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Housing report: Why interest rates should rise
Bernard Hickey delivers a Housing report on why the Reserve Bank should be putting the Official Cash Rate up now to control inflation in 18 months to 2 years time, including a look at confidence indicators driving the economy. See here for interactive charts on consumer confidence and here for interactive charts on business confidence.
19 Comments
Bernard : Unlike a proctologist
Bernard : Unlike a proctologist , I cannot look up Youtube . Whatever happened to the previous format for your videos ? ( some of us still have the old steam driven computers , gotta light a small fire to warm up the hard-drive ) .
those consumer confidence polls are
those consumer confidence polls are so fickle they shouldnt be relied on for anything. if you increase interest rates you will put presure on households and the economy will collapse again. take your time allan.
Bit late - interest rates
Bit late - interest rates are rising. Maybe you should have your crystal ball serviced.
Bernard's number one goal: send
Bernard's number one goal: send us back into recession!
Consumer confidence rebounding off record lows, so pummel the consumer with higher interest rates! Brilliant strategy Dilber(t/nard)!
John Key's right, Dilber's wrong!
The economy is too fragile for the RBNZ to risk making the inverse of its 2003 mistakes.
The inflation risk is negligible, the fact that the higher exchange rate will encourage deflation of imported prices and reduce exporters' spending is a big enough handbrake on the economy right now.
The market has over priced interest rates beyond 24 months. Question is: will the 1 year fixed rate be over 8% in 12 months time or the 2 year about 9% in 12 months time - probably not - time will tell, Dilber was proved wrong last time, I expect nothing less this time either.
Personally I would rather take my advice from someone who made himself $50m than from someone (Dilber) who tries to make a spectacle of himself.
Well I don't think raising
Well I don't think raising interest rates any time soon would be terribly wise. Having got everyone in hock up to the eyeballs surely it's in "the banks" interests, excuse the pun, to keep interest rates at a level they can afford to pay if at all possible?
Nah - you are wrong
Nah - you are wrong - Bollard is certain to cut again at some point in the next 6 to 9 months - he will simply have to.
@Bank Manager: Why?
@Bank Manager: Why?
Because we will be hit
Because we will be hit by another wave of recession next year Ruru
I think you guys just
I think you guys just like bubbles. Its a bit like peeing on yourself to keep warm.
Chris_J - the inverse of the 2003 mistake is to do what the US did after the tech bubble - create an asset and lending bubble so ruinous it may potentially take a decade to fix.
Great Idea- lets raise interest
Great Idea- lets raise interest rates even more than the international money market is already forcing on the banks.
That will soon put a stop this over enthusiatic consumer confidence that we may actually be pulling out of the nosedive.
That will of course also increase all the business lending costs and pummell the small businesses even more than they are currently suffering, because they haven't suffered quite enough yet !.
And probably cause another round of unemployment
Not to mention the increase to mortgage payments to those that still manage to have a job !
More mortgagee sales
More loss of confidence
That will sure get rid of any inflationary risk !!! we can then maintain this depressionary state for years !
IanC: The RBNZ's 2003 mistake
IanC: The RBNZ's 2003 mistake was to loosen (cut rates) in an already booming and strongly growing economy (house prices were up about 30% in the previous 18 months) - the reason given for this was the risk to the global economy from SARS (which seems absurd in hindsight). Essentially this is the same type of problem as the US keeping interest rates low for too long after the tech bubble burst.
The inverse would be tightening policy when keeping it loose is what is required.
Already the MCI is tighter than normal - hard to believe with an OCR at 2.5% but true. The steepness of the yield curve is just wrong - as it was in mid/late 2008. Time will tell but I think that Bollard if he makes the wrong call tomorrow may be forced to do the only thing he can over the months to come and that is cut the OCR even further. We'll see.
The way I see it,
The way I see it, higher interest rates will save people from themselves. Yeah, look at the impact low interest rates is having on the average Kiwi - they all rush out and take on more debt! STUPID in the extreme. Higher interest rates will discourage this, and encourage saving. And isn't that what should happen going forward if we're to avoid repeating our past mistakes? Simply live within your means people.
@Bank Manager: I'm with you
@Bank Manager: I'm with you on that but if an outfit like Citibank goes it will be sooner. Anecdotal evidence: WINZ was very busy in Christchurch yesterday, queues and queues; properties in Chch that didn't sell last year are being put back on the market with same overpricing; auction popularity is soaring here (don't know about the outcomes); graduates are doing postgrad study rather than go on the dole; renovation is roaring away --I can't entice a sparky to come around for a smallish job. It all adds up to me to: property silliness is back and young people are getting hammered. Blood looks likely to me.
