RBNZ surprises some economists with rate cut and forecast of longer recession after joint fiscal & monetary tightening crunches economy; Construction firms plead for Govt to re-open project pipelines
The rate cut it seems is a case of what you see depends upon where you are standing. Have a mortgage or want a house it’s the best thing ever. However you can clearly see the economy is now slowing, migration and GDP per capita show this.
It's all based on a faulty premise, we know that the majority of inflation was 'supply side'. The rate cut is a positive signal that is needed desperately to counter the engineered slump that the Governments bizarre fiscal policy has created. The economic fundamentals have and were always fine, an ideological war on social spending is being waged by the government and in doing so they have forgotten the that deficits create *surplus* for private sector and the general public. As Bernard pointed out, closing off government spending *rapidly* impacts downstream in the private sector for those who build the roads, the homes, the water pipes and all the other stuff that makes the country work.
That’s the point really isn’t it. Most of us here know the real reason for the expedited cut in interest rates is that this government has completely tanked the economy. A rationale central bank head would reasonably assume that the government of that country would be keen to ensure that there are mechanisms in place to address the effects of their fiscal policy by introducing measures to encourage investment. This government hasn’t got a clue how to do that as it’s being run by a bunch on numpties; Something that probably wasn’t factored into RBNZ forecasts!!
It's clear why the Government and MPs will be celebrating. A recession is great news if you have guaranteed high-paying employment and own assets like property or shares. Post-GFC and post-Covid showed how profitable it can be to be able to pick up bargains while the rates are dropping and the plebs can't afford to participate.
A recession is not great news if you're trying to be more than a one-term government, especially if it can be credibly argued that your actions are driving the recession deeper. This was not a win for NAct: The RBNZ clearly indicated that they cut rates because they were surprised by how quickly the economy was heading south (Why they were surprised is another question, it was predictable to many what a sudden and sharp drop in Govt spending would do to our interconnected pseudo-economy).
Also, via Barbara Edmonds, is their hinting at what you've made explicit Bernard, that the decisions NAct are making that are increasing inflation: "The Reserve Bank saying "Inflation is expected to remain in the upper half of the target range over the next 18 months, partly due to persistent price increases in categories such as local authority rates, insurance and utilities."
So we have a bizarre case of the RBNZ essentially saying they had to weigh up whether to fight the recession the Government is causing or the inflation it's causing. It all sums to a painful few years ahead unless, like Luxon, you have a guaranteed income, plenty of assets, and the opportunity to scoop up some bargains. Enjoy the bread lines everybody else.
I’m so sad that none of the media coverage mentioned ‘recession’ - just echoed skiting comments from the government and found some mortgage victims to spread the good cheer.
The inflation seems to be largely resolving due to improvements in the global situation. It was already starting to trend down. Also we are not entirely innocent as food in particular on the CPI appears to be falling victim to profit maximization by our duopoly rather than any real need to high prices to where they are.
whe do we start with that one (or where do we stop!)
Just one for me... you dump 5000 people (at least) out of jobs and then take a paternalistic “tough love” approach to reduce the unemployment benefits (while you argued you were entitled to get 1000 dollars a week on rental subsidy to pay for your flat).
all the bunch of people at the top of goverment just seem to terrible human beings with zero empathy
It's utter madness, unemployment is (sadly) a *feature* of our capitalist system, yet there is some absurd idea that there is a push for zero unemployment as evidenced by the vilification of unemployment benefit recipients. 30% YoY unemployment increase is a figure I'm not seeing talked enough about.
This is a super-important perspective on the RBNZ move, which is (unsurprisingly) not being fielded by the bank economists and centrist pundits that the wider media have turned to for analysis. I have heard literal *criticism* from economists that Orr mislead us back in May when he signalled a slower reduction in the rate—as though the facts weren't changed by all the government's subsequent and unprecedented austerity! ... I hope this truth finds its way to a wider audience than Nicola Willis's self-congratulatory bollocks.
Private debt levels would be the warning sign of this. It was over 97% of GDP at in recent years but has trended down to 91% at last check. Private debt levels are the real warning indicator (not public debt levels that get fixated on needlessly). It's probably too high for NZ, but not seemingly high enough to cause any kind of major crisis, if it kept rising uncontrollably it would. Given the governments tightening (for everybody who's not super wealthy) there is a high chance that will drive increasing *private* debt.
Is it fair to say that public dept & private dept has roughly an inverse relationship ie: if government spends more money(increase public dept) then private dept goes down..or not that straight forward? Forgive my ignorance 🙏
Nothing to forgive :D, honestly, this stuff is traditionally made "hard to understand" by economists who want to look smarter than the rest of us ;)
*Roughly* inverse but not to public/crown debt, but to government spending deficits. When a government runs a deficit it is putting more money *back* into the economy than it is taking out. This is why running a surplus makes no sense as you're taking money *out* of the economy (and presumably overtaxing or you wouldn't have a surplus!).
More money into the economy for PRODUCTIVE uses, building infrastructure, health, education, housing, will contribute to less private (and household debt). However this assumes the government spending is productive, if the spending just means wealthy people save more, or invest in more property (which isn't productivity generating unless they are building!), then it's not going to help control private debt in the same way.
