November 12, 2024 • 22 mins
As votes continue to be counted in the US, President-elect Donald Trump has swept all seven battleground states, confirming his dominant performance in the country’s election.
While many were shocked that the US would return to Trump after four years, many voters have made it clear their feelings about high inflation and the cost of living under the Biden administration swayed them towards the Republicans.
It’s a similar sentiment that helped National, Act and NZ First ascend to power in our election last year.
But, in a global economic environment, how much sway does one political leader have over how much you're paying for groceries and petrol?
Today on The Front Page, we discuss this with NZ Herald business editor at large, Liam Dann.
Follow The Front Page on iHeartRadio, Apple Podcasts, Spotify or wherever you get your podcasts.
You can read more about this and other stories in the New Zealand Herald, online at nzherald.co.nz, or tune in to news bulletins across the NZME network.
Host: Chelsea Daniels
Sound Engineer: Richard Martin
Producer: Ethan Sills
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:06):
Kiyota. I'm Chelsea Daniels and this is the Front Page,
a daily podcast presented by the New Zealand Herald. As
votes continue to be counted in the US, President elector
Donald Trump has swept all seven battleground states, confirming his
dominant performance in the country's election. While many were shocked
(00:30):
that the US would return to Trump after four years,
many voters have made it clear their feelings about high
inflation and the cost of living under the Biden administration
swayed them towards the Republicans. It's a similar sentiment that
helped National Act and New Zealand first descend to power
in our election last year. But in a global economic environment,
(00:54):
how much sway does one political leader have over how
much you're paying for grocery and petrol? Today on the
Front Page, we discussed this with NSID Herald Business editor
at Large, Liam Dan. Liam, are you surprised at all
(01:15):
that economic concerns were enough for swing voters to back
Trump in their millions?
Speaker 2 (01:21):
Well, I guess I wasn't surprised. I picked it in
a column in advance, which is I wasn't rocket science.
But the reason I was reasonably comfortable with the prediction
was because I was following financial markets and betting markets
so closely, and the financial markets really thought that Trump
was going to win. The economy in the US sort
of looks good on paper. Inflation is officially back in
(01:41):
its box, but if you think about it, it's still
kind of peak inflation because we're still waiting for wages
to catch up. All the inflation is cumulative, even though
it's now only rising at two percent. Over the last
few years, people have just felt like their worse off.
So I think that's one of the reasons why the
Democrats got punished.
Speaker 1 (01:58):
What has been the state of the u US economy
in the last year. Have they seen much improvement there?
Speaker 2 (02:04):
Yeah, I mean they were one of the They haven't
had a recession, so it's called a soft landing. Given
what we're all going through, and we've been through in
New Zealand, all the stimulus for COVID created the inflation.
Then you've got to take the inflation out by constricting
the money supply, and that in New Zealand's case, has
been such an extreme whip saw sort of thing that
we've gone into recession two or three times and we've
(02:25):
been in this per capita recession some time, so it
hasn't been a soft landing here. It's been rough getting
inflation down. The US managed to do it much better, so,
you know, I guess there's plenty of commentators and economists thinking, well,
Biden's done a good job here, and the US Federal
Reserve done a good job here. They've managed to get
inflation back down to normal levels without a recession. It's
(02:46):
quite rare to get that kind of so called soft landing.
You could make the case that the US economy wasn't
a good spot or isn't a great spot. Their stock
markets have actually been good right through the Biden era,
you know, so it was all good on paper. But
I think I think that was one of the issues
was that Americans, and actually you see it around the world,
people were sick of being told that the economy was
(03:07):
good because it was good on paper. They didn't feel
like it was good, so it wasn't good. And that's
you know that the media, the commentators, the economists, and
the politicians telling them that. There certainly a sort of
a backlash against that.
Speaker 3 (03:21):
So the total back in March of twenty twenty for
this basket of goods yes, I'm an economist. Basket of
goods was one hundred and seventeen dollars and one cent,
and today the same basket of goods would cost you
one hundred and fifty one dollars and ninety nine cents.
That's an increase of a whopping twenty nine point eight
nine percent. That's a solid chunk of change.
Speaker 1 (03:41):
Well, the US has the same issues as US, particularly
with food and energy being more expensive. How much influence
does the person sitting in the White House or at
ten Downing Street or on the ninth floor of the
beehive actually have over those specific costs.
Speaker 2 (04:00):
The cycle economic cycle has been very similar all over
the western world, so you can understand why some people
would say, Look, you're getting obsessed with blaming individual politicians.
It seems to be whoever was in power through the
worst of that spike has been thrown out, and you know,
voters have punished the incumbents generally. There are some areas
(04:22):
of control you could have applied fiscal restraint during that
period would have limited the amount of inflation. So there's
all those big tradeoffs, and I don't want to get
back into that big argument again about how much we
should have done through COVID. There are arguments about the
trade offf the health tradeoff and how much we close
down the borders and how long we're in lockdown all
that sort of stuff because that cost money. And then actually,
(04:43):
you know, in this country there's been arguments about how
tightly the money was held or used and where money's
gone from the COVID budget to other things, and so yeah,
I mean, I think there's definitely you can make arguments
for and against various politicians and political regimes doing better
than others. But I think the general trend over the
last five years since COVID, you can see, really didn't
(05:06):
matter whether you had the Tories and power in the
UK or labor and power in New Zealand. Those broad
trends were pretty universal.
