RBNZ goes there

This level of spine shits all over ”backbone” Phil.

However, it will serve as a useful case study for Phil and the rest of the EZFKA complex – they will watch very closely what this does to NZ property prices and this will inform their future steps. Beyond that – I am, for now, without words.

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T

Could be worse. The implied fed rates out next two years from forwards look like arse.

On the plus side, better here in Au or NZ than in Europe. Those guys are f’ed so bad its unlikely that Nato will even survive, and the EU may splinter too.

Sucks to be a battler right now. Either (a) rising rates bankrupt you, or (b) currency debasement destroys your standard of living and your real wages fall.

Yay!

Reus's Large MEMBER

The elites will be fine and that is all that matters to them, sucks for the rest of us though.

Gouda

Nah, mortgage battlers can just rely on Clive and the UAP to fix rates at 3%.

We’ll soon see what the level of economic understanding in EZFKA is.

Aussie Soy Boy

I think 6-8% inflation will become the new 2-3% target. That’s how they’ll deal with this.

Aussie Soy Boy

Yeah, plus they can blame the pandemic, Russia, supply chains, the great resignation, etc for any sticky inflation for years to come.

It’s genius. Classic EZFKA solution. Just waiting for Uncle Sam to make the first move.

No other solution for the western world anyway but to shift their inflation target. You have unprecedented stimulus over the past two years, global shortages everywhere. Nominal rates were already negative in parts of the western world.

RBA rate is 0.1% with the worst inflation in the west for 40 years, and it’s been this way for the last 12 months now with no signs of abating. Probably should already be at 5% with half a percent increases at every meeting. The horse has well and truly bolted.

The90kwbeast

This is what makes my head explode. If the RBA actually gave a shit about inflation the cash rate would already be at least at 1% or more by now. Instead they don’t want to blink and are holding steady, hoping for the election to be over, not wanting to pop the bubble .. completely negligent.

Reus's Large MEMBER

No negligent, intentional, to their masters they are doing a wonderful job, keeping the housing bubble alive is a monumental task.

Coming

Peachy embraces mmt at last

The90kwbeast

Negligent to the bottom 75% income quartile then.

Gouda

They don’t give a toss at the RBA, and they’ll be long gone when the masses decide to string them up on lamp posts.

The90kwbeast

Indeed hence my point

Some unelected boffins half responsible for determining the fate of the economy, who can’t even manage inflation which is has been one of their key stated goals for decades.

Gruppenführer Mark

At 2% people somehow were able to adjust with no/low income growth. At 6 to 8%, it’s doubling the cost of living every 9-11 years! The wages will need to get above the anemic growth to keep up, this rate of increase is harder to hide, in my view. Once the wages start going up in earnest, the horse would have well and truly bolted.

Aussie Soy Boy

Read your post and subconsciously repeated your last line above lol.

You’re correct people are going to be squeezed a lot more over the next 5 years. People will be having to learn to live with less.

Gruppenführer Mark

I know a place
Ain’t nobody cryin’
Ain’t nobody worried
Ain’t no smilin’ faces
Mmm, no no
Lyin’ to the races

https://www.youtube.com/watch?v=eygGJHVvBxQ

robert2013

I got the feeling a while ago that Adrhern is following through on her 2017 election promises, and she is willing to hammer the house prices and lose the election to do it. The RBNZ has probably been waiting for the stars to align to enable this to occur. If she can keep a lid on immigration this will set the NZ people up for a much better economy longer term. If she can’t then none of it matters. Who cares about the future if your people aren’t in it?

Coming

Should be fine

like packing 4 jimmies into every room fixed the problem of rising house prices

so will eating soylent and cockroaches fix the food price problem

and wfh and closing borders will fix the oil price problem

wages never have to rise

I mean this is essentially the neoliberal solution – crush growth to keep inflation low

Last edited 1 month ago by Coming
Coming

8.5% increase above expected mortality without any covid cases

nothing to see here

canuckdownunder

Bank of Canada also increased 50 basis points overnight, consensus was that they were too slow to act and now need to go hard on rate rises to catch up. Expect another 50 point rise to follow. The longer the RBA waits the more fun this becomes.

