Labour / NZ First Government

[Panda-NZ-]

No, we need to kick start the economy, but be careful of amounting vast sums of debt that successive generations will need to repay. Just because interest rates are currently low, does not mean that we should borrow asd much as possible. That would be irresponsible for any government.



That's not a logical argument though. Even if the premise is true (I haven't checked), it does not mean that we received great value for money, and it still does not invalidate argument around the wider issue of inefficient spending and burgeoning debt. Treasury has indicated a combination of higher taxes and lower public services will be required to balance the budget as best we can. The massive spending and borrowing has created a significant long-term problem, as would be expected.

Why? Debt can be both inflated away and grown out of in real terms. If you have inflation at 2% and real gdp at 3% then the impact of debt goes down by 5%. It's how Cullen halved debt during his time without any spending cuts but spending increases (which increase growth).

Austerity cuts reduce economic growth and inflation which increases NZ's debt to gdp.

[tim23]

What planet are you on ? NZ as a country is on track to increase debt by around 28% this year, all of it household and Government with minuscule amounts for corporates.

NZ Superfund is there for future liabilities, not for current out of control expenditure.

No debt ! Another Tui please

So what planet are you on?

[tim23]

2020 numbers are actual.

And the numbers already show the economic woke cuckoo land that Labourites live in.

Oh dear you still have it bad old fella - sad

[Aaron]

Why? Debt can be both inflated away and grown out of in real terms. If you have inflation at 2%.

Wow, I was under the impression Panda-NZ was a caring left leaning type. Proposing the use inflation to take care of government debt is pretty heartless as we know it is the most vulnerable worst affected by inflation. To quote David Carey in a 1989 paper for the NZ reserve bank. Interesting that in 1990 they introduced targeted inflation. Tax/theft but not too much.

The inflation and tax system interaction also produces some arbitrary and unlegislated redistributions of wealth. Even when inflation is fully anticipated, groups in society which need to hold financial assets rather than real assets are disadvantaged; the elderly and first-home buyers fall into this category. When a previously unanticipated inflation is acknowledged and is thereafter expected to persist, real asset prices change and produce windfall gains for those whose portfolios happen to be more suitable in the new environment. Because the poor and unsophisticated members of society tend to be slower to appreciate the significance of the changes taking place, the emergence of a previously unanticipated but sustained inflation, such as New Zealand experienced in the 1970s and 1980s, is likely to interact with the tax system to make the distribution of wealth more unequal.
Fiscal drag and the non-indexation of some government benefit payments also causes unlegislated redistributions of wealth.
There are two main ways in which the economic distortions and wealth redistributions which result from the interaction and the nominal income tax system can be avoided. First, the income tax system could be converted to a real base, or secondly, government could ensure that there is no inflation. There may, however, be considerable administrative difficulties associated with converting the income tax system to a real base. If these difficulties are insurmountable, the main option left for avoiding the economic distortions and wealth redistributions caused by inflation is not to have inflation. This course is the one which has been pursued by Government

For the full paper as I have just got the bit that suits my argument.
https://www.rbnz.govt.nz/-/media/Res...7-1fe24e890678

Also FYI

https://www.economicshelp.org/blog/1...ation-and-tax/

Inflation is preferable because those that can buy a house can protect themselves to some degree from this tax while the poor and vulnerable pay the biggest price. It is the NZ way very much like not taxing capital gains. Lucky we have a Labour government looking out for the poor and vulnerable. (That last line is sarcasm.)

[Bjauck]

...
Inflation is preferable because those that can buy a house can protect themselves to some degree from this tax while the poor and vulnerable pay the biggest price. It is the NZ way very much like not taxing capital gains. Lucky we have a Labour government looking out for the poor and vulnerable. (That last line is sarcasm.)

It should be easy enough to inflation index link term deposits and then only tax real interest earned. However the NZ investment and financial system pivots around protecting real estate investment.

[Aaron]

It should be easy enough to inflation index link term deposits and then only tax real interest earned. However the NZ investment and financial system pivots around protecting real estate investment.

It might be better to let the market decide the price of capital rather than a central bank. No right thinking investor would accept an interest rate below the rate of inflation. Or a negative interest rate for that matter.

[stoploss]

It might be better to let the market decide the price of capital rather than a central bank. No right thinking investor would accept an interest rate below the rate of inflation. Or a negative interest rate for that matter.

So the trillions of Euros & Yen in European and Japanese Govt bonds are "not right set " ?

[Aaron]

So the trillions of Euros & Yen in European and Japanese Govt bonds are "not right set " ?

I would suggest if the ECB and JCB are printing billions in currency to buy them, to keep yields low then, yes.

I think the JCB is also buying corporate bonds and ETFs (to support the stock market). I think the JCB owns 8% of the Nikkei.

Do you think current interest rates reflect a good return for the risk being taken on?

Admittedly a country that prints its own currency can never go broke but the currency your bonds are printed in can devalue (or get inflated away). Why would central banks be buying government bonds? or another way why aren't investors buying government bonds instead. Perhaps the price of the bonds are not right set.

[Bjauck]

It might be better to let the market decide the price of capital rather than a central bank. No right thinking investor would accept an interest rate below the rate of inflation. Or a negative interest rate for that matter.

I guess during a pandemic there are those who think that bank deposits, with below inflation rate returns, are safer than buying shares in or lending to a business, that may struggle as a result of measures introduced to combat the as yet unresolved epidemic.

[Aaron]

I guess during a pandemic there are those who think that bank deposits, with below inflation rate returns, are safer than buying shares in or lending to a business, that may struggle as a result of measures introduced to combat the as yet unresolved epidemic.

People are getting pushed out the risk curve to get yield but people in cash are losing badly when compared to the housing market and the stock market. Leverage will be amplifying those gains. The inflation deflation argument. Currently inflation is winning hands down. Ray Dalio goes so far as to say cash is dangerous and it has been for 2020 except for that brief moment in March when the stockmarket dropped and economists were predicting a 10% drop in house prices due to lockdowns.

I have no leverage and some cash so have missed the boat in 2020. It is possible that there will be a crash or deflation but this seems unlikely as in the housing market at least we have rampant inflation, if it is a frenzy then it may just be getting started and it will be well supported by monetary policy that now requires inflation to manage debt levels. Frustrating as I am still fighting the central banks and getting upset when I should just go with the flow and borrow what ever I can to buy another house.

I might be heading off track, so to bring it back, anything Labour say about their concerns for first home buyers is empty rhetoric unless they intend to address targeted inflation and monetary policy but from what I read we are too far down the rabbit hole to change now so I would suggest investing in whatever will do well in an inflationary environment.

disclaimer: following my advice can be dangerous to your financial health.