Fed faces grim reality; Canada in deflation, prepared to buy into companies; deflation spreads in EU; Japan machine orders surprise; Aussie retail sales sink; UST 10yr yield at 0.69%; oil and gold up; NZ$1 = 61.4 USc; TWI-5 = 67.1

Fed faces grim reality; Canada in deflation, prepared to buy into companies; deflation spreads in EU; Japan machine orders surprise; Aussie retail sales sink; UST 10yr yield at 0.69%; oil and gold up; NZ$1 = 61.4 USc; TWI-5 = 67.1

Here's our summary of key economic events overnight that affect New Zealand, with news the grim reality of a scaled back future is starting to sink in worldwide.

The release of the minutes from the last Federal Reserve meeting show how concerned they were over the financial situation at the end of April. They knew the crisis was big, but the sheer scale gave them a double-take on the severity of the economic threat they face. That gloomy assessment set them up for a long trudge through the crisis, one they now expect to leave permanent scars in both employment levels and for business investment. Together, an important engine of global demand has been semi-permanently impaired in their judgement.

But all States have now reopened to some degree. Returning demand and sharply curtailed local production has seen a drawdown in local American crude oil inventories, and that has given a small boost to crude oil prices overnight.

Mortgage applications were lower last week, and are now below year ago levels.

In Canada, they are moving to take equity stakes in some of their large companies that are struggling to survive. The stakes will be in return for cash injections.

And Canada is heading into a deflationary situation for consumer prices.

And inflation is falling in the EU, with now almost half their members reporting deflation. That doesn't include France (+0.4%), Germany (+0.8%) or Italy (+0.1%), but it does include Spain (-0.7%).

Relations between the EU and the UK are about to be tested again as the final rules for the Irish border near 'agreement'.

And in the UK, there are reports of more very large scale layoffs. Rolls Royce is shedding almost 20% of its local workforce.

In Sweden where they have taken a different approach to managing the coronavirus threat, their central bank sees unique threats to their financial stability, ones they expect will persist longer as a consequence.

In Japan, orders for capital machines ( a broader measure than for machine tool orders) actually rose +3% in March which was a surprising result. But they are forecasting a -5% decline in the April to June period. If that occurs, it will be much less than you might expect.

In China, they have pulled out their GFC playbook and are now increasing their "infrastructure investment" with more very large scale transport projects. The latest set are worth NZ$200 bln.

And a local tidbit - China has moved to require all e-cycle and scooter users to wear helmets, a major departure from the unregulated situation up to now. Apparently the health-care burden is just too much from the resulting accidents around these devices.

In Australia, April retail sales data reveals them falling -18% after the period of stockpiling in March. And they are down more than -9% year-on-year. Annual retail sales changes are usually just a few percent.

The latest compilation of Covid-19 data is here. The global tally is now 4,948,000 and up +313,000 from this time yesterday which is a very sharp jump.

Now, just on 31% of all cases globally are in the US, which is up +19,000 since this time yesterday to 1,537,600. This is an unchanged rate of increase. US deaths are now exceed 92,000. Global deaths now exceed 325,000. Spain, Italy, France and Germany have all now crushed their curves, and are now opening back up for business. The US, the UK, Canada and Mexico haven't crushed their's, but heck, they are opening back up anyway as well. We are all going to have to live with the dodgy consequences.

In Australia, there are now 7079 cases (+11 since yesterday), 100 deaths (unchanged) and a recovery rate of just on 91%. 43 people are in hospital there (-4) with 9 in ICU (-2). There are now 535 active cases in Australia (-23).

We now have had nine straight days where there are effectively no new cases. There are 1503 Covid-19 cases identified as either confirmed or probable. Twenty-one people have died giving a death rate of 1.4%. There are now only one people left in hospital with the disease, and they are none in ICU. Our recovery rate is now just on 96% with 35 people known to be still fighting the infection (-5) and all in known clusters.

The UST 10yr yield is down about -2 bps today to 0.69%. Their 2-10 curve is unchanged at +52 bps. Their 1-5 curve is marginally flatter at +17 bps, and their 3m-10yr curve is also a little flatter at +60 bps. The Aussie Govt 10yr yield is down -2 bps to 0.96%. The China Govt 10yr is down -3 bps to 2.70%. But the NZ Govt 10 yr yield is up +1 bp from this time yesterday at 0.68% and up +3 bps from yesterday's local trading.

The gold price is firmer again today, up another +US$5 to US$1,748/oz.

Oil prices are slightly higher again today. The US crude price is now just over US$33/bbl. The international oil price is up to US$35.50/bbl. Demand is returning as many countries ease lockdown restrictions.

The Kiwi dollar has risen yet again, today up to 61.4 USc. On the cross rates we are holding at 93.1 AUc. Against the euro we are up to 55.9 euro cents. These moves up mean the TWI-5 is now 67.1 and basically where it was at the start of the month and before the RBNZ MPS and Budget 2020.

Bitcoin has fallen away slightly today, down -1.5% to US$9,527. 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 ».

Our daily exchange rate chartis here.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.




Periods of deflation most commonly occur after long periods of artificial monetary expansion, ie high credit extension , asset (+ housing ) bubbles, very low interest rates and money printing .

In economics, deflation is a decrease in the general price level of goods and services.[1] Deflation occurs when the inflation rate falls below 0% (a negative inflation rate). Inflation reduces the value of currency over time, but sudden deflation increases it. This allows more goods and services to be bought than before with the same amount of currency. Deflation is distinct from disinflation, a slow-down in the inflation rate, i.e. when inflation declines to a lower rate but is still positive.[2]

Debt deflation is a theory that recessions and depressions are due to the overall level of debt rising in real value because of deflation, causing people to default on their consumer loans and mortgages. ... The theory was developed by Irving Fisher following the Wall Street Crash of 1929 and the ensuing Great Depression.


Lucky the government is paying peoples wages eh and banks are giving people mortgage holidays?

That evil socialism coming to the rescue of that beautiful capitalism.

This "rent freeze "by Government during lockdown needs urgent clarification , or its going to turn around and bite them

One of our clients has a residential investment property, and both the tenants have been working during the lockdown , but are refusing to pay rent , now owe 2 months rent .

