Markets signal recession warnings; bond yields invert; US import prices rise; China data very weak; German Q2 GDP negative; speculation of Brexit call without Parliament; UST 10yr yield at 1.58%; oil down and gold up; NZ$1 = 64.3 USc; TWI-5 = 69.7

Markets signal recession warnings; bond yields invert; US import prices rise; China data very weak; German Q2 GDP negative; speculation of Brexit call without Parliament; UST 10yr yield at 1.58%; oil down and gold up; NZ$1 = 64.3 USc; TWI-5 = 69.7

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Here's our summary of key events overnight that affect New Zealand, with news recession warnings are piling up.

This morning, Wall Street is flashing red lights. Equity markets are spooked by bond markets which say a US recession is coming. The S&P500 is down -2.8% meaning the drop in August so far is -4.5%. The closely-watched 3m-10yr US Treasury bond curve is now remarkably inverted at -37 bps. The 2-10 curve is flat and about to invert too and that will be its first in 12 years. These are serious signals. Late in the European sessions, after Wall Street had opened, they too fell sharply, ending up down more than -2%.

The triggers are weak data in both Germany and China. Both have been caused by capricious US tariff policy. This is a pure Trump recession.

US import prices rose in July from June even if they are lower year-on-year. It was an uptick that wasn't expected.

The recent US moves to "save Christmas" and the higher prices consumers will pay for the latest US tariffs, isn't bringing any similar concessions from China. If anything they are hardening their stance. As someone said, it's like Santa Claus stealing your bike and then giving back as a present.

China is not only dealing with the US trade war and unrest in Hong Kong, its economy is slowing faster now too. Industrial production data has posted its worst growth since 2002, up only +4.8 in the year to July. Analysts had expected this to rise +6.0% and down from +6.3% in June. That is a fast decline. And that wasn't the only sharply negative data; retail sales rose 'only' +7.6% in July from a year ago and way below the +8.6% expected and the June rise of +9.8%. At least the Chinese aren't gilding this data. But they are preventing the yuan from sliding too fast.

German GDP actually fell in the second quarter of 2019 from the first quarter, and shows zero growth from the same quarter a year ago. 

EU GDP rose +1.1% in the second quarter of 2019, a slightly slower rate than in the first quarter and that's its slowest growth rate since 2014.

In the UK, speculation is growing that the new UK Prime Minister could suddenly declare Brexit now, taking the country out of Europe with an end-run around the Parliamentary process, and then call a general election.

The UST 10yr yield has slumped -9 bps to be at just on 1.58%. Their 2-10 curve is now completely flat, and their negative 1-5 curve is wider at -30 bps. The widely-watched 3mth-10yr curve has ballooned out to negative -37 bps. The US 30yr is about to go under 2% yield and an all-time record low. The Aussie Govt 10yr is at 0.93%, down -5 bps from yesterday. The China Govt 10yr is up +1 bp at 3.03% and just off its decade low, while the NZ Govt 10 yr is also up, even more, up +3 bps to 1.13% although that is likely to fall when local markets open here today.

Gold has jumped +US$13 today to US$1,514/oz.

US oil prices have dropped sharply today giving up yesterday's bump and more, and are now just on US$55/bbl and falling. The Brent benchmark is now at US$59.

The Kiwi dollar is weaker again today, at 64.3 USc. On the cross rates we are up to 95.3 AUc. Against the euro we are unchanged at 57.7 euro cents. That puts the TWI-5 at just on 69.7.

Bitcoin is down -10% overnight to US$10,206 and its lowest this month. The bitcoin rate is charted in the exchange rate set below.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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111 Comments

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12
up

"This is a pure Trump recession."
And thank goodness for that!
It could have been, and should have been, an Obama Recession. By now, we'd be out of it and some way down the road to a cleaner economy and System with far less hardship than that which is coming.
But, no. Courage deserted Obama, and his cohort, just when courage was needed in 2009.
Now, Trump has to do what has to be done. It's crude, yes, but it is unavoidable and has been since QE2.
(Oh. And the irony? Had Obama acted with courage, there never would have been a Trump!)

