Orr says unemployment must rise to control inflation so he's hiking rates. But those rate hikes are generating record profits for banks, which also benefited from the RBNZ's Covid-era over-loosening
Thanks Bernard - great deep dive. I expect this will be opened up to the public. Thanks for doing the fun job of trying to make people realise how important Reserve Bank and tax policies are in terms of social justice and just plain societal functioning.
In a way I feel bad for Orr who is now left to carve a turkey with a spoon, but the lack of contrition and blasé approach to raising unemployment is awful. The last couple of years have been our first recent test of the kinds of economic crises we’re going to face moving forward, where inflation is driven by real physical problems. Climate events, and the ensuing mass movement and wars will continue to put pressure on resource prices and our reliance on the RB to alleviate these is useless. Both major parties are asleep at the switch here as neither are willing to fully invest in what we need to be relatively self sufficient and stable in terms of housing, energy and food.
Indeed. Great points on physical limits and the poor job politicians have done in talking about the problems honestly and coming up with potential solutions.
It is all structurally worse than many citizens could ever fathom without significantly more transparency, democracy and accountability by Government and institution. People are aware things are deeply wrong but don’t see the subsidies to banks (from tax and rate payers ) oil companies, shonky projects of the elite (who’ve I’ll gotten gains always come from stealing their countries resources and public infrastructure. So the system is set to rob and neglect everyone and particularly women, children and the poor who just get literally sold often to predators rather than supported for the future and actually are required by various Laws specifically to ensure parents and family are responsible for this with abuse of this duty and obligation being illegal and a crime. So the level of profit taking and responsibility dodging is baked in. To penalise the poor and vulnerable and fail in obligations is now a money maker for this predatory lending enabled by our Reserve Bank to ship profits offshore. The propaganda the pump out is unbelievable via media and spokespeople. So along with nationalising our critical infrastructure (which our taxes have and still subsidise) we need State Advances back to build and transfer from private banks. and windfall taxation on all banks, energy companies, corporations and a review of taxation to ensure no low income earner pays tax and work with dependents and enable a dignified existence for those who have already made their contribution or free study for those in the future is subsidised instead. Any emergency should justify holding this debt on the countries balance sheet and writing it off. It is also time Iwi, hapu and whanau invest in their youth just as all other families are required or at least expected , in law,to do this for the future and use their settlements as a priority in this investment in their children not rely on Government to do this (they can’t and won’t is proven). So less micromanaging of lives, better access to law and order and justice most simply don’t have, and enough resource for individuals to live without invasions or abuse of rights, then rebuild and future proof our infrastructure and safety and security. Stay out of business and using poor peoples money to do it.
So the Finance Minister and RBNZ royally screw working class NZers with their monetary policy. And the fix? To tax selected groups more to pay for the stuff up? These turkeys need to be castigated and removed from office. Unfortunately a majority of Kiwis can’t see the connection, and in many cases it is the Labour voting base. Poor, brown and disenfranchised.
The ANZ annual profit exceeding $2bn has brought out a lot of bank commentary. The RB has good data on our banks, and it shows that year after year lately, on average the return on equity bank shareholders are getting is 14%, which is close to best in the world. The same big four Australian banks we have are delivering around 11%. It's been a frustration to everyone in NZ that this high return persists here, despite opening Kiwibank to try to put on competitive pressure and the existence of TSB, for example. It's the percentage return on equity that matters for thinking about this, not 'big numbers' like ANZ's $2bn. The total loans and other assets of NZ's banks are $685 trillion, and the shareholders' funds, equity on which they want a return, total is over $56 billion. These very big numbers are part of the reason why profits are big in absolute terms, but one can see their outsized nature best using the percentages I've shown. If you Bernard or anyone else can figure out how this situation persists, and is higher here than in Australia, please let us all know!
I'm surprised you haven't mentioned the role of the FLP in banks ability to improve their net interest margins. Throwing cheap funding at banks so they don't have to compete for deposits has had a bigger impact on net interest margins than rising rates.
