The Hoon

TLDR: The five signals I picked out from the noise this week were:

* Reserve Bank Governor Adrian Orr’s second term is hanging in the balance as he scrambles to drag inflation down and have some sort of outside review before March;

* A call from the Human Rights Commissioner for a rent freeze and an increase in the accommodation supplement exposed again the Government’s lack of a housing affordability target to hold it accountable;

* Fresh emissions reductions commitments without funded investment plans from the Auckland and Wellington City Councils exposed again the performative nature and magical thinking behind central and local Government climate pledges;

* China eased monetary policy after surprisingly weak factory output and consumer spending figures for July, adding to the recessionary forces building in the global economy that are expected to drag inflation lower later this year.

* China increased subsidies for coal-fired power stations to offset lower hydro-power output caused by climate-change-driven droughts, showing how hard it is for even the last democratic emitters to avoid short term-thinking to solve a long term problem.

I co-hosted our weekly live ‘hoon’ webinar for over 100 paying subscribers with Peter Bale at 5pm on Friday night to talk about these events of the week and others with special guest Raf Manji, who is the leader of The Opportunities Party. The audio from the webinar is in the podcast above for all subscribers immediately as part of this weekly summary and sampler of the week’s news and my work this week on The Kaka.

In particular, we talked about

* The Reserve Bank’s rate hike and the challenges it faces reassuring politicians and voters that it needs to remain independent;

* the threat to local democracy from the slate of Voices For Freedom candidates in this year’s council elections;

* the risks of a new Chernobyl-style nuclear catastrophe at the Zaporizhzhia power plant in Ukraine;

* TOP’s proposal for a residential land value tax.

A reminder to free subscribers reading here that we have a special $30 a year deal for under 30s and anyone on a benefit. We also have a new special $65 a year deal for over 65s who are renting and reliant on NZ Superannuation. Any students, teachers and staff who signs up to the free tier with a .school.nz or .ac.nz email address will also be comped up to the full paid tier for free.

This week’s five signals from the noise

Adrian Orr refused to say if he wanted a second term

The Reserve Bank hiked the Official Cash Rate by 50 basis points to 3.0% as expected on Wednesday and forecast it would raise it to around 4.0% by the end of the year. That didn’t surprise anyone in financial markets or change fixed mortgage rates.

The hottest questions at the news conference with the quarterly August Monetary Policy Statement were around the criticism of the Reserve Bank’s performance and whether Governor Adrian Orr wanted a second term. His current five-year term expires at the end of March and a second-term would potentially see him having to serve under a Government run by National and ACT, both of whom have been sharply critical of the bank and Orr.

Orr refused to say whether he wanted a second term, even though Finance Minister Grant Robertson has expressed confidence in him and has said he is working with the Reserve Bank board on the details of the reappointment. National has called for an independent inquiry into the bank’s performance before any decision on Orr’s reappointment.

Orr used the news conference to frame an ongoing Reserve Bank-commissioned review of the central bank’s operation of monetary policy as enough of a review. In particular, he pointed to a part of the review being done by independent overseas experts, former Reserve Bank of Australia monetary policy board member (2001-2011) Warwick McKibbin and former Bank of Canada Deputy Governor Larry Schembri (2013-2022). Here’s my fuller report and analysis in Thursday’s Dawn Chorus.

Where’s the affordability target?

Human Rights Commissioner Paul Hunt called this week for a new rent freeze and an increase in the Accommodation Supplement. Housing Minister Megan Woods responded with a list of the Government’s actions to increase housing supply and reduce demand from rental property investors.

I focused in Wednesday’s Dawn Chorus on why the Government’s failure to identify a house-owning and rental affordability target (something like three times income for owning and 30% of disposable income for renting) makes that list a pointless exercise because its impact cannot be measured or the Government held accountable.

Who do they think they’re kidding?

Auckland Council agreed this week to a Transport Emissions Reduction Pathway that reduces climate emissions by 64% by 2030. The plan requires:

* a 10-fold increase in walking, cycling and scooter use;

* a six-fold increase in bus, ferry and train use;

* EVs to be responsible for 32% of total vehicle kilometres travelled by 2030; and,

* reductions in freight emissions of 45% by 2030, aviation emissions reductions of 50% by 2030 and shipping emissions reduction of 50% by 2030.

Two things are required to make this work: congestion charging and an awful lot of new central Government funding, neither of which have been agreed. These are easy things for an outgoing Mayor and a bunch of councillors to say with a couple of months left on their term.

China’s economy is slowing fast, which will help reduce inflation

China’s central bank eased monetary policy unexpectedly this week after the world’s second largest economy reported factory production fell and consumer spending growth was weaker than expected because of Covid lockdowns and cooling demand for exports.

Along with easing economic growth in the United States and Europe, China’s slowdown is taking pressure off inflation and encouraging financial markets to think the US Federal Reserve will have to start cutting interest rates next year. The Fed is not saying that though, potentially creating a dangerous gap between market expectations and central bank actions.

China lifts coal subsidies to offset climate-caused cuts in hydro-power

I wrote in Friday’s Dawn Chorus about China’s decision to increase subsidies for coal-fired power plants to help them cope with electricity shortages because of a drought in China’s south-western province of Sichuan.

