I might be a lone voice here but I believe they should do nothing and let the free market correct itself.
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A very simple but salient point that Bjauck makes TeslaGod. In a truly "free" society, ownership of assets affords one certain rights & obligations which will be relatively sacrosanct. But in NZ we aren't a genuinely economically free country - far from it in fact. Sadly, regardless of whether the figurative flag on the Beehive has been Blue, Red or blended this has been the situation for quite a period now.
Under the current regime our economic & financial freedoms & rights have continued to being eroded. Alarmingly, and partly under the faux veil of a Pandemic, we see that rate of erosion now accelerating.
Let's call a spade a spade. In a socialist-fascist run country like NZ, in the eye of the State private ownership of assets has less meaning & significance and hence is treated with less respect. To them it's just a name on a title to whom they can supposedly appoint responsibility to if "things go bad".
Utopia for Socialist-Fascist politicians is an environment where they have ultimate CONTROL over assets, regardless of who "owns" those assets.
Keeping in spirit of this thread title, to gain a better insight to what's really happening under our noses, just follow the money trail...The RBNZ (as are most central banks) is just an instrument of the State. An instrument now being used more overtly, but also still covertly, to gain and exert control over our beautiful country, including the key financial assets you "own".
Excellent post FTG
Post of the day!
I am curious as to what you call “the free market.”
1. Simple Supply and demand. Law of the jungle - no regulations, law, standards, legal enforcement framework. A free-for-all type of market.
2. Supply and demand subject to the law with relation to representations, standards, quality regulation, system of enforcement. In other words a structured market.
As you say tax is evil, who would protect your assets from theft and invasion. Would you have a system of private armies and vigilantes so If a dispute arises the party with the strongest army wins.
1: Definitely left to the individual/ company to run as they see fit. You get what you pay for, you fail then that's on you and your bad management.
A well paid, well trained private company owned police force. Not dictated by ideology of the government, Paid well by the companies, investors and local communities.
So tax is evil?
We could still have police but paid for by a different 'tax'.
I presume that police force would only help those who had paid and the rest are on their own - user pays?
What about hospitals, schools, roads, sewerage, and water? Who pays for that?
Would you share your vision of an untaxed society would look.
Basic blue print would be modelled off ACC.
A mix of private and charter schools, what's being taught in schools today only helps those who are capable of higher education.Most education after year 10 is a waste of everyone's time.
Privatisation of all council services.
A goal would be to cut tax but 25% then 50% then 80% and hopefully have no tax paid .
Privatisation of all council services. - someone still pays (tax). If it is user pays then measurement and collection can be an issue.
ACC - I get taxed and the company I work for gets taxed to pay for a universal, no fault system which some people get no use out of.
ACC is a good model for what it does but I'm not convinced that it scales to replacing all Govt and council functions.
A full 'user pays' model would be interesting to see in terms of equality of access for all.
I think all Govts and taxes have an element of 'socialisation' to them - those that don't have still get access - otherwise, the gap between the 'have' and 'have nots' gets wider and social disharmony (leading to a Mad Max society as someone suggested).
Confirmation from the RBNZ house price increases due to higher immigration and lower interest rates.
https://www.interest.co.nz/property/...een-average-52
Keep building houses by all means but if you are serious about addressing the rise in house prices someone needs to address the drivers. 1/ reduce immigration 2/ increase interest rates
Not that hard really if you have the cajones. Unfortunately time and again Adrian has shown a lack of spine when it comes to doing the right thing. Make the hard calls as well as the easy ones Adrian.
Adrian doesn't control immigration and can't influence it - maybe you are confused as to who can do what.
The Govt has indicated that it wants to reduce immigration but many want more and more.
The previous National Govt used it to prop up our economic growth.
Interest rates may be on the way up (you'll have to wait and see - it is a hard call) but have been very influenced by overseas trends - we may be an island but we aren't isolated in an economic sense.
We are in an inflation feedback loop now.
Interest rates are one way of controlling inflation, simply because the populace and businesses see the lever being pulled & expect inflation to be impacted.
If no lever is pulled, and inflation is known to be rising...
1/ Businesses will raise prices because it is now acceptable - inflation is expected.
