Economist Brian Easton says the Treasury forecasts suggest the economy is doing better than expected after the Covid shock

Economist Brian Easton says the Treasury forecasts suggest the economy is doing better than expected after the Covid shock

This is a re-post of an article originally published on It is here with permission.

John Kenneth Galbraith was wont to say that economic forecasting was designed to make astrology look good. Unfair, but it raises the question of the purpose of economic forecasts. Certainly the public may treat them as horoscopes which is usually the way they are reported. For a professional the forecasting exercise is an opportunity to think systematically about the state of the economy.

In normal times a forecasting exercise is a bit routine because nothing really important changes much. When I headed a forecasting unit, we added the challenge each time of tackling a new issue. However, the last year has hardly been routine and the challenges have been there without having to think up new ones.

I am going to review the year of Covid by tracing through the Treasury forecasts. Treasury has one of the larger forecasting teams and tends, in any case to be in the middle. Moreover they, and the RBNZ, need to get their forecasts as well as they can because they have operational consequences for fiscal and monetary policy. (Also Treasury forecasts are publicly available in some detail).

Compare the forecasts in the budget forecasts known as BEFU20 – Budget Economic and Fiscal Update – made in April 2020,a month before the budget, and HYEFU20 – Half Year EFU – made in November 2020 and published in December. A more detailed – and much longer – report would show a steady evolution after the Covid Shock as new evidence came in (and would include the Pre-election EFUs).

The big surprise is that the EFUs show that the economy has done much better than expected.

Of course, the Covid Shock was a surprise and caused a scramble among forecasters. You can get a sense by comparing BEFU20 with HYEFU19 – done in November 2019 when there was nary a virus on the horizon. The Treasury was then forecasting a volume GDP growth in the year to June 2020 of 2.2%. In the middle of the April lockdown, Treasury lowered their forecast to a decline of (i.e. minus) 4.6%, so they were thinking the economy was taking a hit of 6.8% across the year, most of which would have been in the single quarter of the lockdown. (So they were thinking of a collapse of production of roughly 25% in the lockdown quarter).

As the data has come in, performance proved better than expected and the economy contracted by only 2.1% in the 2019/20 year; still a big hit. Recall the headless chooks running around saying that the lockdown was too expensive so we should take the covid deaths and keep the economy open. Those who kept their heads are allowed to puzzle why we did better than expected.

My view is that we underestimated the resilience of the domestic economy. (No, not the success of the government policies – they were already factored into the Treasury forecast.) The sort of things I have in mind range from the lady whose rural restaurant lost custom so she designed mail-ordered fashion masks. Or the travel reporters, who having their tripping to Shangri-la, stopped found all sorts of interesting places in our backyard.

It is one of the benefits of the market liberalisation of the 1980s. I noticed it in the early ’90s when unemployment rose to postwar record highs yet those who became unemployed found jobs after looking for only a few months. (We are not nearly as good at showing the same flexibility when it comes to exporting).

Post-Covid unemployment is expected to track higher than if there had been no virus, rising from about 4-and-a-bit percent in the earlier scenario to 6-and-a-bit on current forecasts – say an extra 70,000 souls. We would expect a short-term bump in unemployment from the shock, but the Treasury seems to think it will be more persistent. During the April lockdown they assumed that the world economy would recover soon enough; today they expect it to grow more slowly and that affects the prospects for our exports which are a major driver of the economy.

Treasury is currently expecting the economy to do better than they did in April, with some expansion in the current year (to June 2021), despite the unexpected (partial) Auckland lockdown last August. The economy then grows reasonably well. (Even astrological forecasts get fuzzier as they look further forward).

It is a big picture forecast being presented here. There is a lot more detail in the Treasury figures which keep the nerd-forecaster busy. Mention has to be made of the net Core Crown Debt. In the pre-covid forecast in the 2019 HYEFU the Treasury expected it to total $76b in June 2024. Following government’s massive fiscal injection to cushion the Covid Shock the 2020 BEFU thought the figure would be $201b in 2024. That has been pulled back to $194b in the 2020 HYEFU. So the fiscal package is slightly cheaper than was initially projected.

