Depression in the USA - Deflation verus Inflation

[JBmurc]

I guess if asset prices collapse in America, the UK and elsewhere, then all the overseas funds investing in NZX listed shares will suddenly find there are cheaper opportunities closer to home. Then having so little capital left to help rebuild companies and the economy will make having so much of NZ household wealth in residential land not look so smart?

Yes very expensive land locally many asking upwards to $1000per SQM for tiny Res sections

[Aaron]

Maybe Bill was referring to this.
https://www.zerohedge.com/markets/mo...ing-bailed-out

https://www.zerohedge.com/markets/ra...nancial-system

https://www.zerohedge.com/markets/in...-central-banks

I guess that is the only way you could understand the current sharemarket rebound in the face of some pretty terrible news headlines.

[Aaron]

Looking at Contact Energy, Blackrock holds 5% of the company. If I could borrow money from the Federal Reserve for next to nothing I could be buying up income earning assets around the globe for small yields as well. The financialization of the economy is so wrong but what can we do about it? What would be the alternative?

An end to inflation targeting by central banks and market based rather than centrally controlled interest rates might be a start. Some sort of control on debt and money printing, if currency is to have any use as a store of value. Particularly if you believed in capitalism and free markets.

[Aaron]

Another example of Blackrock using cheap money to buy an income stream and milking it for all its worth.

https://www.scoop.co.nz/stories/BU20...ace-losses.htm

These pri**ks shouldn't be allowed to buy up NZ with cheap printed Fed money then ship the profits overseas.

[JBmurc]

In what is the most thorough critique of the BlackRock appointment to date, a March 27 letter from the Sunrise Movement to Federal Reserve Chair Jerome Powell noted: “By giving BlackRock full control of this debt buyout program, the Fed is further entwining the roles of government and private actors. In doing so, it makes BlackRock even more systemically important to the financial system. Yet BlackRock is not subject to the regulatory scrutiny of even smaller systemically important financial institutions.”

https://www.counterpunch.org/2020/04...takes-command/

[kiora]

In what is the most thorough critique of the BlackRock appointment to date, a March 27 letter from the Sunrise Movement to Federal Reserve Chair Jerome Powell noted: “By giving BlackRock full control of this debt buyout program, the Fed is further entwining the roles of government and private actors. In doing so, it makes BlackRock even more systemically important to the financial system. Yet BlackRock is not subject to the regulatory scrutiny of even smaller systemically important financial institutions.”

https://www.counterpunch.org/2020/04...takes-command/

Yep the biggest whale of all banksters. What are they buying up here now?
https://www.nzherald.co.nz/personal-...f=art_readmore

[Aaron]

Interesting article JB. Thinking about it further I suppose Blackrock tries to keep its holdings in Contact Energy below 5% so it is not a substantial product holder and does not draw attention to itself. I wonder what their shareholding in the other power generators are, just out of interest.

Even some of the guys who understand and can benefit from the money printing are voicing concern.

https://www.zerohedge.com/markets/in...akeover-market

[Aaron]

I was excited to see a couple of posts in the “are we bear yet” thread criticizing the status quo.
I was about to reply but decided to post on the thread I have hijacked so as to not jam up an interesting thread with my bull****.

People will start to learn to ignore my posts and save themselves some time if I am just repeating myself.

Just something I need to get off my chest.

Agreed GOAT we have rampant inflation and have had it for at least the last 20 years if the Reserve Bank of NZ is to be believed. No rampant inflation overall, but as Moka suggests in the article the world has had excess capacity and the rise or lack thereof of clothing and transport prices below suggest this. Money printing and lower interest rates have gone into asset prices.

Agreed something stinks with all the propping up of the financial and housing markets by govt (central banks) what or whose end does it serve? (possibly asset and home owning voters) There is no suggestion of reversing interest rate drops, instead we get talk of negative rates as the next "logical" step.
There is no suggestion of paying down debt or reversing the money printing. QE in the US gets bigger each crisis. The people in charge have no alternative ideas of what to do and a majority of voters do not want change so we will continue down this road.

Economists argue inflation is required so people will feel wealthy and keep spending (trickle down economics) and deflation will be a terrible catastrophe which will affect the poorest most as people stop spending and businesses fail and we spiral down. I would note that it is always the poorest who hurt more in nearly every situation. I don’t think creating a wealth divide is helping the poor currently.

Would lower or stable prices really be that bad? There is no crisis in clothing prices or transport costs. (I won’t stop spending if I need food, shelter or transport)

Our own reserve bank site shows over the last 20 years Q1 2000 to Q4 2019 in NZ the CPI had a compound average annual rate of 2.1%

The OCR over this period has dropped from 6% to .25% currently.

Housing had a compounding rate of 6.9%
Wages had a compounding rate of 3.1%
Food had a compounding rate of 2.2%
Clothing had a compounding rate of .1%
Transport had a compounding rate of 1.5%

Does that look like price stability to you?

Using the rule of 72 it takes 10.4 years for the price of housing costs to double(admittedly I don’t know what makes up this index, maybe rent, building materials, labour, actual house prices etc).
It takes 23 years for wages to double. Interest rates for term deposits are 2.5% mortgage rates are 2.99%, it is even getting tough to be a banker with spreads like that.

Something seems out of whack here for a young person wanting to buy a house and start a family. No one denies anymore that central bank policy is destroying the value of a dollar and savers, so what chance do young people have saving for a house unless Mum and Dad can help them onto the property ladder.

