Reserve Bank (RBNZ) Governor Adrian Orr is hinting that the Official Cash Rate (OCR) might come down rather more slowly than it went up.
In question time after giving a speech in the United States on Thursday, Orr referred to the speed at which the OCR was put up by the RBNZ between 2021 and 2023 when it was hiked from just 0.25% to 5.5%.
"If we were incremental getting back to [a] neutral [interest rate] we would still be halfway there at the moment in the traditional way," he said.
"So, just quickly do it and let people get a handle on it."
Now that the OCR is on the way down, currently at 4.75%, the financial markets are expecting this might happen very quickly as well. Current market pricing is suggesting a fair chance that there will be a 75 point cut at the next OCR review next month, while a move of the OCR to 3.75% or even lower is fully priced in for early next year.
But Orr appeared to push back a little against this thinking with his comments.
"On the way down we can be more incremental now – and we have been," he said.
"We are being more incremental because we are in calmer waters but also because of that lingering inflation persistence on the domestic side. So, we are happy to be less restrictive but I said it is in sight. We are not saying that we are now in loosening space to do it.
"So, just being a bit more circumspect on the way down relative to how we got there is the general idea.
"By the way, the markets say yeah, whatever Adrian and they’ve already priced in 200-300 [bps of cuts]. But that’s all right. That’s what makes markets," he said.
Earlier Orr had said the RBNZ had needed to head off a monetary policy "mutiny" in New Zealand with inflation expectations rising and price setting behaviour changing.
In a heavily nautically-themed speech titled Navigating Monetary Policy Through the Unknown made to the Peterson Institute, Washington DC on Thursday, Orr said getting NZ inflation back into the 1% to 3% target range - as it is now - was "something to celebrate".
Orr has been attending the IMF and World Bank Annual Meetings, where policymakers are discussing monetary policy.
"Navigating monetary policy, with a one-to- two-year lag between policy action and ultimate outcome, is akin to ocean circumnavigation," Orr said.
He said that after the immediate shock of the onset of Covid in 2020, by early-2022 "the navigational signs had changed".
The risk of a deep and sustained recession had receded, and persistent inflation had begun to permeate the economy. Inflation expectations had risen significantly.
"The biggest risk to our objectives was now that of high inflation becoming entrenched, and the economic and social costs that would be required to subsequently bring it back down. We soon reversed our quantitative easing programme.
"One of our key navigational stars – the estimated neutral interest rate – was a long way north of where we sat, so we again moved swiftly to get back on course. Again, the MPC [RBNZ Monetary Policy Committee] steered policy forcefully to avoid the most serious risk – the worst-case – by tightening our policy setting to return inflation to target. This meant risking a shallow recession in the short-term to avoid the risk of deeply entrenched inflation, and a much deeper recession in the long term.
"A monetary policy ‘mutiny’ needed to be headed off, with inflation expectations rising and price setting behaviour changing. I am pleased we are now in relatively calmer waters and the crew and passengers are believing again in low and stable inflation.
"...We are in a situation where we can provide the perspective of an economy returning to low and stable inflation, interest rates becoming less restrictive, and economic activity being revitalised. But that is just the most recent navigational plot on the ocean chart," he says.
"We must also be cognisant of unanticipated risks ahead, and at times act swiftly to avoid perils. First, stay afloat. For monetary policy makers, peril includes a long and persistent downturn, with monetary policy stuck at the effective lower bound, or an inflationary spiral. Over recent years, global monetary policy navigators have had to act fast to avoid both perils.
Still restrictive
"It is now pleasing to be able to ease monetary policy in New Zealand, but it’s still at a level we think is restrictive, so as to work against any remaining inflationary tendencies that may linger.”
Having raised the Official Cash Rate as high as 5.5% by mid-2023, the RBNZ has now reduced it, with consecutive cuts in August and earlier this month to 4.75%.
Markets are expecting another cut of at least 50 basis points in the last OCR review of this year on November 27.
But Orr is still questioning how long it will take for any "lingering inflationary pressures" to dissipate.
"The sooner this happens, the sooner we will be able to claim that the inflation caused by Covid-19 – amongst other severe shocks — is behind us."
