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As the world faces the prospect of recession, David Hargreaves sifts through the events of the past two years in an attempt to put things in perspective

Personal Finance / opinion
As the world faces the prospect of recession, David Hargreaves sifts through the events of the past two years in an attempt to put things in perspective
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RIGHT OR WRONG? Discussion will go on about the economic path taken out of Covid. Copyright: sifotography

Did we get it wrong?

It’s the inevitable question that's already been asked and will continue to be asked. Any answers we get should be stored in the memory banks forever. 

I'm talking specifically about the 2020 economic approach to Covid globally; how from March 2020 'we' threw the kitchen sink at the problem with stimulus, stimulus and more stimulus.

You probably have a view on whether it was a good idea or not (emphasis on 'not').

However, any views we have now need balancing against those early days of the emerging pandemic in March/April 2020, when for all any of us knew, we could have been in for a global depression.

I’ve kept thinking back to an interview I watched in April 2020, (perhaps unexpectedly) conducted by comedian/satirist Trevor Noah with Gita Gopinath then chief economist, now first deputy managing director, of the International Monetary Fund. (Interestingly, Noah in one of his questions appears to correctly anticipate EXACTLY the way in which economies in fact bounced straight back from lockdowns - this is a key point I'll come back to).

Paraphrasing the sentiment in the interview, it was very much about every country basically pouring in the stimulus to tackle the health situation, support jobs and businesses and, by inference, worry about anything else later.

Even then, while I appreciated the grave magnitude of the then situation, at the back of my mind there was the little voice saying: “If we are all doing exactly the same thing, walking on the same path, could it turn out to be the garden path and we are all leading ourselves up it?” In other words, could the whole world, by collectively taking an identical approach to the problem end up collectively in a bad place?

The niggly naggly thought. “We’re all doing this. What if ‘this’ is wrong?”

Now as we look at a world over two years later that has seen already big asset bubbles become ridiculously overblown (and now starting to burst?), and as that long-forgotten (for most of us) threat of inflation rampages, and as global recession (it seems to me) becomes inevitable, the easy answer is to say, well, yeah, ‘we’ got it wrong. Plenty of people are already saying that.

But that’s simplistic.

You can never design a ‘counterfactual’ for a massive global event such as Covid. That is to say, none of us can definitively state what would have happened if the world hadn’t taken the ‘hit it with everything’ stimulus approach.

Things could have been worse. We don’t know and we can’t know what would have happened if we had taken a different road. Not without finding a time machine, going back and handling the pandemic economic fallout a different way.

There’s an interesting human reaction that emerges when things go wrong whereby we decide ‘things couldn’t get any worse’ or ‘anything’s got to be better than this’. Really? Says who? I reckon any situation you care to mention can get worse. Without actually, definitively, knowing what the result of a particular course of action might be, nobody can decide what THE very best reaction might have been.

The other point is: Does it matter? Does it matter if the ‘wrong’ decision was made back in 2020? Another ‘great’ human tendency is to want to ‘blame’ someone. Let’s decide something was ‘wrong’ and then pillory those we deem responsible. Pointless, in my view. But where it IS worth working out if something was a mistake is with a view of what would happen if faced with the same or similar situation again.

Very few situations are unique. Indeed a pandemic of this scope is not and was not unique. But we did need to go back just over 100 years to find something directly comparable, the so-called ‘Spanish’ flu. However, what was arguably unique (thus far) about the Covid pandemic was the situation we placed ourselves in with whole economies ground to a halt through ‘lockdowns’ of the people. Were lockdowns the correct initial response?

We may well face future pandemics of this nature and it would be very useful for a broad review of the global approach with lockdowns and whether that should be the response again.

But looking beyond that and with an eye on the subsequent economic developments, was the massive wave of stimulus the right way to go? Again, in the interests of how we might react ‘next time’ detailed reviews (and I’m not sure who by – but it should be at a high and hopefully independent level) should be conducted. No, not to ‘blame’, but to give ourselves a very good idea of what the best course of action would be next time.

The ‘right or wrong’ question, however, should be, needs to be, assessed in the light of the information known at the time. No hindsight.

Based on everything that was known in March/April 2020 I actually think the ‘bring on the stimulus’ approach was ‘right’. But just because a decision is correct in principle, doesn’t mean it will necessarily work out for the best. The decision is one thing. Implementation is another. And it is the latter point that's probably crucial here.

