RBNZ printed 71 Billion during Covid Response

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Forums › Finance and wealth management › RBNZ printed 71 Billion during Covid Response

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GV27

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#2995688 14-Nov-2022 06:48

Handle9:

Nah. Every currency has dropped massively against the USD.

The NZD has recovered against the AUD in the last two months and is approaching its 5 year mean value.

"Nah"? The 'Five year mean' means nothing when prices have already been spiked because the dollar already tanked. We didn't just drop against the USD. We dropped against almost everything. Even the yen, a currency used by a country that is demographically and monetary-policy wise, effectively broken.

The drop in the NZD starts when inflation took off in NZ - in late 2021, before the war in Ukraine really took off. When it became obvious RBNZ was going to tow the Fed line and say it was 'transitory' instead of actually reining it it, like they were meant to. Again, something they've already acknowledged.

Only an extremely belated tightening cycle that has gotten it back on track. But the reality is the dollar something like 10% of its value while people sat around wondering where all this imported inflation was coming from. And even then that reversal is an extremely recent thing; we spent ten months declining and it looks like we bottomed out in early October.

Lastman

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#2995689 14-Nov-2022 07:09

Earbanean:

robjg63:

Always loved NZers amazing ability to be 'wise' after any event....

Also the ability to ignore the same thing happening in the rest of the world and fixate that "it's only a problem here".

Exactly. People seem to have forgotten that at the time the economic forecasts were dire. Treasury were warning of over 10% unemployment, mass business failures etc. Quantitative easing was the answer. I don't remember Luxon, Seymour or anyone else saying "no, don't do it". Now everyone is Harry Hindsight.

There was a cost to saving people's jobs and businesses. Now it's time to pay the piper.

I can’t agree with this view. We were a country with relatively low government debt (in contrast high levels of personal debt).

We are now in a position of relatively high government debt and growing and severely high inflation, way beyond the Reserve Banks mandate. I don’t believe we should have given up this position so lightly unless it was a much more significant event. I think that if the government and Reserve Bank had been more of a reacter to economic events than try to assume what was going to happen we would have been in a better position. After all, they are now a reacter to inflation which not all countries have let out of control.

The kicker for me was the Herald article opinion piece by the Reserve Bank governor which in which he stated that the runaway property market was not due to low interest rates. There’s a man who doesn’t understand basic economics.

Handle9

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#2995696 14-Nov-2022 07:52

New Zealand still has very low levels of government debt relative to most other economies we compare ourselves to. It’s roughly half of Australia’s relative to GDP. It’s a falacy to say that New Zealand now has high levels of government debt.

If New Zealand had made more sensible investments it would be higher but also GDP would be higher but New Zealanders are phobic about government debt.

Geektastic

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#2995703 14-Nov-2022 08:13

Earbanean:

surfisup1000:

It means a good deal of today's inflation is caused by government. Despite what they might say.

Next year will be horrendous economically... that money doesn't just disappear. . . it is all going directly into making goods and services more expensive.

The RBNZ is not the Government.

If you believe that, I have a bridge to sell you.....

It might technically not be the government but there is no doubt it is heavily influenced.

Geektastic

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#2995711 14-Nov-2022 08:31

GV27:

Earbanean:

The OP and linked article were specifically about the quantitative easing and the amount of it - not the timing of when the RB began to hike the OCR. The hindsight refers to belated criticism of that easing - which almost no one did at the time.

No one questioned it at the time because RBNZ forecasts were showing a cataclysmic scenario when that decision was made. It never eventuated, but we continued to act like it was right around the corner.

Even today, RBNZ is still missing the mark in inflation and wage growth forecasts.

The amount of easing makes the failure to hike the OCR faster than they did even harder to justify.

As long as the OCR is below the inflation rate, RBNZ is diverging from the Phillips curve approach.

There are huge issue around the credibility of RBNZ to restore the inflationary environment in NZ to a sensible level and these issues and on-going misses should not considered in isolation.

They are all missing the mark. I came across a Stuff article from as recently as May this year in which a whole collection of senior bank economists were stating that the OCR would top out at 3.25%. It is 3.5% today and expected to hit over 4.5% next year (and I think that is at least 3% lower than it will hit).

Either the myriad of talking head economists we have are simply not worth the money someone pays them (we may as well ask Mystic Meg to read tealeaves) or there is a deliberate ploy to avoid panicking the populous by telling them the actual number interest rates are likely to reach along the frog in boiling water principle.

The Fisher Equation can give you an indication of what might be required. If you want an effective interest rate of 5% in an economy with 10% inflation you would require nominal interest rates of 15%.