Inflation rose rapidly in New Zealand from just 1.5% as of March 2021 to a peak of 7.3% in June 2022. Now, however, it is back down to 2.2% - and expected to go still lower.
Orr said he often reflected on early 2020 and asked himself the question: "If someone offered me a peak of 7.3% inflation and unemployment around 3% in two years’ time – would I have accepted it? Yes!
"That sounded like nirvana compared to what the world was leaning into at the time. This was the eventual outcome in New Zealand – with many lessons learnt – and new shocks having been faced on the voyage, such as Russia’s invasion of Ukraine, energy price spikes, and weather-related food price shocks."
How long will inflationary pressures persist?
Orr said the answer to the question of how long inflationary pressures may linger in New Zealand depends heavily on how firms make their price-setting decisions, and how persistent that process is.
"Firms tend to set their prices based on a broad range of price signals in the domestic and global economy – the prices of competing and complementary products, wage rates and the broader costs of labour and capital, transport, exchange rates and so on.
"Because these prices and costs all move with general inflation, firms’ pricing decisions will reflect recent actual and expected inflation. The same goes for wages. These interdependent price changes can see actual inflation persist even if demand and supply in an economy are broadly balanced.
"We see this in New Zealand in persistence in domestic and services inflation, despite significant spare capacity now emerging in the economy. This isn’t surprising given the recency of high inflation."
Orr said the RBNZ was "alert" to changes in price setting processes.
"In New Zealand, firms’ inflation expectations have returned towards our 2% target midpoint, after having risen materially . Household inflation expectations have also declined. This is encouraging. However, surveyed inflation expectations alone don’t explain the persistence in inflation we’ve observed over the past year," he said.
"We’ve found that accounting for observed inflation in our models helps us to better explain inflation. This is likely to reflect – among other things – that following a period of high (or low) inflation, some prices may need to adjust by more (or less) to restore relative prices to equilibrium. Contracts and government policies that index charges to inflation also contribute to this persistence.
"Reflecting this, we often model this part of the price-setting process using a moving average of past inflation, with more weight on the recent past than on the distant past. Our approach implied that the recent bout of high inflation would be embedded in firms’ price-setting decisions for years to come.
Altered assumptions
"But is this a good assumption in all conditions?
"At the time of our recent August Monetary Policy Statement, we altered our price-setting assumptions so that they adapt more quickly to a low inflation environment," Orr said.
"This is a judgement that we have had to make with perspective, empathy and courage.
"The outcome was material to our policy decision in August, giving us more confidence to reduce our policy interest rate."
Orr said other changes in pricing behaviour are "equally challenging" to model.
"For example, it’s possible that firms’ price-setting behaviour has been ‘scarred’ by the recent period of high inflation.
"But it could also normalise more quickly."
Orr said there is evidence to suggest that people (businesses and households) pay more attention to the state of the economy when inflation is high and volatile. By contrast, when inflation is low and stable, people have less to gain from understanding the nuances of the inflation outlook as they often have better things to do. This is coined ‘rational inattention’.
Firms also adjust prices more frequently when inflation is high as it becomes more costly not to keep up.
"These dynamics give us reason to assume that price-setting behaviour may normalise quickly as we return to a low inflation environment. Rationally, attention will go elsewhere," Orr said.
87 Comments
Good grief. Imagine claiming any credit for NZ domestic prices adjusting to a 25% increase in the global price level? What alternative path was there? Could we have just opted out somehow and held the domestic price of goods, services, and wages at 2020 levels? How poor would we have had to make everyone to stop the price of imported fuels and food pushing up other prices? What level of unemployment would we have had to 'achieve'?
Do we really think that having completely destroyed our economy to 'successfully' hold prices down relative to the rest of the world that... the NZD would have increased in value to compensate? Even if that had happened, would that have been a 'win' for the country as our exporters were destroyed?
We have handled the inevitable adjustment to the new global price level appallingly. Only Hungary and Estonia have seen bigger increases in unemployment relative to the pre-Cvid average. And, Adrian is off talking to conferences about our success, mixing up his sailing metaphors while the economy takes on water? What an absolute disgrace.
No. Hiking the OCR lever works amazingly well at crushing aggregate demand and pushing unemployment up. Dropping the OCR hard boosts house prices <> mortgage lending and, thus, creates additional demand and employment in the real economy thanks to the flow of bank credit. We would be a lot better off if the OCR lever was just locked away from fiddling fingers.
