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Has the Reserve Bank Overstimulated the economy?

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  • Has the Reserve Bank Overstimulated the economy?

    It's easy to criticize in hindsight.

    But with life returning to normal-ish, did the Reserve Bank just free up too much credit?

    Did they overdo it, by dropping the restrictions on LVR and injecting low cost credit?

    Did they underestimate how returning New Zealanders would also act as a huge cash injection?

    Or is it that they just were too clumsy on where the money ended up.
    Perhaps a refined understanding on how to steer the money to the right place and keep it there?

    (Wouldn't you love to hear what elements they considered in their original proposal).

    What mechanisms has the reserve bank got to tweak the flame down a notch, if they choose?

    Would the Government even dare to fiddle, with the election so near?


    Remember, It's just as bad to have a burnt steak as a raw one.
    Last edited by McDuck; 14-10-2020, 09:00 AM.

  • #2
    Yeah well, it's a good question and the stimulus has done wonders for consumer confidence - good for Labour!

    cheers,

    Donna
    SEARCH PropertyTalk, About PropertyTalk

    BusinessBlogs - the best business articles are found here

    Comment


    • #3
      Originally posted by donna View Post
      Yeah well, it's a good question and the stimulus has done wonders for consumer confidence - good for Labour!

      cheers,

      Donna
      Ha ha.

      Yes...well...I'm not going to comment on anything political, least wise not so close to an election.

      Ideally people should make their own choice.

      We can have an interesting talk about that after the dust has settled.

      Comment


      • #4
        What I'm wondering now, about the Reserve Bank's present Objective and Methodology, is rather deeper.

        Sure the personality dynamics of the team are interesting, in a sort of soap opera kind of way.

        And the mathematics are interesting in a sort of nerdy way.

        But I'm actually taking a step way back.

        Wondering if the flow of money throughout a system is the best lens to get to the best result.

        It's difficult to explain to a lay person.

        It's kind of like wondering if a shadow of a person moving along the ground is the best way to see what that person is doing.

        Or if the reflection of a person in puddle is the best way to see how big that person is.

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        • #5
          A few really interesting questions about steering money ( credit ) through the system.



          1) Once the RESERVE bank has dumped billions of dollars into the financial system, can it steer them?

          2) Having caused the cash overflow, does the RESERVE bank reman responsible for where it goes?

          3) What is is it about property investing that differs from usual spending?

          4) Can those differences or qualities be used to create a sort of self governing filter?
          (Just so it keeps within scale of other types of spending).

          5) Could a totally different control mechanism be put in place, to keep investment at a non damaging level.
          Something unusual, like using the law of treason in a different way?
          Simply investigate if a particular person's behavior was injurious to the general public good?

          6) What other instantly responsive, self control mechanisms exist in industry and nature, could they be modified and used?

          Here is a nice example for the non practical folks..



          (P.S. I'm still testing the validity of the water flow model as an analogy for an economic system...)


          Last edited by donna; 23-10-2020, 11:20 AM. Reason: added embedded video using the video icon next to the quote icon on editor

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          • #6
            The New Zealand public, when considered on mass , may not act sensibly, unfortunately for the RESERVE bank.




            and later that year....

            Last edited by McDuck; 24-10-2020, 04:38 PM.

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            • #7

              The idea of an automatic control mechanism, to curb runaway house price inflation, seems difficult.
              But in post #5 above, - I have shown how a simple steam engine does it.

              And given the idea that such a device could be fitted to parts of the economy.
              Particularly around excessive investor spending.

              ( It would be a legal or government rule/ ratio/ equation, rather than an actual centrifugal device).

              One feature of the steam engine control device is that it operates in REAL TIME, no delays.
              The other important feature is that it's a fine GRADUAL control. Not a clunky hard ON/OFF of type deal.

              You will note that the RESERVE bank's responses are incredibly slow and clunky by comparison.


              Now,
              The only place you could insert that kind of control into our economy would be in the BANKING system.
              They certainly have the COMPUTERS and the up to the second DATA to manage a revolving credit account.

              They therefore have the ability to inform the RESERVE bank of the money going out to property etc.

              (I'd suggest the RESERVE bank didn't trust the COMMERCIAL banks to manage the equation though).

              _______

              Another model for managing balance can be found, not in the world of steam engines, but in nature.
              Anyone who thinks it's all too hard to manage several systems in equilibrium, only need to watch this quick video.

              .

              Last edited by McDuck; 28-10-2020, 07:48 AM.

              Comment


              • #8
                About filters.

                It's probably dawned on you that information plays an important role in system regulation.
                Sure, it can be disguised in all sorts of ways.
                With the steam engine example, the information is speed.
                With the human body, the information is heat.

                And the trick is to take information coming out of the system, and feed it back around into the system.
                It's called a feedback loop.

                Now, this is where filters come in.
                How to filter out the good information from the useless information?

                With our target of regulating an economy, the problem is rather easy.
                One simply needs to look for unique attributes of a target group.

