Cunliffe on interest rates

March 25th, 2014 at 12:00 pm by David Farrar

David Cunliffe has said:

New Zealand’s are among the highest in the world and homeowners that are bearing the brunt of them should join Labour’s call for an Economic Upgrade, Labour Leader David Cunliffe says.

“New Zealand mortgage rates are higher than Australia and much of the developed world. That’s because our economy is not paying its way in the world and has major issues that need to be fixed.

No it’s because our economy is growing faster than Australia’s and hence our interest rates have started to go up.

intrates

 

This is using official Reserve Bank data on effective mortgage rates. Note they were up to almost 9% when David Cunliffe was a Minister and are below 6% now. The RBNZ data is not yet updated to take account of the 0.25% OCR rise but it will have only pushed things up by around 0.25%.

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42 Responses to “Cunliffe on interest rates”

  1. burt (7,797 comments) says:

    It’s different when Labour do it !

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  2. Monty (962 comments) says:

    As usual Cunliffe is being very tricky. He has been harping on about interest rates for a few days now in various mediums. He got hammered on Facebook last night when several others and I pointed out that Labour has poor form on this having been part of a government that had the OCR at 8.25% for twelve months from mid 2007 to mid 2008. In addition house prices increased by 100% under the labour government.

    Cunliffe has made no policy announcement which demonstrates how land holdings will be freed up for the houses, and then there was Phil Twyford who admitted that labour will only be able to build 10,000 houses in their first three years. Well short of the 30,000 needed to meet their policy target of 100,000.

    Reality is that with the additional spending proposed by labour there will be inflationary pressures which will drive up interest rates! and that same spending will also increase the risk of a credit rating downgrade that will also increase interest rates.

    Labour really are lying fools.

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  3. gazzmaniac (2,317 comments) says:

    Monty you’re right. But I suspect it appeals to people who don’t vote National and don’t bother checking their facts. Plus any publicity is good publicity, and reporters will just report his press releases verbatim without actually frisking them.

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  4. rouppe (915 comments) says:

    “We invest in housing, rather than assets which are actually productive.”

    Every time someone says this I ask: What exactly would you have us invest in? The answer is usually the sharemarket. I then say “But the money I use to buy the shares doesn’t go to the company, it goes to the person that sold me the shares. This means the cash I had in my bank account is now in someone else’s bank account. The company isn’t more productive, doesn’t have more cash for upgrades, won’t make that company any more able to sell more widgets. How is this investing in the productive sector?”

    There is usually silence after that.

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  5. jims_whare (398 comments) says:

    I was thinking of calling Mr Cunliffe a Pollock for his weird spin on interest rates but that isn’t fair to Pollocks.

    No he is more like a royal Pollock if he thinks that the voters will vote for him due to his constant doom and gloom crap about the economy and in this case interest rates

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  6. NK (1,067 comments) says:

    Labour will offer anything “cheaper” if it thinks it’ll attract votes regardless of whether it’s a good idea, or whether it’ll work, or indeed whether it’s even truthful.

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  7. Keeping Stock (10,097 comments) says:

    When Labour left office in November 2008 the OCR was at 6.50%. It was already starting to plunge from its peak of 8.25% up to June 2008 as the New Zealand economy led the rest of the world into recession.

    You can see a full summary of the OCR since 1999 at the RBNZ website – http://www.rbnz.govt.nz/monetary_policy/ocr/ – the 8.25% between July 2007 and July 2008 was the OCR’s highest level in that 15-year period.

    As well as exposing David Cunliffe as economically illiterate, it makes a nonsense of the claim from Labour that the economy was tickety-boo when Labour left office in November 2008. That is patently untrue, as the economy was in freefall, and even in the time between pre and post-election briefings from Treasury, the New Zealand economy was clearly tanking.

    The economy is in recovery mode at the moment. A change of government and a return to high-tax, high-spending government of the sort that Labour and the Greens would offer would kill the recovery stone-dead.

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  8. UrbanNeocolonialist (181 comments) says:

    My impression over the last 10 years is that New Zealand has had quite high interest rates compared to other western countries at the same time. This impression is supported by the very large investments in vehicles like uridashi bonds made by foreigners in NZ debt.

    That is mostly down to terrible balance of trade figures and unquenchable thirst for borrowing money offshore to fuel house pricing bubbles. Something Labour did less than nothing to address. They also showed zero ability to make policy changes that would increase exports (the other side of the equation).

