It was the inevitable discussion we were going to have at some point.
And right now the clock seems to be ticking loudly, suggesting that the point has been reached for us to have serious conversations about whether an out and out focus on targeting low inflation is still the right way to steer our economy.
We've been doing this for over 30 years now. Squeeze the life out of inflation and all will be well. It worked, until Covid broke everything. Can we assume that carrying on as before will now work again in the future?
Can we still assume that dogmatically insisting that our inflation level must be 2% is the right way to go? Will inflation globally ever quite 'behave itself' again in the future as it has in the recent past and are we going to visit upon ourselves unnecessary hardship by trying to insist that the future (for inflation) will be the same as the past was?
Enormous issue, potentially, and with our interest rates having been cranked to pain levels (Official Cash Rate hiked from 0.25% from October 2021 to 5.5% now) to fight inflation, people want to know when and where the relief is coming from. What if inflation doesn't just jump obligingly back into its 2% box?
Reserve Bank (RBNZ) Governor Adrian Orr seems set to take the bull by the horns - I suppose in fairly typical fashion - by using his upcoming speech to the high powered 2024 New Zealand Economics Forum at the University of Waikato on Friday, February 16 to outline why the RBNZ "continues to believe that a flexible inflation target centred on 2% still makes sense".
To give some perspective, it may seem odd to say it, but based on the RBNZ's own back-record of official speeches, Orr doesn't publicly speak in this country on nuts and bolts monetary policy very often - not outside of the fairly controlled agenda of the Official Cash Rate (OCR) announcements.
I reckon you can pretty much say the last time Orr gave a public address focusing strictly on monetary policy was at the same Economics Forum two years ago when he talked on the subject of Tackling Inflation During a Pandemic.
This tells me that Orr and the RBNZ folk see questions around the inflation targeting as a hot issue and they are suspecting they may need to play a front-running role in order to maintain the inflation-busting, monetary policy, status quo into the future.
So, Orr is picking up the baton for a discussion/fight that may be about to begin. Seemingly at this stage the RBNZ is looking to defend the current inflation targeting approach and sees no reason to change. But what will the Government think? This may well be why the RBNZ is attempting to pre-empt discussion.
Monetary policy as we know it today started in 1990 with the first Policy Targets Agreement signed between the Finance Minister and RBNZ Governor. That first PTA defined 'price stability' as achieving an inflation rate of between 0% and 2%.
In 1996 the inflation target was broadened to 0% to 3%. Then in 2002 it was narrowed to 1% to 3%.
And finally in 2012 an explicit focus was given to the 2% mid-point of the 1% to 3% target range.
The RBNZ explains the rationale for this change, thus: "This was important to anchor inflation expectations to 2%. Without a mid-point target, inflation expectations may float to either end of the 1% to 3% band, depending on the economic outlook. In practice, we were already point-targeting 2% inflation, but formalising it in the PTA had a stronger effect on anchoring inflation expectations."
That 'explains it' I guess. But it's still just a figure that someone has hit on and decided it's the one to run with.
In the meantime, we've had revamped RBNZ legislation that has included the setting up of the RBNZ's Monetary Policy Committee and with the inflation target included in the committee's 'remit' - replacing the PTA. In 2018 we had the inclusion in the monetary policy target of 'maximum sustainable employment' alongside inflation targeting. The new Government has removed that in favour of a sole target on inflation again.
Annual inflation measured by the Consumers Price Index was 4.7% as of the December 2023 quarter, down from 5.6% in the September 2023 quarter. As of its most recent (November 2023) forecasts, the RBNZ was seeing inflation getting back into the 1% to 3% range by the September 2024 quarter. But rather crucially though, the RBNZ's not forecasting achieving the 2% holy grail till September 2025. Long time.
That is a very long time. And patience may have been well and truly frayed long before then, from the markets, the public and maybe the Government?
In a recent speech, the RBNZ's chief economist Paul Conway made the comment that global supply shocks "could become larger, and more frequent and persistent".
