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  1. #461
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    Not really about inflation or deflation but a side effect of central banks quest for inflation.
    https://www.nzherald.co.nz/business/...ectid=12286416
    Probably not that relevant for NZ as boomers have largely invested in their own homes and rentals with the next generation funding national superannuation (as they did for the generation before them) they probably are not too worried.
    Last edited by Aaron; 20-11-2019 at 09:45 AM. Reason: to sound less divisive

  2. #462
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    Quote Originally Posted by Aaron View Post
    Not really about inflation or deflation but a side effect of central banks quest for inflation.
    https://www.nzherald.co.nz/business/...ectid=12286416
    Probably not that relevant for NZ as boomers have largely invested in their own homes and rentals with the next generation funding national superannuation they probably are not too worried.
    Behind a paywall so I havn't read the article. But it's not news that many salary/wage-related pension funds are massively underfunded around the world. Has been a major concern for many years with several US municipal funds, for example, having to already reduce the benefits originally promised.

  3. #463
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    Sorry about that macduffy. The article mostly talks about the Netherlands, possibly because this is where negative rate stupidity is at its most extreme. (currently).

    It is good that people start to see there are some negative effects to more and more credit and lower and lower interest rates. The US pension funds are probably a bit like NZ Super promising a lot but not asking for enough money from the beneficiaries to cover the promises. Low interest rates only exacerbate an already existing problem.

    Maybe it will force funds to look at the third world and invest where there is need for investment rather than paying higher and higher prices for assets that are already well established, although I guess that is a push further along the risk curve, not what you want for your retirement savings if your about to retire.
    Last edited by Aaron; 20-11-2019 at 10:52 AM.

  4. #464
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    Yes, there's plenty of good reasons why "low and lower" interest rates have their negative effects. Benefit promise funds are funded on sets of assumptions which include expected returns, salary/wage rate increases, life expectancy, etc. When interest rates drop substantially, let alone go negative, funding rates have to compensate, initially by increasing the employer's rate of contribution - which many can't afford, and may go out of business. A vicious circle of cost and failure follows. Self funded retirees have a similar problem, a lower income to spend, retailers feel the pinch, reduce staff...……..

  5. #465
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    Quote Originally Posted by macduffy View Post
    Yes, there's plenty of good reasons why "low and lower" interest rates have their negative effects. Benefit promise funds are funded on sets of assumptions which include expected returns, salary/wage rate increases, life expectancy, etc. When interest rates drop substantially, let alone go negative, funding rates have to compensate, initially by increasing the employer's rate of contribution - which many can't afford, and may go out of business. A vicious circle of cost and failure follows. Self funded retirees have a similar problem, a lower income to spend, retailers feel the pinch, reduce staff...……..
    Raising interest rates and/or reducing debt will supposedly cause a self reinforcing deflationary spiral (and the end of the world if economists are to be believed) but more debt and lower interest rates have been the long term solution and unfortunately there is no way back so I guess we will eventually find out where this leads. My parents and grandparents were scared of debt sadly they instilled this in me as well but we might come back round to a time where debt is treated more carefully and investment is made based on cashflow rather than capital gain and inflation taking care of the debt. If they destroy the value of a dollar through inflation savers are losers and borrowers winners on a large scale.
    Last edited by Aaron; 21-11-2019 at 07:51 AM.

  6. #466
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    Does this eventually foment discontent among the renting class.

    https://www.stuff.co.nz/business/117...ost-of-housing

    The only way to justify buying a rental at a 3-4% yield is if you bump the rent up as quickly as possible.

    No inflation in NZ per our central bank. I guess the lack of wage inflation and cheaper electronics offsets the rental increases.

  7. #467
    FEAR n GREED JBmurc's Avatar
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    Quote Originally Posted by Aaron View Post
    Raising interest rates and/or reducing debt will supposedly cause a self reinforcing deflationary spiral (and the end of the world if economists are to be believed) but more debt and lower interest rates have been the long term solution and unfortunately there is no way back so I guess we will eventually find out where this leads. My parents and grandparents were scared of debt sadly they instilled this in me as well but we might come back round to a time where debt is treated more carefully and investment is made based on cashflow rather than capital gain and inflation taking care of the debt. If they destroy the value of a dollar through inflation savers are losers and borrowers winners on a large scale.