China is doing what most of the world is doing right now in the face of intense short term financial and climate pain. It is turning to the short-term tools it has to deal with the short-term pain, even though it knows it will make the long-term problem of climate change worse in the long-term. Politicians, even the ones in undemocratic dictatorships, are afraid of the short-term consequences of unhappy voters and citizens having to cope with short-term pain.

Ka kite ano

Bernard

TLDR: The five signals I picked out from the noise this week were:

* China only rattled its sabres in the Taiwan Strait;

* There was no inflation in the United States in July;

* House prices are bottoming out in Auckland City and Wellington City;

* Christopher Luxon failed his first candidate selection test; and,

* An Auditor General’s report exposed Three Waters’ democratic deficit.

I co-hosted our weekly live ‘hoon’ webinar for over 100 paying subscribers with Peter Bale at 5pm last night to talk about these events of the week and others with special guests University of Victoria Foreign Affairs Associate Professor Jason Young to talk about. The audio from the webinar is in the podcast above for all subscribers immediately as part of this weekly summary and sampler of the week’s news and my work this week on The Kaka. It usually goes out every Saturday morning for your weekend reading and listening pleasure.

In particular, we talked about

* a proposed select committee inquiry into the Government’s financial response to Covid and how Labour’s rejection of it shows the weaknesses of our limited democratic protections;

* the Government’s Reshaping Streets proposal to encourage the swapping of cars for walking and cycling, which National has called a ‘war against cars’; and,

* China’s angry (but so far not destructive) military response to Nancy Pelosi’s visit to Taiwan, and the intensifying conflict in Ukraine.

This is my weekly summary and sampler of the news of the week on The Kākā for both free and paid subscribers. The public interest journalism I do daily on housing unaffordability, climate change inaction and poverty reduction is possible with the support of paid subscribers. Join our community by subscribing in full.

A reminder to free subscribers reading here that we have a special $30 a year deal for under 30s and anyone on a benefit. We also have a new special $65 a year deal for over 65s who are renting and reliant on NZ Superannuation. Any students, teachers and staff who signs up to the free tier with a .school.nz or .ac.nz email address will also be comped up to the full paid tier for free.

This week’s five signals from the noise

Luckily, China only rattled its sabres in the Taiwan Strait

China reacted angrily to last week’s visit to Taiwan by US Speaker of the House of Representatives, Nancy Pelosi, by staging its most intense series of drills, test missile firings and naval manoeuvres in the Taiwan Strait in almost 30 years. Chinese fighter jets, bombers and warships repeatedly crossed the median line between China and Taiwan and probed its defences. China also fired ballistic missiles over Taiwan and into the seas near Japan.

But the United States was careful not to send its carrier group nearby into the Taiwan Strait and, somehow, these drills and counter-drills passed by without any accidents or actual clashes. We all dodged a big bullet. China declared the exercises over this week, avoiding the prospect of a full blockade of shipping or air traffic in this key pathway for much of the world’s shipping.

Aotearoa-NZ also managed to avoid further inflaming China by calling only for diplomatic moves to de-escalate tensions. Our public comments were less openly supportive of Pelosi’s move and Taiwan than Australia’s. China’s diplomats said this had set back efforts to warm relations with Australia’s new Labor Government, which had initially improved since its election in May.

“I think my personal understanding is that once Taiwan is reunited, coming back to the motherland, there might be a process for the people in Taiwan to have a correct understanding of China about the motherland.” China’s ambassador to Australia, Xiao Qian, speaking at the National Press Club in Canberra, where he said there was no room for China to compromise on Taiwan and suggested re-education for Taiwan’s people after reunification. The Guardian

There was no inflation in July in the United States

The Consumer Price Index in the world’s biggest economy was flat in the month of July and the annual US inflation rate fell to 8.5% from 9.1% in June. This data released on Wednesday night was lower than expected and sparked rallies on stock and bond markets as investors hoped it meant the pain of higher interest rates would be not need to be quite so painful.

This was a big deal in the global economy and reinforced the hopes of those in ‘Team Transition’, including me, that global inflationary pressures have peaked and central banks won’t have to hike short term interest rates too much to get inflation back down to around 2% in the next couple of years.

I wrote in depth about this in Thursday’s Dawn Chorus, which included my podcast version that talked through the underlying reasons why disinflationary forces would eventually overwhelm the inflationary spikes of 2021 and 2022.

House prices are bottoming out in Auckland City and Wellington City

The Real Estate Institute of New Zealand (REINZ) published its sales data for July on Thursday, which was reported more broadly as showing a housing market in virtual free-fall mode. The slightly panicky tone of the coverage elsewhere suggested the figures were just the beginning of a slide that could turn uglier.

Actually, I think they showed the beginning of the end of a 15-20% fall in house prices nationally this year from their peaks in October and November of last year. Prices have begun bottoming out in the ‘bleeding edges’ of the market in central Auckland and Wellington. Prices in Auckland City are now down 17.2% from their November peak and Wellington City prices are now down 18.8% from their October peak, although they bounced 2.4% in July from June. Wellington City’s peak-to-trough fall was 20.1%. The rest of the country is still catching up.

