ADRIAN ORR our NEW RBNZ GOVERNOR

[Aaron]

Confirmation bias, not sure of the author and appreciate it is not the RBNZ but they are following the same path.

https://www.zerohedge.com/markets/tw...bubbles-part-2

Asset price inflation = Financial stability
Consumer Price Inflation = Inflation

I didn't appreciate the difference until reading this. That could be why inflation is so hard for me to understand.

I now feel like a fool complaining that the RBNZ was not doing its job on price stability letting house prices go ballistic.

I went back to the RBNZ website this morning to refresh myself on their mandate which used to be;

"The Reserve Bank manages monetary policy to maintain price stability, promotes the maintenance of a sound and efficient financial system, and supplies New Zealand banknotes and coins."

But it has changed with the rebranding. Now it is.

"Toitū te Ōhanga, Toitū te Oranga. We enable economic wellbeing and prosperity for all New Zealanders."

I thought maybe Adrian Orr thought he had become an omnipotent god like creature but this is actually "the purpose" in the Reserve Bank Act 1989. I did not realise just how amazing and powerful the central bank is.

When they say "all NZers" do they just mean NZers with assets?? Otherwise I don't think they are achieving their mandate unless they believe in trickle down economics. Is growing wealth inequality a sign of too little trickle down economics or too much?? I am not sure although I am leaning toward too much.

[SBQ]

Confirmation bias, not sure of the author and appreciate it is not the RBNZ but they are following the same path.

https://www.zerohedge.com/markets/tw...bubbles-part-2

Asset price inflation = Financial stability
Consumer Price Inflation = Inflation

I didn't appreciate the difference until reading this. That could be why inflation is so hard for me to understand.

I now feel like a fool complaining that the RBNZ was not doing its job on price stability letting house prices go ballistic.

I went back to the RBNZ website this morning to refresh myself on their mandate which used to be;

"The Reserve Bank manages monetary policy to maintain price stability, promotes the maintenance of a sound and efficient financial system, and supplies New Zealand banknotes and coins."

But it has changed with the rebranding. Now it is.

"Toitū te Ōhanga, Toitū te Oranga. We enable economic wellbeing and prosperity for all New Zealanders."

I thought maybe Adrian Orr thought he had become an omnipotent god like creature but this is actually "the purpose" in the Reserve Bank Act 1989. I did not realise just how amazing and powerful the central bank is.

When they say "all NZers" do they just mean NZers with assets?? Otherwise I don't think they are achieving their mandate unless they believe in trickle down economics. Is growing wealth inequality a sign of too little trickle down economics or too much?? I am not sure although I am leaning toward too much.

Great post and it may be Jacinda had something to do with the rebranding of the NZRB's role. My understanding with inflation... it's a product of having too much $ in circulation in the economy (what Macroeconomics class has taught us). You know, the "quantity theory of money" and the money supply. The lessor of 2 evils; inflation or deflation? The latter is far worse to the economy by a LONG shot. So while the rich got the benefit from rising inflation, overall it's a better outcome than where 'everyone loses' in when assets collapse in value and permanent unemployment trends.

[peat]

economists saying that they dont think RBNZ has a clue

NZ’s “economic indicators continue to acquit themselves very well". "These, in turn, suggest the economy is on a much stronger footing than the RBNZ appreciates,” said Toplis.

Did NZ dodge a double-dip recession? | BusinessDesk (free article)

[Aaron]

I don't think any economist has a clue including the ones at the RBNZ. I think they will continue to choose the path of least resistance. The modern day soothsayers might as well be reading goose entrails

Adrian said the reason for dropping interest rates and keeping them low is to achieve his employment mandate and he wasn't worried about house prices. The herald today suggests he was too successful as there is now a shortage of workers. So I guess we need to recognise this success by the RBNZ. Maybe now he should increase interest rates as labour shortages and house price rises might suggest this is what he should be doing. House prices won't stop rising until interest rates go up.

As one commentator said if you don't buy whatever you can now while money is so cheap you might look back and regret the lost opportunity.

SBQ I keep hearing deflation is way worse than inflation although I guess the only proof of this is the great depression. They focus on the tightening of the money supply back then at the wrong time exacerbating the depression. Not much is said about the build up of debt prior to that in the 1920s. Wealthy people telling me that inflation is better than deflation - yea right. Like taxing the rich less will lead to a better society as the wealth will "trickle down".

I would much rather pay more for my investments, goods and services next week???

[peat]

I don't think any economist has a clue

true dat

I assume you understand why deflation is considered so horrible.
Demand evaporates. Economy dies... vicious circle downwards as people save knowing their money will be worth more.
Value judgements depend on the perspective so yeh you could be right that inflation suits wealth. But, no one wants to visit Moribundsville.

