Beware economists predictions of the end of the world!

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Forums › Finance and wealth management › Beware economists predictions of the end of the world!

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martyyn

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#2751182 28-Jul-2021 13:53

Handle9:

Sure.

15 years ago was 2006. Two years after that was 2008 when retail interest rates were in double figures.

I don't recall paying anything more than 6-7% on a mortgage rate since.

frankv

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#2751184 28-Jul-2021 13:57

Handle9:

They are also trying to predict something with many variables. It's not an exact science.

It's a dismal science. (as per Thomas Carlyle)

Earbanean

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#2751185 28-Jul-2021 13:58

martyyn:

About 15 years ago I knew a chief economist with a major bank. Every time mortgage rates came up in the conversation he would tell me they were predicted to be going back to double figures and anyone taking out a mortgage at the time would struggle to afford the payments in a couple of years.

Yeah, well. We all know how that worked out.

I know, dumb right? How the hell did they not know that Christchurch would be levelled by an earthquake and a global pandemic would close our borders and lock us in our homes (amongst other highly predictable events).

tripper1000

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#2751186 28-Jul-2021 13:59

Geektastic: It's hardly unfair. These people are supposed to be professional. They're foolish in expressing themselves in such a way as to create a hostage to fortune.

Also it's notable that all the economists in NZ appear to work for banks. There's rarely if ever comments from private economic think tanks.

The mistake here is not the economists but the reader hanging their hopes on a single article.

The paper just predicts every outcome. I guarantee there was an article the same week from the same organisation saying everything was going to be roses. You've just not played their game properly when you pointed out when they were wrong instead of where they were right.

Economists don't predict the future, like you/the paper expects, they help you to control the future.

It's the same as a roofer who can't accurately tell you when your existing roof will start leaking, but can control the leaks in your roofs future by making you a new roof that will last years to come.

Difference is that the economy is dynamic and reactive, and other peoples efforts, peoples emotions, viruses etc all change it as well.

The above conversation, hinges around the USA banks economists controlling their futures by reducing exposure (putting their cash into paying back their Govt loans and not relending it to marginal customers).

Edit: spelling and grammar.

Handle9

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#2751187 28-Jul-2021 14:01

Earbanean:
martyyn:

About 15 years ago I knew a chief economist with a major bank. Every time mortgage rates came up in the conversation he would tell me they were predicted to be going back to double figures and anyone taking out a mortgage at the time would struggle to afford the payments in a couple of years.

Yeah, well. We all know how that worked out.

I know, dumb right? How the hell did they not know that Christchurch would be levelled by an earthquake and a global pandemic would close our borders and lock us in our homes (amongst other highly predictable events).

Yip. It's a forecast based on what is known at a given point in time. Nothing more, nothing less.

Dynamic

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#2751188 28-Jul-2021 14:01

martyyn:

I don't recall paying anything more than 6-7% on a mortgage rate since.

My floating rate was at about 10.5% for a while.

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Handle9

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#2751189 28-Jul-2021 14:03

martyyn:
Handle9:

Sure.

15 years ago was 2006. Two years after that was 2008 when retail interest rates were in double figures.

I don't recall paying anything more than 6-7% on a mortgage rate since.

I do, quite vividly. It wasn't pleasent.

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timmmay

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#2751202 28-Jul-2021 14:11

MikeB4:

The Reverse Bank rate has not gone up yet.

True. Mortgage rates have gone up with inflation, and all reports suggest an increase in the OCR over the next 6 - 12 months, including one next month. We actually broke our current 1 year fixed mortgage and fixed at a higher rate for 5 years as my relatively uninformed guess is rates will tick up slowly now. I tend to back myself with guesses like this, I've done OK so far. I read what economists say if it's in the newspaper, but often disagree with them.

tripper1000

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#2751203 28-Jul-2021 14:12

martyyn:

I don't recall paying anything more than 6-7% on a mortgage rate since.

https://teara.govt.nz/en/graph/23100/interest-rates-1966-2008

https://www.interest.co.nz/charts/interest-rates/mortgage-rates

I really worry about people who think double digit interest rates aren't going to/can't happen.

The Govt is to, hence LVR ratios and capital/cash holding rules for the banks.

We are going to see some savage mortgage defaults in the future.

Dratsab

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#2751215 28-Jul-2021 14:28

tripper1000: We are going to see some savage mortgage defaults in the future.

Agreed. No one actually knows when though - that includes the doom and gloom economists who get paraded by the media almost every day. Hence I've been overpaying my mortgage as much as I can while the going's good and keeping underneath the overpayment penalty rate. It not only means I'm currently reducing the predicted amount of interest I'll pay in the long term, but I also have the ability to soak up [significant] interest rate rises. Those who are on the edge and/or are over capitalised probably won't have this luxury.

ezbee

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#2751434 28-Jul-2021 19:40

I have wondered how much of Don Brashes not inconsiderable assets were in property,
given all the years he spent telling NZers to get out of property, no future in it, surely none in his investment portfolios ?

Well I suppose the economic crash will not effect internet infrastructure, or how will you access that bitcoin ?

We have been good at protecting speculation in recent times, so naturally highly geared speculation has twisted our economy.
To double down on this we have also been opened up to international speculation and money looking for a place to hide.

A relatively small economy can have its controls overshadowed by the power of these global capital movements.

Geektastic

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#2752066 29-Jul-2021 23:19

frankv:
Geektastic: It's hardly unfair. These people are supposed to be professional. They're foolish in expressing themselves in such a way as to create a hostage to fortune.

Also it's notable that all the economists in NZ appear to work for banks. There's rarely if ever comments from private economic think tanks.

The whole point of economics is to predict. So economists must make predictions. Presumably their economic models will in future include parameters relating to pandemics and lockdowns.

Presumably private think tanks are using their presumably better economic models for the benefit of their paying clients.

I wonder if any of them predicted the covid-created construction/car sales/asset purchasing boom, which presumably was behind the RB not lowering the OCR again? Certainly no-one I know did.

It is. However expressing your predictions as certainty rather than as predictions is not wise.

They're still at it, claiming in today's papers that interest rates will be over 4% by the end of next year. It's just as likely that they will get cut in response to a second lockdown to be honest.

They're only one step away from inspecting a goat's entrails like a haruspex to get the answer.

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