Matt Nolan

A point on debt

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Around the world there are a lot of complaints that there is too much debt, that debt will prevent a recovery, and that debt is the root of all problems – be it fiscal deficits, debt fueled consumption, or a debt powered housing market.

While there are undeniable issues to keep in mind, there are a few things to remember with these large debt levels – and one of the most important is that there are some people on the otherside of this debt.

Unknown to some is the fact that, as a planet, we are not actually in a net debt position with the rest of the galaxy (although the statistics say otherwise, I think there is an error – rather than us owing money to Martians).  As a result, for every person who has a liability owing there is another person or group who views that as an asset.  When we look at what the “issues” are with debt, we have to keep this point in mind.

Now this sounds like me stating the bleedingly obvious AGAIN … but lets think about some of the conclusions that come out of this:

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Matt Nolan

The case of New Zealand: Inflation targeting, relative prices, monetary policy and industrial policy

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According to this piece on Rates Blog, in a recent presentation Dr Geoff Bertram discussed the inflation targeting framework, and the idea of the NZ$ being overvalued.

Back in the day I had him as a lecturer, he is an extremely smart man and he brings up a number of important points.  However, I have to disagree with his view regarding inflation targeting and relative prices in the economy.  There are two main themes where I feel our views differ, fundamentally these are:

  1. The driver of the change in the relative price of non-tradable and tradable goods
  2. The relevance of industrial policy in relation to monetary policy.

Let me flesh these out.

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Matt Nolan

Historical revisionism on July OCR

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So because the dollar has eased back following the OCR people have decided that the statement was dovish (ahh the Herald did this too).

Fact, no it wasn’t – it was a more hawkish than expected statement.  Probabilities of rate increases did rise following the statement.

Remember something here, the link between the exchange rate and the OCR IS NOT as clear as people act like it is.  Money doesn’t “flow in” to take advantage of “higher interest rates” when the RBNZ increases the OCR – as so much depends on the “demand” for said overseas loans.  Please god, lets remember that someone in NZ actually has to borrow the overseas money for a loan to be made – its doesn’t just wash up on our shores in a bottle and start aggressively lifting our currency through black magic.  Oft times the currency does get pushed up (especially pre-core funding ratio), but in of itself it will not always happen.

Hell, explaining daily movements in the currency is a mugs game (explaining movements in the currency generally is bad enough).  However, the fact that people put it down to a dovish OCR statement illustrates to me that people are putting TOO MUCH weight on how the RBNZ effects economic variables that aren’t inflation – something which concerns me greatly.

 

Matt Nolan

Damned if you do, damned if you don’t

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The daily post for today has been delay to next week – as this issue needs to be covered now.

That’s what the RBNZ is likely hearing when columns like this appear.  This one is from Bernard Hickey, where he bemoans the Bank’s decision to signal an increase in interest rates (which will increase long rates, and so IS an increase in interest rates) which has lead to a slight tick up in the currency.

The logic of the article might seem seductive for those who feel we must “transform” the economy, and those who believe we can truly “command and control” an entire economy.  But it is false.  Let me explain.

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Matt Nolan

Core funding ratios, monetary policy, and trade-offs

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In a recent Herald article, Geoff Simmons discusses the core funding ratio.  I work near the GMI team, and I have a lot of time for their outside the box thinking on issues – however, this is one case where I will have to respectfully disagree with the conclusions.

What was the conclusion?  It was that the RBNZ should look at varying the Core Funding Ratio (CFR) at its next meeting in order to reduce inflationary pressures, instead of increasing interest rates.

Now it has been suggested that adjusted the CFR during the “extremes” of the cycle may carry weight – but here I want to share for the trading 212 review uk.

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Matt Nolan

Keeping NZ inflation in perspective

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Holy shit.  Since I’ve started getting the chance to read opinion pieces again I’ve noticed one extreme theme running through them – a sharp and angry fear of inflationary pressures.

This in itself doesn’t bother me, but it has been combined with people saying that ALL of the following will happen:

  1. The economy will implode
  2. The currency is/will be too strong
  3. Borrowing will be/is too high.
  4. We will have out of control inflation.

And that ultimately this is the RBNZ’s fault.

Like some sort of arbitrary rant, a large number of commentators have gripped onto any negative element element they can about the domestic economy, laid it down as a failure of monetary policy, and then used it as an excuse to attack the Reserve Bank.  To be honest, I find it all patently ridiculous.  Let me explain why, saying all these things will happen at once is inconsistent.

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