    I think we should all hurry the move to peer-to-peer borrowing, which is starting to take off elsewhere in the world cutting out the margin the banks take to give lower mortgage rates for borrowers and higher interest rates for lenders.

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  9. gazzmaniac (2,317 comments) says:

    We invest in housing, rather than assets which are actually productive.

    I wonder how productive we’d be if there was no housing.

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  10. gazzmaniac (2,317 comments) says:

    I think we should all hurry the move to peer-to-peer borrowing

    I think that is a very risky idea. It will mean that individual depositors are at catastrophic risk if the borrower defaults. Part of a bank’s margin is paying for the risk of default.

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  11. Cunningham (811 comments) says:

    My god this guy is either thick as pigshit or just straight up lying. How can the leader of our main opposition say something so stupid?

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  12. EAD (585 comments) says:

    David Cunliffe is an economic ignoramus, but he is right on one thing – we don’t pay our way in the world.

    When I look at economic measures, there are only 2 statistics that don’t lie and can’t be fudged – our balance of trade (do we pay our way in the world) and our government debt (are we borrowing against the future to pay for the present). While our balance of trade has improved under National, it is still negative on an annualised basis despite high international commodity prices.

    Our exponential growth of government debt has been shocking and would’ve been even worse under Labour but no matter how hard it is to face the truth, it has still occured under a National watch. Countries should only be going into debt when the country itself is under existential threat like during wartime rather than to pay for present day goodies. This rapid increase in government debt, personal debt, the artificially low rate of interest and rising inflation leads me to the conclusion that this so called “rock-star” recovery is merely going through a credit boom.

    What is needed for a sound expansion of production is additional capital goods, not extra money, low interest rates and credit as this leads to mal- investments. Our rock star economy is built on the sands of banknotes and credit. It must collapse.

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  13. James Stephenson (2,018 comments) says:

    homeowners that are bearing the brunt of them should join Labour’s call for an Economic Upgrade, Labour Leader David Cunliffe says.

    Savers who are finally seeing the prospect of some decent rates on deposits should join my call for Cunliffe to STFU.

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  14. Judith (7,553 comments) says:

    and are below 6% now

    just… and for how long?

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  15. Viking2 (11,126 comments) says:

    MM, well he is right. Aussie are cheaper and we have had the highest interest rates in the OECD for 30 + years.

    I know it doesn’t suit the narrative here but its true and the greedy banks are stealing for all its worth.

    Not a fan of Cunniliffes but please get your info right.

    As for believing anything the RBNZ comes up with. Well that’s fairy land stuff and Rodney Dickens has castigated their appalling statistical behavior loudly and for a long time. ( He has really good info on his blog, you should check it out).

    http://www.sra.co.nz/

    Best statistician in NZ.

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  16. EAD (585 comments) says:

    As for interest rates – a high or level of interest rates is neither here nor there when it comes to measuring economic competence because at present they are artificially set by Central Banks rather than the interaction between borrowers and savers based on supply and demand.

    The real reason interest rates are so low around the world is to slow the exponential rate of increase in our debt as money system to stop it collapsing. By all means keep playing the “blue team vs. red team” game and ignore the elephant in the room of allowing banks to create “money” out of thin air and lend it as an interest bearing debt.

    http://www.kiwiblog.co.nz/2014/03/d_is_for_debt.html#comment-1294037

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  17. OneTrack (2,589 comments) says:

    “just… and for how long?”

    Um, until Cunliffe and the rest of the coalition of envy get in to government and start trashing the economy. All of the Cunliffe sound bites (I refuse to call them policies until he has at least written them down) that I have heard so far will start inflation up again. Which means interest rate rises.

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  18. Judith (7,553 comments) says:

    @ one track

    I asked that because when the recent increase was announced, it was suggested (not by Labour, or any politician) that more rises would follow. That has nothing to do with C/Liffe etc.

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  19. Harriet (4,509 comments) says:

    The Fed’s tapering because the US ecomomy is starting to move. The $NZ will be down from where it is now by the end of the year. We should see some movement just prior to the election. The aussie’s are all happy with the $AU at present.

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  20. Huevon (185 comments) says:

    I don’t think Cunliffe et all are lying…In my experience people who vote for, or are involved in, Labour actually do believe their own bullshit. Most of them just have no idea how the real world works. At best, there is a kind of willful blindness amongst some of them- who will justify the potential negative effects of their policies because of “social justice (TM)” or something like that.

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  21. OneTrack (2,589 comments) says:

    I love the bit where he complains about kiwis investing so much in property. If only they would invest in other companies. blah, blah.