Typically the RBNZ like other central banks around the world has tried to 'look through' such shocks, meaning that they won't start hiking interest rates because the shocks will be short lived. This didn't work too well in the aftermath of the pandemic and the multitude of supply chain shocks.
Conway posed the question of whether ‘looking through’ these shocks is still appropriate.
"In what circumstances should monetary policy respond to bring demand back into balance with supply? And what are the implications of inflation expectations?"
This is significant stuff, as it brings us to the whole (rather arbitrary) split between the so-called 'tradable' (read 'imported') and 'non-tradable' (domestic) inflation. This, as I say, quite arbitrary split, between domestic and imported inflation, is set to take a central role in the debate about whether there's a better way for us to be targeting inflation.
In that last CPI figure for the December quarter the 4.7% annual inflation figure was actually comprised of a 3.0% (and dropping like a brick) 'tradable' figure and a 5.9% (and sticky as hell) 'non-tradable' figure.
The RBNZ is going to get more and more scrutiny for its targeting of the 'non-tradable' figure. Let's face it, this is a debatable figure. How do you truly differentiate a price rise domestically if it has, when push comes to shove, been prompted by higher fuel prices?
The reality is that in the recent past prior to the pandemic our domestic inflation was much higher than imported inflation. Often, as globalisation did its thing, we were actually importing DEFLATION, which masked somewhat higher local costs.
As one instant example, the annual inflation rate for the March quarter 2020 - the last pre-pandemic figure - was 2.5%. But the non-tradable rate was actually 3.4% - so outside of the RBNZ's 1%-3% range and well above the explicit 2% target.
I think there's every reason to believe that we can't rely in future on importing low inflation from overseas. If our domestic inflation therefore settles at levels above 3% like previously, what happens?
By implication, the RBNZ will be forced to keep interest rates up.
Maybe the RBNZ would not mind that.
There's no doubt that the interest rates currently prevailing ARE reining in the normally un-rein-in-able housing market.
Interestingly the RBNZ last year circulated a discussion document raising the prospect of using higher interest rates to specifically control house prices, while earlier RBNZ research highlighted how pre-pandemic, NZ had among the biggest house prices rises in the world - along with one of the highest rates of population growth and one of the biggest falls in mortgage interest rates.
It seems clear the RBNZ wants to keep interest rates up till it has got inflation where it wants it.
Trouble is, you can't say with confidence that magic 2% will be achieved. In the meantime, what's going to happen when our wannabe house buyers and mortgage holders see overseas countries starting to get interest rate relief, when maybe they are not?
As housing-centric a government as this one will surely show itself to be, is not going to tolerate that for too long.
I can see the logic in an arbitrary inflation target, because if you don't have a properly set target level it's too easy to let things slip.
But equally, I think the RBNZ's going to struggle to justify that 2% figure. Why not say give the RBNZ a straight target of keeping inflation under 3% - or even a figure slightly higher than that? The 'old days' with inflation of the recent past are not the 'new days' I fear.
By trying to achieve the unachievable - as arguably we might be now - we could just be inflicting unnecessary pain on ourselves.
Let the conversation/debate/argument begin.
88 Comments
"In a recent speech, the RBNZ's chief economist Paul Conway made the comment that global supply shocks "could become larger, and more frequent and persistent"
This is the issue I have. Why increase interest rates on top of a supply shock when the supply shock itself reduces the likelihood of demand pull inflation?
I think the RB needs to consider what type of inflation they're dealing with rather than taking a sledge hammer to every little price increase, regardless of its source.
2001-2008 was the last time NZ experienced significant demand pull inflation. At that time increasing borrowing costs for consumers was appropriate.
We need a horses-for-courses approach to monetary policy.
Plus the negative gearing model and homes as residential property investment. Tax free gains and the tenant will pay your mortgage road to wealth, which started around 2000. WFF just added fuel as well as other tax polices at the time.
Hence economists and politicians fail to understand human behaviour, which was the basis of economic theory as a social science. Now it just flat out manipulates human behaviour for it's own ends.
Why not just forget about inflation targeting entirely if slightly higher interest rates become unpopular and embrace the Turkish School of Economics? Just set inflation low and mint $1000 bank notes so people can still afford a coffee or mars bar.
