Talking down interest rates
May 24th, 2008 at 9:13 am by David FarrarBoth Clark and Cullen appear desperate to talk down interest rates, and are telling all the professional currency traders that they all have got it wrong, and that there is no risk of a delay in interest rates coming down.
The amount of political pressure on Alan Bollard will be immense in the next few months and it will be a test of his independence whether he ignores the clear wishes of the PM to cut rates before the election, even if it means he breaks his legally binding target of inflation under 3%.
A few journalists are saying it is only tax cuts that could keep interest rates high, and this is silly. It is the combination of both tax cuts and extra spending. If you replace a billion of spending with a billion of tax cuts, then in fact it will be reduce inflationary pressures as a proportion of tax cuts are saved not spent.
Martin Kay in the Dom Post reports on Cullen:
Finance Minister Michael Cullen has accused money markets of over-reacting to his tax-cut programme after a blip in the interest rate at which banks borrow for mortgages.
The two-year wholesale rate jumped from 7.7 per cent to 8 per cent after Dr Cullen announced his $10.6 billion, three-stage cuts on Thursday.
Well I know who I trust to be right!
Tags: Helen Clark, inflation, Interest Rates, Michael Cullen
May 24th, 2008 at 9:18 am
John Key wants bigger tax cuts ( sooner next year) and maintain spending( slippery on the details).
iT IS THE POLICY THAT HAS THE EXTRA BORROWING THAT WILL RAISE INTEREST RATES
[DPF: He has not committed to the same spending track, and in fact already has said no to $2 billion of Labour's spending]
Vote:May 24th, 2008 at 9:36 am
Ghost
“iT IS THE POLICY THAT HAS THE EXTRA BORROWING THAT WILL RAISE INTEREST RATES”
Yet when Cullen introduces tax cuts and increases spending is it not inflationary!, you really are a fucking idiot Ghost, thankfully the public are not listening to you or Labour any longer.
Vote:May 24th, 2008 at 9:41 am
Leftist spending is not inflationary, it is necessary.
Vote:Get with the program, big bruv.
May 24th, 2008 at 9:47 am
Agreed then: Only certain kinds of spending is inflationary. For example, buying a rail system costs about 655 million, but before the money has even been handed over, it’s inflated to 1.4 BILLION. Nice going Cullen.
Vote:May 24th, 2008 at 10:07 am
Thats a lie ZT. The cost has not inflated to $1.4 bill. The treasury ( who cant even get the figures right for the economy for the next 6 months) have waded into something they know nothing about- running a business( railways)
Vote:May 24th, 2008 at 10:17 am
Ghost
“The treasury ( who cant even get the figures right for the economy for the next 6 months) have waded into something they know nothing about- running a business( railways)”
And what the fuck makes you think that this corrupt government can do any better?
Vote:May 24th, 2008 at 10:22 am
Oh, so it’s just a little matter of disclosure then GWW? I bet we’ll be getting a lot more disclosure at the wrong end of the deal. Also interesting that you head off the Treasury comment. I’d call that a bit of a lie. They *should* have been involved in the negotiations to purchase the rail, and they were not. Labour’s negotiating ability on this deal was shameful.
Vote:May 24th, 2008 at 10:27 am
Treasury has a better understanding of economics than you do GWW.
Or are you saying all public servants are corrupt or incomptent or not politically neutral?
Maybe we should just do away with the entire public sector.
Vote:May 24th, 2008 at 11:04 am
Too many here and in the media are falling into the trap of taking the bait with the left’s talking points in regards to how is National going to afford more tax cuts and where the spending cuts/changes will come from. It’s a typical socialist ploy to try and divert attention away from their own failings.
Labour know they have lost the election, Clark and Cullen are going to be history by the end of 2008. Cullen has been grossly irresponsible with the budget. He does not care about the future of New Zealand he only cares about his and Labour’s sorry little arses.
All Cullen has revealed is that he’s a disciple of Muldoon’s election year economics.
Vote:May 24th, 2008 at 12:08 pm
How would Doc Sullen react if the financial market experts started teaching him history I wonder.
Vote:May 24th, 2008 at 2:44 pm
When Treasury advertise for 23 year old advisers, what confidence can we or government have in them? No wonder, Mike Williams was given the job on the side to reward Toll for their support in taking over the road freight business, and agreeing to occupy and use other assets, that might have been beyond Treasury’s ability to cope with.