Interest rates have stopped rising, migration is restarting and many investors are becoming more hopeful of a change of Government late next year, which would see interest serviceability, ring-fencing and bright-line taxes repealed, along with a softening of expensive rules forcing landlords to make homes warmer. I wrote in depth in Friday’s Dawn Chorus about why we’re likely to see a rebound from late 2023.

Christopher Luxon’s failed his first candidate selection test

Late on Monday afternoon Kirsty Johnston reported via Stuff that new National MP for Tauranga, Sam Uffindell, violently assaulted a fellow Kings College boarding school student in 1999. The former banker had apologised to the victim last year before standing in the by-election to replace Simon Bridges in the safe seat. Uffindell also told the selection committee about the assault and apology, but the committee including then President Peter Goodfellow, new President Sylvia Young and senior MP Todd Barclay, chose not to tell National’s delegates selecting the candidate or Luxon. Barclay told staffers in Luxon’s office, but they didn’t tell Luxon, Luxon said.

Luxon initially defended Uffindell to the hilt as a ‘changed man’ all through interviews and standups on Tuesday, until new allegations of bullying and flat-trashing emerged that evening via RNZ. Luxon then suspended Uffindell via email at 11.21 and set up a two-week inquiry by QC Maria Dew.

I wrote in Tuesday’s Dawn Chorus about Christopher Luxon’s failure to choose a good candidate at his first attempt under reformed selection rules, and the problems he now has with the National Party outside Parliament, given Peter Goodfellow remains a board member and Sylvia Young was Goodfellow’s pick and now President.

"I'm very confident we'll get a great candidate in Tauranga - we've got a great local organisation, and they'll have a great selection I'm sure." Christopher Luxon on March 24 rolling out a new selection process called 'National 101' to get better candidates for Parliament.

TLDR: This week, National called for an independent review of the Reserve Bank’s unleashing of a ‘tidal wave of cash’ during Covid after a former Governor joined a chorus of critics, which Finance Minister Grant Robertson dismissed as ‘hindsight economics’.

Also in the news in global geo-politics and our political economy:

* China warned the United States it was ‘playing with fire’ by planning to send House Speaker Nancy Pelosi to Taiwan;

* Russia halved its gas supplies to Europe, forcing it to plan voluntary consumption cuts of 15% that economists see as recessionary;

* the US economy entered a technical recession, which stock investors celebrated because they think it means the US Federal Reserve won’t have to hike interest rates quite so much; and,

* Democratic Senator Joe Manchin backflipped on his opposition to higher taxes on US companies and hedge fund managers to pay for climate emissions reduction measures.

In this week’s ‘hoon’ webinar for paid subscribers to The Kaka at 5pm yesterday, I discussed these and other events with co-host Peter Bale and special guest Josie Pagani. The audio of the hour-long webinar is in the podcast above.

Elsewhere in the hoon above, we talked about Russia’s decision to end the International part of the International Space Station and the death of James Lovelock. Here’s Peter’s Weekly World Bulletin email newsletter for more background.

The highlights on The Kaka this week

In Monday’s Chorus, I made the case for profitable and dividend-paying companies to repay the remaining $19b of their Covid wage subsidies and for the beneficiaries of over $500b of land appreciation paying a Covid windfall tax.

In Tuesday’s Chorus, I covered former Governor Graeme Wheeler’s criticism of the Reserve Bank, including a pointer back to my call last week for a full independent review of its operation of monetary policy.

In Wednesday’s Chorus, I looked at National’s call for a review and why it had put Governor Adrian Orr’s reappointment for a second five-year term from the end of next March in doubt.

In Thursday’s Chorus, I dived into the positive reaction to the Fed’s second consecutive 75 basis point hike this week and why global investors and traders are now betting on a soft landing for the US economy.

In Friday’s Chorus, I covered the US economy’s surprise fall into a technical recession in the June quarter, and what that might mean for interest rates and house prices here in Aotearoa-NZ.

This is my weekly summary and sampler of the big news of the week we’ve covered on The Kākā for both free and paid subscribers. The public interest journalism I do daily on housing unaffordability, climate change inaction and poverty reduction is possible with the support of paid subscribers. Join our community by subscribing in full.

A reminder to free subscribers reading here that we have a special $30 a year deal for under 30s and anyone on a benefit. We also have a new special $65 a year deal for over 65s who are renting and reliant on NZ Superannuation. Any students, teachers and staff who signs up to the free tier with a .school.nz or .ac.nz email address will also be comped up to the full paid tier for free.

TLDR: This week, Aotearoa-NZ’s annual inflation rate rose more than expected to 7.3%, which restarted the debate about who was to blame and what should be done about it, as I wrote in Tuesday’s Chorus. Meanwhile, Europe finally tightened its monetary policy, but faces the potential for another debt crisis, as I wrote in Friday’s Chorus.

In the climate crisis, I wrote in Monday’s Chorus about performative declarations of climate emergencies by politicians and why they can’t now be trusted. In Wednesday’s Chorus, I wrote about growing fear of another house-building bust and why that’s both a long term problem and a symptom of our political economy’s structural failings.

In Friday evening’s live hoon webinar for paid subscribers, which is in recorded form above for all subscribers, I took a lap around these issues and more in geopolitics and the global economy with co-host Peter Bale.

