Do you still stand by your "inflation is transitory" stance?
Given that higher interest rates finally seem to be taking a chunk out of property prices, and the capacity constraints faced by business due to excess demand and constrained supply seem to be one of the major issues going into this year, it seems to me like maintaining extrem…
Do you still stand by your "inflation is transitory" stance?
Given that higher interest rates finally seem to be taking a chunk out of property prices, and the capacity constraints faced by business due to excess demand and constrained supply seem to be one of the major issues going into this year, it seems to me like maintaining extremely low interest rates would do far more harm than good at this point.
The main harm of low interest rates is being done to asset prices. I think that could be controlled by controlling the leverage through LVRs etc. The trouble is the banks have virtually stopped new lending to businesses at anything like the OCR. Changing the OCR doesn't make much difference for them. I'm still in Team Transitory, especially once these rate hikes cause a financial market car crash and force a slow down globally. OCR changes also won't be able to change energy prices much. I still think the bigger danger is tightening too fast and too much in a way that brings back deflation. But the wider point you make about all the easy money being unsustainable is right. That's mostly about the benefits of it going to asset owners, and then being recycled into dead cash and bond accounts. All this cash is mostly just escalating asset prices and not being invested in new products, tech, jobs and services. The bigger issue is one of wealth redistribution and public/private investment in real productive assets and infrastructure. That requires difficult and new political and social contracts that would include wealth taxes and a lot more investment in housing and emissions reductions infrastructure that ensures the poorest don't pay all over again for another big economic 'adjustment'.
Wonder - once we finally get the much needed “financial market car crash” - whether liquidity/cash will then flow to income related goods/services and sustain inflation that way?
Investors and consumers will put their wallets away. Then the central banks will bail out the banks. And print again. Sadly, that's the playbook of the last 30 years or so. Can't see how it changes, given the dynamics of cash piling up in fewer and fewer hands in banks, while debt gets loaded up at the household and govt end of the spectrum.
Except when the banks are bailed out it should be as the government taking on equity, not a loan regardless of how nice or nasty the interest rate is. If a bank were to see the gov't taking a hefty share of equity then maybe the banks would go to their existing shareholders; you know, the ones with all that money.
Do you still stand by your "inflation is transitory" stance?
Given that higher interest rates finally seem to be taking a chunk out of property prices, and the capacity constraints faced by business due to excess demand and constrained supply seem to be one of the major issues going into this year, it seems to me like maintaining extremely low interest rates would do far more harm than good at this point.
The main harm of low interest rates is being done to asset prices. I think that could be controlled by controlling the leverage through LVRs etc. The trouble is the banks have virtually stopped new lending to businesses at anything like the OCR. Changing the OCR doesn't make much difference for them. I'm still in Team Transitory, especially once these rate hikes cause a financial market car crash and force a slow down globally. OCR changes also won't be able to change energy prices much. I still think the bigger danger is tightening too fast and too much in a way that brings back deflation. But the wider point you make about all the easy money being unsustainable is right. That's mostly about the benefits of it going to asset owners, and then being recycled into dead cash and bond accounts. All this cash is mostly just escalating asset prices and not being invested in new products, tech, jobs and services. The bigger issue is one of wealth redistribution and public/private investment in real productive assets and infrastructure. That requires difficult and new political and social contracts that would include wealth taxes and a lot more investment in housing and emissions reductions infrastructure that ensures the poorest don't pay all over again for another big economic 'adjustment'.
Wonder - once we finally get the much needed “financial market car crash” - whether liquidity/cash will then flow to income related goods/services and sustain inflation that way?
Investors and consumers will put their wallets away. Then the central banks will bail out the banks. And print again. Sadly, that's the playbook of the last 30 years or so. Can't see how it changes, given the dynamics of cash piling up in fewer and fewer hands in banks, while debt gets loaded up at the household and govt end of the spectrum.
Except when the banks are bailed out it should be as the government taking on equity, not a loan regardless of how nice or nasty the interest rate is. If a bank were to see the gov't taking a hefty share of equity then maybe the banks would go to their existing shareholders; you know, the ones with all that money.