46 Comments
Nov 23, 2022·edited Nov 23, 2022Liked by Bernard Hickey

Swarbrick just asked Orr about the commentary that was saying he was 'deliberately trying to engineer a recession' to which he replied "I would say that's correct".

You have to love his attitude regardless of what you think of his decisions.

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Nov 23, 2022·edited Nov 23, 2022

Central banks spent most of the decade post-GFC with their impotence (and incompetence) on full display as they tried to manufacture inflation with OCR cuts. Their only tool is a hammer and it only works in destructive mode. So he is going to destroy the economy, and the prospects of everyone who's already in tight circumstances, to show the Awesome Power of Monetary Policy.

We need to all agree that central banks are political by nature and bring them under public control. We also need to have a grownup conversation about the ill effects of monetary policy, inflation targets, and how crude these instruments are in the face of multivariate problems. MMT has a lot of answers for us, but it seems that no one in our political landscape apart from TOP will even ask the right questions.

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> We need to all agree that central banks are political by nature and bring them under public control.

Then we can be just like Turkey!

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Nov 23, 2022Liked by Bernard Hickey

I’m sure there will be a lot of talk about the RBNZ “over-tightening”. But the policy mistakes were baked in 12+ months ago.

The RBNZ repeatedly ignored inflation warnings, and decided inflation was “transitory”. So they decided the economy was too fragile and the “least regrets policy” was to keep emergency stimulatory monetary policies in place.

During covid RBNZ put in place policies to deal with a shrinking economy and mass unemployment. When neither of these things eventuated they didn’t remove any of the stimulus.

A lot of the pain we are about to experience could have been avoided … but it needed to be done months and months ago.

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Nov 23, 2022Liked by Bernard Hickey

Orr has proved again that political economy is...well, political. He has deliberately left out any discussion of staggeringly high corporate profit margins, especially in the monopoly-adjacent realms of energy, grocery, and banking/financial services. By making snarky comments about fiscal policy, he has added fuel to the misconception that public sector spending is somehow to blame. The worst part of this is how he is providing ideological cover for National and ACT and virtually assuring that they will be occupying the Beehive after the next election -- guaranteeing us a minimum of three years of climate denial, class warfare, dog-whistle racism, and rampant waterborne disease.

Come on, Adrian. You are a banker by profession. You can see as clearly as your august institution's own statistics show that the increase in our money supply is nearly all driven by mortgage lending (see https://www.rbnz.govt.nz/statistics/series/lending-and-monetary/depository-corporations-money-and-credit-aggregates and note that the current annual growth rate in broad money is only a bit more than half what it was two years ago). It's simple, because 98% of our money supply IS mortgage lending. How the government can compete with a hurricane in a candle-blowing competition is beyond anyone who can compute simple percentages.

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author

Thanks Phil. I asked that question yesterday and he said he thought the economy was very competitive...

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I'm glad I wasn't in the middle of a sip of coffee as I read that....

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Wow. While I don’t think it’s within the RBNZ’s remit (or that is has the tools) to address anti competitive behaviour it’s staggering he just dismisses that we have a problem

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And that's after we already have reports from the ComCom about how anti competitive our markets are.

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Well said, Phil. Orr has now (deliberately?) delivered us into the hands of the mad neo lib fanatics of Act, supported by the Nats. 2023-2026 will be a rerun of the shitty Richardson/Shipley government of 1990-1993 which produced wide spread poverty, homelessness, student loans (with interest) & general deprivation. For the love of God, how often do we have to relive this insane neo lib cycle of endless austerity & punishment of the poor, inflicted by overpaid bankers & economists? It's high time that Social Democrats proposed an alternative economic model. A good place to start would be updating the social contract which worked successfully for 50 years from the mid 1930's & gave the boomers the highest living standard enjoyed by any generation of Nzers.

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Hi Dean

I support a social contract similar to what we have now. But on the other side it has created a boomer generation that has become entitled. Boomers have grown up and lived through a cradle to grave society where the government pays for everything: - free health, free education, free capital gains, etc.

So now when the money doesn't go as far because of rising life expectancy (more superannuation, more medical costs to keep an aging population alive, etc.) this boomer sense of entitlement demands that other generations pay to keep boomers in the lifestyle to which they have become accustomed.

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Nov 23, 2022·edited Nov 23, 2022

I get a bit annoyed when i read the much repeated "the boomer sense of entitlement'.

