ADRIAN ORR our NEW RBNZ GOVERNOR

[Joshuatree]

I found this interview with him very helpful and fresh and covering lots to do with our investments and where to from here for us and the planet..

Listenduration 35′ :04″ (https://www.radionz.co.nz/national/programmes/ninetonoon/audio/2018641349/reserve-bank-governor-adrian-orr)

[winner69]

Orr can’t be any worse than Wheeler even though he has ‘endorsed’ Wheeler’s recent actions and outlook.

The RB is fueling an inflation problem that will require numerous hikes in the future resulting in an inevitable recession in 2019/2020

They seem blindfolded with some idealistic views at the moment. I hope Orr can see what might happen and start acting now before it’s too hard and all too late

Good luck to him ....seems a nice enough guy.

[winner69]

Orr seems to want to get involved in ‘populism’ - not a good thing for the Governor of the RBNZ

The carry ons in Aussie banks one bandwagon he has jumped on

A week or so ago he wanted us all to know that New Zealand Banks were different and there wasn’t anything to worry about but this week He was “demanding” answers from NZ banks (even though he has no remit to do so)

Probably didn’t want to miss out on being on the band wagon and even worse may have even been egged on by Robertson

Not a good look

[stoploss]

I think the abrupt about face tells you he was more than egged on by the MOF ......

[Joshuatree]

Any links to support your arguments guys?

[winner69]

Any links to support your arguments guys?
April 22 no worries says Orr -
“The true problem and challenge going on in Australia is cultural,” Orr said Sunday in an interview on Television New Zealand’s Q+A. New Zealand bank culture “is infinitely better than some of the activity you’ve seen in Australia,” he said.

https://www.bloomberg.com/news/articles/2018-04-21/rbnz-s-orr-says-new-zealand-bank-culture-better-than-australia



May 2nd - Robertson says NZ branches are ‘obligated’ to prove they are not crooks
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12043691

And Orr and FMA summons the bank bosses to a meeting to make sure they prove they are not crooks
Everett said his and Orr's message was; "It’s not credible to just say that New Zealand is different. You have to demonstrate why either the business structures here, or your business practices here, lead to different outcomes. Now we at the FMA, we see some of that. But actually we think the banks need to front up and really explain why it should be different. And that’s the process that we’re going through with them now.”
https://www.interest.co.nz/news/93506/fmas-ceo-rob-everett-rbnz-governor-adrian-orr-tell-nzs-big-bank-ceos-prove-their-banks

And Orr doesn’t have a remit to take such action ....hmmm





Followed y

[stoploss]

Any links to support your arguments guys?

JT , bearing in mind the RBNZ is meant to be independent a link is rather unlikely . But ask yourself why would the Governor one week give it a big ‘ nothing to see here ‘ followed by the next week in unison with the MOF , “ prove it ‘ ?

[winner69]

JT , bearing in mind the RBNZ is meant to be independent a link is rather unlikely . But ask yourself why would the Governor one week give it a big ‘ nothing to see here ‘ followed by the next week in unison with the MOF , “ prove it ‘ ?

Spot on

Orr caught up in populism not good .....and even worse if Robertson told him to do it.

[Valuegrowth]

I found this interview with him very helpful and fresh and covering lots to do with our investments and where to from here for us and the planet..

Listenduration 35′ :04″ (https://www.radionz.co.nz/national/programmes/ninetonoon/audio/2018641349/reserve-bank-governor-adrian-orr)
"Mr Orr said householders and investors also needed to consider whether they were putting all their financial eggs into one basket when it came to the housing market"

Quoted from the above link. This is something to think about seriously before it is too late.

Hope we are not same as Canada. Good luck for new Governor.

https://www.theglobeandmail.com/report-on-business/credit-quality-of-canadian-banks-under-strain-moodys/article38280148/

Credit quality of Canadian banks under strain: Moody’s

[Joshuatree]

JT , bearing in mind the RBNZ is meant to be independent a link is rather unlikely . But ask yourself why would the Governor one week give it a big ‘ nothing to see here ‘ followed by the next week in unison with the MOF , “ prove it ‘ ?

I havnt seen or heard this "followed by the next week in unison with the MOF" that is the link im asking for.

[winner69]

I havnt seen or heard this "followed by the next week in unison with the MOF" that is the link im asking for.

Don't need a 'link' ...its pretty obvious what the motivation for the the meeting with the Bankers Association was .....isn't it

Orr going to be a danger if he carries on like this .....jeez he'smeant to be a Governor of a Central Bank and not a rock star

[stoploss]

I havnt seen or heard this "followed by the next week in unison with the MOF" that is the link im asking for.

https://www.interest.co.nz/business/93523/finance-minister-says-he-expects-new-zealand-banks-be-able-prove-they%E2%80%99re-playing

[Joshuatree]

Thanks guys. i dont really see an about face. In aus there is a Royal Commission inquiry into misconduct, here the banks are being asked to" prove they are different"



"Reserve Bank Governor Adrian Orr says there is no need (https://www.interest.co.nz/news/93422/new-rbnz-governor-adrian-orr-says-differences-between-deposit-insurance-obr-de-minimis) for a similar Royal Commission in New Zealand. Orr said the culture of the New Zealand banks is “infinitely better than some of the activity in Australia.”
Asked if he agrees, Robertson says, “that’s certainly what we have been told."

[winner69]

Thanks guys. i dont really see an about face. In aus there is a Royal Commission inquiry into misconduct, here the banks are being asked to" prove they are different"



"Reserve Bank Governor Adrian Orr says there is no need (https://www.interest.co.nz/news/93422/new-rbnz-governor-adrian-orr-says-differences-between-deposit-insurance-obr-de-minimis) for a similar Royal Commission in New Zealand. Orr said the culture of the New Zealand banks is “infinitely better than some of the activity in Australia.”
Asked if he agrees, Robertson says, “that’s certainly what we have been told."

Question still unanswered is why is Orr even getting involved and asking for them to prove they don’t have a bad culture in NZ

Orr (or RBNZ) banking supervision powers are about the maintenance of a “sound and efficient” financial system .......not about market conduct.

Dangerous if he just wants to be a ‘popular’ governor jumping on every bandwagon ...and seen to be in bed with the MoF

[winner69]

I see our man Adrian making comments about things that RBNZ Governors shouldn’t be involved in (Chch rebuild). Ok if in his old job but not for this job.

He’s becoming a loose cannon

[Joshuatree]

Question still unanswered is why is Orr even getting involved and asking for them to prove they don’t have a bad culture in NZ

Orr (or RBNZ) banking supervision powers are about the maintenance of a “sound and efficient” financial system .......not about market conduct.






One goes with the other, cant you see the connection.

[Joshuatree]

Our vision and valuesOur purpose, vision and valuesThe Reserve Bank's purpose is to promote a sound, efficient and dynamic monetary and financial system. It seeks to achieve its vision - of being the best small central bank - with values of:
Integrity: Being professional and exercising sound judgement.
Innovation: Actively improving what we do.
Inclusion: Working together for a more effective Bank.
The Bank aims to develop and implement highly effective and efficient monetary, regulatory and financial policies that are well suited for the New Zealand economy and financial system. It endeavours to ensure that: the Bank’s objectives and priorities are sound, clearly communicated and understood; its business operations are well managed; and it invests wisely in the recruitment, training, development and retention of its staff. The Bank also invests heavily in reviewing and testing its policy frameworks and policy settings in light of domestic and international experience, and ensures that its independence is balanced by appropriate public disclosure and accountability.

[macduffy]

Spot on, Jt!

Let's not jump to any conclusions about the new governor. I find his communication "openness" to be rather refreshing - no tweets though, thank you!

[peat]

A new perspective Guv - i find this quite refreshing
http://www.sharechat.co.nz/article/992e11ba/governor-orr-draws-on-t-ne-mahuta-to-tell-rbnz-s-new-story.html (http://www.sharechat.co.nz/article/992e11ba/governor-orr-draws-on-t-ne-mahuta-to-tell-rbnz-s-new-story.html)

He says he can lay a mean hangi!

[winner69]

A new perspective Guv - i find this quite refreshing
http://www.sharechat.co.nz/article/992e11ba/governor-orr-draws-on-t-ne-mahuta-to-tell-rbnz-s-new-story.html (http://www.sharechat.co.nz/article/992e11ba/governor-orr-draws-on-t-ne-mahuta-to-tell-rbnz-s-new-story.html)

He says he can lay a mean hangi!

Too many distractions diverting his attention away from the main job I think

Wasn’t bad that after promoting ‘transparency’ the RBNZ banned media and even reporting from a speech to business people recently ...aparently this is what transparency means - “...communicate directly with a group of people who will be better informed after the event than they were at the start. That fits very well with our strategy to communicate more widely.”

Also it seem strange that even though the RBNZ say 4.6% is the best guess of the unemployment rate consistent with keeping inflation low and yet the Reserve Bank has allowed it to fall to 4.4% without considering the need for at least a token OCR hike ...but then saying the next change could be up or down maybe he has considered a hike but is signalling a cut if anything is like. We’ll all suffer in late 2019/2020

[Lego_Man]

Too many distractions diverting his attention away from the main job I think

Wasn’t bad that after promoting ‘transparency’ the RBNZ banned media and even reporting from a speech to business people recently ...aparently this is what transparency means - “...communicate directly with a group of people who will be better informed after the event than they were at the start. That fits very well with our strategy to communicate more widely.”

Also it seem strange that even though the RBNZ say 4.6% is the best guess of the unemployment rate consistent with keeping inflation low and yet the Reserve Bank has allowed it to fall to 4.4% without considering the need for at least a token OCR hike ...but then saying the next change could be up or down maybe he has considered a hike but is signalling a cut if anything is like. We’ll all suffer in late 2019/2020

Fruity as hell...

I had high hopes for Orr but he seems to be overreaching his role at every opportunity. We've gone from one extreme to the other...

[peat]

Clearly not into crypto
"The death of the currency is much exaggerated at the moment, and likewise the life of a lot of these cryptocurrencies," Orr said.