Now that we’re at the stage where people are arguing that rate rises will support housing prices, this has to be the end, right? The plebs are fully saturated with debt, now the elites can turn the screws and drain them.

Last edited 1 month ago by canuckdownunder
canuckdownunder

I’m thinking about the scenario where the banks stop/reverse rate rises and it still doesn’t look pretty.

Without further rises in the great RE soufflé there’s no more equity to pump back into prices, and new entrants are stuffed because living costs leave them with nothing to save.

Maybe the doom and gloom merchants of 2007 were right, just 15 years too early. Don’t buy now!

emusplatt

beat me to it..
https://www.greaterfool.ca/

canuckdownunder

There’s a man I haven’t read in a while!

Random bits of anecdata:

– Over the last few weeks our letterbox has been spammed daily by local RE advertising. Has the Sydney market hit a wall? We rarely got any advertising before, have things gotten desperate quickly?

– At work I spoke with someone involved in property market modelling at one of the big 4. I asked him what they were looking at regarding interest rate rises and he said whatever you’ve heard, double it.

emusplatt

RBNZ will see housing conniptions and not have a care. NZ banks are EZFKA banks so EZFKA banks can suck up the underperformance….ie: EZFKA legazens can suck it up too

Freddy

I am noticing an increasing number of commentators suggest that house prices will not fall because existing mortgage holders being tested at 3% buffers. They have completely ignored new borrowers having reduced borrowing capacity.

There are also many mortgage holders who have lived beyond their means and only being allowed to Extend and Pretend whilst they have equity in their homes. IMO this is actually the biggest risk. If we do get any significant fall in house prices the number of people with zero/negative equity will rise and the banks could start to panic.

Anecdote. I know someone who purchased a house in inner west Sydney for $150k at the perfect time post-recession in early 90s. Paid it off quickly, lived it up buying racehorses, holidays, etc. Decided to spend ~$550k around 15 years ago to knock down and build a McMansion. They have been going backwards ever since because maintaining existing lifestyle is not negotiable. Banks have let it slide because house value now up over $2m. For the same reason this person was not concerned and planned to use the existing equity to buy a smaller/cheaper house outright in retirement. The last time I spoke to them they were getting nervous at the prospect of losing job and having to take a major pay cut in new job due to age. Still completely in denial about the prospect of property prices actually falling and ending up with little equity.

Freddy

Also the Wealth Effect disappearing or reversing. But I guess if this all reverses then so will the rate rises.

And I don’t think that anyone seriously expects there to be tens of thousands of mortgagee in possession sales in EZFKA.

I have repeatedly mentioned that the government has set us up for a retirement crisis with widespread retirees with zero/negative home equity. If that happens the only options are:

  1. banks kicking retirees out of their homes on a grand scale. Won’t happen
  2. Government or RBA taking over those toxic loans and letting retirees stay there (or in a downsized home) until they die.

I actually believe #2 is desirable for the elites. There seems to be intent to have retirees die off with zero equity rather than pass on inheritances. Let’s call it a 100% death tax that only applies to the peasants.

Reus's Large MEMBER

3) Let the death jabs do their job and there will be no retirees to worry about.

Coming

“But I guess if this all reverses then so will the rate rises.”

there it is

money can only be created through loans

and in Australia , loans are only created through mortgages

fewer loans fewer monies

fewer monies no inflation

no inflation lower rates

lower rates more loans

more loans more monies

more monies higher land prices

all they need to do is keep a lid on wages by ramping up immigration again

then the same ezfka units will simply live in a smaller house, or share with fellow units

Coming

This is very MB-style thinking Freddy

I could have read this from one of the imbeciles in the comment section there

the EZFKA way to think about this is – house prices won’t fall because they can’t

we start from that position and work backwards to imagine and understand the reasons why

Actually to be more specific, house prices won’t fall unless doing so would benefit the ruling class

so maybe it’s not quite as clear cut as I first implied
but it first requires a black rock type entity to benefit

in any case I don’t see the cash rate getting beyond 1%
the rba will drag their feet, and by then the world will be in recession, and jimmies pouring back into the country for their hair dressing degrees

inflation (not of wages) will have been “transitory” but the accumulated 30% increase won’t reverse

you will just get less for more

Your friend will sell his house and the new owner will build apartments , or several jimmies will share a room

Freddy

the EZFKA way to think about this is – house prices won’t fall because they can’t

The thing is EZFKA is no longer controlling their own destiny. It is even in your wording with permanent price rises eating into disposable income, and RBA only being able to limit short term rate rises if the rest of the world enters a recession in fairly quick time.