RBNZ are in this predicament because they delayed setting appropriate interest rates when inflation started rising. They broke inflation expectations and now they'll have to reset inflation expectations. The lesson here should be not to let inflation get outside of the target range to begin with.
So the 000's of people and businesses with mortgages and loans that are paying high interest rates just love it?
Let's face it, the only ones wanting a reset on inflation targets ... are those benefitting from them, i.e. the rich and those making a pittance from above normal interest rates.
The government, and councils, are going to have to spend a boatload on infrastructure - both "catch up" and new spending - in the coming years.
If the tax take plummets because people lose their jobs or folks can't get funding to grow a business and employ, that will most certainly put the government at loggerheads with the RBNZ. It's also why I don't think these tax cuts are on their way anytime soon.
A very simple solution for local and regional councils, and for central government.. If you don't have the available cash, then you can't spend it.
For core things such as fresh water treatment and reticulation, sewage reticulation and treatment, public transport and roads, there needs to be a decision - what of those is the most important, and properly deal with that first.
Are new civic buildings, and public libraries and pretty, warm fuzzy street decorations so much more important than fixing the water pipes that those projects must proceed even while the water pipes continue to leak? Really?!
Councils are in a crap position. If they don’t invest in the nice to haves, their city becomes not very nice to live in, the people with money won’t live there, and then their income drops further. Eventually all they have left is superannuatants and dole bludgers all getting a rates discount.
The best way to make money is to invest not to save, and that goes councils too. They should keep raising rates, it’s not like property owners are poor, most are millionaires!
Agree. Although I think some spending by councils is pretty wasteful. However:
- they get saddled with huge debt when greenfield developers win in the Environment Court (eg. Drury)
- they get saddled with large population growth thanks to central government migration policy
- large chunks of their constituents hate even rates rises at the rate of inflation
So, in the 19th century, industrial capitalism certainly looked productive to the extent that it was supporting a mixed economy, a private public economy that was moving towards the government, producing all of the communications, education, health services, transportation that could otherwise be monopolized or that labor would have to pay for and hence the employers would have to pay for.
So, the question is, you know, what went wrong was that the the rent recipient class fought back and they fought back for the last century, ever since World War Two and especially since the 1980s. We don’t have industrial capitalism anymore. Sometimes it’s called monopoly capitalism, but I prefer to call it finance capitalism because banks are the mother of monopolies and it’s the financial sector that has promoted monopolies because they can efficiently make money much, much easier simply by charging whatever they want and not having to take the customers into account, not by producing good materials.
Efficiency today is a race to the bottom. If the race to the bottom is in employment, it’s a race to the bottom for inequality. It’s a race to the bottom for Boeing making airplanes that suddenly don’t really have much oversight and regulatory control and their doors blow open and they crash. So, again, we’re living in a world where the whole concept of efficiency changes and productivity is no longer simply the physical productivity of output per man hour.
It’s how do you create wealth – do you create wealth and be productive in the way that Goldman Sachs said they are the most productive workers in the United States because they make the most money financially, they make the most money by taking over companies, breaking them up, smashing them down, and then slowly de-industrializing them.
So today, the most efficient capitalism is post-industrial capitalism or finance capitalism. You say it’s corrupt and they say, no, we’ve just made politics a free market. And if Boeing and other military spending people have the ability to back the campaigns of the congressmen on the military committees and the monopoly committees and if they don’t back what we’re doing, if they criticize us, we’ll just use the free market to back their political opponents in the next primary election. So, again, what is efficiency? It’s no longer what it used to be.
The monetary system, business, and those with the wealth to lord influence at the highest of levels, are holding money above humans and society as a whole. We live in a post-industrial world where sadly the goal is to make as much money as possible instead of living a fulfilling and sharing life where time and money is also devoted to others and the community be it micro, local or societal as a whole. We are now also heading in the direction of a monumental shift as the systems we have in place in the western world rely on exponential growth in the number of humans to support the previous generation, this is slowly toppling down and will require large scale reform against the wealthy and elites values and wishes. The sooner these large changes are enacted then better, but based on the status quo I would bet on those with wealth and influence keeping things business as usual until there is an eventual revolt in the name of humanity, or another significant war to force changes to happen quickly.