I think where things went wrong in 2020 was that the powers that be didn’t have a clue how quickly economies would be able to bounce back from being shut down. I remember in New Zealand at the time that Finance Minister Grant Robertson likened our economy to an oven that would take a while to heat up again. Faced with the remarkable way in which the economy in fact relaunched at speed from a standing start, Kiwibank chief economist Jarrod Kerr aptly remarked that the ‘oven’ had turned out to be a microwave.

So, that was a key thing to observe and learn from this experience. If you lock people up one week and then let them back to work the next, the economy can bounce back from that much faster than anybody imagined.

Why didn’t anybody imagine that? Well, interesting point. Trevor Noah, for one, appeared to well-imagine it. In accessing how quickly economies restarted, people in the decision seats seemed to base their expectations on what happens after a recession, which of course we hadn’t had, not a 'real' one. Businesses shut their doors. The businesses and their employees got (debt) funded Government handouts and then they all got back to work. People had some money (not least because they hadn’t been anywhere) and they spent it. Off and running was the economy.

So, here came the real problem. The lack of monitoring of that and what was happening; the ability to recognise in a timely fashion that things were nowhere near as dire as imagined in the economy. If you want mistakes, if you want ‘wrong’, it was the lack of quick recognition about how well economies were rebounding.

Here in New Zealand I did become concerned as time was going on that our Reserve Bank didn't appear to really have its finger on the pulse. I have long thought a problem, particularly with economists, is they don't in the figurative sense seem to stand on a street corner, wet their fingers and point them in the air to see which way the breeze is blowing. Too much economic theory. Not enough considering what humans do. Let's face it, humans do odd things. There's a lot to be learned just from wondering around among the public with eyes wide open. 

By June 2020 I was astonished at the way our economy was bouncing back - and I based that feeling simply on wondering around and seeing what people were doing. They were out. They were spending - almost defiantly.

It seems to me though that our RBNZ and indeed other central banks around the world couldn't actually believe that the emergency rescue act that governments and central banks had launched in March/April 2020 had worked quite as well as it did. They didn't trust what they appeared to see.

As late as November 2020, in its Monetary Policy Statement, the RBNZ was launching the Funding for Lending programme with cheap money for banks, said it would be pushing on with $100 billion of government bond purchases, and was getting ready for negative interest rates. Yes, negative interest rates, a little over a year and a half ago. 

On the one hand the MPS observed that economic activity, both international and domestic, had "proved more resilient than earlier assumed". But on the other "we expect an ongoing increase in unemployment as the economy adjusts. Consumer price inflation is also projected to remain at the lower-end of the remit target range for a period, and inflation expectations remain subdued".

I have to say, it seemed then that the RBNZ was not trusting what it could see (but was perhaps not close enough to) and was, without really taking the temperature of the population, simply following conventional economic theory about what it thought should be happening. 

It was only about two months later that independent economic researchers Capital Economics were stating that: "With the housing market overheating and surveys pointing to rising price pressures, we think the RBNZ could become the first advanced economy central bank to hike interest rates".

I wrote my first 'inflation is coming' opinion article in early February 2021. And yet the next RBNZ MPS later in February 2021 stated: "The [RBNZ Monetary Policy] Committee agreed that it remains prepared to provide additional monetary stimulus if necessary and noted that the operational work to enable the OCR to be taken negative if required is now completed."

Yes, STILL talking about negative interest rates when other people were talking about the need to raise them.

Then there was the May 2021 MPS document that was just plain weird. The policy assessment at the front of the document was pretty much 'move on nothing to see here', with comments to the effect that the price pressure that were now being seen were "likely to be temporary" and abate over the year.

And the final comment was: "The Committee agreed to maintain its current stimulatory monetary settings until it is confident that consumer price inflation will be sustained near the 2% per annum target midpoint, and that employment is at its maximum sustainable level. Meeting these requirements will necessitate considerable time and patience."

That was the front of the document. The BACK of the document (page 42) showed the RBNZ forecasting the OCR to be raised from the middle of 2022. It was like different people had done the front and back bits of the document. This shocked the markets and kicked off wholesale interest rate (upward) movements that haven't really stopped since.

The upshot of all this, I think, is that as we look back - and we should - about how the pandemic was handled from an economic perspective, and I mean globally, perhaps the key thing we need to focus on is not whether any particular course of action taken in the heat of early 2020 was 'right' or 'wrong', but just how well or otherwise the consequences of the action taken were monitored and reacted to. It wasn't the decisions that were made; it was how the consequences of those decisions were handled.

Governments and central banks actually handled the economic fallout of the pandemic far better than they gave themselves credit for I think. And the problem that we now face in spades is that the powers that be were disinclined to believe how well the measures had worked - and missed the oncoming inflation train.