    Uh, David, you mean like partially privatised power companies so that people could get used to investing in the sharemarket using a “safe” method of getting your feet wet. Great idea. But someone sabotaged the share offers so that fraidy cat kiwi investors got scared off, leaving the way open to the big boys. What are those potential kiwi investors going to do now – At a wild guess, they are going to stick with the Auckland property market. Now, how did that happen. High five.

    God Defend New Zealand if these nincompoops ever get at the levers of power. I give it six months before the traffic jams start on the way to the airport.

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  22. Kimble (4,378 comments) says:

    Labour takes over when the economy is improving, so interest rates are higher than usual.

    Then when they either fuck it up themselves, or leave us in a poor position to handle a general economic downturn, interest rates fall.

    Labour gets voted out and National comes in an fixes the economy by way of not being Labour and interest rates start to go up again.

    The electorate feels comfortable and secure thanks to the good economy and indulge in the Lefty redistributitive tendencies.

    If you are struggling with a large mortgage, then that is not due to interest rates. It is because house prices are too damned high.

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  23. OneTrack (2,589 comments) says:

    “Most of them just have no idea how the real world works.”

    Yep. They simply dont know what they dont know. And they dont seem to know how people really work either.

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  24. seanmaitland (455 comments) says:

    @Monty – got a link to the Facebook discussion last night, I couldn’t find it on the Labour FB page? I always love watching people point out policies that are akin to swiss cheese :)

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  25. simian (29 comments) says:

    That graph is great but has nothing to do with what Cunliffe is saying. It looks at historical rates in nz. He is talking about comparisons between countries. I assume since you mention nothing about this aspect of rates you agree with him?

    I would also be careful about saying interest rates are going up due to the economy because wouldn’t that mean, based on your chart, last time Labour were in the economy was fantastic!

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  26. Alan (1,059 comments) says:

    “There is usually silence after that.”

    Does no one point out that companies regularly come to the market for funding via either public stock offerings or by issuing corporate bonds?

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  27. wreck1080 (3,726 comments) says:

    the banks can easily explain our higher interest rates and have done so many times in the past.

    Not sure why cunliffe couldn’t have picked up the phone and had a talk to graham wheeler for reasons.

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  28. Auberon (869 comments) says:

    David Cunliffe isn’t on interest rates. He’s on crack.

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  29. Monty (962 comments) says:

    Sean Maitland, you might need to like or worse become a friend of David Cunliffe and then you will be able to see his Facebook postings. This year it is my personal ambition to refute all the obvious mistruths and lies that labour speak or publish until the election. My hope is that is enough people do it constantly and even better in public forums then the labour and even MPs will reduce their lies, or maybe only warp the truth a little.

    Well it is a hope. Not saying I will be successful.

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  30. Kimble (4,378 comments) says:

    I would also be careful about saying interest rates are going up due to the economy because wouldn’t that mean, based on your chart, last time Labour were in the economy was fantastic!

    It was.

    We were getting record prices for our produce, the world in general was flush, China was ramping up their infrastructure building and the major benefactor of that was our major trading partner Australia, we were getting rich selling houses to each other and taking on larger mortgages on our homes to finance more consumer spending.

    Then the shit hit the fan.

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  31. dime (9,399 comments) says:

    “We invest in housing, rather than assets which are actually productive.”

    Well, imho investing in NZ is scary. we are a tiny country with a political system that lets the tail wag the dog. an extreme, communist tail if labour gets in. People who hate the rich, hate investment.

    Hence Dime stays out. I will buy US shares but screw locally.

    The fact that labour & the greens got a pass on sabotaging the power company floats showed me enough.

    I dont care how much “free” money the govt gives me to join kiwisaver, i aint going near it. Zero trust. Basically id be running the risk that no shit head came to power within the next 30 years…

    As for “investing” in rentals. Heres a quick example.

    A) Dime buys rental for 750k. Spends 5k on curtains etc. Tops the mortgage up about 5k in 12 months. So a 10k outlay (less tax return). The house has jumped up a good 120k. Say I clear 90k at the end of it…

    Bloody hard to turn 10k into 90k on the stock market in 12 months..

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  32. alwyn (380 comments) says:

    Cunliffe himself explained what he is going on about this morning on National Radio.
    As he said “There is a technical term for my pronouncements. It is ‘Bollocks’”.
    Describes both this and also his claim that he doesn’t know who contributed to his election campaign expenses.

