The Reserve Bank Governor Grinch who stole Christmas!

Duh! Yes a recession is coming - 100 point rise on the table - unemployment will be stagflation trigger

By
Martyn Bradbury
-
96
2203

Brace for a recession: Reserve Bank hikes OCR by 75bp to 4.25 per cent

The Reserve Bank has today lifted the official cash rate by 75 basis points, taking it to 4.25 per cent, its highest level since 2008.

The RBNZ now sees the OCR rising to a peak of 5.5 per cent in 2023 and has forecast that New Zealand will enter recession from mid-2023.

That is significantly higher than the market expected and a big leap from the peak of 4.1 per cent the RBNZ had forecast in August.

The RBNZ’s latest forecasts paint a grim picture of four consecutive quarters of negative growth across June, September, December 2023 and March 2024.

Yes, the recession is coming and it’s the worst possible time for the Government, exactly 5 months before the election.

It gives real insight into the fear from the Reserve Bank that 100 points was discussed.

With large chunks of those with mortgages rolling over this year, there is an enormous amount of pain for first home buyers.

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Combine this with plunging property prices, a cost of living crisis and geopolitical shock waves, and the warnings of a recession seem mild.

The danger for the Reserve Bank Governor is if this is a unique crisis for capitalism or just some passing phase.

No one could work out where all the inflation went after central banks printed trillions in quantitive easing to avoid a global recession in 2008.

What has become apparent from Covid is that inflation was absorbed by global free market just-in-time supply chains that stretched from the shop to the deepest darkest most de-unionised workforces China has.

It’s interesting to note that inflation began ticking up as Apple was forced to put up suicide nets in China to catch desperate workers attempting to kill themselves. It was the terrible work conditions in China that forced basic standards which started eroding the profitability  of free market exploitation.

With China shut thanks to their zero tolerance Civid policy and ratcheting geopolitical tensions, the West are having to pull their supply chains back into the West and import inflation with it.

These dynamics aren’t ending.

Russia’s invasion of the Ukraine, the interruption of the agricultural calendar thanks to climate change and the need to rapidly move to a decarbonised and post growth economy are all contributing to the economic doom and gloom as central banks are again forced to push interest rates up to tame inflation.

This in turn risks setting off an event horizon of debt imploding and becoming a huge economic black hole.

My guess is that we will see a lot of businesses viewing Christmas as their make or break moment. If they don’t see an influx of spending, some won’t be back in January.

It was alarming to hear the Reserve Bank Governor urging people not to spend money this Christmas.

Our danger moment occurs economically when unemployment starts rising as inflation continues.

That will be when Kiwis feel like it’s a recession and panic runs through the market.

The question is who will voters turn to when they are frightened and angry.

Will Jacinda and Grant protect you or will Luxon and David punish for you?

That’s what voters will be asking themselves as the economic conditions get worse.

Crime, poverty and unemployment will become rupture points leading into the 2023 election.

Buckle up. Shit is about to get bumpy.

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96 COMMENTS

  2. Let’s just lay the blame where it belongs, which is with Labour who juiced the hell out of the economy whilst stopping practically all productive output by borrowing and printing money like Nicholas Cage on speed.
    This is what happens when people without the most basic knowledge of economics and a childlike ideology are allowed a chair at the grownups table.

    • They needed every single cent of that cash to pay for the public services that you despise.

      It seems that you oppose public schools, hospitals and housing.

    • To be straightforward the world is run by unseasoned, unmatured child-adults with self-centred personalities unable to think in the round. There are very few grownups; it’s been straight from the nursery along a road with choices of side-turnings and visions of bucket lists and lucky dips tantalising them.

      Few character building experiences of deprivation alongside others, and few self-denying sojourns with ordinary people in extremis. Political advisers need to be more than talented school achievers, have worked in a genuine peace corps aid project, and seen the bitter side of living, not just the better side.

      • Also not forgetting they inherited from Labour in 2008 an economy already in recession and then had to contend with the effects of the Global Financial Crisis which struck soon after.

        And let’s also not forget that through tight management they turned surplus in about eight years which was a couple of years ahead of forecast – remember the predicted ‘decade of deficits’?

        Of course Labour opposed all National’s fiscal restraints so presumably the situation would have been much worse if they had been in charge.

      • Do you just invent things to suit your narrative? In fact apart from the GFC, 2009 to 2012, National ran surpluses.
        Debt did increase, in large part due to earthquake reconstruction. Total public cost was over $40 billion.

