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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