[Joshuatree]

Diversity and Inclusiveness thats our future.No need to be scared, embrace positive change and leave redundant RB habits behind. KEEP UP :t_up:

"I think we were lagging behind in some places," Orr says. "It's not just tikanga Māori, it's about accepting what future New Zealand looks like. It doesn't look like current New Zealand. It's going to be Polynesian, Asian, European, as opposed to European, Polynesian, Asian" and the bank has to grow with the change.

[Lego_Man]

Diversity and Inclusiveness thats our future.No need to be scared, embrace positive change and leave redundant RB habits behind. KEEP UP :t_up:

"I think we were lagging behind in some places," Orr says. "It's not just tikanga Māori, it's about accepting what future New Zealand looks like. It doesn't look like current New Zealand. It's going to be Polynesian, Asian, European, as opposed to European, Polynesian, Asian" and the bank has to grow with the change.


Maybe wishful thinking from the Euro-haters.

http://archive.stats.govt.nz/browse_for_stats/population/estimates_and_projections/NationalEthnicPopulationProjections_MR2013-2038.aspx

Stats NZ still has European NZ'ers as a comfortable majority of the population out to 2038 (and by inference beyond), so his characterisation is completely bogus. Possibly more worrisome for our treaty partners as they will be shortly overtaken as out largest minority.

[blackcap]

Maybe wishful thinking from the Euro-haters.

http://archive.stats.govt.nz/browse_for_stats/population/estimates_and_projections/NationalEthnicPopulationProjections_MR2013-2038.aspx

Stats NZ still has European NZ'ers as a comfortable majority of the population out to 2038 (and by inference beyond), so his characterisation is completely bogus. Possibly more worrisome for our treaty partners as they will be shortly overtaken as out largest minority.

It's going to be European, Asian, Polynesian before anything.

[macduffy]

We seem to be straying well away fom this forum's theme - Investment Strategies.

;)

[winner69]

Good speech by Orr ....good probably because I agree about short termism

https://rbnz.govt.nz/research-and-publications/speeches/2018/speech2018-09-07

Orr sounds bored as a RBNZ Governor .....seems more interested in things other than monetary policy (and my opinion he’s not doing that well)

[Joshuatree]

Excellent read , thanks for the link w69.

[peat]

yes thanks from me too w69.

[winner69]

Another Orr masterpiece (under guise of RBNZ)

https://rbnz.govt.nz/-/media/ReserveBank/Files/the-journey-of-te-putea-matua/The-Journey-of-Te-Putea-Matua-Our-Tane-Mahuta.pdf?la=en

[winner69]

Good to see NBR telling Orr just to do his job .....and I’m not Shoeshine

We don’t need no rockstar Reserve Banker

https://www.nbr.co.nz/analysis/we-don-t-need-no-rockstar-reserve-banker?utm_source=Heads+Up&utm_campaign=5049c0554d-EMAIL_CAMPAIGN_2019_02_10_08_43&utm_medium=email&utm_term=0_de046f9519-5049c0554d-49461157

[Aaron]

What does an interest rate say about an economy. You lower it to increase growth and increase it to decrease growth.
https://www.rbnz.govt.nz/monetary-policy/official-cash-rate-decisions
Definitely pro growth with another cut expected.
8.25% in June 2008. Hard to believe in this day and age.

[Toulouse - Luzern]

I was interested in NBR article cited but it is behind a paywall.
I found this article by Dr Bryce Wilkinson online
https://nzinitiative.org.nz/reports-and-media/opinion/the-case-against-taxpayer-guarantees-for-bank-deposits/

[Aaron]

I was interested in NBR article cited but it is behind a paywall.
I found this article by Dr Bryce Wilkinson online
https://nzinitiative.org.nz/reports-and-media/opinion/the-case-against-taxpayer-guarantees-for-bank-deposits/

I'm confused when did the open bank resolution include a government guarantee. I see it mentioned in the graphic here
https://www.rbnz.govt.nz/regulation-and-supervision/banks/open-bank-resolution

but if you click on Q& As you get this
https://www.rbnz.govt.nz/faqs/open-bank-resolution-policy-faqs

Not a big fan of the NZ Initiative, a think tank unable to work out why GST is regressive. Sounds more like they have an ideological bent they want to push. If the free market is the best option they should first go for the abolition of interest rate controls by the central bank and an end to monetary instability in the form of targeted inflation rates.

Although I agree taxpayers shouldn't be guaranteeing any industry and a taxpayer guarantee won't encourage bankers to act more responsibly. Although who pays for the deposit insurance most countries have? The depositors? I like the idea you won't be completely wiped out in a bank failure.

[JBmurc]

What does an interest rate say about an economy. You lower it to increase growth and increase it to decrease growth.
https://www.rbnz.govt.nz/monetary-policy/official-cash-rate-decisions
Definitely pro growth with another cut expected.
8.25% in June 2008. Hard to believe in this day and age.

RBNZ policy like many central banks goal is forced by short term thinking Govt(that in turn do the Banks bidding) is to make sure the property market does not fall in value, in turn, pressuring the finance consumer model the banks need to survive

As unlike the US the local banks hold the risk on properties decreasing in value i.e I don't think NZ/Aus banks have shifted the risk off the balance sheet like what we have seen in the likes of the US market with CDO's to retirement funds (which then blew-up crashing the funds value)

[peat]

I'm confused when did the open bank resolution include a government guarantee. I see it mentioned in the graphic here
https://www.rbnz.govt.nz/regulation-and-supervision/banks/open-bank-resolution

but if you click on Q& As you get this
https://www.rbnz.govt.nz/faqs/open-bank-resolution-policy-faqs



THey clarify that with:

All funds that are not frozen will be subject to a government guarantee to ensure that all participants in the financial system are able to engage with the re-opened bank with confidence that any transactions will be honoured.

And of course they dont quantify the frozen amount, it might be bigger than you think!

[winner69]

Aaron - you might enjoy this

http://www.davidmcwilliams.ie/2018-articles/

[Aaron]

THey clarify that with:

All funds that are not frozen will be subject to a government guarantee to ensure that all participants in the financial system are able to engage with the re-opened bank with confidence that any transactions will be honoured.

And of course they dont quantify the frozen amount, it might be bigger than you think!



I guess the NZ Initiative may be getting concerned about nothing. I guess the "government guarantee" scared them into action

[Aaron]

Aaron - you might enjoy this

http://www.davidmcwilliams.ie/2018-articles/

Dare I say that that it sounded reasonable to me. Googling him indicates he is not a total crackpot although he is an economist(arts students shouldn't be running the world). I think it may have been him who wrote an interesting article regarding Ireland and the GFC whereby he pointed out the only reason they had a debt problem was that the Irish were buying houses from each other at higher and higher prices in a virtuous cycle of higher valuation more equity more debt available to pay more for the next house. It sounds like the makings of a good joke about Irish stupidity like the ones I used to hear as a kid, but it also sounds a lot like NZ and Australia currently, although US, European and Chinese funny money may also help as some of the Central Bank bond buying must eventual flow to our shores.

Although I go on about the greedy generation, I think their rip off of younger generations is only a small part of the problem. Extreme disparity in wealth(and power) might be the main problem and it is being exacerbated by Central Banks and QE and low interest rates ensuring high asset price inflation.

From what I read I suspect a majority of boomers main store of wealth is their house and possibly a small portfolio of shares so they continue to support a system that tries to look after this to the detriment of the young and the poor not necessarily out of greed but possibly out of fear. There might be a better way, I am unsure what it is but a start might be getting rid of targeted inflation and stopping the deceptive use of inflation to get rid of debt over time.
I have heard the term honest money being used, currently it is being used to deceive as the wealth effect is currently real but won't be if wages and the price of everything else catches up to asset prices.

I think the problem might be that QE and interest rates and wealth disparity might be getting more extreme each time QE happens or interest rates fall in the face of rising asset prices. Also the constant growth model may be running up against the environment and the limits of the planet. Who knows personally I think the younger generation shut out of the housing market can be more idealistic in their views as they have nothing to lose.

[winner69]

Good post Aaron

I’ve always enjoyed reading David McWilliams over the years and once was lucky to see him in action in a Kilkenomics session (where economics and comedy come together).

Maybe it’s more his style of writing than economics that attracts me but his subject matter is always interesting

Best piece was this from 2007
http://www.davidmcwilliams.ie/the-generation-game/

[winner69]

RB under Orr getting even weirder

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12206354

In a speech the other day a RB guy said ‘It’s like putting the roof on while the sun shines’ ...goodness gracious me

[Joshuatree]

Cometh the the caring govt , cometh the Gov to match. Times are are changing for the better, we adapt too. Great stuff. Adapt or be irrelevant.

[winner69]

“ Let’s leave Tane Mahuta in the forest. He has no place on The Terrace“

https://www.interest.co.nz/opinion/98418/geof-mortlock-argues-reserve-bank-about-much-use-financial-regulator-cricket-umpire

[Joshuatree]

Thanks for highlighting the last line, it shows the writer has got some unhealthy agenda against the governor and his idea of yet more authorities and regulatory bodies is just supporting his network of talking heads all , justifying their jobs with spin and hubris and butt covering.

Transparent indeed, adapting ,no.

[jonu]

Thanks for highlighting the last line, it shows the writer has got some unhealthy agenda against the governor and his idea of yet more authorities and regulatory bodies is just supporting his network of talking heads all , justifying their jobs with spin and hubris and butt covering.

Transparent indeed, adapting ,no.

Unhealthy agenda? I thought it was a well structured opinion piece from a very knowledgeable writer. Orr needs to deflate his ego before someone else does it for him. We don't need rockstar RB governors and economists. We need sound policy and a functioning regulatory regime. Going and sitting with Te Roroa to get permission to talk of Tane Mahuta is PC BS. We've already got a flaky feel good PM, we don't need it spreading further.

[winner69]

Unhealthy agenda? I thought it was a well structured opinion piece from a very knowledgeable writer. Orr needs to deflate his ego before someone else does it for him. We don't need rockstar RB governors and economists. We need sound policy and a functioning regulatory regime. Going and sitting with Te Roroa to get permission to talk of Tane Mahuta is PC BS. We've already got a flaky feel good PM, we don't need it spreading further.