As we now grapple with a world of global problems, there's plenty of lessons to be learned from this recent history. It's just to be hoped they are learned because, since the beginning of time, learning from history has been something we don't do well. If at all.

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83 Comments

Of course we got it wrong.  When I suggested we should ignore Covid altogether two years ago, everyone, petrified with fear, told me I was mad.  Now two years later, Covid is still here and we are accepting to live with it (with the help of never-ending vaccines).  

Make no mistake, Covid didn't precipitate the monetary stimulus, our response to Covid, specifically lockdowns and bordure closure did.

Now, we all have to pay the price for our over-reaction to Covid

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There is a huge difference between covid-19 which we are vaccinated against and omicron variants which we are living with. Just look to the European example and look at the  hospitalization stats.

I rather enjoyed our few years without tourists, students and the constant stream of migrants. We have caught up with our housing supply and with a bit of luck the housing crash will cure a generation from speculation.

If a few zombie businesses went belly up then its cleared out some deadwood.

 

 

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20 odd people dying every day even with vaccines that decrease death by 90% and with Omicron that is much less deadly. Could easily have been 200+ a day if Yvil had his way. 

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There are about 100 people dying every day in NZ but yes it could have been worse… or not.

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20 people dying for any reason that have had covid in the last 28 days.

Lucky if covid has been the sole cause for 50 of the deaths, probably less that a normal flu season.

Omicron is just a cold for almost everybody

 

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You are correct Kwbrn some of my friends in uk were quite sick with first variant, the part about housing crash won’t need any luck as its happening quicker every day just some people on here get upset when anyone mentions a housing crash

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Wrong - Omicron is roughly the same severity as the Alpha strain. It is milder than Delta.

The joke is, we used to have blanket media eulogies for any single person who died of Covid. Now we get more than a dozen a day and shrug our shoulders. Thus proving that half of the phenomenon was just a concoction of what the govt and media wanted us to believe.  Now they've pivoted, the narrative has pivoted. What a waste of 2 years, tens of billions of dollars, and priceless social cohesion. What was the point if we got to the same place anyway?

From your comments about "enjoying" the Covid era, i assume you're not an Aucklander..

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The joke is, we used to have blanket media eulogies for any single person who died of Covid. Now we get more than a dozen a day and shrug our shoulders.

The death of one man is a tragedy. The death of millions is a statistic." – Josef Stalin

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We didn't get to the same point, if they had let Alpha or Delta run away like they now have omicron, it would have been a lot worse since none or very few of the population were vaccinated.

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Ugh,

Would you acknowledge that it could have been a more severe virus than it actually turned out to be? That next time we might face something that really does emulate the apocalypse movies some of us were imagining in our heads? 

Its far too subtle to say that we got 'it' wrong. Plenty of elements we missed the mark with, and for many things we will never get to really determine how successful we were.

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Yes I acknowledge that the virus could have been more severe than it turned out to be.

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Oh come on, we had plenty of evidence of its mildness early on - most of us just weren't shown it, you had to go looking. The powers that be screwed up so badly, no one is ever going to believe them again. If we get a worse virus next time, compliance with all public health measures will be non existent. That's the tragedy. They're like the boy who cried wolf.

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The countries that took a just live with it approach are dealing with the exact same asset bubbles, the same rates of inflation, the same massive debts. Only difference as far as I can tell is the higher death toll.

What about their approaches seems better to you?

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Yep, we are importing their inflation. 

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You make a very good point, only your statement is not true.  Sweden took the "living with it approach" they have no more deaths per capita, certainly much lower than the UK and their current inflation rate is 4.1% so lower than most other countries.  

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No more deaths per capita than who? NZ? Not even remotely close.

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Deaths per 100k;

Sweden 189

NZ 28

Oz 37

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Don't confuse people with actual facts. Yvil wants to believe in fairy tale facts.

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We were COVID free for a long time. Now we are catching up. Maybe 4,000 in NZ won’t be around by Christmas, having died with COVID. 

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I can extrapolate countries too if you like:

Bulgaria 531

Hungary 473

Poland 306

USA 300

Italy 273 

you see the point, Sweden is not in theta 50 countries with most Covid deaths per capita

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Lies, damned lies, and statistics.

You're looking at 1 single metric in isolation of everything else and then trying to draw conclusions from that single metric. Sorry but the world is more complicated than that.

Sweden in particular has a much higher than average rate of people living by themselves. Much harder to spread a disease in a society where more people live alone, vs say a city like Auckland which has many large multi-generational families living today - and we saw how COVID ripped through there once it got out in August-September last year.