The rise and rise of
The rise and rise of commodity prices will arrive as imported inflation and only a high Kiwi will provide some protection. If Bollard is not lying, he must raise rates to ward off this inflation morphing into home grown stuff. He has no bloody option. Commods rise because the US$ is being murdered by the QE programme. That's the ocr stuffed ok.
The fixed rates get their big boost from demand for credit exceeding supply on the world market. If you can't borrow it, you have to QE the stuff and we know what that leads to. So, shove you head into the beach as deep as you like but the Tsunami of higher rates is going to pick up you with the beach and dump the lot on top of the nearest mountain of debt. Have a nice trip.
My mistake Chris - wasn't
My mistake Chris - wasn't thinking too carefully about it.
Does this mean you think the economy is precarious and a rate rise would kill it? This is kinda inconsistent with your position in other posts ---> that things are much better than people on interest.co.nz believe/expect. Maybe I've misunderstood what you think.
ps - in middle to upper income Auckland, the house market is exhibiting bubble characteristics again.
On interest rates http://www.prudentbear.com/index.php/thebearsl
On interest rates
http://www.prudentbear.com/index.php/thebearslairview?art_id=10302
The first and most important is the return available to saving. If as at present or in the 1970s, deposits and fixed-income investments provide savers with a return that is less than the rate of inflation, then savings rates are bound to decline. People won't save because they are being penalized for doing so. This is why the expansive monetary policies favored by Greenspan, Bernanke and others are so misguided. A capitalist economy cannot survive if its risk-free rate of return is below or close to zero for prolonged periods, because people will have no incentive to defer consumption and so capital will disappear. You only have to look at the unhappy fate suffered by the German Weimar Republic and various Latin American countries in bouts of hyperinflation to see the result of de-capitalizing the economy in this way.
Argentina is no longer a rich country for this reason. Its people are perfectly industrious and 97.2% are literate, its education system is adequate, its natural resources are abundant, its climate is healthy, yet through bouts of hyperinflation, its governments have de-capitalized its economy. Without a recovery in the savings rate, the United States is heading down the Argentine route to perdition.
IanC, you know from my
IanC, you know from my other posts that I think the economy is on the mend and that the housing market has bottomed. But it's all far too fragile to risk raising interest rates anytime soon.
The tightening of monetary conditions that has already occurred at the medium to long end of the yield curve, is more than is justified by current economic conditions, further tightening right now is not necessary - there is so much slack in the economy that the only reason for tightening further would be to try to send us back into recession (BH's goal!).
Unfortunately the chances of Bollard misreading the economy again are high. Remember their predictions in March of the kiwi$ going to US45c and house prices falling 18%? Don't forget Bollard made the keep it low until late 2010 when the dollar was US50c and the 5 year fixed rate was 6.5% - look at how this has changed things for the worse for the broader economy despite an improvement in asset prices and consumer confidence.
It amazes me how the doomsayers (BH) continue to say how bad things are but then go and advocate making them worse by raising interest rates.
To be honest if Bollard doesn't keep his promise tomorrow, I'll be canning a couple of the building projects we were planning to get restarted over the next few months.
Mark my word, if Bollard raises early, he'll end up dropping rates again in 2010.
Well, he didn't raise and
Well, he didn't raise and reiterated 2nd half 2010.
To be honest I consider he (we) are stuck again between a rock and a hard place.... we seem to be reasonably firmly back on a path to growth via imbalances. Without wishing to be too firmly put in the doomsayer category, my humblest of opinions is that each step we take in the direction we're going has to be paid for at some stage.
But having said that I see no other path that he could choose.
IanC, "To be honest I
IanC, "To be honest I consider he (we) are stuck again between a rock and a hard place"¦. we seem to be reasonably firmly back on a path to growth via imbalances. Without wishing to be too firmly put in the doomsayer category, my humblest of opinions is that each step we take in the direction we're going has to be paid for at some stage." - Yes indeed.
You should only be afraid of interest rate increases if you're carrying too much debt! That's a personal decision each person makes - how much debt am I comfortable with? Factor in interest rate increases, loss of job, sickness etc. Not wanting to be a doomsayer, but people need to take responsibility for themselves. All low interest rates do is encourange people to take on more debt. How is that a good thing? Especially when it's primarily for overpriced houses! Who wins in that situation? The Banks and the RE agents. Not the economy or the average Kiwi.
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