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.
The GFC MKII is here. You just don’t know it yet.
Instead of a housing mortgage scam in the US kicking it off in the US Banking sector and private banking sector this time. The international sovereign state governments cannot balance their books!
They have only realised that 13 years of printing cheap money to loan to oligarchs to take over running the world makes governments obsolete! Who woulda thought that would happen?!
So those pricks have capitalised on supply chain shortages! Who woulda thought they would do such a thing!?
The only way that the western world old school colonial governments can see a way through the next couple of years is by starting a cold war with a couple of perceived enemies. Russia and China. One is the world factory of everything the west can’t stop buying and the other is their mate who has shit loads of natural resources to provide them with and 140 other trading nations too. More than half of the world’s population.
Any guesses about how this clusterfuck is going to end and how many more millions of people will suffer and most likely die because of this person-trans-national made catastrophe?
Here’s a clue. The US start up a proxy war in Europe against Russia. Enabling the rise of the 4th Reich in Germany to attempt to re-write history with Russia by feeding the Ukraine with Nazi hate for the Russian leader. Vladimir Putin.
The 4th Reich along with the EU, NATO and others try a pile on in the Ukraine and lose.
So then the US escalates this by starting another conflict with China. Fast forward. That fails too because both the leaders of China and Russia aren’t stupid fucks like all of the western leaders, who are!
So. Lil ole NZ tries to hide and keep their head down but the fuckn woke princess can’t fuckn help herself from been out of the international limelight and signs us up for a fuck war on the other side of the fuckn world!
FFS! Will the Mowrees takeover NZ and keep us out of these colonial messes or not?
We need an election and a whole lot of referendums to decide what we should be doing over the next 30-50+ years. Because right now, history is repeating itself. It’s just that the mellinials and yoofs of today don’t know this because they don’t like history or study it anymore because it’s booooring to them. It takes too long!
Orr will keep the rise to probably .50 max, .75 is what he SHOULD increase by and 1.0 would be what is needed and overall shave off a 6mth-1yr of the increases he HAS to make, seems Orr is far too cautious and the 1.0 would be him saying…’I got it horribly wrong, and should have start raising a year ago!’….but his ego will never allow for that.
And wipe out thousands of new zealanders?
Typical right winger, no human decency. People have too much money so it needs to be taken off them.
Lol, so Orr increasing .50, .25, .50 over the next 3 reviews would be better, in your myopic view, than increasing .100 or .75 next review and ‘ripping the plaster off’ as opposed to drip feeding as inflation soars?!
Ahhhh Millsy, a true leftie…knows fuck all about how an economy works!
When inflation hits 10%, soon, you will have time on how to blame the right when the left have been in power last 5yrs!
‘do a Bert’, just blame John Key lol
I’ll do it I’ll do it: it’s John Key.’s fault!
No, interest rates need to be the same for ever. Putting them up will just cause unemployment. People may not be able to find jobs again if rates go back up.
Also, look at that single mother who will end up paying an extra $200 a week on her house. All because rich pricks like you want cheap lattes. Who care about the people who get wiped out financials.
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?
Yes I think that’s more accurate than Martyn’s assessment.
Labour transferring wealth to the wealthiest is unforgivable and betrays the very ethos of the Labour movement.
The right wing Labour party is a fraud. All us poor Turkeys voted for Christmas. Never again.
Well Bob with interest rates increasing, the bright line increase, and the removal of interest deductibility making serious dents in that “wealth” you should consistent and say they are reversing that “ transfer” (your word not mine). Something tells you won’t
So the scumlord with ten houses profit from last year drops from $4 million to $2.5 million? Big deal. The Labour party is their hero.
It actually happened under Key, fuelled by the blind eye he turned to the property market being awash with ill gotten foreign money that sniffed out a money making opportunity
The result… hundreds ,even thousands ending up sleeping in their cars in parks in Auckland or a generation stuck living with their parents unless said parents could finance them out of the nest.
In the space of 7 years the damage was done.
Aucklanders with houses, who never dreamed it could be this easy, were becoming millioniares in the space of a couple of years, cashed up to the wealthy Chinese and Indians ‘investors’, took their booty and hightailed it to the cheaper provinces and smaller towns only to pump up their house prices.
The Dorklanders ,(as they are known around the country), flaunting their new found wealth, eventually making it unaffordable for the locals.
Add to that ,immigration running at 55-75,000 people per annum, without any plan on how they were going to house all these people, and you have a clusterfuck beyond belief.
The rot had well and truly set in by the time Labour were voted in!
It needed drastic action, but not wanting to upset the easy- money drugged middle classes, they dabbled. They did a bit and it was slowly starting to have an effect when Covid hit and Adrian Orr panicked wanting to protect the property market and the banks. Big mistake !!
What a shambles to sort out.
Labour then got the hospital pass when Adrian Orr decided to lower interest rates even more than they were Of course, in steps the salivating cashed up ‘investors’ again, willing to leverage with cheap money in the hope of more easy money.
The bottom line is ,when buying anything, it’s ‘Caveat Emptor’ .You have to do your homework.
Mortgage yourself to the hilt, without any contingency plan factored in, and you are on your own.
If people bought a house to live in. then keep living in it.
‘Investors’ will have to suck it up. They have had a 12 year bull run. The party’s over!!
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.
Can someone add up all the money pissed into the wind by the likes of Carmel Sepuloni, Kelvin Davis, Kris Faafoi and Michael Woods? If that had been saved we wouldn’t need any of these measures. Instead bunch of consultants are now driving McLarens and Bugattis. It’s fucking criminal. small example. Sepuloni wasted nearly a million on Zoom Forums – she said the money was needed to build a new platform – she used Zoom!!!
????? Fired!
Sorry SK, you say some MPs have waisted money of an amount you can’t quantify and then say we didn’t need any response from the Reserve Bank? Or do you mean their spending has driven inflation and if they hadn’t spent we wouldn’t need to raise interest rates?