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Jeremy Hutton: Milford Asset Management expert on Government debt levels rising globally · Best of Business

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  Speaker 1: You're listening to a podcast from News Talks B Follow
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  Speaker 1: this and our wide range of podcasts now on iHeartRadio. Heather,
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  Speaker 1: do to see us. Jeremy Hasson Milford Asset Management with
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  Speaker 1: me right now, how Jeremy.
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  Speaker 2: Good evening, Heather.
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  Speaker 1: Now, government debt levels arising. We've got and this is globally.
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  Speaker 2: We've got the interest bills for government's huge and growing issue.
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  Speaker 1: A concept of fiscal dominance is emerging. What is this
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  Speaker 1: all about?
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  Speaker 2: Yeah, many governments globally are at risk of permanent structural
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  Speaker 2: deficits in their finances, particularly if they can't cover their
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  Speaker 2: interest bills each year or even try and reduce their
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  Speaker 2: heavy debt loads. As we know, cutting spending and increasing
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  Speaker 2: taxes is obviously very unpopular with the voters. So politicians
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  Speaker 2: are looking at some rather unusual ways at trying to
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  Speaker 2: reduce the annual interest bill, and one of those is
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  Speaker 2: trying to order central banks to lower interest rates. Or
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  Speaker 2: this concept called fiscal dominance, and this is the primary
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  Speaker 2: driver of the ongoing stash. President Trump and Jerome Powell.
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  Speaker 2: We know the US government deficit is pretty much out
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  Speaker 2: of control and there's no real trajectory of it ever
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  Speaker 2: reducing So Trump and other governments around the world have
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  Speaker 2: been pretty active in calling for lower interest rates to
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  Speaker 2: try and keep the government solvent and keep government finances
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  Speaker 2: and checks. So a blurring of the lines between central
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  Speaker 2: banks and governments.
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  Speaker 1: And undermining, isn't it of the independence of central banks?
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  Speaker 2: Yeah? Of course, So central banks they primarily use interest
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  Speaker 2: rates as a tool to control and inflation and economies
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  Speaker 2: and achieve price stability. But if they're forced to address
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  Speaker 2: government debts or government solvency is their primary issue, then
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  Speaker 2: they do risk losing control of this inflation and independence
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  Speaker 2: as well. And most developed economies they operate and pride
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  Speaker 2: themselves on the central bank independence and it is an
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  Speaker 2: important way to keep the confidence in the economy and
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  Speaker 2: the country. So it would be a big divergence for
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  Speaker 2: financial markets to potentially digest if this fiscal dominance scenario
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  Speaker 2: played out. Yeah, is this why we've seen Trump constantly
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  Speaker 2: calling for the Fed to cut rights And are there
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  Speaker 2: any risks in New Zealand of this? Yeah, the US
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  Speaker 2: is likely creeping closer to this fiscal dominance concept and
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  Speaker 2: replacing a traditional independent monetary policy. And you know, Trump
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  Speaker 2: has been very vocal calling for these lower rates, but
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  Speaker 2: it does come with those risks of inflation in the future.
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  Speaker 2: Now in New Zealand, you know, we're even more proud
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  Speaker 2: of this monetary policy independence and it is more important
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  Speaker 2: for a small, open economy like New Zealand that relies
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  Speaker 2: heavily on global debt markets. But you have seen a
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  Speaker 2: little bit of gentle prodding by the government, but ultimately
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  Speaker 2: that's likely all it will come to here in New Zealand.
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  Speaker 2: Nothing more aggressive aggressive than that.
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  Speaker 1: Where does the market react to this fiscal dominance.
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  Speaker 2: Yeah, the base case for markets is they are assuming
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  Speaker 2: that central banks retain this independence. But you know, if
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  Speaker 2: there is more evidence of a crossover, particularly in the US,
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  Speaker 2: then this does pose risks to the global economy, particularly
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  Speaker 2: in interest rates and bonds. And this concept can explain
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  Speaker 2: some of the recent very strong moves in gold and
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  Speaker 2: maybe even bitcoin two to a lesser extent. So you know,
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  Speaker 2: fiscal dominance scenario, it's going to lead to further inflationary
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  Speaker 2: press pressures, potentially a loss in confidence and currency, So
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  Speaker 2: a lower UIs dollar and those real assets like gold
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  Speaker 2: will continue to do very well.
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