19
up

That's a flat-earth comment, with respect. Actually, the die was cast by 1970 - we were always going to traverse a bottleneck. Obama couldn't have 'fixed' things, although he could have allowed those who perpetrated the short-term damage to be arraigned - which might have lead to a discussion about when growth would end.

Maybe. But Flat Earth isn't what we're going to get. Scorched Earth, yes.

14
up

Great to hear a point of view not biassed by Trump hate. The West has been declining (committing cultural suicide, according to David Goldman of the Asia Times) for so long we have all drunk the Kool-Aid that accepting our fate is the only way. Blinded by personality issues, thinking Bush bad, Obama good and Trump bad, missing the essential issues. John Garnaut's article that Xi sees himself as the true successor to Stalin seems far more important.

Agreed. Here's a more thoughtful-than-most take on it:

https://www.resilience.org/stories/2019-08-14/responding-with-love-to-a-...

"The collapse of modern civilization marks a decisive moment in human history. What we face is a turning point between two futures: The Great Transition and the Great Unraveling".

Trump would appear to herald the latter...

"No," said a new voice from the further end of the hall, beyond Cowslip. "Rabbits need dignity and, above all, the will to accept their fate."
"We think Silverweed is one of the best poets we've had for many months," said Cowslip. "His ideas have a great following. Would you like to hear him now?"
"Yes, yes," said voices from all sides. "Silverweed!"
"Hazel," said Fiver suddenly, "I want to get a clear idea of this Silverweed, but I daren't go closer by myself. Will you come with me?"
"Why, Fiver, whatever do you mean? What is there to be afraid of?"
"Oh, Frith help me!" said Fiver, trembling. "I can smell him from here. He terrifies me."
"Oh, Fiver, don't be absurd! He just smells the same as the rest of them."
"He smells like barley rained down and left to rot in the fields. He smells like a wounded mole that can't get underground."
"He smells like a big, fat rabbit to me, with a lot of carrots inside. But I'll come with you."
When they had edged their way through the crowd to the far end of the burrow, Hazel was surprised to realize that Silverweed was a mere youngster. In the Sandleford warren no rabbit of his age would have been asked to tell a story, except perhaps to a few friends alone. He had a wild, desperate air and his ears twitched continually. As he began to speak, he seemed to grow less and less aware of his audience and continually turned his head, as though listening to some sound, audible only to himself, from the entrance tunnel behind him. But there was an arresting fascination in his voice, like the movement of wind and light on a meadow, and as its rhythm entered into his hearers the whole burrow became silent.

The wind is blowing, blowing over the grass.
It shakes the willow catkins; the leaves shine silver.
Where are you going, wind? Far, far away
Over the hills, over the edge of the world.
Take me with you, wind, high over the sky.
I will go with you, I will be rabbit-of-the-wind,
Into the sky, the feathery sky and the rabbit.
The stream is running, running over the gravel,
Through the brooklime, the kingcups, the blue and gold of spring.
Where are you going, stream? Far, far away
Beyond the heather, sliding away all night.
Take me with you, stream, away in the starlight.
I will go with you, I will be rabbit-of-the-stream,
Down through the water, the green water and the rabbit.

In autumn the leaves come blowing, yellow and brown.
They rustle in the ditches, they tug and hang on the hedge.
Where are you going leaves? Far, far away
Into the earth we go, with the rain and the berries.
Take me, leaves, O take me on your dark journey.
I will go with you, I will be rabbit-of-the-leaves,
In the deep places of the earth, the earth and the rabbit.

Frith lies in the evening sky. The clouds are red about him.
I am here, Lord Frith, I am running through the long grass.
O take me with you, dropping behind the woods,
Far away, to the heart of light, the silence.
For I am ready to give you my breath, my life,
The shining circle of the sun, the sun and the rabbit.

