Results 1 to 25 of 25

  1. Post
    #1

    Eli5. Low OCR or 0.

    Can someone eli5 why a low OCR is bad and why a 0 is really bad?

  2. Post
    #2
    Communist! His hair proves it!

  3. Post
    #3
    I'm not a trader or anything but I believe at its most basic, if the world wide economy takes a big slump (e.g. international markets crash due to the tariff/currency trade wars between US and China/ Brexit etc) then having a low OCR means theres no wiggle room left for the RBNZ to stimulate the local economy by lowering the OCR.

    Also I believe having a low OCR will mean foreign investors wont want to inject their cash into our economy if they can get better returns elsewhere.

    On the other hand its good for local businesses wanting to spend up on new plant/property etc as finance rates should see a resulting drop.

  4. Post
    #4
    4

  5. Post
    #5
    It means buy yo houses

  6. Post
    #6
    nzbleach wrote:
    It means buy yo houses
    *reduce your mortgage

    Surely it will be just as hard to buy in the markets as banks will be worried about the market crashing?

  7. Post
    #7
    They might just be less lenient on low equity loans. They are always up for taking money off people.

  8. Post
    #8
    I don't believe 0 OCR in itself is bad, but it reflects a bad economic situation. If inflation continues to fall after 0 OCR then you could go into deflation territory.

    Deflation sounds good, prices are falling and your money is worth more. But if it makes sense to delay buying things until tomorrow when it is cheaper. People save there money and the economy slows down. Pay cuts become a thing. And having debt when there is inflation is bad. Paying off the $100 you borrowed is becoming harder.

    When you hit 0 OCR the only option left is quantitative easing. It is a fancy way of saying the government injects more money into the economy. It helps fight inflation and gets money moving again. The downside is asset inflation. House prices go up, shares go up. Basically the rich get richer. Ironically a lot of left-wing, socialist type people think printing money (quantitative easing) is a great way to help the poor.

  9. Post
    #9
    You can actually get negative interest rates. The banks would end up charging savers and paying borrowers.

  10. Post
    #10
    Fragluton wrote:
    They might just be less lenient on low equity loans. They are always up for taking money off people.
    Any chance of banks easing up on low lvr loans?

  11. Post
    #11
    Haisley wrote:
    Any chance of banks easing up on low lvr loans?
    Not likely when the reserve bank is proposing to increase their capital requirements...

  12. Post
    #12
    TD wrote:
    I don't believe 0 OCR in itself is bad, but it reflects a bad economic situation. If inflation continues to fall after 0 OCR then you could go into deflation territory.

    Deflation sounds good, prices are falling and your money is worth more. But if it makes sense to delay buying things until tomorrow when it is cheaper. People save there money and the economy slows down. Pay cuts become a thing. And having debt when there is inflation is bad. Paying off the $100 you borrowed is becoming harder.

    When you hit 0 OCR the only option left is quantitative easing. It is a fancy way of saying the government injects more money into the economy. It helps fight inflation and gets money moving again. The downside is asset inflation. House prices go up, shares go up. Basically the rich get richer. Ironically a lot of left-wing, socialist type people think printing money (quantitative easing) is a great way to help the poor.
    If you inject broad money a.k.a lending then yes you see asset price inflation, as we've seen in the last 10 years, because loans require security/risk management

    If you helicopter cash to everyone then you don't see asset bubbles forming but bubbles in commodities/goods.

    Negative interest rates don't work because you're incentivizing those with money to take it out of the economy and into commodities/gold.
    --

    I'm surprised there aren't more renters losing their shit over this, renting and owning a home are almost perfect substitutes. If one goes up in price, demand increases for the other. What has happened to the money supply over the last 9 years and the affect that's had on renting and what will continue to happen is putting a lot of pressure on those vulnerable.

