Another Dow Jones 1033 point meltdown – Don’t Panic/Do Panic – the conflicting messages being fed to the NZ public

By   /   February 9, 2018  /   31 Comments

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We have a global economy that has been fed $15Trillion in quantitive easing, $10Trillion in bonds and the lowest inflation rates for 5000 years. This market is so distorted now that the computer algorithms are mercilessly punishing human greed by forcing massive technical corrections.

There have been a slew of ‘news stories’ where people with vested interests have told Kiwis not to panic about the Dow Jones plunge.

Then, out of the blue, the Reserve Bank warns mortgagee holders that interest rates could jump…

…Don’t panic, do panic. I get the feeling the purpose of these conflicting messages is to make everyone freeze.

In his book ‘Crisis‘, Former Reserve Bank Governor, Alan Bollard,  admits that Treasury were pumping out as many messages to calm the market as they possibly could during the GFC.

The only journalist I think who has glimpsed the magnitude of the market correction that hung like a spectre over the Government negotiations last year is Hamish Rutherford with this piece where he suddenly realises Grant is prepared to borrow to keep the country from sinking.

We have a global economy that has been fed $15Trillion in quantitive easing, $10Trillion in bonds and the lowest interest rates for 5000 years. This market is so distorted now that the computer algorithms are mercilessly punishing human greed by forcing massive technical corrections.

But don’t panic.

As people see their Kiwisaver accounts get slashed and suddenly face hefty increases in their mortgage on houses that are grossly over valued , people barely holding on won’t be able to.

But don’t panic.

As NZ business confidence plunges, warning signs that the global economy is in a dangerous state, that the property downturn is happening now as China crack down on money leaving their country in an attempt to stave off their own banking crisis, fewer farms are being sold and the banks want pay back for the vastly wasteful dairy intensification debt. 

But don’t panic.

The reality is that markets have been horribly distorted and a hard crash has to occur. The reason Winston was so grim the night he picked Labour as the Government was because he knew this correction was coming.

There are enormous problems with the stability of the global economy that go to the very heart of neoliberalism and when the full impact starts to set in, people are going to start to panic. The danger point will be when people start pulling their Kiwisaver out of the stock exchange and put it straight in the bank, that will begin a run away event on the stock exchange as more and more Kiwis start frantically pulling their depleting accounts out of the market.

There comes a point when panicking becomes perfectly rational.

All eyes will be on the Dow Jones for Friday to confirm if this is the beginning of a much more fundamental sea change.

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31 Comments

  1. Nitrium Nitrium says:

    The stock market crashes usually herald forthcoming deflation not inflation, and interest rates are to the best of my knowledge never increased, but rather decreased during that time. I honestly am surprised everyone is screaming “inflation” and “higher interest rates” when imo the exact opposite is what is most likely to happen (assuming global markets continue to drop).

    • Miles says:

      Maybe you have never seen a real correction in your lifetime… how about 73/74 ?… and then we had stagflation and high interest rates which were still negative after inflation… stock markets, depending on which major country you looked at declined by up to 50% and interest rates moved up, first to 10%, then into the 80’s (before there was any real recovery in the stock markets) to 20%….

      • Nitrium Nitrium says:

        I saw both the 2008/2009 and the Nasdaq bubble collapses and both were “solved” with lower interest rates from the Fed (possibly because they learned their lesson from 73 and 87 to not raise rates into the maw(?)).

        • Sam Sam says:

          In 2016 before the Trump assumed the White House the Stock markets were massively overleveraged and in big trouble. With the Demarcates yet to choose a presidential nominee there potential line up is pathetic and could mean a reversion back to the stock market mean pre 2016 or sooner once Trumo leaves the White House.

  2. David Stone says:

    Good work Martyn, keep your eye on it.
    I don’t see interest rates world wide rising though, because that suggestion is what has spooked the market . The Fed and BOE will resume QE if needed to forestall that and try to reverse the slide.
    It could be that our reserve bank and government are stupid enough to move in the opposite direction and cause a hike in interest rates here in defiance of overseas trends, causing a surge in the Kiwi exchange rate, and collapse the trade balance, but I doubt it.
    D J S

    • CLEANGREEN says:

      Winston was right!!

      Thank god he is sitting at the table now!!!!

      As we need the reserve bank Act amended now for us to begin drawing on our own bank for zero interest rates come the time the international banks hit the wall again with their over-leveraged borrowing practices.

      It was when Michael Joseph Savage used the Reserve Bank Act during the last depression to lift us out of the shit so we need now to prepare us again for the next depression.