    What I'm finding with Bank lending Vs the past is the fact that Banks had no issues lending me 700k+ when rates were 7-8% but now with rates half that and my asset base 3x higher the banks still don't want to lend me much more than 600k !! (I guess having kids and getting older must count against me..)

    Now put this into the picture my NZD purchasing power ..the bank is actually giving me like 50%+ less lending power than 10yrs ago !!
    (If say we price in NZ property values)
    Last edited by JBmurc; 22-11-2019 at 08:49 PM.
    "With a good perspective on history, we can have a better understanding of the past and present, and thus a clear vision of the future." — Carlos Slim Helu

  8. #468
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    Quote Originally Posted by JBmurc View Post
    What I'm finding with Bank lending Vs the past is the fact that Banks had no issues lending me 700k+ when rates were 7-8% but now with rates half that and my asset base 3x higher the banks still don't want to lend me much more than 600k !! (I guess having kids and getting older must count against me..)

    Now put this into the picture my NZD purchasing power ..the bank is actually giving me like 50%+ less lending power than 10yrs ago !!
    (If say we price in NZ property values)
    Maybe the reserve bank capital requirements are kicking in. Certainly banks seem a bit more conservative which probably isn't a bad thing in my opinion.

    What happens if debt gets repaid?
    https://www.rbnz.govt.nz/statistics/...household-debt
    Looks like as a percentage of "nominal disposable income" (whatever that is?) household debt increased from 100% to 150% between 2000 and 2008 dropped a bit after the crisis but continues on up with debt servicing dropping due to interest rate cuts. Surely all things being equal debt as a percentage of income would fluctuate but stay within a reasonable range. It would be interesting if the graphs went back further, it would be interesting to see what happened in the 70s and 80s when interest rates peaked.

    Also interesting to see business and govt debt levels over time.
    Last edited by Aaron; 25-11-2019 at 04:02 PM.

  9. #469
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    Admittedly the US and not NZ but interesting none the less. I am assuming the information is not just made up.
    https://www.zerohedge.com/economics/...anana-republic
    The first chart shows assets and I wouldn't mind betting NZ might look similar from the 1980s onwards.
    Current monetary policy looks a lot like trickle down(up) economics.
    Michael Bloomberg is running for the Democratic presidential nomination. I can't imagine what policies he would provide to reverse the trend but I suspect he is there to counter Sanders and Warren as Joe Biden doesn't seem to have the support for keeping the status quo.
    I would look at Bloombergs success in the democratic race as proof that money and financial success is the only things that matter in the US. If you are poor you are lazy and stupid (true in my case but I suspect not true for many people) But you don't have to think too much if you have the worlds largest armed forces that is probably why neither left nor right will look at peace as a solution.
    It used to be Ron Paul for the right and now Tulsi Gabbard for the left suggesting peace as an option. No chance of getting votes in the US of A with thoughts like that.

    https://www.zerohedge.com/economics/...poor-have-debt

    p.s. to keep with the inflation deflation thread theme, if we get the inflation central banks are after at least the poor will have nothing once their debts are deflated away rather than less than nothing. Although that said with negative interest rates those debts may turn into assets. Interest rates on credit cards and consumer finance appear to have a lot further to fall than other forms of debt. Hard to feel sorry for someone dumb enough to rack up debt on a credit card and through consumer finance. Easy to do but not a good choice.
    Last edited by Aaron; 26-11-2019 at 09:36 AM. Reason: less insulting to amercians

  10. #470
    Speedy Az winner69's Avatar
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    Aaron ..you might enjoy this

    America’s drift towards feudalism

    https://americanaffairsjournal.org/2...ard-feudalism/
    “ At the top of every bubble, everyone is convinced it's not yet a bubble.”

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