Unless you take into account the particular factors at play in each country, such analysis as you have done here is not really worth drawing any conclusions from.

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If single households was a worthy factoid the US would have come out first in the covid olympics. Sweden kept their schools open and didn't screw over their kids education/development - for a virus with a median age of death higher than average life expectancy. Well played Sweden not giving in to the single issue public health prima donnas - and taking five minutes to look at the Diamond Princess data

Buyers remorse is a strong emotional response for the broke lockdown fanboys.

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Good post Profile. The big picture many miss is the opportunity costs for chosen path NZ took… we’re only just starting to see some of these and they will run for years (if not decades).

To what extent does the rise of crime, high inflation and destitute primary health relate!

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Indeed, that's also what I meant when I wrote "now we all have to pay the price for our over reaction yo Covid" (in addition to high inflation, higher & higher interest rates and a looming, derp recession)

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Holy moly. Pretty much the whole interest/inflation rate increases is to do with the volatile and high price of oil.  Which we have close enough to zero control over. Blaming that somehow on NZ government health response policy is almost completely ridiculous.

Sure they screwed up some economic responses (RBNZ mostly), but the health response was a clear winner.  Not admitting this in the face of all the evidence posted shows you either are incapable of critical analysis or hopelessly enamoured with the political alternatives.

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Must protect boomers at all costs! Seems to happen on lots of levels

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Is that died with covid or because of covid hard to tell the truth, we did manage to push vaccine I guess we will find out how effective it was over time and if taking two shots and boosters have any knock on effect with health issues.

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Cool story. Your original post is how WE got it wrong, not how other countries were worse than Sweden.

Maybe try sticking to a point instead of shifting goalposts?

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Worldometers has Swedens deaths/1m pop at 1,863 and ours at 270.

TBH I was lumping the UK in with the USA as living with it countries given how half assed their response was.

I agree with your point that Swedens inflation rate is lower but it doesn't seem like a significant difference - a couple of percent which to me doesn't seem worth the thousands of extra deaths assuming a straight death/inflation relationship.

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Sweden did about $50billion stimulus in response to Covid19, and they brought in restrictions similar to ours for the 2nd wave (Omicron) - their inflation rate is above 6%.   https://www.mfat.govt.nz/en/trade/mfat-market-reports/market-reports-eu…

But yes, their excess mortality rate 2020-2022 has been one of the lowest in Europe.  https://www.oecd.org/coronavirus/en/data-insights/excess-mortality-sinc…

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Still trying to suggest it and still getting shot down. That was never a plan that a majority would have been happy to get in board with. Most of us liked our parents or grandparents and wanted them to stick around.

If I remember rightly, once we did get some control, the older people were the ones who got out and toured the country, spending on things. 

 

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Wow, you are going to try and claim you were right?  When the comparisons were done using excess mortality figures, our ability to suppress the initial waves of covid is estimated to have saved 36k lives.  Getting hit by far deadlier variants, with no vaccination available, is not the same as what we have now - and make no mistake, even with omnicon being less deadly and having high vaccination rates our health system is barely holding together.

Trying to equate the mess that was the monetary response, with our health response, is pretty disingenuous.  Countries that had worse health outcomes are suffering the same inflation and economic headwinds we are.  Ignoring the first waves of covid wouldn't have saved us from the economic mess we are in right now, and I suspect you know that.

 

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I'm not trying to claim I was right, I'm trying to claim we were wrong to overreact to the Covid virus

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It was obvious reasonably early on in the pandemic that COVID-19 was a relatively mild disease for most people, even with Delta. Once the vaccines came along, the obvious approach would have been to use them as a tool in our toolbox to protect the most vulnerable, take reasonable measures to protect everyone else, accept that there's unfortunately always going to be some who don't make it through a global pandemic, and get on with it.

The only way we've been able to convince everyone that continued lockdowns and massive artificial stimulus were a good idea, is through misinformation designed to make people afraid. Taking statistics of those who died with COVID-19 and presenting them as if they died from it is just one example, and something which we still insist on doing. Bloomfield stood up at one of the later press conferences to let us all know, with appropriate dramatic pause, that "Long. Covid. Is. Real", and that 30% of cases were going to suffer from it according to a new study. No mention of the dozens of other studies which had already been done to show that this percentage was much lower - in the single digits - and that the study he referred to was likely a statistical outlier and an anomaly. It served the purpose of making people scared, and so it was put to use.

