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

A independent tax authority is not undemocratic – it is more democratic

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In an act of striking economic naivete and breathtaking historical revisionism, writer Joe Beagelhole marshals the European debt crisis as evidence that allowing political institutions to use a lack of transparency to rack up debt is sustainable, and that we don’t need an independent body making the full cost of fiscal decisions transparent to the public at large.

Well, at least if the author of this column can insult other people like a pretentious prat – then I figure I’m allowed to be equally pretentious (hell I even used his first sentence as the base of mine – in case it wasn’t obvious 😉 )

Let’s ignore his excessive claim that Greece didn’t have a debt problem prior to the crisis – when it did, and the problem was exacerbated by informational issues (something that is key to the article he is criticising).

To be honest, I’m in love with the idea of an independently set tax rate – something that is closely related to the idea that is being criticised.  And its not because I’m a dictator and want technocrats to rule my life.  The reason I love the idea is that the COST associated with the spending politicians promise is made TRANSPARENT.

By having such an authority, politicians can redistribute and spend – they just have to be elected.  By having an authority that states the costs associated with scheme (through the given tax rate), people in society can vote with full information.  This IMPROVES the democratic process.

Beaglehole shows himself incapable of thinking about transparency and information with regards to politicians, and accuses other people of being undemocratic for daring to give society more information about government spending.  If you ask me, his faith in government officials to just ‘do what is right’ without transparency is more akin to a belief in philosopher kings than anything Mr Worthington stated.

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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Matt Nolan

The day where Panadol was needed

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I realise that oft times my writing style, and the writing on this blog is very “faux academic”.  That suits my purposes as I like having the fully described arguments that come from this sort of writing – however, it can also be boring.

In order to help related economic ideas to the common man, I’ve decided to start up a Friday post – a day in the life of an economist.  In these posts I will go through everyday things, and discuss how economic ideas can crop up while we are living our daily lives.

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