[Aaron]

true dat

I assume you understand why deflation is considered so horrible.
Demand evaporates. Economy dies... vicious circle downwards as people save knowing their money will be worth more.
Value judgements depend on the perspective so yeh you could be right that inflation suits wealth. But, no one wants to visit Moribundsville.

I don't agree but that is coming from a place of ignorance. Where are the examples of deflation being a huge problem?

Not sure if this lady knows what she is talking about but seems logical to me. Reading the key takeaways anyway. Maybe some confirmation bias choosing this link.

https://www.investopedia.com/article...ad-economy.asp

Yes sure a debt deflation will cause asset prices to fall and people might close their wallets for a while in a self reinforcing cycle but you will still need to eat, fix your house and buy a car if you need to. Investment opportunities will open up debt will be defaulted on. "Creative destruction" is a current buzzword, apply it to the financialization of the economy and it doesn't seem that bad.

Without it we will get continued inflation which to date has only been good to the owners of houses and other assets and if the Central Banks succeed in inflating away the debt at the expense of savers and non-asset owners it seems a little unfair. I suspect I am arguing with home owners whose property prices will have a big effect on their retirement plans so they can see the benefit of inflation daily in house price rises.

Money for nothing, someone else is paying for your free lunch.

[JBmurc]

we are presently living through the roaring 20's .... we all know how that ended up last Century ... and they had rates from 4%-5% so room to move when it blew up and cost so many jobs across many sectors

Covid was the match that ignited the inflation bug to really kick into gear with easy money policy .... the FED is the lender of last resort (Is where NZ Govt borrowed 60bill)... the FED chair has stated the FED Mandate may be changed and forced to also be the Buyer of last resort and if this happens INFLATION will run much higher than target levels ..

[JBmurc]

we are presently living through the roaring 20's .... we all know how that ended up last Century ... and they had rates from 4%-5% so room to move when it blew up and cost so many jobs across many sectors

Covid was the match that ignited the inflation bug to really kick into gear with easy money policy .... the FED is the lender of last resort (Is where NZ Govt borrowed 60bill)... the FED chair has stated the FED Mandate may be changed and forced to also be the Buyer of last resort and if this happens INFLATION will run much higher than target levels ..

[SBQ]

I don't agree but that is coming from a place of ignorance. Where are the examples of deflation being a huge problem?

Not sure if this lady knows what she is talking about but seems logical to me. Reading the key takeaways anyway. Maybe some confirmation bias choosing this link.

https://www.investopedia.com/article...ad-economy.asp

Yes sure a debt deflation will cause asset prices to fall and people might close their wallets for a while in a self reinforcing cycle but you will still need to eat, fix your house and buy a car if you need to. Investment opportunities will open up debt will be defaulted on. "Creative destruction" is a current buzzword, apply it to the financialization of the economy and it doesn't seem that bad.

Without it we will get continued inflation which to date has only been good to the owners of houses and other assets and if the Central Banks succeed in inflating away the debt at the expense of savers and non-asset owners it seems a little unfair. I suspect I am arguing with home owners whose property prices will have a big effect on their retirement plans so they can see the benefit of inflation daily in house price rises.

Money for nothing, someone else is paying for your free lunch.

I prefer this reason why deflation is bad (leads to greater, worse things...)

https://www.thebalance.com/what-is-d...-s-bad-3306169

You don't have to look far in the past 10+ years how the EU is doing. They've essentially have never came out of the GFC in 2008 and like in that article why deflation is so bad; the EU problem is interest rates no longer are effective once you go negative interest rates.

"Once rates have hit zero, central banks must use other tools. But as long as businesses and people feel less wealthy, they spend less, reducing demand further. They don't care if interest rates are zero because they aren't borrowing anyway. There's too much liquidity, but it does no good. It's like pushing a string. That deadly situation is called a liquidity trap and is a vicious, downward spiral."

And the article continues on where deflation is beneficial - except that in NZ, we do not have the innovation that can spur on to a recovery from a market collapse. Smaller countries like NZ need pay closer attention to the central bank rate and to ensure it never falls in a situation like Japan or in the EU. As Ray Dalio has repeatedly said during the COVID crisis, "Not all central banks around the world are the same... it's a matter that currency risk would be the greater threat and the reason why in times of crisis - global markets flee to the USD".

[Aaron]

Where is the deflation in this chart?

https://www.interest.co.nz/charts/re...e-price-growth

Why isn't the RBNZ doing something about it?

I stand corrected Adrian has done some thing.

https://www.newshub.co.nz/home/money...drian-orr.html

You won't talk down the market, actions speak louder than words Adrian, grow a pair and do your job, raise interest rates.