People go on about government debt as if it's wicked. That, given low interest rates, the cost of the debt is near zero does not mean that is necessarily so. The real issue here is who is, or will be, holding the government debt as an asset in their balance sheet AND what they will do with it. It seems unreasonable to expect them (whoever they are) to hold the asset at a near-zero rate of return. They are likely to want to convert it to what seems to give higher rates of return – speculative housing, collectibles, shares and status goods, such as expensive cars (the standard use of overseas travel being largely ruled out for a while).

I am going to have to come back to this conundrum in later columns. It is an example of how short-term success can have long-term awkward consequences (one of the hardest lessons to get across to teenagers).

In the interim, we may take some relief that the economy has dealt with the Covid Shock better that was expected – even after allowing for a sensible government response – probably because we are a more resilient people than we normally assume of ourselves.

Brian Easton, an independent scholar, is an economist, social statistician, public policy analyst and historian. He was the Listener economic columnist from 1978 to 2014. This is a re-post of an article originally published on It is here with permission.

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Another benefit of economic liberalisation and mass immigration is that if the economy turns to custard it's typically immigrants on work visas who will get the chop first. Mass immigration is a bit of a buffer against unemployment for NZ citizens and permanent residents.

Worldwide mass immigration is designed to exploit for the cheapest labour cost option, then squeeze their tax contribution, the profit just went to a few business owner at the top. The jump into PR or citizenship being squeezed, but even with that the blood still being expected come out of a stone.

Much of the Crown debt now sits with the RB.
The only way they can divest themselves of that is by quantitative tightening involving selling the bonds back into the market place.
The remainder sit with the financial institutions.
The only way the return on bonds in the market place can be increased is if interest rates rise and hence bond prices fall. All of which would be painful for whoever was holding the bonds at the time.
Your thoughts?

He doesn't. Nice fellow, probably, but tainted to the point of historical interest, now.

Notice not one reference to stocks (of stuff, not shares). The problem comes when you explain the Limits to Growth to a journalist. You can explain that where 10 tons of overburden had to be removed to obtain one ton of copper, it now takes 400 tons. You can explain that the energy required to remove the 400 tons, is down to an EROEI of sub-17:1 - so a compound efficiency (some call it productivity) problem. The journalist will immediately go to someone like the writer, take their emanations as gospel, and ignore the problem. Happens again and again. I challenged Easton on physics, and he attempted to rebut; if it was cricket I'd have given it 'wide'.

The problem, as you point out, is the lack of underwrite for all the forward betting; musical chairs with debt. Back one, we should be asking him to identify 'the economy'. Properly.

Try to explain that Limits to growth to any NZ politicians, or govt at the helm. So far, even for the housing everyone being ushered to the 'only' solutions (which basically ideal/theoretical) that is 'supply' - it's by economic calculations all related to delay time=further erosion of costing.
Yip, sorry to tingle here. But I do comprehend this world fluids inter-connectivity 'growth pressure' as you mentioned. It's always problem shifted into the unknown future, best to describe it. It's about calculating decisions for one's lifetime/immediate off springs, hence the vested interest to stay for current de-facto.

Keith, speaking as someone holding treasuries and bonds, that is exactly my fear. I've had a good run over last three years, and halved my bond/treasury exposure probably 16 months ago - don't hold me to that - as the previous period captured Orr's 'shock' OCR cuts. But for 2021 (March year) I'm down to only just over 5% returns treasuries, slightly better corporate bonds, but the trend is down relentlessly since about end of November as it has become evident there will be no more OCR cuts, and better growth ahead (no adverse events, lockdowns, etc) there's been a lot of pressure up on yield especially at long end, but short also, thus I'm seriously having to consider leaving that asset class altogether, but there's nowhere to go with all asset valuations all risk on at this stage ... so it's to cash (which is hopeless).

I'd love to see some investigation on the future bond market off these lows. Read one good article on the 80 year bull run bonds have had - it's been the best return over that period, better than stocks - we possibly are now entering a decades long bond 'route' which no traders/fund managers in the market today have had experience with.

