RBNZ engineering our next recession

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

Batman

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#302449 24-Nov-2022 10:40

https://i.stuff.co.nz/business/130568638/adrian-orr-admits-reserve-bank-is-deliberately-engineering-recession

Read it to make sure it's not clickbait

Orr told Parliament’s Finance and Expenditure select committee it was correct that the Reserve Bank was engineering a recession, saying it was deliberately trying to slow spending in the economy.

Is that a good thing or not I have no idea!

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#3000766 24-Nov-2022 10:48

Depends on how you are placed. People with low debt can cut their spending and ride this out.

I fear for people who are new mortgaged property owners especially those with low equity mortgages. All along the commentary has been that NZ will get through this OK because of low unemployment. Low unemployment is probably not going to remain in a recession.

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#3000789 24-Nov-2022 11:47

The problem is that the govt is still got its foot hard down on the inflation pedal by making immigration a byzantine maze for people who want to to come to NZ to work.. if they are even allowed to..

From the RBNZ

"The productive capacity of the economy is being constrained by broad-based labour shortages, and wage pressures are evident"

and from last week

"Health and immigration are at odds over which hospital doctors have been given a green list fast-track to residence.

Cardiologists and paediatricians do not appear among the 'straight to residence' jobs, nor on the two-year 'work to residence' jobs, offered to nurses, plumbers and mechanics"

Ministry for Business, Innovation and Employment said it has provided the immigration minister Michael Wood with advice on the possible inclusion of additional specialist physician roles.

https://www.rnz.co.nz/news/national/479077/plumbers-but-not-cardiologists-the-curious-case-of-the-immigration-green-list

wellygary

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#3000790 24-Nov-2022 11:50

johno1234:

I fear for people who are new mortgaged property owners especially those with low equity mortgages. All along the commentary has been that NZ will get through this OK because of low unemployment. Low unemployment is probably not going to remain in a recession.

You mean like these people....

"Budget 2022 sees more New Zealanders able to access support to get into their first home because of changes to First Home Grants and First Home Loans.

“We are increasing the house price caps for the First Home Grant to align with lower quartile market values for new and existing properties. This recognises the changes in house prices over the past year,” Megan Woods said."

https://www.beehive.govt.nz/release/more-support-first-home-buyers-and-renters

ezbee

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#3000897 24-Nov-2022 14:32

We have made RBNZ 'very' independent, and it has its own view and does its own thing.
It's pretty much stated that it does not want to have any consideration for renters or home buyers.

Public opinion is perceived to be very much against Governments that push hard on RBNZ.

Governments are pretty much restricted to nudging them, anything stronger might panic everyone.

I'm not sure RBNZ got the predictions of after covid at all right given the widespread money printing globally. (even prior to Ukraine).
It was right thing to do to print money to keep things ticking over and assure people would not starve, however in conventional economics there is a price to pay.
The largest economies were already swimming in new money before covid too.

High interest rates, commodity prices, 100's K who fled to NZ for refuge otherwise long-term residents of 'somewhere else' would return etc.
OPEC opening taps slowly as that's more profitable and balances risk, in a high interest market speculation is heavily damped.

If anyone was watching what RBNZ thought the recovery would be?

Technofreak

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#3000962 24-Nov-2022 16:25

Looks to me that the government overheated the economy with the poorly targeted spending during Covid and the Reserve Bank is the one playing "Bad Cop" to reign things back in.

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johno1234

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#3000964 24-Nov-2022 16:32

wellygary:

johno1234:

I fear for people who are new mortgaged property owners especially those with low equity mortgages. All along the commentary has been that NZ will get through this OK because of low unemployment. Low unemployment is probably not going to remain in a recession.

You mean like these people....

"Budget 2022 sees more New Zealanders able to access support to get into their first home because of changes to First Home Grants and First Home Loans.

“We are increasing the house price caps for the First Home Grant to align with lower quartile market values for new and existing properties. This recognises the changes in house prices over the past year,” Megan Woods said."

https://www.beehive.govt.nz/release/more-support-first-home-buyers-and-renters

Indeed that in addition to the waterfall of low interest money that was being generated by the government and Reserve Bank. It is reminiscent of how the 2007/2007 GFC started. Our government didn't learn.

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johno1234

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#3000967 24-Nov-2022 16:47

Technofreak:

Looks to me that the government overheated the economy with the poorly targeted spending during Covid and the Reserve Bank is the one playing "Bad Cop" to reign things back in.

The RB used to have one lever which was OCR and one job which was control inflation. Then along came Robinson and Orr, and they added to the RBNZ mandate a requirement to maintain maximum employment.

Our problems are a direct result of this change to a dual mandate. We now have labour shortages, lost productivity, high inflation and high interest rates.

tweake

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#3000968 24-Nov-2022 16:49

Batman: https://i.stuff.co.nz/business/130568638/adrian-orr-admits-reserve-bank-is-deliberately-engineering-recession

Read it to make sure it's not clickbait

Orr told Parliament’s Finance and Expenditure select committee it was correct that the Reserve Bank was engineering a recession, saying it was deliberately trying to slow spending in the economy.

Is that a good thing or not I have no idea!

yes its a good thing.

there is a saying "fly into the crash" meaning be in control and crash on your terms. uncontrolled crashes are even worse. the same applies for economics, if you are going to crash at least control how you crash.

the immigration thing, is an idiots fix. if you pour in immigrates then housing market will boom again and that will then crash and take out the economy with it.

unfortunately a lot of the current issues go back to the housing marke,. kiwis addiction to making money from housing has put us between a rock and a hard place.