He did not apply for the mortgage holiday because his tenants are both Government employees on full pay ........

He is fed up,wants them evicted and wants his house back to clean up and sell

Why has he allowed them to not pay?
They Certainly are not very professional to allow this to happen!
There are ways for this not to happen Boatman!

The power has been skewed by govt to the renter. Lots of renters know all the key words to use and are dishonest just wanting to take it for a ride.
A friend of mine has half a rental managed through professional realtor company, renter did not pay for 3 months while saying they would pay. Then the lies started saying all sorts of things. In the end no money paid and they left for there next victim. Payments are based on income so no chance of ever getting that back.


Welcome to running a business - every day occurrence when creditors do not pay - what make landlords special?

In most businesses if someone stops paying you can stop supplying them with goods or services. However, if tenants stop paying there was nothing landlords could do to evict them during level 4 and even now must continue supplying for 60 days.

....... and they knew that risk was present.

No, they changed the law for Covid 19.

Anyway, the OP asked for what is the difference with other businesses and I explained the difference to them. Your response does not deny that difference.

HeavyG - I say the government should allow you to evict them. All of the ones that don't pay rent.

Then I think landlords would finally understand supply and demand economics. Demand is dead, but you assume its as high as ever.

Look at trademe - if you lose your tenant, think you're getting a new one? Doubt it...at least not without reducing your rent significantly.

That's not my experience though, lots of demand in Welly. If tenants don't pay then threaten to pursue them through the Tribunal/Courts and let them know it will be discoverable on their credit and reference records forever. That will separate the chancers from the genuine.

Yes ok but eventually it will become like getting blood from a stone. How many unemployed tenants can you take to the Tribunal/Courts before you reaslise that the supply/demand equilibrium has changed and there needs to be a shift in the price point to find the new equilibrium?

Look at the number of people who have lost jobs recently or have had pay cuts. If they now can't make rent, are you going to take all of them to Tribunal? If so, please be my guest and good luck.

That's right. Property investors have made a killing over the past several years on rising rents, falling interests, capital gains and what-not.

Let's not forget that landlords across the country defended their past actions such as sharp rent increases, mistreating tenants and poor property conditions by quoted free market principles (high demand, low supply). Well, this is the same market that is now moving against them.

My experience in talking with landlords is they think its a zero risk investment and no matter what they can't lose. That psychology is still alive I think - just look at the comments.

One scenario..how about if you have supplied the goods and no payment is made on the 20th...(happens all the time and business are well aware of the risk. Landlords seem to run to the government at the first sign of trouble ..suck it up and manage the risk yourself or get out of the business!

And if a tenant has a bad landlord do you say, just suck it up - that's the risks? Or does the government enact a heap of policy to ensure landlords act responsibly after enough outcry from tenants?

Your attitude Seems to be that tenants can behave as they like because landlords are a business. And that's where I disagree with you. I believe we should hold everyone -landlords, tenants, RE agents and so on - to a high level of personal accountability and integrity.

No if a business has a bad supplier they switch supplier...

All very well on a level playing field but we all know who holds the power in this relationship.

Or if there's a Romalpa clause, march in and take back Your goods.....

Good luck with that clause

Its is not a business- just ask labour otherwise you would be allowed to claim wage/rent subsidy

Three points:
- It would not surprise me that if these were serial bad tenants, then not only were they not paying rent but quite possibly also collecting and pocketing an Accommodation Supplement.
- Equally at blame here is the "professional realtor company" as managers. Did they initially not adequately vet the tenants (you suggest that they are serial non-payers) and why let it go three months not paying believing their lies? Always believed that rental properties need to be self-managed: 1) yields are now commonly around 4 or 5% and management fees up around 10%; 2) selection of tenant by management company more about more about them getting a tenant and their commission, rather than self-mange about getting a good tenant; 3) small maintenance work is horrifically expensive; and 4) too many horror stories regarding inept or slack management companies such as in this case. Unless one is prepared to be hands-on landlord, look elsewhere for an investment.
- We hear much about landlords being "leeches" on this site. Yes, there are some bad landlords, but equally a hell a lot of very poor tenants.
I have been out of property investment for the past three years, but over a period of nearly 20 years, never had a tenant leave owing rent, nor had need to take a case to the Tenancy Tribunal. Critical things were tenant selection (ensure the bullsh*t filter is set at maximum), not rely on property inspections but regular drive-bys, and getting on to missed rent that day (taught tenants to let me know in advance if there was a problem).

I think landlords still have an appropriate amount of power. Anecdotally, my own situation is such that my house mate was previously employed in hospitality. He now has zero income and has moved away to live with family.

According to the rules of a fixed-term tenancy, the remaining tenants (i.e. me) are on the hook for his obligations, as the landlord still should be made whole.

Who signed the lease...no one else is on the hook as you describe it?

All residents of this property are tenants.

"If everyone living in the flat signs the tenancy agreement, you’ll all have tenancy rights – and obligations. If one tenant causes damage to the property or gets behind in paying rent, all other tenants can be held responsible. They may have to pay the debt if the offending tenant does not."


Just sharing this as a thought exercise. Sure I could take the dispute to small-claims, or help the departing tenant re-assign his tenancy to somebody else.

There are ways for this not to happen Boatman! - can you enlighten us MAN - turning up unannounced in the middle of the night. Turn of water main..what tricks do you have?

If they drive to work, parking across the driveway first thing in the morning with a thermos of coffee and the paper works.
They generally will not answer your calls so a text 24 hours before asking for a meeting at 6.00am the next morning is needed to cover your bum. You hadn't heard back so you thought the meeting was still on.

You are talking about a poor and confrontational landlord-tenant relationship here. A good landlord would have either long got rid of such tenants or never have let the relationship develop to a need for such stand-offs.

I have a very long fuse but eventually I get to the end of it. That is a result of over a month of no replies. The time I did that the person could afford it, if it was someone who was struggling I dont think I would have the heart to pursue to that extent.