An interesting starting point for all discussions about inflation: Since central banks were formed - can anyone identify a time when inflation wasn't started by a supply shock?
Anyone think of one? No? None at all?
So perhaps inflation has little to do with 'demand' but everything to do with 'supply'?
Perhaps we should be thinking about how prices (and supply) are managed during supply shocks?
I was referring to NZ and other western economies where governments and central banks are stable. mature and relatively sensible. Zimbabwe, Venezuela obviously are neither stable. mature nor relatively sensible.
Weimar Germany? There was no central bank as we know them today. But Germany's hyper-inflation was absolutely the result of supply shocks on many fronts; from credit withdrawal to annexations removing substantial government revenues. Further, in the absence of a central bank function, the government controlled the money supply. And the government was a mix of extremists and few knew jack about economics (or indeed economic history).
Oh of course, I should have know that your sweeping generalisation was actually only NZ.
Germany had the Reichsbank during the Weimar period which the last time I checked was a central bank. The experienced hyper-inflation because they suspended the mark's link to the Gold Standard and started printing marks and selling them to buy hard currency. Nothing to do with a supply side shock.
How so? Te Kooti stated that the Riechsbank was the 'central bank' of Weimar. The link confirms that. It was you who referred to central banks as we know them now. The Federal Reserve Bank is still very similar.
Te Kooti also explained the removal of the gold standard, the printing of paper money to buy hard currency, which the link also explains.
Which part don't you understand?
We are a tiny island in the Pacific that relies on imported fuel, machinery, critical raw materials and most of our processed goods. When globals prices move, we just bob about in their waves. It's easy to work out - we import around a third of our total final consumption in dollar terms . So when the average weighted price of imports went up by 21% into 2023, our prices soon went up on average by 7% (a third).
We have only had stable inflation in recent decades because the global water has been calm. Now the water looks like being a bit choppy; so is our inflation targeting regime fit for purpose? I think you can guess my answer! Hell, no.
We need a strategy for dealing with imported price spikes that doesn't rely on torpedoing disposable income, culling jobs and businesses, killing house building, and actually making goods and services more expensive!! It's a dumb strategy - letting imported price shocks embed into our economy for many months until the central bank manages to cause a recession. Our inflation episode has also been prolonged by higher rates - the cost of credit has replaced high import prices as the main driver of businesses costs.
A more sophisticated approach would involve:
- More prominent publishing of critical import prices so that people understand why some things are costing more (did you know bitumen prices are up 30% in the last few years?)
- recognising systemically important prices (eg diesel) and having strategies in place to smooth out imported price shocks (eg bufferstock pricing)
- getting serious about tackling our terrible monopoly / monopsony sectors
- discounted / zero credit for building infrastructure and housing (we did this for decades, when we built stuff)
- state intervention / investment to increase capacity and push prices down (energy sector)
- price rise caps on goods and services that are considered in sustained short supply (and yes I include rents)
100% Agree.
Supply side issues drive most of NZ's bouts of inflation.
Using petrol as an example, what if government set the price for petrol and completely smoothed out any price fluctuations? (No. Wait ... isn't a mechanism already in place that could do just that?) Most people don't know this, but over the longer term the price of petrol has been relatively predictable, thereby allowing such a mechanism to work with far less risk than most people believe is possible.
I can't think of a better example of an organization in NZ that fits the description of "central planners, [a] committee of bureaucratic experts who will decide “we know best”" than the RBNZ. Can you? At least government's processes are subject to public scrutiny. Not so the RBNZ.
So you're saying the RBNZ should be dumped?
What do you suggest replaces it? (It really doesn't matter what you suggest. The rich will ensure whatever does replace the RBNZ works for them far better than it does for you.)