      • David Stone says:

        I wonder if he also assessed the TPPA issue to be moot as by the time it could come into effect the whole world trade structure would be gone. So why make international enemies by opposing a deal that will never come into effect. A long shot.
        D J S

    • darth smith says:

      how about savers we need higher interest rates now

      • David Stone says:

        Since the 2008 debt crisis, when world finance leaders recognised that debt must be reduced, debt has increased by at least 50%.
        It was unsustainable in 2008. It can’t be reduced without catastrophe .The only way it can be maintained at an ever growing rate is for interest rates to go down. The alternative is mass inability to service debt and mass default, precipitating bank failures again. Higher interest rates can’t be sustained with debt at saturation.
        D J S

        • mikesh says:

          Much of the debt probably needs to be written down, or even written off completely.

          • Sam Sam says:

            Debts do have expiry dates eh. Back in 2008 debt merchants had to go to extraordinary links to have there debts rolled over onto FED balance sheets so to restart the debt clock. It’s typically a 5 year expiry date. It’s in the contract…

          • David Stone says:

            One day hopefully, if a calamity is to be averted “they” will realise that they have to put QE money into the hands of the debtors, so they can repay. Instead of into the hands of creditors so they can create more debt.
            D J S

          • darth smith says:

            steve keen has talked about how a debt jubilee would work the problem is rewarding stupidity and those who have not got themselves in trouble the solution needs to be fair to all parties except bankers as it stands at the moment if a mass default happened the depositors are carrying the bailout risk without any reward which stinks.
            i guess its going to come down to the shear number of defaulters and how loud there squealing is as to the shape of the solution .
            if its speculators and those who used there homes as atms that demand a bailout i vote we let them drown in fact i will get out the popcorn and of course we told you so moment just to rub it in.

          • Takere says:

            Should do what Iceland did. Told all their creditors to go fish … within five years they were back. But since then, they cant seem to get rid of the same people who put them in the situation. The right wing politicians!

  3. Sam Sam says:

    A U.S. in decline will have grave consequences for the global balance of power. Half way through the first quarter of 2018 and they U.K is shaping up to be fucked by the end of the year, Sweden-fucked, Germany-fucked, Greece-fucked, Spain-fucked, global peace and stability-fucked, climate-fucked, U.S domestic law & order- fucked. And leadership around these thing are TOTALLY FUCKED…

    • Helena says:

      … do you smell a conspiracy?
      and what does “sustainable” really mean?

      • Sam Sam says:

        The answer is in the reserve bank because they are the lender of last resort. The only reason neoliberalism has lasted this long is because no asked how long you can sell state assets for, or pennies and then by them back at vastly inflated prices.

        Come on now every one, be honest. Who bought assets when prices are high and / or braking all time record highs?

        Or who sold assets at all time record lows?

        Be honest now literally 90% of all economic actors buy high and sell low. Totally unsustainable. Totally muppet economics. I don’t often put this to words so let’s roll.

        Policy that contradict consistency and public opinion turns the New Zealand Herald into a plastic unformed national identity. If readers and subscribers find such a safe guard necessary what about plastic unformed society like poverty traps. For those wondering; No, The coalition government falling apart and ending won’t effect me, Democracy for me personally is just very easy content to make, when it’s over, you’ll see more un-PC content without a doubt and New Zealand’s biodiversity will improve. Let’s say for instance Hellen Clark started same time as Jacinda, Clark would slap her in a fight and take the Labour Party Leadership off of Andrew Little. No difficulty. Don’t get me wrong there is room for loads of improvement and Labour has a year before campaigning becomes for election20.

        People critiqued me for saying Trump will be prez and Killary is way worse, then extrapolated if Trump won and became prez it meant I was wrong and that Trump isn’t prez> Because he’s a bigot. And he is. But that didn’t make Hilary president.

        The sustainability answer is what the National party arrives at regularly which is 4, which was right, the reasoning for said answer was 2+3, you can link the answer to the reasoning if you want but that’s just missing the point and taking National hyper literal. I was memeing, but if statements are literal there are numerous opposition MP’s who would be massively more powerful government ministers with no basis but their ego and confirmation Bias, with numerous internal national party polls and policy consistency pointing Labour being on top of unions and workers. I kind of consider official Uncontradicted legislation with out glasses. You could consider them near eachother for me, also it depends on the author, not all authors of legislation are consistent. And Kiwiblog/Whaleoil fans need time. They’re salty about literally almost everything.

        Normiefag Kiwiblog vs debating community.

        Kiwiblog = DPF (Farrar has a nickname I know crazy)

        Cameron Slater: “What fucking Anti Semite?”

        Hooton: “What fucking Semite is?” Why is Batman on here? Prep time = Plot and author intent itself and solos (Yeah I’ve been practicing my moron speak lol, let’s just attack colorblindness instead, that’s progressive).

        Hooton being hyped up to be “high consul” is fucking stupid, if anything he’s just educated. His literal plan was “guys let’s stand in the middle” just look at what Labour did to Poverty and National then ask that question again. ‘They can sue me, and debate me properly in court immediately!!!!

