China CPI & PPI struggle with deflationary pressures; China vehicle sales dive; Canada employment marks time; Russia inflation rises; UST 10yr 3.94%; gold and oil firmish; NZ$1 = 60 USc; TWI-5 = 68.7

All western governments?

Charted: Growth in U.S. Real Wages, by Income Group (1979-2023)

We’ve had stupid house prices for decades. Why the sudden change?

Agree though; not sure if anyone watches selling houses Australia, but Brisbane houses seem like a bargain compared to Auckland, with better weather and income. I do think that many young people were put off by the Aussie anti woke (particularly racism and environment), but now we are in the same camp then why not move? 

I heard China had more vacant homes than people.  Massive overbuild happened and now the population is shrinking so those new homes are never going to be needed.

It is important how GDP growth is created in a certain country.

That's the problem, we're now all playing the same game, but the ability to win is unevenly distributed.

We can either try think up ways to improve our odds, or maybe go play a different game.

Yes, that's spot on. Obviously, the original idea was that currencies would float and adjust to create balanced trade. But, nope, some currencies (and Govt Bonds in a given currency) are just too desirable. So, NZ Govt Bonds are very tradable and considered safe, so we can run a trade deficit and our currency is still worth loads more than other countries that send low-value primary goods to (genuinely) advanced economies. What a world.

Yes, Govt deficit spending and new bank lending add to the money supply (tax and loan repayments reduce it). However, it also matters how quickly money moves around (and how much is stashed in savings).

For example, imagine 5 businesses lined up in a row. Let's say the bank lends me $5,000. I buy something from the first business for $5,000. Let's say they make $2,500 on that sale. They then spend that $2,500 buying something they need from another business. The 2nd business then buys something from another business... and so on. All of those businesses are making a surplus and if the money keeps moving around, the surplus generated by that $5,000 will be significant. If however the first business takes their surplus and stashes it in a savings account, the chain has stopped and the surplus will not get any bigger. 

So GDP depends on additions to the money supply, how quickly money moves around the economy (the velocity of money), and the savings rate of participants in that economy. So, theoretically, you could still get GDP growth without an increase in debt.

But from the point of view of the bank, it has acquired the security without giving up any cash; the counterpart, in its balance-sheet, is an increase in its liabilities. There is expansion, from its point of view, on each side of its balance-sheet. But from the point of view of the rest of the economy, the bank has ‘created’ money. This is not to be denied. Hicks (1989, 58)

We start with the idea of credit creation, specifically a swap of IOUs between a bank and myself involving a bank loan that is my IOU and a bank deposit that is the bank’s IOU. Nothing could be simpler, and yet the mind rebels, especially the well-trained economist’s mind, because this simple operation increases my purchasing power without decreasing anyone else’s. It seems like alchemy, or anyway a violation of some deep conservation law. Real productive resources are the same as they were before, and the swap doesn’t change that, does it?

Spending of the new purchasing power adds another layer of perplexity. If spending increases but real resources do not, then it seems logical that the increased spending must exhaust itself in higher prices—that is the intuitive appeal of the quantity theory of money. My purchasing power may increase, but everyone else’s decreases because their money balances buy less. From this point of view, the alchemy of banking seems like a kind of theft, something to be deplored in the name of economic science and if possible outlawed in the name of the general good. Link  

We've tried a number of mechanisms over the years, removing foreign buyers, ratcheting up deposit requirements, etc.

None of these have made much of a dent, because new house construction sets a benchmark for what all houses cost.

That's quite a far right view there Jimbo

You can build a house cheaper if it's designed the right way. Board and batten for instance, is a much cheaper cladding than say, plaster, or that fancy wide channel tin they like using at the moment.

But yeah if I was playing armchair leader, I would bankroll a nationwide affordable house build out that's done at massive scale. $1500 a square, something like that.

No, our number one exports should be renewable electricity, a safe place to get a great education, and beauty. Obviously, we would export the electricity via 100% carbon-free company head quarters, data centres, aluminium ingots etc.

Sounds like there will be some interesting conversations to be had between you two

Yikes.

So she wants you to bail her out at no cost to herself (so she does not have any effects from the short term equity lost) so you could suffer her consequences and risk. That is not a supportive family member that is someone looking to commit financial & emotional abuse (often directed at older parents just as much). If she had actual desperate need, & could not meet the mortgage e.g. medical illness like cancer, family members in crisis with new costs e.g. break up/unexpected child costs or long term injury forcing unemployment that would make sense as she would be unable to wear the mortgage repayments with a higher cost of living required to survive. Charity during a time of severe crisis to help family manage like supporting living costs or helping her sell it on the market can help. Even short term small loans that can be repaid in a couple months. But no. Anything else is just trying to avoid the consequences of risk & trying to improve her financial position at a detriment to family.

If anything I would say she should take the cut, sell the house for a loss on the market if she so needs to leave it or minimize the mortgage costs and then slowly pay off the remaining mortgage as she rents and saves for a new place. Or like many look to getting income from the property by renting it out while staying with family or renting a cheaper place. Since mortgage rates are still quite low in comparison to other loan rates she is in a far better position with that debt then say lots of hire purchases & money loans for necessities of living. In fact many times it is far easier to load up essential living needs costs (like for medical ops, essential transport) on a mortgage loan then it is to do it on credit or with small loan lenders. So lets not assume that simply being left with mortgage debt is the end of the world. 

Perhaps she has grown up so insulated from consequences that the thought of facing any and having to make a decision to resolve issues is terrifying. In this family can help by normalizing the fact that mortgages go up and down, people do pay off debt, and houses can gain and lose equity in the short term... stuff she should have been fully aware of before she even considered a mortgage contract. Insulating children from these things does them no favors in life as they are just as likely to get in the same position again in a few years time as property, mortgage rates & housing markets change. Any fool could see the massive spike to the housing market intentionally made to increase speculation during 2020-2022 and that there would be economic shifts & changes to mortgage rates. If she is solely seeking to keep her financial position with no risk, no consequences of any loss it is abusive to put that on family. Insulating children when they are not in need really does lead them into worse positions esp when parents can no longer bail them out.

You gave the stepdaughter the best advice BW, and they threw it aside. You did your duty, now stand aside soldier, you must let their cards fall.

- Sad, but its life.



Stupid financial decisions MUST have a cost.



Moral Hazard must be followed through with pain, otherwise the same or more stupid decisions are made and no learning occurs.