Agree with you jonu

[Joshuatree]

Unhealthy agenda? I thought it was a well structured opinion piece from a very knowledgeable writer. Orr needs to deflate his ego before someone else does it for him. We don't need rockstar RB governors and economists. We need sound policy and a functioning regulatory regime. Going and sitting with Te Roroa to get permission to talk of Tane Mahuta is PC BS. We've already got a flaky feel good PM, we don't need it spreading further.

Think your post was a fair rebuttal until the last line as well. thanks for your transparency anyway.

[winner69]

I see Orr (OK the RBNZ is) is recruiting for a CULTURAL CAPABILITY ADVISOR MAORI to help implement his "Te Ao Maori strategy..designed to build a bankwide understanding of the Maori economy"

goodness gracious

[Joshuatree]

Inclusiveness in racism out.

[peat]

Inclusiveness in racism out.
but isnt it racism to actually consider separately a Maori economy?

(asking for Don Brash)

[jonu]

Inclusiveness in racism out.

Isn't it racist to assume someone thinks a certain way because of their race. Doesn't it become condescending (and racist) to have a token whoever, assuming they think the same as the other whoevers?


Eg. Let's have a token brown one on the board, you know. To represent the brown ones. Hang on, what about that other shade of brown ones? Bummer, we forgot to include one of the rainbow brown ones. Maybe we need a brown one with disabilities. Have we covered it yet?

Damn, got to repeat it for those Asian ones, cos we all know they think the same, right?

How many spaces on the board again? Oh hell, we haven't even started on the gender diversity yet...you know all those non-binary ones x the shades of colour. Let's see LBGTQI+ XYZ LMNOP x how many racial groups? Good thing we have a big board table and are so self righteously smug that we know people of certain colours/types all think the same.

[winner69]

Reserve Bank getting involved in non central bank issues

And this stinks of disaster capitalism

https://www.rbnz.govt.nz/news/2019/0...stand-together

[SBQ]

Link comes back as 404 error.

[peat]

Link comes back as 404 error.
https://www.rbnz.govt.nz/news/2019/04/nz-leaders-stand-together

[winner69]

Another blast at Orr ....he really is a danger and we will all suffer in a couple of years with the approach he’s taking

https://www.euronews.com/2019/04/16/a-tricky-read-nz-central-bank-chief-wrong-foots-markets

[Baa_Baa]

Another blast at Orr ....he really is a danger and we will all suffer in a couple of years with the approach he’s taking

https://www.euronews.com/2019/04/16/a-tricky-read-nz-central-bank-chief-wrong-foots-markets

For 20k+ posts, you're not usually so deeply concerned, but in this circumstance Orr is really pulling your strings. Would you mind explaining what it is that worries you so much? Do you just not like the guy, or is there something more sinister that you're concerned about?

[macduffy]

By his own admission, apparently:

"Calm and unruffled by his critics, Orr, who took the helm in March last year, has said he doesn't want to be seen as predictable nor for markets to simply rote-read his statements."

Perhaps it's the "unpredictable" aspect. RBNZ governors don't usually go out of their way to cultivate that trait.

[peat]

unpredictable has its benefits in that he wont be obvious and will keep the markets on their toes. predictable rate cuts are food for large players to gobble up.

[kiora]

unpredictable has its benefits in that he wont be obvious and will keep the markets on their toes. predictable rate cuts are food for large players to gobble up.

I concur with Peat here.Good for RBNZ dividends too !
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12135573

[macduffy]

I concur with Peat here.Good for RBNZ dividends too !
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12135573

Surely not insider trading!

:ohmy:

[winner69]

MPS nxt week. It will be interesting to see if it’s Adrian’s show or will the new Monetary Policy Committee have some input?

An OCR cut looks on the card next week .....but is this laying the foundations for what happened when the then Governor went on a misguided pro growth strategy only resulting in a series of rate hikes and a recession?

I reckon RBNZ not giving likely wage inflation sufficient consideration in their thinking

Only time to tell.

[winner69]

Well, he did cut and says more to come

Good for many now but I fear we will look back in 2021 and say why did he do it.

Must have a different agenda from than just caring for monetary policy.

[Aaron]

Well, he did cut and says more to come

Good for many now but I fear we will look back in 2021 and say why did he do it.

Must have a different agenda from than just caring for monetary policy.

The Reserve Bank manages monetary policy to maintain price stability, promotes the maintenance of a sound and efficient financial system, and supplies New Zealand banknotes and coins.

1/Price stability by my definition is not pushing the price of everything up by 1-3% per year. Worse they are pushing asset prices up way ahead of general inflation and the price of other goods.

2/Promote the maintenance of a sound and efficient financial system. Is that why the NZ taxpayer provided a guarantee to the businesses in the financial sector in 2008/09. The rate cut is to protect house prices which is the security underpinning the NZ financial system. I would suggest the Reserve Bank is beholden to the financial services industry.

3/Supplies NZ bank notes and coins.

1 out of 3 ain't bad.

Stealing off people who save and invest for the benefit of spendthrifts and gamblers seems wrong to me but what do I know.

[peat]

It always seems to be a difficult decision to make for a Guvnor, I mean committee, i.e to make a change to the rate rather than just leave it alone.
Wheeler was superbly boring. But Orr probably wants to make his mark and 'show off' just a little, by pre-empting, or 'picking perfectly' (depending on how it all goes) the time to cut. Time will only tell, but Orr has done something! I have actually read the speech yet though I'm very curious about how it will be woven into the world of Tane Mahuta

I reckon it should be called an Orr Put!

[Baa_Baa]

… but what do I know.

I think you know that despite how ‘wrong’ it all is (all the things you’ve talked about that is wrong and will blow up one day), the great reckoning isn’t working out for you so well and you’re more afraid of missing the reckoning than your fear of missing the wealth creation that abject dysfunction is presenting to you.

[macduffy]

There was a good reason in 2008/9 to provide that guarantee - charged for, admittedly cheaply as it turned out - at a time when every other comparable Western country had a similar deposit guarantee in place. Not to do so would have risked a massive capital outflow from the NZ financial system/economy. Now that would have been "bad".

[Baa_Baa]

There was a good reason in 2008/9 to provide that guarantee - charged for, admittedly cheaply as it turned out - at a time when every other comparable Western country had a similar deposit guarantee in place. Not to do so would have risked a massive capital outflow from the NZ financial system/economy. Now that would have been "bad".

Yes it would have been bad, really really bad, the Gummint did what it thought it had to do at the time, perhaps a bit knee jerk and awkward, but saved a ton of folks who would've otherwise been right royally shafted (although disparately lots were shafted that had no choice or say in the matter).

Gummint never gets it quite right, damned if they do, damned if they don't and they suffer the long tail of derision from perfect hindsight with 2020 vision of the perfect present. Despite all that there is no real vision for what might unfold in the future, or policy to avoid, mitigate or minimise the damage from it. History might not repeat as they say, but it does rhyme.

[Aaron]

I think you know that despite how ‘wrong’ it all is (all the things you’ve talked about that is wrong and will blow up one day), the great reckoning isn’t working out for you so well and you’re more afraid of missing the reckoning than your fear of missing the wealth creation that abject dysfunction is presenting to you.

Not sure I entirely understand what you are saying but the thought of missing out on a large fall in asset values has meant watching a lot of wealth creation missed for me and being endlessly frustrated by Central banks ability to keep asset prices inflated at what I think might eventually be at the expense of "the maintenance of a sound and efficient financial system". Unless a "sound and efficient financial system" involves constantly dropping interest rates and printing money to keep asset prices elevated and increasing debt levels.

It would be interesting to know how many on the reserve bank committee are committed to a leveraged investment approach or how many still have a mortgage or have recently helped family into an overpriced house lately.

[Aaron]

There was a good reason in 2008/9 to provide that guarantee - charged for, admittedly cheaply as it turned out - at a time when every other comparable Western country had a similar deposit guarantee in place. Not to do so would have risked a massive capital outflow from the NZ financial system/economy. Now that would have been "bad".

What interest rates in NZ would have had to rise to attract capital back and NZ house price growth would have been stunted by higher interest rates??

[Aaron]

There was a good reason in 2008/9 to provide that guarantee - charged for, admittedly cheaply as it turned out - at a time when every other comparable Western country had a similar deposit guarantee in place. Not to do so would have risked a massive capital outflow from the NZ financial system/economy. Now that would have been "bad".
Thinking about it a bit further it might not have just been outflows from NZ but a good number of people in NZ were considering stashing some cash in the mattress which may have created a run on the banks.

We are on a well trod path other countries have already taken. There is already speculation regarding the next steps.

https://www.stuff.co.nz/business/opinion-analysis/112576748/reserve-bank-rate-cut-to-record-low-raises-question-of-going-to-zero

I am seriously looking at buying land at a crappy yield just so I have some borrowings and no money in the bank.

[macduffy]

You're on to it, Aaron! Call it a capital outflow or a run on the banks - it's the same thing.

:ohmy:

[Aaron]

You're on to it, Aaron! Call it a capital outflow or a run on the banks - it's the same thing.

:ohmy:

I've said it before call in the loans wipe out the borrowers first, then the shareholders, then the bondholders and if there is anything left afterwards give it to the depositors.

Also not that I like him I see Don Brash is pointing out the blatantly obvious.
https://www.msn.com/en-nz/news/national/don-brash-concerned-after-ocr-cut/ar-AAB5NT9?li=BBqdg4K

The Reserve Bank itself suggests this will reignite housing inflation to about 5 percent per annum," he told The AM Show.
What the Reserve Bank is saying is that houses will continue to rise faster than incomes."

This is seriously f**ked up in my view, that no one seems to give a s**t is hard to believe. I would guess it is because most intelligent people already have a least one house and don't see it as a problem as long as they can help their own kids up onto the property ladder. This leaves a large chunk of the population and young people without parental assistance getting reamed by the reserve bank. I would have thought a left leaning government might comment even though the reserve bank is independent. Any efforts to improve housing or housing affordability in the current financial system is a joke if they are not going to address the root cause of the problem.


His second concern is about what the Reserve Bank could do if a recession occurs, with the rate at the lowest it's ever been there isn't much room to go any lower.

The reserve bank is meeting its inflation targets and unemployment isn't a problem yet they are cutting. I am assuming as long as they are not the evil b**tards I think they are then they might see what I see for the future but they need to extend and pretend rather than allow a correction.