Sorry, a bit rambly. But my question: if we are looking finally at rising real yields, where to for bonds from here? Why stay in? Also, last March's share correction also saw a bond rout which puts a lot of question marks over the whole 60/40 portfolio concept. If bond risk is now as toxic as share risk (especially if we get stagflation) fund managers and pension funds (especially) have a real problem. Noting also rising interest rates will put pressure on first commercial property valuations, then residental.

Or put another way: how do I retire anymore :)

Anyway, short term the reason for staying exposed to treasuries / bonds is I still believe there's a massive asset bubble valuation correction coming (I'm thinking S&P down 60%, NZX50 down 40% - 50% - which may give a one off final share rally, then get the hell out of those to cash first, then see if there are any economies left for sharemarkets to recover into ... but we'll never see the last 12 year share returns again in our lifetimes, and from this point quite possibly bonds are also a risk asset that won't save the investor from share value falls. And cash rates (bank term deposits) will lag by years any yield increases (going off recent history).

I agree with your perspective here, and also in your other comments below, that bonds have become an increasingly risky investment. If inflation 'takes off' then bonds can be more risky than shares. The quandary that your pose about the search for safe investments lies at the nub of the issue that all savers face right now. I lie awake at night thinking of those issues, not just from a personal perspective, but what it means for society. And I don't like what I think I am seeing.

Agreed, Keith.

Retire from what?


Maybe a bookie needs a runner?

You and others here - Linklater comes to mind - don't seem to understand what backed your betting. Or didn't want to?


Linklater here. Just what is it that I and others don't understand? I am waiting for you to answer my question. Since you believe that financial and indeed societal armageddon is imminent-possibly by 2024- then what have you done to protect yourself and your family? can I assume that you are not living in an underground shelter with years of dried food and weapons?

Have you entertained the possibility that you will be proved wrong. As a student(amateur) of psychology i am very aware of the dangers of confirmation bias, of having a fixed viewpoint and considering no evidence that might contradict it. perhaps you read Monbiot and Klein and that's ok, but read Pinker for another viewpoint. I am no Pollyanna and would view with equanimity a significant market correction as i have lived through many going back to the early 70s.

Linear comment. There were 4 billion by 1980, half what we have now. I don't read for viewpoints - it's a mistake. I read EVERYTHING I can get my hands on, typically a book every couple of days. It isn't a matter of confirmation bias, it's a matter of pragmatically going back to first principles. Facts. Science (real science, not economics which is akin to tea-leaf reading.

No, I'm no prepper (life is too full and too short) but I thrived during lockdown - never missed a beat. Which perhaps tells you I'm near self-sufficient (quite a different thing from prepping).

But what you do - you 'invest', from memory - is that you make bets on the future availability of energy and resources to apply said energy to. That's all there is. Don't wander off into Monbiot or Klein, he particularly gets it wrong on some counts (thinks we can all live happily if we only do x, y, z - but we are too overpopulated for that to work).

What you don't seem to understand, is that your strived-for digital collection of numbers, is increasingly not underwritten. Think of it as a pile of Ariadne shares, circa August 1987. The interesting thing at this juncture, when you know what you're looking for, is the Elite; they too hold their wealth digitally (that which isn't on display, anyway) and need the system to hold; they too are in trouble. And will know it. hence the 'great reset' mutterings coming from the Davos-types. You don't re-set if it's all going tickety-boo.

The truth is simple; we raped our life-supporting spaceship like there was no tomorrow (yes, all of us, even those who hide behind a screen hoping to 'make money') and due to our actions, there will be no tomorrow. Not like today, at least. South of 1 billion, living simply and in the high latitudes, is what I reckon we'll be by 2021. What I suspect you don't get (from the linear comment) is the compound/exponential nature of the dilemma. We one used oil at 100:1 EROEI, to remove 10 tons of overburden to get one ton of copper. Now, we need to remove 400 tons to get a ton of copper, but the oil is down to 17:1. And we're demanding more of both, from the dwindling remainder. See the problem? It's called the Red Queen syndrome; where you runn faster hand faster to stay on the same spot. Imagine trying to maintain our current collection of infrastructure, as it ages, sans fossil energy? You'll be triaging, and triaging the triage. It's already showing up in the Govt needing to take on the 3 waters, already showing up in decaying pipelines and power-poles (and SH1) and in education and health (neither financially viable, both triaging, both going backwards.