What I do confidently claim is that prices are pretty insensitive to demand in NZ thanks to:
- a heavy reliance on imports / exports (meaning we pay global prices)
- ridiculously uncompetitive markets (meaning we pay cost + margin - note that wholesale profit margins went up through 2023 and 2024!)
- and, related to the above, business debt servicing costs being passed through to prices as interest rates rise (working against the desired intent)
If you create a simple model of what would happen to NZ prices given changes in import prices for services and goods, and then add on some profiteering in 2021 and the the impact of debt-servicing costs you get a remarkable accurate rendition of our CPI track.
RBNZ, time to think about the joining the BRICS Pay system (https://brics-pay.com/). You OCR control is purely non-sense. You simply follow what the FED does because NZD is pretty much USD but less valuable.
What the NZD is going to do after the USD collapses? Any plans there?
https://www.scientificamerican.com/article/chinas-moon-atlas-is-the-mos…
If not shown on the map, they have never been there.
Well, Chris - Brent crude at $74.54 today in nominal terms is right back at the same price as it was in July 2006 - meaning in real terms it is now far cheaper.
Inflation-adjusted to today, as a comparison would put the Brent price at $116.58 - more than $42.00 above what it is today.
Of course there was a temporary spike post the Ukraine SMO, but nothing like the $140 spike of 2008 - that figure would equate to $205 in 2024 dollar terms.
The effect of NATOstan's sabotage on the Nordstream Baltic gas supply to Germany is just one example of the hundreds that have had a much more dramatic effect on persistent global inflation.
Our government and the RBNZ's idiotic Keynesian mindset, plus the way we mindlessly let international privately-owned banking cartels create more than 90% of our MS, by comparison, make any of Putin's actions look like an ant on an elephant's arse if you are looking at inflationary causes.
In fact, if Russia/Putin had been left alone to supply as much of Europe's energy as they required at very long-term, reliable and amazingly affordable prices, this would have had a dramatically deflationary effect on global pricing.
Once again the mayhem was caused by the Western-based hegemon poking its nose in and deliberately trying to ruin another bloc - in this particular case, it was their defacto permanently occupied colony, Germany, and by definition the entire economy of the European Union.
The truly astonishing part of all of this was that NATOstan had the gall to try to fit Russia up as the culprit in destroying their own incredibly valuable asset - was that the story you swallowed too Chris?
From where I am standing you have this completely arse-about face. Tell me, I would be fascinated to know - is there anything at all that you could poke a stick at, which is not 'Pootins' fault too?
Thought the RBNZ under Bollard had been over zealous in ratcheting up the OCR in 2008. The GFC though then smothered the mistake. This latest episode of intervention is worse, much worse. It would seem that when the OCR was crash dived on the onset of covid, the main priority was to protect and preserve the value of housing and other such property. It did more than that though didn’t it. It created a surge of investment and speculation that saw property prices simply get strapped to a rocket. It is impossible not to look back on the period and realise that interest rates were lowered way too fast and too low and then raised too late and too slow and right now, at the end, another crash dive.
Yes. RBNZ needed to do exactly nothing in 2020 - just provide liquidity if needed. Govt fiscal had everything in the real economy covered and RBNZ coming in on top was just disastrous. The error is really clear in the data.
"The biggest risk to our objectives was now that of high inflation becoming entrenched, and the economic and social costs that would be required to subsequently bring it back down. We soon reversed our quantitative easing programme."
Really Adrian? I'd say given we all knew what the supply side constraints and large increase in private debt being fueled by the FLP and banks, and knowing the eventual outcome would be inflation, that the FLP was not needed by the end of it's 1st year as the signs were all there and clear as day. Too low too long followed by too high too long to correct your mistakes for not reading the global tea leaves as many can do with far less salary and experience. How much longer do we need to hear this waffle form someone who has proved they are better at fronting the media than the actual management of monetary policy as they are paid to do?
Too true Jfoe !
Quoted from the link below...