Our economy is currently planned by the private (international) banks who determine where investment is targeted
Bang on the money. While we give the role of credit, and therefore money creation to banks by means of loans, this will be driven by profit and not take into account the complex system that is our society as a whole. If it were more incentivised to lend for business loans, perhaps we would see more value added to our towns, cities, lifestyles, and more innovation for export sectors at a level not currently seen. Perhaps then we would be more self sufficient and less reliant on the value of our dollar, export income coming in, and there would be more money for business over again by means of public investment instead of milking residential housing.
Less debt in homes, more disposable income to spend in the economy and save/invest in better ways than currently.
Saving/storing in homes etc is creating the problem.
Marx's ownership by employees begins to make more sense especially regarding Audaxes post re Boeing.
Of course there's the issue of individual self awareness - needs, wants, fears - and the underlying psychological and emotional influences.
Starts to become a real discussion about everything we think we know about capitalism, government, being/doing human. The same things that seem to keep arising more and more over the last millenia.
re ... "Starts to become a real discussion about everything we think we know about capitalism, government, being/doing human."
Comments like that, that expand the issue into the existential realm, have a name: Reductio ad absurdum. It serves only to let the RBNZ off the hook. Best focus on the issue at hand or we'll have all sorts of irritating posting by self-aggrandizing wafflers seeking 'likes' with their folksy wisdoms.
Lol. So the people continue sticking their heads in the sand? The issues at hand as I've mentioned correlate with other articles posted here in recent days.
It's not about letting the RBNZ off the hook. They need to be held to account, but it's not going to happen if you can't join the dots.
One only has to observe that the system we've created/inherited, the institutions are failing us. One can already see the level of discord amongst the people, even the ruling elite are beginning to splinter. Fact is change will not be led from the top.
The RBNZ cannot solve it with their monetary dogma, and inability/unwillingness to question their own thinking. More tinkering around the edges to placate vested interests does not address the issues.
We've lost faith in money. Possibly due to inflation targeting. Why save money when it's mandated to lose its value over time...
We don't save money because we think it won't hold its value. We pour our money into various markets, which then go up , and benefit those at the top. Then when a recession comes along.. it's funny looking at you all panic like it's the end of the world. Blaming the central bank for your predicament. You could have been saving your money but NO you'd rather collectively put our country at risk because you attempted to leverage the perceived loophole in the system to have the nice things for cheap.
At the risk of being unpopular, set inflation target to 0%. The average person needs to have the mindset of holding money, not things.
This is true. I bought a stabicraft pre-covid and it has performed better than money in the bank which I consider to be the true definition of inflation.
I have said it before, don't save - spend all the money you have on capital goods or property. The central bank is not your friend, they will set you on fire and laugh as you burn.
It was designed that way. It's the reason those in the know attempt to store the value, and the lie has been embedded. It was made worse by the destruction of the gold standard and private credit creation.
Just another item cherry picked by the rulers. It was part of the economic debate whether money was a means of exchange or a store of value.
Now we reap the consequences.
If you save money the Left will simply confiscate it through wealth and inheritance taxes, and whatever else they can think up. If you spend it all you can then put your hand out for welfare benefits like the other half of the country already do. Might even get a free million dollar house thrown in, thanks to KO building all those lovely "warm and dry" houses in the ritziest suburbs in town. Apparently they even give you free TVs! Lifestyles of the Rich and Famous, all courtesy of the taxpayer.
Another point to consider - before the strawman argument that only central banks can control inflation using interest rate adjustments becomes too entrenched - What other options exist?
The most obvious is taxation.
Our current taxation system allows quite granular control of which segments of society would have their spending power reduced. (I jest when I say 'granular control' because our current taxation system is far from it. But that's a different but related discussion.)
Using taxation, unlike raising interest rates, means money is not shuffled off to the rich that lend us money. Or into the pockets of bank's shareholders. Instead, the money is retained within NZ and gets to either pay down public debt or be spent on things we collectively require, like - I don't know - maybe our infrastructure deficit?
If you've ever pondered on why the rich are just getting richer then look no further than the con job we've been sold that only central banks can control inflation. It's a nonsense sold by the wealthy to fools have lapped it up and it is now folksy conventional wisdom.