Fiver, as he listened, had shown a mixture of intense absorption and incredulous horror. At one and the same time he seemed to accept every word and yet to be stricken with fear. Once he drew in his breath, as though startled to recognize his own half-known thoughts; and when the poem was ended he seemed to be struggling to come to himself. He bared his teeth and licked his lips, as Blackberry had done before the dead hedgehog on the road.
A rabbit in fear of an enemy will sometimes crouch stock still, either fascinated or else trusting to its natural inconspicuousness to remain unnoticed. But then, unless the fascination is too powerful, there comes the point when keeping still is discarded and the rabbit, as though breaking a spell, turns in an instant to its other resource -- flight. So it seemed to be with Fiver now. Suddenly he leaped up and began to push his way violently across the great burrow. Several rabbits were jostled and turned angrily on him, but he took no notice. Then he came to a place where he could not push between two heavy warren bucks.

Lest my point be obscure, this poem is about accepting one's fate. To me Trump and Brexit and the Gilets Jaune and the protesters in HK all share the opposite vision, that the West can revive, that a revolution is beginning (in the old sense, a restoration of ancient rights). In short, I'm an optimist and I seen the first uncertain fumbling signs of the revival of the virility of our culture in the rejection of the Doctrine of There Is No Alternative but to Kow Tow to Our Masters.

Blinded by personality issues, thinking Bush bad, Obama good and Trump bad, missing the essential issues.

That seems to be missing fully half of the move to personalities and the growing extremes between groups in society, i.e. the crazy reactions to Obama from the right, the rise of the Tea Party and their antics (even bemoaned by Boehner).

Also missing in the unraveling of the US (and stability in other Western societies) is the weaponisation of information by state players.

Cultural suicide over time is certainly an interesting prospect...The Retreat of Western Liberalism [Edward Luce] and The Strange Death of Europe are two interesting tomes on this.

This recession has been coming for a long time, the 1-5yr curve has been inverted for about a year. The world has been in an asset and equities bubble for 5+ years.

Sure the Trade War may be expediting this recession, however my understanding is that it has bi-partisan support.

So this "pure trump recession" is just classic Trump Derangement Syndrome

Yes, a bunch of asset classes (including NZ sharemarket and property market) have been overvalued for quite some time, with “emergency” low interest rates for years and years pumping them further. Predictably, like today, they’ll fall, gold up. Recessions in multiple countries looks likely.

Mortgage applications in the US hits 21.7% in the previous week. This looked rosy at first but a closer look revealed 64% of mortgage applications were "refinancing".
The US is currently going through a refinancing boom as more households swap home equity with banks for cash.

"Mortgage applications in the US hits 21.7% in the previous week. "

For anyone else wondering 21.7% of what.. https://www.cnbc.com/2019/08/14/weekly-mortgage-refinances-spike-37perce...

Mortgage application volume jumped 21.7% last week compared with the previous week, according to the Mortgage Bankers Association. Volume zoomed 81% from a year ago.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances decreased to its lowest level since November 2016, 3.93%, from 4.01%

That drove a stunning 37% jump in refinance volume for the week, the highest level since July 2016. Refinance applications were nearly three times higher than a ago.

I see that Ardern is preaching to the Aussies on climate, sending our criminals back.
Who does she think she is?

https://www.stuff.co.nz/world/south-pacific/115010777/australia-has-to-a...

31
up

I think she thinks she is the Prime Minister of NZ - more balls than Jonkey

10
up

Rubbish, just looking for publicity as always.

12
up

So another smile and wave PM...ok?

MMP the cause? Both Key and Ardern seem to revel in ponceing about on the world stage, to applause from the sycophantic, drooling media. Is this because they are impotent to implement serious change at home? Have we unwittingly adopted a system where serious reform is verboten? Have we embraced stagnation and decline?

In a word, yes.

Sorry, how is this relevant to anything?

10
up

By the way, how do you know that China is not gilding the data? Might actually be way lower. Who knows..

Vast regions under martial law, riots in Hong Kong. No, all is well, the system is not rotten to the core. Move along now.

13
up

What, are you saying communist regimes may not always be transparent and honest????