Speaker 1 (05:13):
So it's pretty rare that someone say on the campaign
trial promises to fix the economy being able to actually
fix the economy when push comes to shove.
Speaker 2 (05:22):
Well, it's about fixing the economy overnight. In the end,
really fixing the economy means getting the settings right for
people to sort of create wealth, and that might go
all the way back to having to deal with a
better education system, and it you know, a lot of
people argue it does or some really fundamental settings dealing
with that. The flip side would be dealing with social
(05:43):
inequality because that's slowing our economy because people aren't productive.
But regardless of which political way you look at it,
there are some really fundamental things you need to do.
There are some short term things I guess governments can do.
Depending on their political stripes, you can effectively what the
governments can do, and what central banks also do is
(06:03):
just pump more money into the economy or take more
money out. Any government can pump money into the economy,
central banks can pump money into the economy. But as
we've seen, you know that if you just pump money
in without it being underpinned by real wealth creation and
basically productivity, which by which we mean you know, people
making more stuff or doing more stuff to earn money
(06:23):
for the country from elsewhere in the world, then you're
just creating inflation. So that's one of the things that
government's come up against, is just the ability to really
create long term wealth and to create long term benefits
for the economy. And that's unfortunately the political system's got
this short cycle, so it's easy for politicians to think
(06:45):
short terms, so hopefully they will tend to think a
bit longer term things like infrastructure as well. You know,
you just can't turn on and turn off infrastructure. You've
got to get the planning going over a number of years.
And that's another big key to our economic success.
Speaker 1 (07:08):
Well, the coalition government here has taken credit for positive
economic news throughout this year. But how much of that
is actually because of this government versus the previous government
and versus I guess global economic movements.
Speaker 2 (07:22):
Yeah, that's interesting one. And some of it, you know,
it's the central banks, you know. So inflation has come
right again. I mean, you know, when you look at
the economy and how much stress people are under, I
don't know quite what they'd be taking credit for. Yet again,
it's that thing that the inflation is beaten on paper.
I don't think the public necessarily feels that good about it.
(07:42):
And now, of course you've got because of the higher
interest rates, you've got companies' earnings down and we're in
this recession. So you know, you've got to be cautious
what you take credit for at this point. I think
the government's taking credit for the direction shifting. It was
going to shift anyway, there's no question about that. Question
is how quickly and how efficiently, And I guess National
(08:04):
would argue that the Coalition would argue that it's been
quicker and more efficient under their regime, and that if
labor had come in, maybe the spending would have kept
going and we'd have had inflation for longer and so on.
But a couple of things there. One is that in
actual fact, the last proposed budget under Grant Robertson was
also taking a lot of money out of the economy.
They were tightening up as well. Whether you believe that
(08:25):
they would have would have done that or not, that's political.
So I guess that would have happened. But if even
if labor was looser and inflation lasted longer, you might
have seen the economy roll on a bit stronger. So
it's more of a shorter sharp shock when you have
both the central bank pushing up interest rates and a
government cutting spending. And look, I think they probably have
(08:46):
got it going in the right direction efficiently, you know,
in good time. But how much of the general direction
they can take credit for, I'm not sure.
Speaker 1 (08:55):
When it comes to the US, Trump's big on cutting
regulation and giving people tax cuts. Is that going to
help with the costs on the average American household?
Speaker 2 (09:06):
The tax cuts and the deregulation. They would boost corporate
earnings because he's talking about tax cuts for the corporations
first and foremost, so that the view would be that
they would then be hiring more, can pay more. The
economies booming because America's business is booming. There was talk
of some other tax cuts or tax credits for return
service people, first responder's, all sorts of stuff. There was
(09:27):
a lot promised on the campaign trail, so that could
pump the economy. Their question is can they actually afford it,
because they already have a giant deficit in their government spending.
They don't take enough revenue for all the government spending,
so they have to borrow. And the US government borrows
his borrow trillions, and that means that, you know, they
(09:48):
have to be sensitive to what happens to interest rates
and their ability to borrow further. And some people have
suggested that if Trump was to do all the tax cuts,
then it really would blow out the national debt quite
bad and push interest rates up very high.
Speaker 1 (10:02):
What happens then, if the US was to borrow even
more than it does.
Speaker 3 (10:06):
So now, yeah, I.
Speaker 2 (10:07):
Mean I should say Trump says that his tariffs are
going to pay for all this, right, None of the
economists believe that that's possible. But you know, it may
come down to how big the tariffs are and how
big the tax cuts are in the end. But if
he did the most extreme outer edge stuff, then it
kind of doesn't add up in an orthodox economic way.
