Westpac admits to trialling deposit machines at centre of CBA scandal; Fed minutes reveal inflation uncertainty; Euro spikes as Catalonia holds off independence declaration; UST 10yr yield at 2.34%; oil stable, gold down; NZ$1 = 70.8 US¢, TWI-5 = 73.4

Here's my summary of the key events overnight that affect New Zealand.

Federal Reserve officials are divided on how quickly inflation will pick up. According to minutes from the US central bank’s last policy meeting on September 19 and 20, a number of officials are concerned the current low levels of inflation might reflect “the influence of developments that could prove more persistent”. While many officials support another rate hike this year, they recognise “some patience in removing policy accommodation” is warranted.

At their last meeting, officials kept rates on hold, but announced they would start reducing the Fed’s large bond portfolio mostly amassed after the financial crisis.

The Bank of England is preparing to hike interest rates next month for the first time in more than a decade. However the move is expected to be taken from a position of weakness, rather than strength, as the UK’s inflation is coming from weak productivity and Brexit.

The euro has been propelled by Catalonia’s leader holding off moves to make a formal independence declaration. While disappointing pro-independence supporters, the decision has pleased markets. Nonetheless, the saga is far from over. The Spanish Prime Minister has given the Catalan government eight days to drop its independence bid, before it suspends the region’s political autonomy and rules it directly.

It has been revealed Westpac trialled the deposit machines at the centre of the Commonwealth Bank of Australia’s money laundering scandal. Westpac’s CEO says the bank “experimented” by installing about seven of the machines, but dumped them for “risk and operation reasons”. Australia’s financial intelligence agency alleges the machines, which accept deposits of up to $20,000, saw criminals launder money through CBA.

In New York, the UST 10yr yield remains at 2.34%.

The price of crude oil remains at US$51 a barrel, while the Brent benchmark is just under US$57.

The price of gold has eased back to US$1,286/oz.

A combination of world events has resulted in the NZD not moving much since this time yesterday. It remains at 70.8 US¢ and 90.9 AU¢, but has continued to fall to 59.7 euro cents. The TWI-5 index is at 73.4.

If you want to catch up with all the changes yesterday we have an update here.

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

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19 Comments

PALO ALTO, Calif. (Reuters) - Dallas Federal Reserve Bank President Robert Kaplan said on Tuesday he wants to see more signs of upward inflation before raising interest rates again, but that low long-term borrowing costs may limit how far and fast rates can be raised.

The Fed has raised rates twice this year, and is widely expected to do so again in December. But even as the short-term interest rate targeted by the Fed has climbed, the yield on the benchmark 10-year Treasury has fallen, a reversal of what usually happens and a development that Kaplan said he sees as “a little ominous.”

“I view that as a comment on future economic growth,” Kaplan said at the Stanford Institute for Economic Policy Research. “And what I don’t want to see us do is raise rates so fast that we get an inverted yield curve because history has shown an inverted yield curve has tended to be a precursor to a recession.” Read more

LOL - and an extremely flat curve isn't?

yip - we are in a one way cul de sac

So maybe we just pour some oil on the road and do burnouts at the end?

ha - thats effectively is what we're up to
keep the growth delusion going cos no one wants to get off the ride

The next global economic slowdown could come from rising risks outside the banking sector, according to the International Monetary Fund.

Leverage in the nonfinancial sector for G-20 economies as a whole has surpassed its precrisis high, the IMF said Wednesday in its Global Financial Stability Report.

Nonfinancial sector debt refers to borrowing by governments, nonfinancial companies and households. The total level of that debt for G-20 economies rose to $135 trillion, or about 235 percent of aggregate gross domestic product in 2016, surpassing the debt-to-GDP ratio of 210 percent in 2006, before the financial crisis, according to the IMF. Read more

I am still digesting the Steve Keen video yesterday, and the knowledge dating back to FED chair Eccles that tax is a way of taking the heat out of excess money creation by governments.

Could it be said that this point alone is what should drive monetary policy? Monetary policy only exists as a buffer to fiscal policy? Except now we have private borrowing to mitigate, as well as government.

If so the ramp up of asset prices in the last decade or three is totally irresponsible, and a result of ineffective monetary policy.

Just goes to show that very few people have a damn clue what is actually going on.

Until you get the private debt down, the rest is just tinkering around the edges

I am still digesting the Steve Keen video yesterday, and the knowledge dating back to FED chair Eccles that tax is a way of taking the heat out of excess money creation by governments.

Isn't this an example of government crowding out private sector bank funded endeavours, given taxes are the means to fund government debt issuance which in turn underpins state infrastructure expenditure? Surely, Bill English's neoliberal obsession with reducing government debt and balancing the books reinforces such a view?

With the metrics used by those supposedly in control to measure the economy, all consumption is equal.

But drawing on the lesson from Neville Shute in "Slide Rule", political oversight of any capital works results in worst outcomes than private enterprise would deliver.

Scarfie... my view is that unfettered Money supply growth , is one of the primary causes of wealth inequality, and is , in effect, a wealth transfer mechanism .( monetary inflation.)
Taxation is also a wealth transfer mechanism..

