Daily review 05/04/2023

Written By: - Date published: 5:30 pm, April 5th, 2023 - 14 comments
Categories: Daily review - Tags:

Daily review is also your post.

This provides Standardistas the opportunity to review events of the day.

The usual rules of good behaviour apply (see the Policy).

Don’t forget to be kind to each other …

14 comments on “Daily review 05/04/2023 ”

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  1. adam 1
    5 April 2023 at 8:08 pm

    We need more of this changing tables for older disabled. Can only think of one these in Northland? Anyone else have any?

    https://www.disabilityscoop.com/2023/04/04/parents-push-adult-size-changing-tables-public-restrooms/30322/

  2. SPC 2
    5 April 2023 at 8:30 pm

    Given the Oz RB decided to halt further increases to assess the impact on the economy of moving from 0.1 to 3.6% (given the time lag on economic impact), the decision to go from 4.75 to 5.25% here received this reaction.

    Abhijit Surya, who works for Sydney-based Capital Economics, said the move “will push New Zealand into recession”.

    “The RBNZ’s tightening bias all but firms up our forecast that New Zealand will enter a protracted recession this year,” they said.

    Capital Economics expects the downturn will be so sharp that we will see rates being cut by the end of the year.

    It's so obvious this was said by someone in National (and they do not like inflation – as it reduces the real value of assets)

    National’s finance spokesperson Nicola Willis said today’s 50-point lift in the OCR was a “punch in the guts”.

    She said it means far more pain for New Zealand families.

    ”Mortgage-holders up and down the country were holding their breath and hoping for some relief. Instead, they’ve been given another punch in the guts.

    This is the 11th consecutive hike in the Official Cash Rate. Around half of New Zealand mortgage holders will be re-fixing their mortgages in the next six months, meaning many will see their interest rates double from 3 per cent or less to more than 6 per cent.”

    Willis said the speed of this hike will leave many “scrambling, trying to find hundreds of dollars more every fortnight just to stand still”.

    ”Some will be unable to do that,” Willis said. “Sadly, for too many Kiwis this will be the punch that sends them off the edge, into mortgage arrears, unwanted house sales and financial distress.”

    And obviously the canard of economic thinking that deliberately making more people unemployed is responsible policy is questioned

    The New Zealand Council of Trade Unions (NZCTU) said the RBNZ should pause before it considers further increases in interest rates, says NZCTU economist Craig Renney.

    ”Some Reserve Banks such as the Reserve Bank of Australia are holding their interest rates. They have recognised that monetary policy operates with a significant lag, meaning that much of the impact of the increased interest rates have yet to be felt,” Renney said.

    ”The last NZIER Quarterly Survey of Business Opinion showed that capacity constraints were easing. Now is not the time to be adding further interest rates increases when the impact of existing OCR changes are yet to be discovered. The Monetary Policy Statement today made scant mention of the employment impacts of these changes.”

    Unemployment in New Zealand has been rising in recent quarters, and too many New Zealanders are underutilised in the labour market, Renney said.

    ”To say that unemployment is above its maximum sustainable level is to accept that tens of thousands more Kiwis must become unemployed.

    ”We reject that approach and the idea that some of the most vulnerable must pay the price for inflation control.”

    Renney said placing the impact of inflation control “onto the back of working people is neither fair nor economically sustainable”.

    https://www.nzherald.co.nz/business/ocr-reserve-bank-to-decide-on-rate-hike/7AGFV6GWZVE5NEE2WZJ3RTCACI/

    • RedLogix 2.1
      5 April 2023 at 8:45 pm

      They have recognised that monetary policy operates with a significant lag, meaning that much of the impact of the increased interest rates have yet to be felt,” Renney said.

      Sadly despite the fact of the RBNZ literally having one of Bill Phillips MONIAC simulators in the foyer of their building – they seem to lack the fundamental nouse to understand that processes with substantial time delay or 'lag' are inherently difficult to control, and are prone to instability.

      In my real life I have 'tuned' literally several thousand industrial process control loops, all of which share the same fundamental mathematical ideas with the RB attempting to control an inflation process value, by using interest rates as the manipulated value.

      The core problem here is that outside of engineering, most disciplines do not effectively teach real world dynamics of systems. Economists as a category, while not unaware or totally uninformed about this, do not seem to give this proper consideration. Bill Phillips, Hyman Minsky and Steven Keen being notable exceptions.