What if we were to get a perfect storm of the rest of the world not going into recession any time soon, and of course we will still have the muppets suppressing wages with jimmies? The RBA would be snookered. They would either have to continue raising rates, or the dollar would collapse and we would import price inflation. Either way that would reduce debt serviceability.

Recall a conversation we had with Peachy last year about extend and pretend. I think we all agreed that the banks would stop extending and pretending once equity evaporated. So what happens if prices fall far enough to collectively trigger the banking systems’ version of a stop loss?

Reus's Large MEMBER

Think of it like this, house prices must be protected at any cost, with that cost being borne by the younger generations.

Kill the kids to save granny, in this case burden the kids to save granny’s wealth and overseas’s holidays.

Coming

Rba is always in control of interest rates, as long as it’s willing to tolerate a lower AUD

fortunately global inflation is high because of commodity and food prices

and what does Australia produce in spades ?
commodities and food

the automatic stabiliser which will lift the AUD

it’s just never going to happen Freddy

this isn’t a natural system that has to return to equilibrium
the plutocracy is fully in control

Last edited 1 month ago by Coming
Freddy

Rba is always in control of interest rates, as long as it’s willing to tolerate a lower AUD

Higher rates eat into disposable income, lower AUD also eats into disposable income via inflation. Without wage inflation it becomes a case of picking your poison.

the automatic stabiliser which will lift the AUD

There are other major currency flows which affect the AUD. This is the first time in decades that we have had lower rates in Aus than o/s. Think about the investment side:

  • Foreign investment in Australian bonds. Not just government bonds. Think about all the bank bonds (offshore funding) used for mortgages. Banks only bothered borrowing offshore because the funding (rates) were lower o/s than here.
  • The same then applies to foreign investment in real estate and other assets with yields having increased o/s along with interest rates.
  • FX carry trade. The opportunity to make income by going long AUD vs other currencies is disappearing.
Last edited 1 month ago by Freddy
Coming

-Negative interest rate differential
-no foreign asset purchases

and the AUD is still at the upper limit of its usual band

when commodities go down again, so will global interest rates, and the interest rate differential will disappear

inflation keeps the AUD up so rba doesn’t have to

Freddy

inflation keeps the AUD up so rba doesn’t have to

Money markets predicting Aus will once again have the highest interest rates in the OECD in response to inflation.

It is already baked into the cake. We will have higher interest rates or a lower AUD.

Coming

Australia has amongst the lowest (reported) inflation in the world

why would we have the highest rates ?

Freddy

Ask the money markets:

comment image

Coming

How is this chart derived ?

From what inferred yield

my Belief is that it isn’t purely a prediction of where the overnight will stand in x months

but also reflects the opportunity cost of tieing money up (in an inflationary environment )

we all know the overnight rate isn’t going to be 3.5% in 12 months

https://www.commbank.com.au/content/dam/commbank/personal/apply-online/download-printed-forms/InvInterestRates_ADB1072.pdf

term deposits out to 5 years pay 0.25%

which shows you what fucking nonsense this is

Last edited 1 month ago by Coming
Coming

Right

but that doesn’t reflect expectations of what the RBA will make the overnight rate

it reflects the premium demanded for duration in a high inflation environment

the RBA gave up on yield curve control because it largely doesn’t matter

we have historically seen periods where inflation was very high but central banks kept overnight rates low regardless (eg WWII)

Coming

I’m assuming that when you say “fund” themselves, you are talking about collateral?

But why do banks need collateral?
For repo?

Why do they specifically need more long term bonds for that? And why do they need to pay more for long bonds when they can go to the overnight window if required?