2/ Consumers will buy now to beat the price rises, and in doing so will further fuel inflationary pressures.
This is where it becomes a feedback loop and a self-fulfilling prophecy.
Jawboning about 'transitory' will not cut it, higher costs are coming down the pipe and they are not going away.
I appreciate Adrian is only in charge of interest rates and currency supply thanks. Probably didn't write that to well.
https://www.rbnz.govt.nz/monetary-po...licy-tools#fn1
Reading that they either need to update their website or they have no plans to raise rates and if anything will be able to take interest rates negative next time asset prices look like falling.
Appreciate your frustration Logen, you are expecting the RBNZ to put a stop to inflation and do the right thing as per their mandate re price stability but inflation is the only way to get rid of the debt.
TeslaGod might be right buy a house. Although he did say not right now so patience might have to be the way to go.
It might seem expensive now but as the trend shows todays prices might look like a bargain a couple of years from now. Inflation will take care of the debt because that is what the central banks need to deal with, the debt problem. Unfortunately debt keeps growing so the moves to restrict lending would make sense as the debt problem was getting worse along with inflating asset prices, but if you restrict lending and let inflation run for a few years their problem will be solved and TeslaGod will be even more insufferable.
Or they could overact and crash everything with an interest rate hike and you will have missed an opportunity of a lifetime by putting all your money into an overpriced house. Who knows.
Inflation is transitory. The OCR will be lowered again in 2023
I hope you all managed to increase your wealth the last 18 months from low interest rates through the share market and property.
Or did you wait on the side line while everyone else got rich .
No matter, so long as you learn your lesson that's just as beneficial.
Inflation is transitory.
No-one with an ounce of common-sense or their ear to the ground would describe this inflation as transitory.
For one, the cost push pressures are real & they are massive.
For two, they are driving a feedback loop where people expect price increases and businesses feel at liberty to pass on the costs to consumers.
You will be proven wrong - for now I guess you can gloat or argue, or do both.
I'm trying very hard not to sound arrogant or gloat perhaps it's how you translate my script.
I'm only trying to inform or educate those who are wanting to learn or understand/grow.
If the cost of a loaf of bread increased by 5% in August it doesn't mean it will increase 5% every month for the next year.
It will eventually stabilize (like house prices) ,
Most if not all kiwis income will adjust
(If not you need to move jobs)
This is why inflation is transitory.
So if you get a pay rise, that means inflation. goes away? Lol. It just contributes to the feedback loop. More money chasing the same pool of goods that are increasing in price.
You are talking about a loaf of bread. The is a lot more involved here than a loaf of bread.
Have to say it is mildly entertaining watching you each get yourself stuck in the Inflation/Deflation debate/quagmire. To be honest, I have been guilty of falling into the same trap. Just like when you ask the question to a bunch of economists, who despite having access to exactly the same economic datasets, each opine an entirely different prognosis on what has happened, is happening, and will happen!
It is easy for us all, including the average economist, to lose sight of the fundamental principles governing the intricate "workings" of money and the monetary system as a whole. One of those 1st principles that most folk don't truly understand revolves around INFLATION. So what actually is inflation? 99% of people (including lots of economists) will simply say "it's prices rising". (Therefore DEFLATION must be "prices falling" ).
Well, that answer strictly speaking is not correct. A learned monetarist will tell you that the term inflation originally derived from the word inflate. Hence the term inflation referred to the monetary supply being inflated (like a balloon). Yes granted, a common BUT not guaranteed outcome from that inflated money supply is market prices of services & goods rise (represented in NZ by the CPI - Consumer PRICE Index) Conversely deflation is actually when the total money supply (actually in circulation) contracts; as in there is LESS money chasing the goods & services in the market.
Whether the PRICES of goods and services actually rise following true inflation will be determined by a myriad of inputs, on both the supply & demand sides of the equation. Certainly not JUST how much money is being created & circulating. A case in point is with global population demographics. As the planet's population has grown by billions AND more inhabitants have joined the middle class ranks, the system has needed more money AND of course goods & services. With just that one changing supply & demand dynamic, yes we have seem the prices of goods & services rise, but counterintuitively we have also seen many actually FALL (think advancing technology & hence the associated efficiency & productivity gains).
