Bank of England, which is supposed to be fighting inflation, restarts money printing to stabilise markets so £1.5t of pension funds don't get stung with massive margin calls from BlackRock et al
The BoE has done a total of £1.2t of QE over the years, which is about 48% of GDP. So this lot is about 3% of GDP. In 13 days. Usually about a year's growth in GDP. In 13 days.
Defined benefit pensions are the gift that never stops giving. My sweet mum is on a DB teacher’s pension that gives her 47% of her final salary until death. 🫣
Yep, I left teaching in the UK in 1989 (too much Thatcher attack on unions, working conditions etc). Back hme in UK this summer and friends all scanning off round music festivals in their campervans living reasonably well on their pensions!
My grandfather was on a defined benefit pension. He worked for the Post Office as a telegrapher from the 1930s until the early 70's. On this he was able to support a wife and disabled son very comfortably until his death in his 90's in 2011. He worked 35 years and was on the pension for 40! He would lament the unfairness of it while his kids and grandkids worked minimum wage horticulture jobs through the 90's. It was only the inheritance that he left that rescued my parents from asset rich, cash poor that they had been most of their lives. My parents acknowledge that you never have money when you need it (ie raising kids) and have plenty when you don't (ie retirement). But I've yet to hear a retiree willing to share their unneeded wealth with successive generations or the population at large. The crime, disorder and lack of social cohesion that retirees complain about is caused by inequality but no one wants to talk about addressing this by taxing capital gains or means testing pensions or lifting benefits. Feels like we are running down the country maintaining an unaffordable status quo and our kids are going to be furious about it.
As a “ wealthy retiree” I am happy to do what it takes to restore some better inter generational balance of wealth but it is little point in expecting an individual retiree to make the change on his own. I’ve bought an EV but don’t expect that will make the slightest difference to global warming. In my case the bulk of my wealth is the family home , the only home I have ever had so yet to make any capital gain. When the time comes I will need the “ wealth” for my next home whatever form that may take. My children will need what is left to help offset mind boggling housing costs. That is pretty much a reasonable and natural order of things. My own life-style was of a standard that I could reasonably maintain into my retirement which is why I saved with modest investing and was able to give a little help towards my children's housing purchases. As an individual what should I do differently.
However I am completely supportive of changes to greatly improve equality, particularly in taxing housing appropriately which is why I will vote TOP, or The Bernard Hickey Party when it is formed.
The voting power to bring about the required changes is not easily found amongst my demographic, I agree, but why will the younger generations not vote. Or too many follow populist conservatism. It’s in their hands.
Hi Graeme, I agree. Much like climate change, it is difficult as an individual to feel like you make a difference. But it's still worth giving it a crack. Perhaps talking about intergenerational equity and climate change with your friends and share around some of Bernard's articles to raise awareness? There are lots of people working to encourage the youth to vote. For your part give the young ones in your life a nudge to make sure they do!
Thanks Graeme. I appreciate your support as a subscriber. Being unelectable, unappointable and (by choice) unemployable gives me freedom to explore and write/say these things.
"But I've yet to hear a retiree willing to share their unneeded wealth with successive generations"
Technically my mum did (I'm an only child). She sold her house after dad died, downsized and gave me/us about 80% of the difference (they bought the old one 45 years ago for less than the minimum wage salary these days, so the actual profit was astronomical).
She still has more than that available for a "rainy day" in the bank.
We used it to cut our mortage down - paid it off in ~8 years, all up. I guess she removed 2-3 years off it. But I get ya - most don't do that.
'So why the sudden run on the pound? One answer I liked came from the City of London economist Dario Perkins, who declared that the problem with the budget wasn’t that it was inflationary but that it was “moronic,” and that an economy run by morons has to pay a risk premium.'
The fundamentals need addressing the sovereign issuance of currency secured by the nations tax and resource wealth is just not a problem. The problem lies when it isn’t used directly for that nations wealth and well-being but to fund private banks, wars, tax breaks for the wealthy or business and not on promoting health, education, incomes and infrastructure. Most of this is contracted out with tax avoidance or profits going offshore. Which is the problem. It’s all upside down and inside out with hidden profit taking middlemen and processes to ensure the wealth is not shared with those doing the low paid or unpaid labour (often in circumstances of not even being housed or treated properly and children removed to make them more efficient and available slaves and sex slaves for men so they’re happier working for less…their own little kingdom) and all at a massive cost to most of us. Gloriavale is really a microcosm of what the big picture design is.