Its basically what the TFF was – a guaranteed 3 year overnight rate
Doesn’t really matter what you call it

The point is that if the RBA wants to keep mortgage rates low, it can

High fixed rates is just opportunism from the banks – they know that people are going to start panicking with all the news in the media

AHPRA can also probably mandate a low spread if it really needed to (crimping bank profits)

Or the RBA could go full CBDC and offer variable interest rates directly to punters

The RBA is not going to “break”
It is just never going to happen
We will have inflation, and lower quality of life, and the 70% of people who are home owners will be grateful for it

Coming

Banks don’t “borrow” anything though, except reserves (or ES balances) from the rba or from each other

the TTF explicitly showed you who is really in control

“collateral” is for repo operations with the rba too or with other banks

Coming

“well, generally, so the story goes, the banks can’t just fund themselves from the RBA at the overnight rate^.”

Except they can , if this is your definition of “fund”

that’s exactly what they did from the ttf

Coming

well then we agree

Will you and freddy agree to explicitly state that you do not expect to see substantial house price falls (20%+) and therefore you do not expect to see overnight rates at 3% or even 2%

Freddy

I am split between Martin North’s “prices will definitely go down unless they go up” and Chris Joye’s “prices will definitely go up unless they go down”.

Actually, I think Chris Joye is in the moderate (5-10%) price falls camp at the moment.

Last edited 1 month ago by Freddy
Coming

In other words , interest rates will not reach even close to 3.5%

Freddy

So you agree with Leith that money markets have it wrong :-p

I don’t know. I can see some scenarios (wage inflation) that could put rates much higher than expected. It is a question of probabilities. 20-30% higher wages being offered in IT at the moment. The jimmies had better arrive soon.

Coming

I don’t think money markets have it wrong

i think what you’re relying on to indicate what money markets expect overnight rates to be , isn’t reflecting that at all

Maybe once upon a time it did

there’s simply going to be a disconnect between inflation rising and overnight rates not

but we haven’t been able to identify how your graphs are derived so it’s difficult to articulate my argument, but I just think they are indicating inflation because investors will demand a duration premium in an inflationary environment

but central banks can ignore that

in other words, when inflation is 8% of course private institutions can’t hold debt paying 1% – that’s a real loss of 7%

but the rba can – it’s balance sheet and ability to absorb losses are infinite

slightly different situation in the US where mortgages are predominantly based on 30yr rates

and really – isn’t this exactly what weve already seen ?
RBA gives up on YCC and fixed mortgage rates rise
but variable is still at all time lows

I guess peachy is ultimately agreeing – of course they will hide it behind some sort of acronym like TFF/qe/tarp etc to hide the fact that it is a FIAT system

when the collapse comes it won’t be from a financial crisis, because those can always be papered over

When the pin comes to pop things, it will be political and it feels a very very long way away

Last edited 1 month ago by Coming
Freddy

Let’s assume the cash rate is some mystical thing that can remain dislocated from the rest of the money markets. How long before deposit holders realise they are being taken for a ride and start shifting their money into bonds or other fixed income? How long before the banks themselves realise the cheapest funding for new loans is available by offering deposit rates that are lower than bonds but much higher than the official cash rate?

If all that happens, then how long before the RBA starts to look really stupid with the bond markets, and even the banks ignoring the cash rate? Sure the overnight interbank lending rates still zero but as Peachy implies that is just a small part of funding. It is a small hole being plugged up in a leaky bucket. From that perspective, if the central bank doesn’t plug up the other holes (via bond purchases) then the cash rate starts to become meaningless.

Coming

all of this is already happening , and has been since 2009

that’s literally what QE is

I just showed you the link from cba showing term deposits at 0.25% out to 5 years

The overnight rate isn’t a small part of funding
it’s the biggest most important part and can be the ONLY part it required

banks can and will just use the rba to get all the reserves they want/need just as they have been doing with TFF

and exactly why banks haven’t wanted or needed deposits for over a decade now

this absurdity has been going for a very long time now, it’s surprising that you haven’t noticed it

Freddy

You are ignoring the 40-45% of mortgage funds that were sourced offshore. TFF was introduced to provide even cheaper rates. The offshore funds are no longer cheaper. TFF has been withdrawn.