  13. Post
    #13
    Low interest rates and low inflation isn't bad in itself.

    It's the fact we are continuing to lower interest rates, yet inflation isn't rising.
    Inflation is a key indicator of economic growth, almost always during economic growth/expansionary monetary policy you will have accompanying inflation. When interest rates/OCR are lowered (expansionary monetary policy) it is meant to stimulate growth, and rising inflation is an indicator to us that economic growth is indeed occurring.

    So we are lowering interest rates, inflation is not rising, we can assume that economic growth is slow/declining.
    It basically tells us we are heading for recession.

    Once/if we were able to see economic growth, we will almost always have accompanying inflation, when inflation gets a little too high we can put the brakes on inflation by rising OCR/interest rates (contractionary monetary policy).

    I'd say that's it in a nutshell, there is other indicators of economic growth/decline other than inflation, and there are other variables/factors, but this is the default and/or main indicator (inflation)

  14. Post
    #14
    there's a difference between real inflation, as in what people are paying more for and what CPI reports,

    for example in the CPI basket of goods since 2010 until now:

    recreational goods is down 17.3% with a weighting of 5.6% of total CPI
    miscellaneous goods is down 1.6% with a weighting of 2%
    household contents is down 1.3% with a weighting of 4.77%

    so the 22% increase in rent we have seen since 2010 with a weighting of 7.82%, is not only seriously under reported in both weighting (who the **** only spends 8% of their disposable income on rent) and amount (most people have seen rents go up more than 50% in 9 years.

    TLDR:

    inflation isn't happening because gardening supplies, sports equipment & audio visual equipment are mort important in CPI than rents are and property prices for existing homes aren't even in CPI (just the largest purchase you will ever make in your life)

    this gives the reserve bank the mandate to keep dropping interest rates because "there's no inflation", meanwhile

    house prices have almost doubled since 2010
    median rent is up 50% since 2010.

    this is all fuelled by a money supply that has doubled in the last 9 years. Seriously in 2010 the 'broad' money supply was around 160 billion it's now over 320 billion.. but no inflation?

    it's crooked shit and just so happens that all the countries that use the same CPI methodology have seen massive increases in housing, but strangely low inflation numbers....

    couldn't be that making people pay more for a necessity is the easiest way to make money.

    /rant

  15. Post
    #15
    This video is BRILLIANT at explaining the current economic situation in western countries, banking and money supply.



    And a longer more in depth conversation:


    I highly suggest watching both videos. The first video really blew my mind.

  16. Post
    #16
    That bit about London by itself is going to send me down a rabbit hole i'm sure.

  17. Post
    #17
    Timmi wrote:
    so the 22% increase in rent we have seen since 2010 with a weighting of 7.82%,
    Why does it only have a 7.8 weight?
    Is it because of the level of inequality? Wealthier households proportion of income going to rent being vastly less than average households?

  18. Post
    #18
    BattleCrap wrote:
    Why does it only have a 7.8 weight?
    Is it because of the level of inequality? Wealthier households proportion of income going to rent being vastly less than average households?
    there's is a survey that goes out every 3 years called the HES survey, and they interview around 5000 households what they are spending their money on and that becomes the weighting for each index.

    so for example if you ask each member of a household what they spend on rent:

    over 15 year old dependants don't pay rent in a rental
    adults who pay mortgages don't pay rent and neither do their children

    if you are poor with 4 kids and you meet another family that's poor with 4 kids and you decide to move in together because rent is too expensive, CPI thinks rent has deflated 50% (all things equal)

    Not only that the HES survey now has a mandate to skew greater for Maori families and those in poverty who either don't pay rent (maori land) or have state housing (rent caps).

    so for the survey it ended up the total spending per week per household was $1260 of which $104 (8%) is rent. It's interesting to point out there is a component of the HES survey for Home ownership ($109) but someone decided that wasn't accurate and they use a different calculation for home ownership with under half the weighting. (4.5% instead of 9%)

    mortgage repayments were taken out of CPI in 1999, also things like interest payments on loans.