Please at least qualify by saying some are like that. Are they the leafy suburb folks of Auckland? I've never met them and would probably dislike them intensely. As nearly boomers my friends and i were bought up by parents who'd lived through depression and war. As a 'girl' there were lots of things forbidden. Yes i had some pluses my children haven't and they have plenty I didn't. And I sure don't get why any young people think they might buy a 3 bedroom house in Auckland or Wellington. It is sometimes said by my family 45 year old, who is a middle manager, that today's young people think they should start at the top. So you know - it all depends on where you are and who you know. The bogey is the neoliberalism not the stodgy rich old bloke - its all bigger than him. Our local Buy Nothing fb group has nearly 1,000 households in it - all ages, all incomes and is very active. I spend more time tying to figure out how to get off/ undermine the stupid mouse wheel of the world's Adrian Orrs. Any ideas?

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I'm a boomer, own my own home and am quite relaxed about what my neighbours might do. Like you my parents were growing up during the depression and WWII. In my opinion, though called the Silent Generation, they are a great generation. They grew their own veges, sugar was a treat rather than a major food group, and it is only in later life that, generally speaking, they have needed health care.

Whereas us boomers have had cradle-to-grave government care and some of us have become used to expecting the government to keep paying for everything - a sense of entitlement.

And generations since us boomers also have their issues. I once read a sci-fi book about people living to be 200 and those aged in their 40s - 80s knew they weren't going to be the boss or promoted to high positions for another 50 years or so. Lots of accidents where parents 'accidentally' died so the kids could inherit, succeed dad in the family business, etc.

As for the world's Adrian Orrs I think they should be more reactive than proactive - don't dump billions into an economy because something 'might' happen. But be ready if something does happen and don't make it free money as we saw in 2008 and 2020.

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Stuck in the middle generation. I see massive political and structural issues with the numbers. My Boomer parents have accumulated millions in assets they are still in their 70s and to their credit still pay more tax that my own top tax bracket income. However they also still both get the pension. My mother having not worked in 45 years. As some added bonus Winston also throws in another ~$1000 as a winter heating bonus. They also have gold cards for subsidized public transport. Just in case one of there 4 diesel powered motor vehicles is out of action. On the other side we spend around $1000 a month on child care. I employ 4 graduates. for between 60 - 70k. 100% of the tax take from 2 of them is required to cover my parents pensions and we spend more on Pentiion payments to peope who dont even need it than we put into education. Something just dosen't add up. But the Boomers have certainly held up a system for the maximum advantage of that generation. We also saw this with the impact of covid.

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Nov 24, 2022·edited Nov 24, 2022

I know you are right. I disliked those kind of people when i was a child and it never changed. I watched the great piles of scallop shells Peter Talley made on his way to cleaning out Tasman Bay. They are dragons clutching and hoarding other people's treasures.. At 77 I've finally finished paying a mortgage and own one house worth $350.00 dollars in the beauty of Otago peninsula. I get a pension only because I ended up far from healthy by the time I scraped up to retirement age. All of the people I know are like me because those boomers who hoarded also took from we boomers who couldn't. frankly we weren't that kind of people. My work etc was always to do with understanding humanity - puzzling about what made people like they were, individually, socially and more globally. Much of my work was in mental health. i needed a home for me and the kids but that was all. My sons will be your age bracket. One is a manager of a firm which operates some technology relating to trucking on the West Coast of the USA. He has a wife, family and typical oversized house. The other son has a business in Vancouver with 4-5 good employees , a wife child and home. Neither their father or I had a spare dollar to give them. They declined the expense of university and moved themselves along in zigzag fashion. So did we do anything right? the only thing I can think of is what my parents (of the war and depression) gave to me - you have to play with the cards you have in your hand. That's all. Neoliberalism made it fine to be greedy and that suited some but I consider it crass and destructive. That is what went wrong.

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Why wouldn't young people buy a house in Wellington or Auckland? Is that a privilege reserved only to those who happened to be born before them? If they live there & work there where exactly are they supposed to buy a house?

I'm looking at Otātahi house prices. It's crazy. You have a choice between a 2BR new house at $650k or an old run down for the same. What options young people actually have?

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Nov 24, 2022·edited Nov 24, 2022

I still couldn't buy a house in those places - and have no desire to. I know this will sound unreasonable, but if you can't afford to live somewhere, then it's not a suitable place to have a job. Needs plenty of lateral thinking but that is what young brains are good at hopefully.