On an equal standing with "capitalist" regimes then.

Don't agree.
There is a spectrum of 'transparency, openess and honesty'
Certainly, capitalist nations are not perfect. But they are much further towards the 'ideal state' than communist regimes.

Communist regimes probably believe they are much further towards the "ideal state" too.

Paper Tiger Hidden Debt

If you haven't bought into gold yet, you'd better get a move on. We've seen nothing yet.

Who do you buy it from, were do you store it Rastus? Under the bed?

Yes.

If it helps (and that was a serious question), I set up an direct deposit with New Zealand Gold Merchants where I paid the same amount every payday and bought gold by the gram. Once the grams added up to an ounce, I had it made into an ounce and stored it in a security deposit box (about $200 per year).
That way, I was cost averaging and actually had the physical stuff in my possession. Turned out to be a pretty lucrative investment.

Thanks for info Withay

They store it in a safe deposit box for you, or you were dropping by and collecting an ounce (heh) and depositing it in your own safe deposit box?
I work just around the corner and was going to drop by next week to look into options.

Haha I never thought of the "ounce" part of it. I collected and deposited into my own private safety deposit box. NZGM do offer storage options with insurance but I prefer to actually have something than trust others (not saying NZGM is untrustworthy).

Cheers, useful info, now to find a decent safe deposit box. Or I could rely on the safe here in the house.. hmmm.

Nope! not in the house. Remember, you are in NZ. You have no right to defend your property (or defend yourself properly).

And the gun nuts come crawling out from under the rug... *sigh*

Thanks, I have been looking for something like that. Signed up already....maybe you should ask for a commission.

Commission payable in gold maybe... Happy to help.

interesting blog post from them..

http://www.gogold.co.nz/news-item/tonys-market-round-up

"Our offices here in Onehunga have been overrun with customers this past week, all of them clamoring for the yellow metal. Thursday was one of the busiest days we have ever experienced, comparable with some days shortly after the last GFC.

But the focus wasn’t on making a profit for our customers – it was about protecting their hard earned money. The collective voice was, ‘I need to get money out of the banks’. For the first time in my 40 years in the bullion industry, people showed they were nervous to leave money in the banking system.

Interestingly, it was the Reserve Bank of New Zealand’s 0.5% rate drop down to 1% that caused the most concern, and not the FOMO of the racing gold market.

Interesting and probably a pretty fair comment. I guess the emperor can't hide the fact he has no clothes forever. I'm happy that people are catching on.

Mining stocks and Etf's.

Carefull with your paper gold when its time to collect.

A fellow I know buys silver in 5kg bars and uses them as door stoppers. Who would think to look?

Sew up some horrid looking fabric cover out of some trendy in the 1960's fabric and no-one would look twice at them.

Hmm... assuming a coloured rock, it's "value" measured by fiat currency, will actually be accepted by the masses as having value in an altered economic reality.

How much gold is being exchanged in Venezuela, Zimbabwe etc?

It's still only a social construct as is money, "wealth" and economics. What we see now is literally social constructs collapsing.

How we move through this is the real issue. Sticking to our existing beliefs, which is the cause of our problems in many ways, will not be an effective solution.

I get where your going but I think it's a bit of an overshoot in relation to gold. At it's core it's a functional means of exchange that holds its value. Technically a social construct yes, but if we get to a point where all our social constructs collapse then buying something will be the least of our problems.

12
up

So, assuming we are going to have a massive correction in stock prices, and given most FHBs finance their deposit using KiwiSaver, what will that do to house prices?

Comment of the day - so far

You do realise that kiwisaver isn't limited to shares right?

10
up

Neither is a recession

boom

Which govts to you expect to default on their govt bonds? That's where most of my kiwisaver is invested, so unless uncle Sam falls over I'm not worried. Very little in corporate or equities.

(Which is where you should be if you were planning on cashing out kiwisaver for a house in the next few years.. shouldn't be in a growth fund if you want to access that money anytime soon)

100% Agree. A global stock market crash would be devastating to growth type kiwisavers.