Where were Treasury when the Minister announced that he was going to borrow to pay contributions to the Cullen Fund? Don’t we have to pay interest on these borrrowings, and are we going to borrow overseas for the Fund payments, increasing risk? What sort of economics is this? Is it the new ‘economics of commonsense’? Doesn’t this put us in the position of speculators?, To do so in times of plenty is investment, imprudent or otherwise: to borrow to invest is exactly the financial folly which is unwinding now in the markets; ask distressed home owners, who have exposed themselves to risk by mortgaging their homes as a deposit on another, whether it was wise.
Cullen has forsaken prudence for recklessness. I was stunned by the list of promises extending beyond the present fiscal period. National should feel free if elected to ignore his promises beyond immediate imperative commitments and re-visit the whole budget again. It seems that this government is determined to leave a legacy that will make it difficult for a successor to govern. They have no mandate for that and it would seem to be a prima facie breach of their oaths of office. This is a matter which has now become criminal.
Vote:May 24th, 2008 at 2:58 pm
When Treasury advertise for 23 year old advisers what confidence can we or government have in them? No wonder, Mike Williams was given the job on the side to reward Toll for their support in taking over the road freight business and agreeing to occupy and use other assets that might have been beyond Treasury’s ability to cope with.
Where were Treasury when the Minister announced that he was going to borrow to pay contributions to the Cullen Fund? Don’t we have to pay interest on these borrrowings, and are we going to borrow overseas for the Fund payments? What sort of economics is this? Is it the new ‘economics of commonsense’? Doesn’t this put us in the position of speculators? To do so in times of plenty is investment, imprudent or otherwise; to borrow to invest is exactly the financial folly which is unwinding now in the markets: ask distressed home owners who have exposed themselves to risk by mortgaging their homes as a deposit on another whether it was wise.
Cullen has forsaken prudence for recklessness. I was stunned by the list of promises extending beyond the present fiscal period. National should feel free if elected to ignore his promises beyond immediate imperative commitments and re-visit the whole budget again. It seems that this government is determined to leave a legacy that will make it difficult for a successor to govern. They have no mandate for that and it would seem to be a prima facie breach of their oaths of office. This is a matter which has now become criminal.
Vote:May 24th, 2008 at 2:59 pm
“When Treasury advertise for 23 year old advisers, what confidence can we or government have in them?”
You dont know what you are talking about.
“Where were Treasury when the Minister announced that he was going to borrow to pay contributions to the Cullen Fund?”
We are not privvy to the conversations Cullen has with Treasury, but Treasury does not have veto power on the budget.
Vote:May 24th, 2008 at 2:59 pm
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Vote:May 24th, 2008 at 3:46 pm
Just WAAAATCH the DUMB SOCIALISTS noncomprehension of how economics WORKS now that things are doing their usual cyclical turn-to-custard once again………..But surely the ECONOMIC good times were a consequence of their good, sound, caring, take-care-of-the-poor-people socialism???????????
Vote:May 24th, 2008 at 5:42 pm
As someone who works as a trader for a bank, I can say Cullen has no idea what he’s talking about. He’d been out talking down the size of his tax cuts in weeks previous, and though what he delivered is not much bigger than what is in the RBNZ’s forecasts, the size of spending and the fiscal stimulus to the economy is massive. Prior to the budget, markets were pricing in a full cut by September, now that is pushed back to next March. The two year Interest Rate Swap rate closed Friday at 8.18%, rising 40pts in 36hrs. Retail 2yr fixed mortgages will all be put up next week I would presume as we’ve just had an effective 50pt rate hike all thanks to Michael Cullen. Anyone with a mortgage reset coming up will have had their tax cut wiped out already, nice work Doctor.
Vote:May 24th, 2008 at 6:05 pm
.Treasury did advertise for 23 year old advisers in recent years in the Dom Post; they might have hope to catch a crop of graduates. What price experience?
“We are not privy to the conversations Cullen has with Treasury, but Treasury does not have veto power on the budget.”
True, but if they if they do not advise the Minister, what do they do? If the Minister ignores them what is their purpose?
EFA BREACH BY TREASURY?
Is there another breach of the EFA? See the the papers here, and repeated on the IRD website. These take a political position, not mere statements of fact (complete with a picture block.)
http://www.treasury.govt.nz/budget/2008/tax
Vote:May 24th, 2008 at 7:08 pm
I’m actually quite pleased that there is less prospect of an immediate cut. A high OCR is corporate welfare care of the taxpayer with the aim being to outbid other contenders for money in the system. A cut will be painful when it occurs so a delay provides a chance to put in place policies to counter the impact.
