A review of things you need to know before you go home on Wednesday; dairy prices dip, C/A deficit stays slim, rents rise to record levels, investors grab more home loans, swaps and NZD await Powell, & more

... true .... but , there's alot of it about ....

Bollocks - that's a mantra which was wrong 10 years ago (in the Paveltich days here) and is wrong now.

This is a bounded system, thus you have to live within limits.

Anyone arguing for no limits, therefore, is prima facie wrong.

And it's not affordability; this is a debt-fuelled ponzi. There is no rationality about it, any more - but we can see why it happened. It happened because we tried to pursue endless growth withing a Bounded System, and we hit the limits. Economists (and others who needed not to believe; developers, media hangers-on) didn't believe, know, research or learn. Thus the incresingly strident urging to repeal curtailing laws (often attempts to safeguard what's left of our life-supporting ecology) from all sides; farming (think Cant'y losing their democracy), developers (think acres of prime soil covered in tar and cement), extractors (mining, fishing, logging) - all pushing their short-term, self-justifying barrows.

Pity they were stuffing the planet. Pity we need it to survive, but hey, we might be dead but we'll be rich, right? Excellent.

Rosenstein...Trudeau and our own PM share a multitude of character flaws and flawed lines of thinking. Trudeau has sold his poor people down the river (while pretending to champion them through worthless virtue signalling) in favour of investors, business interests and migrants and it seems we are well on our way to a similar destination.

Yes it's industry consolidation, but the price suggests that renewable energy is booming, the price of assets is much higher than last year. All of the major gentailers are progressing renewable energy (CEN new geothermal, MEL a new wind plant, GNE contracting wind energy through Tilt, MCY buying Tilt)... What are you seeing to say the market is soft?

And where are the unions and PSA on this labour led mess? Strangely silent.

You do know that some other countries don't have a rental crisis like we do? There are off the rack solutions just staring us in the face, if you want to look.

But you have just summed up the NZ condition right there Kate. This way we are a cluster*&$% when it comes to housing, whether owning or renting.

In the good old days when it took 6 months to get a part, Kiwis not wanting to wait that long just made it, even if it was only temporary (number eight wire) without regard to what was already available on the other side of the world. This sometimes leads us to new discoveries or some poorly designed temporary solution that became permanent.

Yet nowadays we can Google, or get goods delivered in days but still can have a blinked vision and don't even try to look for best practise elsewhere, and just invent something on the spot.

If you can't be bothered to look for what others might have already learnt, good and bad, then you're just guessing, like the present Govt. are.

Except that rent controls only provide temporary relief and only for the lucky few who are renting when they're first introduced. The next cohort won't be able to find anywhere to rent and will find themselves dependent on the state or homeless.

Why is beyond my paygrade - the economics textbooks tell us that, “falling real interest rates result in lower rents, ....

Not at all. Falling nominal term interest rates increase the discounted present value of cash flows associated with assets and liabilities. Hence the desire to capitalise this higher discounted cash flow valuation for both liabilities and assets

I have put this article up many times:

In March 2017, former Treasury and Federal Reserve (Fed) official, Peter R. Fisher, delivered a speech at the Grant’s Interest Rate Observer Spring Conference entitled Undoing Extraordinary Monetary Policy.

Wealth effect or wealth illusion? The other therapeutic effect of lower-for-longer interest rates is the wealth effect. By driving up the value of future cash flows with lower rates of interest, all manner of assets – stock, bonds, and houses – increase in value and, thereby, can stimulate our marginal propensity to consume. More simply put, the imperative was to make rich people richer so as to encourage their consumption. It is not so hard to imagine negative side effects.

There are the obvious distributional effects between those who have assets and those who do not. Returning house prices in California to their 2005 levels may be good for those who own them, but what of those who don’t?

There are also harder-to-observe distributional consequences that flow from the impact of lower-for-longer interest rates on the value of our liabilities. This is most easily observed in pension funds.

Consider two pension funds, one with a positive funding ratio and one with a negative funding ratio. When we create a wealth effect on the asset side of their balance sheets we also drive up the value of their liabilities. Lower long-term interest rates increase the value of all future cash flows – both positive and negative. Other things being equal, each pension fund will end up approximately where they started, only more so.

The same is true for households but is much more ominous, given the inequality of wealth with which we began the experiment. Consider two households: one with savings and one without savings. Consider also not just their legally-defined liabilities, like mortgages and auto-loans, but also their future consumption expenditures, their liability to feed and clothe themselves in the future.

When the Fed engineered its experiment to promote the wealth effect, the family with savings experienced an increase in the present value of their assets and also an increase in the present value of their liabilities. Because our financial assets are traded in markets and because we receive mutual fund and retirement account statements, we promptly saw the change in the value of our assets. We are much slower to appreciate the change in the present value of our liabilities, particularly the value of our future consumption expenditures.

But just because we don’t trade our future consumption expenditures on the stock exchange does not mean that the conventions of finance do not apply. The family with savings likely ends up where they started, once we consider the necessity of revaluing their liabilities. They may more readily perceive a wealth effect but, ultimately, there is only a wealth illusion.

But what happened to the family without savings? There were no assets to go up in the value, so there is no wealth effect – real or perceived. But the value of their future consumption expenditures did go up in value. The present value of their current and expected standard of living went up but without a corresponding and offsetting increase in assets, because they don’t have any. There was no wealth effect, not even a wealth illusion, just a cruel hoax.
https://www.grantspub.com/files/presentations/FISHERGRANTSREMARKS15MAR1…

Lol. They will.

Always enjoy your posts Kate. My question to everyone who reads interest and sees this nightmare for what it is - what can we do to affect change? There must be something other than sending another email into an MPs abyss that never gets answered?

Ideas? Nothing new there - been said a thousand times before. Just parroting status quo lines.