We talked about:

* who Liz Truss is and why she might become Britain’s next Prime Minister;

* how the ground war in Ukraine is now playing out;

* whether inflation is really peaking;

* whether the Reserve Bank here can be blamed for high inflation;

* how the Auckland Mayoralty campaign is playing out.

Here’s Peter’s Weekly World Bulletin email newsletter for more background.

This is my weekly summary and sampler of the big news of the week we’ve covered on The Kākā for both free and paid subscribers. The public interest journalism I do daily on housing unaffordability, climate change inaction and poverty reduction is possible with the support of paid subscribers. Join our community by subscribing in full.

A reminder to free subscribers reading here that we have a special $30 a year deal for under 30s and anyone on a benefit. We also have a new special $65 a year deal for over 65s who are renting and reliant on NZ Superannuation.

TLDR: This week, demands to loosen restrictions on bringing in migrant workers grew to a crescendo amid widespread delays, cancellations and employer concerns about wage inflation. In Thursday’s Chorus, I looked at whether a loosening is a good idea on its own, and what a bipartisan deal on migration along with infrastructure spending should look like.

Also, the Reserve Bank hiked its official interest rate as expected and house prices kept falling, but I took a closer look in Wednesday’s Chorus at the central bank’s $12.7b worth of cheap loans for banks, which are diluting the effects of its tightening and giving already-very-profitable banks a taxpayer subsidy.

I also challenged the assumptions about our ‘squeezed middle’ in Friday’s Chorus and detailed in Tuesday’s Chorus how our bi-partisan 30/30 mantra on public debt and the size of Government is sucking our future dry. In Monday’s Chorus, I looked at how a pathway to citizenship for New Zealanders living in Australia would expose employers here to much more ‘brain drain’ pressure.

In Friday evening’s live hoon webinar for paid subscribers, which is in recorded form above for all subscribers, I took a lap around these issues and more in geopolitics and the global economy with co-host Peter Bale and special guest Professor Robert Patman from the University of Otago.

We talked about:

* Sri Lanka’s political and economic implosion;

* what Boris Johnson’s departure might mean for Aotearoa-NZ; and,

* How the Pacific Islands Forum went and why China may have over-played its hand in the Pacific.

Here’s Peter’s Weekly World Bulletin email newsletter for more background.

This is my weekly summary and sampler of the big news of the week we’ve covered on The Kākā for both free and paid subscribers. The public interest journalism I do daily on housing unaffordability, climate change inaction and poverty reduction is possible with the support of paid subscribers. Join our community by subscribing in full.

A reminder to free subscribers reading here that we have a special $30 a year deal for under 30s and anyone on a benefit. We also have a new special $65 a year deal for over 65s who are renting and reliant on NZ Superannuation.

TLDR: This week PM Jacinda Ardern pushed back at talk Aotearoa-NZ has joined the ‘west’ too strongly in a new cold war between the United States and China, British PM Boris Johnson (finally) resigned (sort of) and former Japanese PM Shinzo Abe was shot and killed.

Closer to home, two-year mortgage rates were cut 30-40 basis points to around 5.45%, commodity prices fell again as global recession fears mount, and consumer confidence here slumped despite record-low unemployment and household income growth actually being more than than the CPI inflation rate.

Also:

* the Infrastructure Commission told the Government and Wellington’s Councils that their choice of $7.4b of tunnels for ‘Lets Get Wellington Moving’ was not the best option for reducing carbon emissions, although the Councils approved it anyway; and,

* the Government announced plans to appoint a single Grocery Commissioner inside the Commerce Commission in the hope of doing a ‘2 Degrees’ on the groceries duopoly of Foodstuffs (Pak’n’Save/New World/Four Square) and Woolworths (Countdown).

In Friday evening’s live hoon webinar for paid subscribers, which is in recorded form above for all subscribers, I took a lap around these issues and more in geopolitics and the global economy with co-host Peter Bale and special guests Professor Robert Patman from the University of Otago and ANZ economist Finn Robinson.

We talked about:

* British PM Boris Johnson’s demise (finally);

* PM Jacinda Ardern's two big foreign policy speeches at Chatham House in London and the Lowy Institute in Sydney, which struck different tones on China, Russia and our independent foreign policy;

* Shinzo Abe’s assassination;

* the unprecedented joint warning in public from the bosses of MI5 and FBI to business leaders in a speech in London warning of China's corporate espionage; and,

* a preview of next week’s Pacific Islands Forum, where China’s recent attempt to pull various Island nations into its sphere of influence will be at the top of the agenda, along with how Australia, Aotearoa-NZ and the United States can do more on climate change and elsewhere to push back.

Also, I talked with Finn Robinson about the curiously weak noises coming from consumers, despite unemployment being at 3.2% and household incomes actually outpacing inflation in consumer prices. Finn wrote this excellent note this week on the issue.

Here’s the charts we refer to in the podcast. Firstly, this one showing how divergent confidence is from unemployment.

And then this one showing how spending isn’t quite as depressed as confidence. At least yet.

Peter and I also discussed:

* the big four banks cutting their two year mortgage rates by around 30-40 basis points to around 5.45% after two year wholesale ‘swaps’ rates fell 80 basis points from their June 16 peak of 4.56% in response to cooling global economic growth and inflation expectations in recent weeks; and,

* the fall in commodity prices to pre-war levels as fears grow that the ‘demand destruction’ from inflation’s post-war spike and much-higher interest rates are doing the central banks’ work for them.