Yep. And I doubt the Govt would give a rat's if it were to pull super out from under the millennial cohort despite them being a smaller burden than the baby boomers, who get to collect.

Having said that, market risk is to be managed. If you're worried about a crash, move into a cash fund and try to pick the trough. If you can buy cheap units in aggressive funds and ride it out, you'll come out better off in the long run.

.

10
up

All is well with the world.
Even though it appears unlikely Fonterra is going to be profitable for a wee while they have managed to rub salt in the wound by giving me a branded biscuit tin with some coffee sachets and 2 packets of biscuits. Obviously the symbolism is strong - a survival pack maybe?
Someone suggested it was a new way of paying dividends?

12
up

it's a collectors item, sometime in the future your grandchildren will ask, "grandpa, who's Fonterra"?

To which you reply 'Fonterra lived in a cave and was a bad man. In fact he was guilty of Fonterrorism'

The saddest part Andrew - is like airplane food I actually took it.

Or, and perhaps a tad Unlikely, F has become infested with Preppers....

couple of interesting pieces from Automatic Earth:

https://www.theguardian.com/money/2019/aug/13/danish-bank-launches-world...

https://mises.org/wire/gdp-growth-isnt-same-thing-economic-growth
the latter being a classic example of the blindness that is economics. Problem identified, but ability to ascertain cause? Nil.

I am trying to get my head around negative interest rate mortgages - the bank paying you to take out a loan? Can someone with more connected neuron cells than me explain what this could potenetially do to house prices - or asset prices in general?

Well for a start if interest rates got negative enough farming might become profitable once again!

Your looking at it all wrong. Negative interest rates totally makes sense! You just need to subscribe to a ridiculous level of ideological belief.
Jokes aside, I’m assuming it will create a big upswing in prices only to be held back by equity requirements. Nuts really.

Negative interest rates equals deflation.

During deflation your debt rises in value.

Go ahead, borrow as much as you can. Do it.

Does it necessarily need to mean deflation? Why wouldn't they go negative to keep "growth?" That was my take away from the conclusions of IMF papers on the matter. They claimed monetary policy was still effective with negative rates. We're on an inevitable collision course with negative rates anyway due to us choosing inflation targetting. It can and will never work the way they want it too so we will see them sooner rather than later.

All these interest rate drops sure are reassuring the markets. No expectation of recession and further rate drops...

In reality, I would guess negative rates would only be fractionally negative, and those rates would be accessed by the lenders, who wouldn't lend in negative rates to consumers, because they would still have their fat margin, very low rates, yes, but not paying anyone to borrow.

Credit availability will dry up like a mud-pool in Feb. As a consequence its interest rates will go through the roof.

So go ahead, borrow up to your eyeballs at the start of a decade of deflation. Do it.

..woops just seen your comment. I think you are correct..see below. Other thoughts anyone?

Hi Rastus,

I think it comes down to the following.

The Yield-curve is now inverted which means that lenders will make a loss doing their lending. They, after all, borrow short and lend long. Which now makes a loss as borrowing short-term requires paying a higher interest rate for that capital than the long-term interest received when lending it out.

So yeah, credit will dry up in the next two years or so. All debts including mortgages should be paid off now.

Thanks.....well explained.

I don't have any debt guwop and I wasn't suggesting anyone borrow up to their eyeballs. Just commenting on what we saw in the countries that have experimented a little with negative CB rates.

I don't agree that interest rates will go through the roof though any time soon. That isn't what happened in the GFC. Carded mortgage rates were incredibly low but only a very small number of low risk borrowers could access those. Everyone else was offered much higher rates or trapped in to much higher rates and unable to move their mortgage around.

Your comment about debt in a deflationary era is valid though and I have made the same point here myself, several times over the last few days.

Hi Gingerninja,

What do you think interest rates will do when credit availability dries up?

The point you are actually making is that interest rates will rise for most.

What did interest rates do the last time credit availability dried up? Or do you think something different will happen this time?