“empirical evidence is that interest rates are a lagging indicator and a farcically ineffective monetary tool”
paraphrased/quoted from… https://soranomics.com/#content_20_fancybox-8
As Prof Richard Werner points out, it is not interest rates, but bank credit that determines economic growth, simply because ~97% of the money supply in our Western fiat currencies is created out of thin air by privately owned commercial banks.
There is zero basis for the official narrative that higher interest rates lead to lower growth and that low interest rates lead to high growth.
As with most aspects of eCONomics the quickest way to get straight to the truth is to simply assume the 180˚ polar opposite of the official narratives. Interest rates are simply not useful as a monetary policy tool – PERIOD!
Karl Popper called this the ‘immunising stratagem’ which scientists fancied that they could guard their theories from being challenged by the use of reverse engineering in what became known as the ‘deductive approach.’ This is my interpretation of the process…
- Predetermine a conclusion that supports the banking cartels’ grand theft from Mainstreet
- Invent a model that can give you that contrived conclusion
- Identify the false maxims that can propagate the lie and present them as facts
- Present these steps in the reverse order
- The network that has the key to the giant printing press then buys up all of the networks and agencies required to manufacture the narrative, even when it is nothing more than a bunch of myths premised on deliberate lies.
How high would hikes need to go to arrest inflation?
High enough that they cripple the real economy before there is any ‘measurable effect’ (sic) on what they labelled ‘inflation’
Poet Lawrence Ferlinghetti asked… “whether man must burn down his house to roast his pig…”
The current Western neo-classical monetary policy used to tackle inflation is precisely that scenario.
Worse still, history illustrates that interest rate hikes have to be so utterly brutal that they need to be at the very least at the level of the true inflation rate, or higher – Paul Volker did this in the 1980s when the rates were pushed above 20%. This was construed as successful from the point of view that it appeared to halt inflation when all it had done was destroy enough of the economy and liquidity to make sure ‘inflation’ was halted.
https://globalsouth.co/2024/03/12/economics-part-iv-interest-rates-mani…
As these central bankers burn down the house, it remains to be seen which pigs will eventually end up being roasted.
The entire Western fiat-based casino house of cards is being exposed now that even the BIS has formally thrown ALL fiat currencies under the bus when they reclassified physical gold as a balance sheet Tier 1 asset.
The RBNZ backed the wrong horse and Kiwis will pay for this for a very long time. Until we get it through our thick scull that money creation needs to be conducted as a public utility (rather than by thieving international private banking cartels), nothing will change.
The people running the NZ casino make zero allowance for the fact that there are two distinctly different domestic economies -
#1 The financial economy, which is parasitic, contributes nothing to GDP, and carries a tiny fraction of the tax burden.
#2 The real economy - the productive sector which creates all goods and services, but carries more than 90% of the burdens.
Until money creation and the casino economy are totally reformed, NZ will continue to follow the Fed into a debt death spiral.
Colin Maxwell
"NZ will continue to follow the Fed into a debt death spiral." Yes it will, because we now have no other choice. We could have 'done something' to avoid that even as late as 2008; perhaps even 2012, but not now, as any alternative would be a Pyrrhic victory.
So all we can all do, individually, is prepare for the inevitable, and hope to survive what's yet to come. How will we know it's upon us? As you write," Paul Volker did this in the 1980s when the rates were pushed above 20%. A repeat of the Volker Moment.
It’s such short term thinking - ie the political narrative appears to be dropping rates = great…raising rates = bad.
Basically artificially stimulating growth in an unsustainable fashion = good.
Living within our means that may cause short term suffering = bad.
It’s a sign of weak leadership and a society in decay. Not willing to face hardship in order to make the future better. Instead it’s all about taking the easy path even though it makes the future worse.
Creating private debt bubbles via lower rates does nothing to make society better in the long run other than generating capital gains for housing investors - while creating financial and social instability. Net outcome zero or negative in my reckon.
Imagine a political leader who comes out and says ‘we are going to systematically reduce our private debt / gdp in order to reduce financial risk, improve housing affordability and creating the opportunity for future prosperity for the generations to come. This will require sacrifice now, but it means a better NZ for your children and grandchildren.’
Imagine a political leader who comes out and says ‘we are going to systematically reduce our private debt / gdp in order to reduce financial risk, improve housing affordability and creating the opportunity for future prosperity for the generations to come.
