Memo to PM: Your 'strategy' is not working

Briefly in my Daily Chorus for all subscribers on Monday August 18, the top news, scoops and deep-dives in Aotearoa’s political economy around housing, poverty and climate are:* The Lead: Senior figures in the business community are openly questioning the Government’s 1991-style strategy of restraining Government spending to create space for lower interest rates to stimulate household spending and business investment. Via Amelia Wade for The Sunday Star Times-$* The Sidebar: That post-recession strategy worked in 1992, in 2002, in 2011 and 2016 because, back then, households had low debt, banks had lower capital requirements and fewer lending restrictions, and they still actively wanted to lend to businesses. Lower interest rates encouraged more borrowing and business investment, which in turn sparked jobs growth, wages growth and then fresh housing booms, pushing house prices and household wealth to ever-higher record highs.* The first Number of the Day: $165 billion. This time around, households are feeling collectively $165 billion poorer because of an extended 10-20% slump in house values and ongoing increases in mortgage borrowing from first home buyers in particular. Also, unlike in previous recoveries from recessions, real disposable incomes for most workers who spend most of their incomes are falling again, thanks to wage restraint, fewer hours worked and new profit-driven inflation in food and electricity prices.* The second Number of the Day: 3.5 percentage points. That’s the amount of bank capital requirement increases yet to be implemented and now under active review by the Reserve Bank. Cancelling the increase would be one obvious way for the Government to give a boost to mortgage lending in the next year.* The Quote of the day is from Auckland Chamber of Commerce CEO Simon Bridges via Amelia Wade for the Sunday Star Times-$ on business leaders losing faith in Christopher Luxon: “We don’t want to leave it to chance. A few more bad months after a few bad years isn’t good enough. I think there should be an urgency in government around intervention.”* The Chart of the Day shows household term deposits are growing again at record-high rates of $17 billion a year, which is as high as when small business-owning recipients were banking the proceeds from wage subsidies. Contrary to the drumbeat of the daily news narrative that everyone is suffering with a ‘cost of living crisis’, the chart shows older homeowners are repaying debt and saving the benefits of tax changes at record-high rates into term deposit accounts, which is holding back consumer spending and extending the retail sector’s four-year long recession.Paying subscribers can always hear more detail and my commentary in my Daily Chorus podcast and video above and in text and chart form below the paywall fold, while non-paying subscribers just get this opening brief intro. But I have decided to release this immediately to all, given the topicality of the questions about the Government’s strategy.Chart of the day: Not everyone is doing it toughCartoons of the dayHoping voters can’t see or hear what’s happening in the economyRare actual footage of a doormat rolling out a carpetTimeline-cleansing nature picKa kite ano. Bernard This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit thekaka.substack.com/subscribe