So it goes. Just stick to facts - don't read for confirmation, eh?



Thank you for such a fulsome reply. "South of 1Bn living simply and at high latitudes is what I reckon we'll be by 2021". If so, then i am f......d along with almost everybody including you, but I just cannot see what would cause such an apocalyptic scenario to eventuate. "Just stick to the facts". Well,it appears to me that you are extrapolating wildly from the facts.
I think that I do understand the exponential function-one grain of rice on the first square of the chessboard, 2 on the second and so on.
Of course I worry about the world my grandchildren are growing up in, but I don't/can't? belive that it will be as bad as you believe.

Bonds serve no purpose other than as a subsidy to the financial industry, giving them something to trade and make profit on. They don't need to be issued in the first place, just leave the money in bank reserve accounts. A more radical plan would be to give us all an account with The Reserve Bank where we can keep our savings directly and cut out the banks from the system.
Economist Prof Bill Mitchell tells us here " that the usual justifications for currency-issuing governments issuing debt are not sustainable.In Part 2, we will consider some of the other justifications.We will see that none are sustainable".

Bonds serve a major purpose in a capitalist economy. Plus, at four times larger than the the global sharemarket, they can normally be relied on to indicate the 'truth' about upcoming economic conditions, over shares which have pretty much become - esp US - detached for now from fundamentals via QE and recklessly loose monetary policy: ie, from the reality of economic conditions. That detachment will cease as reality is a greater force than even central banks in the very long run.

But, bond markets certainly do have a purpose (in an economy, and in a portfolio: but that latter is changing as bond yields have hit historical lows.)

A capitalist 'economy' is a one-way resource-trashing, planet-consuming piece of transient madness. Nothing more.

No, bonds don't indicate a 'truth' about anything. Nor do share prices, oil 'prices' or just about anything else. When things are debt-issued, they're merely forward bets. Shares have indeed, since 2008/9, increased ridiculously considering the fundamentals; so has existing-stock housing, the ' correction' is going to be a humdinger this time.

And people 'making money' out of bonds, shares, renting of any kind, etc, are not productive parts of any 'economy'. They're entirely parasitic.


At the end of your post you say; "and people..............They're entirely parasitic". Just how do the productive parts of an economy arise? We can leave the meaning of productive to one side for the moment. When someone comes up with the idea of a better widget, how does he/she scale it up without entering the world of parasites?

The use of energy and the doing of work.

The only yardstick in town.

And staring at a screen is not 'doing work'.

For bond yields to rise capital will need to be soaked up by new projects. Over the last few decades everything has been privatised and financialised. Excess profits have been wrung out of electricity, transport, water, land improvement, you name it. There's not much left of existing structures to squeeze for returns to capital so there need to be new structures to give returns to capital.

It's fairly obvious that there needs to be investment in green infrastructure if we are to survive as a species. As an example, right now in New Zealand we don't have a large network of solar panels on houses sending power to the national grid. The reasons for this are many but I'll list a few that I think apply. The majority of households are too cash constrained to afford the panels, batteries and electricans services. It is too much of a hassle to get all that set up when the electricity is comparatively less expensive to buy. Many households are renting and can't install the panels themselves and/or owned by landlords to whom a solar system is a hassle and an ongoing expense. Power companies don't want to buy household solar power and would rather you buy from them. There is no national grid, rather a network of companies undermining each other.

It requires a concerted effort by govt to convert our privatised hybrid hydro + fossil fuel electrical network to a hybrid hydro + wind + solar + storage network that accepts household supply. With a govt that doesn't believe in interfering in the private sector (unless the sector concerned is rural) a concerted effort is likely to be distorted and haphazard.

In essence the answer to the question of how to increase bond yields in the long term is to increase the amount of intelligent govt spending on items we will need in the future, to reduce user fees and the ability of vested interests to stop progress on the building of future infrastructure and probably do some kind of debt jubilee or debt reduction for the bottom 70% of the population.