False assumptions based on insane modelling (thanks, Shaun Hendy), the list goes on. We need to look very hard at every aspect of our response to this pandemic as we suffer through the painful recession we're inevitably about to face, and ask ourselves why we made the decisions we did. Our children and grandchildren are going to want to know the answers.

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Man with no knowledge of subject makes fool of himself on the internet. Just another Wednesday.

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Was this all deliberate, I guess that's the question...

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Good article David and well done for seeing inflation coming in February 2021

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Our economic response to Covid should have been to fasttrack the reforms necessary  ... such as boosting the infrastructure spend , moving the PAYE tax bands , reintroducing charter schools , opening up the healthcare sector to greater choice & competition  , decreasing our reliance on Fonterra & on Fletchers  ...

... so many things that Robbo could've thrown the $ billions at , to improve our lives & productivity  ...

But ... he did none of that ...

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Yes exactly, the question of the article is wrong because it seems to assume that everything we were doing up to that point was right, and only after Covid came along, our economic methodology was up for debate.

The reality is, if we had already sorted out those issues you mention, especially around hospitals and healthy homes, then we would have been far better prepared for any illness, of any type.

But then not taking the opportunity to get our hospitals up to speed is criminal, and we are seeing the consequences of that every day, and surprise surprise no PM at 1 pm to read the stats.

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But then not taking the opportunity to get our hospitals up to speed is criminal

I agree that National's decade of under-investment in our hospitals was criminal, leaving us in not a great shape to deal with COVID.

https://mobile.twitter.com/AndrewLittleMP/status/1538422161815531520/ph…

especially around healthy homes

Yip, just like how after the earthquakes Gerry Brownlee blocked the proposal that all new built houses in Christchurch comply with Homestar 6 ratings or higher.

Don't vote National.

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107 days locked down in Auckland. THREE years after the most incompetent PM took power. Couldn’t arrange vaccinations or upgrade ICU. Don’t vote Labour, ever. 

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Lockdown is the only tool we had to deal with the situation at the time, so we used it. Very effectively.

Other countries also used it, although less effectively than we did - we reached practical elimination of delta in Auckland, prior to omicron arriving.

Meanwhile National wanted us to open up to other countries repeatedly, and wanted us to spend billions on a purpose-built isolation facility as late as October 2021 - which they would likely be starting to turn the first sod on right now, had they actually been in power and gone through with their plan (which they wouldn't, they were simply opposing the government for oppositions sake, not actually proposing genuinely useful policies).

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We are a small island population, sparsely populated and fill of community focused families and we are taught from school on how to react to Natural disasters.

Of course our social response went smoothly. If you can't do smooth lock downs in nz you can't do them. 

It would be a pity to attribute the better quality's of our robust society as some kind of government mastery...

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If Andrew believed the health system investment was "criminal" why did he continue to flood the country with immigrants? Was bringing in a couple of immigrants per baby born criminal - given what he thought of the state of the health system? 

Who do we vote for? Net zero virtue signalling ecotards and/or Bill of Rights abusers? I'm open to options.

https://www.stats.govt.nz/information-releases/international-migration-…

 

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National is incompetent because of what they don't do, and Labour is incompetent because of what they do.

 

 

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That is a splendid assessment! I wish more of the voting population would look for alternatives....... we would probably end up with an equally shambolic National Labour alliance if other parties started taking larger shares of the votes.

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Funnily enough, the best thing the parties have done is their cross-party accord on zoning, addressing councils' intransigent idiocy. Might suggest we need more smaller parties to grow larger so they have to cooperate like adults.

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Yes, it's that simple. Which is why the major parties need to only get given power together with another party to keep them focused/honest to their promises. 

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Warning, these links below are grim / depressing reading, but I think everyone here should read them.

In particular Figure 7 in this first link, showing world population growth vs standard of living growth over the last 120 years is scary.

A taste from the start of the conclusion of the first link below, in the hopes this may pique the interest of other readers to actually click through and read the whole thing:

[8] The problems we are encountering have been hidden for many years by an outdated understanding of how the economy operates.

Because of the physics of the economy, it behaves very differently than most people assume. People almost invariably assume that all aspects of the economy can “stay together” regardless of whether there are shortages of energy or of other products. People also assume that shortages will be immediately become obvious through high prices, without realizing the huge role interest rates and debt levels play. People further assume that these spiking prices will somehow bring about greater supply, and the whole system will go on as before. Furthermore, they expect that whatever resources are in the ground, which we have the technical capability to extract, can be extracted.

