Here's our summary of key economic events overnight that affect New Zealand, with news about the latest and pre-election Aussie Budget delivered overnight.
But first, the American retail Redbook Index rose +6.3% last week from the same week a year ago, suggesting buoyant trading in physical stores, gains well ahead of inflation. It is not only the strongest gain of 2024, you need to remember that it is on the back of a rising 2023 which itself was rising strongly in 2022.
Their SME sentiment index rose in April, slightly recovering from a 12-year low in March and better than the forecasts which assumed it would slip again. (The lobby group behind this index ignored the rise, preferring to dwell on the negatives.)
Meanwhile, factory prices rose more than expected in April, up +2.4% from the same month in 2023. But this is about average over the 15 year history of this data tracking (excepting the pandemic distortions, of course). But if there is a cloud it is that the month-on-month rise seems slightly elevated.
American household debt rose +3.8% in Q1-2024, just marginally more than the CPI inflation rate over the same period of +3.5%. And this excess brought a small, but noted, rise in delinquencies. As you might expect, mortgage debt rose less than inflation (+3.3%) given their hibernating residential property markets. Car loan balances rose at inflation's level. Student loan balances fell, the only sector to recede. But credit card balances zoomed higher, up a concerning +13% over the year and the basis of the rise in delinquencies. Total consumer debt (including mortgages) is now US$17.7 tln. That is about 65% of US GDP and near the lowest share since these records started in 2005. Back before the GFC it was over 100%.
The American CPI inflation rate gets updated tomorrow and financial markets seem parked up until this data is known. Markets currently expect a very minor improvement, down to 3.4%. Variations from that or the "core rate" expectation could well be market-moving.
US Fed boss Powell was speaking overnight in The Netherlands, but he had the same message again - that inflation is stickier than the central bank wants to see and that rate cuts from them are some way off. But he also repeated that it is very unlikely that their next move will be a hike.
In China there are some signs elements of stress are spreading to insurers now. Several insurance companies have chosen to pay higher interest rates on their capital bonds rather than exercise an option to redeem them early, a sign they are facing solvency problems. Policymakers are focusing on the wider stress points, but still basically about their troubled property markets.
In Germany, their widely-watched ZEW Indicator of Economic Sentiment rose more than expected in May to its highest since February 2022. Improving economic conditions in the EU and China have contributed to a better outlook, analysts say. Expectations for domestic consumption, as well as the construction and machinery sectors, have brought substantial improvements in sentiment.
But today it is all about the Australian Budget, delivered overnight. With the Australian economy the weakest it has been in 23 years, their Treasurer has handed down his third Federal Budget delivering its second consecutive surplus, and setting the Government’s agenda as they head into an election cycle. That election is due in May 2025, so this Budget has to be seen as the last major policy setting before then, that could deliver results before polling. Initiatives such as the "Future Made in Australia" program were at the forefront. Not only is this Budget 'political' (including "tax cuts for all" and a $300 rebate for household power bills), the reviewing media assessments are highly politicised as well.
The surplus announced of +AU$9.3 bln this year is off the back of generous company tax receipts – a pleasant surprise after the -AU$1.1 bln deficit forecasted in the Mid-Year Economic and Fiscal Outlook in December. However, this will swing into a -AU$28 bln deficit in 2024-25 (-1.4% of GDP), with larger deficits in the years following than previously forecasted.
Separately, the ABC Four Corners investigations unit has a startling story about how the Chinese secret police operate in other countries, including Australia. It is certainly worth a read.
And following up yesterday's note, the copper price is now officially up at an all-time high, US$10,977/tonne.
The UST 10yr yield is now at 4.45% and down -4 bps from this time yesterday. The key 2-10 yield curve inversion is marginally less at -37 bps. But their 1-5 curve is now fractionally deeper at -71 bps. Their 3 mth-10yr curve inversion is unchanged at -91 bps. The Australian 10 year bond yield is now at 4.40% and up +3 bps. The China 10 year bond rate is down -3 bps at 2.30%. The NZ Government 10 year bond rate is now at 4.75% and down -4 bps from yesterday.
Wall Street is in its Tuesday session up +0.4% on the S&P500 in late trade. Overnight European markets rose about +0.2% except Frankfurt which was down -0.1%. Yesterday Tokyo ended its Tuesday session up +0.5% but Hong Kong fell -0.2%, and Shanghai was down -0.1%. However Singapore rose +0.3%. The ASX200 ended its Tuesday pre-budget session down -0.3%, matched by the NZX50.
The price of gold will start today back up +US$20 from yesterday at US$2355/oz.
Oil prices have fallen -US$1 to just on US$77.50/bbl in the US while the international Brent price is now just on US$82/bbl.