My point was bond yields are rising and have been since the end of last year: here and in US. Fact. I just need to look at my spreadsheet. That's because individuals are finally pricing in risk. But also the rising commodity and CPI inflation that is set to continue. And cycles are important: interest rates are zero to negative; it's the end of a very long cycle, and into the future despite CB cash rates will be held down and CBs will be in the market manipulating the curve, interest rates can nevertheless only now, surely, trend up. Other than for a one off possible big fall on shares soon losing an enormous amount of value as they reconnect with company earnings in a world where fiscal and monetary stimulunacy must finally come to the end of the road. It's just not possible to time any of this well.

I have found this quote by Warren Mosler who made his fortune as a bond trader.
I would cease all issuance of Treasury securities. Instead any deficit spending would accumulate as excess reserve balances at the Fed. No public purpose is served by the issuance of Treasury securities with a non convertible currency and floating exchange rate policy. Issuing Treasury securities only serves to support the term structure of interest rates at higher levels than would be the case. And, as longer term rates are the realm of investment, higher term rates only serve to adversely distort the price structure of all goods and services.

Okay, your words now, not cut and paste: in a world where government can't issue treasuries to fund some of its activities, what implications does that have, do you think, for the tax take?

Bonds don't finance the government. It is the currency issuer, it must always spend first before taxation and borrowing can occur. Government spending creates bank reserves by crediting bank accounts when it spends, all bonds do is drain those bank reserves. Where else do you suppose that banks would get the money from to buy government bonds?
Some explanation here as an example.

Governments issue bonds and treasury bills, mainly to the public, to fund government activities.

I don't care what the copy and paste says.

Well then you are misinformed. Spend some time listening to economists such as Bill Mitchell, Stephanie Kelton, Steven Hail, Steve Keen, Warren Mosler, L.Randall Wray, Pavlina Tcherneva and Michael Hudson. Perhaps they can persuade you otherwise.

Governments issue bonds and treasury bills, mainly to the public, to fund government activities. When yields go up, there's a bond rout. When yields go down, as they have for 80 years, there's a bond rally.

I don't need to know anything other than that vis a vis my investment decisions. And that's my life. Everything else is white noise.

My view is that the end and reversal of this long secular bull mkt in bonds is that it now becomes an inflationary headwind as it reverses.
Rising interest night impose cost on many things.
Many of the deflationary tailwinds we have seen since 1990 , are no longer that relevant, as deflationary forces.
(Globalization and its supply chains is an example )

Your assertion contradicts your above Mosler quote. ?? ... or have I missed something..
ie. Mosler is advocating for Govt deficit spending to accumulate as excess reserves, rather than from Bond issuance.
You are saying this is how it is already done..
Mosler is saying that Bonds should no longer finance the Govt.... you are saying they dont .( in our current system ).

Thks for that Mosler link. His list of proposals for banks are very good ideas.

I have a big problem with 0% interest rates ...
MMT is blind to a few things ( in my view) , because it takes a myopic view on Money . ( focuses solely of its quality as a unit of acct ).
MMT seems to down play the other 2 essential qualities of money , which ( money) probably evolved out of trade , back in the day of barter economies. ie, store of value and medium of exchange.
MMT holds the Chartilist view of Money..

One of the functions of money as a "store of value", is the concept of savings and investment.
"Money as a store of value is the bridge between present production and future consumption. It is the basis of the credit system, of saving and the basis of the transfer of resources from the non-consumer ( saver ) to the user of these unused resources ( investor.)"
( quote from W rosenbery ... Money in NZ , banking credit and inflation ).

Interest rates is the price information that balances saving vs investment. As MarkH says, Bond mkts are a big deal..
Central Banks have badly distorted this interest rate mechanism, ... but is is still relevant.
In a way, one could perceive the use of consumer debt as bringing tomorrow's spending forward to today....

Mosler does not say that bonds finance the government, he says that money created by the government should be left as bank reserves and not converted into bonds. Economist Michael Hudson has studied the history of money and he does not think that a barter system ever existed.

I think he does. Its implied in what he says.
"I would cease all issuance of Treasury securities. Instead any deficit spending would accumulate as excess reserve balances at the Fed. "

Bank reserves are created first, the government spends by crediting bank accounts. Only then can bonds be issued despite how it may appear. The treasury gives the impression that it borrows first, but there must already be existing bank reserves.