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#3000970 24-Nov-2022 16:50

Great for my parents not so good for me having a small mortgage (I know people with 1 million+) I would not want to be them

I am on fixed term of 2.7% to August 2023

evilengineer

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#3000972 24-Nov-2022 16:52

What's more stupid, trying to engineer a recession or telling everyone that you're doing it?

If the reserve bank is over egging it (I'm no economist, but my gut feeling is that they probably are) then they will get the blame if/when their strategy turns out to be "too successful" and said recession causes widespread pain and misery.

And to what end?

Seems like the reserve bank is prepared to cause a lot of anguish in order to protect the assets of rent-seeking capital owners and the already wealthy.

What makes 1-3% so special as an inflation target? Why not 3-5% or even 5-7%?

Someone will have to explain why a period of higher inflation (with pay/benefit rises to match) is a bad thing.

Handle9

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#3000974 24-Nov-2022 16:55

johno1234:
Technofreak:

Looks to me that the government overheated the economy with the poorly targeted spending during Covid and the Reserve Bank is the one playing "Bad Cop" to reign things back in.

The RB used to have one lever which was OCR and one job which was control inflation. Then along came Robinson and Orr, and they added to the RBNZ mandate a requirement to maintain maximum employment.

Our problems are a direct result of this change to a dual mandate. We now have labour shortages, lost productivity, high inflation and high interest rates.

Nope. The primary job of the reserve bank is the stability of the financial system. They always had lots of jobs.

Even if domestic inflation was at zero the reserve bank would be outside the inflation target due to the global inflation situation. It’s not just one factor causing it and certainly not just government spending.

Recessions are necessary and unavoidable. They cause a lot of pain but it is what it is.

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tweake

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#3000980 24-Nov-2022 17:13

Linux:

Great for my parents not so good for me having a small mortgage (I know people with 1 million+) I would not want to be them

I am on fixed term of 2.7% to August 2023

but you need to put it into context.

they may be going onto higher interest rates, but those interest rates should have been factored in. so really its a case of they have enjoyed low interest rates (like your doing now) and now they are starting to go back to normal rates. the only ones that will have problems are those who maxed out their ability to pay, thinking that low rates was normal.

tweake

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#3000981 24-Nov-2022 17:16

Linux:

Great for my parents not so good for me having a small mortgage (I know people with 1 million+) I would not want to be them

I am on fixed term of 2.7% to August 2023

btw good job on the low interest rate. i'm on 7% and i know others that are on higher. however i'm not complaining, i've made good use of the low interest rates.

Handle9

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#3000983 24-Nov-2022 17:21

evilengineer:
What's more stupid, trying to engineer a recession or telling everyone that you're doing it?

If the reserve bank is over egging it (I'm no economist, but my gut feeling is that they probably are) then they will get the blame if/when their strategy turns out to be "too successful" and said recession causes widespread pain and misery.

And to what end?

Seems like the reserve bank is prepared to cause a lot of anguish in order to protect the assets of rent-seeking capital owners and the already wealthy.

What makes 1-3% so special as an inflation target? Why not 3-5% or even 5-7%?

Someone will have to explain why a period of higher inflation (with pay/benefit rises to match) is a bad thing.

You can not avoid periodic recessions just as you can’t avoid periodic economic booms.

There’s a few problems with a higher inflation target. It’s much easier to target very low inflation than a higher range. If you are targeting 5% inflation interest rates would normalise above 10% with the attendant reduction in purchasing power.

The least bad outcomes of higher inflation are those with savings have the value of those savings eroded. A fair chunk of those will be older people so they have a less pleasant retirement.

Wages and salaries never really keep up with inflation, they generally lag a fair bit behind inflation as most people won’t get big increases unless they change jobs.

The nightmare scenario is a hyper inflationary spiral where the stability of the financial system is compromised and real money printing happens.

TLDR: recessions will happen regardless, low inflation is better for almost everyone.

johno1234

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#3000985 24-Nov-2022 17:39

Handle9:
johno1234:

The RB used to have one lever which was OCR and one job which was control inflation. Then along came Robinson and Orr, and they added to the RBNZ mandate a requirement to maintain maximum employment.

Our problems are a direct result of this change to a dual mandate. We now have labour shortages, lost productivity, high inflation and high interest rates.

Nope. The primary job of the reserve bank is the stability of the financial system. They always had lots of jobs.

Even if domestic inflation was at zero the reserve bank would be outside the inflation target due to the global inflation situation. It’s not just one factor causing it and certainly not just government spending.

Recessions are necessary and unavoidable. They cause a lot of pain but it is what it is.

From the RBNZ, verbatim: https://www.rbnz.govt.nz/monetary-policy/monetary-policy-tools

"As the Reserve Bank of New Zealand – Te Pūtea Matua, our mandate is to create the condition that promote full employment and maintain the purchasing power of your money into the future."

That is the new, dual mandate.

We have domestic (non-tradeable) and imported inflation. The RBNZ can influence the former.

https://www.stats.govt.nz/news/annual-inflation-reaches-30-year-high-of-6-9-percent/

"Domestic, or non-tradable inflation, was 6.0 percent in the year to the March 2022 quarter, the highest since the series began in June 2000."

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