                INVESTORS for example, have several UNIQUE characteristics.
                For example, INVESTORS don't use real earned, hard, bank account money as a DEPOSIT.
                At NO point is a house converted into CASH or a POSITIVE BANK BALANCE.
                Only a figment of imagination is used.
                A possibility. A potential


                That quite different from a first home buyer.
                So a good control valve, or information collecting point, could be inserted right here.
                (The rather slow and clunky tool of LVR was applied to exactly this point, in the past).

                But, I wonder if there is a better way?
                A more fine grained control tool?
                One that's automatic.

                Here's a nice little video hat shows basic filtering using the natural attributes of a class or group.

                Last edited by McDuck; 28-10-2020, 08:32 AM.

                Comment


                • #9
                  So, having understood the basics of system regulation, how could it be applied?
                  Theory is all fine, but practical application is nice too.

                  Well, since there is a desire to allow both nesters and investors to exist happily side by side, lets apply it there.

                  Say an investor had a house to live in, right, all good, no problem there.
                  Now say the investor had an inflation in the value of their house, and wanted to use that extra equity, as a deposit for his next speculative property loan /debt..

                  Beep.!
                  Small conflict here, both the Nester and the Investor want the same item, a house.
                  The Nester wanting it to rear the next generation of workers in, and the Investor wanting it to avoid working for a living.

                  A resolution to this conflict can be made.
                  A simple control equation could be applied right at that point,
                  (Due to interbank competition, it would have to be under reserve bank mandate mind).

                  I guess, the " upside down number" of "the number of property's owned", would be a good test start point.

                  So, since this it the second house, only 1/2 of the capital gain could be used as a deposit.
                  on the third house, only 1/3.. and so on.

                  This has the delightful feature of a negative feedback loop.
                  More desire to monopolize the housing supply, more pushback from the system.

                  ps.
                  You'd have to be careful to tag each successive loan to the previous one correctly.
                  People, being as ingenious as they are, would find clever ways to disconnect a loan from the previous one.
                  Last edited by McDuck; 30-10-2020, 03:30 PM.

                  Comment


                  • #10
                    McDick,you seem extremely intelligent.
                    Instead of worrying about what other people do with their finances why don't you educate the poor on how to create wealth.

                    There are so many ways to create wealth, property is but one way. You could do what your ancestors did to mine and confiscate property but that just creates poverty and a welfare dependence.

                    I would suggest less time worrying about the haves and more time educating the have nots...a good start would be 80% of the school education system, it teaches you how to be the working poor.

                    Comment


                    • #11
                      Hey, you're back!

                      The feedback, filtering and system control ideas in this thread, could well be used for creating and maintaining prosperity for the poor.

                      Usually I design win win systems.

                      There is room for improvement on the investor capping equation though.

                      I'm now thinking I could do better.

                      I'm now thinking it could be capped according to iteration, and also to....

                      First home buyer demand.

                      By adding and mixing those two numbers, you should get a great outcome.

                      I just need to write the formula and test it.




                      Comment


                      • #12
                        John Maynard Keynes. said:

                        Speculators may do no harm as bubbles on a steady stream of enterprise.
                        But the position is serious when enterprise becomes the bubble on a whirlpool of speculation.
                        When the capital development of a country becomes a by-product of the activities of a casino,
                        the job is likely to be ill-done.


                        Do speculators have any place in a market for essential goods?
                        (Especially at a time of shortage).
                        I'm trying to dispassionately evaluate it.
                        The quote (above), appeared during my background research.

                        Last edited by McDuck; 09-11-2020, 08:06 AM.

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                        • #13
                          Speculators are important to markets because they bring liquidity and assume the market risk. Conversely, they can also have a negative impact on markets, when their trading actions result in a speculative bubble that drives up an asset's price to unsustainable levels.

                          Comment


                          • #14
                            Originally posted by DrownInside View Post
                            Speculators are important to markets because they bring liquidity and assume the market risk. Conversely, they can also have a negative impact on markets, when their trading actions result in a speculative bubble that drives up an asset's price to unsustainable levels.
                            Yes, that's a fair take on it.

                            Also, speculators are supposed to provide a kind of MEASURING SERVICE to the economy.
                            They call it PRICE DISCOVERY.
                            But, I suspect that the number is inaccurate, and that that price is contaminated in almost all cases.

                            You've pointed to LIQUIDITY and RISK ABSORPTION.
                            So, since THE RESERVE BANK TEAM have taken over those two responsibilities now,
                            would you say speculators/ investors, add anything useful to our present economy?
                            Last edited by McDuck; 10-11-2020, 12:40 PM.

                            Comment


                            • #15
                              I'm calling BS on the RESERVE BANK's - " IT's NOT OUR FAULT" claim.

                              Well, at least, on the logic of it.

                              the Claim:

                              It's NOT OUR JOB, so it's NOT OUR FAULT.

                              The reality, if you CAUSED it, you are RESPONSIBLE.

                              That aside, according to their logic, WHO's JOB is it then?

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