        • You are the one inventing things.
          The facts are English ran straight line deficits and failed in his resolve to achieve a surplus.
          He cut contributions to Kiwisaver,The Cullen Fund,gave tax cuts to the wealthy,increased GST….and was a flop as M.O.F.

      • I don’t understand the obsession with national debt…it’s called defeicit spending and you do it every month with your credit card and mortgage….if you’re a fan of thatchers running the country the way you run family finances well that’s how family and individual finances work these days

    • The idea that global supply and profiteering driven inflation is Labour’s fault shows how economically illiterate that comment is.

      The timing of the inflation uptick, and correlated global events gives key indications into the drivers of said inflation, and it’s mostly as Martyn identified, but including opportunistic profiteering. If the majority of inflation on necessary goods and services were driven by RBNZ’s actions in 2020, then we would have experienced internal inflation much sooner. We didn’t because a lot of that went straight into the housing market, and NZ’s primary production actually maintained or increased during this period.

      These observations clearly demonstrate the idea that productive outputs were stopped is utterly nonsensical, and certainly so on a comparative global scale.

      The grown ups were/are in charge, and that’s why NZ is still doing better than most. Where the children were in charge (e.g., UK) things are far worse, and luckily for New Zealand the children were/are currently in opposition.

    • Would you have been happier with a big crash in 2020 when covid hit instead then? It might have escaped your attention but it was a worldwide problem, oil did not halve in value, airlines stop flying & tourists stop traveling just because Jacinda & Grant provided a safety net in NZ. Your final comment regarding borrowing & printing money shows that it is you who have basic knowledge of economics. Your biggest problem is thinking that politicians can fix all our problems.

    • sit down – it’s not your turn. the only children I’m hearing at the moment are tory sycophants whinging and moaning and throwing their toys out of the cot.

    • and where did that money go jays? into inflating the housing market it didn’t put a penny piece into NZers pockets…so isn’t driving demand for goods is it….

  3. Thousands of people wiped out financially all so the wealthy can have a cheap latte.

    Perhaps we seriously just need to let inflation rip for a while so people can get a decent wage and afford their mortgage.

    • Well, Millsy it also makes you wonder how much is gouging and “expected inflation” price rises. Some of the explanation on food prices is non sensical. Greg Foran and his Air NZ ticket price explanation amounted to “we are charging high prices because demand is high”. Didn’t mention costs.

      I wonder how many consumers out there have mortgages. Ownership rates are supposed to be around 64% and I saw another article suggesting one third of NZ homes are mortgage free.

      • yup if you have a million dollar mortgage you don’t own a million dollar asset until the last payment until that day you’re a debitor…get used to it.

    • It’s that you Adrian?

      Let me introduce you to economics 101

      Inflation is bad. Yes wages go up, but they have to pay for increased prices and the increased mortgages because of. . You guessed it.. inflation. It’s a dangerous cycle, just ask your mates in Venezuela

      • It’s better than holding down wages and in turn workers purchasing power, which is what you want to. In the 1990’s practically no one got pay rises, while landlords and power companies were able to jack their prices up across the board.

        • Yes I remember that Millsy. I don’t know how some people got through it, and others simply didn’t. Mind you, it wasn’t all bad as you could still buy a home on a quarter acre section for a reasonable price.

      • Try this lesson in economics….interest bearing debt with rampant Q.E can only be contained for so long.
        As for Venezuela ,when a big power wants to control your oil stocks and you resist,they resort to sanctions…the tried and proven…’make the economy scream’ plan.

  4. Unemployed are often viewed by tories as “dirty filthy bennies”, a sub class of despicable losers…yet the RB Governor now says we need to ADD to their ranks to fight inflation, what the fucking fuck!

    Super annuitants need a wake up too–they are recipients of state transfers–and are technically beneficiaries.
    Retired, middle class, working class and alienated need to find some point of unity and develop public action to combat the coming shit show. Descending into negative equity is going to be a humbling experience for thumping great mortgage holders, and guess what–voting for Baldrick is not going to make it better–the contrary in fact.

    The faux separate ‘independent’ status of the Reserve Bank, under the RB Act, is such a travesty and reveals like little else why the NZ neo liberal state has to be booted. Can this be a serious demand for 2023? possibly not, but as VI Lenin said “for decades nothing happens, then in weeks decades happen”.

    Grow a pair NZers (figuratively), and get organised.

  5. Its Man Made Monetary Inflationary Recession.

    That $55b Bazooka did it!

    Shock & Orr!

    It isn’t a supply side recession. The metrics if we believe them. Employment and growth are maxed out.