Remember Jacinda Ardern publicly talking about wanting affordable housing but also wanting house prices for existing owners to increase at the same time?
Should have raised alarm bells as to what kind of leader she aspired to be. Kind of reminds me of the Pied Piper of Hamelin. Many at the water cooler and BBQs thought she was the cat's whiskers based on such comments.
Adern's position on housing generally was she wants housing to increase in nominal terms, but drop in inflation adjusted terms. This is because house price inflation has been running far above normal inflation for a while. Exactly what Luxon's position is now.
https://www.interest.co.nz/property/128405/prime-minister-christopher-l…
In 2021 at the crazy peak of housing inflation, she did say a small drop in nominal value would be healthy. Is that the part you are upset about? What I am missing?
Still doesn't make sense. Why would anyone want nominal prices on the lowest rung of the hierarchy of needs to rise even at a lower rate than expansion of the money supply? Surely a developed, well functioning economy would have the nominal cost of goods and services decreasing over time.
What you're suggesting (and possibly Luxo and Ardern) is that it's healthy for those particularly at the lower end of the socio-economic spectrum to permanently be tucked in a life where the value of their labour is diminished and their time taken from them.
Fiat currency is designed to reduce in value over time. A deflating currency doesn't work for society in practise. I never studied economics, but that seems pretty 101 to me. Also logically, why should society reward a person for doing a task 10 years ago as much as someone doing a task yesterday? We have to let the past go at some point so people will value doing future work enough to get off the couch.
People generally get pay rises each year to compensate for inflation. Talk to your boss if that isn't happening for you.
Also, have a real think about why you love to hate Adern so much. Is it logical? Can you explain it by showing quotes and times, and explain why she was acting in a way that was outside the norm of others in her position?
Remember Jacinda Ardern publicly talking about wanting affordable housing but also wanting house prices for existing owners to increase at the same time?
She never said that. I've listened to the presser where she allegedly said that and it is not there. She said people expect their house prices to increase, she didn't say she wanted it.
AS GEORGE GALLOWAY REPORTS - the giant boomerang did come back, and it smacked the Western Hegemon fair and square in the head.
So then, within your conservative reality, I take it that anyone who calls out blatant neoliberalists, and warmongering neocons (a Conservative spawn) is by definition, a 'rabid communist'.
When both Galloway and Bridgen lost their seats in parliament this year, that was the day that Britain crossed the Rubicon - there will be no coming back now for Perfidious Albion from guaranteed socio-economic ruin.
Is it any wonder then, that humanity in general is in such a pickle? - I will paraphrase a very well-known economist, who no doubt you will also label a "rabid communist" ...
"And what’s so remarkable in this is we’re seeing an economically shrinking and deindustrializing – the United States and Europe – trying to prevent the global majority from aiming at its own economic and political independence. The rest of the world has 85% of the world’s population, and it’s trying to recover from over a century of colonialism, and the financial neo-colonialism that the United States put in place after 1945.
The U.S.-centered rules of international trade and investment forced other countries to supply raw materials instead of industrializing and feeding their populations and their economies and raising their living standards."
.......................................................
IMO it is your kind of thinking that could nobble the emergence of BRICS as a new multipolar civilisational paradigm, and consign humanity to yet another century of the Western-centric neocolonial model of perpetual war and pillage.
Communism is statistically a dead duck, with only around 0.5% of the global population ruled by technically communist regimes - it has plummetted from its high point of more than 30% in the 1980s.
It will no doubt come as a shock to you, but technically China is now an open-market-capitalist/socialist/Confucianist model – and an utterly unique and fascinating one at that. It is quite unlike any other model in the world, except in some ways for Vietnam which I don’t classify as technically communist either.
The ultimate irony is that in Vietnam, the communists won the enormously destructive war and yet here we are now with the 99 million-strong country transitioned quietly and organically into a mixed market economy.
No one needed to die in Vietnam, or its neighbouring countries, unless the aim was for the U$ MIC to thrive - which of course it did - it then went on to spawn perpetual war all over the globe. We now face two potentially existential wars, in the ME and Ukraine, whilst the same warmongering lunatics try to start yet another one over Taiwan.
Harvey, how on earth do you expect humanity to win this battle against the 0.001 percent, which forms the present plutocratic status quo, if people like you fail to even identify the real enemy?