It is important to note that prices are not necessarily a good indicator of shortages. Just as a fever can have many causes, high prices can have many causes.

The economy can only continue as long as all of its important parts continue. We cannot assume that reported reserves of anything can really be extracted, even if the reserves have been audited by a reliable auditor. What actually can be extracted depends on prices staying high enough to generate funds for additional investment as required. The amount that can be extracted also depends on the continuation of international supply lines providing goods such as steel pipe. The continued existence of governments that can keep order in the areas where extraction is to take place is important, as well.

https://ourfiniteworld.com/2022/05/17/is-the-debt-bubble-supporting-the…

[9] Conclusion: We are likely entering a period of conflict and confusion because of the way the world’s self-organizing economy behaves when there is an inadequate supply of crude oil.

The issue of how important crude oil is to the world economy has been left out of most textbooks for years. Instead, we were taught creative myths covering several topics:

  • Huge amounts of fossil fuels will be available in the future
  • Climate change is our worst problem
  • Wind and solar will save us
  • A fast transition to an all-electric economy is possible
  • Electric cars are the future
  • The economy will grow forever

Now we are running into a serious shortfall of crude oil. We can expect a new set of problems, including far more conflict. Wars are likely. Debt defaults are likely. Political parties will take increasingly divergent positions on how to work around current problems. News media will increasingly tell the narrative that their owners and advertisers want told, with little regard for the real situation.

https://ourfiniteworld.com/2022/04/21/the-world-has-a-major-crude-oil-p…

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The other point is: Does it matter? Does it matter if the ‘wrong’ decision was made back in 2020? Another ‘great’ human tendency is to want to ‘blame’ someone. Let’s decide something was ‘wrong’ and then pillory those we deem responsible. Pointless, in my view.

You make accountability sound like a bad thing.   It is not.

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Accountability is fine, but you need context as well. A lot of the blaming of govt and RB et all seems to miss that. 

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Accountability and blame laying, is not he same thing

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Removing LVRs and making money free had to create house price and other inflation. House price inflation creates other inflation. Rates rents etc are hanging of house prices, and accommodation is the single biggest expense. Most tertiary educated NZers could have told you that 50 years ago... why did the RBNz not know this at the start of 2020.

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It depends on the choice of least preferred type event - deflation or stagflation.  

Pandemics and their response cause supply side stress.  Shutting down industry for a week means a reduction in supply.  Locking down countries, regions, ports means delay in supply.  These things happened irrespective of demand.  

By keeping demand high the central banks chose stagflation.  

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Good post!

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The only plus side of the whole money printing debacle in NZ (and globally) is that I no longer see non-sensical arguments for MMT system and how it does not cause inflation. 

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True that. The MMT media/Greens claims rate was the inverse of the house price increase rate. 

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It matters very much because a lot of bureaucrats and politicians would like to do it all again. E.g Some of the covid play book was used for monkey-pox.

I think overseas factors from their lock downs have far more impact on our current figures than ours. Sure we could have kept rates higher but that would have been out of sync with other central banks.

The one area that has yet to play out is how the less well of in Auckland fared during lock downs. We had news of 40% of secondary school students not attending school consistently and there is the gang turf wars. We will know more next year but I really don't think we know enough to say the lock-down in Auckland were worth it (the last one in particular). (Definitely it was not with 20/20 hindsight with Omicron CFR and breakthroughs)

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Not to mention suicides, mental health in general, business closures, and the domino effects of all of the above.  We will reap the consequences for a decade.

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Maybe I am reading between the lines to much but all of the above seems much worse in south Auckland. Our media keep reporting big problems centered there and drop the story after a day. I get the sense there is more to these stories, I think the Media partially responsible for the outcomes of lock downs and the vax. Another story from today.

If we don't get the kids and adolescents back to school in similar number to before now its going to be a generation long problem. We wont have the resources to catch them up years of schooling.

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"Sure we could have kept rates higher but that would have been out of sync with other central banks."

Seems to imply that we should just abolish RBNZ and "peg"  our OCR to a trade-weighted average of central bank rates of our trading partners ? 

A few  years ago I would have thought is madness ..  not so sure any more. 

 

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I'm not sure what you mean. We need a central bank because a balance sheet is required to implement many monetary tools. You can't have an OCR without an account at the CB.

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I should have expressed myself more carefully . 

"Should we take the OCR setting powers from RBNZ and instead set the OCR using a published formula based on - say -  a weighted average of interest rates set by central banks of our trading partners ? "

I am not claiming it would be a great idea - but anyone saying  that RBNZ had to lower the rates because of lower rates overseas is effectively arguing for that  . 