It becomes a very big experiment. It's an experiment because
(10:30):
America has never done this before. We've seen other countries
around the world try to do this where governments, you know,
like a socialist government comes in in Venezuela, or we've
seen it in Greece after the GFC, where they've tried
to implement policies that the world's financial markets, the ratings agencies,
and the bond markets have just gone, oh no, that
looks terrible. And you know, they just trade the price
(10:51):
of borrowing up for these nations until they can't borrow anymore,
so that they basically see you as a high risk
and then they say yield, but your interest rates on
those bonds goes through the roof. Sometimes some countries it's
like I think in Greece, it went up by thirty
percent overnight and they just could not borrow anymore. So
they were sunk because they couldn't get any more money,
so they had to go to Europe for bailouts, and
(11:12):
it made a special case. So you know, most countries
in the world come up against bond markets, which is
really just the world's debt market. I loved the idea
that it's the most powerful thing in the world, like
literally the most powerful thing. There's armies, But even armies
need money to run, right, And so without the support
of bond markets, you know, you can't borrow. And the
whole world runs on debt, Like the whole world's economy
(11:35):
is debt fueled. And if you come up against these
bond markets and they say no and you can't get money,
you're really sunk, very very quickly. So there's a famous
line from Bill Clinton's strategist James Carvill, this guy who
once came up with it's the economy stupid. But he
also once said that if reincarnations real, I used to
want to come back as a president or a pope,
(11:57):
but now I want to come back as the bond
markets because they intimidate every one, and it was a
reminder that no one's bigger than those bond markets in
the world. Now, the US might be a special case.
It's hard to know how far they can go. Because
the US is so big and so powerful, and its
currency is the world's reserve currency. It will be interesting
(12:17):
to see how far Donald Trump can push it.
Speaker 1 (12:20):
Well. Stocks on Wall Street closed on record highs the
day after Trump's victory, largely due to confidence in how
his policies will benefit them.
Speaker 4 (12:31):
This is what happens when there's a lot of uncertainty.
People breeze for the worst and then they breathe a
sigh of relief. I mean, the S and P's up
about two point three percent today, which would be the
strongest post election reaction post election d reaction we've seen
since my data started in nineteen fifty. You know, people
are definitely reacting, maybe celebrating, maybe breacing for more.
Speaker 1 (12:55):
That's obviously a vote of confidence for Trump, but he
can't really control if the markets react positively or negatively, right,
and then how the public read that? Can he?
Speaker 2 (13:05):
No, that's right. So the big, big short term bump
for Trump the Trump bump. So there's a few things there.
One was that it was a certain election. There was
no going to court and worrying and having no leadership
in the US, So that was removed so that that
the market's very happy to have that certainty. They were
happy that they didn't get Kamala Harris's tax hikes, so
that was removed. And then in the short term they
(13:27):
see a lot of benefit from Trump coming in. Tech
stocks are really happy about this deregulation stuff. There'll be
deregulation around oil, around banking, so it'd be easier for
them to do business that reduces costs, and then if
they get a tax cut as well, they're basically going
to be more profitable. So that's the short term thing.
There are risks there there. I mean, you know, but
markets at this level aren't aren't trading that risk yet.
(13:49):
The risks are that in the longer term, because we've
seen bond yields rise all the way through. They picked
Trump coming in, so bond yields rose in the weeks
and I should just say interest rates basically rose in
the weeks ahead of Trump coming in, and then they've
continued to rise. And normally when interest rates are rising
on financial markets equities are going down, so that it's
a weird thing both going up at once and you know,
(14:11):
longer term, I guess the markets could turn against Trump,
and that to me when you look at how powerful
he is right now, Like he's got the Senate and
he's got such control of that Republican Party, and he's
probably going to get the rest of the House of Congress,
and so then he'd have the three branches. He's kind
of got the Supreme Court stacked as well, so that's
really the four branches of US power. So he's got
(14:33):
complete political control and that that really just leaves that
financial market, bond markets, equity markets, basically Wall Street as
the curb on his power.
Speaker 1 (14:54):
We saw the opposite of that support in twenty twenty
two in the UK, wh Trust's short lived government announced
forty five billion pounds in tax cuts without properly funding them.
The markets reacted negatively and the country went into crisis
mode and Trust was gone as we know shortly after.
(15:15):
So do they have the real power here? Is that
getting a bit too much into tenfoil hat territory?
Speaker 5 (15:22):
No?
Speaker 2 (15:22):
I think they do. It's kind of weird, like for
people you know about ten foil hats. People talk about
the deep state. What is the deep state? What is
the establishment? What's the most powerful end of it? And
that's why I keep coming back to financial markets. There
is this kind of non political structure around global debt
markets and you know, and equity markets that is kind
of like a deep state. And yeah, like this Trust
(15:43):
wasn't in a powerful position to start with. The Tories
weren't in a powerful position. The UK was economically shaky
after Brexit, so she didn't have a lot of power
to push that through and it sure sunk her. Yeah,
as I mentioned earlier, we've seen it happen, and lots
of other countries around the world, smaller countries, New Zealand
would to do anything unorthodox again in the face of
financial markets, given how much debt we.
Speaker 5 (16:04):
Have quote the current trajectory of debt is concerning. New
Zealand are currently running physical deficit about two point four
percent of GDP. It's structural, meaning it is not solely
the result of the current economic downturn. The Treasury estimates
that we would be in deficit even if the country
was a normal economic times rather than recession.
Speaker 4 (16:26):
You're talking about two point four percent of GEPP.