[tga_trader]

Any efforts to improve housing or housing affordability in the current financial system is a joke if they are not going to address the root cause of the problem.
His second concern is about what the Reserve Bank could do if a recession occurs, with the rate at the lowest it's ever been there isn't much room to go any lower.
The reserve bank is meeting its inflation targets and unemployment isn't a problem yet they are cutting.
These are exactly my thought when I saw it was cut. I mean sure, I've never worked for the RBNZ, but the above seems to make common sense to me.

[winner69]

I've said it before call in the loans wipe out the borrowers first, then the shareholders, then the bondholders and if there is anything left afterwards give it to the depositors.

Also not that I like him I see Don Brash is pointing out the blatantly obvious.
https://www.msn.com/en-nz/news/national/don-brash-concerned-after-ocr-cut/ar-AAB5NT9?li=BBqdg4K

The Reserve Bank itself suggests this will reignite housing inflation to about 5 percent per annum," he told The AM Show.
What the Reserve Bank is saying is that houses will continue to rise faster than incomes."

This is seriously f**ked up in my view, that no one seems to give a s**t is hard to believe. I would guess it is because most intelligent people already have a least one house and don't see it as a problem as long as they can help their own kids up onto the property ladder. This leaves a large chunk of the population and young people without parental assistance getting reamed by the reserve bank. I would have thought a left leaning government might comment even though the reserve bank is independent. Any efforts to improve housing or housing affordability in the current financial system is a joke if they are not going to address the root cause of the problem.


His second concern is about what the Reserve Bank could do if a recession occurs, with the rate at the lowest it's ever been there isn't much room to go any lower.

The reserve bank is meeting its inflation targets and unemployment isn't a problem yet they are cutting. I am assuming as long as they are not the evil b**tards I think they are then they might see what I see for the future but they need to extend and pretend rather than allow a correction.

I agree with you that they are not evil b*****ds but they sure are f*****g up the economy with this pro-growth stance / experiment.

Seems rather odd a ‘pro-growth’ cut is needed when their own GDP forecasts have quarterly growth rates averaging 0.8 per cent for the next couple of years. That looks pretty healthy to me.

Never mind Aaron it’s all going to be OK but I’d buy that land pretty quick before it gets too expensive.

That

[Aaron]

Never mind Aaron it’s all going to be OK but I’d buy that land pretty quick before it gets too expensive.
Too late for that already too expensive it is just a question how far they can take it for how long and maybe "this time is different" we are certainly in a new era. Although I would be interested to compare current central bank policy with that of John Law.
It worked out alright in the end back then with the age of enlightenment but there was a period of adjustment that was unpleasant. Particularly for the French monarchy.

[macduffy]

I don't like this latest rate cut either, Aaron. I'd much prefer that the ammo was kept for when it might be needed rather than firing off some now and risking having to resort to such desperate measures as negative rates if things fall apart. It must be said though that the RB rate committee is in a rather tricky hole - the directive is to target inflation within a band, ie there is required to be some inflation. The reason is of course to avoid deflation and the misery that would follow that. I don't envy them.

[Aaron]

I don't like this latest rate cut either, Aaron. I'd much prefer that the ammo was kept for when it might be needed rather than firing off some now and risking having to resort to such desperate measures as negative rates if things fall apart. It must be said though that the RB rate committee is in a rather tricky hole - the directive is to target inflation within a band, ie there is required to be some inflation. The reason is of course to avoid deflation and the misery that would follow that. I don't envy them.

I think our reasons for not liking the latest rate cut are a bit different. Yours is a disagreement over the timing of the cut. Mine is fury that I am still stuck on the wrong side of this and they are cutting even though their targets have been met. My upset might also be because I lost at tennis last night as well. But guaranteeing house prices keep rising faster than wages is effectively denying the younger generation the same chance of social mobility that previous generations have enjoyed.

Although not specifically how the financialisation of the economy and reserve bank policy is stacking the deck against young peoples futures being on a par with previous generations Bernard Hickey's article highlighted a few other reasons why things won't change. Not at least until it becomes glaringly obvious. More likely life isn't too bad for a majority of NZers so we won't get change.
https://www.stuff.co.nz/business/property/107286491/dear-young-renters-you-are-sooo-toast

I see in the paper today immigration is back near its peak before labour came into power. I would guess central bank policy and immigration are just two issues that need addressing before housing affordability for young NZers could be considered to be seriously attempted by government.

My term deposits come off in 5 months and I will be buying either real estate or a portfolio of shares with a small amount of debt. Too bad if my timing is terrible. Extend and pretend can go on for a long time. At a minimum Janet Yellen's lifetime.

[alistar_mid]

I don't like this latest rate cut either, Aaron. I'd much prefer that the ammo was kept for when it might be needed rather than firing off some now and risking having to resort to such desperate measures as negative rates if things fall apart. It must be said though that the RB rate committee is in a rather tricky hole - the directive is to target inflation within a band, ie there is required to be some inflation. The reason is of course to avoid deflation and the misery that would follow that. I don't envy them.

thats the consensus a friend (head of research at one of the major NZ investment banks) and i had when discussing it on wednesday, it seemed kinda pointless - I mean, dropping the OCr to stimulate the economy now? - why, why now? and Adrian Orr is a bit of a numpty.

[winner69]

thats the consensus a friend (head of research at one of the major NZ investment banks) and i had when discussing it on wednesday, it seemed kinda pointless - I mean, dropping the OCr to stimulate the economy now? - why, why now? and Adrian Orr is a bit of a numpty.

Pro-growth if it does work when economy not doing too badly in first place (their own forecasts average 0.8% quarterly growth) only leads to super hot economy and inevitable rate hikes

[Aaron]

rate hikes
Yeah Right.......

[winner69]

RB Governors always seem to act oddly when there’s a Labour Government

What happened to the RBNZ pro-growth experiment in the early 2000’s .....ended up in tears and a recession (and then we were hit with the GFC the following year)

[kiora]

RB Governors always seem to act oddly when there’s a Labour Government

What happened to the RBNZ pro-growth experiment in the early 2000’s .....ended up in tears and a recession (and then the following year the GFC)

But this time its different !

[macduffy]

RB Governors always seem to act oddly when there’s a Labour Government

What happened to the RBNZ pro-growth experiment in the early 2000’s .....ended up in tears and a recession (and then the following year the GFC)

I often wondered who or what caused the Global Financial Crisis.

;)

[Aaron]

John Roughan in the herald this morning discussed the committee, which highlighted how little I know about the reserve bank. It sounds like he also can't understand why the cut when targets are being met.

https://www.rbnz.govt.nz/news/2019/03/expertise-on-reserve-bank-committee-means-strong-focus-on-economy-and-jobs

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12230142

For those with premium access. Sorry I know how frustrated I used to get with links to the NBR.

[macduffy]

I can't crack the Herald's paywall but the need for an interest rate cut eludes a lot of us! It's got to be an attempt to boost that stubbornly low inflation rate - and risk the Auckland housing market recovering it's strength.

[peat]

I often wondered who or what caused the Global Financial Crisis.

;)

i think most commentators put it down to the securitization of sub prime mortgage lending.

I blamed Adrian for wanting to make his mark and that may still possibly be a factor but we are not really able to fully apportion blame on him due to the committee decision
Quite a few articles now in the NZHerald Premium questioning this decision. Seems very right to question it to me.
I believe the way to crack the paywall is to pay a measly $10 for the first eight weeks.

[macduffy]

Criticism from a former RBNZ official of the bank's capital adequacy proposals.

http://www.sharechat.co.nz/article/7a2ce80b/rbnz-s-poor-policy-process-puts-its-credibility-at-risk-former-official.html

[winner69]

Criticism from a former RBNZ official of the bank's capital adequacy proposals.

http://www.sharechat.co.nz/article/7a2ce80b/rbnz-s-poor-policy-process-puts-its-credibility-at-risk-former-official.html

Orr is a danger


“Bank risk analysts are appalled at what they are seeing. The bank may not particularly care, because they are playing to a different audience: politicians, the general public and the media who don’t understand the subject area,” Harrison says.

[winner69]

A critic of the RBNZ has his submission blocked as spam ...funny eh

https://croakingcassandra.com/2019/05/16/submitting-on-bank-capital-proposals/#comments

[macduffy]

A critic of the RBNZ has his submission blocked as spam ...funny eh

https://croakingcassandra.com/2019/05/16/submitting-on-bank-capital-proposals/#comments

A very interesting submission.

The anti-Australianism alleged in the submission became more pronounced after the turbulence of the 1980's which saw a succession of takeovers: the BNZ purchased/bailed out by the NAB, Trustbank bought by Westpac and, more recently ASB by the Commonwealth Bank and eventually NBNZ, previously British-owned, by ANZ. Prior to the 80's, the Australian influence was balanced by local and British interests but this is now no longer the case and it seems that the RBNZ feels that it is being directed by outside agencies.

[Aaron]

Admittedly I don't understand how it all works but my basic understanding is that banks will need to have more equity as a percentage of total assets. This is to reduce risk to depositors who have no govt guarantee or depositors insurance. Doesn't sound like a bad idea to me. But I guess anything that might reduce the increase in debt and asset prices is not a good idea according to economists and banks who are well known for their responsible lending.

[winner69]

Admittedly I don't understand how it all works but my basic understanding is that banks will need to have more equity as a percentage of total assets. This is to reduce risk to depositors who have no govt guarantee or depositors insurance. Doesn't sound like a bad idea to me. But I guess anything that might reduce the increase in debt and asset prices is not a good idea according to economists and banks who are well known for their responsible lending.

I agree with you Aaron

Hypothetical question for anybody interested: What would you say if someone offered you an investment with a promised pre-tax return of close to say 20% pa over many years?.

You mighty say: “How much can I buy?” or like most sensible people: “What is the catch?”

Think about it

[Aaron]

I am warming to Adrian Orr, someone prepared to call bull**** on the banks and their whining over capital requirements. This is what I don't like about the news this article highlights bickering but I thought the paragraphs near the bottom held the real news. Sorry just read this again it is not journalism just an opinion piece.