There’s more on those interest rate moves here from me earlier in the week.

Earlier in the week, I looked in depth at the move to create a new Groceries Commissioner inside the Commerce Commission.

I also covered another survey showing the depth of hopelessness among young renters.

This is my weekly summary and sampler of the big news of the week we’ve covered on The Kākā for both free and paid subscribers. The public interest journalism I do daily on housing unaffordability, climate change inaction and poverty reduction is possible with the support of paid subscribers. Join our community by subscribing in full.

A reminder to free subscribers reading here that we have a special $30 a year deal for under 30s and anyone on a benefit. We also have a new special $65 a year deal for over 65s who are renting and reliant on NZ Superannuation.

TLDR: This week PM Jacinda Ardern signed a trade deal with the European Union and gave an historic speech to NATO’s summit in Madrid, which edged Aotearoa-NZ ever closer to the US-led alliance lining up against Russia and China. In response, our largest trading partner called the speech wrong and unhelpful.

Also, business and consumer confidence here slumped again and the Reserve Bank’s new Chief Economist said he was hopeful the tide was finally turning against the housing market’s one-way bet. House prices have fallen 7% from their peak in November and the central bank sees a 15% fall from peak to trough over the next year.

In Friday evening’s live hoon webinar for paid subscribers, which is in recorded form above for all subscribers, I took a lap around these issues and more in geopolitics and the global economy with co-host Peter Bale.

This is my weekly summary and sampler of the big news of the week we’ve covered on The Kākā for both free and paid subscribers. The public interest journalism I do daily on housing unaffordability, climate change inaction and poverty reduction is possible with the support of paid subscribers. Join our community by subscribing in full.

A reminder to free subscribers reading here that we have a special $30 a year deal for under 30s and anyone on a benefit. We also have a new special $65 a year deal for over 65s who are renting and reliant on NZ Superannuation.

The Five Things that changed this week

The PM called out China in her NATO speech

Prime Minister Jacinda Ardern called in a speech at a NATO summit for the alliance to stand firm against China’s newly assertive approach in the Pacific and again pointed to China’s human rights abuses. This followed Aotearoa-NZ joining a new aid and cooperation grouping formed by Australia, the United States and Japan called the Partners in the Blue Pacific (PBP).

In turn, NATO named China as a significant challenge in its new statement of strategic intent and lumped China in with Russia.

“The deepening strategic partnership between the People’s Republic of China and the Russian Federation and their mutually reinforcing attempts to undercut the rules-based international order run counter to our values and interests.” NATO in its new strategic statement agreed at a summit in Madrid.

China called Ardern’s comments ‘wrong and regrettable’

In response to all of this, China’s Embassy in Wellington stated Ardern’s speech was ‘misguided, wrong and regrettable.’

“It is obvious that such comment is not helpful for deepening mutual trust between the two countries, or for the efforts made by the two countries to keep our bilateral relations on the right track.” China Embassy statement

Aotearoa NZ signed a trade deal with the European Union

Ardern announced a last-minute trade agreement with the EU that will dramatically improve access for our kiwifruit, fish and honey exports, but has disappointed meat and dairy exporters. Overall, the deal is expected to increase exports to Europe by $1.8b by 2035, with up to $600m extra in meat and dairy exports.

But meat and dairy exporters were unhappy the deal was accepted, but Ardern may have decided the winds were blowing against and improvement and some sort of deal was needed, just in case our largest trading partner decided to restrict access.

RBNZ said it hoped the housing obsession tide has turned

The Reserve Bank’s new Chief Economist Paul Conway talked hopefully about the chances the tide is turning on the ‘one-way bet’ for housing as an investment because interest rates are rising, houses are being built, tax rules have been tweaked and migration is low. I’m not so sure and made my case in Friday’s Chorus.

Councils prevaricated again on transport and housing

Auckland Council voted to protect 15,000 villas in central suburbs from intensification, Stuff’s Todd Niall and the NZ Herald’s Bernard Orsman reported this week. Meanwhile Wellington City Council voted this week to water down its intensification plans, The Spinoff’s Jacob Flanagan reported.

Earlier in the week, the Government and the Wellington Council announced a preference for $7b worth of road tunnels and (possibly) a light rail line to Island Bay some time in the next 20 years, although no money was allocated or final decisions taken.

These performative announcements and council set pieces all disguise the unwillingness of central and local Government to take on higher debt and use higher taxes to pay for the transport and water infrastructure needed to underpin new house building. The National and Labour parties have agreed over the last 30 years to keep net Government debt and tax at around 30% of GDP and to keep capital gains on owner-occupied residential land tax free. Significant infrastructure investment and a shift away from the ‘one way bet’ is not possible without a change in that consensus.

These performative announcements also disguise that central and local Governments don’t have social licenses to reconfigure roads for rail, walking and cycling, or intensify housing zoning in a way to enable housing supply growth.

Median-voting homeowners and voting ratepayers don’t want new development near them or the bills that come with that, but they do like the house price and low-wage benefits that come with high population growth that is not catered for.