Speaker 2 (16:29):
That's tiny in comparison to our external debt, which is
currently I think running at forty to fifty percent. The US,
as I say, could be different or is more powerful.
I would say though, that Trump has kind of staked
his reputation on being the Wall Street guy, the big
market guy who knows how Wall Street works and has
(16:50):
got them on side. So he couldn't really afford to
get too far offside with them. And there are a
lot of powerful backers around him, as financial backers, Elon
Musk and those people that obviously don't want the whole
thing tanking. They don't want to see the US economy tank.
You know, as much as we might want to call
him autocratic or authoritarian, he's not likely to completely go
(17:12):
off script. I mean, it's not really something that he
could get away without. I imagine some quite powerful forces
around him, even in his close circle, sort of pulling
him back. And so I think, you know, he'll have
to deliver some form of tax cut, some form of deregulation.
He'll have to deliver some tariffs. Whether they are at
the extremes of what he promised over the campaign probably
(17:34):
doesn't matter. People probably forget the details of exactly what
he said. They seem to have short memories about most
most things, he says.
Speaker 1 (17:41):
I recall when he was president last time, all he
would have to do is tweet something and it would
change the markets, right, And he does have a tendency
to say something quite crass or be quite reactive to things.
And also his relationships with other world leaders such as
Kem jong un and Aldamir Putin to name just a couple.
(18:02):
Could those things be his downfall when he's trying to
correct the US economy, those little things that perhaps could
reverse or slow down his ambition to do so.
Speaker 2 (18:15):
I suppose the geopolitical thing is a big, big issue obviously,
just for the you know, the state of lay in
Ukraine and Middle East and all that sort of stuff,
and the relationship with China. But as to the little things,
I wonder if we've become a bit immune to his unpredictability,
Like it's so predictable that he's going to say these
random things. And I think that's probably was evident through
(18:37):
the campaign and the result in the election is that
people just aren't taking it literally, so they've all we've
brought into this idea that you don't worry too much
about what he sees. You just look at what he does,
even though that unfortunately doesn't give us any any foresight
into what might be coming. But already, you know, things
like the cryptocurrency and bitcoin are through the roof, So
(18:59):
that's stuff that reactive stuff's already just totally excited by
his return. You know, it could be if the markets
were jumping and he was to tweet something that suggested
he was going to do some sort of terriff or
something like that that would really hurt interest rates. Well,
that could happen, and it'll be I mean, it just
will be around those announcements. They'll have to, you know,
(19:21):
they have to think that through very carefully. He's going
to be expected to do some stuff he's promised, but
he can't do too much. It'll or blow back on him.
It'll be interesting to see how far as advisors let
him go.
Speaker 1 (19:32):
If a political leader really wants to make things cheaper
for the people who voted for them and let them
keep more of the money that they make, what is
the best way of actually doing that? Is there a
key stat that they should be focused on improving?
Speaker 2 (19:47):
Well, the only way to really make things cheaper is
to genuinely make people wealthier. You know, you've got to
have more more money. It's not more money, that's the
wrong term. It's more wealth. You know, if you legislated
a minimum wage up to thirty dollars in or something
like that, it doesn't translate to everybody suddenly having more
money because of the inflation. It creates the system sort
(20:07):
of got prices and wages intertwined, right.
Speaker 1 (20:10):
So the system will know that you're getting paid more.
Thus cheese goes.
Speaker 2 (20:13):
Up because there's a certain amount of money in the economy,
and you know, there's the financial institutions, the central banks,
the ratings agencies, everybody's keeping track of that. So it's
it's really I mean, it sounds boring because they go
on about this a lot, but it does come back
to productivity and actually generating more wealth per person, more
productivity per person ideally without working harder, working smarter, So
(20:38):
getting the whole nation working smarter, producing more and doing
more without having to work too hard, and generating more
wealth in people bag labor. But Grant Robertson got it too.
I mean, I haven't met many politicians that didn't talk
big about productivity. I just think that they bump up
against you know, there are some arguments that's some big
(20:59):
structural things need to be done to get to improve
productivity in this country, and they tend to bump up
against the day to day politics, and it sort of
means that they're reluctant to do big, bold things, you know.
And we don't have an upper House in New Zealand,
we don't have an executive branch, so you know, we've
got a governor general. But in theory, the US has
got two tiers of government of Parliament or whatever your
(21:22):
congress you'd call it, and an executive branch and a
judicial branch. So it's it's meant to keep power and check.
But it's a balance, you know, you say, vulnerable to
extreme power on the other side. I worry you. You
can go the other way. You can just be gridlocked
or on a stalemate around actually making big change, and
then we're.
Speaker 1 (21:39):
Just stagnant waiting for a highways be built over forty years.
Speaker 2 (21:43):
So you see these reactions from the public, like, after
a while of feeling like we're stagnating whatever, they might
throw power to someone and say, look, just get on
with it and throw a bit more absolute power. You
hope that they don't, you know, you hope they choose
someone who's of good moral care character for that, so
that we don't end up with dictators. So I'm you know,
(22:03):
I don't think I'll comment on with you. This is
landed there.
Speaker 1 (22:07):
Thanks for joining us, Liam.
