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Speaker 1: Father due to see us. Jeremy Hasson Milford asset management

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Speaker 1: with me right now, how.

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Speaker 2: Jeremy, 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 1: 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 between 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 reducing.

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Speaker 2: So Trump and other governments around the world have been

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Speaker 2: pretty active in calling for lower interest rates to try

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Speaker 2: and keep the government solvent and keep government finances in checks.

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Speaker 2: So a blurring of the lines between central 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 inflation and economies and

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Speaker 2: achieve price stability. But if they're forced to address government

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Speaker 2: debts or government solvency, as 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.

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Speaker 1: Yeah, is this why we've seen Trump constantly calling for

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Speaker 1: the Fed to cut rates? And are there any risks

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Speaker 1: in New Zealand of this?

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Speaker 2: Yeah, the US is likely creeping closer to this fiscal

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Speaker 2: dominance concept and replacing a traditional independent monetary policy. And

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Speaker 2: you know, Trump has been very vocal calling for these

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Speaker 2: lower rates, but it does come with those risks of

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Speaker 2: inflation in the future. Now in New Zealand, you know,

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Speaker 2: we're even more proud of this monetary policy independence, and

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Speaker 2: it is more important for a small, open economy like

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Speaker 2: New Zealand that relies heavily on global debt markets. But

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Speaker 2: you have seen a little bit of gentle prodding by

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Speaker 2: the government, but ultimately that's likely all it will come

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Speaker 2: to here in New Zealand. 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 bombs. 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 pressures,

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Speaker 2: potentially a loss in confidence and currency, so a lower

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Speaker 2: UIs dollar and those real assets like gold will continue

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Speaker 2: to do very well.

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Speaker 1: For more from Heather Duplessy Allen Drive. Listen live to

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