"Orr suggested that the NZBA's submission had claimed that "if banks fail it should be our fault and we should pay them out anyway", something he believed was "astounding""

"NZBA has denied suggesting that the government should ever bail out the banks, saying that instead an independent report merely speculated that in the event of a bank failure
a government would be reluctant to allow customers to take a haircut on their deposits."


So the banks would rather provide "customers" a haircut on their deposits rather than hold more capital to try and deal with a crisis. What a bunch of s**tbags.

https://www.stuff.co.nz/business/113227453/new-zealands-banking-sector-inching-close-to-warfare

[macduffy]

We can criticise the banks for resisting calls from the RBNZ for increased capital requirements but would do well to remember that the resultant numbers are calculated based on individual banks' lending. Tougher, higher capital levels will inevitably cause banks to be more restrictive in their approval of loans; more risk-averse; more selective in allocating funds to the safer, more profitable business. The days of readily available bank loans may be drawing to a close.

[winner69]

We can criticise the banks for resisting calls from the RBNZ for increased capital requirements but would do well to remember that the resultant numbers are calculated based on individual banks' lending. Tougher, higher capital levels will inevitably cause banks to be more restrictive in their approval of loans; more risk-averse; more selective in allocating funds to the safer, more profitable business. The days of readily available bank loans may be drawing to a close.

The days of readily available bank loans may be drawing to a close ..... that would be a good outcome eh macduffy

Many banks have a pre-tax ROE approaching 20% - as I said the other day:

What would you say if someone offered you an investment with a promised pre-tax return of close to say 20% pa over many years?.

You mighty say: “How much can I buy?” or like most sensible people: “What is the catch?”

[Aaron]

We can criticise the banks for resisting calls from the RBNZ for increased capital requirements but would do well to remember that the resultant numbers are calculated based on individual banks' lending. Tougher, higher capital levels will inevitably cause banks to be more restrictive in their approval of loans; more risk-averse; more selective in allocating funds to the safer, more profitable business. The days of readily available bank loans may be drawing to a close.

As a depositor with a bank I am overjoyed to hear this. If I was lending the money myself directly and bypassing the bank I would probably want a first mortgage and at least 30% equity from the borrower for a house loan. I don't think I would lend on a business start-up unless they had a house as security.

Although that said I do already know I currently have access to credit if needed so feel for anyone starting out and having to go through the process. If the bank was going to extend me more credit I would hope they would check out my financial situation and make some assessment of how risky the loan might be. Chances are when I finally want to draw down the world will be in crisis and the bank will close the account after having paid them a fee for all these years.

[tga_trader]

Every time we have re-finance / re-fix our home loan, and the bank tells us what they would be prepared to lend us, it's painfully obvious what the problem is. If we took them up on their offer we would be WAY over extended. It's not very responsible lending, but it also comes down to the individual to have done a budget and know what they can personally afford (is there such thing as personal accountability in this world anymore?)

[blackcap]

(is there such thing as personal accountability in this world anymore?)

That unfortunately has been bureaucratically legislated away the last 30 years.

I do think banks though should not be regulated as much but on the flip side should also be allowed to go under and there needs to be more accountability if they bugger up their book by being irresponsible. I guess the banks are in a win/win situation at the moment, being able to use gambling mentality knowing that there is no real accountability if things go tits up.

[Aaron]

That unfortunately has been bureaucratically legislated away the last 30 years.

I do think banks though should not be regulated as much but on the flip side should also be allowed to go under and there needs to be more accountability if they bugger up their book by being irresponsible. I guess the banks are in a win/win situation at the moment, being able to use gambling mentality knowing that there is no real accountability if things go tits up.

Which is why we appreciate Adrian's attempt to look after our deposits. The bank manager has a responsibility to look after depositors money but he also has no motivation to do so, in fact he will do better by meeting his targets each month.

[macduffy]

The days of readily available bank loans may be drawing to a close ..... that would be a good outcome eh macduffy


Agreed, winner, but I'd be more concerned with the effect on business and the economy generally. Let's not go back to the pre-1980's days of periodic credit squeezes and banks having to divert a large chunk of their funding into Reserve Assets, as determined monthly by the RB.

[winner69]

Apparently Orr fends off any criticisms of his tree god nonsense with the allegation that criticism is racist

Quite sad really

[winner69]

Orr either useless or has some secret agenda.

RBNZ communication almost non existent and transparency is a worry

Reserve Bank used dubious assertions to justify its aggressive rate cut.
https://www.interest.co.nz/opinion/101139/rodney-dickens-says-reserve-bank-used-dubious-assertions-justify-its-aggressive-rate

[Baa_Baa]

Orr either useless or has some secret agenda.

RBNZ communication almost non existent and transparency is a worry

Reserve Bank used dubious assertions to justify its aggressive rate cut.
https://www.interest.co.nz/opinion/101139/rodney-dickens-says-reserve-bank-used-dubious-assertions-justify-its-aggressive-rate

Scathing, but it’s not just Orr is it, cunning move or admission of inadequacy putting in place the Monetary Policy Committee?

Pitiful reduction in bank lending interest rates supports the views that RBNZ OCR manipulation has reached the law of diminishing returns, as well as having almost no ammo left when the next shock occurs.

[macduffy]

Michael Reddell's latest blog on the subject:

https://croakingcassandra.com/2019/10/07/portrait-of-a-strongman/

[stoploss]

Michael Reddell's latest blog on the subject:

https://croakingcassandra.com/2019/10/07/portrait-of-a-strongman/
Missed a couple of articles
https://www.stuff.co.nz/business/116379932/reserve-banks-adrian-orr-show-hurting-the-economy-economist

https://www.stuff.co.nz/business/116163751/portrait-of-the-governor-as-a-strongman-the-complicated-heroics-of-adrian-orr

[macduffy]

RBNZ's elephant in the room.

http://www.sharechat.co.nz/article/bf001add/opinion-the-elephant-in-rbnz-s-bank-capital-room.html

[Aaron]

RBNZ's elephant in the room.

http://www.sharechat.co.nz/article/bf001add/opinion-the-elephant-in-rbnz-s-bank-capital-room.html

Maybe they need to reduce their proposed increase, it sounds like the banks will run out of money to lend. Although personally I don't think that is a bad thing I appreciate everything needs to be kept afloat with more and more debt.

[macduffy]

Maybe they need to reduce their proposed increase, it sounds like the banks will run out of money to lend. Although personally I don't think that is a bad thing I appreciate everything needs to be kept afloat with more and more debt.

I don't know about "everything" needing more debt but in a growing economy/ growing population new businesses rarely flourish without borrowing at some point in their development and first time home purchasers likewise.

Personally, I think AO is letting his dislike of Australian banks and their NZ profitability affect his view on the capital adequacy question.

[Aaron]

I don't know about "everything" needing more debt but in a growing economy/ growing population new businesses rarely flourish without borrowing at some point in their development and first time home purchasers likewise.

Personally, I think AO is letting his dislike of Australian banks and their NZ profitability affect his view on the capital adequacy question.

OK not everything but at least property prices and the share price of publicly listed companies.

No doubt new business and first home buyers require debt, but my concern would be more about the size of the debt.

A spiral of ever increasing land prices and valuations justifying larger mortgages which in turn further increase land prices as well as interest rates coming down improving debt serviceability. We didn’t have the lower interest rates until after 2007-2008 but it was a similar cycle and finance companies were coming up with a lot of the development debt.
Since then the finance companies have largely disappeared and it was the depositors into those companies who would have probably taken the biggest hit from the GFC in NZ.

As a percentage of GDP I understand debt has been growing for households https://tradingeconomics.com/new-zealand/households-debt-to-gdp
Hopefully a reliable website as I googled debt to gdp, and this was near the top. Although that said since 2008-2009 it has levelled off. I would have thought that with the increase in GDP from business and housing investment this ratio would find a sustainable level as gdp growth increases and debts get repaid maybe 100% is the natural level I don’t know. Possibly something wrong back in the 80s and 90s with such low levels of debt to gdp.

Although our government seems to be more responsible than households. https://tradingeconomics.com/new-zealand/government-debt-to-gdp

I also understand that first home buyer’s debt as a percentage of income is larger although this graph only shows a 60% increase since 2000.
https://www.rbnz.govt.nz/statistics/key-graphs/key-graph-household-debt

I would like to think that AO is concerned about depositors rather than what you suggest as NZ is one of the few countries without deposit insurance. We saw how depositors were treated in the GFC until the taxpayers of NZ guaranteed the banking and finance industry. I guess AO doesn’t want to see that happen again and I would tend to agree with him on that one. The role of the reserve bank is to promote the maintenance of a sound and efficient financial system. Not one that relies on the taxpayers of NZ when it gets into trouble. Although there appears to be room for debate regarding the level of capital the banks should hold.

Unfortunately AO's concern for depositors doesn't extend to getting interest rates on deposits above the inflation rate so he is reaming depositors slowly rather than quick in a violent bank collapse.

Disclaimer; I own no shares in Australian Banks, how about you?

[macduffy]

A lot to agree with there, Aaron. A few points, though.

We certainly need a deposit insurance scheme although it's anyone's guess as to who will end up paying for it. Mostly the depositors themselves via even lower interest rates, is my guess. Incidentally, the fact that Aus had insured/guaranteed deposits prior to the GFC forced our govt to act - or risk an outflow of funds. And the banks/depositors paid the insurance premium, let's not forget.

We don't get to hear a lot about the effect of low deposit interest returns on either depositors or the economy. It's one thing to seek to stimulate the economy by knocking 50 basis points off already low rates but there is a cost in terms of lower spending power on the part of depositors, who, we have been told, heavily outnumber borrowers. The RB really hasn't much choice but to follow the rest of the world there but it's a moot point whether we should try to lead the pack. Question. To what extent does this affect business/consumer/investor confidence?

Yes, I hold Aus bank shares, around 5% of a widely diversified investment portfolio- about 70/30 equities/bonds - built over the last 50+ years. Another question. How much do NZ Kiwisavers have invested in Aus bank shares? Do we have any idea?

