US data largely positive except for an outlier PMI; India spurts ahead; China and Japan services data soft; Aussie data mixed; UST 10yr 4.36%; gold up and oil oil unchanged; NZ$1 = 61 USc; TWI-5 = 70.4

This is what many voted for....back on track..?

We tanked our economy when we decided to head down the path of unmitigated debt speculation. My interpretation is we are now returning to reality as opposed to tanking the economy. Reality can be painful if you haven’t been living truthfully. 

Our economy is tanking not because of monetary policy, but because

-We have state facilitated cartels & oligopoly's which impoverish the nation and create a virtual subsistence economy, forcing our young talent abroad.

-A lack of capital gains tax on property has created one of the largest wealth distribution inequalities in the world

-We have some of the highest petrol prices in the Western world, up to 50% higher than Australia

-We are a primary produce export economy increasingly imposing restrictions that make it less profitable and given away any IP we had.

-We have failed to invest in the infrastructure required for population growth, prioritising benefits and state super, leading to productivity falling.

"This Cannot Go On Forever": Explaining The U.S. Debt Crisis In Simple Terms

And then he lays out the case bare: "We can walk through the numbers, but the bottom line is that the US government and the Treasury have entered a debt spiral. We now have $34.7 trillion of debt, which is over 120% of GDP. If you're a country with debt over 120% of GDP, your fiat currency fails. This is where we're at, and we're just spending and spending and spending.”

“What happens if you get into a recession? Your tax revenues drop precipitously, and your spending rises at a similar rate because of all your social programs like unemployment and wage security. You could wind up having a deficit that's not $2 trillion but could be $3, $4, $5, or even $6 trillion if it gets bad enough. Just imagine that. Suddenly, we are adding over 10% to our debt in a year, maybe 20% in a year. That is the debt spiral.”

He continues: “We can't do that because the rest of the world will turn around and look at our bonds and say, 'Why would I buy those bonds if they have to keep issuing new bonds to pay me for my bond?' We are in a situation where we have to continually issue more and more debt. This is rising exponentially, and there really is no way out. That's the problem.”

“Modern monetary theory proponents think it's just driving the economy; there's no big deal. However, when the music stops and people stop having confidence in the U.S. Treasury, that feeds into the US dollar. That's when you get into a problem. Why does that happen? It happens because of inflation. It all goes back to this central problem: this constant and relentless manipulation of the monetary system through central banks that create inflation.”

“That is a soft default on that debt every single day because the dollars you're getting paid back in the future are worth less than when you lent them out to the government initially. So, who wants to lend the U.S. Treasury dollars for 30 years when they know that inflation only has to go up to continue the charade?"

"They get into what's called a debt spiral. They can't get out of it. And this is where we are. So what is the option for the U.S. government if they continue to borrow? What does that mean? Well, that means that they must have inflation. There absolutely is no way around it. That inflation allows GDP to grow nominally. Remember that $28.5 trillion number? That has to go up. Nominally meaning just in terms of dollars, not inflation-adjusted.”

“When you have more dollars in the system, it creates more GDP because there's more dollars. And so that GDP number goes up. The productivity number goes up. But it's fake. It's not more stuff. It's just stuff that's more expensive. So there are more dollars in the system. And when you go to pay down that debt in the future, you're paying it down with dollars that are cheaper, that are worth less. This is called the debasement of the U.S. dollar. The U.S. dollar gets worth less and less and less every single year.”

He concludes: “And so this is the challenge. The U.S. government absolutely must have negative real rates. What do I mean by that? That means they must have coupons on their treasuries that are lower than the inflation rate, and they have to have this in perpetuity. That's the only way they can keep this charade going. It won't go on forever. Make no mistake, this cannot go on forever."

re urban boundries

He dismissed the Auckland Council research as "complete drivel" and questioned Norman's independence.

"They'd have to use arithmetical gymnastics to come up with that conclusion."

Pavletich said the numbers were simple. Raw undeveloped land in rural areas several kilometres outside the RUB was worth $30,000 to $50,000 per hectare. Inside the RUB such land was $2m to $3m or more.

"It is really that simple. Most laymen could understand it but it appears some economists are baffled by it all."

After coming to power in 2017, the Labour government vowed to axe "highly restrictive planning rules like the urban growth boundary" to address house prices.

Interesting indeed, but most of this had been well signalled in advance, so not really shocking. I also don’t think it is as impactful as it first seems. For example, Auckland already has enough ‘live zoned’ land for 30 years of growth. So this won’t create a compelling argument to free up a lot more land for sprawl. Although getting rid of the Rural Urban Boundary will certainly make it easier, no doubt.

I like getting rid of minimum floor areas for apartments though 

I am happy to be short term NZ Cash here, will move to equities once the dust settles.

‘The CBO has raised the US government's deficit forecast for Fiscal Year 2024 from $1.5 trillion to $1.9 trillion, or 6.7% of GDP.

This would be the highest deficit since 2021 when the deficit hit $2.8 trillion in response to pandemic lockdowns.

By 2034, the deficit is expected to reach $2.9 trillion or 6.9% of GDP, totaling a whopping $22.1 trillion over the 2025-2034 period.

The CBO projection also assumes that net interest will reflect over 50% of the budget deficit over the next decade. 

These numbers all assume no recessions and lower interest rates.

What happens if rate cuts are delayed and a recession hits?’

https://x.com/kobeissiletter/status/1805224314620235814?s=46&t=MUwQeKa7…

Feedback loop could get nasty..

1. Rates rise

2. Landlords increase rents to cover increased costs.

3. Tenants demand higher wages to pay for higher rents.

4. Businesses increase prices of goods and services to cover increase wage costs.

5. RBNZ receives higher CPI reading so they increase OCR.

6. Mortgage rates rise and landlords expenses increase again..(and continue back to point 2 again). 

It was easy to see this awful train wreck coming a year and a half ago. Many businesses and people are really starting to struggle now.

I think the OCR is going to have to be cut repeatedly between late 2024 and late 2025. Could be as low as 3% by late 2025. 

Yep I think we need to tread lightly . I think some folk have yet to grasp that  risk is growing. I dont think theres any chance of seeing an OCR cut this year at all. The better position is to not expect or rely on any easing from my viewpoint. 

Don't panic. It's just a transitory recession.

Who cares about the collateral damage currently going on; it's all about that 6% non tradeables. 

But, you know, it's painless when you're setting interest rates on a multiple six figure salary and no debt.

Perhaps businesses need to realise that they can't keep importing things form China and upping the price more and more in NZ, when the consumer can get the same items online at 1/8 the cost if they're willing to wait a week or two. Convenience is coming at an ever increasing price in NZ that many simply aren't willing to pay.