So, monetary inflation has been around since Adam was a Cowboy, and it is still very much alive & kicking. Especially as politicians instinctively "need" some PRICE inflation to have a chance of keeping their job. As probably most here are aware, monetary inflation has actually accelerated in the last 2+ years. We have certainly seen this flowing through to create "The Everything Bubble" But, whether PRICES of assets, (TeslaGod for example your properties!) services & goods are now in a "transitionary" stage, or further accelerate upwards or actually fall over the next 2 -5 years is still to be seen.
One potentially significant but seldom mentioned & understood indicator is the "Velocity of Money". Globally, money velocity peaked in the mid 90's and has generally continued to trend downwards since, to now be near ALL TIME LOWS. A rather ominous sign IMHO.
I presume you are referring to declining consumer price inflation, because asset price and especially real estate price inflation has not been dropping. I would suggest that inflation has not been good for workers in the last 40 years as the declining home ownership rate attests. The nation's assets have ended up being owned by a small percentage of its people?
Edit: Thanks FTG for your post. It is full of juicy information. I will need to read it a few times
He hasn’t got many options to sit around and Not raise the OCR , CPI above the band and Unemployment down at 4 %.
There are a lot of price increases yet to come through , Placemakers has been advising this week of a raise in price for many products . Increased fuel costs will keep feeding through . Labour costs have risen and will continue to rise as many industries struggle to get workers .
Our inflation rate is 3.3%
The U.S is 5.4% and the sky isn't falling there.
There not even considering raising there OCR
Neither is OZ or the EU.
If we raise the OCR we will fall further behind other countries in wage growth.
raising the OCR won't make imports any cheaper, you will just have less pricing power.
If Orr hasn't learned the lessons from past OCR increases ,
New Zealanders will pay the price for his mistake.
That $1 purchasing power has been slashed due to events created by the US president in 1971.
The continuation of QE over that same time period has made your cash more and more worthless.
House prices have not increased your fiat currency has decreased along with its purchasing power.
As FTG and Milton Friedman point out inflation is always and everywhere a monetary phenomenon. Is that why interest rates can't rise. The velocity of money is falling but the amount of money is increasing. If people stop paying and borrowing larger and larger amounts for their houses will we get deflation as money creation decreases? My understanding is bank lending increases the money supply.
Brian Fallow from the herald seems fairly level headed and says interest rates should be on hold as things are precarious due to covid and its new strains.
https://www.nzherald.co.nz/business/...IYQ2S5UINMYCQ/
TeslaGod is suggesting any increase in interest rates is a disaster.
I guess my view that capital should have a price is at the extreme.
Years after the pain of the recessions Paul Volcker created to combat inflation in some circles he is viewed as a hero, but I imagine at the time he was vilified. History will be the judge but I don't have that many years left so it is very frustrating for me as I try to find investment opportunities.
It is hard to know what to do but these sentiments should be pushing up the price of gold as the purchasing power of fiat currencies decreases. Just wish young speculators had the same faith in gold as they do in BitCoin. A house and a mortgage might prove to be a better inflation hedge.
Inflation has been flat for decades and has struggled to rise .
When you print trillions of dollars in a short period of time it makes you believe inflation is on fire.
In reality when the money printing stops, (it has in NZ) interest rates rise (hopefully not)
Deflation follows it's normal course.
I know this sounds strange but they need to raise the inflation target to at least 3 or 4% to keep the economy stimulated.
Or they will eventually lower interest rates possibly negative in a few years creating further asset price inflation.
Wealth gap increases.
As I alluded previously, the battle between deflationary & inflationary forces continue, and post GFC that battle has only intensified. In fact since Covid blew up we have all witnessed it intensify at an even greater rate. The rollercoaster ride has had some even wilder peaks & troughs.
NEGATIVE interest rates, House price explosion, Oil price going into negative pricing & then reversing & charging, Gold price peaking and then FALLING, PE Ratios across the globe going to ATH's, Debt levels (Private & Public) blowing out to unprecedented levels, etc etc.