It has been 20-30 years of lower and lower interest rates and easy money (it started in 1987 with Alan “bubbles” Greenspan)( some would say it started in 1971 with the end of the gold standard and any sort of constraint on govt) and it will be more of the same in the next crisis as it seems to have helped us maintain the status quo through the latest crisis.

I would suggest inflation targeting needs to go as a start to reversing this trend. Inflation targeting is an idea from the 1980s started here in good old NZ. I don’t think it is working as it should anymore and needs to change.

If any politician talks about the housing crisis without mentioning the role central banks are playing in it, they are either wilfully ignorant or just stupid.

Change won’t come until people get angry and to be fair we have it pretty sweet in NZ although I believe we are heading in the wrong direction. People need to go hungry before they get mad and demand change.

I think if you want to talk about capitalism then the most important price, the cost of capital or interest rates should be set by the markets not a central planner.

I am not pro or anti govt, I believe there is a happy medium somewhere in the middle and this will change to the left or right depending on voters.
But currently the actions of central banks and economists as central planners there is a strong argument for the free market to prevail over the price of capital and maybe inflation/deflation should be set by supply and demand and not artificially managed.

Not helpful to my investing as it is all pointless bloviating that will change nothing.

[SBQ]

Agreed GOAT we have rampant inflation and have had it for at least the last 20 years if the Reserve Bank of NZ is to be believed. No rampant inflation overall, but as Moka suggests in the article the world has had excess capacity and the rise or lack thereof of clothing and transport prices below suggest this. Money printing and lower interest rates have gone into asset prices.

Agreed something stinks with all the propping up of the financial and housing markets by govt (central banks) what or whose end does it serve? (possibly asset and home owning voters) There is no suggestion of reversing interest rate drops, instead we get talk of negative rates as the next "logical" step.
There is no suggestion of paying down debt or reversing the money printing. QE in the US gets bigger each crisis. The people in charge have no alternative ideas of what to do and a majority of voters do not want change so we will continue down this road.

Economists argue inflation is required so people will feel wealthy and keep spending (trickle down economics) and deflation will be a terrible catastrophe which will affect the poorest most as people stop spending and businesses fail and we spiral down. I would note that it is always the poorest who hurt more in nearly every situation. I don’t think creating a wealth divide is helping the poor currently.

Would lower or stable prices really be that bad? There is no crisis in clothing prices or transport costs. (I won’t stop spending if I need food, shelter or transport)

Our own reserve bank site shows over the last 20 years Q1 2000 to Q4 2019 in NZ the CPI had a compound average annual rate of 2.1%

The OCR over this period has dropped from 6% to .25% currently.

Housing had a compounding rate of 6.9%
Wages had a compounding rate of 3.1%
Food had a compounding rate of 2.2%
Clothing had a compounding rate of .1%
Transport had a compounding rate of 1.5%

Does that look like price stability to you?

Using the rule of 72 it takes 10.4 years for the price of housing costs to double(admittedly I don’t know what makes up this index, maybe rent, building materials, labour, actual house prices etc).
It takes 23 years for wages to double. Interest rates for term deposits are 2.5% mortgage rates are 2.99%, it is even getting tough to be a banker with spreads like that.

Something seems out of whack here for a young person wanting to buy a house and start a family. No one denies anymore that central bank policy is destroying the value of a dollar and savers, so what chance do young people have saving for a house unless Mum and Dad can help them onto the property ladder.

It has been 20-30 years of lower and lower interest rates and easy money (it started in 1987 with Alan “bubbles” Greenspan)( some would say it started in 1971 with the end of the gold standard and any sort of constraint on govt) and it will be more of the same in the next crisis as it seems to have helped us maintain the status quo through the latest crisis.

I would suggest inflation targeting needs to go as a start to reversing this trend. Inflation targeting is an idea from the 1980s started here in good old NZ. I don’t think it is working as it should anymore and needs to change.

If any politician talks about the housing crisis without mentioning the role central banks are playing in it, they are either wilfully ignorant or just stupid.

/-/

Not helpful to my investing as it is all pointless bloviating that will change nothing.

The REAL inflation figures are wrong. They don't appropriately factor the cost of houses in NZ. Look at Auckland and consider what % of a person's income is gone into servicing their mortgage? CPI is just really a blunt tool to measure inflation.

The alarming situation now is not inflation. It's about JOBS. What better way to get people back to work than doing QE and printing $ ? What i'm saying is the crisis of the gov't doing nothing is FAR worse than every country in the world going on a printing spree. Again, it's not inflation ... yet. We need to start seeing house prices collapsing. If the Auckland market loses 20% in 1 year, then it would be fair to say inflation is not a concern but rather, deflation; and it's very likely we could see house prices coming down as the unemployment levels keep ramping up.

But what ever NZ does is irrelevant, all figure point to what happens in the US economy.

Again, question what point is having cash or investing in bonds that pay next to nothing in interest? This is why we're seeing the equity markets holding well as investors realise there is really nothing better else to do?

[Aaron]

Gold up today but then again so is the stock market. Robert Kiyosaki said it a long time ago and more recently Ray Dalio "cash is trash" I have been saving to invest which is the wrong thing to do. I might need to invest in "anything" to get rid of cash and take on a bit of debt. I am still thinking/hoping we are in a dead cat bounce but when everything is going up it is hard to see a crash coming despite the bad economic news.