There’s nothing more annoying than just the news.
So here’s the news the news first, for what it’s worth, the OCR has increased by 0.75%. We are now at a level we haven’t been since around 2008.
Why is the OCR important? This ‘official’ interest rate that the Reserve Bank of New Zealand sets, indirectly influences the costs of money to the banks we the people borrow from.
It’s an important thing, because if interest rates increase, two things happen:
1 – There’s less new credit being created, which ultimately leads to lower levels of economic activity (and can cause recession). Higher interest rates increases the criteria at the bank lending level, which makes loans harder to obtain.
2 – There’s less disposable income in our households. This also leads to greater risk of financial failure, more suicides, and more family violence.
The reason why the OCR has to increase, we’re told, is because the economy is running ‘too hot’, and now we have too much new currency chasing too few goods and services.
So as the OCR increases, it’s easy to think this is medicine for OUR sickness.
Here’s the option part…
Higher interest rates is NOT a cure for OUR sickness. It’s theft.
The Reserve Bank of New Zealand, whether on auto-pilot from orders abroad, or genuinely thinking this through, has officially thrown our property values under a bus.
Those with wealth didn’t ask for their asset values to be inflated in 2020/2021, and those without assets didn’t ask for the theft that inflation is now ushering in.
The Central Bank of NZ created inflation from the start of March 2020 by lowering interest rates too far, and engaging in what’s effectively our version of money printing here in NZ. Not only were they far to quick to have all the levers pulled, they kept the settings far too loose for too long, creating a massive bubble in house prices.
The next time you hear inflation’s from wage increases, or businesses starting to get greedy, or supply chain disruption and labor shortages, consider the historical changes to the OCR (official cash rate) since around 2003: Central banks have been struggling to get inflation for decades – now they have it, they have a reason to increase interest rates.
We should consider the following questions:
Why do we have to have inflation in the first place?
Is it really true that interest rates can control the economy?
Why did Adrian Orr, the one at the helm when the RBNZ made arguably the worst call ever, been given another term by Grant Robertson?
Meanwhile, the made for Netflix reality drama series which happens to be real life continues. The FTX saga is a story about how trad-fi (traditional finance) fraud ‘wrapped’ itself into the digital world.
Greedy folks going to be greedy.
This isn’t a crypto problem, this is what happens when oil and water, or an acid and a base, collide. Crypto is not always the dangerous asset it’s made out to be – it’s almost always about the people with nefarious motivations.
Technology reveals humanities limitation.
Ironically, we now want to invite more human intervention in, in the form of regulation. It may be inevitable, but I wonder if the right way to go about this is to allow a rules based order to come from within the crypto ecosystem. A new wineskin for the new wine if you like.
So that’s just a small slice of the action, check out the below episode of News of the Money-World for more -grab an extra slice of bacon for your crazy.