We are back at the what comes first dilema ..( the chicken or the egg).
I can also spend before I earn...BUT I have a smaller time window in which I have have to come up with the means of payment.
Because I can spend before I earn does not prove or mean anything special, by itself.
The nature of "credit", is one of spending before paying...

What u assert does not prove anything... One can argue the Govt simply has an overdraft facility with the Reserve Bank..

The Reserve Bank is part of government, talking of the treasury and the Reserve Bank as being separate is meaningless. Economist Stephanie Kelton likes to compare it to a game of monopoly. The game cannot commence until the bank issues all of the players with money, it isn't the players that give money to the bank to start the game.
Listen to her lecture from the British Library here, it is very worthwhile.

Roelof, that can't be right.

"Money as a store of value is the bridge between present production and future consumption. It is the basis of the credit system, of saving and the basis of the transfer of resources from the non-consumer ( saver ) to the user of these unused resources ( investor.)"

It's an expectation of future production, not present. And resources aren't being done anything to, by anybody. You have people amassing digits, and people losing digits. So what? Those digits aren't resources. Resources are resources, and having digits doesn't guarantee any resources being there when you want them.

Please get your terminology sorted.

Rosenberg is talking about the store of value quality of money...

In its most essential form, which would express all of moneys' qualities in an undistorted way ., I think Rosenberg is correct. Savings is deferred consumption, which at a future date can become consumption.
( debt has the opposite effect)
Investing ( in its economic productive sense) is spending today , to create future production...
Interest rates is the mkt price/information that balances the two... ( the store of value quality of money has a time value as well, which is revealed thru interest rates )

Obviously, in todays fucked up world , Central Banks have contrived and manipulated the essential place of money in an economy. We have ended up with the FIRE economy where the Financial economy runs the world...

Think of what enabled the evolution from subsistence living where we had to do almost everything ourselves and transacting was difficult , to what we have now... Money as a medium of exchange , has facilitated the "division of labour". Money ( in its true economic sense) has enabled individuals to "specialize". This has been a very good thing.

Likewise money , thru its quality as a store of value , balances investment vs savings. ie. We consume within our means. We walk lightly on the earth.. We are savers.. and we are spenders... A time to sow a time to reap.

As you imply , money should be the great tool, to be used to manage our resources in a sustainable, innovative and productive way.
NOT what we have now.... where credit created as debt , requires never ending GDP growth... and never ending money supply growth.. We consume ,simply for the sake of consumption , in the name of Growth..( GDP )..

Thinking of specializing... one of the highest earning and in demand people I know monetized their unique skills to do a very obscure but very essential job... they fix highly complex medical machinery. They get flown all over the world to fix broken down radiology, MRI and other high tech medical equipment and get paid extremely handsomely. I mean... if you are a small country in the pacific with only one xray machine you need it to work and will pay accordingly (or maybe the NZ govt pays for you, but point made).

These are the sorts of unique and essential and highly specialized roles we all rely on but never hear anything about. It's not glamorous but if only kids in school knew there were so many ways to put various skills to use, in this case, someone who is extremely skilled at working with fine machinery.

Dunno why that sprang to mind, just thought I'd share it.

Anyway, I think inflation is coming, I've stated this before. But what interests me is what comes after the inflation and how it impacts... thoughts from readers?


I have looked at the last time real interest rates were negative, the 1970s. Actually the rot set in with the US' "Guns and Butter" policies during the Vietnam war. The resulting run on the US' gold reserves led to Nixon defaulting on the gold-exchange standard. That opened the door to the US Fed's money printing which resulted in the Great Inflation, which was tamed by Volcker raising interest rates to 20% in 1980. Bond holders lost their shirts but after Volcker tamed inflation the 40 year bull market in bonds began, which in turn triggered a house price boom.

History will repeat - CPI inflation will relatively soon exceed 3% on its way to double digits and Central Banks will be forced to tighten. If they don't tighten, hyperinflation beckons. Unfortunately the world economy is mired in much higher levels of debt that in 1980 when Volcker administered his medicine, so the ramifications for global stability are scary.

