44 Comments

No quick fix for inflation? But maybe it can be mitigated by dropping GST back to its original 10% & replacing the tax shortfall with a PAYE/Company rate increase for the top 10% of earners. In this economic climate any in the top 10% of earners are likely doing so by gouging the rest of NZ.

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Former Chancellor of the Exchequer Norman Lamont famously claimed to have sung Edith Piaf in the bath after allowing Sterling to crash out of the Exchange Rate Mechanism. No regrets there supposedly. Good idea to have a parliamentary select committee interview the Reserve Bank but surely it is really second-guessing when they faced an unknown and nearly impossible-to-forecast crisis in the pandemic? We may want the result to have been different but they were driving into a storm. I also question just how much inflation is domestically driven as even the domestic components are affected by global factors such as supply chain problems, materials demand, and missing workers in many industries. Given 11% inflation in the UK and high inflation in the US it seems we are part of a global trend which others forecast over the past two years. Love, Peter

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Jul 18, 2022Liked by Bernard Hickey

'No, I didn't think so.' - summed up the opposition perfectly. The 'renewed' opposition are basically Newstalk ZB soundbites and not a lot more.

They really need to consider a new strategy for the coming year. I see the latest Curia poll has National, and particularly Luxon, tracking down. It will be interesting to see if that trend continues, and whether National realises they actually need to start bringing solutions to the table.

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Jul 18, 2022Liked by Bernard Hickey

How much of our domestic inflation is caused by exporters imposing export prices onto the domestic market? That $20/kg price for Tasty cheese for example.

Sell on the local market at cost-plus, and grab the best price you can get by exporting what isn't sold in NZ.

Although that isn't the done thing because it is not providing the highest return to shareholders.

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Jul 18, 2022Liked by Bernard Hickey

While I appreciate a good pile-on when someone has cocked up I do think the sun has passed with respect to dunking on the RBNZ and the lack of anyone having real alternative pathways out of the quagmire is becoming apparent.

It smells a little of the good old debate stalwart of "we would just grow the pie through strong economic management"

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Is this a RBNZ problem or the reliance on private banking as a conduit for public money, as suggested in previous discussions? Will a CBDC begin to provide a more responsive system of support during emergencies and transitions?

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Looking at the fine print on the funding for lending program, the amount banks could loan was capped at 4% of eligible loans, for the first 18 months (ending June 2022), with a further 2% given for the last 6 months of the program. Is there the potential that banks ran out of the cheap money Q1/2 this year, which could have had some effect on housing market decline? Could we also now see a flatting or even increase of house prices, now the banks as of June, have fresh cheap cash to splash? Reinz data for June had a 2.8% increase month to month for Auckland prices, July’s data will be increasing! Also, this line ‘the bank reserves the right to alter the date, time, and settlement of the facility operational window at any time’... RBNZ can close it down anytime it wants

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Jul 18, 2022Liked by Bernard Hickey

Please release this Bernard. We do need a thorough review of Covid money spreading. Please no more stupid politicians crying” austerity” , “budget like a household” and that sort of nonsense. Meanwhile the World burns or wars or droughts or floods or tornadoes all due to a greedy little species known as homo “sapiens” . Hardly. Change the system to get some work on climate change which is the “sapiens” related problem that we all ignore because God Forbid our house prices may fall. Have a happy day!

Patrick Medlicott

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Jul 18, 2022Liked by Bernard Hickey

Agree it is time for a deep dive into why the Reserve Bank made such large policy errors. Record low interest Rates with removal of LVR's shows all they wanted to use the House Wealth lever to boost spending. This will go down in history as one of New Zealand's great policy blunders. Its no use questioning Orr about this as the response as his has always been "we have no regrets". Interview others outside of the Terrace grouped Treasury and Reserve bank. Also while at it look at the inflation targeting mandate. Maybe focus it on what we can control ie non tradable inflation

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Jul 19, 2022Liked by Bernard Hickey

Can someone explain why we are seeing inflation now after this round of QE, but we never saw inflation after the QE in USA after the GFC. Is it just because that the numbers are bigger.