I also think the headline "Is the RBNZ's fast tightening fair to Covid's losers?" paints false dichotomy
There are two choices from here: Don't keep tightening interest rates, let inflation continue to run out of control, but keep asset prices high and unemployment low. This hurts "low-income renters" disproportionality hard.
The second choice is to continue raising rates, which will get inflation under control, but will also bring down asset prices and have a secondary impact of increasing unemployment. This means more of hurt will fall on asset owners instead of "low-income renters"
I don't see how low-income renters will avoid pain in the second scenario, given more precarious employment, etc.
The 3rd way is to slow/stop the rate rises in recognition that a) the prior hikes take time to flow through into real world outcomes; b) global economic slow downs, coupled with supply chain efficiency improvements will ease inflation in good time.
This approach, in combination with policies to address the super-profits via windfall taxes and other special measures Bernard has suggested, would improve chance of softer, more equitable outcomes.
Low income renters will undoubtedly feel the pain in both scenarios, its just inflation is by far the worst of the two.
Holding rates low and letting inflation run wild just bails out asset owners (in NZ that means highly leveraged housing investors). You deflate their debts, keep asset prices high, and keep their debt payments cheap.
Is that really what people see as a fair and equitable solution?
People are still holding onto the idea "inflation will sort itself out". We are probably 18 months on from when central banks told everyone inflation would be transitory and it was nothing to do with their crazy monetary stimulus. That notion was farcical then, and time has proven it to be categorically false.
It needs to be saI'd out loud and clear enough that an economic system that *requires* high unemployment is a terrible economic system and needs to be replaced.
Our willingness to sacrifice those most struggling at the altar of high property prices is just appalling and a sad indication to our society's true values.
We need politicians who are willing to think different and unfortunately none of the current lot (left, right and centre) are capable of it.
Am stuck under the desk in the tangle of wires and dust trying to unplug our non-economy, give it a rest, then start again. What would we do, starting from scratch to make an economy that works properly. ps - i like the donut economy with aim to thrive not grow.
Bernard I think the public needs to see this analysis. Worthwhile opening up.
Will do. Many thanks.
Thanks Bernard - great deep dive. I expect this will be opened up to the public. Thanks for doing the fun job of trying to make people realise how important Reserve Bank and tax policies are in terms of social justice and just plain societal functioning.
In a way I feel bad for Orr who is now left to carve a turkey with a spoon, but the lack of contrition and blasé approach to raising unemployment is awful. The last couple of years have been our first recent test of the kinds of economic crises we’re going to face moving forward, where inflation is driven by real physical problems. Climate events, and the ensuing mass movement and wars will continue to put pressure on resource prices and our reliance on the RB to alleviate these is useless. Both major parties are asleep at the switch here as neither are willing to fully invest in what we need to be relatively self sufficient and stable in terms of housing, energy and food.
Excellent comment Brad thanks. I've been pondering how to articulate my thoughts on this and you've got it nailed on!
Many thanks Brad and Grant.
Indeed. Great points on physical limits and the poor job politicians have done in talking about the problems honestly and coming up with potential solutions.
It is all structurally worse than many citizens could ever fathom without significantly more transparency, democracy and accountability by Government and institution. People are aware things are deeply wrong but don’t see the subsidies to banks (from tax and rate payers ) oil companies, shonky projects of the elite (who’ve I’ll gotten gains always come from stealing their countries resources and public infrastructure. So the system is set to rob and neglect everyone and particularly women, children and the poor who just get literally sold often to predators rather than supported for the future and actually are required by various Laws specifically to ensure parents and family are responsible for this with abuse of this duty and obligation being illegal and a crime. So the level of profit taking and responsibility dodging is baked in. To penalise the poor and vulnerable and fail in obligations is now a money maker for this predatory lending enabled by our Reserve Bank to ship profits offshore. The propaganda the pump out is unbelievable via media and spokespeople. So along with nationalising our critical infrastructure (which our taxes have and still subsidise) we need State Advances back to build and transfer from private banks. and windfall taxation on all banks, energy companies, corporations and a review of taxation to ensure no low income earner pays tax and work with dependents and enable a dignified existence for those who have already made their contribution or free study for those in the future is subsidised instead. Any emergency should justify holding this debt on the countries balance sheet and writing it off. It is also time Iwi, hapu and whanau invest in their youth just as all other families are required or at least expected , in law,to do this for the future and use their settlements as a priority in this investment in their children not rely on Government to do this (they can’t and won’t is proven). So less micromanaging of lives, better access to law and order and justice most simply don’t have, and enough resource for individuals to live without invasions or abuse of rights, then rebuild and future proof our infrastructure and safety and security. Stay out of business and using poor peoples money to do it.