      My gut feeling, just based on observation, is the RB left raising rates too late, have then raised them much too fast – and worse still seem blissfully unaware that if the cause of the inflation is not internal to the NZ economy, the raising internal interest rates might not have anywhere near the effect they expect from previous cycles.

      In short – "nice little economy you have there, shame if anything was to happen to it."

      • Ad 2.1.1
        5 April 2023 at 9:04 pm

        Robertson's COVID response was to push into the economy some of the largest cash subsidies in the developed world onto businesses. It was a stupendous cash adrenalin shock.

        On top of that Roberston put tens of billions of infrastructure funding, both civil and vertical. This is still playing out.

        On top of that is consistent rises in NZSuper and other benefits, welfare recipients, minimum wages amounting to over 1.5 million people, and on top of that public sector salaries for unions of teachers, nurses, and many others.

        Then there was the fuel and public transport subsidies.

        We'll argue about the counterfactuals for years. Keeping the labour market so tight is the primary reason the recession isn’t pulling the remaining middle class down hard right now. That too is down to Robertson instructing a strangulation on immigration for years.

        But much of the rise in the cost of living is down to the actions of this government to ensure great swaths of us didn't slide into poverty. We do forget now that Labour saved the entire economy from freefall.

        Not the only element, of course. Milk and milk commodities went through the roof to over $9 per kilo.

        Robertson IMHO is the unnoticed real economic leader of New Zealand in this sense since 2017.

        • RedLogix 2.1.1.1
          5 April 2023 at 9:39 pm

          I have no quibble with the size and impact of the COVD stimulation as you describe it. And if for the sake of argument we accept a large fraction of it needs unwinding now – the issue I am talking to is just exactly how to manipulate interest rates so as to avoid massive overshoot into recession, and subsequent damaging social instability.

          The simplest example most people are familiar with would be controlling the speed of a vehicle using a throttle. Now most people would have no trouble understanding how the response of say a high performance motorbike will be different to say an 18-wheeler B-Train. One will react much faster than another, but almost everyone will be able to learn the response rate and control speed pretty easily. This is because the only term involved is rate at which speed responds to throttle inputs.

          Now imagine introducing some devious linkage between the throttle and the engine that introduces a pure time delay between moving the pedal and a change to engine control – a quite long delay of say 30 seconds. This becomes a very much harder problem because when you move the throttle you have no change of speed for that entire time and no sense of what the effect of your change will be. It could be too little or too much, but you do not know, and most people would fail dismally to safely control the vehicle.

          This is the problem built into what the RB is trying to deal with. With private mortgages such a large fraction of household costs they form a significant part of the inflationary response. But because so many mortgages are on fixed terms that do not immediately expire there is this hard to model time delay that is mathematically to the similar to the problem above. Only because there are more variables involved it is considerably more difficult to analyse. I'm not pretending for an instant that I would be able to do it myself, just that I have a grasp of how lagged or delayed responses make a stable, well behaved solution so much harder to achieve.

          And that having sat or stood in front of countless industrial loops over many decades you develop a bit of a gut feel for these things; and it is my intuition that RB's all around the world have raised rates too quickly. I sincerely hope Robertson and the RB are all over it, and I am proven completely wrong.

      • Nic the NZer 2.1.2
        5 April 2023 at 9:30 pm

        If better monetary policy modelling was a matter of figuring out the lags then the reserve bank and treasury would have fixed this decades ago. Its not a matter of lags the issues follow from the basic flawed assumptions like that unemployment is voluntary and that it can't be fixed by fiscal policy without an accelerating inflation rate.

        Common sense and following the events leading to our present inflationary period would suggest multiple drivers of inflation none of which are resolved by monetary policy. These include supply constraints due to lockdowns, OPEC induced price hikes, effects of the conflict in Ukraine effecting farming and in many cases clear excess profit behaviour by suppliers.

        The forecasting and modelling doesn't allow for any of this via the assumption that prices are set flexibly in a competitive market. Also as these factors have been abating inflation has been abating in line with that.

        My reading of monetary policy decisions is that its mostly about the exchange rate and has little to do with the actual state of the New Zealand economy, though I expect attention to be paid to that when the recession starts.