Private debt *is* a big issue because in many cases, particularly in New Zealand it's taking money out of the country in the form of interest payments etc. Whereas Public/Crown debt is just a choice, a government technically doesn't need to borrow money at all, but public debt does form a part of the current system, it's just not this scary thing we are told it is.
It takes time. I've spent the last 10 years casually unlearning all the dogma that neoclassical economists convince themselves and everybody else is true. Good luck!
Your last comment, reporting Jonathon Porrit statement on the PM left me shocked. Hypocrite leaves no room for doubt. It is to be hoped many other news stories will also investigate.
This Coalition Government surely are masters of spin. I recall one commentator saying that the tax cuts would not mean much but that the RBNZ rate cuts would be the real icing on the cake. Both Luxon and Willis were hugging each other for the major turn around that they have brought to the economy. Forget about a number of things like the rising unemployment, break down of the health system, abandoning of election promises and the difficulties being experienced by many Kiwis on just trying to survive. Well done you two.
The Finance Committee's terms of reference for their inquiry into banks includes asking what extra costs arising from banks' accounting for climate change policies. Is this because lending for houses and businesses at risk from climate change should not be penalised with higher interest rates?
It's concerning to read about the downturn in infrastructure work. Government has passed the water fix over to councils, who will now have to draw up plans, get consents etc, arrange finance. Will be years away and too late for some companies.
The rate cut it seems is a case of what you see depends upon where you are standing. Have a mortgage or want a house it’s the best thing ever. However you can clearly see the economy is now slowing, migration and GDP per capita show this.
It's all based on a faulty premise, we know that the majority of inflation was 'supply side'. The rate cut is a positive signal that is needed desperately to counter the engineered slump that the Governments bizarre fiscal policy has created. The economic fundamentals have and were always fine, an ideological war on social spending is being waged by the government and in doing so they have forgotten the that deficits create *surplus* for private sector and the general public. As Bernard pointed out, closing off government spending *rapidly* impacts downstream in the private sector for those who build the roads, the homes, the water pipes and all the other stuff that makes the country work.
Great points Peter.
If you want a house it’s actually the worst thing ever - watch prices will sky rocket again faster than any normal worker can save
jeez, can we climb off the RBNZ a little? here is what Orr wrote in the MPS in May:
While weaker capacity pressures and an easing
labour market are reducing domestic inflation,
this decline is tempered by sectors of the
economy that are less sensitive to interest rates.
These near-term factors include, for example,
higher dwelling rents, insurance costs, council
rates, and other domestic services price inflation.
A slow decline in domestic inflation poses a risk
to inflation expectations.
Our economic projections include only officially
available information on the Government’s
fiscal intentions to date, which includes the
most recent fiscal update and ‘mini budget’.
The signalled lower government spending is
currently and expected to continue contributing
to weaker aggregate demand. Any impact of
potential changes in the forthcoming Budget to
government spending, or private spending due
to tax cuts, remain to be assessed.
Thanks Dave. I don’t think I’ve blamed the RBNZ too much, although the forecast track seemed not to include that uncertainty.
That’s the point really isn’t it. Most of us here know the real reason for the expedited cut in interest rates is that this government has completely tanked the economy. A rationale central bank head would reasonably assume that the government of that country would be keen to ensure that there are mechanisms in place to address the effects of their fiscal policy by introducing measures to encourage investment. This government hasn’t got a clue how to do that as it’s being run by a bunch on numpties; Something that probably wasn’t factored into RBNZ forecasts!!
It's clear why the Government and MPs will be celebrating. A recession is great news if you have guaranteed high-paying employment and own assets like property or shares. Post-GFC and post-Covid showed how profitable it can be to be able to pick up bargains while the rates are dropping and the plebs can't afford to participate.
A recession is not great news if you're trying to be more than a one-term government, especially if it can be credibly argued that your actions are driving the recession deeper. This was not a win for NAct: The RBNZ clearly indicated that they cut rates because they were surprised by how quickly the economy was heading south (Why they were surprised is another question, it was predictable to many what a sudden and sharp drop in Govt spending would do to our interconnected pseudo-economy).
Also, via Barbara Edmonds, is their hinting at what you've made explicit Bernard, that the decisions NAct are making that are increasing inflation: "The Reserve Bank saying "Inflation is expected to remain in the upper half of the target range over the next 18 months, partly due to persistent price increases in categories such as local authority rates, insurance and utilities."
So we have a bizarre case of the RBNZ essentially saying they had to weigh up whether to fight the recession the Government is causing or the inflation it's causing. It all sums to a painful few years ahead unless, like Luxon, you have a guaranteed income, plenty of assets, and the opportunity to scoop up some bargains. Enjoy the bread lines everybody else.
I’m so sad that none of the media coverage mentioned ‘recession’ - just echoed skiting comments from the government and found some mortgage victims to spread the good cheer.