  19. Post
    #19
    BBQ! wrote:
    This video is BRILLIANT at explaining the current economic situation in western countries, banking and money supply.
    Ugh, I didn't watch the second video but some of the first video is kind of stupid to be honest. Banks don't create money out of thin air, it is caused by fractional reserve banking.



    "Wake up sheeple, banks create money out of nothing" is a good line to get yourself on TV though.

  20. Post
    #20
    TD wrote:
    Ugh, I didn't watch the second video but some of the first video is kind of stupid to be honest. Banks don't create money out of thin air, it is caused by fractional reserve banking.



    "Wake up sheeple, banks create money out of nothing" is a good line to get yourself on TV though.

    they can create as much liability against capital as legally allowed, and their mandate is make profit.

    if you had 100k in the bank in 2010 you had 0.000000625‬% of the money supply.

    that same 100k is now 0.000000316% of the money supply. (down 49%) (m3 broad)

    everyone's percentage of the money supply has decreased so banks can make more money. who decided that banks get to devalue our $$$ so they can make more money?

    to use an analogy, if you had a Picaso painting and went down the market to sell it and there was a banker there who had a replica of your painting claiming it to be the real thing you would lose your shit. He's going to devalue your painting by doubling the supply.

    but when you go down to the market and your money is worth 50%, people don't know what is happening or don't understand how long tail economics work.

    If the money supply had remained relatively unchanged and we had seen a massive increase in property prices then so be it, but when the boom comes from increasing the supply we get to ask the question

    why is it ok that someone else gets to devalue my money so they can make more money?

  21. Post
    #21
    Danish bank launches world first negative interest rate mortgage - could it happen here?

    https://www.nzherald.co.nz/business/...333&ref=clavis

  22. Post
    #22
    Timmi wrote:
    who decided that banks get to devalue our $$$ so they can make more money?
    Reserve Bank of New Zealand.

    The RBNZ doesn't care about bank profit (as long as the banks don't go bust). They reduced interest rates and increased the money supply to avoid an overvalued dollar, recession and deflation.

  23. Post
    #23
    brand wrote:
    Danish bank launches world first negative interest rate mortgage - could it happen here?

    https://www.nzherald.co.nz/business/...333&ref=clavis
    What the actual f**k?!

    So people with money in their accounts will be paying to keep their money there... I don't even.

  24. Post
    #24
    Fragluton wrote:
    What the actual f**k?!

    So people with money in their accounts will be paying to keep their money there... I don't even.
    Yep, Japan had it in 2016 (correct if wrong)

    Negative interest rates is govt/economists screaming at you to go buy shit, if you don't have anything to buy then hookers + blow and let that eventuate into circular flow, the economy is counting on it!

    Sometimes I feel they should just stop at 1 or 2 percent and just let the recession hit a bit more naturally, and we will just ride it out as we have the last 200 years worth of business/economy cycle. But im only basic at economics.

    Edit: https://www.stuff.co.nz/business/wor...-stocks-plunge

    I think the rhetoric is quite fear mongering, we have recessions like clockwork every 12 odd years, its standard, we just have to be mindful of catalysts. It's not actually that big of a deal, and one would hope it's not as bad as 2009 as the negative effects of that was mostly down to catalysts.
    Last edited by BattleCrap; 15th August 2019 at 2:01 pm. Reason: I was incorrect

  25. Post
    #25
    it's not the short type cyclicals that are the problem, it's the long term debt cycle and interest cycle which are both peaking at the moment, which only happens every 70-100 years.

    the consequence of low interest rates is it introduces increased debt fragility and inflation..

    we have a 1.2T property market but we only have 72B of actual narrow money... how can the asset you purchase be worth close to 20x what you use to purchase it with, be sustainable? eventually we will hit equilibrium where banks aren't profitable lending out mortgages, because growth doesn't exceed the amount required for capital risk.