I am certainly not an economist but that seems far more likely to be closer to where we are heading to me than anything being touted by the MSM etc. 5 year rates (a good indicator of where banks think things are going) are as high as 7.2% today.

If inflation is not trending down by Q2 next year I expect to see those rates increasing. A lot.

nic.wise

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#2995716 14-Nov-2022 08:39

if this topic at all interests you, go read Bernard Hickey. Esp

https://thekaka.substack.com/p/a-post-mortem-on-an-inter-generational#details

$8 a month (just like Twitter) and you’ll learn from someone with an actual clue. He’s opened a few of the posts recently (ie you don’t have to pay for them). The podcasts are generally worth listening to, they are not just a reading of text (well, I presume they are not, I seldom read the text 😎)

Nic Wise - fastchicken.co.nz

GV27

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#2995744 14-Nov-2022 09:27

nic.wise:

$8 a month (just like Twitter) and you’ll learn from someone with an actual clue. He’s opened a few of the posts recently (ie you don’t have to pay for them). The podcasts are generally worth listening to, they are not just a reading of text (well, I presume they are not, I seldom read the text 😎)

The really spicy stuff ends up on interest.co.nz for free 😅 So you can keep your $8 a month for Twitter and use it to pose as a verified RBNZ Governor and just fire out as many memes as possible.

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amanzi

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#2996064 14-Nov-2022 15:58

Did anyone listen to Hickey's podcast with Nicola Willis this week? It was on the Spinoff network: https://thespinoff.co.nz/podcasts/when-the-facts-change

According to Nicola Willis, there was a cross-party letter drafted to the government back in July asking for the independent review - signed by National, Act, Māori Party, and the Greens. But all the reporting I can find on this makes it sound like it was just the opposition calling for the review. In my mind, if this review was requested by all other parties, Labour should have paid more attention to it rather than just reappointing Orr for another 5-year term.

The podcast is worth a listen to because it explains the very topic discussed in this thread and why the review is needed. And Hickey does a great job of explaining the history of the RBNZ, the levers that it can pull to affect the economy, and how this has changed in recent years.

amanzi

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#2996068 14-Nov-2022 16:01

nic.wise:

if this topic at all interests you, go read Bernard Hickey. Esp

https://thekaka.substack.com/p/a-post-mortem-on-an-inter-generational#details

$8 a month (just like Twitter) and you’ll learn from someone with an actual clue. He’s opened a few of the posts recently (ie you don’t have to pay for them). The podcasts are generally worth listening to, they are not just a reading of text (well, I presume they are not, I seldom read the text 😎)

It's actually $15.83 per month if paid annually in advance, or $19 per month if paying monthly. I wish I could justify it, but subscription-creep is a thing and I'm already paying a not insignificant amount each month on news sites. Hickey himself did a podcast episode on the risks of subscription-creep!

hsvhel

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#2996681 15-Nov-2022 15:15

networkn:

Earbanean:

Exactly. People seem to have forgotten that at the time the economic forecasts were dire. Treasury were warning of over 10% unemployment, mass business failures etc. Quantitative easing was the answer. I don't remember Luxon, Seymour or anyone else saying "no, don't do it". Now everyone is Harry Hindsight.

There was a cost to saving people's jobs and businesses. Now it's time to pay the piper.

You seem to have failed to recall the lengths that Labour went, to exclude the opposition from it's plans during the pandemic. Given Labour have full power, what good would protesting have done regardless? I told you so isn't a particularly useful phrase.

I'd be interested to know the 71B was justified as required, as opposed to a smaller amount for example?

This is "the most open, transparent and trustworthy" govt ever, don't forget/.

Just ask........

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Geektastic

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#3000692 24-Nov-2022 08:42

I refer to my post above…

The water the frog is in has just had the heat turned up. I seriously doubt the 5.5% OCR peak will in fact turn out to be true.

We’ll see floating rates over 10% before the end of next year I think. The results in the housing market will not be pretty.

Batman

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#3000699 24-Nov-2022 08:49

Geektastic: I refer to my post above…

The water the frog is in has just had the heat turned up. I seriously doubt the 5.5% OCR peak will in fact turn out to be true.

We’ll see floating rates over 10% before the end of next year I think. The results in the housing market will not be pretty.

will they print more money to fix that?

Geektastic

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#3000721 24-Nov-2022 09:51

Batman:

Geektastic: I refer to my post above…

The water the frog is in has just had the heat turned up. I seriously doubt the 5.5% OCR peak will in fact turn out to be true.

We’ll see floating rates over 10% before the end of next year I think. The results in the housing market will not be pretty.

will they print more money to fix that?

Your guess is as good as mine although one would hope that they have realised that does not work very well....!

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