Black Monday

[Nor]

There is a problem with raising interest rates as a lever to take money/demand out of the economy. While it impacts borrowers (hard in some cases) it has the corresponding effect of higher interest rates being paid to depositors which returns money into the economy.

I still say the best option in this country at present is to raise the minimum rate of KiwiSaver contribution to 4% (and end any further "holidays"). This takes significantly more out of the economy given more folk are contributors than have mortgages, but the money remains their property in their account whereas money paid as interest by any borrower is dead and gone. Given our savings rate/contribution in this country is far below other countries (Australia is 10.5% contribution presently, about to be raised to 11%) and the yield after inflation from KiwiSaver will be inadequate for most retirements in due course it strikes me as a no brainer.

Of course, ORR can't do this but he could at least make clear to Government it is the optimum solution just now as a trade off against further interest rate rises. But it would be too hard for Labour to do something sensible. They would rather promote a manifestly stupid employment insurance scheme!

So we would have super low interest rates all the time and savers would never get anything?

[Daytr]

Over compensate [sic]?

He hasn't even raised rates to the inflation rate level.

Ruin a large group of young people?

Educate them more likely.

Raising rates to the inflation rate would bankrupt a huge amount of people, including farmers, builders and new home owners. Simply wages haven't kept up with prices so interest rates cannot go as high as they have in the past. One can argue that property prices are still too high, but the cost of building says otherwise.

Was reducing rates to near zero giving yhem an education as well? Seems like the curriculum has done a 180.

[Daytr]

So we would have super low interest rates all the time and savers would never get anything?

Look at Japan. Europe hasn't had even average interest rates since the GFC. Either we have an almighty crash I.e 1930s style not 2008 style to smash asset prices or we need to maintain relatively low interest rates. Governments and CBs are determined not to have that happen, otherwise they wouldn't bail out the banks.

[ronaldson]

So we would have super low interest rates all the time and savers would never get anything?

I didn't say that. I said it is the optimum solution just now as a trade off against further interest rate rises.

[Nor]

Look at Japan. Europe hasn't had even average interest rates since the GFC. Either we have an almighty crash I.e 1930s style not 2008 style to smash asset prices or we need to maintain relatively low interest rates. Governments and CBs are determined not to have that happen, otherwise they wouldn't bail out the banks.

Is this the same as saying that the system has to be kept afloat by effectively robbing savers, as the real value of savings is eroded away? The value presumably being transferred to other pockets.

[Daytr]

Is this the same as saying that the system has to be kept afloat by effectively robbing savers, as the real value of savings is eroded away? The value presumably being transferred to other pockets.

Governments don't want cash sitting in bank accounts, they want it to be invested into things to create growth.

[BlackPeter]

Is this the same as saying that the system has to be kept afloat by effectively robbing savers, as the real value of savings is eroded away? The value presumably being transferred to other pockets.

Congratulations, you got it! The good old savings book is a thing of the past. Saving only makes sense if you save not money, but equities!

[Bjauck]

Governments don't want cash sitting in bank accounts, they want it to be invested into things to create growth.

Ideally. However nz investors have a small domestic share market, with a poor past reputation among many boomers, and an expensive housing market. So many end up with term deposits. Also the NZ government through policies has encouraged NZers to invest in land. With overseas based companies and interests taking up the business slack.

[Nor]

Governments don't want cash sitting in bank accounts, they want it to be invested into things to create growth.

Doesn't sit there though does it? Banks lend it out.

[SailorRob]

Governments don't want cash sitting in bank accounts, they want it to be invested into things to create growth.

So when you take it from your bank account and invest it into things, where does the money go to?

Does it go into the account of the person you bought the investment off?