There is this perception that the power in a landlord-tenant relationship rests with the landlord (e.g. basis for recent legislation form the current Government).
- the tenant has possession of your $500,000 asset which is at risk of being damaged and left in an extremely untidy state, and can play games stringing out arrears, whereas,
- the landlord has a bond about 0.2 % of the property's value, and has to battle to recover arrears and compensation for damage neither of which may be eventually recovered.
Not all a balance of power in the landlord's favour; landlords need to develop a strong but positive working relationship.

I am all about cutting and finding a deals but when so when someone just refuses to reply and crawl under a rock it bloody annoys me.

Wahhhh it's so hard owning all the property :( :( :(

We could leave it up to Labour to build houses lol yeah that's a good one... funny as hell that Labour can spend millions on a few houses.
What's Labours next trick, save the economy via money printing and helicopter money.

looks like you hate renting.. put your money where your mouth is

Itis OK, 'Inflation takes care of all debt problems"....Just hang in there, wait 10 years, Bob's yer Uncle, no sweat. Sell at a profit.

Forget the rent..small change.

It is the best Capital Idea in Centuries. ..Even our Leaders practice it. Nuffin can go wong, at least for a spell. Holt tite, ceep urefengrs kroxxed.

@The Man 2 a question for you please?

When one of your serfs (I mean tenants) come to you saying 'The Man 2' we can't pay $XXX any longer due to loss of job | partner lost job | decreased hours (choose 1 or more). We can only pay XX% of the rent.
What is your answer?
- Sure I'll take XX% percent of the rent = you keep tenant but incur decreased income
- No I won't take XX% percent of the rent = tenant moves on | your property goes into the pool with another 2000 odd properties all trying to attract a tenant | rents drop | you incur decreased income.

Genuinely interested in your reply as I believe this scenario is going to play across NZ every day for some time which will inevitably have the effect of dragging down both rents and property prices.

Your clients can apply to the tenancy tribunal if tenant 60 days in arrears:



If you want full socialism why not move to Venezuela or China and please report back to us how it goes.
I for one are not looking forward to myself and future generations paying back $200B or $110k per household especially for some of the projects.
$75M for race tracks and Winston to build online gambling, yep thats for the greater good.

Winston is full of it ! One has to ask .........Has he been taking backhanders from the racing industry again ?


Do you own property? Would you rather;

a) allow the government and RBNZ to maintain property prices via socalism?

b) allow the free market to play out and see the housing market get decimated?

It seems many want to have their cake and eat it too....that nasty socialism is so horrible...but I think i'll go out and buy another rental to help the poor (not realising they're just receiving government pay checks each week - yes our landlords are living on welfare!, they are some of our biggest beneficiaries in the country yet they belittle their own tenants regularly about being lazy!)

Price controls end in shortages or drops in quality or both.


I actually suspect, if it was possible, that the average specuvestor boomer would see no moral issue with taking out a home loan with a 40 year deferred payment plan that their grandchildren would get served with at their surprise 18th birthday party. Their must be a reason for this collective narcissism but I just do not know what it is? Why do they not care about anybody but themselves?


I've been calling them the self licking ice cream cone generation....literally licking themselves to death at the moment via their behaviour to benefit themselves and not others or the future - although they'll tell you they're doing it for their children...who in the mean time has to suffer via renting or getting a massive mortgage.

I personally don't expect much of an inheritance, nor care for one, as I like the concept of being a self made man and would like my children to be the same. There are benefits in learning how to be that, so the idea of boomers behaviour being for the benefit of their children via inheritance is probably the complete opposite - it will create a generation of #@%@ who never have to learn how to fend for themselves. Not sure why Max Key comes to mind. Why would you learn to fend for yourself if Dad is going to give you everything?

Standing by for Expat to reply to this...

My favourite is couching what is basic selfishness as a "political leaning", and it's fair game for "everyone to have different viewpoints" in that regard. Haha this is bringing up the ghost of too many Christmas dinners past for me!

What a great comment...Max Key wonder where he is hiding out these days - daddy's condo in Hawaii?

Try and teach self reliance and how to be careful with money to your kids when they know you have wealth. I have never seen it be done without the kids thinking their ole man is just a tight prick they resent. Best thing for your kids is to have them grow up not too far from struggle street.

We have deflation because of central government action and Keynesian economics, both hallmarks of socialism. There is no capitalism in NZ. If there were, the market would set the interest rate and it would be a hell of a lot higher.

"There is no capitalism in NZ." - Wow, that's quite an extraordinary statement. Are there no private businesses in NZ?

there is no Capitalism anywhere now fullstop

Without money printing (to falsely stimulate demand) capitalism would have fallen over after 08

All businesses are indirectly on the tit

Haven't you heard CourtJester? Round these parts if you aren't a raging free-market fundamentalist you are a COMMUNIST!!!! There is no nuance in between.

Agree with you completely - I think inflation targeting has become socialism for boomers (maintaining price stability for them and not many others).

And yes, we should have much higher interest rates, but its all about making sure property prices never fall...so interest rates have to sit near zero...until what? What happens next? We have deflation and the whole system breaks as the debt becomes un-serviceable?

Socialism carries the load at below minimum wage for a few months, and it's a heroic.

Capitalism carries the full load for decade after decade, that's just business as usual.

Your ideological fanboyism is so cringe


So I propose we ban Alcohol “For the Greater Good”.

As an ex-Police Officer I know that alcohol is responsible for most of the violence and disorder work Police have to deal with. It makes up 18% of all Police work. Police would be quick as a flash to support and enforce a ban.

We can save around 150 people per year killed by drink driving. Additionally it would save the 300 or so seriously injured, lots on innocent victims in there we need to protect. Ongoing savings that stack year on year.

Hospital emergency departments get overloaded at peak times because of drunken behaviour, another saving. 11% of ACC claims are Alcohol generated.

There is a lot of ill health as a complication of drinking, those people would be much better without it. We’d save millions of man hours lost off work.

The Economic cost of alcohol is huge, estimated to b $5m per year. Then there is the social cost that is harder to measure It all makes complete sense, there is no dispute that to ban it would be for the greater good.


Agreed, alcohol peels back the layers and lets everyone see how close to the surface Stupid sits. For some the veneer is very very thin.