Other places I’ve been this week

The agreement I have with paid subscribers is to spread my public interest journalism around onto as many publicly available platforms as possible after publishing it and including it on podcasts put out here via The Kākā. That means I often agree to go on television and radio to talk about these issues, in particular housing unaffordability, inequality and poverty.

This week I talked through my idea for a Matariki account using a new central bank digital currency with Wallace Chapman on RNZ on Tuesday.

On Friday, I put out this week’s episode of When The Facts Change with The Spinoff.

Last night I was interviewed for Newshub on TV3 about this tweet I sent out on why so many young renters are looking to move to Australia.

I referred in the tweet to this chart showing a surge in job advertisements in Australia.

Have a great weekend

Ka kite ano

Bernard

TLDR: This week the US Federal Reserve hiked its key interest rate by a super-sized 75 basis points to fight inflation running at 8.6%. That unleashed fresh mayhem on global markets, including another slump in shares into bear market territory and the collapse of crypto-lender Celcius. Bitcoin fell more than a third.

Meanwhile, house prices in Aotearoa-NZ fell again, including Auckland City’s median price falling $360,000 or 23% in six months, the chances of a recession here rose and the Gib crisis morphed into shareholder complaints to Fletcher Building’s CEO. PM Jacinda Ardern replaced Building and Construction Minister Poto Williams with Housing Minister Megan Woods to deal with the crisis. Williams was also replaced by Chris Hipkins as Police Minister.

In this week’s live hoon webinar for paid subscribers, which is in recorded form above, Peter Bale and I talk with special guests independent economist Rodney Jones and Easy Crypto CEO Janine Grainger.

This is my weekly summary and sampler of the big news of the week I’ve covered on The Kaka for both free and paid subscribers. The public interest journalism I do daily on housing unaffordability, climate change inaction and poverty reduction is possible with the support of paid subscribers. Come and join our community by subscribing in full. Our full subscribers have allowed us to make The Kākā fully free for students, teachers and those working for advocacy groups and political parties in these areas. Anyone in these groups should just sign up to the free tier with their work, school, university, polytechnic or advocacy group emails and we’ll convert you to the full paid tier behind the scenes.

A reminder to free subscribers reading here that we have a special $30 a year deal for under 30s and anyone on a benefit. We also have a new special $65 a year deal for over 65s who are renting and reliant on NZ Superannuation.

The five things that changed this week

The Fed’s super-sized rate hike

The US Federal Reserve announced a 75 basis point rise in its official cash rate to a range of 1.50% to 1.75%, which was its biggest official interest rate hike since 1994. Global stocks fell sharply before and after the hike, which only a week earlier economists had expected to be a 50 basis point hike. The difference was surprisingly hot inflation data last Friday night showing US CPI inflation of 8.6% in the year to May.

Now we’ll find out how much pain the US economy and global markets can take before the Fed and other central banks have to stop the tightening, or even resume the money printing, as they have done repeatedly over the last decade whenever they tried to force investors to go ‘cold turkey’ on the easy and cheap money.

The Federal Reserve appears determined to squash inflation rather than rescue investors again, but the European Central Bank showed on Wednesday it doesn’t have the same resolve. Having only just signalled last week it would stop printing this month and would hike from below 0% next month, the ECB held an emergency meeting and pledged to keep printing to buy Italian and Greek Government bonds to stamp on a threatened return of the repeated European debt crises seen from 2009 to 2012.

We talked with Rodney Jones about the dramas through the week on global markets, and also looked again the Reserve Bank’s decision to keep lending at cheap rates to banks here, and to slowly unwind its money printing from 2020 and 2021.

Crypto-currency lender Celsius collapsed and Bitcoin fell almost a third

Celsius, an unregulated bank of sorts that lent crypto-currencies to crypto startups at double-digit interest rates, collapsed after a classic run on the bank. It froze withdrawals and is now trying to work out where the collateral for its loans is and whether it can pay back the crypto-currencies it has lent. Fellow crypto lender Babel Financial also blocked withdrawals and crypo-investing hedge fund Three Arrows Financial collapsed.

The collapses comes after the implosion of the Terra-Luna stable coin complex a month ago and coincided with near 30% fall in Bitcoin to a key support level at US$20,000 on Friday. We talked late on Friday with Easy Crypto CEO Janine Grainger on the hoon about the events in global crypto markets and how it had affected traders in Aotearoa-NZ.

Bitcoin fell another 15% to US$17,616 on Sunday morning.

House prices kept falling in Aotearoa-NZ

The Real Estate Institute released sales volumes and prices data for May showing prices nationwide down 6.0% from the peak in November to where they were in June 21. Prices, as measured by the REINZ’s House Price Index, were down 13.3% in Auckland City to where they were in October 2020. Prices were down 15.8% in Wellington City to where they were in October 2020.

In median price terms, Auckland City’s median price has fallen by $360,000 or 23% from a peak of $1.54m in November to $1.18m in May. The median price isn’t as representative a measure as the House Price Index because a change in the type of properties sold can skew the figures. For example, a surge in the sale of apartments relative to larger houses would skew the numbers lower. But still, that’s a loss of $60,000 a month or $2,000 a day.

In Wellington City, the median price fell 14.6% to $988,000 in May from a peak of $1.157m in October.