    So by forcing rates higher, Orr & Robo want, are inducing a Recession deliberately to increase unemployment and cause a demand shock that will perpetuate growth/supply-shock, which will need another rate rise.
    When does it end?

  6. I would question whether this is higher than most thought. Either that or the “market” has no economists. Stuff has a piece saying….

    “Before the announcement economists had been divided on whether to expect a 75 basis point or a 50bp rise, but with the majority tipping a 75bp hike.”

    Now Luxon has taken the opportunity to announce a review of his tax cuts like this news is unexpected! BULLS*T! This guy is a gymnast.

  9. The root cause has always been the GFC.

    Rampant Q.E to save the rich and dialling interest rates down to even negative territory to prolong the…inevitable which has burst out…NOW!

  10. The world’s economy has for many years been fueled on an increasing mountain of debt – much of which was/is not for productive investment, but for luxury ‘wants’; and to a big extent the debt has been taken on by many who can’t afford it. Breaking this debt cycle would be extremely painful and to many would end in many becoming (more) destitute. The current economists answer to this mounting crisis is to hike interest rates which make the wealthy richer on the increasing poverty of the poor.

  11. I do not feel that it would be wise to vote in a centre right government when a recession is looming after a global pandemic. Not when a centre left government has been in power for two terms thus far without a change of leader. I think I know which major political party is the most stable

    • Do you honestly believe this present Govt is center left?
      It’s about the equivalent of ‘TraitorKey lite’ IMHO.
      Same party different label, a bit like the USA Dems/Reps. Different sides of the same coin.

        • If who ever can not distribute 280 billion worth of resources on a lower track then they have absolutely no business distributing resources on a higher track. Absolutely no business at all! Pull your finger out Jacinda. In any other work place you’d get fired, not more money or +1, 2 , 4 or whatever GDP growth. DAFUQ!!! Pull your finger out and do something woman.

  12. Let’s get it on and over with then. Covid kicked off this paradigm shift and the beginning of this new cycle for humanity was signaled by the death of QEII (imo). Two more years of pain and stress and we’ll have lots more scary stories to tell our grandchildren. We will get through it. It is a very exciting time to be alive, if you can look at the big picture. I hope we move more into self-governance and community based stewardship in this paradigm, away from the political/capitalism system that clearly hasn’t worked well for us. Too many greedy power mad fakes at the top of the food chain. I think the Ukraine situation is winding down, Putin has lost but his ego is slow to bow out. The three earthquakes around the pacific ring this week is a little worrisome… hope it’s not another black swan event on the horizon. Last Xmas we were allowed out of our social isolation, and I finally became unafraid of dying from covid. This Xmas I won’t have a leg of Lamb (too expensive) but I might have a BBQ with salad from my garden. My gardens rocking at the moment – so glad I got it done. I’ve got more than I need so I will be sharing it around. If you’ve got extra in your gardens or whatever, consider sharing it around and put some cheer back into Xmas for those struggling. It’s good to be in New Zealand right now. I’m thankful I’m not a Chinese citizen for example. Their policy to control inflation seems to be more lock downs? Our entire planet and all it’s creatures are going through these tough times right now. We are not alone in this. Worth remembering for our low vibe days. “This too will pass” 🙂

  13. What a joke. He was the omnipresent Father Christmas for the last two years doling out unseasonable cash by the sack-full – now he is the Grinch trying to take it back. Too late Mr Orr – you were asleep at the wheel, doing an improbable impersonation of Tane Mahuta, fixated on climate crisis – all whilst an inflationary crisis was leaking from your very own pockets.

    • The RBNZ role is to maintain high levels of overall employment up to the point that inflation is kept at a moderate level. They have done this almost to perfection over the COVID period but now inflation is rising. When inflation rises the RBNZ has only one tool and that is to create higher unemployment. The RBNZ (and all reserve banks globally) are explicitly trying to do this. The impact is twofold – lower demand (and ideally inflation at the same time) due to consumer fear and, also, rising unemployment to weaken wage demands and worker bargaining power.
      In terms of doing the job he’s paid to do he is on the money and the RBNZ has been noted for being ahead of most other central banks on these matters.
      The argument is not with Orr but with an economic system that explicitly depends on the deliberate impoverishment of a section of society in order to protect the wealth of the middle class.

      • I disagree Peter. Orr was far too late to act in tightening monetary policy. Their last year’s report was all about climate change with bugger all reference to inflation – and guess what? now we have inflation.