And the group who want cannabis legalised - we now have our own study that proves the physical harm done by smoking it (different to tobacco but just as bad), and we are still waiting on the mental health studies. Why would we want to legalise that?

How interesting. Yes it strikes me as incongruent that I can drink all I want, legally, and become a menace to society but I can't use the sauna at the gym for the public good.
My conversation with a paramedic recently:
"How's the lockdown affected callouts?"
"They're down substantially, especially the Friday and Saturday nights, personally I don't miss the aggression directed towards us."
Despite all this new spending, I believe ambulances are still going around cap in hand looking for donations. WTF.

Whilst then on about the greater good here is a platform for the Greens. Reduce all rural and open road speed limits to 5OK. And all urban and town to 30K. That will reduce petrol consumption markedly. That means for costs, roads need not be upgraded to or maintained to present safety standards. The number of accidents will reduce and the severity of those that still occur will impact much less on ACC, hospitals and the insurance industry. QED


Is that comment leading up to the question: We have spent A VERY BIG NUMBER on WuFlu but do our best as a society to ignore alcohol?
We as individuals and society struggle at assessing risk. Our perception of risk often mismatches real risk. We struggle with what is big and what is little.

Not sure if this is a sarcastic commentary on lockdown for the greater good, but nonetheless I support your point even if it's made in jest and would happily see alcohol, if not banned, heavily restricted.


Yes indeed, I enjoyed my youth out on the lash, but rarely drink anymore so on the basis of that fine modern principle for excessive regulation "screw everyone else I've got mine",and it's brother "I should be able to tell everyone else how to live to suit my preferences", go for it.

Mines more on the basis of working with alcoholics and domestic violence sufferers, but whatever floats your boat mate

Except it's completely unenforceable, even less so than the prohibition on cannabis.

The blackmarket in grog would be massive. The gangs would love it.

No need to even go to gangs, just leave a 3L bottle of Freshup in the hot water cupboard with an airlock. Maybe we should ban sugar as well.

Bath-tub Gin would be back......

Brown sugar in the pumpkin too?

You guys are deviants. Love it...
Bath tub gin, lol no baths for a while kids...

It’s a win, win. Great scourer on the bath, never been cleaner, all the old grime adds to the spirit! alternatively the bowl on the old agitator washing machine good, less bending over with the wooden spoon.

"Police would be quick as a flash to support and enforce a ban." The NZ police force is recruiting creepy people if this is true.

Prohibition has never worked. Same goes for cannabis. That's the real issue.

The rules we make are only as good as the public buy in. We're also in the process of seeing that tested with COVID.

You forgot to mention the bit where alcohol deaths grow exponentially.

Oh wait, they don't? Oh you're just posting the same tired strawman again despite the fact this has been explained to you like 50 times since the pandemic started?


Economists generally believe that a sudden deflationary shock is a problem in a modern economy because it increases the real value of debt, especially if the deflation is unexpected. Deflation may also aggravate recessions and lead to a deflationary spiral


A deflationary spiral is a situation where decreases in the price level lead to lower production, which in turn leads to lower wages and demand, which leads to further decreases in the price level.Since reductions in general price level are called deflation, a deflationary spiral occurs when reductions in price lead to a vicious loop . In science, this effect is also known as a positive feedback loop.


What we are really up against

Irving Fisher, economist wrote in 1933 ( WAY BEFORE CORONAVIRUS) :-

Over-indebtedness to start with and deflation following soon after’, giving rise to two types of disease: ‘debt disease’ and the ‘dollar disease’. The combined effect of these diseases would produce a vicious circle responsible for strong and self-sustaining depression:

I venture the opinion that, in the Great Booms and Depression, each above-named factor [over-production, under-consumption, over-capacity, price dislocation, over-confidence, over-investment…] has played a subordinate role as compared with two dominant factors, namely over-indebtedness to start with, and deflation following soon after […]. Disturbances in these two factors – debt and the purchasing power of the monetary unit – will set up serious disturbances in all, or nearly all, other economic variables. (Fisher 1933: 340–1)

Over-indebtedness could be destabilising for two main reasons. First, attempts to liquidate debt in a context of over-indebtedness slow the velocity of circulation and increase incidences of bankruptcy, thereby reducing the level of aggregate demand and price. A further round of attempts to repay debt causes additional declines in price.

The de-liquidation defeats itself […]. The very effort of individuals to lessen their burden of debts increases it; because of the mass effect of the stampede to liquidate in swelling each dollar owed [original emphasis] […]. The more the debtors pay, the more they owe [original emphasis] […]. Unless some counteracting cause comes along to prevent the fall in the price level, such a depression as that of the 1929–33 tends to continue, going deeper, in a vicious spiral, for many years. There is no tendency of the boat to stop tipping until it has capsized. (Fisher 1933: 344–6)

As bank loans are paid off, the volume of deposit currency is reduced (de Boyer 2003; Dimand 1994). If the effects on bankruptcy are strong enough, the contraction in currency deposits that accompany deflation will increase the real value of existing debt. If deflation is sufficiently strong, this may increase the real value of debt even if the volume of nominal debt has decreased, leading firms to continue their attempts to reduce their indebtedness.

Fisher had a lot to say about liquidity at times like these as well.
ie: The lower rates go, the more people will clutch liquidity ( savings) to their chest until such time as they perceive there is an incentive to do otherwise. And that can be dragged out by practical experience. (job loss etc)
Those who haven't converted illiquid assets into immediately available funds (cash) may now no longer be able to do so without loss.

Question Boatie, is revaluation of a currency a tool that could be used in such a situation? Either up or down? ( I am aware that currently our $ is floating and set by the global market, but humour me)

To be honest , I really dont know, there are no well documented ways to fix deflation, my view id the Bernanke's theory is flawed , and deflation is way way worse than inflation, there are no quick fixes .............. currency revaluation upwards (making your currency stronger ) could result in importing price reductions ( making imports cheaper ), but will negatively affect exporters .

The reverse is true

And in a free market any benefits of importing higher prices are short-lived .

Is that right? Making our currency worth more would make imports more expensive? wouldn't it be the other way - make them cheaper?

