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Sunday, April 14, 2024

Point of Order: Mortgage rates at 10% anyone?



No – nothing about that in PM Luxon’s nine-point plan to improve the lives of New Zealanders.

But beyond our shores Jamie Dimon, the long-serving head of global bank J.P. Morgan Chase, reckons that the chances of a goldilocks soft landing for the economy are “a lot lower” than the 70% to 80% market consensus.

And he warned that global interest rates could top 8%

Should we be worried? Since the global financial crisis, each successive problem seems to have loomed up and then rolled back.

But Dimon’s analysis is interesting because it suggests that the problems revealed haven’t really been dealt with, more just receded into the background. And the risk is that they re-emerge simultaneously. Which presumably would blow away those goldilocks forecasts.

First, the international environment is uglier than it’s been for a long time. And while the Ukraine conflict shows some bad actors are not terrifically competent, the western alliance’s lack of preparedness has been exposed.

Secondly, the family of Western nations hasn’t been this divided for a long time – in both their internal and external politics. Half the electorate want to accelerate the new status quo, where the other half are asking for roll back. Sharp divisions of this nature can be a useful catalyst for a necessary reset. But they are invariably messy and usually costly.

Thirdly, Dimon’s concerns about the potential for stagflation, concerns not obviously shared by the world’s investors who have priced out a lot of risk in global indices. Stagflation risk seems a lot more plausible when understood as a crisis of high regulation and consequential low growth – rather than as an inexplicable and unfair ‘cost of living’ crisis.

Fair enough for Chris Luxon – like Jamie Dimon – to hope for the best. But like Dimon, we should also be prepared for the worst.

Because while Dimon probably doesn’t pay much attention to New Zealand, if he did, as an outsider he might be puzzled by the persistence of aspects of Jacindaism in the media, civil service and the social fabric long after her departure. And in particular, the persistence of the sentiment that painful decisions can be avoided indefinitely.

Luxon’s nine objectives for the public sector put the focus on the failures of previous governments (not just Ardern’s).

While they won’t solve the problems, they might bring the focus back to the poverty of policy analysis and the poor quality of public spending.

Which will matter if we end up in Dimon-world, where the economics of growth will require a shift of mindset and resources from the non-productive to the productive.

Point of Order is a blog focused on politics and the economy run by veteran newspaper reporters Bob Edlin and Ian Templeton

1 comment:

Anonymous said...

Break my heart. My first home mortgage rate was 22%. I was not of the avocado eating, eating, coffee slurping, car owning, private school, offshore holiday brigade. I was the generation where women still required a male guarantor for many financial transactions and where equal pay really was just an illusion.

So don't tell me it was easy in the olden days. And my parents who were wartime babies and were brought up on rations and life with two mortgages due to various lending restrictions, had it even harder.

I managed my expectations to reality , including the number of children I had.

As I am now a retiree dependent upon other things interest returns, how I wish those 22% interest days would come round again...