And last credit crunch, whilst some people did get stuck with higher than the carded rates, the rates were all still fairly low. The bigger issue is that the access to credit just wasn't there. It was nigh on impossible for most to borrow full stop.

Something different has already happened this time.

The Yield-Curve has inverted, which makes the business of borrowing capital (short-term) and lending it out (long-term) unprofitable for banks.

That means they will eventually stop doing it.

Errrrm thanks, i'm pretty sure everyone who visits this site regularly understands what the yield curve inversion is a predictor of, not sure why you feel the need to explain that. And the very fact that we all know that is because the yield curve has inverted, before most recessions we have records of, otherwise no one would pay attention to what the yield curve does! duh!

Before the last credit crunch, guess what happened? THE YIELD CURVE INVERTED!!!! So the yield curve inverting this time, is NOT DIFFERENT to the GFC.

I was in the UK during the GFC, where we actually had a full blown credit crunch. You guys in NZ did not experience that. But I can assure you, that worldwide, whilst there was a credit crunch, rates were still lower than they had been, and desirable borrowers got record low interest rates. I got 5 years at 3.04%, although i wish i'd waited because they subsequently went down even lower. The only catch was, I had to reduce my spending for 6 months previously (the banks insisted on going through 6 months of statements and looking at spending habits for the affordability assessment, i needed a 25% deposit and they would only lend x3.5 of income. Very strict lending conditions. House prices went through the floor.

You still haven't presented any evidence, historical or otherwise why rates will some how "go through the roof". History tells us, that what is actually likely to happen is that credit will simply dry up. People will not be able to borrow, if they do, only in lesser amounts. And this will cause asset prices to crash. Yes, risk will be priced higher, but during the GFC, rates did NOT go through the roof.

The return to higher interest rates is inevitable, because otherwise the world's financial system, insurance companies and pension funds will go under.

The US will eventually take the pain regardless of what this means for the rest of the - US Dollar-indebted - world. Similar to 1981 (interest rates of 20%) and following the Roaring Twenties era - leading into the Great Depression which saw a Gold-price revaluation.

Yes sure, it's "inevitable" at some point. Over the course of human history, interest rates have always gone up and gone down. If you have anything more specific to say, then please, be my guest. When will interest rates "go through the roof" exactly? What does "through the roof" even mean? Be specific with your dates and %'s please.

8% OCR in NZ one year after Trump is voted out of office.

8% is not what I would consider through the roof, especially as you were referencing 20% above. It would depend what inflation is doing elsewhere as to whether it would be crippling or not.

Honestly, supply and demand is far too simplistic to predict interest rates in modern times because central banks can print money and prop the banks up. It's what they did last time. During the GFC, despite the credit crunch and lending drying up, interest rates remained low (especially carded rates). If inflation returns because of scarcity of resources for some reason, yes, much higher interest rates, but deflation and credit crunches haven't led immediately to higher interest rates before.

Also, when will Trump be out? End of this term or do you think he will get another go on the merry-go-round>

Yeah I think he will be re-elected. Appreciate your thoughts.

guwop, why would "interest rates go through the roof" when credit availability dries up?

Supply and demand.. when something is in limited supply expect to pay more for it.

Hi Yvil, what Pragmatist and Ginger Ninja said. Risk will go at a premium in a risk-off market. Credit can't be cheap and rare at the same time.

I think that it must create a credit issue.
If a bank can charge you say 1% to hold your funds, then it has no incentive to lend funds at 1%.
So the banks can't make money form lending, the rates are too low, the risk too high.
The new model is making money from holding cash, not lending it.
Stalemate?

My understanding is..

Bank profits are not just the difference between interest paid for deposits and those charged for Loans.

The banks lend money that they dont have based on their "Capital" including the value of their business and this is where they.

Simplified if a banks value is $1m and they have $1m in deposits they can lend $2m and that is paid back with interest, even though they only had $1m in cash.

So banks can make a good profit even on negative interest rates

https://www.interest.co.nz/banking/97389/rbnz-proposes-significant-incre...