[Aaron]

I suppose someone has to pay the premiums, not sure how it works to be honest. If it is a national scheme then depositors across all banks will pay to help out those in crappy banks that fall over reducing premium costs. Still better than taxpayers bailing them out, insurance also takes the smaller depositor out of the picture in a crisis as insurance will have them covered and the govt may not feel the need to bail the banks out.

No one is talking about how the current economic system is trying to generate inflation to reduce over-indebtedness by stealing from depositors through inflation. It is an outrage but no one seems to be talking about it. I guess I am a dummy thinking targeted inflation, protecting borrowers at the expense of savers, negative interest rates etc etc is nonsensical. I will be broke before central banks do the right thing and let markets decide interest rates and stop propping up asset prices with easy money and low interest rates.

I too would be less inclined to agree with Adrian Orr if I owned Aussie bank shares. Not sure about Kiwisaver ownership in general. My Kiwisaver fund doesn't own any as I switched to as close to cash as possible some time ago (so hoping banks don't go under). That is why central bank intervention propping up asset prices is making me so mad. Self interest as always, also I think it is exacerbating inequality and not giving the next generation the same chances that we had to secure our financial future.
I don't understand the US repo market but basically banks were asking for higher interest rates to reflect risk so the federal reserve comes in to suppress them. Total bull****. Money is worthless in the current environment so I take my chances that we have a market crash prior to people losing confidence in Money. Looking at the NZ govts debt level if there is a crisis of confidence in money the $NZ should appreciate significantly although if commodity prices drop at the same time who knows.

[GTM 3442]

Out of idle curiosity, does the RBNZ run stress tests on the banks registered in New Zealand?

I seem to recall that some were done a couple(?) of years ago, but I've heard nothing since.

Perhaps there's been another round and some banks failed?

[jonu]

Out of idle curiosity, does the RBNZ run stress tests on the banks registered in New Zealand?

I seem to recall that some were done a couple(?) of years ago, but I've heard nothing since.

Perhaps there's been another round and some banks failed?

I read an article saying they do. The writer was therefore a bit bemused by this tinkering, because the banks had been passing them. He wondered whether the RBNZ sees something more calamitous than is already factored into their models. Those models contained extreme scenarios around house prices and dairy payouts along with a bunch of other stuff.

[macduffy]

RBNZ's latest stress test was in 2017. See Post 106 above.

[winner69]

We (some) seem to have upset our Adrian

What a weird statement - sometimes it best just to shut up

Acting with integrity - for all New Zealanders

Release date11 October 2019
Statement from the Reserve Bank of New Zealand’s Senior Leadership Team

Leading the people at the Reserve Bank of New Zealand is an absolute privilege, and we never take that for granted. We are surrounded by incredibly clever and dedicated people who are driven by the shared values we have at Te Pūtea Matua: inclusion, integrity, and innovation.

Every day we come to work with the same ambition and drive – to serve all New Zealanders so they can live their lives with prosperity and the reassurance that the financial system we regulate remains stable and productive. To do that we need to have the brightest and best people who come from all sorts of backgrounds with a wealth of experience, wisdom and knowledge.

We are immensely proud of our workforce and the contribution they make – we make no bones about that.

Sometimes we make difficult decisions that are unpalatable for a few, but we do that with the many in mind. We are not looking to win votes or accolades – we do what’s right for the good of all New Zealanders for today, tomorrow and for generations to come.

As global economic environments throw challenges at central banks, more than ever we need to be innovative and the best way we can do that is to ensure we have diverse and fresh thinking in our midst. That’s the smart thing to do.

We’ll continue to have informed and mature conversations on the remit we hold on behalf of Aotearoa.

We’ve charted our course, prepared for whatever is on the horizon and will weather the storms. New Zealanders can depend on that.

This is the only statement we will be making on the recent remarks about the capabilities of our people.

The Reserve Bank of New Zealand’s Senior Leadership Team

https://www.rbnz.govt.nz/news/2019/10/acting-with-integrity-for-all-new-zealanders

[GTM 3442]

How bizarre! And prickly! As I have read it, the recent commentary has been about the people leaving, not the capabilities of the people staying.

[peat]

I believe there is a problem to solve with banks whereby the government should attempt to ensure that it doesnt have to bail them out. Technically it doesnt have to of course but we all assume it would, and history confirms such behaviour. I'm not really a fan of Deposit Inurance however I think I do have to concede that the larger trading banks rely on an implicit govt guarantee and hence charging insurance is fair
I think some formula should be applied using number of years paying this insurance premium to calculate minimum capital ratio with limits on how low it can go. After 10 year of payments
(without claiming) then, you can have say a capital ratio at todays levels or higher. Otherwise its at some high level up towards Orrs figures.

[GTM 3442]

How do they get on in the Channel Islands?

They make much of their "guarantee", but from what I have managed to figure out, the fund backing it is only about GBP100m. Which kind of indicates that it's not all that much of a scheme, given the size of the banking system there.

But I may well have this wrong - I have no money there so have put little time into it.

[winner69]

Reddell concerned about Orr’s behaviour and writing to the Board and to Robertson.

Reddell might be just be grumpy but he could well be doing a good thing for the people of Aotearoa.

https://croakingcassandra.com/2019/10/16/dear-board-members/

[peat]

yeh I've been reading Reddell lately and he sure has an axe to grind about Orr.
I guess technically he (Redell) is right in that Orr is operating both unuseally for a RB governor but perhaps more importantly outside the RBNZ's mandate.
For all his wordiness Redell is quite factual and isnt adverse to being shown the numbers that prove high capital ratios for banks would be beneficial but Orr is not providing these.

[winner69]

Reads like a company’s growth strategy

Whoever gets the job will need to be careful what they’re eating at a BBQ ...answering what’s your job “Assistant Governor/General Manager, Transformation and People” is quite a mouthful


https://www.rbnz.govt.nz/news/2019/11/reserve-bank-senior-leadership-changes

[peat]

Reads like a company’s growth strategy

Whoever gets the job will need to be careful what they’re eating at a BBQ ...answering what’s your job “Assistant Governor/General Manager, Transformation and People” is quite a mouthful


https://www.rbnz.govt.nz/news/2019/11/reserve-bank-senior-leadership-changes

kicking out one of the two woman currently in senior management to do so.
increasing stakeholder relations seems like a big deal, so that's the government huh , being 100% owner of the RBNZ

[macduffy]

So the RBNZ has an Auckland office? The one I knew was closed when the NZD was floated and Exchange Controls were abolished. But I guess it makes a bit of sense with all the major banks headquartered in the Big Smoke these days.

:mellow:

[stoploss]

So the RBNZ has an Auckland office? The one I knew was closed when the NZD was floated and Exchange Controls were abolished. But I guess it makes a bit of sense with all the major banks headquartered in the Big Smoke these days.

:mellow:
They definitely had an office early 90's ( Bond tenders were delivered by hand. ) think it continued as they run regular days out of there for disaster management ....
They are headquartered in a shaky place .

[macduffy]

They are headquartered in a shaky place .

Not really. It's several centuries since the Auckland volcanoes erupted!

;)

[fungus pudding]

.

Not really. It's several centuries since the Auckland volcanoes erupted!

;)

Which makes it that much closer to the next one.:D

[peat]

Croaking Cassandra louder than ever today!

"At midday the Governor of the Reserve Bank will descend from the mountain-top,having communed with himself for some months, and tell us how much more capitallocally-incorporated banks will have to hold"

[peat]

and it is 18% as expected (I think)
16% for smaller banks


the kiwi is bouncing around about a 1/3rd of a cent up

and the RBNZ website is crumbling under the strain.

[winner69]

Orr unfit to hold office

https://croakingcassandra.com/2020/02/17/simply-unfit/Y

[stoploss]

Finally getting with the program .
8 AM ANNOUNCEMENT today .
Would have been a lot easier if he just followed Aussie and let the hand brake off gently ......

[winner69]

Finally getting with the program .
8 AM ANNOUNCEMENT today .
Would have been a lot easier if he just followed Aussie and let the hand brake off gently ......

So Adrian rides into town and makes himself a hero and cuts OCR to 0.25%.

Impact and timing to make me look good ...jeez I’m cynical.

[blackcap]

So Adrian rides into town and makes himself a hero and cuts OCR to 0.25%.

Impact and timing to make me look good ...jeez I’m cynical.

What will cutting the OCR to 0.25% actually do if anything? If business is not going to lend at 1% they are not going to lend at 0.25%.

[peat]

QE NZ


should further stimulus be required, a Large Scale Asset Purchase programme of New Zealand government bonds would be preferable to further OCR reductions.

[fungus pudding]

QE NZ


should further stimulus be required, a Large Scale Asset Purchase programme of New Zealand government bonds would be preferable to further OCR reductions.

Which is precisely what Orr said he would do.

[peat]

I hadnt clicked - its a 0.75% CUT. massive. even massiver than his earlier go.

Orr shoots all his load in two single goes.

[macduffy]

So, the RB talks about all the "other" weapons they have to combat the current crisis but the first reaction is to use the same old move - cut the cash rate!

:confused:

[peat]

it feels very ironic to me that the RBNZ hasnt even had time to implement its strategy to combat a 'one in 200 year' event before that very event happens , and even worse they decide to delay implementation of that strategy.

statistics are so useless huh. Fat tails rule the day.

[Hoop]

Adrian been outgunned today by Jerome...The FED cut rates 1% to Zero use what the FED calls crisis policy...and the Futures have been closed...Hmmm kinda doesn't sound good in the world atm..eh

[JBmurc]

Will NZ banks pass on all the rate cuts ?? and will kiwis get over the FEAR of CORVID19 and continue to buy and build new properties (really the heart of NZ growth over the last many years =Consumer spending)

[winner69]

Reddell not impressed

https://croakingcassandra.com/2020/03/16/pretty-dreadful/

[peat]

Will NZ banks pass on all the rate cuts ??

Seemingly they will given what the banks are saying!

[peat]

Reddell not impressed

https://croakingcassandra.com/2020/03/16/pretty-dreadful/

I haven't red that one but have been reading a lot of them recently.
I'm actually quite impressed by what Orr is saying today, and I comment that I am increasingly unimpressed with how niggardly Reddell is in his criticisms. A real croaker as he calls himself. I think he must have a bee in his bonnet about something..... Very knowledgeable and thorough though.