Big rich business claiming they’re a family, getting tax payer support and inadequately treating or paying for the actual workers / slaves and brainwashing them into believing they don’t have a right to share in the wealth they create with their labour. Exploitation and concentration camp, Stockholm syndrome 101. Trouble is it’s so widespread people don’t even see it anymore due to failures in education.
What on Earth would Sir Frank Gordon, Treasury Secretary in Yes Minister be making of all this? He only appeared in a couple of episodes but was a memorable character.
Please open this one up :) Not that you need my / our permission, I guess :)
I almost need a page of "the Bernard Hickey TL;DR" I can refer people to. A short version of "why are house prices so high in NZ" with some 90's history and the whole borrowing limits stuff. Tried to explain it to someone, and I think I got about 75% of it out....
I was, also, trying to think who benefits from the gas pipeline "incident" on Nordstream 1/2.
Russia: sort of. Big middle finger to Germany et al. But also not: they lose a bargaining chip, big time.
EU(DE) or US: yeah, maybe. They are already getting 0 gas from it, and now Putin can't hold that over them.... makes it easy to decide to stockpile the gas, cos it's not coming back on for a few years now...
If only you had some kind of foreign affairs expert on, on The Hoon....
So right about the disasters that follow people not being able to put down roots, not having a secure home and a community to be a part of. The cost of this failure to provide settled homes is now and will continue to be enormous. It is desperately cruel and unbelievably ignorant on the part of successive governments. nb : see Maslow's hierarchy.
Both Ukraine and Germany are now learning the consequences of subjugating their interests to US oil and gas monopolies. To make fracking in the big reserves in the Permian Basin (Texas/New Mexico) profitable cheap gas and oil need to be shutdown in competing countries. This year the Permian, holding 60% of US reserves, has become the world’s fastest growing producer through fracking.
At which point do these schemes/banks/the wealthy become too big to save? (instead of too big to fail). It feels awfully like the consequences for these continued bail outs are just piling up and will come crashing down on everyone sooner or later.
About now would be timely. We pick up the residue that’s of real use and socialise it.
I read somewhere recently- sorry, I’ve forgotten the source/reference, the 19th C establishment of building societies and banking cooperatives by working class people excluded from trading banks, etc. Our mortgage on our first house was through the PSA cooperative bank for members, the Public Service Investment Society in 1972. Worked really well and returns went back to the members. Imagine!
In your original reporting, when you talked about financial markets needing to support the bond float, I was thinking, nah, no they don't. The BoE will buy it as needed. It's an ironic day, when the QE of USA looks strong beside the QE of BoE, BoJ, and all the rest.
Excellent newsletter today, Bernard. Some of us policy economists have two left feet when it comes to understanding financial markets. Your expertise and fluency on bond markets is very welcome.
How does the 68 Billion compare in size to BoE QE during Covid and GFC?
The BoE has done a total of £1.2t of QE over the years, which is about 48% of GDP. So this lot is about 3% of GDP. In 13 days. Usually about a year's growth in GDP. In 13 days.
Defined benefit pensions are the gift that never stops giving. My sweet mum is on a DB teacher’s pension that gives her 47% of her final salary until death. 🫣
Indeed. Wish I'd known in 1991 and the hung on for dear life. Sadly, when I joined Reuters they had just closed their scheme.
Yep, I left teaching in the UK in 1989 (too much Thatcher attack on unions, working conditions etc). Back hme in UK this summer and friends all scanning off round music festivals in their campervans living reasonably well on their pensions!
I think mine is now worth £1000/year.
Hi Julian
The pension being 47% of her final salary. Is this a fixed amount pension? Inflation reducing it's spending value over time.
This must set up some older pensioners for a miserable life.
State pension on top as well so circa $80k in NZD for a single person per year total.
They’re usually adjusted for inflation and often have a COLA clause linked to CPI.