@Murray , my apologies, got that one wrong typing too fast and not reading it before hitting save , you are 100% correct .

In any event the issue is academic , we will never try and officially "manage"our currency ever again , its a total waste of time , energy and effort

I tend to agree that they won't change the current situation, unless everyone does. But never the less the learning is valuable, and the current economic situation is so tenuous that no one can predict with any degree of certainty what will happen, especially as there seems to be so little global coordination. So sometimes there is value that can be found in discussing somethings effect from outside the 'box'. I appreciate you inputs as always.

Ahh. What?

Apologies for being a dumb layman. If your deflation is making everything I want cheaper isn't that good for me? If deflation is so bad and it is caused by things getting cheaper then why not impose increased customs duty on everything (including our international internet - say tax Google, Facebook, etc) - we are a small country so imports will always be substantial. Money raised from customs duties would help pay benefits to the unemployed. We could tell the World Trade Organisation that it is temporary until we get inflation back to the 2% target.

Well if you think about it , if we ALL stop discretionary spending at the same time expecting lower prices , then retailers will go bust , factories making goods for retailers will close and salesmen will be made redundant ............it becomes a full-on downward spiral

Surely deflation can be fixed by lunchtime with a keyboard and helicopters?

It takes months though doesn't it, like 6 months or so, for the Fed to get any feedback from the markets as to the effect of their actions? At which point it could be very difficult to undo what they've done...

e.g. they won't know how all the new money pumped into the market recently is going to effect inflation, and they may need to wait until around Sep to see where inflation is at. If its getting away on them, then they'll need to take action, but it could be too little too late if a deflationary spiral has started (or high inflation)...the question they'll be sitting with at the moment, is 'have we done enough, or too much?' Only time will tell..pretty fine balance.

OK thinking about it - applies to my next house or new car but not my next beer, massage, pack of tomatoes, etc. I'd be happy to have a cheaper beer but the crazy price at my local (more than double buying at the supermarket) doesn't deter me.

OK if as would only be reasonable my Super shrank at the same rate as deflation then things get interesting.

Interesting that many are predicting stagflation - so no/low growth but increasing costs.

No one has a clue, everyone is guessing. The rule book has been thrown out the window.

Deflation has nothing to do with any of this. It is promoted this way to be plausible why you should be scared of it. The only deflation that is cared about is loan book deflation. The reasons are technical but our financial system MUST have rising loans to stay alive.

The Fed banks never care about the endless examples of deflation that don't impact rising loan books. They care deeply about anything that disturbs loan growth because they know the system will collapse with negative lending.

NZ house prices have gone up because they have been required to in order to maintain our financial system. Consumers never "choose" what to pay for a house, the bank chooses what to lend. People choose to sign a loan which almost everyone enthusiastically does. They really don't care what the loan says even though they sometimes pretend to.

Hi Boatman - can you please post the source of your comments. In my view, we do have tools to deal with deal with debt deflation but just haven’t used them. Milton Friedman wrote that ‘helicopter money’ would sort deflation - by this he meant that, if necessary, central banks could just drop money into people’s hands to spend. After the GFC, when deflation became a real concern, central banks did a form of ‘quantitive easing’ . But the type of QE most CB did just inflated asset prices (eg stocks and property), which (together with cuts to government spending - austerity) resulted in increased inequality and immense harms, whilst doing little to address deflation pressures. Hence the calls for people’s QE - putting the money into the hands of ordinary people who will actually be more likely to spend it on things that generate productive activity, or use it to reduce household debt.

I think we might get to that point yet (helicopter money) - but the general thought at present appears to be that we need to save the financial markets first and the employers/companies so that people can continue to have work/jobs/income. The wages that government have been paying could be considered to be helicopter money in my view - if they didn't do that, those people would be unemployed and have no income and would add to the deflationary forces.

Some interesting moral harazd around central bank behaviours, especially if the 'pie doesn't get distributed evenly' as Ray Dalio would put it. He thinks rising inequality this time around could cause civil war within the USA, or if not internal, then a conflict externally (probably China).

Anyone knows why Kiwi Dollar is on rise?

Apparently "appetite for risk" is on the rise as economies reopen (and "vaccine hopes rise") causing the USD, as a safe haven, to falter. Just regurgitating what I read elsewhere though.

Poundsterlinglive.com reported "Pound-to-New Zealand Dollar Rates As Good As They Get Until the RBNZ Kills the NZD". Lol.

Because we are a stable well run economy , we export food , which everyone needs , and we are likely to be the first country to have ZERO Covid cases .

Its a bit like buying a share in a well -run Company , you look for stability , good management , good internal governance , and sound long -term prospects

Have you observed the pattern forming on the S&P500 and DIJA then looked at the NZD/USD?

We are not first. Just look at Tonga and Samoa - they are not thriving. How are we different?

Also the USD is much stronger, and they're not exactly doing so well right now.

But they're isolated little countries in the south Pacific. ;)

There are countries that have had no case period. https://www.aljazeera.com/news/2020/04/countries-reported-coronavirus-ca...

And if you mean we get rid of it totally, then we could be in trouble. That means there is no way we can gain herd immunity naturally, and have to wait to get it via vaccination.

We end up becoming like the isolated 18th and 19th-century countries that did not have any immunity to diseases they caught from the first contact with European explorers.

Because the USD should be crashing by now after they pumped Trillions of money that did not exist into their stock market, but instead their dollar got stronger. They better hope like hell their stock market doesn't crash again because the USD is at real risk of loosing its world reserve currency status.

With what? Isn't a massive amount of the worlds debt is still demoninated in USD...is that debt just going to disappear? And interest needs to be paid in USD for that debt, so doesn't that mean there will continue to be significant demand for it?

I think if the stock market falls again, USD will gain strength like what happened in Mar.

The world owes debt in USD. There is zero current chance of the USD doing anything but getting stronger. There is a huge shortage of USD. Crashes make the USD stronger.