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No we lower our rates so our dollar does not get out of sync with overseas currencies. Plus as you have seen bank wholesale and swap rates lead and the OCR follows.

We did not have to go as far as we did but if you left to government they would have matched overseas anyway.

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I'm not sure that it's as complicated as you make it seem, David.

Central Banks had spent a decade+ trying to 'stimulate' inflation, and it hadn't (and couldn't) work.

Then, along comes Swine 'Flu Mark 2.

What an opportunity to make the most of an unexpected event - and the last chance to ram Debt into the economic arteries of the World - and trigger the Inflation that had failed to arrive.

Regardless, all that matters,as you suggest, is "what happens from here?".

We actually know. What followed the Spanish 'Flue of 1918? The Roaring 20's (teens in our case) and the '29 Crash and subsequent Depression (our, about now?).

Debt that can't be repaid, won't be repaid, and once that become evident all asset prices will tumble - as they have before and are just about to again.

With any luck, Ukraine won't morph into Poland '39, but we'll just have to wait and see on that one as well.

 

 

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To be fair the central banks did create inflation in equity markets and homes. 

I'm pretty sure negative interest rates were being discussed long before covid, because the stimulus taps were already tapped wide open and just keeping the real economy afloat. More stimulus and asset prices to infinity is just more water in an already sinking ship.

One could suggest that there is no more productive investment, hence the move to NFT's and the virtual world. It's all tapped out at peak everything.

Maybe all that's left is a shifting of industry and recognition that for the majority, we have everything we need and there's enough for everyone. Maybe this is true progress and evolution?

Of course the economic, finance and business model may have to be completely rethought. And therein lies the problem. Just as we don't seem to learn from history, nor do we appear capable of admitting we might've got it wrong. 

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"But we did need to go back just over 100 years to find something directly comparable, the so-called ‘Spanish’ flu..."

C-19 is not comparable with Spanish Flu. 

Spanish Flu had an infection fatality rate of about 5-10% (depending on number of asymptomatic infections) and killed 50-100 million people at a time when there were only 1.8 billion people in the world (at least 2.7% of the global population). And it killed mainly the young.
https://en.wikipedia.org/wiki/Spanish_flu

SARS‑CoV‑2 (the earlier, more deadly strains, before vaccines) had an IFR of about 0.3% and killed mostly the elderly.
https://pubmed.ncbi.nlm.nih.gov/35219376/

Subsequent strains have become progressively less deadly.

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Thank you. You beat me to it.

COVID-19 when benchmarked against other respiratory pathogens is pretty low key. We should be reviewing our response and thinking how we will manage when a new SARS or influenza strain (H5N1), avian/porcine reassembly hits. It will, and probably in the  lifetime of many of the readers here.

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It's amusing that you mention SARS and fail to realise:

  1. COVID-19 is caused by the SARS-CoV-2 virus, in the same family as SARS and MERs
  2. SARS-CoV-2 has proven itself to be very able to mutate, especially when amongst a global population, hence the new variants that emerged
  3. We were lucky that delta was the worst. So far. Worse may yet arise.
  4. COVID-19 has only gone the way it did because of unprecedented vaccines developed in record time.

So yeah, your analysis is not worth anything.

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Why lockdowns suck and have never been a part of pandemic response - until Xi came along and our brain dead leaders played copycat..

"...The way medical scientists talk about evolution is sometimes alarmingly naive, as if random mutation is what drives it. No, no, a thousand times no: it’s selection. For example, I took a train this week, putting me at risk of catching Covid from a fellow passenger. But if two other people had been planning to travel on the same train, one with mild omicron and the other with severe delta, the latter would have been more likely to change their mind and stay home because of feeling unwell. That’s selection. The fiercest enemy of a virus is another virus. Omicron ousted delta at least partly because people with mild symptoms were more likely to go to work or parties (or not notice they were ill) than people with severe ones.

...Yet here surely there is a worrying lesson about the past two years. In the weird world of lockdown, severe strains of Covid were favoured by selection. If you tested positive but felt fine you were told to stay at home. If you fell badly sick you went to hospital, where you gave your illness to healthcare workers and other patients. So mutants that were more infectious, such as alpha and delta, paid no penalty for being just as virulent, maybe more so. The natural evolution of Covid into just another mild cold was therefore possibly delayed by at least a year."

https://www.mattridley.co.uk/10788

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The initial response I actually have no issue with. No one knew if a vaccine would be developed and approved in 2020 and in early 2021 many governments where caught sitting on their hands when vaccines became available. There where a lot of unknowns in play.