Speaker 2 (22:08):
Thanks good to be here.
Speaker 1 (22:13):
That's it for this episode of the Front Page. You
can read more about today's stories and extensive news coverage
at enziherld dot co dot enz. The Front Page is
produced by Ethan Seals Richard Martin as the sound engineer.
I'm Chelsea Daniels. Subscribe to the Front Page on iHeartRadio
(22:34):
or wherever you get your podcasts, and tune in tomorrow
for another look behind the headlines.
Kiyota. I'm Chelsea Daniels and this is the Front Page,
a daily podcast presented by the New Zealand Herald. As
votes continue to be counted in the US, President elector
Donald Trump has swept all seven battleground states, confirming his
dominant performance in the country's election. While many were shocked
(00:30):
that the US would return to Trump after four years,
many voters have made it clear their feelings about high
inflation and the cost of living under the Biden administration
swayed them towards the Republicans. It's a similar sentiment that
helped National Act and New Zealand first descend to power
in our election last year. But in a global economic environment,
(00:54):
how much sway does one political leader have over how
much you're paying for grocery and petrol? Today on the
Front Page, we discussed this with NSID Herald Business editor
at Large, Liam Dan. Liam, are you surprised at all
(01:15):
that economic concerns were enough for swing voters to back
Trump in their millions?
Speaker 2 (01:21):
Well, I guess I wasn't surprised. I picked it in
a column in advance, which is I wasn't rocket science.
But the reason I was reasonably comfortable with the prediction
was because I was following financial markets and betting markets
so closely, and the financial markets really thought that Trump
was going to win. The economy in the US sort
of looks good on paper. Inflation is officially back in
(01:41):
its box, but if you think about it, it's still
kind of peak inflation because we're still waiting for wages
to catch up. All the inflation is cumulative, even though
it's now only rising at two percent. Over the last
few years, people have just felt like their worse off.
So I think that's one of the reasons why the
Democrats got punished.
Speaker 1 (01:58):
What has been the state of the u US economy
in the last year. Have they seen much improvement there?
Speaker 2 (02:04):
Yeah, I mean they were one of the They haven't
had a recession, so it's called a soft landing. Given
what we're all going through, and we've been through in
New Zealand, all the stimulus for COVID created the inflation.
Then you've got to take the inflation out by constricting
the money supply, and that in New Zealand's case, has
been such an extreme whip saw sort of thing that
we've gone into recession two or three times and we've
(02:25):
been in this per capita recession some time, so it
hasn't been a soft landing here. It's been rough getting
inflation down. The US managed to do it much better, so,
you know, I guess there's plenty of commentators and economists thinking, well,
Biden's done a good job here, and the US Federal
Reserve done a good job here. They've managed to get
inflation back down to normal levels without a recession. It's
(02:46):
quite rare to get that kind of so called soft landing.
You could make the case that the US economy wasn't
a good spot or isn't a great spot. Their stock
markets have actually been good right through the Biden era,
you know, so it was all good on paper. But
I think I think that was one of the issues
was that Americans, and actually you see it around the world,
people were sick of being told that the economy was
(03:07):
good because it was good on paper. They didn't feel
like it was good, so it wasn't good. And that's
you know that the media, the commentators, the economists, and
the politicians telling them that. There certainly a sort of
a backlash against that.
Speaker 3 (03:21):
So the total back in March of twenty twenty for
this basket of goods yes, I'm an economist. Basket of
goods was one hundred and seventeen dollars and one cent,
and today the same basket of goods would cost you
one hundred and fifty one dollars and ninety nine cents.
That's an increase of a whopping twenty nine point eight
nine percent. That's a solid chunk of change.
Speaker 1 (03:41):
Well, the US has the same issues as US, particularly
with food and energy being more expensive. How much influence
does the person sitting in the White House or at
ten Downing Street or on the ninth floor of the
beehive actually have over those specific costs.
Speaker 2 (04:00):
The cycle economic cycle has been very similar all over
the western world, so you can understand why some people
would say, Look, you're getting obsessed with blaming individual politicians.
It seems to be whoever was in power through the
worst of that spike has been thrown out, and you know,
voters have punished the incumbents generally. There are some areas
(04:22):
of control you could have applied fiscal restraint during that
period would have limited the amount of inflation. So there's
all those big tradeoffs, and I don't want to get
back into that big argument again about how much we
should have done through COVID. There are arguments about the
trade offf the health tradeoff and how much we close
down the borders and how long we're in lockdown all
that sort of stuff because that cost money. And then actually,
(04:43):
you know, in this country there's been arguments about how
tightly the money was held or used and where money's
gone from the COVID budget to other things, and so yeah,
I mean, I think there's definitely you can make arguments
for and against various politicians and political regimes doing better
than others. But I think the general trend over the
last five years since COVID, you can see, really didn't
(05:06):
matter whether you had the Tories and power in the
UK or labor and power in New Zealand. Those broad
trends were pretty universal.
Speaker 1 (05:13):
So it's pretty rare that someone say on the campaign
trial promises to fix the economy being able to actually
fix the economy when push comes to shove.
