Compared with Australia’s continued resource boom the lookout going forward doesn’t look good for New Zealand. There will be plenty of pain ahead. If only there was someone ideally suited to the position of Finance Minister who could deal with this current predicament and has a proven track record of having dealt with a previous similarly disastrous economic state of affairs.

Looks like a job for Roger Douglas!

His tenure at the RBNZ is forgettable, to say the least. This is an opinion shared by a number of leading economists.

that and i never intend on selling

our property market is bullshit, it needs to come back!

When unemployment was falling, personal wealth was climbing and the government was awash with surpluses, Cullen told us this good news was all down to his prudent fiscal management of the economy.

But now that we’re headed down at a great rate of knots, it’s all about international market forces and we have to realise that we’re just a small player in a very large global economy so we’re at the mercy of those forces.

Can’t have it both ways Mikey.

During the previous bout of inflation, when we were outside the target band for 5 quarters from Dec 06 through Sept 07, Bollard raised rates from 6.8% to 8%. RBNZ seemed seriously concerned about inflation But, we’ve not had an interest rate increase since the present bout of inflation began: he raised rates to 8.3% prior to our pulling outside target in December 07 and nothing since, and he’s projecting cuts to interest rates despite projected increases in inflation.

This is all somewhat puzzling. The political business cycle story would be that Bollard doesn’t want to increase rates in the leadup to an election, but he did increase rates in 2005 in anticipation of inflation breaching the target band. You could argue that he ought to have been more aggressive in the June and September quarters in ‘05, but that’s probably just hindsight. This time round, RBNZ seems to have abandoned its commitment to the policy targets agreement.

“It’s worth looking at the policy targets agreement (PTA) signed by Bollard and Finance Minister Michael Cullen in September 2002, which was referred to above by the Reserve Bank and re-signed last year without changes when Bollard was reappointed for a second 5 year term. It helps explain a few things.”

Soft on Inflation

Sure, after 20+ years, if you’re lucky.

http://img.photobucket.com/albums/v207/neuralnetwriter/financial/rentalyield.gif

Look at the linked graph (found on propertytalk.com) and then imagine having bought a house in 1975, you would take 20 years to break even… And this boom was much bigger than the 1970s one…

Sell now or be locked in forever!

Surely saying that the economy was booming in 1999 is stretching things a little? I get your point, but wasn’t unemployment around 6%, the same percentage that the Reserve Bank is predicting for 2009.

[DPF: It is all about the trend. Economic Growth was high, inflation was low, we had healthy surpluses and unemployment was dropping.

Bill English will probably inherit economic growth under 1%, inflation of 5%, surpluses which won't even be adequate to fund the Cullen Fund until 2016 and rising unemployment]

If we read “on average over the medium term” as meaning that average inflation over the period must be within the target, then the medium term is now 35 quarters – that’s the number of quarters, looking forward using RBNZ projections and back using realized outcomes, over which we must average to be within target. If we instead read it as meaning that the average quarter must have inflation within the target, the medium term is now 25 quarters. 9 years or 6 years: either one is beyond any reasonable reading of the “medium term”.

My understanding is that this change of RBNZ focus to projected CPI inflation occurred when Bollard replaced Brash under Cullen.

http://www.nominister.blogspot.com has more

If we define the medium term as being the number of quarters over which we must average in order for average inflation to be less than 3%, the medium term is about 9 years. 35 quarters. Most macroeconomists would define the medium term as being maybe up to 3 years; if we want to define it instead as the period over which we’re likely to expect reserve bank policy to affect real variables, say maybe a year. Two, maybe. 9 is right out though.

How is it that the RBNZ current policy is consistent with the signed policy targets agreement? If they want to be honest about it, they either should fire Bollard or tear up the policy targets agreement. RBNZ is ruining the credibility it built up under Brash.

We can’t use the “avoiding excessive fluctuations” as wiggle room here because timidity on interest rates now, given inflation rates, just means that the correction has to be a lot larger and a lot more painful later.

I couldnt believe looking at the Property Press, houses in the area we want to live that we could afford!!!!

Typical that we have already decided to migrate though…..

sure it will wipe value off what i already have, but i don’t intend selling and they will bounce back…

it will however allow me to buy more investment properties imho buying a rental has been uneconomic for about 3 years now.. so its time for Dime to sit back, bank some money and wait

also – will make it easier for first home buyers and may stop any government giving them a hand out!