    I think Paul Henry should add a snippet to his program on TV3. Read out the latest tripe from Cunliffe and then add something like “And that was today’s Bollocks from Labour”

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  33. michaelmouse (9 comments) says:

    Another own goal from Cunnnliffe, the graph clearly shows the damage done by Labour from 2000-2008. Then rates falling sharply when National got back in.

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  34. seanmaitland (455 comments) says:

    @dime – my boss, who has been involved in sharemarket software and fund management software/hardware since the late 70s turned $5,000 USD into $58,000 USD last year just by fooling around with shares in his spare time, after discovering an old account with 5k in it that he had forgotten about.

    Having said that, he is a one in a million scenario, and I completely agree with you (being a smalltime property investor myself – 2x rentals).

    I actually ran a home investment club for friends for ten years, and after ten years minus broker fees and 33% capital gains tax (due to the definition of a share investment club as being someone out to make a profit on shares), we probably made about net 27% (compounded gains over 10 years) on about 10k of contributions per member. And its bloody hard work for someone off the street to make good short-medium term gains from the sharemarket.

    In the same time, I’ve built up 450k of equity in property investments, and all I have to worry about is sending the odd email to the property managers, the odd phone call to the accountant, and playing the banks off against each other to get discounted interest rates every few years. In that time my property has never done anything but go up in value or stay the same in value.

    Whereas, when we had the investment club and at one stage very early on, 40% of our equity was in Auckland International Airport shares, and Michael Cullen decimated the value of our club and set us back about 1-1.5 years of monthly member contributions.

    From my experiences, that is what I call an absolute no-brainer.

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  35. thedavincimode (6,530 comments) says:

    You could say that Cunliffe is a fucking idiot. On the other hand, you could say Cunliffe is a bare-faced liar. Or you could say that Cunliffe is just a fucking idiot and a bare-faced liar to boot.

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  36. thedavincimode (6,530 comments) says:

    that is what I call an absolute no-brainer

    You mean Cullen?

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  37. thedavincimode (6,530 comments) says:

    Cunners seems a bit slow out of the blocks in expressing his faux outrage over Alloy Yachts’ redundancies and the failure by Government to have NZers subsidise that company’s uncompetitive business through interventions to lower the exchange rate.

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  38. thedavincimode (6,530 comments) says:

    Shucks. :lol: A stalker :oops:

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  39. griffith (1,111 comments) says:

    :lol:

    minus

    is

    your

    friend.

    How cute tdvm

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  40. thedavincimode (6,530 comments) says:

    “Cute” is exactly what I thought Grieffith. A bit like that first playground romance! :lol:

    I think I know who it was too :oops:

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  41. Viking2 (11,126 comments) says:

    New Zealand’s interest rates are among the highest in the world

    Correct Statement.

    “New Zealand mortgage rates are higher than Australia and much of the developed world. That’s because our economy is not paying its way in the world and has major issues that need to be fixed.

    Again, a correct Statement

    No it’s because our economy is growing faster than Australia’s and hence our interest rates have started to go up.

    Incorrect statement
    Interest rates are not a function of the state of the economy. If they were not controlled by the RBNZ then they would be a function of the market. But they are not. They are a function of our risk. We are more indebted than ever. The Nats. are the biggest borrowers we have ever had.

    RBNZ uses the wrong full assumption that inflation is caused by housing and a growing GDP.
    Neither is correct.
    Inflation is mirrors rising wages and inflation follows approximately 3 quarters after rising wages.
    So when the Govt. controls both minimum wage and “wages” paid to a million beneficiaries the biggest contributor to inflation is the Govt. i.e. per dollar wage spend the productivity changes.
    Now for the last few years that has been contained by NZ importing cheap wages rates from China etc.
    We are also about to find that the Chinese wage rates are going up and as the dollar retreats in time we will see higher imported costs and added to inflation.

    For those contemplating building wait till that happens and the 60% of your build cost that is either imported or is related to export costs e.g. cement or steel, go borrow a lot more at an even higher interest rate.

    We are about to have to pay more to unskilled basic rate people because the Govt. forces us to creating that inflation. ( recall that benefits are tagged to the wage indices so this years increase creates next years increase. Called a ratchet clause in Maori settlements and commercial leases.)

    But, don’t just dismiss, this have a read up here. The analysis will change your mind.
    http://www.sra.co.nz/pdf/InterestingTimesSample.pdf

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  42. igm (1,413 comments) says:

    See that the tax dodger is takng control of Labour’s press releases.

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