The Kiwi dollar starts today marginally firmer than yesterday at just over 60.3 USc. Against the Aussie we are also a tad firmer at 91.2 AUc. Against the euro we are little-changed at 55.8 euro cents. That all means our TWI-5 starts today just on 69.6 and up +10 bps from yesterday, partly on a weaker yen.
The bitcoin price starts today at US$61,251 and down -2.4% from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.7%.
The easiest place to stay up with event risk is by following our Economic Calendar here ».
121 Comments
US inflation appears to be higher (0.5% past month PPI) and more engrained than ours, despite what has been reported. (US mortgage holders have residential loans <4% for 30 years.)
Our economy is in total free fall.
Who’s to blame ? IMO it wasn’t the last governments fault for overspending (cash rate was too low) and it isn’t this governments fault for austerity (cash rate is too high). Our problem is 100% the fault of the reserve bank and their blind abject stupidity!
It appears we have been on a divergent path from the fed since 2023 and the longer the RBNZ wait to cut the OCR, the further south our road will take us.
“Markets and central banks can remain illogical longer than you can remain solvent” but the RBNZ appear to be taking this old (loosely quoted) expression to the next level… the actions (or inactions) from this central bank are damaging our country in a way I can not fathom. How do they avoid blame?
25bp (minimum) cut needed next week. Better late than never.
What do I expect? No action followed by further carnage!
What if Orr is actually a smart guy, and does a surprise 0.25 next week? Followed by two more this year?
A broken clock is still right twice a day. So there is a chance (fingers crossed).
If he got out to get the vibe he would cut now, earlier actually. They've crushed it.
Maybe the RBNZ is on a secret mission to cut our emissions....
Orr has to signal intent before cutting , watch the wording of the statements
He won’t cut but he will be very dovish
Agree, don’t think we see a cut, fascinated by what will be said.
No he doesn’t - why would he do that? They will keep up the jawbone until the very moment they cut.
First cut will be August, may get a second before the end of the year. If you are in trouble then its your fault you overcooked it.
He won't signal anything until he is a meeting out, otherwise you will see too big a reaction in the wholesale rates market too early. I suspect that once he has decided the economy has no inflationary pressure left ( which is now but that's a whole other conversation) he will have a level of interest rates in mind that he wants to get to and the moves may not be just a mere 25 points each time. In terms of the economy, well banks are kinda cooked as their lending practices have lead them to the precipice. They are not lending to agriculture because they are already maxed out. They won't lend to smaller businesses because most of that is collateralised to the owners house of which they are already over exposed. So a decline in asset valuations will snowball this issue with bank credit. As a small example, there is a secondary market broking service called Syndex that offers units in various property and agricultural investments that have been syndicated into debt and equity products for "wholesale" investors. There are so many of these units for sale at "par" - i.e for what the investor bought them at. However most of these things would trade at a significant discount now, clearly many investors don't realise that they have lost money on the valuations yet. The degree of a s!*tstorm brewing I think is underappreciated.
Yeah, but….
a cut would be largely symbolic now (btw not saying it’s the wrong thing to do). Economic carnage is embedded now, and it will take ‘mother time’ and at least 1.5-2% of OCR cuts to start turning this big, clunky ship around….
Our CPI is at 4%. It is above the 1-3% band mandate. Why would they cut?
Because the Economy is tanking, a big proportion of that 4% CPI is from 9-12 mths ago and there is a lag between an OCR change and the economy reacting?
The economy isn't tanking??? I don't know anyone struggling really, my builder is still quoting me $110 p/h + GST so maybe if you need work cut your rates and you'll find it?
If anything, we need one more 25bp hike to kill inflation off once and for all.
We have had negative per capita growth for how long now?
That is no reason to cut rates. GDP per Capita is falling in a number of Western economies including UK and Australia. Our wages are so high we outsource everything possible and gross capital formation has collapsed.
Sounds like you’re living in a bubble.
Haha man I love the whole “drop your rates” mentality people have with construction…that sentiment never seems to be shared towards other industries…no expectations for wage earners to offer to decrease their salaries…that being said $110 is a chunky charge out rate…I assume he’s an absolute weapon on the tools for that rate…I’ve used really good guys recently & paid $75 p/hr +
Still high rates doesn’t necessarily mean much. In fact some will be keeping their rates higher to mitigate lack of work. At some point they may need to drop them.
Your point about US Mortgages is well made and a key economic differentiator. The amount of financial servicing is crippling our cash flow.
Additional head-winds are our captured markets, which by almost any calculations add an addition 4-8 % tax to each transaction that is remitted to our foreign masters.
Lastly, to complete the trifector we have unhinged immigration, with broken to no infrastructure plans and a set of public services that are close to having the last person out turn off the lights.
There are no upside drivers as I see it, the crush on the economy is being felt right now by our most productive (new businesses) and least by our least productive.
The UST 10yr yield is now at 4.45% and down -4 bps from this time yesterday.
