the economy.” That’s a misconception. Monetary easing is actually an asset swap. The public was holding savings in one form, and now it holds it in another. The Fed buys Treasury securities from the public, and replaces them with currency and bank reserveds (base money) that someone has to hold, at every point in time, until the Fed sells its bonds and retires the cash. All monetary policy does is change the mix of government obligations held by the public. Only fiscal policy – specifically deficit spending – changes the total amount of those obligations. - courtesy of Hussman
Audaxes
Taxation also changes the governments "obligations" as it destroys currency.
From a broad perspective, I tend to agree with you.
Please define "Govt money": ultimately a debt resulting in increased taxes on the ever reducing number of net taxpayers, including our children's children.
True but I wouldnt call the Aussie budget as a surplus given the number its more like balanced - for this year anyway and probably next
The bigger question is what is the "quality" of the expenditure - an investment in the future or paying for butter for peoples bread. maybe a c- as it is built on a very large number of immigrants hopefully not all the best and brightest from NZ
Yes and no Murray. "....When the sovereign owner of a currency can just create funds at will these days, does the old balance equation still hold true? ..."
Maybe yes Murray as there is no clear other party.
But NO. There is always a payback and when a sovereign nation uses this sleazy device it diverts physical resources (which is why they do it) those resources are less available.
ie: we are the other party here and it costs us. We lose.
Agree. there is a HUGE risks to the concept of politicians being able to just create funds at will, but to all intents that is happening anyway, and worse public oversight on how the Government spends it's money is essentially minimal. Yes the government might tell us how they are going to spend, but what can we do about it really - Sweet FA?
My view is that there could be some robust cost benefit analysis around government expenditure, where spending to build and support infrastructure and areas that have solid economic returns could be self funded, all else only through taxation. Examples could be high quality transport infrastructure - self funded, social welfare - taxation. To make it work though the analysis would have to be a legislated requirement with independent scrutiny.
Jfoe
An interesting article here that explains your points. https://democracyjournal.org/arguments/the-truth-about-government-debt/
treadlightly...
To add to that article, which makes sense to me, I've linked to a ray Dalio article. https://www.linkedin.com/pulse/inflation-wealth-ray-dalio/
He suggests that real Wealth is a function of productivity.. Govt spending does not make us wealthier, per se, it just gives us spending power.
You might think I'm splitting hairs.....and I'd say that there is a profound difference between "real wealth " and "financial wealth'.
That makes a great deal of sense. NZ over the last 50 or so years has been producing less, and less, thus our 'productivity' is declining, and national 'wealth' with it. In this I twist the interpretation of 'productivity' a little here by just thinking producing any thing rather than the more for less view. And producing goods is the only way to real wealth in terms of a financial system. But financial wealth is about spending, but worse for Governments, is that when people become financially flush, then they also beging to have choices and tend to start asking some, for Governments, awkward questions.
Having some savings put aside though gives us financial security for unforeseen circumstances and money to put aside for future consumption like retirement or the deposit to buy a house for instance. Apart from the government our only other option for a money supply is by borrowing from the banks and which we must repay with interest.
Yip, I've read a bit of Ray Dalio's work. His book 'Changing World Order' covers a lot of the topic discussed above - especially in terms of government debt relative to GDP (i.e. the producitivity you refer to above).
Government debt is ultimately a debt of the people. It needs to be paid back in the form of increased taxation (which reduces private wealth).
It may appear that people get 'wealthier' in the short term when the government takes on debt, but over the years that follow, that debt requires servicing. Unless productivity improves to pay back that debt, then the quality of everyones lifestyle reduces. Increased debt have to = increased productivity. If not, in the long run, it = reduced living standards.
Countries can achieve prosperity in the short term by creating debts that they can never repay. And this is the demise of their nation in the long run. This is why nations rise to power and then fall (and is true right throughout history). Creating 'wealth' via a central bank is a fools paradise (e.g. what many nations have done GFC - now - and some more than others).
The nature of all money is that it is created as debt, all money is someones liability or IOU. The government creates money as its own liability and IOU and the banks create money when we borrow from them and that is the borrowers IOU. Which type of money is it better for us to use? The governments money I would say. Using government issued money doesn't make us poorer as a country but borrowing from the banks certainly does and that is the real "debt of the people".
"The government creates money as its own liability and IOU.".. In reality it is not an IOU ...
They have to say this because of accounting convention.... otherwise the books would not balance. ( double entry book keeping ).
We cant have something created out of thin air.... as an asset... without an equal liability.... if you are an accountant !
In the real world.... it is called counterfeiting . ( creating a financial asset without an offsetting liability )..... Counterfeiters don't use accountants... so ..no problem with books balancing !!
The governments money is given to us as a tax credit and this is the governments asset and when we pay our taxes it is redeemed and so both the asset and the liability are destroyed. A double entry is created on the commercial banks balance sheet, the bank receives a reserve balance from the government and it then creates a deposit in the account of the recipient, one is an asset and the other a liability for the bank.
In New Zealand we've also been far too focused on enabling older folk to live beyond their means by passing huge private debt to following generations. Really starting to drag things down now.
What debt is that Rick?
I'd suggest it's across most generations that the debt exists. But I agree that many will struggle to pay it off.
(In Australia ) they are going after tax dodgers, and the wealthy who have superannuation balances greater than AU$3 mln which will be taxed at 30% from July 2025.
Sacré bleu! That's almost as politically suicidal as New Zealand implementing a Capital Gains Tax. And yet it has come to pass. A forerunner of changes that are 'impossible' also happening here?
Accounting firm PwC is embroiled in a growing scandal about how it exploited its insider knowledge as a confidential contractor to the Federal Government on tax policy issues, leveraging this knowledge for the benefit of its wider high-income client base.
They need to get their debt ceiling issue behind them because it is a growing drag on sentiment. But that will be tough because hard-line Republicans have weaponised the issue.
Bill Gross says buy T-Bills amid ‘ridiculous’ debt ceiling issue. Says debt ceiling standoffs like this are ‘always resolved.’ US 1mth yield has jumped to 5.36%, highest level since 2001. https://finance.yahoo.com/news/bill-gros Link
And the US Fed's Financial Stability Report released late yesterday has them watching office building loans and other commercial real estate borrowing as the next big economic threat.
Gaming out where the American banking crisis will lead to.
TLDR, money printer will go Brrrr once again.
Bitcoin and Gold win. Great read for the plebs.
Deadlink.
Bit like Crypto then ?
hey Galloleous ....have a read of Elizabeth Warren's 5 page letter to the former President & CEO of the First Republic Bank .....this is what's happening, while they don't call them "Banksters" for nothing !
That woman is an absolute tool.
They are trying to hammer the crypto industry out of existence through operation choke point 2.0. Cut off all access to the fiat banking system.
https://hackernoon.com/the-denominator
https://cryptohayes.substack.com/p/the-denominator
Medium has removed his article already, talk about censorship.
Arthur's thesis is quite compelling. On that note, the sheeple - particularly in NZ - are unaware that there is a banking crisis that in some ways is larger than what occurred in the GFC.
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