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It's the chicken & the egg question.

They live there because that's where a lot of jobs are. If businesses moved to other cities people would follow them. But what will that do to house prices in those places?

Sorry, but the boomers have created the perfect storm & it is now biting us at the back side (I know, not all boomers but that's just like saying 'not all men').

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Nov 24, 2022·edited Nov 24, 2022

I can only hope that whatever generation you are, that your descendants find their elders paragons of virtue who hand onto them a world that is just as they like it.

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We could be looking at the opposite. Central bankers know their appointment/autonomy is partially politically governed. With national elections in many G7 countries (& NZ) in 2023-24, could it be that these aggressive rate moves signal that CBs are looking to crush their economies in the immediate future, giving them space to begin cutting in the run-up to their respective federal/national elections, in support of the incumbent/sympathetic governments?

For NZ, I'd suggest RBNZ OCR cuts/pausing in Q3 2023 - plus some of the fiscal policy powder that Labour are keeping dry - would go a long way towards putting a Red spring in voting homeowners step ahead of the election.

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Well said Phil. The RBNZ knew what it was trying to achieve when it removed LVR, pumped the banks full of cheap funding and slashed interest rates. The desired outcome was to pump up the property bubble to support consumption.

They then hid behind excuses such as “transitory inflation”, “supply chain issues” etc etc … but most of the problem is one of their own making.

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LVR and cheap funding for lending, yes. Ridiculous use of 'rapid reaction' tools which really should have been held back for the worse case scenario.

RBNZ really had to follow the OECD central banks in cutting interest rates to avoid a damaging relative strengthening of NZD.

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Bernard, thank you for asking the hard questions. At least it's out there. The response though... I honestly do not have enough space in my head for the eye roll that is required.

https://twitter.com/antihobbes/status/1595322786498875392?t=YToacUnWTENJwdP7y2lV3w&s=19

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The body language and facials on the (I assume) RBNZ staffers sitting next to Orr is hilarious!

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To use a sporting analogy.

Team Transitory is competing at the FIFA World Cup and has just been thrashed 5-0 by the lowest ranked team.

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Kia ora Bernard, I have been catching up on your coverage on the OCR and mortgage rates (which I have been really enjoying due to your amazing ability to contextualise it). I picked up on something you said around the ability of private mortgage holders to service their loans. You previously discussed that there was considerable fear mongering around potential mortgagee sales and that in reality, people with mortgages from 2020-2021 were showing that they had the cash, or were working harder to ensure they had for the cash needed to pay those mortgages. Do you think this push by RBNZ to force a recession and asking for people to "cool their jets" is also aimed at these people burning the candle at both ends to service these mortgages? Has this announcement increased the risk profile here or is this a case of waiting to see what the banks do with their rates?

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Nov 23, 2022·edited Nov 23, 2022

For a mortgagee sale to occur, generally an owner needs to be both in negative/low equity and have difficulties servicing the debt.

If you go into negative equity but can continue to service the debt, no issue. Likewise if you can't service the debt, but you have decent equity you may need to sell - but it won't need to become a mortgagee sale.

Here is the thing to keep in mind - due to the speed at which rates have risen and prices have gone from rising aggressively, to falling aggressively, very few people meet both criteria. As most people that bought at the peak with low equity won't have had to refix all their loans at highest rates.

The current stock of fixed mortgages are now paying, on average, roughly 3.7% interest, but interest rates look set to climb to 6.5% or possibly higher. And now the RBNZ are saying they will hold rates at elevated levels, even as house prices fall and unemployment rises.

In the GFC the OCR hit its terminal point in July 2007, but mortgagee sales didn't pick up until mid-2008. We are likely at 6-9 months away from terminal OCR rate

If in 12 months we have 6.5% interest rates, house prices down 18% from peak, and growing unemployment I don't see how we don't get a substantial rise in mortgagee sales.

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Is the Reserve Bank part of what is trapping us in our low-investment, poor-infrastructure economy? With the calls today for the government also to reign in its spending, because of its claimed effects on the high inflation the RB is trying to crush, this makes it look like it will be impossible for any government to ever invest enough to overcome the massive infrastructure deficit that Bernard often talks about here. If a government tries to catch up, inflation will go up and the RB will spike the punchbowl with the OCR - causing lots more pain across the economy, scaring the government (existing or the next one) so they will spend less. That leaves us...where? Only investing tiny bits at a time, for fear of what the RB will do to stamp on any inflation raise that results, and forever living with crumbling infrastructure. So we can have tamed inflation (like most of the last 20 years), or proper infrastructure investment (like in some of the decades before that) - never both?