As the saying goes... “We have met the enemy and he is us.”
Colin,
"gorgeous' George Galloway. I haven't heard his name for a long time. If memory serves me, he had a Palestinian flag flying from the city chambers in Dundee some 50 years ago and he does appear to have been consistent in his well left of centre views for many years. Successive Israeli governments have ensured that there is now much more sympathy for Palestinians than was the case then.
Yes, Linklater - my fondest memory of Galloway was how he took on an entire Senate Committee making them look like a bunch of complete fools...
Don't take my word for it - @10:00 Prof Richard Werner describes how the US is now essentially cannibalising strong economies, particularly in Europe and of course Japan.
The quote attributed to Henry Kissinger should be ringing in our ears...
"It may be dangerous to be America's enemy, but to be America's friend is fatal."
Werner’s arguments rely on his own misunderstanding of economics.
Economic teaching does say that interest rates cause an increase or decrease in growth, it is merely a tool to affect demand when things are under/overheated.
There is no denial that commercial banks create most of the money in the economy. But interest rates do have an affect on demand and no we can’t just keep creating more money to solve our problems (unless it’s for productive assets)
You said - "Werner’s arguments rely on his own misunderstanding of economics."
... try pulling the other one, two_pair, it's got bells on it.
Doubling the cost of energy would "have an ?affect? on demand" too - well then, should that be tried as a monetary tool to control inflation?
In essence, if you want to compare socially destructive idiocy, it would be just as valid (NOT) to line the pockets of the multinational oil gazillionaires, as it is to annually send billions overseas to the parasitic private banking cartels in the form of interest payments on money that we allow them to create out of thin air - (AKA ECONOMIC RENT) - this is monopoly rent that is completely unjustified both socially and economically.
As much as we don’t like banks, they do provide a valuable service of assessing suitability of lending and also taking on risk of those defaulting. The issue is they’ve become too big and so they don’t take into account the systemwide risks they create and feel too comfortable that they will be bailed out.
Central banks do not want the job of assessing loans and creating credit for the provide sector. If it was their job, I think they would be too conservative and hinder growth.
You said - "As much as we don’t like banks, they do provide a valuable service of assessing suitability of lending and also taking on risk of those defaulting."
This is where the massive problem lies and is precisely why non-banks (which don't create money out of thin air when they make loans) and of course public utility banks, should be making these loans and in doing so providing adequate liquidity for the productive economy.
The status quo system where banks massively lend on existing assets (because the collateral already exists) is precisely why we have ridiculously overpriced housing and one of the worst-performing economies on the entire planet.
A role needs to be taken up by public utility, infrastructural and development banks that invest with a long-term view of providing liquidity and creating sustainable societal growth.
The success of this system has been demonstrated throughout history but, needless to say, this is not taught to students because economic academia is founded on myths which protect the global financial plutocrats - the very same ones we allow to create the Money Supply.
Investment in long-term projects like a factory that is built to produce real items are usually not considered - partly because of the time frame involved, including planning, consent, building, etc - this means there could be a decade or more before this fledgling business shows a positive return on its investment.
Private commercial banks are far more at home operating in the financial casino because they can cream profits much more quickly. They have ZERO interest in the real economy.
Add up all the stock markets in the world on any given day, and there is at least 7x that amount tied up in financial investments, with the vast majority being bets on outcomes (AKA derivatives) - interest rate swings, you name it - some of the worst offenders wrong foot their own customers and then clean up by making massively leveraged bets when they already know what the outcome will be. They have an endless bag of gaming tricks which are 100% parasitic for a national economy.
Case in point, the Martens of WSOP just today exposed a massive fraud where Goldman Sachs (the archetypical global loan shark) was fined a puny $64.8 billion for ripping off thousands of Apple credit card customers.
https://wallstreetonparade.com/2024/10/goldman-sachs-has-ripped-off-its…
...quoted...
"Goldman Sachs' history of abusing its customers dates back to the roaring 1920s. During the making of the stock market asset bubble of 1928, Goldman ran the Goldman Sachs Trading Company, a closed-end fund known as a “trust” in those days. Goldman Sachs spun it off to the public at $104 a share.