Vote:nerdXcore – there’s is no such thing as a free lunch, there is no substitute for quality spending.
May 24th, 2008 at 7:15 pm
I don’t fucking get it. We don’t get tax cuts and have some of the highest interest rates in the world. We do get tax cuts and the fucking banks rub their hands and say the rates will only get higher. Either we are some of the most stupid people in the world or we just like taking it up the arse. Of course we don’t save enough but how the hell are you suppose to when these socialist fucks want to rip you off everyday.
Vote:May 24th, 2008 at 7:21 pm
KevOB. say what!! “In addition, the changes to Working for Families will give more money in the hand each
Vote:week to Working for Families recipients.” What’s the matter with you? what’s not factual about that? Do you oppose a “Fair Economy and a stronger Future”? We can’t understand your misunderstanding you are therefore sentenced to 1 month retraining.
May 24th, 2008 at 7:33 pm
KevOB – do you think that every single person in Treasury should be over 40? Including the cleaners, the secretarial staff, the junior policy analysts? What do you expect to happen when all the 40+ year old people retire – would we just shut Treasury down? You really have no idea what you are talking about.
SSB: we got interest rate rises because Michael Cullen was spending like a drunken sailor. Spending is inflationary – if you increase spending without increasing the supply of goods and services, logically the price of those goods and services goes up, otherwise known as inflation. This year we got both the same spending like a drunken sailor (well, most of it with some undeclared cuts that presumably the market are ignoring because they know a Labour govt is pathologically unable to make spending cuts), plus we also got some tax cuts, which will go into people’s pockets and allow them to spend.
Spending increases are pretty much inflationary year on year unless they are some sort of high quality spending that increases productivity or assets that would lead to greater capacity in NZ. Where the spending does increase productivity, they are inflationary in the first year, then over time get cancelled out by increases in production. Tax cuts are inflationary in the first couple of years, over time they increase productivity. They are more akin to high quality spending in that sense.
Vote:May 24th, 2008 at 10:34 pm
I take your point about Treasury PaulL but I have heard the best and brightest in Treasury got sick of Cullen long ago and have mostly left. The high pay scale has of course remained, and as I have said before, two thirds earn over $100,000. Basically only the clerical staff and the 23 year olds who don’t.
Cullen could drop the exchange rate if he got rid of the 2 percent tax rate for foreigners putting money on deposit in NZ.
Vote:May 25th, 2008 at 12:03 am
“A high OCR is corporate welfare care of the taxpayer with the aim being to outbid other contenders for money in the system.”
A high OCR means higher borrowing costs for business and a higher discount rate in budgeting, meaning fewer projects, lower growth, etc.
Vote:May 25th, 2008 at 8:26 am
Kimble, and the projects that do go ahead are going to be riskier and short term focussed. Also at some point many will carry some sort of inflationary expectation (my speculation but would be interesting to see whether there has been some research on this). I think National’s policies should look at some way of promoting “development finance”. Yes, SOE’s are out there being entrepreneurial but what about small to medium businesses. The banking system has responded very efficiently to residential mortgage demand, how many mortgage brokers can you count on High street/Main street, and how many have been there less than 4 years? How are banks encouraged to lend to business, can they be encouraged without creating other distortions?
Andrew – apparently that preferential rate was introduced by National in order to encourage foreign investment, well it worked, trouble is a lot of that money found it’s way into the property market (the easy no risk option for the banks), and of course, as reserve bank deposits – hence corporate welfare!.
Vote:May 25th, 2008 at 2:20 pm
FRED: “In addition, the changes to Working for Families will give more money in the hand each
week to Working for Families recipients.”…. “Fair Economy and a stronger Future”
These quotes from the Treasury papers are overtly political. I expect neutral factual statements from Treasury not numbers with promo and pictures. They are not the government spinmeisters. It is irrelevant whether I agree with the policies or not: we either have a neutral Treasury or another lobby group.
Vote:May 25th, 2008 at 9:45 pm
KevOB – ummm that was me actually agreeing with you eg. what place does “Fair Economy and a stronger Future” have on a treasury publication as it is a slogan but if you object to it – as I say – the response is “we can’t understand why you would object” how can you not agree with “Fair economy” which was the point I was making. Orwellian. Cheers
Vote:May 26th, 2008 at 9:27 am
FRED: Thanks., I thought that might be the case. In the land of the subtle, has doublespeak become so ingrained that even us pre baby boomer are picking up the lingo?
Vote:I will pursue my concerns by straight talking to the Auditor General and electoral authorities.