I own a business and I know of a lot of others who do so too. 7 of us had a dinner last week. Nobody is going to take on staff this year, 3 are reducing head count. We just canceled an outsourced marketing agency agreement equivalent to 0.5 FTE. Last vacancy one had (a month ago) attracted 1000% more applicants than similar 9 months ago.
Nobody at that dinner was expecting confidence to return for 12 months after rates START to come back.
People are afraid for their jobs and their homes. For all folks crow on here about the overleveraged, the fear that will crush the economy isn't those who can't afford to buy stuff right now, it's those who can but now won't.
So the bottom is 26/27?
I call bottom early-mid 2025
Bottom of?
The recession. And it will be a slow and groggy get-up from the canvas.
I don’t see 2-3% economic growth until 2026.
Your hopes and dreams when the RBNZ continues to crush the economy by holding HFL, and when the realisation comes that the OCR will never drop so low again.
Tightening started end of 2022, effects starting to be felt now, two years later. There will be no cuts this year, maybe next year, but, it depends on the Fed. Then you have another year of people struggling on high fixed mortgages, maybe two, just like we saw with people coming off them. My 3% mortgage breaks at end of 2026 so I’m hoping for the bottom at that time or shortly after to buy a cheap property since my mortgage will be gone. Lots of cheap properties popping up at the moment, especially holiday homes, and dropping all the time. It’s only just started so you may be bang on with 26/27 being the bottom. It may also take longer since even though rates will be cheaper, people are going to learn a lesson and so confidence will take a while to come back. Going back a year commentators were talking a short, sharp pullback followed by extended growth.
"...the fear that will crush the economy isn't those who can't afford to buy stuff right now, it's those who can but now won't. "
That is of course the point of the OCR blunt instrument to reduce inflation.
You and your mates should stop being DGMs! If you could be more positive then everything will turn around!
Yep have had similar conversations myself. We had to replace a staff member two weeks ago, put a job ad out, had 110 applicants in three days, pulled the job ad. Will say 3 quarters were put aside very quickly, a lot of CV errors, but had at least 20 good ones. There are people hurting out there. I am also sad to say, that a few are now questioning Luxon and Co....not seeing a lot of lets get the country moving, if the sacrifice to increasing productivity in the economy is a $25 dollar tax cut for the average Joe, then they have failed big time.
Except the average Joe won't get $25.
Yes, but people need to understand that a mess like this cannot be fixed with words and a magic wand. Just like any large organisation (which the government and economy in general effectively is) that is failing, there needs to be change and change takes time. It will be another 18 months at least before the effects of the change that is being implemented now will be felt in a positive way. That is how it is. The alternative was much much worse.
You crack me up with your optimism and blinkered view on this coalition abilities.
It will be another 18 months at least before the effects of the change that is being implemented now will be felt in a positive way.
Can you outline the changes being implemented now that will affect us positively? (Apart from landlords and Tobacco companies)
Cuts in Govt spending, contracts to companies that don't really do anything.
Cuts in Govt spending, taking a knife to the public service
Tax cuts
Aim to curtail borrowing (some borrowing from the last government still baked in, needs to be unwound).
Build proper infrastructure
Support profitable, useful companies that are of national importance.
The above are a few things they are looking to do so far.
A lot of useless companies, poor value govt spending etc needs to be axed. That will be painful, but what is axed or goes broke was not needed and was mismanaged anyway.
Once all that is gone, things can go back to some sort of normality.
A CEO does not take over a new company and say, OK, we are miles in the shite, we have 25% too many staff, we make less than we used to and our factories are falling apart, and then go, we will do nothing, and everything will be better tomorrow. That doesn't happen anywhere, and it won't happen here either.
I think you need to get used to it.
I agree that NZ needs supply side reform. We need to be ruthless around what we support and what we don't and we need to put our welfare before net zero like Australia does.
The irony that so many Kiwi's support net zero yet shut their eyes and move to suck the teat of Australia's resource engine escapes most.
You cannot run a country like a business - sounds like you believe that someone who has made a personal fortune will know how to make an entire nation more prosperous?
I get that. But...you cannot run a country like a soup kitchen either, which is what we have had over the last six years. So, somewhere in between would be fine, and someone who has successfully managed at least something would be very useful. We have seen someone who worked in a fish and chip shop, someone who's claim to fame is eating sausage rolls and someone who seems to have done nothing at all (Robbo) managed to cope. They didn't and now we are where we are.
Jeremyr. And three out of three of those menaces were student presidents.
Yep, the classic do nothing and complain a lot job that you do with the only purpose of putting it on your CV to make it look like you have experience at something.
Government budget does have some similarities to business and indeed households.
If you don't pay attention to the outcome, and don't match the resources you commit to a good outcome trouble comes.
Of course Government can conceal that trouble temporarily by it's power to demand resources (income) but it hits the fan in the end.