Inflation is often caused by supply side shocks such as with Zimbabwe or the oil price shocks of the seventies. House price inflation is caused by credit creation by the banks mortgage lending when interest rates are low as in NZ now. The Bank of England tells us that banks create the majority of money.
Taxation also deletes government created money every time that it changes hands, it doesn't circulate for ever and we also save some of it.

in an MMT world would Private Banking sector still be allowed to create credit..?

Why cant housing inflation be caused by supply side constraints.?? ( u say many inflations are caused by supply side shocks )

MMT describes the operation of our monetary system and it includes banking in this. Economist Bill Mitchell gives an MMT perspective of banking here.

Yes of course we are also short of houses and that is why using monetary policy at the present time is counter productive.

It appears the asset owning class in New Zealand have been spared any hardship, buoyed by RBNZ windfalls. However if I take a drive across the tracks it's clear that the financial impact on the other half of New Zealand will be more profound, driving inequality, harship and misery even further. However, as we're not from that half of New Zealand, we'll just all agree to ignore that shall we? After all the half that really matter politically are happy.

It is not as simple as 'the asset owning class'. It is particular components thereof. Currently, the path to wealth is through debt, preferably linked in some way to property (of various types) or anything else which has inflation proofing. The path to poverty is through bank savings.

Yes, the complete opposite of what my parents taught me - prudence.

That's because they were duped by the system too and indoctrinated to pass that message on to their offspring... you. So the grand plan in effect was brilliantly effective... the messaging to the people is the complete opposite to what the big end of town actually did. Only now has the veil been cast aside.

Yes, nicely said, but what do they do now that the genie is out, perpetual asset prices? With perpetual debt? I noticed that Queenstown business are asking for wage subsidies. Or will we see a living wage across the board soon.


I can't entirely agree with that. I have had no debt for over 20 years-I am 75- and with a portfolio of shares and property, have seen my net worth increase steadily. Irrespective of interest rates, I always have a significant amount in cash. How else could I take advantage of opportunities as they arise?
Of course, if I had nothing but bank savings, I would indeed be in trouble.

But times have changed. Until a year ago it was possible by saving to keep ahead of inflation. But everything has changed in the last year. And under current policies, it can only get worse.

"The path to poverty is through bank savings."
Thats probably been the case since Central Banks came into existence.. Fiat money has pretty much always been a depreciating asset..

I remember going to Colombia as a 10 year old. First time I really came to understand immense wealth versus abject poverty - an in your face look at the other side of the tracks. And of course, I recall thinking America could never become like that - it being the land of free education as giving equal opportunity to all.

I spent some time in Colombia in 2014 working on a rural project. The extremes still exist. No easy answers! But it is easy to see in these situations how society falls apart and that was what happened in Colombia. I reckon the seeds of the civil war in Colombia were probably sown way back in the 1960s, although it was another 20 years or more before the real hostilities broke out. Most of the countries of South America illustrate on one way or another the problems of societies riven by huge inequality of wealth and opportunity, but Colombia does so more than most.

Treasury forecasts are all mumbo-jumbo to start with. As a Scorpio I'm not that easily fooled!

I'll quote from my own comment for the question following:

'I'd love to see some investigation on the future bond market off these lows. Read one good article on the 80 year bull run bonds have had - it's been the best return over that period, better than stocks - we possibly are now entering a decades long bond 'rout' which no traders/fund managers in the market today have had experience with.'

My single question: in an inflationary environment of rising interest rates for a long period, can bond funds make money? I'm aware of inflationary bonds, etc, but whole portfolios of bonds?

... investor oriented answers only please (we're all about to die because energy or something is off-topic and I'll report those. I'm over the prepper spam.).

The only scenario that can lead to bonds being a good investment is if the yield exceeds inflation. Given that the return on risk-free (Treasury) bonds is less than 1 % and the inflation target is 2%, together with non-tradables already inflating at greater than 2%, then the return for bonds looks bleak.

Agree again.

There is a world of pain coming for pension funds and the holders of the world's biggest single security.

I'm just going to half my holdings (again) to cash and wait and watch what happens.

Real cash (I'll bet you mean bank-held digits) will indeed be king, for a time.

But the owning of that which you wish the cash to be traded for, is the better step.