So where is all this going? That's still the big debate, but one that very few truly know or understand. Central Bankers included. Keep in mind that there is also a tremendous amount of "smoke & mirrors" in play here. A small example of this is well BEFORE Covid; Sept - Dec 2019. A new sick canary appeared in the mine. Very quietly, the US Repo market spreads started to misprice, and the FED stepped in and desperately started to throw the kitchen sink at the Repo market. To give some context, this had last occurred as a precursor to GFC, in mid 2007.
What we can do is look to history as a guide to what MAY happen. Just remember though, "markets seldom repeat, but will rhyme".
Historically one subtle but very important marker has been that in nearly every country which has experienced a period of Hyperinflation (recent example Zimbabwe), at some stage just prior, the country has first experienced DEFLATION (less money chasing the goods & services). Deflation often results in the nominal prices of goods & services actually falling. Banks, enterprises & citizens start trying to get their hands on cash and whenever possible hoarding it.
However, the tremendously destructive forces of deflation are truly revealed when an implosion of debt eventually occurs. That creates an situation where in nominal terms the debt stays the same, but the assets & income supporting that debt FALLS.
In summary, I proffer that the answer to the question on whether it's Inflation, Deflation, or Stagflation that starts dominating globally over the next 1-5 years is going to be shown by seeing how all the debt gets treated & dealt with. The debt that was already at unprecedented levels prior to Covid and has expanded exponentially since.
Finally, here's a little tidbit for you. The average corporate JUNK Bond rate in the US is now yielding an average of 4.3%pa (another all time low btw). A junk bond is generally accepted as being rated at below BBB, so the market recognises a higher a chance of failure; as in potentially losing ALL your capital!
So you get a 4.3%pa return and if all goes well, your money back. Yeeha! Yet, the "official" inflation rate in the US is now over 5%pa.
Crazy huh!
1. Stocks: all-time highs
2. Home prices: all-time highs
3. Incomes: all-time highs
4. Job openings: all-time high
5. US Core Inflation: highest since 1991
6. Fed: we need 0% rates through at least 2023 & trillions more in bond buying to boost asset prices & increase inflation...
WTF ?????
Not angry ..but how does it make any sense ? Businesses are booming -retailers are feeling rich .Inflation is running..yet the FED must continue to create trillions to buy more debt ?? why ? US. Nominal growth is on fire >>>
IMHO because they know if they don't yields on the Debt will rise some of the word are getting away from the USD and are not interested in Buying up the Trillions in never ending Bonds ...they have their own interests and with over 7 trillion in USD debt held outside the US ...Over many years CB are converting to new Digital Fiats , Gold ...Crypto even,,, etc
As they say never let a Good disaster go to waste pre COVID ...What was the US debt in 2019? $16.8 trillion
At the end of 2019, federal debt held by the public was $16.8 trillion, equal to about 79 percent of GDP, a higher percentage than at any other time since just after World War II.....along comes COVID oh no we must print like we never have before >>> now Biden comes out with "350mill Americans have been vaccinated" !!
Well ? why isn't there a major tapering ....Higher taxes...higher rates etc ???
Its like feeding medicine to a person thats overcome the sickness ... but not only the same amount of medicine but more and more ....its a PONZI
Well you're post does sound a little angry.
But I hear what your saying.
Gotta love the (so called) free market.
I've done, lets say more than well.
I'm new to this forum and I seem to be out of sync with my fellow traders, perhaps I need to look at my trading account balances and learn how to get angry at how much they have grown.
On Monday I'll try wringing my fist if the balance grows even higher.
Then I can swear and curse at capitalism and how much freedom it's bought me and my family.
Maybe not.
We are still in the bubble. It is easy to feel good about your growing bank balance or capital base. Plenty of people do well in a bubble. A good number may well be in a good position after it bursts. But there will be an awful lot of chairs short, when the game of musical chairs comes to an end and the music stops.
JBmurc is pointing out what must come sooner or later.
To catch the falling knife LOL >>https://talkmarkets.com/content/bond...un?post=318922
I know since Covid the DEBT bubble is even worse and its not just the USA ... but much of the world I'm sure here in NZ it wouldn't be a pretty picture >>> and some people think they can lift rates LOL
Unfortunately a lot of ill-informed people are going around blithely stating that the current inflation is just 'transitory'.