Simple version. Waste makes you poor. Slowly, then faster.
Bollocks. They are taking broadly the same approach as the Tories took in the UK a decade ago using the same arguments. It failed in the UK and will fail here.
Here's a good over view of the coalitions depth of understanding. Or a bit of humour depending on your thinking.
https://www.rnz.co.nz/news/political/516832/questions-about-coalition-s…
so we would all be better off in the long term if the govt had a smaller influence in our economy
At least the left can usually honestly answer questions regarding what they are doing and why.
The right need to hide their true motivations a lot. That generally means they know their motivations are unpopular, and being pushed by minorities.
This is satire no?
Yes. I think so. The left could not even explain what a woman was if I remember.
"At least the left can usually honestly answer questions regarding what they are doing and why.
The right need to hide their true motivations a lot. That generally means they know their motivations are unpopular, and being pushed by minorities."
I clearly remember that Labour widely communicated their comprehensive racist ethnostate program with deep critical analysis from the MSMedia PIJF so that all voters could consider it fairly before the 2020 election.
/sarc
Agreed the last govt placed the country into the biggest financial mess in our history so it will take time to repair the damage.
They certainly did an excellent job of continuing what governments have been doing for decades. It would be great if they were indeed the end of it.
Re: marketing agency agreement, I'm reasonably well-connected in the marketing agency space and many of them are suddenly doing it tough (as the same scenario you describe plays out up and down the country ... it's an easy cost to cut). My supporting evidence for this is business I'm working with who have internal marketing roles open are being flooded with applications from ex-agency staff who have been made redundant.
The problem from the client/business perspective, with respect to outsourcing to agencies, is you are effectively paying for the infrastructure of agency and that introduces additional cost.
For example, let's say your business was paying $50k per year (if $100k per year was 1 FTE). When looking at the typical agency a significant proportion of that $50k will be paying for rent on a nice office and all those boujee staff functions and long lunches, layers of account management, and also underwriting the various mouths at the table that need to be fed ... e.g. you are paying the agency to run ads for you, but your fee is helping to prop up the web development side of the business even though you have no need for that service.
It's like going to McDonalds and really all you want is a burger, but you have to buy the drinks and the chips to get the burger - at a higher price point than you'd otherwise need to pay. Perhaps fine in good economic conditions when you have a wallet full of cash, but when times are tough you have to manage costs.
If you wanted to do the same type of activity at a lower cost, I'd be looking to find someone ex-agency with the right skillset (depending on what the agency had been doing for you) and you might find that 0.5 FTE becomes 0.25 FTE or even 0.15. Agency rates are often $250 + GST p/h these days, but the actual guy/gal on the tools doing the work was probably getting $40-50 p/h. You might be able to hire them as a contractor on $85-100 p/h just to do the bits you actually need, and get a good program in place at a much lower cost.
Agencies still have a role for larger orgs who want to outsource the marketing function AND have "political cover" (that is to say when something goes wrong management can blame the agency, who is paid well enough to take the hit, and also the agency - just like consulting firms - can sell back to the organisation its own ideas to get greater management buy-in) but for small/medium businesses the future IMO is some combo of in-house + on-demand external contractors/freelancers.
Don't really feel sorry for anyone who overcooked it. You all had years of almost zero interest rates to start smashing that debt but its clear now that many people used the low rates to take on even more debt.
There are young FHB's caught up in this ..... and I really do feel for them.
End of US empire projection?
Vulcan Program’s Delay Shows US Can’t Even Copy, Much Less Replace, Russia’s Rocket Engine Know-How
Ukraine Crisis Highlights Chasm Between Russian, US Electronic Warfare Capabilities, General Admits
US Set to Use Power Given by Congress to Seize Frozen Russian Assets for Ukraine - Blinken
Bet?
Remember when a basket of currencies were set to replace the USD as the base CCY for foreign trade?
You are confusing global Eurodollars with domestic USD. The latter is insignificant in terms of global liquidity functions.
For instance our own ANZ bank brand issues $ credit from it's London operation.
Biden says "China is determined to dominate these industries. I'm determined to ensure America leads the world in them
Biden says "China is determined to dominate these industries. I'm determined to ensure America leads the world in them." Let's see where we are today: - Steel: China 54% global market share, vs US 4.3% (https://visualcapitalist.com/biggest-steel-producers-country/) - Aluminum: China 55% share, vs US 1.5% (https://harboraluminum.com/en/top-aluminum-producing-countries) - EVs: China 60% share, vs US 8% (https://iea.org/reports/global-ev-outlook-2023/executive-summary) - Solar panels: China 78% share, vs US 2% (https://statista.com/statistics/668749/regional-distribution-of-solar-pv-module-manufacturing/) - Semiconductors: China 7% share, vs US 48% (https://daxueconsulting.com/china-semiconductor-industry/)
I just imposed a series of tariffs on goods made in China: 25% on steel and aluminum, 50% on semiconductors, 100% on EVs, And 50% on solar panels. China is determined to dominate these industries. I'm determined to ensure America leads the world in them. Link
How will the USA convince the world that paying extra for their products (pricing in the higher cost of labour, shipping costs etc) is worth the price difference between their products, and Chinese products which seem to be advancing quickly. They would need to be making a product that far superior to China to justify the cost, such as for higher cost items that would be expected to last the test of time Vs the Chinese.
