Over the past six months, interest rates in Australia have barely changed. Their Official Cash Rate was 4.5% back then and is now 4.25%. Not so in NZ. Our OCR has swung from 5.5% to 3.75%, plummeting nearly 2 percentage points. How come? Well, just over six months ago, the Reserve Bank of NZ was doing "Shock and Orr". It was desperately trying to "engineer a recession" to quell the run-away inflation that was caused by its run-away printing money program (known as Quantitative Easing). Six months later, NZ languishes as one of the world's worst performing economies, coming in at 181st out of 190 countries (in terms of the IMF's Economic Growth numbers).
So now the RBNZ has a new genius strategy: "engineer a boom". The proof is in the yield curve below. It shows one of the wildest swings of any country I've looked at. Six months ago our short-term rates were way above our long rates - now the situation is reversed. The graph shows how NZ has gone from panic tightening to panic loosening. Yes, the Kiwi economy is characterized by a close to zero sloped trend-line rate of economic growth, but with wild Reserve Bank induced "booms and busts" around that near-zero-productivity-increasing trend - the worst way to run a nation. National's response was to renew the contract of Waikato University Vice Chancellor, Neil Quigley, last year, the well-connected man who has presided over this fiasco as Chairman of the Reserve Bank of NZ. Good one, National.
The New Zealand Yield Curve
Professor Robert MacCulloch holds the Matthew S. Abel Chair of Macroeconomics at Auckland University. He has previously worked at the Reserve Bank, Oxford University, and the London School of Economics. He runs the blog Down to Earth Kiwi from where this article was sourced.
The New Zealand Yield Curve
Professor Robert MacCulloch holds the Matthew S. Abel Chair of Macroeconomics at Auckland University. He has previously worked at the Reserve Bank, Oxford University, and the London School of Economics. He runs the blog Down to Earth Kiwi from where this article was sourced.
1 comment:
How is it that we cannot pick the very best competent leaders in New Zealand ? Is it because the "great and the good" have snaffled that job for themselves so their picks will look after them and bugger the rest of the people of New Zealand, those of all colours, former races, religions, ethnities, genders, ages etc that make up this country of ours ? At present we have: a PM who is out of his depth and incompetent, as well as not fulfilling his pre-election promises; an Opposition Leader who is nothing more than a schoolboy dressed in a suit but is still Mummy's boy; and a Governor of the Central Bank who has proved time and again that he is grossly incompetent but continually over-rates himself, and is more interested in building an empire for himself to rule by hiring a bunch of sycophantic incompetents.
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