Banks borrow short and lend it out long term. Since the Yield-Curve has inverted this is now an unprofitable business.

Hence, credit will dry up.

Hmm it may already have. In Jan I went to the bank for a pre approval meeting as FHB's we had around 100k and were just seeing what we can get. The meeting was extremely positive infact they were throwing money at us saying we could borrow 1million + due to our high incomes and our application was approved in a day. Fast forward to August we decided to let the pre-approval slip as house prices were dropping, we go in for a meeting with the bank to get a pre-approval. We now have 140k saved and I now earn 10k more per annum and are looking borrow 700k. But it was a completely different experience I was now facing questions on why I had a high bill at sky city for a stag do I went to. Questions about our Netflix bill etc. It has now also been 3 days and we haven't been approved yet (im sure we will be) but its bizarre that we are in a much more finically secure position than in Jan that there's so much more questioning. Bank in question was ANZ btw.

Strewth, what will negatively geared speculators do if there's no one around and able to take their property off them at a higher price?

My take, negative interest rate is small, not going to negate principle repayments, so they are really selling 20/30years of income stream for themselves. What does that say about what their expected value of today's dollar vs the dollar in 5/10/20 years?

EU GDP rose +1.1% in the second quarter of 2019, a slightly slower rate than in the first quarter and that's its slowest growth rate since 2014.

Can the RBNZ terminate any proposal to initiate QE in NZ? The ECB's efforts in this segment of unconventional monetary policy can only be seen as catastrophic in terms of GDP growth. Graphic evidence

Central bankers like Draghi and now Christine Lagarde will say that the economy is otherwise fine but it has shown some downside risks. To manage them, the ECB like the Fed will take out some insurance in the form of “additional accommodation(s).” Whether rate cuts or QE, or rate cuts plus QE (plus tiers for the NIRP penalties), does any of it really matter?

They have no idea what they are doing and more so they have no idea why they have no idea what they are doing. Authorities all around the world have no legitimate frame of reference from which to accurately interpreting events and conditions. They have no way to translate – Economists just don’t understand bonds and interest rates, so the public doesn’t either – what are to them mysterious cross-currents slamming the global economy all at the same time. Link

I'm not sure it's the right question. The ECB is subject to a different set of rules. They must help the EUSSR centralise power. This comes before all else. The EU is formed on the basis of the need for massed infantry if you are a Continental Power. It informs all aspects of EU thinking, based on the success of Napoleon's Grande Armee and the Wehrmach. There is a sort of spurious inevitability about their logic. France, Germany, Poland and Russia are all on the North European Plain and so if any of them so chooses they can re-arm in ten years and roll into their neighbours. This existential fear is what drives the upper echelons of the EU.

As a small island nation, the RBNZ is aware that we are free to duck and weave and ouwit the lumbering giants of the world, but we must be nimble and decisive in action.

I guess Japan is a bigger version of NZ and has the same issues wirh QQE.

Japan is fascinating. The first Asian nation to industrialise. The first modern Asian nation to defeat a European military invasion, the defeat of not one, but two Imperial Russian Fleets in 1905. The Divine Wind defeat of the Chinese invasion fleet in 1281 (not surpassed in size until the 1944 Normandy landings), with its strange parallel with the nation forming Defeat of the Spanish Armada in Britain.
https://en.wikipedia.org/wiki/Mongol_invasions_of_Japan

We are an island nation. It deeply affects how we think, in ways we are only dimly aware of.

Unfortunately I don't have the same trust in RNZ Navy defending our shores against an enemy invador

Biggest sea-fleet/battle ever was 2500 years back in Battle of Salamis. 1-200000 combatants. Possibly exceeding D-day.

As is the UK

Everything is awesome. Unless you're trying to control the economy and the weather.

Hey, both Can be controlled. Maybe, sorta, perhaps. It'll take Trillions, blight lives and need Lotsa Dedicated, Expensive and ultimately pointless Research. But it's an Emergency, geddit? Gubmints gotta Gubmine....