Moral of the story - don't put ill Covid patients in rest homes.
"Many IFR estimates are in the range of seasonal influenza IFR, but some are higher, and some others are lower than this range. It should be appreciated that IFR is not a fixed physical constant and it can vary substantially across locations, depending on the population structure, the case-mix of infected and deceased individuals and other, local factors.
...However, influenza devastates developing countries, but is more tolerant of wealthy nations, probably because of the availability and wider use of vaccination in these countries. Conversely, in the absence of vaccine and with a clear preference for elderly debilitated individuals, COVID-19 may have an inverse death toll profile, with more deaths in wealthy nations than in the developing world. However, even in the wealthy nations, COVID-19 seems to affect predominantly the frail, the disadvantaged, and the marginalized – as shown by high rates of infectious burden in nursing homes, homeless shelters, prisons, meat processing plants, and the strong racial/ethnic inequalities against minorities in terms of the cumulative death risk.40,41While COVID-19 is a formidable threat, the fact that its IFR is much lower than originally feared, is a welcome piece of evidence.
...However, it is helpful to know that SARS-CoV-2 has relatively low IFR overall and that possibly its IFR can be made even lower with appropriate, precise non-pharmacological choices.


To understand deflation we need know its fellow traveller called Liquidity Preference

In 1936 Keynes wrote :-

There is the possibility...that, after the rate of interest has fallen to a certain level, liquidity-preference may become virtually absolute in the sense that almost everyone prefers cash to holding a debt which yields so low a rate of interest. In this event the monetary authority would have lost effective control over the rate of interest. But whilst this limiting case might become practically important in future, I know of no example of it hitherto.

Hicks expanded on this :-

A liquidity trap may be defined as a situation in which conventional monetary policies have become impotent, because nominal interest rates are at or near zero: injecting monetary base into the economy has no effect, because [monetary] base and bonds are viewed by the private sector as perfect substitutes.[2]

In a liquidity trap, people are indifferent between bonds and cash because the rates of interest both financial instruments provide to their holder is practically equal: The interest on cash is zero and the interest on bonds is near-zero. Hence, the central bank cannot affect the interest rate any more (through augmenting the monetary base) and has lost control over it.

Boatman - I've been saying on here for a few months now that I think we could be in a liquidity trap. i.e. monetary policy is no longer effective (or matters). We don't have the aggregate demand nor productive capacity to turn further debt into goods and services to offset the negative input of that additional debt (it does more harm than good). Hence why I think the Fed and RBNZ don't appear to have any appetite to reduce rates further or go negative as it just takes you deeper into the liquidity trap.

It’s also why the Aussie government are trying to push through a bill limiting the size of cash transactions. They don’t want cash hoarded and they don’t want it out on the streets forcing prices down. Cash creates further deflation as people barter for the benefit of a tax feee transaction at both sides.

Wow ..........is this true ?

I have not seen anything about this , but it makes sense

Buy Bitcoin

@independent ............ Right now we are being treated like mushrooms , kept in the dark and fed bullshit......... I wish the RBNZ would tell us exactly what is going on in their view .

And , more importantly, once they have outlined the problem succinctly , they need to share the fix-it plan with us .

What happens if there is no plan? And what happens if the only solution to 'the problem' as you put it, is significant pain for many in the coming months/years....would you openly voice that? We've backed ourselves into a corner for the last 20 years or so via monetary policy to please some (mostly baby boomers in my opinion) who only want hedonistic experiences and don't like the truth (again my opinion). I have attempted to tell many in their 50's - 70's the risks of the behavior of central banks, retail banks, property markets, landlordism etc post GFC, only to get talked down to and dismissed or labelled a DGM or having a bad attitude - so why would anyone bother telling people the truth when they can't handle it?

I think Orr has been hinting at it - even within weeks of taking over as governor he was saying that we needed to end the short term thinking because clearly he also could see the long term pain it was going to cause. But would the typical hedonistic kiwi want to hear the truth - doubt it.

I completely agree with this cogent analysis. You nailed it again, Independent_Observer. The Fed and the RBNZ (and other central banks) are finally coming to an understanding of the toxic effects of the liquidity trap they put us in. It will be interesting to see if they go in full panic mode now that deflation kicks in, and what they do as a result.

This is why I think Ray Dalio has it right - its going to be a fine balance for central banks in terms of inflation/deflation. In order to avoid deflation they will have to pump a lot of money into the markets, but may distort inequality even further. If that happens, the social consequences and moral hazard are really worth talking about and may end up eroding societies/causing significant conflict/political/social issues. He thinks if the pie isn't evenly shared, we could see another civil war in the US.

The US is in its death throws, end of an era.


During severe deflation, targeting an interest rate (the usual method of determining how much currency to create) may be ineffective, because even lowering the short-term interest rate to zero may result in a real interest rate which is too high to attract credit-worthy borrowers. In the 21st century negative interest rate has been tried, but it can't be too negative, since people might withdraw cash from bank accounts if they have negative interest rate. Thus the central bank must directly set a target for the quantity of money (called "quantitative easing") and may use extraordinary methods to increase the supply of money, e.g. purchasing financial assets of a type not usually used by the central bank as reserves (such as mortgage-backed securities). Before he was Chairman of the United States Federal Reserve, Ben Bernanke claimed in 2002, "...sufficient injections of money will ultimately always reverse a deflation", although Japan's deflationary spiral was not broken by the amount of quantitative easing provided by the Bank of Japan

Yes I was watching some clips on youtube the other night where they were comparing 1990 Japan to current day USA. Look as though it could equally apply to NZ as well.

For all the property bulls...you know what happened to property prices there right? Still below 1990 highs...



Everyone has to watch HARRY DENT , on the Breakfast TV show this morning , he describes what we are up against clearly in terms even I can understand

Basically , we're F()@#ed.............and its going to get worse

We are just going to have to ride it out , its the new normal , get used to it

Boatman - didn't you used to be quite bullish? You're much more negative these days than I am. And Harry Dent has been talking about the end of the world for years hasn't he?


I have been bearish for a few years , I existed the stock market in 2016 as it evident there was a bubble , and paid off all my debt ( which was small anyway ) with the proceeds .

I converted both my wife's and my Kiwisaver to cash money markets and bonds .