Being saying for a while the Chinese have gone past the USA for a year or two now. The Chinese are playing it cool and not verbalising the fact but the Americans have finally woken up to the fact they have been trumped in more ways then one. Doubling or tripling the tariffs is quite frankly sore loser stuff, you outsourced everything out to them starting as far back as 40 years ago now starting with steel, the chickens are coming home to roost. A few people in the USA got very rich at the expense of the workers.
The trouble is that they, like much of the western world, outsourced manufacturing to China to maximise profit, and through 20-30 years of funnelling cash to them at exponential rates, they have managed to raise a larger percentage of their population form poverty, and are now using all the tricks off the trade to out-compete the western world. Companies shifting to China didn't look at the large-scale long term implications, only the profit.
Ahh yes the SputnikGlobe, always a safe bet for unbiased reporting. :D
Having said that, the military industrial complex has no interest in speeding the delivery of anything, no fortunes can be made that way. Elon has the answers anyway.
The US should use the frozen assets, but when it does, it should understand that the victims of that will be in the EU not in Russia. While the Putin administration is in power that money will be ransomed back many times over.
Since when did US worry too much about the EU. Hell the Russo-Ukraine war has been a boon to the US to the detriment of Europe. The US win-win both ways. Badly cripple Russia and reduce EU's economic influence and power.
Yep they blew up the pipeline and then started supplying weapons it was a win win for the USA.
A Norwegian data scientist has pieced together a lot of evidence indicating it was the UK that blew up Nordstream. This is his blog laying out the case: https://nordstreambymortymer.blogspot.com/
nigelh,
"Badly cripple Russia". But have they? GDP growth in 2023 was 3.60% and the IMF's forecast is that the economy will grow by some 6% this year.
Some great comments already at 7:59am! That's what I like about this site, a critical mass of commenters sharing genuinely useful 'on the ground' insights from their lives and work.
In response / agreement to a couple of the comments, I have zero confidence that a drop in interest rates will make much difference to the pace of our decline. The slump is starting to look GFC in scale and it has clearly got away from RBNZ / Govt. It took an earthquake to get the economy out of bed post-GFC.
We are also in a different era - a sustained period of instability as countries weaponise trade, introduce tariffs, manipulate the global financial system, and pursue 21st century industrial policies designed to protect their place in the world and insulate themselves from conflicts (inc growing climate conflict). This will mean price shock after price shock hitting our shores for the foreseeable future.
Our current go to tool for price stability - monetary policy - works after the fact and with a long lag. Every time we have had an imported price shock, monetary policy has completely failed to (a) contain the initial shock, or (b) prevent that shock propagating through our price structure (aka inflation). The fact that we also use monetary policy to covertly manage house prices and the value of the NZ dollar means that we are literally up the creek without a paddle.
I work in and around the top of Govt and major corporates and I can tell you that there is no conversation about alternatives. The top brass are still on the 'Govt spending causes inflation', 'need to manage the debt to leave headroom for a crisis', 'unemployment is the price we have to pay to get prices back in line', 'we need to clean out the failing businesses' etc. It is depressing as hell.
"We are also in a different era - a sustained period of instability as countries weaponise trade, introduce tariffs, manipulate the global financial system, and pursue 21st century industrial policies designed to protect their place in the world and insulate themselves from conflicts (inc growing climate conflict). This will mean price shock after price shock hitting our shores for the foreseeable future."
Welcome to the 1970's
It's fundamentally different from the 70s due to fossil fuel energy situation and climate change. It's also fundamentally different from the point of view of our strategic alliances and where that puts us on a global scale. In the 70s we had a relatively privileged position due to being closely aligned with UK and US, that advantage is not there anymore.
What worked to pull us out (well defer the reckoning rather than pull us out) will not work this time round.
But the CCP are our friends right - they will send their police to help us.
Yes its different but i see one of the biggest risks for us being the trade restrictions and the spiral down that can cause
Meantime its going to be a long haul at best
Been there a couple of times before
Also the communication technology. 70's had no email or internet, cellphones, communication was arduously slow compared to today and weapons were only advanced so much also in relative terms.
Another great comment, and particularly your last paragraph. That’s also my experience. Yes it really is depressing, and unfortunately the view of a very few clued up people will not change things. Status quo Group think reigns supreme, both in government and corporate worlds.
