Why cost-of-living concerns are up-ending global politics

Two countries, two elections, two very different results.But the political upheaval in both was driven by the same economic forces running rampant across the globe.Soaring inflation globally has spurred voters to up-end the political status quo in both the United States and New Zealand in the past week.While the Trump administration was humiliated by the massive swing against it in America's midterms, NZ's political fate is still too close to call after several high-ranking ministers were turfed out of office.In both cases, cost-of-living pressures loomed large over voters as governments and central banks globally struggle to contain a pricing breakout dumped upon them by Donald Trump's ill-fated decision to bomb Iran.Both election results will have a profound impact on Australia.America, our defence partner and a magnet for Australian superannuation funds, is key to the prosperity of many Australians, while NZ's floundering economy in the past four years has a significant impact on the size of Australia's workforce.Investors are reconsidering AI's future in light of the Democrats' midterm election victory. (Reuters: Max A. Cherney)After the US midterm results were largely welcomed by Wall Street investors on Wednesday, the technology-heavy Nasdaq exchange experienced a brutal sell-off on Thursday night before partially recovering on Friday.Investors remain twitchy about how Democrats will view the AI boom.A growing international backlash against the construction of massive data centres in urban and rural areas has raised fears that the expected pay-off for the massive investments in artificial intelligence will be seriously delayed, causing a major market correction.The results of both elections, however, highlight the growing impotence of governments and central banks in curbing inflation after three decades of artificially low interest rates fuelled an explosion in debt at a government, corporate and household level.Swimming in debtLast year, global government debt hit a staggering $US112 trillion ($162 trillion), with America accounting for the lion's share: about 38 per cent.As inflation remained bottled up since the late 80s, interest rates declined, particularly after market upheavals such as the tech wreck and the Global Financial Crisis, and tapped out in negative territory during the pandemic.That encouraged governments to run ever-expanding deficits. And while consumer price inflation remained in the doldrums, asset prices soared.The cost of housing doubled and then trebled in many of the world's developed economies as stock markets continually hit new records, creating a growing wealth chasm within many societies.That is now bubbling over into a wellspring of discontent.And it has occurred at a time when the cost of servicing public debt has soared, leaving governments hamstrung in their ability to alleviate the growing inequality within society or, in the case of many developing nations, unable to provide basic services.The war in Iran and massive tax cuts for the wealthy have blown American government debt out to 126 per cent of GDP with little scope for reversing the trend. And whichever party tries to scale back will be deeply unpopular.Australia's government debt, meanwhile, sits at 33 per cent, low by international standards but expanding as a result of ongoing budget deficits.Cost-of-living pressures loomed large over the New Zealand election. (Reuters: David Rowland)Kiwis heading westThe New Zealand economy has been in and out of recession since the pandemic.While technically that no longer is the case, growth is anaemic and twitchy.The National Party government led by Christopher Luxon, elected three years ago on a platform of reining in inflation and promoting growth, has struggled to live up to the promises.Hence the backlash over the weekend.Luxon and his predecessor, Jacinda Ardern, are not entirely to blame for the country's economic woes.Much of that can be traced home to the Reserve Bank of New Zealand, which adopted a gung-ho attitude to killing inflation after the Russian invasion of Ukraine.The world's first central bank to raise interest rates, it sent them to 5.5 per cent, tipping the country into debilitating recessions on several occasions.The official cash rate is now at 2.75 per cent, but with soaring fuel prices, inflation is again well outside the target zone at 3.7 per cent. With growth so patchy, raising interest rates isn't much of an option.As with Australia, wage growth has lagged inflation, eroding workers' living standards amid a growing sense of frustration.NZ, however, does have a safety valve. It's called Australia.Whenever economic conditions deteriorate, many Kiwis simply pack up and head west for work.With little or no visa requirements and with generally higher wages, it's a no-brainer.During the past few years, Kiwis have been heading across the Tasman in numbers only ever exceeded in 2012, in the aftermath of the GFC.In the three years to mid-2026, about 120,000 Kiwis headed to Australia, with a smaller number heading home.Given what RBA governor Michele Bullock has described in recent years as a tight labour market in Australia, the influx was a welcome trend, adding skilled workers to the mix here.Without it, NZ's jobless rate of 5.7 per cent would be much higher, and unless the country's economic woes are addressed, expect elevated levels of trans-Tasman migration in the next few years.But after five rate hikes here this year, continued net migration to Australia is likely to put pressure on our rising unemployment rate.Wall Street wobblesWhile the risks of a sovereign debt crisis continue to mount, they have been overtaken in the past month by fears of a shake-out on Wall Street, and particularly AI stocks.Those concerns coalesced last on Thursday night, just a day after the Trump administration was shaken to the core by the overwhelming rejection of American voters in the midterms.The day before, immediately after the results, markets boomed in the hope that Trump would walk away from his war with Iran, allowing stability to return to energy markets, the main driver of the inflation blowout this year.But concerns that Democrats would now impose controls over data centre construction sent Wall Street into a tailspin, with tech stocks shedding about 6 per cent.Given Australian superannuation funds have as much as 20 per cent of investments parked on Wall Street, with the vast bulk of that $800 billion in technology stocks, the US economy and Wall Street's performance have a direct impact on the wellbeing of most Australians.November is generally a good month for US stocks. And, according to former investment banker Mike Mangan, a Republican loss in the midterms is almost a guarantee of outsized performance.Ever since Eisenhower lost Congress in the 1954 midterms, a Republican president losing in the midterms has returned an average of 2.1 per cent the following month."Only once in 1974 did this not happen," Mangan says.Over three months and over a year, the returns were spectacular.But this year is unlike most others. Soaring inflation, the worst energy crisis in half a century, a stock market that has run hard for a very long time and growing unrest on the streets.Like many other countries, the opposing party didn't win; it was the ruling party that lost. And unless the Democrats can take action to turn the country around, they are likely to suffer the same fate down the track as increasingly desperate voters shift politics from the centre to the extremes.