Speaker 2 (05:22):
Well, it's about fixing the economy overnight. In the end,
really fixing the economy means getting the settings right for
people to sort of create wealth, and that might go
all the way back to having to deal with a
better education system, and it you know, a lot of
people argue it does or some really fundamental settings dealing
with that. The flip side would be dealing with social
(05:43):
inequality because that's slowing our economy because people aren't productive.
But regardless of which political way you look at it,
there are some really fundamental things you need to do.
There are some short term things I guess governments can do.
Depending on their political stripes, you can effectively what the
governments can do, and what central banks also do is
(06:03):
just pump more money into the economy or take more
money out. Any government can pump money into the economy,
central banks can pump money into the economy. But as
we've seen, you know that if you just pump money
in without it being underpinned by real wealth creation and
basically productivity, which by which we mean you know, people
making more stuff or doing more stuff to earn money
(06:23):
for the country from elsewhere in the world, then you're
just creating inflation. So that's one of the things that
government's come up against, is just the ability to really
create long term wealth and to create long term benefits
for the economy. And that's unfortunately the political system's got
this short cycle, so it's easy for politicians to think
(06:45):
short terms, so hopefully they will tend to think a
bit longer term things like infrastructure as well. You know,
you just can't turn on and turn off infrastructure. You've
got to get the planning going over a number of years.
And that's another big key to our economic success.
Speaker 1 (07:08):
Well, the coalition government here has taken credit for positive
economic news throughout this year. But how much of that
is actually because of this government versus the previous government
and versus I guess global economic movements.
Speaker 2 (07:22):
Yeah, that's interesting one. And some of it, you know,
it's the central banks, you know. So inflation has come
right again. I mean, you know, when you look at
the economy and how much stress people are under, I
don't know quite what they'd be taking credit for. Yet again,
it's that thing that the inflation is beaten on paper.
I don't think the public necessarily feels that good about it.
(07:42):
And now, of course you've got because of the higher
interest rates, you've got companies' earnings down and we're in
this recession. So you know, you've got to be cautious
what you take credit for at this point. I think
the government's taking credit for the direction shifting. It was
going to shift anyway, there's no question about that. Question
is how quickly and how efficiently, And I guess National
(08:04):
would argue that the Coalition would argue that it's been
quicker and more efficient under their regime, and that if
labor had come in, maybe the spending would have kept
going and we'd have had inflation for longer and so on.
But a couple of things there. One is that in
actual fact, the last proposed budget under Grant Robertson was
also taking a lot of money out of the economy.
They were tightening up as well. Whether you believe that
(08:25):
they would have would have done that or not, that's political.
So I guess that would have happened. But if even
if labor was looser and inflation lasted longer, you might
have seen the economy roll on a bit stronger. So
it's more of a shorter sharp shock when you have
both the central bank pushing up interest rates and a
government cutting spending. And look, I think they probably have
(08:46):
got it going in the right direction efficiently, you know,
in good time. But how much of the general direction
they can take credit for, I'm not sure.
Speaker 1 (08:55):
When it comes to the US, Trump's big on cutting
regulation and giving people tax cuts. Is that going to
help with the costs on the average American household?
Speaker 2 (09:06):
The tax cuts and the deregulation. They would boost corporate
earnings because he's talking about tax cuts for the corporations
first and foremost, so that the view would be that
they would then be hiring more, can pay more. The
economies booming because America's business is booming. There was talk
of some other tax cuts or tax credits for return
service people, first responder's, all sorts of stuff. There was
(09:27):
a lot promised on the campaign trail, so that could
pump the economy. Their question is can they actually afford it,
because they already have a giant deficit in their government spending.
They don't take enough revenue for all the government spending,
so they have to borrow. And the US government borrows
his borrow trillions, and that means that, you know, they
(09:48):
have to be sensitive to what happens to interest rates
and their ability to borrow further. And some people have
suggested that if Trump was to do all the tax cuts,
then it really would blow out the national debt quite
bad and push interest rates up very high.
Speaker 1 (10:02):
What happens then, if the US was to borrow even
more than it does.
Speaker 3 (10:06):
So now, yeah, I.
Speaker 2 (10:07):
Mean I should say Trump says that his tariffs are
going to pay for all this, right, None of the
economists believe that that's possible. But you know, it may
come down to how big the tariffs are and how
big the tax cuts are in the end. But if
he did the most extreme outer edge stuff, then it
kind of doesn't add up in an orthodox economic way.
It becomes a very big experiment. It's an experiment because
(10:30):
America has never done this before. We've seen other countries
around the world try to do this where governments, you know,
like a socialist government comes in in Venezuela, or we've
seen it in Greece after the GFC, where they've tried
to implement policies that the world's financial markets, the ratings agencies,
and the bond markets have just gone, oh no, that
looks terrible. And you know, they just trade the price
(10:51):
of borrowing up for these nations until they can't borrow anymore,
so that they basically see you as a high risk
and then they say yield, but your interest rates on
those bonds goes through the roof. Sometimes some countries it's
like I think in Greece, it went up by thirty
percent overnight and they just could not borrow anymore. So
they were sunk because they couldn't get any more money,
so they had to go to Europe for bailouts, and
(11:12):
it made a special case. So you know, most countries
in the world come up against bond markets, which is
really just the world's debt market. I loved the idea
that it's the most powerful thing in the world, like
literally the most powerful thing. There's armies, But even armies
need money to run, right, And so without the support
of bond markets, you know, you can't borrow. And the
whole world runs on debt, Like the whole world's economy
(11:35):
is debt fueled. And if you come up against these
bond markets and they say no and you can't get money,
you're really sunk, very very quickly. So there's a famous
line from Bill Clinton's strategist James Carvill, this guy who
once came up with it's the economy stupid. But he
also once said that if reincarnations real, I used to
want to come back as a president or a pope,
(11:57):
but now I want to come back as the bond
markets because they intimidate every one, and it was a
reminder that no one's bigger than those bond markets in
the world. Now, the US might be a special case.