I agree. The lack of vision, lack of direction and to my mind, almost complete lack of 'constructive' action (of this new Govt) has added to uncertainty and is further damaging our economy.
My view is they have done a lot. Rapidly.
You don't have to like what they do, but they are.
Of course it will take a decade to even get a grip on the mess.
They have done loads - in a similar vein to drunken students making short work of the decor in a Dunedin student house.
thank you.
I think you got it the wrong way around. The drunken students got kicked out, or arrested (Ms Allen, being just one example...drunk and arrested).
Both a red herring and a low blow, jeremyr.
Um, it's a fact actually. The drunks got kicked out. They already made the mess and they are gone-burger. Drunks, fraudsters, thieves, tax dodgers, immigrant abusers. They had them all.
May be a fact but it's a red herring all the same. I presume you've read Nicky Hager's book, 'Dirty Politics'.
So now I’m lost. You are saying facts are red herrings and I should read a book by a loser. Strange.
A red herring is the introduction of something irrelevant to the issue under discussion and it is used to either mislead or as a distraction (which is what you've done here). The issue was the performance to date (or more to the point, the lack of) of the incumbent Govt. therefore the failings, as you perceive them btw, of Ministers in the previous Govt. was immaterial to points being made here.
The top brass are still on the 'Govt spending causes inflation'
What about inflation?
Governments cause inflation and hurt bond investors
Exactly. In March 2020 the Fed literally set out to create significant inflation, and it was successful (using my QE2 proposal for deflationary situations when that wasn't the case, buying performing assets from non-banks at great volume, hiring Blackrock to help with the buying. Link
In May 2020, as I conducted my latest monthly analysis of the quantity of credit creation across 40 countries, I was startled to find that something extraordinary had been happening since March that year. The major central banks across the globe were boosting the money supply dramatically through a coordinated programme of QE.
This was the version of QE that I had recommended as the second policy step in Japan in the 1990s – namely, for the central bank to purchase assets from outside the banking sector. As these payments forced retail banks to create new credit in a massive burst of money supply not previously seen in the post-war era, firms and non-bank financial institutions that had sold to the Fed gained new purchasing power as a result.
Even the Bank of Japan, having previously argued for two decades that it could not possibly purchase assets from anyone other than banks, suddenly engaged in this unusual operation at the same time as other central banks, and on a massive scale.
The reasons for this coordinated policy are not immediately apparent, although there is some evidence that it was sparked by a proposal presented to central bankers by the multinational investment company Blackrock at the annual meeting of central bankers and other financial decision-makers in Jackson Hole, Wyoming in August 2019. Soon after this, difficulties in the Fed’s repurchase agreement (“repo”) market in September 2019, triggered by private banking giant JP Morgan, may have made up their minds.
Apparently agreeing with my critique that pure fiscal policy does not result in economic growth unless it is backed by credit creation, Blackrock had argued at Jackson Hole that the “next downturn” would require central banks to create new money and find “ways to get central bank money directly in the hands of public and private sector spenders” – what they called “going direct”, bypassing the retail banks. The Fed knew this would create inflation, as Blackrock later confirmed in a paper which stated that “the Fed is now committing to push inflation above target for some time”.
This is precisely what was implemented in March 2020. We know this both from available data and because the Fed, largely without precedent, hired a private-sector firm to help it buy assets – none other than Blackrock.
Having “cried wolf” about the inflationary risk of introducing QE in 2008, and following more than a decade of resolutely low global inflation, many banking and economic experts thought the Fed’s and other central banks’ similarly aggressive credit creation policy in 2020 would not be inflationary, again.
However, this time the economic conditions were very different – there had been no recent slump in the supply of money via retail bank loans. Also, the policy differed in a crucial aspect: by “going direct”, the Fed was itself now massively expanding credit creation, the money supply and new spending.
Meanwhile the COVID measures imposed by governments also focused on bank credit creation. In parallel with unprecedented societal and business lockdowns, retail banks were instructed to increase lending to businesses with governments guaranteeing these loans. Stimulus checks were paid out to furloughed workers, and both central banks and retail banks also stepped up purchases of government bonds. So both central and commercial banks added to the supply of money, with much of it being used for general consumption rather than productive purposes (loans to businesses).
As a result, the money supply ballooned by record amounts. The US’s “broad” money supply metric, M3, increased by 19.1% in 2020, the highest annual rise on record. In the eurozone, money supply M1 grew by 15.6% in December 2020.
All of this boosted demand, while at the same time the supply of goods and services was limited by pandemic restrictions that immobilised people and shut down many small firms and affected some supply chains. It was a perfect recipe for inflation – and significant consumer price inflation duly followed around 18 months later, in late 2021 and 2022. Link
BIS - Does money growth help explain the recent inflation surge?
on the contrary its like these comments exist in some economic text book echo chamber... The solution is lower rates and more Debt I tell ya! Our creditors will love us for it.