These people have no idea what is going on in global shipping - please educate yourselves, prices are changing daily and always in an upwards direction. All of these costs are now being passed on, and will continue to be. These pressures are not dissipating.
https://www.stuff.co.nz/business/300...by-10-per-cent
Katherine Rich, chief executive of the Food and Grocery Council, said Tegel should be commended for its transparency. Many other food suppliers were facing similar cost pressures, she said.
She said Tegel was dealing with concerns that were shared by many other businesses, such as the increasing cost of freight and logistics, increasing labour costs, difficulty getting staff, increasing energy and insurance costs.
“Getting people to work in our factories across our supply base is really hard. If you've got the workforce you’re still struggling to keep up with local production and there’s more overtime.”
Tegel’s bill for chicken feed was increasing as it became harder to get goods into the country, she said.
"I completely understand how shoppers dislike any kind of price increase but in this instance they have little choice.”
A spokeswoman for Countdown said the pressures were industry-wide but no other chicken suppliers had signalled price increases yet.
To the ignorant and ill-informed who think inflation is transitory, please read:
http://www.xinhuanet.com/english/asi...1310116521.htm
New Zealand's construction sector threatened by broken supply chain: industry federation
Source: Xinhua| 2021-08-09 09:05:10
New Zealand has been dropped off the global supply chain by many construction material suppliers in the wake of COVID-19, threatening to stall the building sector here.
New Zealand Building Industry Federation chief executive Julien Leys said on Monday that post-pandemic business model reviews by global shipping and building supply companies has meant New Zealand is no longer included on their supply routes, with supplies getting only as far as Australia.
That puts additional costs on building supply companies here, to try to get what they need into the country, and Leys said he has spoken to one New Zealand company spending as much as 65,000 New Zealand dollars per week on shipping costs.
The broken supply chain is just one of several unique challenges facing the construction sector, threatening its ability to capitalize on a pipeline of projects, including the government's shovel-ready infrastructure projects and affordable housing targets.
Other hurdles include a skilled labor shortage, rising prices of materials, and reduced margins.
More here -
https://www.stuff.co.nz/business/125...-its-own-ships
Pressure ramps up for NZ to charter its own ships
Catherine Harris
07:50, Jul 30 2021
New Zealand exporters are considering banding together to charter their own ships to ensure access to overseas markets.
A group of exporters, importers and other businesses are talking about co-ordinating charters for bulk shipments, as the country continues to struggle with port congestion, sky-high freight costs and post-Covid unreliability.
Inflation is transitory.
But if you prefer to be like ASB and call for a double interest rate hike that's fine.
This will simply widen the wealth gap and make it harder to build an asset base through lower income growth and higher interest rates.
You will fall further behind .
Short term higher inflation is a small price to pay for long term wealth.
The returns I make on leverage dwarf meaningless OCR hikes to me.
The system is designed to benefit the likes of me.
Posting on Sharetrader seems to be just an opportunity for you to 'big up' yourself and tell us all how rich you are.
Rather than make any salient points, you just say over and again that whatever outcome happens vis a vis the economy / interest rates / inflation etc will just result in your already fabulous wealth increasing tremendously.
To go with your cultivated persona of 'super rich guy' you include as your avatar picture a genuine bona fide billionaire, in case we haven't already got the point.
Haven't we widened the wealth gap by reducing interest rates?
Won't inflation hit poor people on relatively fixed incomes harder while inflation will benefit the highly leveraged.
Won't a rise in interest rates provide an alternative for capital if fixed interest can some how provide a return in real terms. Won't asset prices and real estate fall as interest rates increase?
You would note some anger in my posts as I have been expecting central banks to do their job and provide price stability I don't expect them to keep bailing out overleveraged investors and reckless financial institutions enjoying record returns. Well done for being on the right side of the trade though.
As I have stated prior.
What you have posted will only make matters worse.
I have not achieved my financial position by getting angry at what's been printed in the Dominion post or any financial media for that matter.
If the OCR is increased it will only hurt those trying to get ahead.
Please do not let my comments upset or anger you.