The Gib crisis moves to Fletcher Building’s board room

After last week’s loudly-announced decision by Simplicity Living to dump Fletcher Building as its plasterboard supplier, Fletcher Building’s Wallstone Wallboards announced it would import one million square metres of plasterboard that would be available from July. The imports by the maker of Gib, which has a 94% market share, represents an increase of about 7-8% of annual supply.

By Thursday, MBIE and Auckland Council were reassuring ministers and the public that the largest consenter was approving non-Gib plasterboard. By Friday, the Shareholders Association and Simplicity, which owns 0.8% of Fletcher Building worth $35m, met in person with Fletcher CEO Ross Taylor. It didn’t go well from the shareholders’ point of view.

A recession in Aotearoa-NZ by the end of 2022?

Stats NZ reported this GDP fell 0.2% in the March quarter and was up 1.2% in Q1 from the same quarter a year ago. GDP in the year to the end of the March quarter was up 5.1%. The result was below market expectations that ranged from no growth to as high as 0.7% growth by the Reserve Bank in its April Monetary Policy Statement. Covid illness and the after-affects of the lockdowns in the second half of 2021 were blamed.

Economists said the result hadn’t changed their views on what the Reserve Bank would do with the Official Cash Rate on July 13 because the labour market and inflation pressures remained very tight. They still see another 50 basis point hike to 2.5%, although markets have been flirting with the prospects of a 75 basis point hike in recent days.

Most see GDP rebounding around 1.0% in the June quarter to avoid the technical definition of a recession, which is two quarters of lower GDP in row. However, BNZ Economist Stephen Toplis said on Thursday a mild recession was possible later this year.

Other places I’ve been this week

Part of the deal I have with paid subscribers is that I’ll spread my analysis and reporting on the economy, housing, climate and poverty as widely as I can through interviews and panel appearances on publicly available media, such as Newshub’s The Nation, Waatea News, my When the Facts Change podcast via The Spinoff and The Working Group.

Ka kite ano

Bernard

TLDR: This week our Reserve Bank detailed its plans to slowly unwind its $55b of Covid-era money printing, the European Central Bank finally stopped its money printing to fight inflation of over 8%, the United Nations warned the war in Ukraine was unleashing a global hunger and poverty catastrophe, and Simplicity Living cancelled its orders to buy Gib from Fletcher Building.

Elsewhere: US inflation figures overnight was higher than expected, which triggered another slump in share prices and fears the US Federal Reserve will have to hike interest rates much faster and higher than previously thought. Meanwhile, the Reserve Bank of Australia surprised most investors and economists earlier this week by hiking a full 50 basis points. That slammed Australian bank share prices and prompted ANZ to put up its mortgage rates here.

In this week’s live hoon webinar for paid subscribers, which is in recorded form above, Peter Bale and I talk with special guests Professor Robert Patman from the University of Otago about the latest geo-political news and Simplicity CEO Sam Stubbs about financial market ructions and Simplicity Living’s decision to cancel its orders to buy Gib from Fletcher Building.

This is my weekly summary and sampler of the big news of the week I’ve covered on The Kaka for both free and paid subscribers. The public interest journalism I do daily on housing unaffordability, climate change inaction and poverty reduction is possible with the support of paid subscribers. Come and join our community by subscribing in full. Our full subscribers have allowed us to make The Kākā fully free for students, teachers and those working for advocacy groups and political parties in these areas. Anyone in these groups should just sign up to the free tier with their work, school, university, polytechnic or advocacy group emails and we’ll convert you to the full paid tier behind the scenes.

A reminder to free subscribers reading here that we have a special $30 a year deal for under 30s and anyone on a benefit. We also have a new special $65 a year deal for over 65s who are renting and reliant on NZ Superannuation.

The five things that changed this week

The Reserve Bank confirmed a slow unwinding of its money-printing

The Reserve Bank detailed on Thursday its plans to unwind its $55b programme of money printing relatively slowly over the next five years to avoid disrupting the economy and asset markets. It also says it might have to print again and wants to sideline the issue of growing inequality between renters and home owners in its current review of monetary policy.

I argued in Friday’s Dawn Chorus that the Reserve Bank decisions in early 2020 to unleash a credit boom that inflated the housing market by 45% to save the economy should be reviewed with an eye on the long-term effects of money printing on inequality. Right now, both the Government and the Reserve Bank are hoping few will notice or care about the $1t transfer of wealth to asset owners engineered during Covid without debate.

Finally, the Europeans stopped printing

The European Central Bank took a hawkish turn against inflation on Thursday night, announcing after its monthly monetary policy meeting it would stop printing money later this month and hike next month by 25 basis points. That would be the ECB’s first hike in 11 years. Its main deposit rate is actually still -0.5%. The ECB said it expected to hike by more at its September meeting, which markets saw as meaning a 50 basis point hike is likely. It forecast inflation wouldn’t fall from 6.8% this year to its 2% target until well into 2024.

So what? - It’s astonishing to think that the ECB still hasn’t stopped quantitative easing yet, which means it is still creating its own cash to buy European Government bonds, especially the ones from the PIGS (Portugal, Italy, Greece and Spain). Remember the PIGS? And the ECB pledging in 2012 to do ‘whatever it takes’ to stop the euro zone breaking up? It’s still doing that, partly because that last rate hike in 2011 was premature and destabilised the euro zone economies. So that’s why the pivot to stop printing and start hiking overnight matters.