Do people not realise that the economy has been financialised to hell? All those jobs and consumption and fake wealth that we are missing were all off the back of leveraging the bejusus out of the future - not because you repainted the conservatory in a beautiful lime green and added $30,000 to the house street appeal... The music died in 2008 (probably well before then) and we have been faking it since
"It took an earthquake ..."
And if we set fire to all the major cities do we get a rebuild bonanza??
An earthquake created a short term consumption binge for NZ, but system wide its another drag on the system. At some point everyone pays. There is no free lunch. Its basically the destruction of embedded energy which has to replaced with more energy.
The big players are shifting their pieces because they can sense whats coming.
PDK is that you?
Without doubt we are entering a new phase, where technology will continue to allow for more efficient use of current resources until the gears of a reducing global population get in motion and resolve the issue once and for all.
We will have no chance of running out of energy or resources otherwise we already would have but the climate may yet have the final say on our outcome.
PDK - no.
You dont run out of energy.
You run out of ability to grow DEBT (ie a promise that you will burn through ever more energy in the future... ).
Builders dont go bust because they run out of materials. They run out of people who can afford to pay them to build a house.
You can pile up the debt, but at some stage unless you are piling up the "consumption" side of the equation (ie delivering more and more goods and services to the table) you are basically debasing whatever currency you are using as your measure of value. Sound familiar?
Would you still fill your car if it cost $5000 a tank?
And Energy makes tech work. Not the other way round.
"technology will continue to allow for more efficient use of current resources..."
Which doesnt ring true with the "cost" of everything going thru the roof.
Jevons paradox - we use more not less as efficiency improves.
Great comment.
Has the concept of inflation passed you both by?
You mean theft?
:D it has many names, it does reduce the value of labour and cash but if you have assets it's the elevator to the stars.
Not many Home owners would agree with you at the moment..
Mike Hosking mentioned it once
Are you aware of the concept of Real wages?
Are you aware that we are both workers and consumers? And that for things to be viable our output must also be affordable to ourselves (collectively) as consumers?
Or are you STILL going to fill the $5000 tank on your $23 / hr wage?
I am all for some healthy venting, but you're making some assumptions there - e.g. that I / we think stepping up consumption is the solution to our malaise. Of course it isn't. We should be directing credit towards initiatives (physical and human) that prepare us for the future. The argument should be specifically about what those things are instead of what toilets we need for who, or whether the right models for schools is A or B.
I would also agree on your financialisation point, although I don't see 'straight debt' per se as the problem; that has been powering economies (in the form of money) for 5,000 years. The problem is the house of cards of financial liabilities / assets that are stacked up and dependent on each other, and the stupidity of thinking that these stacks of digital paper will somehow 'pay for' our future needs in relation to healthcare, disaster recovery etc.
there is no conversation about alternatives
Should it not worry us that the top brass, who should have contingency plans for the sake of their departments and businesses, are not exercising the expected level of critical thinking? Red flag in my books at least.
TINA from the 90s still rules supreme. Neolibs don't change.
But what are these alternatives?
To now step off the World economic gravy train and go it alone!! Or to print NZ$$ till the cows come home, run deficits and weaken our dollar? To tinker around the edges and pretend we can afford our standard of living?
Or to hold the course and wait till the Fed decides we can have another helping.
The only real alternative to Growth is Less.
The biggest problem is that people won't willingly accept less unless it is forced upon them. So the chance of a well-managed degrowth is small.
Yes there is the human behavioural factor, and delving into the macro-scale of this topic within this there is the prevalence for many western countries to toe the line with whatever appeases the USA, and try and look 'good' on the world stage. This to attract skilled migrants as a place they want to go, thus adding to the level of human capital, and also for foreign investment purposes, as well as trade opportunities. All of this boils back down to growth at the basic level, we want to keep growing, developing, getting better things and easier lives with all the latest bits and pieces. This comes from a good intent originally, to lift our communities out of poverty such as in the past, however now we rely on preying upon the resources of less fortunate countries (goods, services, imported labour) to maintain our own living standards.
I work in and around the top of Govt and major corporates and I can tell you that there is no conversation about alternatives. The top brass are still on the 'Govt spending causes inflation', 'need to manage the debt to leave headroom for a crisis', 'unemployment is the price we have to pay to get prices back in line', 'we need to clean out the failing businesses' etc. It is depressing as hell.
I had a similar background to this area. Left with the strong opinion that the business lobby groups were up to no good.In cahoots with the banks and real estate crew.
Simon Bridges running the chamber, Andrew Hunt chairing the EMA,Phil Oreilly at the OECD……do you trust them?
judith Collins as our tech minister…? Andrew Bailey in manufacturing?why all these old fogies surrounded by junior career politicians who have come through the National Party youth programs.