        Kiwiblog/Whaleoil/Standard gets thrashed all the time, their best debaters are borderline random levels and they ban topics they can’t defend. Not only is this an appeal to false authority, it’s a clear sign of lack of critical thinking I.e not sustainable.

        Currently, Bill English is just too clean to ignore. Please ready all mud cannons and fire generously.

  4. Afewknowthetruth says:

    The Kiwisaver rules have been set up to make early withdrawal difficult, if not impossible, for most people.

    We have a system that condones heartless people making money by exploiting other people.

    And all the fundamentals are extremely bad, which is why officialdom needs to keep lying via the mainstream propaganda systems.

    However, that which is unsustainable cannot be sustained, and the longer the crash is delayed, the bigger it will be.

    • Susan St John says:

      KiwiSavers can migrate to conservative funds- largely cash-based. Providers will have to sell shares

  5. darth smith says:

    1987 collapse bnz collapsed and bailout
    rumors in the industry fletcher problems are a lot worse that just the building side

    • CLEANGREEN says:

      Winston’s words are now coming to fruition.

      Capitalism did not work for the masses; – so we need to revert back to a collective society again.

      Hello 1951.

    • Sam Sam says:

      There is no time for fancy words…

      • David Stone says:

        I sought help, esp. for the spelling.
        D J S

        • CLEANGREEN says:

          The world fragile economy built on greed and slavery will crumble and drop like a stone.

          • Sam Sam says:

            That city slickers are physically weaker and less adaptable to hardship than there regional peers, and even less so than there predecessors does not mean in principle we should right them off. I swear if the minimum wage was boosted a little more than the average that would get them out of bed.

          • darth smith says:

            i just really want to screw over speculator defaulters rip there homes off them for next to nothing pay back for the misery there greed has caused

  6. Historian Pete says:

    Let’s look at the fundamentals.Once upon a time a citizen could give an amount of money to a bank and receive a reasonable fee[interest ]for doing so. Then the banks decided to lend out more than they were receiving from citizens, in effect creating the money.And then the amount the banks had to hold against the total amount of money they lent got smaller and smaller.This debt creation caused asset bubbles.Creating the money meant that the banks didn’t need the deposits of money from the citizen, so the interest rates got smaller and smaller, to the point that in some cases they have gone into negative territory.All this created money and high bonus’s for the financial industry , and created a temptation to give money to people who could actually not afford it [Fannie May and Freddie Mac home loans in the U.S.]With all the extra money available , asset prices skyrocketed. Seeing that the “Invisible Hand” of the market place would take care of the financial markets, all caution was thrown to the winds. Regulation would just impede the markets from acting efficiently. So the regulations regarding the separation of the Saving and Commercial Banks was removed.The rational relationship between the income of the loan recipient and the loan amount became ignored. The enormous amount of mortgages created [some toxic]were bundled into derivatives,some of which even their creators did not understand, and sold as a lucrative side-line. The financial industry went from being a conduit for mortgage transactions to become the main event.Asset bubbles proliferated. The Banking Industry became a casino. And then we had the 2007-2008 Financial Crisis !
    Only four Economists of thousands saw it coming. We are now saved from economic collapse in the Western Economy by trillions of Quantitative Easing. This has unfortunately resulted in turbo asset bubbles on the stock exchange[price levels bear no relation to returns], bond market, and Real Estate. But fear not! the new chairman of the Federal Bank of of the U.S., appointed last week, is a lawyer!
    Now, my question is, why aren’t we going back to the tried and true system of tying loans to bank deposits received, and paying a reasonable interest rate to lenders, and having a rational relationship between a loan amount and the income of the borrower,and separating the savings and commercial banks [in the U.S.]? We used to have booms and busts, but not sitting permanently on the edge of the financial abyss.
    Please educate me to where I have got it wrong!!!

  7. Z says:

    NZ agreed to bail-ins in 2014.

    Most people trundle along with no idea.

  8. Marc says:

    “The danger point will be when people start pulling their Kiwisaver out of the stock exchange and put it straight in the bank, that will begin a run away event on the stock exchange as more and more Kiwis start frantically pulling their depleting accounts out of the market.”

    Well, it is not as easy as that, there are many Kiwi Saver investment providers, being banks, finance companies and so forth, they invest people’s money into portfolio kinds of investments.

    Nobody will pull their Kiwi Saver savings out and put it into the bank, as the banks are themselves exposed to risks, most also providing Kiwi Saver policies and lending money to those buying homes, businesses and also consuming.

    It is not possible for individuals to panic like that, so calm down a bit, if a crisis comes, it will develop more gradually, and the computer trading will actually keep the brakes on things.

  9. let me be frank says:

    Dont panic…and remember its all based on confidence (trick)