Behind the curve - For comparison’s sake, our Reserve Bank stopped printing money and buying bonds in the middle of last year and started hiking in October. Our official cash rate is now up to 2.0% and is expected be hiked by another 50 basis points on July 13. Our inflation is about the same as Europe’s, but our unemployment rate is half that of Europe’s at 6.8%.

Brace for fallout - Even the anticipation of this ECB pivot from very dovish to slightly hawkish has caused ructions in financial markets. That’s because the euro zone economies remain much weaker than others in the developed world and its banking system is still under-capitalised. The ECB also has to extricate itself from being the largest owner of PIGS bonds and avoid another Greek-style meltdown in financial markets. That’s why the ECB went out of its way in its statement overnight to reassure investors it would keep buying Greek bonds to stop another collapse.

Mamma Mia - Italy’s 10 year bond yield jumped 27 basis points to 3.68%. It has tripled in the last year. It has also risen sharply relative to Germany’s 10 year yield at 1.51%, which has itself risen faster in the last 90 days than at any time in this century. This gap or ‘spread’ between Italy’s 10 year yield and the German ‘bund’ is a key indicator of stress and fear inside Europe’s financial system. It rose to a two-year high this week. And then there’s the not-so-small matter of the most destructive war since World War Two raging on the edge of the euro zone…

On meltdown alert - Plenty of players in financial markets have feared some sort of repeat of the Global Financial Crisis at various points since the Covid pandemic broke out in February 2020. Central banks acted preemptively and globally to throw all sorts of money-printing kitchen sinks to avoid a repeat of the 2008 GFC, which forced central banks and Governments to bail out US banks and UK banks, and to prop up European banks. The US and British banks have since been reorganised and recapitalised, but the European banks have mostly just staggered on without having to have proper cleanouts.

The excuses evaporate - The ECB’s ‘whatever it takes’ interventions in 2012 helped the European banking system stave off its ‘Minsky Moment.’ Here’s a useful Enda Curran backgrounder via WaPo on what a Minsky Moment is. But those interventions through money printing to buy the weakest European government’s bonds and hold up their values on bank balance sheets was only possible because European inflation was painfully low and the ECB knew it could stimulate through money printing without having to worry about a damaging inflation breakout. Now there is nowhere for the ECB, European banks and the PIGS to hide. That’s why many fear this pivot to rate hikes and the end of ECB money printing could trigger a European version of the 2008 GFC. As if we (and the Europeans in particular) don’t have enough to worry about…

UN warns of global food and poverty catastrophe

‘A food catastrophe’ - The United Nations warned on Wednesday that the war in Ukraine and the after-effects of the Covid Pandemic had turned into a perfect storm of higher food, energy and finance costs for 1.2b workers. It issued a briefing note showing how higher energy and food costs, along with blockades on fertiliser and wheat exports via the Black Sea, could turn a food crisis this year into a food catastrophe next year.

UN Secretary General Antonio Guterres called again for a lifting of the blockades in the Black Sea and said the developed world would have to ensure emerging market debt crises can be resolved. See more below in chart and quote of the day.

“The cost-of-living crisis could spark a cycle of social unrest leading to political instability.” UN trade chief Rebeca Grynspan in a briefing note on what the UN calls the greatest cost of living cris…

TLDR: In the podcast above of this week’s ‘hoon’ webinar for paid subscribers, co-hosts Bernard Hickey and Peter Bale bring talk with special guests Robert Patman and Josie Pagani about China’s backlash against a strengthening of NZ’s security ties with the United States.

This is our weekly sampler email for both free and paid subscribers.

A reminder to free subscribers reading here that we have a special $30 a year deal for under 30s and that students and teachers should sign up for the free tier using their ‘school’ or ‘ac’ email addresses to get converted to the full subscription for free. And we have a new special $65 a year deal for over 65s who are reliant on NZ Superannuation.

Five things of note this week

Aotearoa-NZ strengthened ties with the United States

This week PM Jacinda Ardern met with US President Joe Biden in the White House. They talked about gun control, the Christchurch Call and trade, but most importantly they signed a detailed joint statement that was heavily critical of China in the Pacific and elsewhere, and which strengthened our security and defence ties with the United States.

China lashed back at the joint statement

Chinese officials attacked what they saw as a strengthening of our military ties with the United States and a ramping up of joint anti-China rhetoric in the strong joint statement. They suggested it might affect our trade ties.

Here’s what I wrote on Friday about the back and forth.

Cabinet threatened the grocery duopoly with a breakup

The Government threatened to break up the supermarkets duopoly if they don’t play nice with plans for mandatory wholesale access.

Here’s what I wrote on Tuesday.

The grocery duopoly’s oppressive lease clauses revealed

There were revelations that supermarkets on Thursday that the supermarkets duopoly have been using special clauses in leases to stop competitors in all sorts of retail categories being allowed into shopping centres.

Here’s the deep dive I published today on that.

Yet again, a sugar tax is rejected

Here’s the chorus I wrote on Thursday, which led with the latest research showing sugar taxes work to reduce consumption, but the Government continues to oppose them.

Ka kite ano

Bernard