On Thursday Graeme Wheeler will nudge you again, not in words but by his positioning: if you have money to invest, buy a house.
In a major speech on October 14 Wheeler trailed another official cash rate (OCR) cut.
He also said, significantly, that monetary policy “can affect the level of distribution of income”. He did not specify how but conservative commentators have: towards the well-off.
That can destabilise politics.
Take the rise of anti-establishment parties in Europe and the Tea party in the United States. Take Jeremy Corbyn’s takeover of British Labour, vowing to overturn the money-changers’ tables in the temple of Westminster.
Take the sweeping swing in Canada last week from John Key mate Stephen Harper to Justin Trudeau.
Trudeau has star quality, like Greece’s Alexis Tsipras — now, it appears, evolving from political brat to solution-finding prime minister — and Italy’s Matteo Renzi (and, here, the ever-not-ready Jacinda Ardern).
But a large ingredient in Trudeau’s win was popular frustration with the established order.
His challenge now is to frame a new politics without dismantling that established order, of which the party he heads has long been a major player.
Here “future of work” explorer Grant Robertson and new-Green James Shaw face the same challenge.
Robertson and Labour will be next week’s column topic. This week’s big event is Wheeler’s OCR pronouncement.
Short-term bank economists cast his choice in terms of logic: another cut by year-end if not this week. Wheeler said on October 14 “some further easing seems likely”.
Yet the OCR, at 2.75% since September, is far below the Reserve Bank’s 4.3% estimate of the “neutral” rate. Another cut would take it back to the heavily expansionary 2009-11 crisis level.
Which is where the big boys and girls are stuck. Wheeler: “The world has never seen cheaper financing.” The United States Federal Reserve Board (Fed), the European Central Bank (ECB), the Bank of Japan and the Bank of England have official rates near or at zero and have been printing money, calling it “quantitative easing”.
The ECB last week trailed more printing in December. The Fed meets Thursday-Friday our time to decide whether to try a small rise. That is after many months of moderately good United States GDP and unemployment figures.
The Fed’s timidity reflects how distorted global monetary conditions have become.
Can Wheeler, a house-cat among these lions, do differently? Essentially he said on October 14 he can’t.
He has been inventive with macroprudential measures to curb lending to house buyers as prices soar. But his low OCR setting is in effect saying the opposite, that those with some cash and/or borrowing capacity to invest logically will buy houses to rent out.
Bill English also backs investment in houses, with his tax settings and his lauding of low interest.
There are two big questions in this super-low-interest world.
If ultra-low rates and money-printing are the answer, why is the United States economy still hiccupping and its labour force participation rate at recession levels and why are Europe and Japan becalmed? The world is seven years on from the global financial crisis — eight from the first puffs out of the subprime bubble.
This question has elicited critical commentary in the Financial Times from hard-nosed people in hedge funds, wealth management funds, banks and central banks and the like — not exactly leftists’ nests.
In summary, this commentary says the orthodox 30-year-old monetary mechanism has got sand in the gears.
One theory is that there has been a structural shift in global and national economies, casting central bankers like the out-of-date generals 100 years ago who shovelled vast numbers time after time into futile attacks on enemy trenches through a four-year stalemate.
Moreover, with government and private debt at high levels and interest rates ultra-low, most overseas countries have little or no room to offset the next crisis, which might come, for example, from the new stress in “emerging economies” or from shares priced way above the level expected earnings would set them.
And who have been the big central banks’ beneficiaries? London hedge fund chair Paul Marshall lists banks, asset managers, hedge funds, owners of property. “In fact, anyone with assets has grown much richer.”
The risk: pumping assets pumps bubbles which burst — the 1987 share crash, 1997 Asian financial crisis, 2000 techwreck and 2007 subprime scam.
That poses the second question. Is this politically sustainable?
If the rich are getting richer, isn’t that an invitation to the vast majority who aren’t getting richer to turn to populist promoters of transcendental politics who tell them that the establishment is wrong and is their enemy?
Yes in Europe and the United States.
Not so here yet. But the underlying conditions are present. Among those conditions are decent, logical, rational Wheeler’s monetary settings which “affect the distribution of income”.