        • I get the impression you have a one dimension understanding of inflation. Damien Grant put it best when he said “I’ve been predicting money printing induced inflation for 12 years and now – finally – it’s here.” His point being that for 12 years massive money creation and 0% interest rates produced no inflation. Turns out it’s a bit more complicate than people thought originally.

  14. It is only a theory that inflation is solely a monetary problem. Economics is an evidence-free ideology.

    The upwards sloping supply curve is imaginary as there is considerable evidence that cost/prices decline with larger supply and contradicting the assumptions that economists use to avoid collecting evidence. As the cheapest and convenient resources are used up, real costs inflate and so to supply prices.

    • Rubbish. It has to be a purely monetary phenomenon because it is measured in money. Effectively free money (due to Govt deficit spending/low interest rates) chasing the same amount of goods/services (i.e without increases in production) has to, by definition, lead to inflation.

    • the fact they don’t factor in the energy pulse we’ve enjoyed for the last 200 years is evidence enough of their inability to see past their noses. the world has been in decline since the 70’s and it will continue to decline until the energy equation is balanced. resource scarcity is just a model adjustment until the asymptote is staring them in the face like a brick wall.

    • I’ve always understood economics to be one of “feels”, hence why economists are by and large useless at predictions. People are manipulated to feel fear in order to ascertain an outcome, but it doesn’t work on everyone so they get unintended consequences, whose variables don’t fit into their modelling in the first place. It’s a feels pseudo science, so it’s all a bit of a farce really. JMO

  15. Bhahahahahaha. The Thursday piss up between Beetroot and Poor Man’s Gordon Brown will be a somber event.

    Judging by the change of tune Beetroot has been fed some economic horror stories and it will be hilarious if inflation has increased since last quarter when the Beavis and Butthead of Finance declared peak inflation.

    If only Adrian had cared as much about the economy as Kauri trees maybe we wouldn’t be on the Titanic right now bearing down on an iceberg.

  16. Let the recession/depression begin!

    Causes are:
    1. Brutally excessive and pointless lockdowns
    2. Printing money to pay people not to work during the aforementioned lockdowns
    3. Green policies across the west that have driven up the cost of energy

    This is the last nail in the coffin for this government

    • 4) Vaccination mandates causing Labour shortages across many industries, unable to be easily rectified due to serious breakdowns over employer/worker relations it caused.
      Those of us in the real world deal with the effects of this every day.

      This is not talked about but a massive part of the worker supply choke point.
      Many of the “river of filth” won’t go near the industries or employers that threw them under a bus, be they nurses, teachers police or even private workplaces that enforced mandates.

      Mandates should only ever have been for highly risky positions – especially once we learned the vaccine was minimally protective from catching or spreading covid.

  17. There is a possibility that talk of a recession is in part deigned to prevent it. Economists talk about ‘inflation expectation’ as a driver of inflation itself and this might be the RBNZ getting ahead of expectations.
    The New Zealand economy, in conventional terms, is doing well with high growth, low unemployment and low levels of government debt – ideally the prospect of higher interest rates will hit demand and reduce spending enough to lower inflation with some flow on to businesses over all.
    But the government and the reserve bank are both in a good position to respond to a downturn if it becomes to severe – i.e. the bank has room to lower interest rates and the government has room to borrow and spend.
    Based on NZ experience after 2008 there is a possibility that NZ avoids a long or particularly deep recession provided Australia does the same – as was the case after the GFC.

    • lokk the big boys all have inflation so NZ must have it too, if only to keep in with the gang…more pathetic NZ ‘look me too mum’

      • I don’t understand your comment. What do you suggest we could have done differently to avoid inflation? NZ is a global trading economy and unavoidably impacted by global trade flows and pricing.

  19. So! Who thinks the GFC was bad?

    This manufactured recession is home fuck’n grown! All I can say is, its bad as baby!

    Lets see if Labour can poll 18% Woop! Woop!

  20. ” But we also need to hold accountable the politicians who have enabled him to commit this awful crime, while washing their hands of the consequences in the name of “reserve bank independence”. Because there are other ways to reduce demand in the economy, which don’t involve throwing people onto the bonfire to satisfy the greed of the rich ”

    its class warfare, by the rich and their politicians (who are also rich) against the rest of us. And we should not accept it.

    http://norightturn.blogspot.com/2022/11/an-engineered-recession-is-class-warfare.html

  21. Interest rate rises hit the poorest people hardest as does inflation.I think most people would agree with that.
    Higher interest rates offer the wealthy an alternative investment option more secure than equity investment.
    So here we go again the poorest people pay the higher price and they can least afford it.
    The wealthy have options.
    The overall economy cannot flourish off term deposits.

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