What’s your view on the NZ Initiative and Business NZ role in all of this?
I was exporting to North America post gfc. Their house builds halved. Is Nz ready for this?
10 percent unemployment in the years after the sharemarkets crash in 87
I fear NZ is in for a similar journey as we reallocate capital away from speculation to production.
Or worse just capital away from speculation and the kiwi middle class left to hold the bag.Bugger investing in export earnings.
.
They possibly should, but they most definitely won’t!!!!
.
I agree with a number of commentators above that the OCR should be lowered by .25 pts next week. The NZD will be dropping but Orr has a war chest of $20 B to defend the currency so he should use that. For what other reason he has been building that amount of money.
The first treasury auction after the the OCR has been dropped should learn us what the bondmarket is thinking of RBNZ going their own way. The Swiss and Swedes have taken a lead on this and did their currency tank?
See: https://tradingeconomics.com/sweden/currency
Let's do this!
Can someone explain what the point of that war chest is. Unless it was endless it surely would be pointless. And surely a drop in the dollar is just a market reaction to the facts of the situation so needs to happen. Shouting against the wind.
We have no gold reserves
Dgm rules comments today.
From the farming giveaways headlines this week.
"Alram bells as landline rings off"
We're rural and haven't had a landline for 7 years.
"Visa scheme changes concern"
Still reliant on cheap immigrant labour
Can't bloody wait for copper to be scrapped, I have a few hundred metres of the stuff across a couple of my paddocks that causes me anxiety whenever deep tilling, fencing or digging drains. I think fewer than 10 properties further down the road still use the line. I've hit it once in the past (over 3m from the old marker peg) and that was an expensive exercise. I've had it mapped but the outcome is only ever approximate and the signs put in 40 years ago are nowhere near it.
The housing market, our special bubble, is far from dead. It's barely even sick. Lower rates and it will shoot back up again like a heroin overdose given an adrenaline injection to the heart. Even the tiniest little bit of relief in rates will have that effect - psychologically, NZers still have an overwhelming belief in property,
Buyers are scared of job security now, even TA says today - Buyers Retreat Further
When you have more sellers then buyers, the bubble is dead.
Funny you linked this, watching the Spruikers and the Hopers post on the various RE Stats threads here, made me think the exact same thing.
The funny thing is, for those Spruikers that stick around, when the bottom is finally in (maybe2-3 years) and most people hate property and what negative equity etc has done to there lives, it may just about be the right time to buy again..... that is if you think there is enough affordable energy for another cycle.
Central banks do have one card left.... negative interest rates, while limiting new credit creation.
Gamestop up 60% and another 7.7% post-market. Former SEC Chair Jay Clayton has said "Is this something we should be tolerating in our markets? Whether it is legal or illegal, I don't think so.".
Clayton is as crooked as a lame dog's hind leg and not sure why MSM go to him for advice.
If a hedge fund were shorting a company into oblivion for profit, Clayton couldn't care less. They talk about “market manipulation” when retail does it but never when govt officials make millions off it. It’s only a problem when they aren’t making money on it. This is the real swamp.
“If Roaring Kitty is so excited, why can’t he come on CNBC and talk about the stocks he likes? Why is he tweeting memes? We have to question if it’s legal or not.”
- Jay Clayton
Warren Buffet can get permission from the SEC to not have to disclose a “secret” stock he’s been accumulating for 8 months.
But Roaring Kitty can’t tweet a meme.
The ruling elite doesn't understanding why people are buying these stocks and going against the financial system.
I'm an old guy, but those memes are 'classic'.
Correct. And if you look at the volume for the last couple of days it certainly isn't retail. The sentiment amongst the "degenerates" is to buy and hold, particularly through ComputerShare which isn't a liquid way to trade. That and the price movements afterhours and pre-market when retail has next to no access.
Will be interesting to know why Mr Gill has decided to get back into it now. Possible gag order expired?
Add to that Coinbase going offline yesterday evening...corruption by the big boys in play
Not sure if Coinbase going down was corruption, but shutting down Robinhood in Round 1 of the Gamestop show arguably was done in favor of the institutions.
Agreed. The MSM also make no mention of the Archegos swaps - supposedly backed 1:1. Interesting timing with Whang's trial this week. I'm wondering if someone is trying desperately to unwind the swaps? Credit Suisse was holding them, then UBS, then ?
In other news the total fertility rate for the last year has been released and is 1.52 down from 1.56 last quarter and down from 1.65 this time last year. This suggests that the actual rate last quarter was below 1.5 as it's pulling the annual rate down each quarter.
we’ve been using interest rates to benefit the borrowers. Instead of the lenders like they were originally designed for. They dropped during GFC, and dropped again during Covid. Now people expect them to drop to bail out the borrowers yet again. People should be prepared to have that not happen.
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