        • RedLogix 2.1.2.1
          5 April 2023 at 9:47 pm

          These include supply constraints due to lockdowns, OPEC induced price hikes, effects of the conflict in Ukraine effecting farming

          Yes, That is what I was implying when I was suggesting exogenous causes of inflation that changing interest rates locally might have little, if any, impact on.

          Another even more pervasive factor is that demographically we are entering a post-growth world. This has unavoidable implications for capital formation and patterns of expenditure – literally we have no idea if the economic models of the post WW2 era will be relevant or work in this environment at all.

        • SPC 2.1.2.2
          5 April 2023 at 10:19 pm

          There had been a long period in which inflation rates remained low despite loose monetary policy because of efficiencies in the global supply chain. Now this has been disrupted due to disruption in distribution and decline in production (pandemic related, war and sanctions).

          Now there is global inflation and not all due to central bank stimulation policy, so changes there will not solve the problem.

          What might is investment in improved productivity and redirection of labour (and education/training focus) – from harvesting to AI in the office.***

          When Bollard increased the OCR, it increased the dollar value and resulted in complaints from the export sector that to contain a domestic property bubble their incomes were being cut – by the end he was asking for other tools than OCR rises – such as a mortgage surcharge (since then a requirement for borrowers to meet a deposit criteria).

          In this case Orr is deliberately using the OCR increases to orchestrate a higher dollar value to reduce imported inflation. All that would do is make him look relatively better than his foreign counterparts (if one ignored the societal harm from job loss and mortgagee sales).

          It takes us back to the days of the devaluation of currency value to gain trade competitiveness.

          *** The government should do some windfall profit taxation of banks and use the money to secure loans for productivity investment, new housing supply, business survival and environmental gain.

          • Nic the NZer 2.1.2.2.1
            5 April 2023 at 11:30 pm

            Would be extremely careful what you wish for regarding productivity enhancement policies.

            https://billmitchell.org/blog/?p=60734

            The simplest way to boost NZs domestic economic output would quite clearly be to reduce the unemployment rate as low as possible. Instead we have a policy of maintaining about a 5% unemployment rate, meaning about 5% of available output never gets produced, and the time capacity to produce it is wasted. Since the NZ productivity commission doesn't fundamentally disagree with this policy I would suspect their policy interventions to be equally useless as the Australian productivity commission.

    • Incognito 2.2
      6 April 2023 at 2:12 pm

      Nicola Willis is not confused, and she is politicking; the OCR is RBNZ’s (crude) tool to fight inflation and get it under control. And I thought National loved austerity!?

  3. aj 3
    5 April 2023 at 10:04 pm

    As if polytech staff didn't know the entire sector was undergoing a restructuring which would result in job losses.

    https://www.stuff.co.nz/national/education/131698573/top-lawyer-consulted-after-mega-polytech-boss-made-job-loss-announcement-on-live-radio

  4. joe90 4
    5 April 2023 at 10:35 pm

    Wild times ahead for Russia as Poots loses his grip and regional strong men, oligarchs, and siloviki tool up.

    https://twitter.com/Biz_Ukraine_Mag/status/1642993979699654656

    Stung by a string of defeats in Ukraine, Vladimir Putin has chosen to outsource the war to warlords and their mercenary armies. As these warlords gain power, rival groups are emerging to challenge them.

    Russia’s irregular forces — most notoriously the Wagner Group, which musters around 50,000 men — not only form a key element of Russia’s invasion forces in Ukraine, they are increasingly, and unprecedentedly, engaging in verbal battles with the Russian state. This signals an erosion of the social order in Russia and its ultimate consequences are unclear.

    […]

    Another warlord, Ramzan Kadyrov, the notorious Chechen leader, and self-publicist, has also contributed an “impressive number” of soldiers to the war in Ukraine. His ambitions don’t end there — he said on February 19 that he planned to follow Wagner’s example. “When my service to the state is completed, I seriously plan to compete with our dear brother Yevgeny Prigozhin and create a private military company. I think it will all work out.”

    Ukraine’s Defense Ministry Intelligence Directorate, citing a decree signed by Russian Prime Minister Mikhail Mishustin, reported that the Russian oil giant Gazprom also has plans to launch a mercenary army. While such a move is illegal under Russia’s constitution, that seems to have had little effect on Wagner Group.

    https://cepa.org/article/prigozhin-wagner-accelerate-russia-into-warlordism/