It's hard to know how far they can go. Because
the US is so big and so powerful, and its
currency is the world's reserve currency. It will be interesting
(12:17):
to see how far Donald Trump can push it.
Speaker 1 (12:20):
Well. Stocks on Wall Street closed on record highs the
day after Trump's victory, largely due to confidence in how
his policies will benefit them.
Speaker 4 (12:31):
This is what happens when there's a lot of uncertainty.
People breeze for the worst and then they breathe a
sigh of relief. I mean, the S and P's up
about two point three percent today, which would be the
strongest post election reaction post election d reaction we've seen
since my data started in nineteen fifty. You know, people
are definitely reacting, maybe celebrating, maybe breacing for more.
Speaker 1 (12:55):
That's obviously a vote of confidence for Trump, but he
can't really control if the markets react positively or negatively, right,
and then how the public read that? Can he?
Speaker 2 (13:05):
No, that's right. So the big, big short term bump
for Trump the Trump bump. So there's a few things there.
One was that it was a certain election. There was
no going to court and worrying and having no leadership
in the US, So that was removed so that that
the market's very happy to have that certainty. They were
happy that they didn't get Kamala Harris's tax hikes, so
that was removed. And then in the short term they
(13:27):
see a lot of benefit from Trump coming in. Tech
stocks are really happy about this deregulation stuff. There'll be
deregulation around oil, around banking, so it'd be easier for
them to do business that reduces costs, and then if
they get a tax cut as well, they're basically going
to be more profitable. So that's the short term thing.
There are risks there there. I mean, you know, but
markets at this level aren't aren't trading that risk yet.
(13:49):
The risks are that in the longer term, because we've
seen bond yields rise all the way through. They picked
Trump coming in, so bond yields rose in the weeks
and I should just say interest rates basically rose in
the weeks ahead of Trump coming in, and then they've
continued to rise. And normally when interest rates are rising
on financial markets equities are going down, so that it's
a weird thing both going up at once and you know,
(14:11):
longer term, I guess the markets could turn against Trump,
and that to me when you look at how powerful
he is right now, Like he's got the Senate and
he's got such control of that Republican Party, and he's
probably going to get the rest of the House of Congress,
and so then he'd have the three branches. He's kind
of got the Supreme Court stacked as well, so that's
really the four branches of US power. So he's got
(14:33):
complete political control and that that really just leaves that
financial market, bond markets, equity markets, basically Wall Street as
the curb on his power.
Speaker 1 (14:54):
We saw the opposite of that support in twenty twenty
two in the UK, wh Trust's short lived government announced
forty five billion pounds in tax cuts without properly funding them.
The markets reacted negatively and the country went into crisis
mode and Trust was gone as we know shortly after.
(15:15):
So do they have the real power here? Is that
getting a bit too much into tenfoil hat territory?
Speaker 5 (15:22):
No?
Speaker 2 (15:22):
I think they do. It's kind of weird, like for
people you know about ten foil hats. People talk about
the deep state. What is the deep state? What is
the establishment? What's the most powerful end of it? And
that's why I keep coming back to financial markets. There
is this kind of non political structure around global debt
markets and you know, and equity markets that is kind
of like a deep state. And yeah, like this Trust
(15:43):
wasn't in a powerful position to start with. The Tories
weren't in a powerful position. The UK was economically shaky
after Brexit, so she didn't have a lot of power
to push that through and it sure sunk her. Yeah,
as I mentioned earlier, we've seen it happen, and lots
of other countries around the world, smaller countries, New Zealand
would to do anything unorthodox again in the face of
financial markets, given how much debt we.
Speaker 5 (16:04):
Have quote the current trajectory of debt is concerning. New
Zealand are currently running physical deficit about two point four
percent of GDP. It's structural, meaning it is not solely
the result of the current economic downturn. The Treasury estimates
that we would be in deficit even if the country
was a normal economic times rather than recession.
Speaker 4 (16:26):
You're talking about two point four percent of GEPP.
Speaker 2 (16:29):
That's tiny in comparison to our external debt, which is
currently I think running at forty to fifty percent. The US,
as I say, could be different or is more powerful.
I would say though, that Trump has kind of staked
his reputation on being the Wall Street guy, the big
market guy who knows how Wall Street works and has
(16:50):
got them on side. So he couldn't really afford to
get too far offside with them. And there are a
lot of powerful backers around him, as financial backers, Elon
Musk and those people that obviously don't want the whole
thing tanking. They don't want to see the US economy tank.