So the Finance Minister and RBNZ royally screw working class NZers with their monetary policy. And the fix? To tax selected groups more to pay for the stuff up? These turkeys need to be castigated and removed from office. Unfortunately a majority of Kiwis can’t see the connection, and in many cases it is the Labour voting base. Poor, brown and disenfranchised.
The ANZ annual profit exceeding $2bn has brought out a lot of bank commentary. The RB has good data on our banks, and it shows that year after year lately, on average the return on equity bank shareholders are getting is 14%, which is close to best in the world. The same big four Australian banks we have are delivering around 11%. It's been a frustration to everyone in NZ that this high return persists here, despite opening Kiwibank to try to put on competitive pressure and the existence of TSB, for example. It's the percentage return on equity that matters for thinking about this, not 'big numbers' like ANZ's $2bn. The total loans and other assets of NZ's banks are $685 trillion, and the shareholders' funds, equity on which they want a return, total is over $56 billion. These very big numbers are part of the reason why profits are big in absolute terms, but one can see their outsized nature best using the percentages I've shown. If you Bernard or anyone else can figure out how this situation persists, and is higher here than in Australia, please let us all know!
I'm surprised you haven't mentioned the role of the FLP in banks ability to improve their net interest margins. Throwing cheap funding at banks so they don't have to compete for deposits has had a bigger impact on net interest margins than rising rates.
I also think the headline "Is the RBNZ's fast tightening fair to Covid's losers?" paints false dichotomy
There are two choices from here: Don't keep tightening interest rates, let inflation continue to run out of control, but keep asset prices high and unemployment low. This hurts "low-income renters" disproportionality hard.
The second choice is to continue raising rates, which will get inflation under control, but will also bring down asset prices and have a secondary impact of increasing unemployment. This means more of hurt will fall on asset owners instead of "low-income renters"
I don't see how low-income renters will avoid pain in the second scenario, given more precarious employment, etc.
The 3rd way is to slow/stop the rate rises in recognition that a) the prior hikes take time to flow through into real world outcomes; b) global economic slow downs, coupled with supply chain efficiency improvements will ease inflation in good time.
This approach, in combination with policies to address the super-profits via windfall taxes and other special measures Bernard has suggested, would improve chance of softer, more equitable outcomes.
Low income renters will undoubtedly feel the pain in both scenarios, its just inflation is by far the worst of the two.
Holding rates low and letting inflation run wild just bails out asset owners (in NZ that means highly leveraged housing investors). You deflate their debts, keep asset prices high, and keep their debt payments cheap.
Is that really what people see as a fair and equitable solution?
People are still holding onto the idea "inflation will sort itself out". We are probably 18 months on from when central banks told everyone inflation would be transitory and it was nothing to do with their crazy monetary stimulus. That notion was farcical then, and time has proven it to be categorically false.
No arguments on windfall/superprofit taxes.
Interest rates don't just hurt asset owners, but also investment in production too, including new housing developments that are desperately needed.
It needs to be saI'd out loud and clear enough that an economic system that *requires* high unemployment is a terrible economic system and needs to be replaced.
Our willingness to sacrifice those most struggling at the altar of high property prices is just appalling and a sad indication to our society's true values.
We need politicians who are willing to think different and unfortunately none of the current lot (left, right and centre) are capable of it.
Am stuck under the desk in the tangle of wires and dust trying to unplug our non-economy, give it a rest, then start again. What would we do, starting from scratch to make an economy that works properly. ps - i like the donut economy with aim to thrive not grow.