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Jul 19, 2022Liked by Bernard Hickey

Hi Bernard. I support opening this up. It is very important that the public knows what is going on. Thank you.

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Jul 19, 2022Liked by Bernard Hickey

Spot on assessment of the RBNZ’s utter policy failure. You correctly identify the difference between the initial response (when there was massive levels of uncertainty) and when it became clear the economy would quickly rebound.

Removing the LVR’s was NEVER appropriate.

But when the economy was recovering strongly Orr kept saying “we don’t want to raise rates”. Returning the OCR to pre covid levels wasn’t “raising rates” it was unwinding stimulus that was no longer required.

While the argument that only a portion of inflation is the result of the RBNZ, the rest of the inflation was the result of all the other muppets in charge of central banks across the world making the same sorts of mistakes.

When all is said and done our current predicament post 2008 will be known as the “central bank bubble”. Because right across the world there is a belief we no longer have recessions, downturns, credit crises or large company failures, because the central banks can always just print more money and fix everything. We have now seen the limitations of what central banks can do without creating massive unintended consequences. Yet still there is a pervasive belief that central banks can/will start cutting rates if we get a downturn and save the day again - this will eventually blow up spectacularly, the only question is when.

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Jul 19, 2022Liked by Bernard Hickey

Without doubt there should be an independent inquiry into the RB and government handling of finance’s ! That should go without saying since we have just come through a “once in a century pandemic” I use that quote loosely!

Any honest government worth there salt would insist on it.

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Jul 19, 2022Liked by Bernard Hickey

There is a great deal of hindsight wisdom being brought to bear on the Reserve Bank's 'least regrets' actions. That meant it was prepared to run this risk, versus bankruptcies two years ago and following, and lots of unemployment, because it had held interest rates too high. I am interested in where the 'one third of the current 7.3% is down to the RB' estimation comes from. For a start, if that is right, which is very unlikely, then with a max target of 3%, the RB is not technically at fault for being responsible for a third of the 7.3% inflation rate (would be around 2.4% down to the RB). This kind of attribution is precious, and no modeller should be trying to cut this kind of cake as it is so misleading to people whose jobs aren't as economists.

I would challenge you Bernard to contact Arthur and ask him for references to the times (once, twice, dates?) he publicly over the period he is concerned about spoke out against the Bank's easing, explicitly saying he felt the downstream inflation risk was far too high. He may well have, but absent that for now, I am not impressed. At least it is noted here that this central bank was ahead of others in turning around. I would ask if the Aussie Reserve Bank is taking the same heat for its decisions, with their forecast annual rate to June 2022 at 6.2%? I have a strong feeling that the animus evident not just here but elsewhere in NZ econ commentary against our central bank has a different source from just the technical figures. It does not look at all good to me. There is a fundamental confusion here between the RBNZ's role in the 20/21 house price surge ( an unfortunate side effect of the necessity in 2020 uncertainty to drop interest rates sharply to keep the economy going) and decades of stupid neglect by Governments of NZ's housing market fundamentals. The RBNZ does not build houses. It has a decades long track record of research and accessible writing urging the Govts of the past to do something about supply of land, badly organised regulation and markets for materials - all to its credit. Govts simply have not listened.

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I went hunting for the recent comment referenced from John McDermott and Arthur Grimes and found this: https://www.nzinitiative.org.nz/reports-and-media/opinion/transcript-oliver-hartwich-and-john-mcdermott-discuss-winding-back-the-overhang-of-monetary-stimulus/ Interesting comment at 14:32 about the Reserve Bank having lost real money.

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Hi Bernard,

You mentioned in this podcast that Grant Robertson approved a lot of the decisions that the reserve bank made. I would love to know what your opinion is on what those decisions would have looked like had someone like Christopher Laxon been in power at the time or what you think they may look like in the future if national comes into power.

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