Interest rates work to control the currency too, I’m not sure taxation would. And you’d get the perverse effect of governments wanting inflation to get extra money to spend.
Compulsory variable KiwiSaver or Superfund might be better, but makes it hard to know how much you’d end up with.
Could be a partial solution but not when credit creation is in the hands of private institutions.
Wasn't that the original intention when Abraham Lincoln had the idea of paper money, and money creation in the hands of the people as was the argument against the Federal Reserve?
I agree the 'one size fits all' is nonsense. Does that also apply to the "wealth" creation and GDP growth beliefs?
All we've done is partial solutions and where has that got us?
I'm just saying we can't apply the taxation method if we don't address the private creation of money at the same time.
The taxation method effectively requires taxation to remove money from the economy. The offset is they also need to put money into the economy. Interest via the banking/debt industry also removes money from the economy. The offset is there's too much being put in and in all the wrong places. Can't have both.
The real issue is govt policy, monetary policy, economic theory won't solve this or the other pressing matters. It's always going to lead back to rewriting it all and "existential" matters.
It worked, until Covid broke everything.
Really? Try asking anyone saving for a house in the 20 years prior to covid if the 'inflation measure' was remotely close to real world costs faced.
what's going to happen when our wannabe house buyers and mortgage holders see overseas countries starting to get interest rate relief, when maybe they are not?
Is the author still sure lowering interest rates while house price inflation flourished and was excluded from the inflation measure that is used to determine interest rate worked until covid? I'd suggest the lowering of interest rates over 20 plus years contributed to the high house prices (for wannabes) or high debt (mortgage holders) and how we measure inflation should be under the spotlight.
That said, I did prefer the original 0-2% target, but the target is not that important if how you measure inflation is missing the elephant in the room.
Inflation just bails out banks and property speculators at the expense of everyone else and is the engine room of inequality. Perhaps we should just have better education on debt and those that push it for their own finacial gain, and not promote leverage as a tax rinsing system.
Keep inflation the no1 target.
Inflation just bails out banks and property speculators at the expense of everyone else and is the engine room of inequality.
Does it though? The idea that inflation (money supply expansion) 'bails out' the banks and speculators is a sketchy one. Case in point is Japan. QE has ensured that the banks lending power has been juiced, but by no means did it bail out the banks and speculators from price deflation in the property sector. The idea that the English-speaking world has an insatiable appetite for debt - at any amount and price - that cannot be quelled is an interesting one. But at the end of the day, it may also be our downfall. Furthermore, if the CRE sector is any indicator, the Anglosphere is not as all-powerful as many believe it to be.
Indeed the appetite for debt. But when did we stop allowing failed gamblers to go broke. Banks overlooking those failing to meet payments are complicit in this scam.
It's an important consideration. One of the key reasons why Japan went through its 'lost years' is that the pvte sector and h'holds wouldn't take on debt. Now, this could be considered cultural, but remember that during Japan's epic bubble, they had a reputation for spending like drunken sailors. One metric I like to refer to is h'hold debt to GDP for Japan has remained constant from the early 90s (time of their crash) at approx 60-70%. Ours was approx 30% at the same time, but now is closer to 90-100%.
Maybe we should first define what inflation is ?..
Is it simply changes in the CPI..?? ...
or is the CPI simply a measure of inflation ? ... ( in the same way a speedometer is a measure of speed )
https://www.clevelandfed.org/-/media/project/clevelandfedtenant/clevela…
Inflation is the process of making
addition to currencies not based on a
commensurate increase in the production
of goods.
—Federal Reserve Bulletin (1919)
Most prominent among these inflationary
forces were a drop in the exchange rate
of the dollar, a considerable increase in
labor costs, and severe weather.
—Federal Reserve Bulletin (1978)
The astonishing proportion between the
amount of paper circulation representing
money, and the amount of specie
actually in the Banks, during the past
few years, has been a matter of serious
concern … [This] inflation of the currency
makes prices rise.8
—From the Bee (1855)
Many current controversies about inflation
are due not to conflicting ideas but
to conflicting uses of the same word.
