RBNZ engineering our next recession

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Forums › Finance and wealth management › RBNZ engineering our next recession

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#3001222 25-Nov-2022 10:36

GV27:

I did not say they were home grown. I'm saying we made them worse by being slow to lift the OCR and as a result, the dollar has slid much more than it might otherwise have been expected to.

Like I say, if inflation going on around the world is going to effect us, then it's even more important we get the bits we can control right. We have not. It's that simple. And despite the huge issues we now face, we have a central bank now needing to engineer a recession to right the ship.

The fact central banks around the world have gotten this wrong is also reflected in the huge drop in credibility that central banks are facing. Actions have consequences, but not in NZ. Here's it's 'five more years'.

In the debate about local and imported inflation you stated it was largely local.

Re central banks, it appears they are all incompetent? If they all got it wrong and they are the experts then they must all be incompetent? I just cannot see how they ALL got it wrong, who would have done better? Where are they? IMO the multiple headwinds were not as foreseeable as you may think. Otherwise there would be a mix of first world countries doing rather well and others as bad as NZ is. I don't see that

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#3001226 25-Nov-2022 10:40

Eitsop:

In the same vein Luxon is likely to dump the National Party's proposal to reduce tax for the highest income bracket. At this time it seems he's still considering the others although it might be a climb down from there slowly. Realistically nobody wants to see a UK style crash approaching because of policy like that.

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#3001229 25-Nov-2022 10:48

gzt:
Eitsop:

In the same vein Luxon is likely to dump the National Party's proposal to reduce tax for the highest income bracket. At this time it seems he's still considering the others although it might be a climb down from there slowly. Realistically nobody wants to see a UK style crash approaching because of policy like that.

Just as well Truss happened for the sake of NZ

GV27

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#3001254 25-Nov-2022 11:17

tdgeek:

In the debate about local and imported inflation you stated it was largely local.

Re central banks, it appears they are all incompetent? If they all got it wrong and they are the experts then they must all be incompetent? I just cannot see how they ALL got it wrong, who would have done better? Where are they? IMO the multiple headwinds were not as foreseeable as you may think. Otherwise there would be a mix of first world countries doing rather well and others as bad as NZ is. I don't see that

There needs to be a distinction here between what is tradeable and what is non-tradeable. An increase in oil prices creates a ripple effect that drives a lot of inflation that eventually manifests in as price pressure in multiple areas. Having the currency drop off a cliff because you aren't hiking the OCR fast enough to get ahead of inflation is one way to make that worse.

As for as foreseeing headwinds go: actual, measured inflation and house prices were running hot. We know because we measured them. We just chose to take the path of least resistance which means we have to make even more pain now, and for longer.

And not every country is going to be in the same situation as us; with hyper-reliance on exports, a natural tension with a higher dollar to make imported goods cheaper AND 30 mortgages on short-term rates to cover absolutely massively expensive housing relative to local earnings. It's possible for different central banks to be wrong in completely different ways and have broadly similar outcomes.

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#3001452 25-Nov-2022 16:06

question: interest rates go up. borrowers pay more interest. who pockets the extra interest? the NZ treasury? i didn't think it was supposed to be the banks but hey banks will try to milk every thousand dollars!

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#3001461 25-Nov-2022 16:47

Batman:
question: interest rates go up. borrowers pay more interest. who pockets the extra interest? the NZ treasury? i didn't think it was supposed to be the banks but hey banks will try to milk every thousand dollars!

The people who lend the funds make more money. That’s mostly private sources of capital such as retail deposits and bond holders. The OCR sets the market benchmark but mostly the money is private.

The reserve bank and the treasury are independent - the operational government doesn’t see any money although it’s borrowing costs go up with the OCR.

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Batman

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#3001473 25-Nov-2022 17:46

like kiwisaver funds?

mattwnz

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#3001474 25-Nov-2022 17:46

Batman:

question: interest rates go up. borrowers pay more interest. who pockets the extra interest?

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#3001477 25-Nov-2022 18:03

Batman:

like kiwisaver funds?

What like kiwisaver funds?

Eitsop

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#3001481 25-Nov-2022 18:39

RBNZ, could collect a new Tax collected by IRD, and the RBNZ get the money..

Then they can reduce cash for every person in NZ, not just the people with mortages. and better than the banks getting it in interest

They could effectively burn the money? ie the opposite to printing money

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#3001487 25-Nov-2022 18:46

Eitsop:

RBNZ, could collect a new Tax collected by IRD, and the RBNZ get the money..

Then they can reduce cash for every person in NZ, not just the people with mortages. and better than the banks getting it in interest

They could effectively burn the money? ie the opposite to printing money

Monetary policy and fiscal policy are very different. There's a reason why they have been decoupled in most economies and shouldn't be mixed.

Monetary policy is run in a largely apolitical way to encourage stability in the financial system.

Fiscal policy targets the government of the days policy objectives. It's a different tool for a different job. As we found out with Muldoon it's a pretty terrible idea to mix the two up.

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#3001500 25-Nov-2022 19:38

GV27:

It's possible for different central banks to be wrong in completely different ways and have broadly similar outcomes.

Yes, it's possible. Most countries have the same issues. The distinction is, is this a common problem, or is it generally a local problem. While I'm not disagreeing by default, IMHO its a stretch to foresee all of this. Now, its ideal to do what we do in the 2020's, blame blame blame, thats the Kiwi way it seems. But sit on the fence. Did NZ go hard and it was too hard? Or did we go slow and it was too slow? Either way its hindsight for a scenario the globe hasnt faced before. There were 2 good articles today, that "swung both ways" I decided not to post either as that becomes yet another Ford vs Holden thread

All I'm saying is that was all this easily foreseeable or not?

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#3001501 25-Nov-2022 19:40

Batman:

question: interest rates go up. borrowers pay more interest. who pockets the extra interest? the NZ treasury? i didn't think it was supposed to be the banks but hey banks will try to milk every thousand dollars!

Banks. You know the results. Lets say it was BAU, interest rates are high so margins are high, Math 101

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#3001508 25-Nov-2022 19:51

Eitsop:

RBNZ, could collect a new Tax collected by IRD, and the RBNZ get the money..

Then they can reduce cash for every person in NZ, not just the people with mortages. and better than the banks getting it in interest

They could effectively burn the money? ie the opposite to printing money

We printed money as everyone else did. Short term measure. Wage subsidy to help businesses which helps employees. If we didnt, thats ok, businesses fold and we pay the dole instead, except most business owners may not qualify as easily as employees. Pay it forward to today.

Cash for each person. The issue is supply and demand. Its about increasing supply to ease prices. Covid hindered supply, so prices rose, same happens with tomatoes in NZ, $20 a kg one day then it will be 95 cents a kg. Simplistic, but its the same for most products.

Collect a new tax that will reduce demand and prices, but many people may be locked out due to inflation being exacerbated by higher tax. Thats ok for some, but not if your are near the bread line, then you get social issues

IMO we need to hunker down, those on the lower economic area will need help, the rest of us battle on. Id put out there that many of us are insulated, so accept any extra Govt spending on the poor.

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#3001513 25-Nov-2022 20:37

tdgeek:

Batman:

question: interest rates go up. borrowers pay more interest. who pockets the extra interest? the NZ treasury? i didn't think it was supposed to be the banks but hey banks will try to milk every thousand dollars!

Banks. You know the results. Lets say it was BAU, interest rates are high so margins are high, Math 101

That's not really how margins work

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