Then we get to the second half of 2021 however and "Transitory inflation" presents a more substantial problem because Reserve Banks willfully ignored their own inflation mandates. When you realise the Federal Reserve had a 7[%] handle on inflation but was still running quantitative easing and hadn't raised rates you realise something went badly wrong. The fact that almost uniformly Reserve Banks made this error shows how rudderless those institutions had become and how much they where all just following one another. That is worrying for institutions that are suppose to ostensibly be acting independently.

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Yes it annoys me that central banks took all sorts of emergency actions at the sniff of deflation...not recorded deflation.....

And yet you have persistent recorded inflation well above mandated levels and nothing....don't worry about it. 

Obviously they are terrified of deflation because within weeks it would destroy the debt ponzi (there would have been debt defaults and asset price destruction by May/June of 2020 without that intervention we witnessed)....at least with stagflation it will take months or years of financial repression to eliminate the debt back to more sustainable levels...

I'm a pull the band-aid off quickly kind of guy, whereas central bankers appear to be lets rip this band-aid off the hairy leg as slowly and as painfully as possibly type of character. 

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No learning loss in Sweden during the pandemic evidence from primary school reading assessments

Sweden kept primary schools open, but it is unknown whether student and teacher absence and pandemic-related stress factors affected teaching and student progress negatively.

In this study, reading assessment data from 97,073 Swedish primary school students (grades 1-3) were analysed to investigate potential learning loss. Results showed that word decoding and reading comprehension scores were not lower during the pandemic compared to before the pandemic, that students from low socio-economic backgrounds were not especially affected, and that the proportion of students with weak decoding skills did not increase during the pandemic. Study limitations are discussed. We conclude that open schools benefitted Swedish primary school students.

https://www.sciencedirect.com/science/article/pii/S0883035522000891#fig…

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Covid-19 still exists, it is still a virus, it can mutate again, in more dangerous forms.

"Next-time" might be next year.

Are we expecting lockdowns and $$$ to save zombies and to pump assets again?

If not that, what?

Is there anybody with a plan anywhere?

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Bollocks - it won't mutate in more dangerous forms - else it will do itself out of a host.

https://www.mattridley.co.uk/10788

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The RBNZ do not design policy in a vacuum...always one eye is on the reserve currency, so although they may have been concerned the narrative from the FED was 'transitory'..and you dont fight the FED...as Muldoon found out....well , you dont fight the FED, until eveyone else does, and that day may be coming.

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Its a great article. Its fair we all watched covid with horror and the reaction of the reserve banks with relief.

However - as per the conclusion of the article. To massively boost monetery supply and drop interest rates and then sit back and watch asset prices explode over a long period (when we already had too large a bubble) and the economy boom.. and not then to try to stop it .. was an irresponsible handling of our economy.

If the issue was exchange rates then we should have taken other actions. But not just let it happen.

 

 

 

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The failing(s) of the RB at the 9 month point (Christmas 2020) was already noticeable. We purchased in October 2020 & even we could see what was going on. At 12 months (March 2021) it was problematic. The RB data reading was slow & their decision making even slower. At 12 months we were in trouble but nobody wanted to call it. Nobody of any note that is. My questions are thus: How political has the RB become? Is it currently fit for purpose? My suggested answers are too much & no.

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There seems to be no distinction in the article between monetary and fiscal stimulus.  That distinction is is important.
KeithW

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There is actually another good comparison, the Asian flu in the 50's. then they also quickly developed a vaccine but otherwise it was business as usual. not a big deal in the end, probably why it's been forgotten.

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Perhaps it would be helpful if central banks could stop raising interest rates, when recession is already beginning. After years of money printing and stimulus and COVID relief, the oncoming inflation cannot be stopped. It is now a question of soft landing vs. hard crash, with interest rate hikes triggering the latter.

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RBNZ gov and minister of finance should have eaten some humble pie way back at the end of 2020 when IT WAS CLEAR they had overstimulated but oh no they refused to admit they may have made any error in judgement.

Now everyone pays for their 'reckless knee jerk driving of the economy". 

Ray Dalio expresses the error of Central Banks well

"Central banks should use their powers to drive the markets and economy like a good driver drives a car—with gentle applications of the gas and brakes to produce steadiness rather than by hitting the gas hard and then hitting the brakes hard, leading to lurches forward and backward."

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The question is not so much what went wrong in the past, but what is going wrong now: our central bank is raising interest rates aggressively, when the property market is already falling. This could mean economic collapse.

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