The trust was filled with dubious investments while paying Goldman a hefty management fee. Just a few years after the crash of 1929, the Goldman Sachs trust was trading at a buck and change. On May 20, 1932, Walter Sachs, President of the Goldman Sachs Trading Company, was interrogated by the Senate Committee on Banking and Currency. The Committee concluded that Goldman Sachs fleeced its customers to line its own pockets."
Long story short in this latest blatant rip-off, Apple and Goldman 'Sucks' will pay a combined $89.8 billion with GS's portion being a minuscule fine (settled out of court of course) - less than 1% of its 2023 operating profit! The fines for their outrageous behaviour, on the odd occasion when they are caught out, are almost always settled out of court, are nothing more than a tiny entry in their profit and loss statement - they are simply a minor routine operating cost.
In June this year GS held $544 billion in assets (many of which are not marked to market) against a derivative book of $55 trillion - IOW their casino bets, just on book value alone were 1000x their assets.
If you worked it out on equity the figure becomes even more stratospheric - along with the risk. Remember it was the derivative books of some of the main players that were the main catalyst for the 2008 GFC - the same offenders now have derivative bets that are exponentially worse 15 years on - what could possibly go wrong???
Your comment... "Central banks do not want the job of assessing loans and creating credit for the provide sector. If it was their job, I think they would be too conservative and hinder growth."
Well, I am not even going to go there - that's exactly where a large number of CBs want to be - if retail accounts at Central Banks ever come to pass then the host country would already be the equivalent of a giant open-air gulag.
Best Regards
Colin Maxwell
Central bankers steer the economy just as much with their speeches than with their rates. Just like when Orr threatened to raise the rates back in May, he is now saying that these same rates won't drop fast. Both are attempts to prevent the market from leading too far in one (I would say correct) direction, ahead of the RB. Rates will drop quickly. (and yes, Orr did a poor job over the last two cycles).
They also respond to movements in wholesale markets to give the appearance that they are in control when in reality they are often just responding to what the market tells them is happening.
Right now US bond markets are rebounding so it will be interesting to see if the Fed starts talking about rate rising again in the future. Ie bond markets went the opposite direction to that which central bankers wanted them to after the rate cut.
Wow. Would be fun to live in Orr's (and the MPC's) alternative reality.
You know, the one where they did no wrong and protected us from ourselves (while ensuring the overseas owned banks made off like bandits and onshore asset holder got to ramp up prices - and profits - using the excuse of 'inflation' which the RBNZ helped to create.)
Yeah. Can they share that 'reality' with the rest of us?
They could start by being 100% up front with just how much they benefitted from their decisions.
It won't matter if the asset(s) underpinning the Debt get hammered at some stage?
For those who thrive on history and Cycles repeating, someone remind me what the date is on this coming Monday!
"The epic boom ended in a cataclysmic bust. On Black Monday, October 28, 1929, the Dow declined nearly 13 percent. On the following day, Black Tuesday, the market dropped nearly 12 percent. By mid-November, the Dow had lost almost half of its value."
Why could that happen? Aside from the political circus in the USA; the tragedies of the Middle East, Sudan and Ukraine, how about 'when the rules don't work, change the rules!" e.g. (from the UK this morning - "the Chancellor will confirm.... that next week’s budget will include a new method for assessing the UK’s Debt position – a move that will permit the Treasury to borrow more..."
Via Bloomie, Lord Orr said he wishes more people would read the bank’s detailed report on its policy deliberations rather than relying on journalists or analysts.
https://www.bloomberg.com/news/articles/2024-10-24/rbnz-s-orr-wishes-pe…
It's all bollocks. Making up monetary policy as we go makes it an experiment and there is no science or evidence backing any of it. It's not even based on economic theory (which any intelligent being knows is already flawed to begin with) when the "markets" are highly influenced by central bank jawboning and speculation, and the people are manipulated by the "wealth" illusion and effect.
Without deflation high inflation is entrenched. Inflation in wages to keep up, and inflation in asset prices does not make it go away. Getting inflation back to a made up 2% does not make it go away.
By not allowing recessions, ie creative destruction, supporting financial markets at the expense of others, at the expense of humans, by slapping monetary bandaids on every crack, all for the benefit of the "ruling elite", we're only making economics worse and requiring more flawed intervention.
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