If you borrow $100 at 10%, then the net result is you expand the money supply by $10. If you borrow $100 at -10% then you contract the money supply by $10. Cash would be a different story, it is only a digital entry that can be erased.

Keeping in mind that if banks create the $100 in the first place, then the net effect of a small negative interest rate is small. But it is still a contraction in the rate of expansion of the money supply.

In theory asset prices can still rise as the bank can still lend to a greater value than the previous sale on the same property, as such the money supply could still expand. But this approach would cause a larger imbalance towards assets and away from the productive economy. I think other comments here on banks borrowing short and lending long are perhaps more relevant to ongoing lending. That and the ability to pay.

Negative rates reflect a shrinking economy, so how can house prices be sustained in that sort of environment?

If you borrow $100 at 10%, then the net result is you expand the money supply by $10. If you borrow $100 at -10% then you contract the money supply by $10.

scarfie, please examine the contents of this link and let me know if you still think the same - (section 3 of the written example is most instructive.)

Andrewj has been posting Werner videos for a while now, and it is hard to refute a guy that has done empirical studies. I've been saying money fulfills the requirement here for a many years now, it has the ingredients. It is a misrepresentation of what people think it is, and there is a pecuniary advantage. You could say it is "using a document". Trouble is you can't prosecute a bank, it would have to be an individual. The employee of the bank probably doesn't have a clue, so intent is absent. You would have to go higher up the chain to find someone that knows what is going on, and profits from it. Even a salary would be sufficient for a criminal charge if they had knowledge. That is what Werner should pursue next :-)

NEW REPORT: CEOs' compensation grew 940% since 1978

The analysis comes as some of the US’s richest businessmen have publicly worried about growing income inequality.

This year, Ray Dalio, billionaire founder of Bridgewater, the world’s biggest hedge fund, warned that the gap between rich and poor in the US was becoming a “national emergency”. JP Morgan’s chief executive, Jamie Dimon, has called for a “Marshall plan” to address a “systemic problem” that had left half of society “severely disadvantaged”.

Lawrence Mishel, EPI distinguished fellow, said there was a direct correlation between the outsized pay gains made by CEOs and the stagnant wages of their workforce given that there was little evidence linking the turbocharged growth in their wages and the performance of their companies. Link

Income equality is terrible for GDP growth (A fact that many free-market worshipers fail to realise)

War is the permanent condition of mankind that is turned to when leaders can't see any economic way out:
Both my grandfathers fought in WW1 and my father in WW2. I feel some guilt as a baby boomer to have had things so easy with no wars, or real depressions like the 1930's ( the gnat bites of 1987, 2008, etc do not count.)
But I've been idly wondering which side NZ would or should support come a major stoush between China and the USA; I think we should ask Switzerland if we could become their colony and thereby take a neutral stance.

Hmm... war is a condition of mankind when they react out of fear, anger, hate, greed rather than responding with love, compassion, kindness, understanding, and awareness of themselves and others. One is easier than the other. One requires strength, courage and power within and of the self.

I admire your idealism. You must be young. 90% of history is about wars. Even our closest related species, chimpanzees, have tribal wars.

So we still haven't learned anything from history because "that's the way we've always done it" is easier than choosing a different and maybe better way.

The reference to primates is a false narrative as we are able to choose whether to be driven by animalistic instincts.

I'm not that young, only one step down from baby boomers. I just choose to question dogma and conditioning.

Most of what we think we know has come from interpretation by a few and then imposed on the masses. Doesn't make it true or correct.

China ...........It is a riddle, wrapped in a mystery, inside an enigma; but perhaps there is a key. .......... apparently Winston Churchill coined the phrase in refernce to Russia in 1939

Trump has simply pried the wrapping open , and someone was going to have to do it eventually.

China has done huge damage to the world through its mercantilist policies , cheating and stealing , not to mention the environmental damage it has done to the planet , its human rights abuses , starting proxy wars ( including one in which I fought in during the 1970's ) .. just to name a few