I was thinking back when I got my first loan early 2000's ...interest rates 7-8% ... was very straight forward bank was brilliant to deal with ticked up a good amount on a spec build ... had zero lending history ...next to nil assets the sections value going up $200k was really my only asset pre building and lending the $550k....(that would be like lending 1mill+ at present inflation added values)
Fast forward to present ...Great asset backing ,history of paying off Doz's of Morg's never missing a payment ,great cashflows etc ....and I get put through ringer when I want to purchase another commercial property .. less than a third DEBT to asset backing nil personal debt etc ...
And isn't this the crux ... the banks have limited percents of funds they can lend to investors ... of course the bulk goes to the richest ....and when going into debt is so cheap ... the rich can BUY up so many assets without the outlays of payments ...before they might have invested in savings term deposits, bonds etc ...Now Homes have become like shares ...Buy n Hold ....sell for fat gains in the future
I heard on RNZ around 40,000 vacant homes in Auckland .... many wealthy landlords don't need the hassle of dirty tenants in their "home banks"...
What have 'the inflation is transitory' crowd seen that makes them think this incompetent government and clueless Reserve Bank can control inflation?
Talk about banana republic: now we have rolling power black-outs. Anything think electricty costs are nit going to continue to rise? Anyone?
https://www.stuff.co.nz/national/pol...n-frigid-night
'So third world': Government faces pressure after rolling power blackouts on frigid night
Henry Cooke
08:11, Aug 10 2021
The Government is facing serious pressure on Tuesday after rolling power blackouts on one of the coldest nights of the year, with National saying the situation is “third world”.
Energy Minister Megan Woods is yet to speak publicly about the situation, but is meeting with Transpower and regulator the Electricity Authority on Tuesday morning.
Grid manager Transpower issued an emergency notice on Monday night to power distribution companies after demand outstripped supply, asking them to urgently reduce demand to avoid serious damage to the grid.
This led to rolling and deliberate blackouts in some areas, particularly in the central North Island and Waikato.
In your humble opinion, I will continue to keep mine. You got ahead with higher interest rates and I imagine have got even further ahead once they started dropping.
Don't worry your comments don't make me angry you only have to worry about yourself and your family.
Adrian Orr makes me angry because he is supposed to be providing price stability for the whole nation but like many central bankers equates financial stability with asset price inflation.
(head buried in sand) "It's all transitory!!!!"
https://www.stuff.co.nz/business/126...risis-not-over
Fresh warning from Transpower - electricity crisis not over
Tom Pullar-Strecker
08:38, Aug 10 2021
An electricity crisis that resulted in blackouts on Monday evening does not appear to be over.
National grid operator Transpower issued a fresh emergency notice on Tuesday morning and wholesale electricity prices were spiking at an astonishing $110 a kilowatt-hour shortly after 8am – about 300 times the price consumers normally pay for power.
Wholesale prices dropped back to about 60c/kWh shortly before 9am – still indicative of a significant supply problem.
Transpower warned at 7.30am there was insufficient generation and reserve offers to meet demand and provide security for a “contingent event”.
QE and non-stop interest rate suppression started after the GFC so that bankers could continue to make out like bandits and reap their enormous bonuses. The Fed is the bankers bank run by bankers for the benefit of bankers. "The Wealth Effect" is a daft and criminal scheme designed to co-opt asset owners into the 'too big to fail' group along with the criminal banksters - effectively pitting society against itself.
Interest rates hikes only take out young home buyers in the market.
First home buyers are one of the largest buyers in this low interest rate environment.
There are many wealthy who have access to liquidity or cash and don't need finance.
They are the ones sitting on the sidelines waiting for the competition to fade away.
So if you wish for interest rates hikes I would be careful what you wish for because it will only transfer the wealth and assets into the hands of a few.
"Consumers Expect Higher Earnings Growth and Greater Ease of Finding Jobs Over the Next Year"
https://www.newyorkfed.org/newsevent.../2021/20210809
I reiterate any OCR increase will slow down or stop NZ wage growth as our trading partners allow for short term inflation to eventually stabilize with out raising there OCR .
20 Years of lower interest rates.
https://www.rbnz.govt.nz/statistics/...ph-90-day-rate
What has happened to home ownership over this time.
https://www.stats.govt.nz/news/homeo...lmost-70-years
Wealth inequality over the last 20 years
https://www.theguardian.com/world/20...ir-go-identity
https://www.stuff.co.nz/business/mon...leaving-behind
You are either talking your book or through a hole in your ars*. I know which one I am picking.