[Mr Slothbear]

One of the most influential / powerful people in the country and we can’t even vote him out.

[macduffy]

Will NZ banks pass on all the rate cuts ?? and will kiwis get over the FEAR of CORVID19 and continue to buy and build new properties (really the heart of NZ growth over the last many years =Consumer spending)

I expect that they will with regard to overdrafts and floating rate loans. Fixed rate loans are another matter though, being financed by fixed rate funding. We'll see.

[peat]

One of the most influential / powerful people in the country and we can’t even vote him out.


I red (from BusinessDesk) that he got all testy with the journalists when they kept pressing for his view on whether there would be a recession - and then eventually conceded it was likely.

[JBmurc]

I expect that they will with regard to overdrafts and floating rate loans. Fixed rate loans are another matter though, being financed by fixed rate funding. We'll see.

Yes I see floating down at 4.4% currently but of course fixed rates haven't changed 1yr out etc ?

[stoploss]

Yes I see floating down at 4.4% currently but of course fixed rates haven't changed 1yr out etc ?

Nobody has blinked yet , it usually takes a day or 2 . It would probably be prudent to wait until they see what the Govt is rolling out .
Obviously if RBNZ start purchasing bonds that would lead to some decent drops in the fixed rates .

[fungus pudding]

I red (from BusinessDesk) that he got all testy with the journalists when they kept pressing for his view on whether there would be a recession - and then eventually conceded it was likely.

Of course there will be a recession, and of course Orr has to try not to predict it. Any financial journalist will know that, and if they need Orr to confirm what they know, they should switch to writing the gardening column. The big question is will it be worse than a recession?

[stoploss]

Will NZ banks pass on all the rate cuts ?? and will kiwis get over the FEAR of CORVID19 and continue to buy and build new properties (really the heart of NZ growth over the last many years =Consumer spending)

ANZ the first major bank to blink, 1 year down to 3.05 % , 2 year 3.35 %

[iceman]

RBNZ starts $30 Billion QE https://www.stuff.co.nz/national/health/coronavirus/120485461/coronavirus--reserve-bank-gets-approval-for-30b-spendup-to-protect-economy

[Aaron]

Maybe not good news for depositors but encouraging.

https://www.stuff.co.nz/business/120754357/banks-not-allowed-to-pay-dividends-to-shareholders-until-recovery-rbnz-announces

Adrian may be making the dollars worthless with QE but at least our Aussie owners won't get NZ cash to bail themselves out ahead of NZers.

[JBmurc]

smart move for sure banks will have enough loan defaults to deal with and need to hold as much capital in reserve ...

[peat]

Maybe not good news for depositors but encouraging.

https://www.stuff.co.nz/business/120754357/banks-not-allowed-to-pay-dividends-to-shareholders-until-recovery-rbnz-announces

Adrian may be making the dollars worthless with QE but at least our Aussie owners won't get NZ cash to bail themselves out ahead of NZers.

Dividends not being paid forces more people to take pain so isn't really a good thing. It is however fair to be forced to make concessions if public money is being used to support the banks. Is it?
Probably but Im not exactly clear on that, what with the state putting its noses so much into business its hard to know if you can fart without breaking a regulation.

[macduffy]

In the governor's case I suppose he considers that he's acting to protect the NZ banking and monetary system. As he is employed to do.

[peat]

In the governor's case I suppose he considers that he's acting to protect the NZ banking and monetary system. As he is employed to do.

well he needs to talk to Grant and get him to tell Jacinda shes ruining the economy and the lockdown needs to stop asap

the inequity of the outcomes for people is appalling.

[Aaron]

Dividends not being paid forces more people to take pain so isn't really a good thing. It is however fair to be forced to make concessions if public money is being used to support the banks. Is it?
Probably but Im not exactly clear on that, what with the state putting its noses so much into business its hard to know if you can fart without breaking a regulation.

The taxpayers guaranteed the banks back in 2008/09 no one was bi*t*hing about government interfering in business back then. Not paying dividends forces the right people to take the pain, the business owners. Don't gamble with depositors money when you know tough times are ahead.

[peat]

in my opinion the govt is causing the pain, the RBNZ cannot fix it, but the govt can.

There is no evidence to support the lockdown.

[blackcap]

in my opinion the govt is causing the pain, the RBNZ cannot fix it, but the govt can.

There is no evidence to support the lockdown.

Well said. Totally agree with this sentiment.

[Aaron]

in my opinion the govt is causing the pain, the RBNZ cannot fix it, but the govt can.

There is no evidence to support the lockdown.

The entire world has shut down without a shred of evidence to support it? Possibly the results in countries such as Italy, Spain and now possibly the US would indicate some sort of evidence in support of the lock down?

Are we to assume just about the entire world leadership from China to the US to NZ have locked down everything on a whim without any evidence?

Or are you suggesting the cure may be worse than the disease or possibly you don't give a s**t about old people dying. You and blackcap might be right but we will never know as just about the whole world has decided a lock down is the best option. I thought the UK was going to go with the herd immunity but they changed their minds for some reason. Either they flipped a coin and changed their minds or they were presented with some evidence that a lock down and social distancing was a better option. There is pain either way physical or financial it depends what is most important to you people or money?

If the lock down pricks the debt bubble that will ensure additional economic pain but if the virus was allowed to spread exponentially the eventual drop off in customers may have had as big an economic impact anyway. a 2% loss of customers plus a likely reduction in people going out anyway.

Sorry I might be getting off topic.

[peat]

yeh its not the thread but I am not convinced the shutdown is necessary

[blackcap]

a 2% loss of customers plus a likely reduction in people going out anyway.

Sorry I might be getting off topic.

Those figures are so not correct. It's 2% of confirmed cases. But not 2% of population. Diamond Princess, 3770 people on board, 10 deaths. 0.265% death rate there. That is a population rate.
But as Peat said, not the correct thread.

[Aaron]

Those figures are so not correct. It's 2% of confirmed cases. But not 2% of population. Diamond Princess, 3770 people on board, 10 deaths. 0.265% death rate there. That is a population rate.
But as Peat said, not the correct thread.

Sorry can't help myself.
Thanks for calling out my fake news with the 2%. Although your analysis seems overly simplistic as I don't think everyone on board caught the virus but thanks for the optimistic outlook.

As of February 20, tests of most of the 3,711 people aboard the Diamond Princess confirmed that 634, or 17 percent, had the virus; 328 of them did not have symptoms at the time of diagnosis. Of those with symptoms, the fatality ratio was 1.9 percent, Russell and colleagues calculate. Of all infected, that ratio was 0.91 percent. Those 70 and older were most vulnerable, with an overall fatality ratio of about 7.3 percent.

Extrapolating those numbers to China, the team estimates that 1.1 percent of symptomatic cases there turned deadly. Considering asymptomatic cases drops that ratio to about 0.5 percent in China, the team calculates.

The Diamond Princess seems like a good way to judge how deadly the virus is as they tested everyone. If the above is not also fake news then 2% is only for those who become symptomatic. Including asymptomatic people this drops to 1% so half I what I said. and even at .5% in China not quite double what you are suggesting.
I stand corrected but you might want to get your facts straight as well.

[Aaron]

Reading the last post I can see why macduffy is shepherding me around to a relevant thread.

Adrian Orr and low interest rates and easy money is really getting some headlines lately.

https://www.nzherald.co.nz/business/richard-prebble-house-prices-only-going-up-while-credit-taps-running/2FFZTJNPIMCQVDJ7NCDFPGUMYA/

I would have voted Social Credit if I thought it was a good idea. I guess the reserve bank buying the govt bonds off the banks provides some income for the trading banks while interest rates are so low.

Adrian Orr has his hands tied as he has suggested. The govt is the only one who can provide real change. Reduce the Reserve Banks inflation target to zero%.

I am also confused Adrian Orr says the interest rate suppression is to ensure full employment yet in the news I hear that we import workers for the fishing industry, harvesting and farming. Also I heard a plan to train inmates to drive as we have a driver shortage. Someone is bullshi**ing. Is it Adrian or business leaders, or is Adrian seeing something worse coming down the road.

Economists predictions earlier this year of a 10% fall in house prices don't appear to have been that prescient either.

[JBmurc]

Reading the last post I can see why macduffy is shepherding me around to a relevant thread.

Adrian Orr and low interest rates and easy money is really getting some headlines lately.

https://www.nzherald.co.nz/business/richard-prebble-house-prices-only-going-up-while-credit-taps-running/2FFZTJNPIMCQVDJ7NCDFPGUMYA/

I would have voted Social Credit if I thought it was a good idea. I guess the reserve bank buying the govt bonds off the banks provides some income for the trading banks while interest rates are so low.

Adrian Orr has his hands tied as he has suggested. The govt is the only one who can provide real change. Reduce the Reserve Banks inflation target to zero%.

I am also confused Adrian Orr says the interest rate suppression is to ensure full employment yet in the news I hear that we import workers for the fishing industry, harvesting and farming. Also I heard a plan to train inmates to drive as we have a driver shortage. Someone is bullshi**ing. Is it Adrian or business leaders, or is Adrian seeing something worse coming down the road.

Economists predictions earlier this year of a 10% fall in house prices don't appear to have been that prescient either.

Personally think the Govt / RBNZ are increasingly wanting to keep property from stalling as that would be far to close to falling in value and as majority of young adult kiwis property mad an ticked to the eyeballs the mandate is to keep the madness flowing while spewing how hard your working to help First time home buyers ... it’s the old kick the can down the road

[Aaron]

Personally think the Govt / RBNZ are increasingly wanting to keep property from stalling as that would be far to close to falling in value and as majority of young adult kiwis property mad an ticked to the eyeballs the mandate is to keep the madness flowing while spewing how hard your working to help First time home buyers ... it’s the old kick the can down the road

It used to be you take on debt you take on risk but as you say people have an expectation central banks will ensure/insure there is capital gains and that interest rates will get cut each time there is trouble. Currently they are gauranteeing 2% per annum but as all the inflation they are creating is in asset prices you are getting 7%. Who needs yield with capital gains like this. All the while people without assets are not really waking up to the fact that monetary policy has/is destroying any chance they have to get ahead as asset prices soar at double the rate of wage inflation for the last 20 years. This is only sustainable as interest rates have been steadily dropping over this time and people can take on more debt to make up the difference, but we are now at or near zero. Savings are losing 2-3% in purchasing power each year currently, how do you save for a house deposit?