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I'm also struggling to square Orr's comment about wage inflation being a big factor in this decision with the rhetoric (sure, not necessarily from RBNZ) around moving away from NZ being a low-wage economy.

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I agree Simon - I struggle not to become senile with all this cognitive dissonance we're swilling in.

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> the committee spent more time on 75 versus 100, than they did with 50 versus 75.

😬 it must have been a pretty grim conversation. I don't envy their job.

> So it's always a complex picture. Over recent times, it's been broadly neutral if not, if not slightly negative fiscal impulse. Looking forward we see a risk to the upside. Because of the cyclical place we're in at the moment.

When he said "the cyclical place we're in" did he mean Governments tend to promise more spending in election years? Or did he mean Governments usually spend more during recessions?

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This comment summs up the mess:

https://twitter.com/hcirePT/status/1595518901152288768?t=K2y-e-6GuQ-JLaVMpQECLA&s=19

Are we witnessing the complete meltdown of neoliberal economic theory combined with financiers having no clue what to do?

Sack the lot of them. I'm sure that will have an effect on inflation.

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Just need to add. When the neoliberals were wrecking everything I cared about, including my career in health, back in the late 80's/90's I spotted a wee notice pinned on the board with everything else behind the receptionist at my local medical centre. Gave me my first smile for ages - " The beatings will continue until morale improves." I was not alone. I'm so angry that we have not go out of that still

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The Central Banks have no limits or humanity. They’ve always been happy to find both sides of wars as long as it makes them money. They have more power to make lives miserable for people or kill them than people have ever realised. All for nothing. Agree the windfall taxes for those who have profited off the assets of the people need to be targeted for this not the unpaid (women and children) poor and middle classes. He’s off my Christmas card list now and sounded like a silly, entitled, privileged old fat fart yesterday. Not persuasive just facetious, aggressive, arrogant and nasty. He’s punching down instead of working on themselves and the culprits profiteering.

As an aside David Bennett made some good and very clear points about the problems with three waters yesterday in Parliament which will serve National well next election (it’s asset stripping) clear and simple. Labour have tied themselves up in knots and yesterday just made that worse.

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Basically not only are they coming for your income (taxed at $15k more pa per household due to bracket creep, they are now making your houses more unaffordable which will cause more social problems, and also using womens labour twice or more over in sweat equity and unpaid contributions then charging or forcing daycare and secondary work on women more social difficulties for kids.It’s flying like a dog. On top of that public services and law and order has failed in a crisis )they’re also trying to ignore). Umtimately that’s how fragile the system is and why it needs reform. Those really big players who made a lot from covid and public subsidies need to cough it back up now. The covid payments should always have gone to individuals to avoid this.

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One thing is for certain, not EVERY decision is made with a lens of "what's best for housing."

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Not so sure about that. This looks like Planet of the Houses to me. For one thing, only houses can buy houses now. People are not the primary consideration of the government or the RBNZ. It is clear that our politicians have forgotten they are supposed to be working for us. Our economists also need to remember that economies are ultimately for people not money.

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We really do need an online open source modern digital version of the Moniac

https://www.youtube.com/watch?v=rAZavOcEnLg

https://thekaka.substack.com/p/dawn-chorus-climate-fund-agreed/comment/10607237

The Phillips Machine ( MONIAC ) - Demonstrated by Professor Allan McRobie

Faculty of Economics, University of Cambridge

https://www.youtube.com/watch?v=gkNaZJmii28

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Tony Alexander: What the rate hike means for house prices

https://www.oneroof.co.nz/news/42687

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Nov 24, 2022·edited Nov 24, 2022

I guess looking on the bright side, recession = lower emissions...so that's a bonus. Also, less landfill :)

I read this gem of a paragraph in a Dr Tim Morgan blog post this week, seem appropriate to share here.

"In a descriptive rather than a pejorative sense, the modern economy is a dissipative landfill system. Energy is used to convert raw materials into products, of which the vast majority are quickly relinquished, generally into landfill. This is a dissipative process because it operates by converting dense or concentrated energy into diffuse forms, essentially waste heat which, in a carbon-based economy, includes climate-harming gases."

https://surplusenergyeconomics.wordpress.com/2022/11/22/243-the-great-inflexion/

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