When a nation has too much money, it is
said to have inflation: that is about as
near as we can come to an accepted definition
of the term. As to what constitutes
having too much money, there is not
agreement … If we use the term inflation
to denote any increase in the volume of
money that is accompanied by a rise in
the general price-level, we confine ourselves
to a definite and logical use of the
term, and one that directs attention at
once to the practical monetary problem
with which business is to-day chiefly
concerned.
—William Trufant Foster and
Waddill Catchings (1923)
and with our interest rates having been cranked to pain levels
Feeling the "pain" David or concerned about other's pain?
This is part of the BS narrative that doesn't help anyone and only fuels the false discussion.
We've had higher rates with no pain so obviously it's the debt level and debt/money creation that is the real issue, and the causes behind it.
This is the discussion we need to be having but nobody wants to go there. It would require understanding everything deeper and most just aren't capable of that.
until Covid broke everything
So economists in their profound wisdom and knowledge never learned from the oil shocks, never learned from other economic shocks - war, monetary, financial - ultimately have never learned from past events.
You can hedge against that pain with fixed interest rates too. So many people took 1 and 2 year rates and then whinged when interest rates rose, but that risk could have been mitigated for 5 years (or even 7 years at one stage but no one went for it so they stopped selling it). Interest rates will rise and fall just like the currency, GDP, unemployment rate, etc. Don’t borrow money if you can’t handle those risks.
Why should a basic necessity of having a home, what ideally should be a human right not a privilege, be an issue of risk?
The whole risk/reward narrative is based around fear and loss, is part of the psychological/emotional narrative. It's an abnormality in the human conditioning manifested by the monetization/financialisation of everything, the demand for return on rather than return of, and the perceived "harm" of financial loss.
Granny Herald reporting that Chinese developers are leaving our fair shores. Playing out exactly as I predicted.
https://www.nzherald.co.nz/business/property-insider/ZYR3S4UUXNC5BFREAY…
re ... "means that the government will spend even more money that we don't have. That's where inflation is really coming from."
No. It can be one source. But is seldom the major source in developed the western world.
Banks create most 'countable' money.
And somewhat counter-intuitively, people's labor justifies the expansion of the money supply. I.e. their labor creates something 'new' and this 'new' thing, that didn't exist before, can be sold and a portion is 'new' money in return for their labor. And of course, entropy and decay, likewise removes money.
Inflation targeting via interest rates is the easiest nut to crack. May have worked once when the majority of "consumers" were owner occupier mortgage holders, when there was less to consume, less debt, less "wealth" accumulation via debt leverage, less financialisation, less globalisation, less market manipulation, less MOAR money, less multinational behemoths, less privatisation.
It's the lowest hanging nut and the RBNZ/banking/financial industry doesn't want to reach higher.
A lot has changed since 1990, why hasn't the RBNZ kept up?
https://www.rbnz.govt.nz/-/media/29ada25bfa8b4e50922262618fb03e00.ashx?…
Ok lets say the goal is 1-3% inflation ... so why should any OCR ever be below 3% ? Lets also consider the risk and cost of credit in such an environment not forgetting the debasement effect credit has on the savers dollar ...seems to me that an OCR of 5% is a very reasonable default . I see problems arise when you make credit availability too cheap and the glaringly obvious to me is you punish those that have worked hard to save a dollar... in many ways cheap credit devalues the hard work of genuine savers so much so that genuine savers start carrying the risk of credit users....My opinion is let there be credit but let it be at a rate that is favorable to the saver not the borrower.
Weirdly structured argument. The legislation says "price stability" is the priority. Something is stable if it's not moving - so technically zero inflation. Originally the target was 0-2% for this reason, until some people decided that 0-3% would be better to keep us away from deflation.
You would be hard pressed to define price stability as allowing 3%+ annual compound moves in the CPI.
If they wanted to loosen the focus slightly though, the right way would be to allow the use of the full 0-3% range - I.e. both sub 1% and 3% inflation would be just as acceptable as 2% (note some bank economists have suggested this). Don't forget we were cutting interest rates in 2018 because of imported disinflation leaving CPI positive but under 2%, fuelling the housing bubble for no reason.
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