And just sat on my hands ...........tolerated low savings rates while it all unfolds , implodes or unravels , hoping to pick up cheap assets when it unravels

And we are nowhere near the bottom yet

Good stuff - sounds like you're dealing with this well from a financial perspective as its unfolding.

Same here. This was going to happen with or without Wuflu.

Yes I started reducing risk last year when the 2/10 inverted.

Me too. However I am really tempted to buy more shares now. I know it is crazy, and it is very high risk for sure. But the last time I did it was in the midst of the GFC, and I got massive capital gains as a result.
The difference this time, though, is that the Dow is stubbornly high. Fed money, I guess, or mass delusional thinking ?
I missed the opportunity of buying at the big dip in March, as I thought that the Dow would go lower. But I was wrong. I am not sure if it is wise to buy now, but I am very tempted, especially considering that I am now quite under weighted in shares.... and i n any case these would be shares that I would be planning to keep for at least 15 years.

Same position here - I'm going to wait. My only purchase during the fall was GDX off the NYSE and its going well now.

Still think we haven't seen the worst of it yet...could be wrong and may regret it, but I'm sure opportunities will present themselves. If inflation comes along, I'm holding gold in USD so will have protection. If we have deflation, I'm expecting price falls and have cash to buy things.

Don't worry Boatman, the sledge was already on the slope:


"Spooky as it’s been, the Covid-19 virus has also been a great cover-story for the natural collapse of a severely unbalanced, ecologically unsound, and dishonestly represented set of arrangements that are now unspooling at horrifying speed. The car industry is dying. The airline industry is laying out its fleet of big birds in desert graveyards. The college racketeering operation went off a cliff, along with medical profiteering. Agribusiness no longer has a business model. Hundreds of kinds of services no longer have customers who can afford their offerings from acupuncture to zymurgy. None of that will be fixed by injections of miracle money borrowed from ourselves in quantities that would turn every US citizen into a millionaire"

@PDK the worst thing is that everyone says they are "surprised "which is utter nonsense , the signs have been there since the QE during the GFC ...........even I, a mere layperson, have been aware of this mess coming since 2011 , just read what I have said daily on this site for years .

I always knew China would trigger the next explosive crisis , I just never imagined the virus being the fuse


If you're interested, Ronald Wright did a very readable appraisal of what happens, in A Short History of Progress. It seems that societies run ever-bigger until they are at the limits of their resource-base. Then, running at full noise with no residual capacity to absorb shock, an event - often drought in the old days - tumbles the house of cards. This is increasingly looking like such an event, and at global scale it can only play out once.

Time we got on with redesigning 'our economy' to be longer-lived, fuller-circled and more capable of withstanding events. Heck, maybe someone should write something along those lines.....

to fix this you would need to look at man's need for significance. What drives us to want to have more be bigger richer. Engineers won't fix this unless they look into the heart of man, which they could never do.

Remember this Dilbert?

I read that in my late teens and thought about it for years then it slipped away. I have his books on the shelf, perhaps I need to go back and re read them.

Man's need for significance leads to crazy levels of consumption, mate sold up and walked before Xmas now lives on a Hallberg Rassey 48, somewhere near the Dalmatian coast, don't know if I will ever see him again. He's no long got 4x4's and big houses, or a wife/partner his consumption has collapsed and he's the happiest he has ever been.

Not a bad swap for 8 acres of south facing land in a small insignificant HB town.

Chuckle. I've spent a few years lotus-eating myself


Bit smaller than your mate's..... :)

the good old days

My friend put half of his land sale towards a boat, they must be getting cheaper now. Not a bad swap.

The ghost of Satoshi Nakamoto coming back to haunt bitcoin holders? https://www.coindesk.com/price-drops-7-in-an-hour-after-bitcoin-sees-a-g...

"where (bitcoin) traders can use derivatives known as perpetual swaps to bet up to 100 times their money down."
Nothing to worry about then!

Well, you'd be pretty dumb to do x100 leverage. Satoshi waking up and dumping his $1M coins onto the market - bitcoin holders can't dodge that!!

I've got this weird feeling that Bitcoin will go down as one of the most elaborate scams in history.

The whales simply enjoy playing with the krill. Its just another way for the rich to possess power over us.

If it did, it would look something like this: https://twitter.com/Crypto_Bitlord/status/1263142831423549443

Bitcoin is literally hilarious. Its an online Excel sheet where numbers get added onto numbers. Super sophisticated!

Sounds like the banking system!

My take is the whales are in a cartel and taking turns to draw down keeping the price under $10k and reducing large pumps. Billions in Bitcoin is held by a few accounts. The only way bitcoin dies is if a single holder gets more than 51% then stages a 51% attack, and the whales want to sustainably diversify their asset base, as any good investor does without seeing a crash. It would only be a government who would wish this sort of thing as they lose control of financial markets. The charts on new wallets taking btc are exploding at the moment. And given the scarcity and quantitive hardening of btc the 51% scenario gets less and less likely. Even if it does happen crytpocurrency is most certainly the next monetary vehicle. With hyperinflation/inflation slowly spreading, crypto will win in the medium to long term. Look at Venezuela as a case study with btc POS systems now available in over 16000 locations.

deflation is the central bankers worst nightmare
a deflationary spiral spells big trouble

Deflation in a productive economy could be viewed as good. "More goods of a better quality for a lower price". That's innovation at its best.
Deflation in a debt soaked, speculative economy could prove a disaster. The debt is fixed and all that.
Guess which one we are living in the moment?!

Several commentators have been rabbiting on about how tech & human innovation is trumping everything … so Im guessing its the former?

Particularly when many of us have just had 7 weeks training on how to live without stuff you don’t need! If many delay a purchase, the price lowers to stimulate demand, same as ANZ are doing with their 1 year debt sale reduction..

Yes its all deflationary … add to that jobs taken out of the (world) economy

Capacity everywhere
Demand non existent

Auckland rental supply climbing, now 5086 on Trademe. Several of the 10 properties I have been monitoring now have reduced advertised rent by 5 or 10%.
Queenstown rents look to have dropped about 15-20% on average.

Fritz, why are you monitoring rents in Auckland?
Are you looking for a rental?
If so how much do you think rentals should be up in Auckland?