The inflation seems to be largely resolving due to improvements in the global situation. It was already starting to trend down. Also we are not entirely innocent as food in particular on the CPI appears to be falling victim to profit maximization by our duopoly rather than any real need to high prices to where they are.
the PM is now an “outstanding hypocrite”.
whe do we start with that one (or where do we stop!)
Just one for me... you dump 5000 people (at least) out of jobs and then take a paternalistic “tough love” approach to reduce the unemployment benefits (while you argued you were entitled to get 1000 dollars a week on rental subsidy to pay for your flat).
all the bunch of people at the top of goverment just seem to terrible human beings with zero empathy
It's utter madness, unemployment is (sadly) a *feature* of our capitalist system, yet there is some absurd idea that there is a push for zero unemployment as evidenced by the vilification of unemployment benefit recipients. 30% YoY unemployment increase is a figure I'm not seeing talked enough about.
Love the cartoon, add an extra chair and it would work well for our coalition of cruelty.
This is a super-important perspective on the RBNZ move, which is (unsurprisingly) not being fielded by the bank economists and centrist pundits that the wider media have turned to for analysis. I have heard literal *criticism* from economists that Orr mislead us back in May when he signalled a slower reduction in the rate—as though the facts weren't changed by all the government's subsequent and unprecedented austerity! ... I hope this truth finds its way to a wider audience than Nicola Willis's self-congratulatory bollocks.
Thanks Tim. Keep an eye out for the austerity word. I did an interview with The Detail this week that focuses on it.
I'll have to read this when I get home, but was wondering..
Will NZ have it's own little credit crunch like what we saw in the early 2010s only specific to NZ?
Private debt levels would be the warning sign of this. It was over 97% of GDP at in recent years but has trended down to 91% at last check. Private debt levels are the real warning indicator (not public debt levels that get fixated on needlessly). It's probably too high for NZ, but not seemingly high enough to cause any kind of major crisis, if it kept rising uncontrollably it would. Given the governments tightening (for everybody who's not super wealthy) there is a high chance that will drive increasing *private* debt.
Thank you, I really appreciate those insights 🙏😊
Is it fair to say that public dept & private dept has roughly an inverse relationship ie: if government spends more money(increase public dept) then private dept goes down..or not that straight forward? Forgive my ignorance 🙏
Nothing to forgive :D, honestly, this stuff is traditionally made "hard to understand" by economists who want to look smarter than the rest of us ;)
*Roughly* inverse but not to public/crown debt, but to government spending deficits. When a government runs a deficit it is putting more money *back* into the economy than it is taking out. This is why running a surplus makes no sense as you're taking money *out* of the economy (and presumably overtaxing or you wouldn't have a surplus!).
More money into the economy for PRODUCTIVE uses, building infrastructure, health, education, housing, will contribute to less private (and household debt). However this assumes the government spending is productive, if the spending just means wealthy people save more, or invest in more property (which isn't productivity generating unless they are building!), then it's not going to help control private debt in the same way.
Private debt *is* a big issue because in many cases, particularly in New Zealand it's taking money out of the country in the form of interest payments etc. Whereas Public/Crown debt is just a choice, a government technically doesn't need to borrow money at all, but public debt does form a part of the current system, it's just not this scary thing we are told it is.
Woah, thanks again. Yup, slowly wrapping my tiny brain around it.
Many thanks, Mate.
Appreciate it😎🙏
It takes time. I've spent the last 10 years casually unlearning all the dogma that neoclassical economists convince themselves and everybody else is true. Good luck!
It's true aye, I'm roughly 2 years into my journey. Same to you Mate, all the best.
Your last comment, reporting Jonathon Porrit statement on the PM left me shocked. Hypocrite leaves no room for doubt. It is to be hoped many other news stories will also investigate.
Gary Dyall
This Coalition Government surely are masters of spin. I recall one commentator saying that the tax cuts would not mean much but that the RBNZ rate cuts would be the real icing on the cake. Both Luxon and Willis were hugging each other for the major turn around that they have brought to the economy. Forget about a number of things like the rising unemployment, break down of the health system, abandoning of election promises and the difficulties being experienced by many Kiwis on just trying to survive. Well done you two.
The Finance Committee's terms of reference for their inquiry into banks includes asking what extra costs arising from banks' accounting for climate change policies. Is this because lending for houses and businesses at risk from climate change should not be penalised with higher interest rates?
Great question. Possibly that for consumers, and possibly higher capital levels imposed by the Reserve Bank on banks.
Lynn's photo today!!!
https://www.stuff.co.nz/business/350379720/theres-no-u-turn-reserve-bank-governor-hits-back-over-rate-cut-flip-flop
Some choice words from Orr for young Brad…
Please open this up to non-subscribers.
It's concerning to read about the downturn in infrastructure work. Government has passed the water fix over to councils, who will now have to draw up plans, get consents etc, arrange finance. Will be years away and too late for some companies.
It won't happen for decades really..
This might be something worth discussing on the Hoon, Bernard.
Curia Research found to be in breach of professional industry standards. Farrar resigns from RANZ.
https://mountaintui.substack.com/p/curia-found-in-breach-of-industry
https://archive.ph/lkgza
Very interesting. Yes. Saw that. Sadly, ran out of space, but one for another day.