The Wall Street meltdown last week was a clear indication that the market didn’t believe the Fed when it claimed to have taken its bazooka off the table, the dynamics of capitalism at play forced a response which Adrian Orr must now take into consideration.
Will Orr’s bazooka come into play in the next OCR?
Surely it must!
As TDB has been warning from the beginning, the economic shockwave of Covid is here driven by supply side inflation caused by just in time global capitalism grinding to a halt.
The knock on effect of 6.9% inflation plus mortgage hikes caused by interest rates being forced up over the ocean of private debt is a fucking maelstrom of damage.
I argue we will face 10% inflation by December.
KiwiSaver accounts will diminish, mortgage rates and rents rise, food and petrol prices to continue to skyrocket as Russia’s war and China’s zero tolerance to Covid combine to create a force multiplier of risk, economic shockwaves and inflationary pressures.
Small business owners who have been alphas all their life and have grown attached to the liberty that liquid gives them are about to go belly up and that bitter resentment will feed ACT.
The poor are suffering beyond the financial fears of the middle classes, food banks are spiking 500% more demand and their overcrowded existence is ripe kindling for covid.
So can Orr’s bazooka help the economy as the real pain starts?
If all Orr has is a sudden jump in the interest rate to try and slow the almost 5% inflation, the ramifications of the true gravity from all that private debt becomes realized.
The problem as I see it is the inflation is being caused by unique supply side constrictions, so the only tool left is the ‘bazooka’, which Adrian Orr used last time with a .75 cut. If he needs to get ahead of a sudden spike in the cost of basics because ports are jammed solid it would need to be one enormous hand break.
We’ve seen a 50 point rise, and if Orr is going to use the Bazooka to any effect, especially in the light of the markets reaction to the Fed taking theirs off the table, it’s the next OCR that must be a possible 75 point or 100 point rise.
If Orr has to pull that hand break, we best hope there are airbags for everyone.
The steep rise in repaying the ocean of debt will suck money directly out of the pockets of people, many of whom are on the tipping point between functioning and desperate.
With the majority of mortgages being rewritten this year, people will be walking from historically low mortgage rates to steep jumps in monthly payments for a house suddenly losing value.
This leads to a plunge in consumer confidence, enormous financial pressures and the economy built on hospitality, tourism & retail withers as wave after wave of sickness and death trips the country back into a deep cultural recession and brutal self imposed lockdown.
Labour have been stung by the simple fact that their Covid response to date has enriched the wealthiest NZers by $1Trillion and this represents the largest transfer of wealth in NZs history.
The pittance Labour have given to the poor while pricing homeownership out of entire generations of Kiwis is causing electoral stresses.
Labour have plummeted in the Polls because the poor have lost faith in Jacinda’s transformative neokindness.
The broader Jacinda smiles, the more she tilts her head to one side and nods empathetically, the more those hurting economically feel betrayed as the costs of living crisis swallows their hopes for a better tomorrow up whole.
If Orr believes the Market must believe he’s serious, a 75 point increase must be on the cards, and the economic cost of that will cause many to snap.
Without some radical package to help everyone rebuild from this pandemic, the economic carnage will mutilate whatever survives.
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Let’s hope you’re right and Orr will lift the OCR by .75+. I know you will certainly be right about 10% inflation by Christmas if he doesn’t.
Orr should have guessed induced a recession before corona hit when we had the workforce to grow our way out of it know what I mean? I mean growing out of recession is the only way.
Why is it so many were so delusional to think interest rates so low, so detached from reality would last?
That property prices, already obscenely over inflated would just keep rising, (our PM included)? Our whole economy has been on the never never, paying it’s credit card debts with credit cards from different banks for years. A fools paradise if there ever has been.
The only way to tame inflation is to put interest rates far far higher than now, and stall the economy, a recession even. People will be burnt, no two ways about it but we’ve only got to this point because of bank fuelled, housing speculation driven madness plus allowing manufacturing to wither and die here.
Its absolutely beyond this government, (boiling an egg is to be fair), but why not encourage, via tax breaks, manufacturing goods in NZ. You know, like we used to before being so reliant on China? That would future proof us a lot more from some of the other external shocks hitting us now.
And what about people who lose their jobs, or get wiped out with higher mortage repayments (and in turn, higher rents)?
F**k them, I guess?
Millsy I don’t think XRay is saying to hell with everyone, but this notion that ‘I have borrowed too much now you can’t put up interest rates up’ reeks of too big to fail. Banks have supposedly stress tested borrowers to sustain higher rates so at the very least they have to look at going as high as that ceiling allows. By not attacking inflation you can just as easily argue you are further punishing those not fortunate enough to have a house.
I think we can tolerate a bit of inflation. It means higher wages, low unemployment, and low mortage repayments. Putting up interest rates will mean that people will just have to pay more in rents, and mortages, have their wages slashed and lose their jobs
The property speculators in cahoots with the banks were geared up to follow on from the 2012-2016 period where they made tremendous profits. The odd first home owner with their mummy and daddy’s afraid if missing out borrowed beyond their means. What I mean by that any sensible person would know those interest rates were one offs and that within a year interest rates would go up. The bank were reckless and irresponsible for allowing borrowers to take out those potentially unaffordable loans.
The more food we export the higher prices we pay for the food – so row
/plane your own.
The world economic engine – New York, is gased out. All the big retailers closed up shop, occupancy is down at least 50% and they ain’t coming back. Everyone knew like 2 weeks after the crazy covid19 response that the golden goose is cooked so the feds just has to raise rates even though they well say the opposite and do everything just to keep the party going.
Everyone knows that those who dance the bestest and hardest at party’s have no way of getting home.
“The world economic engine – New York, is gased out.”
It’s all Jacindas fault.
I thought Labour were tanking because of the wokeness and, let’s face it, race baiting around co governance. That’s not just about the “poor” vote at all. Constantly perpetuating the myth of the Trillion dollar transfer, doesn’t help either. That idiot Janet Wilson actually said (in Stuff) that the rich had taken a trillion off the poor! Did they have that under the mattress did they?
I thought Labour were tanking because of the wokeness and, let’s face it, race baiting around co governance. That’s not just about the “poor” vote at all. Constantly perpetuating the myth of the Trillion dollar transfer, doesn’t help either. That idiot Janet Wilson actually said (in Stuff) that the rich had taken a trillion off the poor! Did they have that under the mattress did they?
Orr is to NZ what Putin is to Ukraine. The bombastic arrogant fool could not accept he had made a mistake removing LVR’s and slashing the OCR and just let inflation boom…”No regrets”… What a tosser.
Ok so with regard to the OCR and the quantitative easing, in the face of the unknown in a global pandemic, what does the RB Governor do? Was he supposed to let the patient go into cardiac arrest and then get the paddles out, in the hope of revival? There is never going to be a perfect response in a literal disaster.
He did the correct thing in dropping the OCR but it should have been reversed MUCH sooner than it was. He did not have to slash the LVR which he so cynically did just to save the ponzi. He showed his true colours when house prices were rapidly rising and he just kept his emergency levels in place. Like Putin, he did not want to admit he had fucked up and kept going on the ruinous path. He should be in prison.
Anyone else noticed the MMT cultists have gone quiet lately?
QE is not MMT.
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