If it’s like the DB government in NZ it will be inflation adjusted
My grandfather was on a defined benefit pension. He worked for the Post Office as a telegrapher from the 1930s until the early 70's. On this he was able to support a wife and disabled son very comfortably until his death in his 90's in 2011. He worked 35 years and was on the pension for 40! He would lament the unfairness of it while his kids and grandkids worked minimum wage horticulture jobs through the 90's. It was only the inheritance that he left that rescued my parents from asset rich, cash poor that they had been most of their lives. My parents acknowledge that you never have money when you need it (ie raising kids) and have plenty when you don't (ie retirement). But I've yet to hear a retiree willing to share their unneeded wealth with successive generations or the population at large. The crime, disorder and lack of social cohesion that retirees complain about is caused by inequality but no one wants to talk about addressing this by taxing capital gains or means testing pensions or lifting benefits. Feels like we are running down the country maintaining an unaffordable status quo and our kids are going to be furious about it.
Indeed. All at the wrong time.
As a “ wealthy retiree” I am happy to do what it takes to restore some better inter generational balance of wealth but it is little point in expecting an individual retiree to make the change on his own. I’ve bought an EV but don’t expect that will make the slightest difference to global warming. In my case the bulk of my wealth is the family home , the only home I have ever had so yet to make any capital gain. When the time comes I will need the “ wealth” for my next home whatever form that may take. My children will need what is left to help offset mind boggling housing costs. That is pretty much a reasonable and natural order of things. My own life-style was of a standard that I could reasonably maintain into my retirement which is why I saved with modest investing and was able to give a little help towards my children's housing purchases. As an individual what should I do differently.
However I am completely supportive of changes to greatly improve equality, particularly in taxing housing appropriately which is why I will vote TOP, or The Bernard Hickey Party when it is formed.
The voting power to bring about the required changes is not easily found amongst my demographic, I agree, but why will the younger generations not vote. Or too many follow populist conservatism. It’s in their hands.
Hi Graeme, I agree. Much like climate change, it is difficult as an individual to feel like you make a difference. But it's still worth giving it a crack. Perhaps talking about intergenerational equity and climate change with your friends and share around some of Bernard's articles to raise awareness? There are lots of people working to encourage the youth to vote. For your part give the young ones in your life a nudge to make sure they do!
Thanks Graeme. I appreciate your support as a subscriber. Being unelectable, unappointable and (by choice) unemployable gives me freedom to explore and write/say these things.
"But I've yet to hear a retiree willing to share their unneeded wealth with successive generations"
Technically my mum did (I'm an only child). She sold her house after dad died, downsized and gave me/us about 80% of the difference (they bought the old one 45 years ago for less than the minimum wage salary these days, so the actual profit was astronomical).
She still has more than that available for a "rainy day" in the bank.
We used it to cut our mortage down - paid it off in ~8 years, all up. I guess she removed 2-3 years off it. But I get ya - most don't do that.
Paul Krugman in the New York Times:
'So why the sudden run on the pound? One answer I liked came from the City of London economist Dario Perkins, who declared that the problem with the budget wasn’t that it was inflationary but that it was “moronic,” and that an economy run by morons has to pay a risk premium.'
Interesting. Although sadly, if the tax cuts had come with spending cuts they would have been fine with it...
This is fun too from Adam Tooze. ‘To hold sterling assets they are now demanding what some are calling a “moron risk premium”. https://www.theguardian.com/commentisfree/2022/sep/27/kwasi-kwarteng-cut-taxes-austerity
The fundamentals need addressing the sovereign issuance of currency secured by the nations tax and resource wealth is just not a problem. The problem lies when it isn’t used directly for that nations wealth and well-being but to fund private banks, wars, tax breaks for the wealthy or business and not on promoting health, education, incomes and infrastructure. Most of this is contracted out with tax avoidance or profits going offshore. Which is the problem. It’s all upside down and inside out with hidden profit taking middlemen and processes to ensure the wealth is not shared with those doing the low paid or unpaid labour (often in circumstances of not even being housed or treated properly and children removed to make them more efficient and available slaves and sex slaves for men so they’re happier working for less…their own little kingdom) and all at a massive cost to most of us. Gloriavale is really a microcosm of what the big picture design is.
Big rich business claiming they’re a family, getting tax payer support and inadequately treating or paying for the actual workers / slaves and brainwashing them into believing they don’t have a right to share in the wealth they create with their labour. Exploitation and concentration camp, Stockholm syndrome 101. Trouble is it’s so widespread people don’t even see it anymore due to failures in education.
Adam Tooze has a good assessment here, too:
https://www.theguardian.com/commentisfree/2022/sep/27/kwasi-kwarteng-cut-taxes-austerity
What on Earth would Sir Frank Gordon, Treasury Secretary in Yes Minister be making of all this? He only appeared in a couple of episodes but was a memorable character.