You know, as much as we might want to call
him autocratic or authoritarian, he's not likely to completely go
(17:12):
off script. I mean, it's not really something that he
could get away without. I imagine some quite powerful forces
around him, even in his close circle, sort of pulling
him back. And so I think, you know, he'll have
to deliver some form of tax cut, some form of deregulation.
He'll have to deliver some tariffs. Whether they are at
the extremes of what he promised over the campaign probably
(17:34):
doesn't matter. People probably forget the details of exactly what
he said. They seem to have short memories about most
most things, he says.
Speaker 1 (17:41):
I recall when he was president last time, all he
would have to do is tweet something and it would
change the markets, right, And he does have a tendency
to say something quite crass or be quite reactive to things.
And also his relationships with other world leaders such as
Kem jong un and Aldamir Putin to name just a couple.
(18:02):
Could those things be his downfall when he's trying to
correct the US economy, those little things that perhaps could
reverse or slow down his ambition to do so.
Speaker 2 (18:15):
I suppose the geopolitical thing is a big, big issue obviously,
just for the you know, the state of lay in
Ukraine and Middle East and all that sort of stuff,
and the relationship with China. But as to the little things,
I wonder if we've become a bit immune to his unpredictability,
Like it's so predictable that he's going to say these
random things. And I think that's probably was evident through
(18:37):
the campaign and the result in the election is that
people just aren't taking it literally, so they've all we've
brought into this idea that you don't worry too much
about what he sees. You just look at what he does,
even though that unfortunately doesn't give us any any foresight
into what might be coming. But already, you know, things
like the cryptocurrency and bitcoin are through the roof, So
(18:59):
that's stuff that reactive stuff's already just totally excited by
his return. You know, it could be if the markets
were jumping and he was to tweet something that suggested
he was going to do some sort of terriff or
something like that that would really hurt interest rates. Well,
that could happen, and it'll be I mean, it just
will be around those announcements. They'll have to, you know,
(19:21):
they have to think that through very carefully. He's going
to be expected to do some stuff he's promised, but
he can't do too much. It'll or blow back on him.
It'll be interesting to see how far as advisors let
him go.
Speaker 1 (19:32):
If a political leader really wants to make things cheaper
for the people who voted for them and let them
keep more of the money that they make, what is
the best way of actually doing that? Is there a
key stat that they should be focused on improving?
Speaker 2 (19:47):
Well, the only way to really make things cheaper is
to genuinely make people wealthier. You know, you've got to
have more more money. It's not more money, that's the
wrong term. It's more wealth. You know, if you legislated
a minimum wage up to thirty dollars in or something
like that, it doesn't translate to everybody suddenly having more
money because of the inflation. It creates the system sort
(20:07):
of got prices and wages intertwined, right.
Speaker 1 (20:10):
So the system will know that you're getting paid more.
Thus cheese goes.
Speaker 2 (20:13):
Up because there's a certain amount of money in the economy,
and you know, there's the financial institutions, the central banks,
the ratings agencies, everybody's keeping track of that. So it's
it's really I mean, it sounds boring because they go
on about this a lot, but it does come back
to productivity and actually generating more wealth per person, more
productivity per person ideally without working harder, working smarter, So
(20:38):
getting the whole nation working smarter, producing more and doing
more without having to work too hard, and generating more
wealth in people bag labor. But Grant Robertson got it too.
I mean, I haven't met many politicians that didn't talk
big about productivity. I just think that they bump up
against you know, there are some arguments that's some big
(20:59):
structural things need to be done to get to improve
productivity in this country, and they tend to bump up
against the day to day politics, and it sort of
means that they're reluctant to do big, bold things, you know.
And we don't have an upper House in New Zealand,
we don't have an executive branch, so you know, we've
got a governor general. But in theory, the US has
got two tiers of government of Parliament or whatever your
(21:22):
congress you'd call it, and an executive branch and a
judicial branch. So it's it's meant to keep power and check.
But it's a balance, you know, you say, vulnerable to
extreme power on the other side. I worry you. You
can go the other way. You can just be gridlocked
or on a stalemate around actually making big change, and
then we're.
Speaker 1 (21:39):
Just stagnant waiting for a highways be built over forty years.
Speaker 2 (21:43):
So you see these reactions from the public, like, after
a while of feeling like we're stagnating whatever, they might
throw power to someone and say, look, just get on
with it and throw a bit more absolute power. You
hope that they don't, you know, you hope they choose
someone who's of good moral care character for that, so
that we don't end up with dictators. So I'm you know,
(22:03):
I don't think I'll comment on with you. This is
landed there.
Speaker 1 (22:07):
Thanks for joining us, Liam.
Speaker 2 (22:08):
Thanks good to be here.
Speaker 1 (22:13):
That's it for this episode of the Front Page. You
can read more about today's stories and extensive news coverage
at enziherld dot co dot enz. The Front Page is
produced by Ethan Seals Richard Martin as the sound engineer.
I'm Chelsea Daniels. Subscribe to the Front Page on iHeartRadio
(22:34):
or wherever you get your podcasts, and tune in tomorrow
for another look behind the headlines.
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