I assume because it provides a good leading indicator as to which way rents are heading? I've been doing the same:

21st April 2020: 8,027 nationwide rentals listed
21st May 2020: 10,097 nationwide rentals listed

Wonder how many months those thousands of properties can handle no income?

Yes, that will be the kicker. It kind of defeats the Spruiker's arguments that people won't sell in a falling market and make a loss... well if you don't have a tenant to cover at least the majority of the mortgage then they wont have a choice in the matter and the argument falls flat.

Yes the confirmation and recency bias among the property investor cohort in NZ is so bad that they almost not worth listening to. I lived through the GFC in the USA and witnessed first hand what happens when a property bubble bursts. I don't think many in NZ understand the psychology around it. Perhaps its a lesson we need to learn so as to benefit us all as a nation looking to the future - not all negative experiences are bad...many provide beneficial learning.

Nearly 3 weeks ago I chose 10 rental properties in Auckland on trademe to monitor.
As of yesterday 7 were still listed. I assumed that 3 of the 10 might have been let.
However, two of those have been re-listed on trademe today, at rents around 7% lower than before.....

Well at the moment, it's 6 months, backed by the government. But it will probably be forever...

Just arround the corner from me a for sale sign was going up, half an hour later 50 meters from that house another waa being put up by the same company. One of the top three areas in Dunners.
Here we go.....

But Bindi told me all the returning kiwi ex-pats would consume all of the rental and housing stock and thus keep prices elevated? Surely she wouldn't tell me porkies? ;)

Bindi cannot lie.... she told me so herself.

Speaking of porkies...there's been a saying being thrown around youtube plenty lately about flying pigs (wonder why..). Basically saying pigs can fly if they're shot out of a large enough cannon, but they come back to earth as bacon.

"But Bindi told me all the returning kiwi ex-pats would consume all of the rental and housing stock and thus keep prices elevated"

That narrative suits Bindi's objective of promoting property transaction activity.

What Bindi isn't telling potential buyers, or she is totally ignorant and unaware, most Kiwi expats returning from overseas aren't going to be buyers, many are going to live with mum and dad, or renting. Many returnees have gone onto government welfare and so will not be in a position to buy.

4,718 returning Kiwis went on Jobsaver in April. - https://www.interest.co.nz/news/105047/more-young-white-middle-class-peo...

There is a commenter on interest.co.nz named Mike1. He and his family recently returned to NZ from the US, to, as he put it, "avoid dying". He did say he isn't buying but renting in Queenstown. He owns his own business which he can manage from NZ.

There are some of others who have businesses which can be managed from another location, however many businesses may be unable to be managed from abroad.

Many others who are employees may be unable to return to NZ and do their job in NZ. For example, I have a friend who works for their local city airport in the US, others are nurses in a US hospital in Texas (and their kids are currently at university there). Those expat Kiwis aren't likely to be returning anytime soon.

Queenstown has an example of a high-end high-roller lodge for $2000 per night, now reduced to $1000 per night

And still empty?


sitting outside on a beautiful frosty morning, sun pouring in, ducks quacking on the pond, great coffee, wife of my youth, old dog and a grandchild, what more could you want? and it's not 1k a night.

Grass growth report after that rain? Enquiring minds etc....

she's going to be a tough winter, cracker frost this morning, local just dropped in trying to sell me cattle. I don't have the feed ,would love to buy them. I have had literally no stock on since December and I still have almost no grass. I'm hoping if I can keep stock off till the end of June I should have enough feed to get to spring.
Interesting article on BBC about why we are dry

Backend details.

Not even close:

The service's director, William Rainger told an Auckland District Health Board meeting that will be a "very significant challenge" to deliver.

As for the APP, when will the code be released and importantly, who built it (for they will have the back door), the builder and any if needed consultant.


Meanwhile DHBs have been doing it for themselves. Here is the Canterbury app, used by businesses and patrons, that links both to CDHB.

This one let's you check and check out.
& no bugs!

MoH does not compare well.


But the app has some significant shortcomings. These won’t be addressed until at least June, which raises questions about whether it has been released too soon.

So, at this stage, the NZ COVID Tracer app seems to be a work in progress. It tries to balance or makes some trade-offs between privacy and usability. But this adds to the burden on businesses (the need to set up QR codes) and limits scope when visiting friends or relatives in New Zealand.

The Fed wants Inflation at all costs, so the debt can be paid.

"inflation is just around the corner" - Anon economist

Welfare State is just around the bend...but then insanity is just around the margins,
Just let em borrow....more and more and more. No worries,be happy, free money, means freedom from debt, for life. In this free world of ours.
I owe, I owe, it is off to work, we don't go.
Lock down proves that works. Take a rental holiday, take a break from a mortgage, take whatever is offered.
Tis the new Economy.
Not working, free hotels, motels...Go baby go.


Fast food cheap motels and two more boom-town refugees......

Expect to see a larger health-care burden in China, as the chinese do like ozzies and kiws do and shun modes of transport that require helmets. A move away from active transport to a sedentry lifestyle will not be good for their health.

Everyone has taken their eye off the ball. Let's remember that China started all this mayhem and is now presiding over the consequent divisions within all the other countries adversely affected by the virus.
If China had 'manned up' and dealt with the virus openly and cooperatively they would not have lost so much respect or 'face'. They have chosen to take the path of denial and threat.
As an aside George Orwell, the author of "Animal Farm"and "1984", predicted that the world would eventually geopolitically resolve itself into three huge powers (we have USA, China, and Russia ) and remain there in perpetuity precluding the advent of future major wars.

Orwell was of his time, so missed the Limits to Growth issue - which overtakes the idea of any state in perpetuity.

Ironically, Soddy had gotten there decades before: https://en.wikipedia.org/wiki/Wealth,_Virtual_Wealth_and_Debt

my two rentals. advertised during L4 lockdown
50 applications in total.
100 enquiries.
Most of them are new Winz recipients - I am guessing - from Aussie.

Your access to our unique content is free - always has been. But ad revenues are diving so we need your direct support.

Become a supporter

Thanks, I'm already a supporter.