He would have told the minister it was bold and courageous ergo guaranteed to lose them the next election
I am very happy for your Kaka to be heard by as many as possible. Glad for you to open it up.
Please open this one up :) Not that you need my / our permission, I guess :)
I almost need a page of "the Bernard Hickey TL;DR" I can refer people to. A short version of "why are house prices so high in NZ" with some 90's history and the whole borrowing limits stuff. Tried to explain it to someone, and I think I got about 75% of it out....
I was, also, trying to think who benefits from the gas pipeline "incident" on Nordstream 1/2.
Russia: sort of. Big middle finger to Germany et al. But also not: they lose a bargaining chip, big time.
EU(DE) or US: yeah, maybe. They are already getting 0 gas from it, and now Putin can't hold that over them.... makes it easy to decide to stockpile the gas, cos it's not coming back on for a few years now...
If only you had some kind of foreign affairs expert on, on The Hoon....
Interesting report on townhousing out by Salvation Army, curious to ear your thoughts - https://www.newshub.co.nz/home/money/2022/09/housing-intensification-is-bringing-overcorwing-gangs-and-transport-issues-salvation-army-report.html?fbclid=IwAR3oj8a3IHLu4bHppvjcVfeAfiYZPkZ9LHuH2kUfA2lehlaxBtabXAAox9Y
So right about the disasters that follow people not being able to put down roots, not having a secure home and a community to be a part of. The cost of this failure to provide settled homes is now and will continue to be enormous. It is desperately cruel and unbelievably ignorant on the part of successive governments. nb : see Maslow's hierarchy.
This article is pretty light... especially given the title. Gangs like newbuild townhouses? Who knew? Nothing at all to explain it in the body.
In the clip itself, the underlying problem is still affordability. I agree that intensification doesn't help affordability.
Yeah article is pretty light, I just skimmed the report and it doesn't seem to talk on the specifics that are focussed on in that article/interview.
So Russia blew up its own gas pipeline 🤭. Whatever happened to critical thinking?
https://twitter.com/faceplantt44/status/1574894612224671744?s=46&t=GWYzOEwPOHpLSHKH9I9v8A
I thought from the start that Ukraine should have depth charged the Nordstream 2 pipeline, but they have kept their operations within Ukraine.
Had they done it though Germany and others would not have been happy and such an act may have undermined the support they are now receiving.
Maybe it's a case of Putin saying if I can't play with my toys, you can't either.
Both Ukraine and Germany are now learning the consequences of subjugating their interests to US oil and gas monopolies. To make fracking in the big reserves in the Permian Basin (Texas/New Mexico) profitable cheap gas and oil need to be shutdown in competing countries. This year the Permian, holding 60% of US reserves, has become the world’s fastest growing producer through fracking.
https://twitter.com/lukegromen/status/1529572247996088320?s=46&t=BF5izyNuxx-ULsa_bfvpNw
Only by knocking out cheap Russian gas is this viable.
At which point do these schemes/banks/the wealthy become too big to save? (instead of too big to fail). It feels awfully like the consequences for these continued bail outs are just piling up and will come crashing down on everyone sooner or later.
About now would be timely. We pick up the residue that’s of real use and socialise it.
I read somewhere recently- sorry, I’ve forgotten the source/reference, the 19th C establishment of building societies and banking cooperatives by working class people excluded from trading banks, etc. Our mortgage on our first house was through the PSA cooperative bank for members, the Public Service Investment Society in 1972. Worked really well and returns went back to the members. Imagine!
I asked Mme Google why on earth the Brits keep on voting Tory. I should have been able to work it out. Unable to let go of empire. Like Putin but with better manners. https://www.opendemocracy.net/en/opendemocracyuk/why-does-england-vote-tory/
You could smell the QE coming.
In your original reporting, when you talked about financial markets needing to support the bond float, I was thinking, nah, no they don't. The BoE will buy it as needed. It's an ironic day, when the QE of USA looks strong beside the QE of BoE, BoJ, and all the rest.
Excellent newsletter today, Bernard. Some of us policy economists have two left feet when it comes to understanding financial markets. Your expertise and fluency on bond markets is very welcome.
Just read this, a real kick in the teeth after reading about the BoE and its QE this morning https://www.oxfam.org/en/press-releases/85-worlds-population-will-live-grip-stringent-austerity-measures-next-year