Based on quick google searches admittedly but I think you would find with proper research the statistics are the opposite of what you are suggesting.
My argument is that inflation is a bad thing particularly for the people you have suggested concern for in your earlier post, first home buyers and less wealthy people. If wage rises match house and stock price inflation then it is all relative but if assets continue to rise faster than wages then you are reducing the chance of social mobility, something a person from a state house and solo Mum I would have thought would like to keep open for other generations.
The argument that our exporters will get hit if interest rates rise is valid but then NZ is just following the rest of the world in a currency war. Is following everyone else the best idea? The USA and Japan central banks appear to have gone bat sh*t crazy.
If I didn't think there was a chance that inflation was transitory then I would be buying another property tomorrow. Demographics, technology, too much debt have been put forward as valid (imo) reasons inflation might not last long.
I have no idea and have proven this time and again over many decades.
P.S. an OCR increase would be expected to reduce NZ wage growth and reverse asset price growth.
An OCR increase will not lower asset prices only stall them.
I can guarantee that as I have stated that the system is designed for the wealthy.
A reduction in wage growth will not help young home buyers any closer to accumulating assets.
I may be in the wealthy camp but I am on your side.
My posts are not going to change what's going to happen to the OCR next week.
I'm just trying to educate and inform.
I already understood what was going to happen to asset prices 24 months before the events of 2020.
Looking back being angered by what has happened or is happening is not the way to improve your financial position.
You must understand what's going to happen moving forward.
.
I would humbly suggest that you both are right......and wrong.
Step back a bit and try look at the bigger picture. You possibly can't see the trees for the forest :cool:
When you look at the historical stats (as in over the last 50+ years) it quickly becomes apparent that Interest Rates and Asset Inflation don't always trend in unison. Yes, they can correlate for a period, but there are plenty of instances in history where any "expected" correlations are totally disconnected.
Coming back to 1st principles yes, interest rates provide the lender with a return/yield which MAY be compared to the rate of Inflation, but ultimately interest rate yields are really the market pricing its view of risk. Hence why we have been witnessing negative interest rate yields in some countries. The "Lender" is happy to PAY interest because they have the view that is the lowest risk proposition and they will at least get most of their money back!
Hopefully this smiley face helps: :)
I had better be careful what I say then as I suggested an obviously intelligent person was an idiot for suggesting there isn't a strong correlation between interest rates and asset prices.
Apologies to John McDermott - Motu Executive Director and former RBNZ Assistant Governor and Chief Economist.
I would have thought that when trying to work out a return or yield on investment and therefore a price to pay for an investment the cost of capital would be a factor, the lower the interest rate the more affordable an investment is.
When looking at commercial property the higher the required yield the lower the value of the property and vice versa.
As far as negative interest rates are concerned aren't some pension funds and insurance companies obliged to invest in things which have been traditionally considered safe. Such as AA rated bonds. They don't have a choice but haven't central banks have been buying billions in bonds depressing the yields (overseas) as well as setting the OCR (NZ) at low levels. Would anyone of sound mind invest in something that was guaranteed to lose money. I guess you are arguing they think they could lose more by investing in equities or property in the event of a downturn.
"Return free risk" as Jim Grant describes it.
This is from the NZRB website. The good old wealth effect.
Raising prices for houses and other assets
Reducing interest rates and making it cheaper to borrow and spend money can push up the price of assets like houses. It can also increase the share prices of equities held by the three million New Zealanders in their KiwiSaver accounts.
Higher house and share prices make people feel wealthier, encouraging them to spend and invest. While this can help us meet our core mandate – controlling inflation, maximising employment and supporting economic wellbeing – higher house prices affect housing affordability.
No direct correlation maybe but a strong suspicion of one.
More on runaway inflation here. Remember, according to 'Elon Musk Wannabe' there won't be any meaningful inflation in NZ.
https://www.stuff.co.nz/dominion-pos...-supplies-soar
A dearth of dwangs: Four-by-twos run dry, cost of building supplies soar
Tom Hunt
05:00, Aug 11 2021
A timber shortage means builders are struggling to get the basics of their trade with warnings that some building supplies will cost up to 35 per cent more before the year is out.