I'm guessing that if they implemented the idea of using tax to take the heat out of money printing, there would be some serious distortions...
I'm guessing the lobbying power of the FIRE economy would profit from this and that the working/middle classes would struggle....??? ie.. continuing wealth transfer.

I missed the steve keen video... can u point me too it..?? many thks.

Why not simply reform the monetary system.... ??? ( maybe do away with or limit private banks ability to create credit..?? )

Check towards the bottom of yesterdays 90@9, as I made some comments about it there.

https://www.youtube.com/watch?v=5Ivv6K5BI1o

I think that perhaps before you go about changing the money supply it would be very helpful to develop protocols around what exactly you want money to do for you (or not do). A constitution if you like. That way the money system can change to suit the requirements, and we don't get stuck in a one way system that doesn't work.

thks for the link... damn... its over an hr long... I will have to find the time..!!

I like steve keens idea of a debt jubilee . His idea is the ONLY eqiutable way I have come across of reducing the debt burden.
I think the concept could be applied , as the basis of reforming and creating a "new" monetary sytem.

ie.. His idea of new money being created and distrusted to EVERYONE, equally, in the form of a universal basic income...and that the private banking system no longer was able to create credit ( money ).

"Why not simply reform the monetary system'"

Because Debt has been very useful. You cant have a global interconnected economic system without the ability to trade resources with debt. It has lifted all boats. The kicker is it also requires growth of resource use.

"Money supply growth , is one of the primary causes of wealth inequality"

No argument there. But there isn't actually the resources for everyone to "be wealthy". Or actually more wealthy - because you can argue everyone is very wealthy (relative to middle ages and pre industrial age). As soon as we unlocked coal then Oil everyone has become rich... something like 100 energy slaves each currently.... now, wealthy is skewed to mean freetime, boats/properties/toys, cars and access to events & food and choices and gadgets & .... And all totally dependent on the ongoing functioning economy as it stands. How rich is Bill Gates if the power goes off? if supply chains cease up?

We've hit resource limits. The delusion we have been sold of ongoing progress is exactly that. It never existed outside the resource base.

The trouble now is that in our "progress" we have kicked out all the rungs behind us. There is no gentle downslope (I think Keen promotes the idea of a debt amnesty - but that ignores the writeoff of wealth this entails and the resource issue underlying it .... ie the reason the wealth claims have to be skewed in the first place - because the (resource) wealth isn't there.

The knowledge goes back to Abe Lincoln but only works if the government controls money creation rather than it being borrowed into existence by the banks.

"Government possessing the power to create and issue currency and creditas money and enjoying the right to withdraw both currency and credit from circulation by Taxation and otherwise need not and should not borrow capital at interest as a means of financing Governmental work and public enterprise. The Government should create, issue, and circulate all the currency and credit needed to satisfy the spending power of the Government and the buying power of the consumers. The privilege of creating and issueing money is not only the supreme prerogative of Government, but it is the Governments greatest creative opportunity.

By the adoption of these principles the long felt want for a uniform medium will be satisfied. The taxpayers will be saved immense sums of interest, discounts, and exchanges. The financing of all public enterprise, the maintenance of stable Government and ordered progress, and the conduct of the Treasury will become matters of practical administration. The people can and will be furnished with a currency as safe as their own Government. Money will cease to be master and become the servant of humanity. Democracy will rise superior to the money power." - http://www.sweetliberty.org/issues/eo/eo2.htm - President Kennedy, the Federal Reserve and Executive Order 11110

Very few people having a clue goes a long way back. The following written by John Adams to Thomas Jefferson in 1787:
"All the perplexities, confusion and distress in America arise, not from defects in the Constitution, not from want of honor or virtue, so much as downright ignorance of the nature of coin, credit, and circulation."

Central bankers face a crisis of confidence as models fail
https://www.ft.com/content/333b3406-acd5-11e7-beba-5521c713abf4

You're not saying retirement savings are a Ponzi scheme? OMG! Why didnt they tell me?

Cant argue with this ..

"The more than A$20 billion annually paid in fees and costs is of questionable economic value ... the real lesson of Australia’s experience may be that the idea of retirement is unrealizable for most workers, ...Governments have implicitly recognized this ... If the world’s best pension system can’t succeed, we're going to have to rethink retirement itself"

"The more than A$20 billion annually paid in fees and costs is of questionable economic value

A number that is set to escalate.

Wall Street equity analysts are paid 'yuge' salaries to employee the finance skills they picked up from their business school professors to value various corporate securities and asset-backed securitization structures, among other things. And while their valuations of those securities have served as a frequent source of comic relief for many of us over the years, no bastardization of basic financial concepts tops recent attempts by the financial elites of the world to place a value on their own services.

As evidence of that fact, we present to you 'Exhibit A' from a Bloomberg article published earlier today suggesting that Morgan Stanley, who is still trying to figure out how much their equity research is worth to clients after nearly a year of internal cogitation, is considering asking hedge fund clients for $2,500 for the extreme pleasure of spending just one hour with one of their esteemed research analysts. Read more