Take a look at what the fixed rates have done. Variable rates have also started to tick upwards. Some of the banks have already increased variable by 0.5%.

comment image

And yes I have noticed. I have been disgusted for over a decade that a big chunk of mortgage funding has to be sourced from overseas which is a sign that we are over-indebted.

Last edited 1 month ago by Freddy
Coming

Ok, but using the lens of EZFKA

we can see that funding at low rates will surely be supplied by the rba once house prices decline 10%, or 20% at most

you have acknowledged that they CAN do it , because of the mechanics of banking in this country

now surely you must acknowledge that they WILL do it

Coming

well they certainly wont be allowing overnight rate to get to 3.5%, that’s for sure

Coming

So in other words rates effectively won’t be 3.5%

because only housing debt matters anyway

Freddy

Peachy,

I still think mortgage bonds the way to go in terms of insulating existing mortgage holders from rate increases. It was actually introduced in the 90s for FHB, but they did it at the worst possible time at peak rates which fell quickly below the mortgage bond rate. Govt ended up buying them out despite the fuckers receiving a massive capital gain in house price and still only having modest repayments.

Regarding 2-tier rates. I would like it from a different perspective. Mortgages vs business lending. Put a floor in mortgage rates (~5%) and have it funded by the pension system. House price stability and retirement stability.

Freddy

The point is that if the RBA wants to keep mortgage rates low, it can

Not without consequence. That is where we seem to disagree. When AUD/USD hit it’s all time high of $1.10 in 2011 AUS cash rate was 4.75% vs US 0.25%. You can’t just ignore that and say it was all commodity prices.

Coming

rba 0.1%
Fed 0.5%

5x higher

and AUD is still ~75cents

Undoubtedly, there will be consequences – inflation

but that’s just gives them more excuses to “look through it”

Last edited 1 month ago by Coming
Freddy

I alluded to a two-tier market above for retirees with zero equity. If it was to happen across the board you get back into the argument about whether RBA can print money with no asset backing.

You know my views on mortgage bonds. They are a good thing and provide protection against rising mortgage repayments, and also no free lunches with falling rates to reduce payments. I mentioned it in the MB chat with Steve Keen and the dope ridiculed it focusing on the length of the mortgage instead of understanding the benefits.

JL2012

This is pretty much exactly what the MB staff are saying right now.
Given there track record its not a good sign.
However i agree with your logic i said it in comments at the time when MB were cheering on QE
Massive asset inflation but not in wages and immigration to keep wages down so no need to raise wages/rates
Hard to believe DLS couldnt see it when he was campaigning for QE (i dont ).

JL2012

I read an interesting comment a few weeks ago that last time there was high inflation in the U.S the fed traded a few years of high unemployment / high rates for 40 years of low inflation, and they would absolutely take that trade again.
Not saying that the RBA would do the same , or that it will play out the same this time, but food for thought.

JL2012

I agree globalisation and demographics are against it.
I am reading Shvets book the great disruption at the moment , he points to advancements in AI, Robotics and print manafacturing will be deflationary over the the next 20 years …with the caveate that most people will be less able to afford things due to job losses, wage competition etc.

Gouda

I haven’t read embee for a while – are they still on the negative IR, macroprudential bandwagon will fix asset prices drug trip?

Dick Trickle

I don’t see the cash rate getting beyond 1%

I read an article the other day by some big brained person who said that they cant go past 1% because everything will break.
Dont ask me to explain why, I just read the Cliff notes version.

Aussie Soy Boy

I think they will condition people to accept 6% inflation as the new arbitrary target like 2% was for 20 years.

Fuel prices got high (so cut the fuel levy in half for 6 months), pandemic so Jobkeeper and let people raid their super funds, rent moratoriums, mortgage holidays, there’s no limit really, increased the dole to $750 per week for 6 months.

If people have negative equity they’ll let them raid their super to top up. They’ll make it easier for foreigners to buy property here.

If supply constraints are resolved (doesn’t look that way especially with silly Russian sanctions not really harming Russia though just the west, plus China sticking to this zero COVID madness), I think it just takes 4 rate hikes this year to bring inflation back into line. That’s what I thought before the was in Ukraine and I thought China would let Omicron rip.