“People think tradies are expensive now,” Michelle McGuire from GenX Builders in Wellington said. “This is going to hurt an already hurting industry.”
Her partner and builder at GenX, Richard Wilman, on Monday went to Bunnings and couldn't get any four-by-two wood, a staple of the building trade. Another merchant had some but was running low.
He was dealing with three different merchants as he tried to get the wood to finish jobs and was now ordering wood weeks ahead of when it was needed.
"Elon Musk wannabe"
"Head up your arse"
"Weasel"
It seems I am not following the narrative on this forum.
Perhaps that is why I am in the financial position I am.
To be fair I only suggested you "might" be talking through a hole in your ar*e regarding the consequences of raising interest rates not that you were an ar*ehole.
Your financial position would indicate your view should carry more weight than mine.
Please continue to educate and inform, hopefully other posters such as myself can be more respectful toward someone with an opposing view.
Long term deflationary force's such as
global sourcing
Price transparency
Automation
Demographics like retirees leaving the work force and contribute to deflation over time.These force's have not gone away and are only increasing.
The short term inflation we are experiencing will pass.
A rise in the OCR (which almost seems certain) will most definitely be reversed in a couple of years.
Most likely leading to negative interest rates down the line resulting in
Further asset price inflation
Wage's not being able to keep up
A worthless kiwi dollar
A shrewd investor should always plan ahead.
More on the runaway inflation here -
https://www.nzherald.co.nz/business/...7E5QETLN2KWVQ/
PlaceMakers' customers get price rise warning up to 15%: freight, raw material costs cited
12 Aug, 2021 05:18 PM
Fletcher Building's national retail chain PlaceMakers has warned customers of price rises across many different product categories, some going up 15 per cent, and Bunnings is suffering some product shortages.
There's a big wide world outside little old New Zealand
Below are 2 very big players in the world.
American CPI inflation for July was reported overnight at 5.4%, the same as for June. Components of their core inflation (that is, excluding food or petrol) slipped slightly to +4.3% for the year to July, raising the prospect that it may have peaked
China's new yuan loans in July have stunned analysts by coming in at a very weak level, confirming the overall China economic slowdown
But hey Logen Ninefingers according to economist you will get your wish with an OCR increase.
Which will eventually be very painful down the line.
It's like telling me house prices prices have skyrocketed yesterday.
You need to know what is going to happen not what we already know.
I prepared years in advance for the current economic climate.
Try to look outside the New Zealand media fish bowl.
China originated with the virus.
China was the first to lock down.
China was the first to (eliminate) the virus.
China was the first to reopen there economy.
Chinese inflation rate peaked in January 2020 at about 5.4%.
China's annual inflation rate fell to 1% in July 2021.They did NOT raise there OCR in all that time.
There economy is slowing and there is talk in there local media of possible OCR cuts.
Although the Fed may stop bond purchases it's unlikely they will increase there OCR.
I agree with what you say. But rather than having further asset price inflation (which isn't part of the CPI) with wages not able to keep up why not raise interest rates and slow or decrease asset price inflation, bankrupt poor or overleveraged investments, create an opportunity for new investors rather than protecting and exacerbating what we have now. Zombie companies should not exist with normal interest rates.
We have $1.7Billion of evil tax money money going into accommodation supplements annually because wages are not keeping up with rents.
Over a decade of unconventional monetary policy and the only solution is more of the same, except that it needs to be more extreme.
I have to agree that this is the most likely outcome with lame ducks like Adrian Orr and Jerome Powell but it is hard to see how it is the best option long term unless you are already wealthy.
An article pointing out why reserve bank governors don't give a s*it about house price rises.
https://www.nzherald.co.nz/business/...3PHBVBRTSXGGY/
Behind the paywall, so in summary house prices don't form part of the CPI so why should they care. Not their problem even if they are the cause of the problem
The Fed has to protect Wall Street
The RBNZ has to protect the NZ housing market.
If either of those crash, house prices or the cost of Amazon stock don't really matter because it's only the wealthy who will be able to purchase the asset.
You can't buy bargains if you have lost your jobs and there is no money in the banking system.
Hell’s $13 pizzas went up to $16.66 yesterday
Devastating
Friday 13th special