You might get a handout from this govt but you won't get a hand up as that would require a rethink on monetary policy and whether constantly rising prices is actually a good thing.

[peat]

Savings are losing 2-3% in purchasing power each year currently, how do you save for a house deposit?


You have to have equity exposure even if you have a short horizon. (which is counter to standard Mary Holm type advice)

[Aaron]

You have to have equity exposure even if you have a short horizon. (which is counter to standard Mary Holm type advice)

Possibly but holding cash at the moment is contrarian a financial market meltdown would make help cash although I can't see it happening.

Look at this about the third to last paragraph.
https://www.nzherald.co.nz/business/bryce-wilkinson-nz-in-grips-of-a-double-feature-housing-horror-story/MJCQ5RVLGCJ5E7NZMDY6XRAYJY/

"Second, the Government should rethink its monetary policy instructions. The case for lifting the rate of consumer price inflation to 2 per cent per year in a post-Covid world seems to be close to non-existent. The costs are too high and the benefits are mainly wishful thinking."

Although this is from the NZ initiative so now I am unsure if I am a heartless monster or not.

[stoploss]

Following on from the NZX , maybe they went for another target ......
Reserve Bank responding to illegal breach of data system10 January 2021

The Reserve Bank of New Zealand – Te Pūtea Matua is responding with urgency to a breach of one of its data systems.
A third party file sharing service used by the Bank to share and store some sensitive information, has been illegally accessed.
Governor Adrian Orr says the breach has been contained, and the Bank is treating the matter with the highest priority, and acting with urgency.
“We are working closely with domestic and international cyber security experts and other relevant authorities as part of our investigation and response to this malicious attack. The nature and extent of information that has been potentially accessed is still being determined, but it may include some commercially and personally sensitive information.”
“The system has been secured and taken offline until we have completed our initial investigations. It will take time to understand the full implications of this breach, and we are working with system users whose information may have been accessed. Our core functions remain sound and operational.”

[winner69]

Fallout from data leak ...Taxpayers Union questions Orr suitability for the job

https://mailchi.mp/9f8a4889e6aa/orrs-3pm-friday-apology-for-data-snafu-anything-but-upfront

[Aaron]

Maybe I am being too harsh on Adrian, I see the $NZ has been rising against the $US and the TWI since 2020 despite his low interest rates and easy money. His actions must be less retarded than other central banks namely Japan, China and the USA. In a global currency war I guess wealth and income equality as well as social mobility are victims.

NZ's success regarding the virus has also helped. Nice to think that putting people before profits has produced a better result for just about everyone rather than if we had half ar*ed it like the UK USA etc.

Also note in the herald today new rules coming regarding peak livestock to cut our emissions.

If they can establish peak livestock numbers perhaps they can come out with a peak human number for a country this size. It would seem more important as there is a strong argument that it is human caused climate change.

Seems like such bu****** sometimes even though the intentions of saving the planet seems a good idea it comes across as a bunch of townies wanting the rural sector to make all the sacrifices so they can continue to fill the cities with more and more people. Have a look at the whole basis for our economy. More and more consumption for more and more growth in a virtuous upward spiral. Change that model and you might get a more sustainable economy.

Rodd Carr is no doubt a very smart guy but I suspect he could win more people over if he shaved and removed the Tiki then he might appear less like an aging hippy.

[Aaron]

Grant Robertson is weak.

https://www.nzherald.co.nz/business/grant-robertsons-rbnz-policy-change-goes-too-far-economist/TLYXNVQLDX4CXP6CGHGDGYCHUI/
https://www.stuff.co.nz/business/300238938/reserve-bank-ordered-to-consider-housing-in-decisionmaking

He is asking Adrian Orr to consider housing when making monetary policy decisions. How vague is that? It comes across as so lame and gutless it is infuriating.

How about getting rid of targeted inflation, that is something more concrete.

Or possibly talk to stats nz or whoever compiles the CPI. The figures I have are out of date but purchasing a home comprises 5.42% of that index, rent 9.12%, Alcoholic beverages & tobacco 7% Recreation & Culture 9.51%. If your house or rent is 50% or more of your weekly budget perhaps it deserves a much higher weighting in the CPI than alcohol. That would give Adrian a challenge with his inflation target if house costs and rents made up 50% of the basket of goods.

I would expect such a weak response from a National government but it is disappointing coming from labour.

[macduffy]

I'm pitying Adrian now - juggling all those balls - interest rates, employment, house prices. He'll need to be some new variety Superman!

:ohmy:

[Aaron]

I'm pitying Adrian now - juggling all those balls - interest rates, employment, house prices. He'll need to be some new variety Superman!

:ohmy:

I am sure he already considers house prices when setting monetary policy so nothing has changed for him in reality. The reserve bank has already predicted a 22% rise in house prices for 2021 so he is obviously already considering them.

This is just Robertson and Labour pretending they are trying to address the issue of house prices and inequality without actually doing anything.

https://www.interest.co.nz/property/109218/its-latest-monetary-policy-statement-reserve-bank-forecasting-house-price-inflation

With a prediction of 22% for 2021 for house prices I wonder how this fits in with the main reserve bank mandate of price stability and a sound & efficient financial system. My idea of price stability differs to what I am seeing and reading but I lack the intelligence of Adrian Orr or Grant Robertson.

Perhaps they should clarify what a "sound and efficient financial system" looks like. They aren't blowing a housing bubble provided they can inflate away the debt I suppose. Perhaps it is an efficient way to ensure growing inequality.

[Zaphod]

I am sure he already considers house prices when setting monetary policy so nothing has changed for him in reality. The reserve bank has already predicted a 22% rise in house prices for 2021 so he is obviously already considering them.

This is just Robertson and Labour pretending they are trying to address the issue of house prices and inequality without actually doing anything.



Hopefully the majority of the population will start judging Robertson and Ardern based upon outcomes, rather than the platitudes being espoused about the housing market. Campbell pushed Robertson this morning on that very issue and he became visibly uncomfortable. We need results from this self-declared transformative government, and fast.

[Aaron]

Hopefully the majority of the population will start judging Robertson and Ardern based upon outcomes, rather than the platitudes being espoused about the housing market. Campbell pushed Robertson this morning on that very issue and he became visibly uncomfortable. We need results from this self-declared transformative government, and fast.

Not likely Labour brought in the shift to neoliberal policies and capital over labour, not likely they will change back. Here is someone else's view although some pretty dodgy articles on this site.

https://www.zerohedge.com/markets/law-unintended-conse-kiwi-nces

[JBmurc]

I'm pitying Adrian now - juggling all those balls - interest rates, employment, house prices. He'll need to be some new variety Superman!

:ohmy:

Yeah Govt passing the buck ..such a weak GOVT if only talking could fix housing issues Labour -Greens would be world leaders in fixing housing issues

Great at slogans getting votes not so good at actual delivering anything

[Aaron]

No doubt they will be accused of being communist, but probably more like dictatorship. I was suggesting Labour were weak earlier on this thread. Since then denying interest deductions (I have already said I think it is unfair and inconsistent but palatable if new builds get to keep the interest deduction) and extending the bright line test. More aggressive but not at the heart of the problem, monetary policy. Possibly a move away from neoliberalism and more central control is being heralded by the article below. Either that or it is not just me thinking that Adrian Orr comes across as being one of the lesser responsible person in charge of the financial system.

https://www.nzherald.co.nz/business/treasury-pushed-for-greater-lending-powers-to-be-moved-to-finance-minister/4SG3MR3327L4RKUNLMY3YUYOTY/

I think separating the central bank from government was because politicians could not be relied on to be responsible with the printing press. 30 years of lower interest rates and easier money would indicate even an independent central bank can't help itself. What is the solution to the next crisis? My guess is more money and negative interest rates why limit asset prices with pesky interest rates.

[Aaron]

Ashley Church is concerned about the changes. Since 1989 he has looked like a financial genius by borrowing and buying houses so any change to the trend for the last 30 years would make home look like an idiot if he is still overleveraged.

It might also make his criticism of the Reserve Bank LVR restricting first home buyers look stupid as well. I am sure Mr Church has done well out of monetary policy over the last 30 odd years and credits himself as a hard working financial genius. He would like to see it continue by allowing new home buyers to borrow even more to keep things going. Lower interest rates more money has worked well until now,why wouldn't it continue forever?

Legendary work from the reserve bank on inflation over the last thirty years? I think exporting jobs to countries with low labour costs so we can buy back at lower prices and keep inflation low has been great? Having house prices rise at double the rate of wages would also make him happy no doubt. Having a CPI that may not reflect a normal persons budget might also help. Alcohol & Cigarette costs have a similar weighting as rent. This might be a good reflection for some families but not most.

https://www.oneroof.co.nz/news/39327

[SBQ]

@Aaron

I agree the housing affordability is a mess. But let's be mindful NZ is a small nation and it's choices are limited in terms of investments. The article is not biased adjusted in terms of inflation figures. As the principle amount on houses always rise (due to inflation), the % mortgage rates will continue to go down over multi-decade time frames. Can you imagine what 20% mortgage rates would be on a $1.5M house in Auckland? Think about it, 1978 is entirely different to the past 20 years - we have not seen hyperinflation yet.

Mr Church also neglects the fact that 1st time home buyers are unaffected by these changes in LVR. What Mr Church should be arguing about is how the average millionaire in NZ has become so rich solely on investing in residential / real estate properties. A far cry difference compared to the millionaires created in N. American through stock market investments in retirement planning. The NZ Reserve Bank is not to blame but if you ask me to compare. Well the NZRB has made people in NZ rich off buying houses vs in the US, the US Fed has made people rich from rises in the stock market. Talk about wealth inequality!

There's a lot of things wrong in NZ in terms of financial inequity. As in my other posts in other threads, the key problem in NZ lies in un-fair taxation. Those choosing to buy houses and holding for 10 or 30 or 40 years will definitely get the benefit of tax free capital gains. Those that choose to buy Kiwi Saver funds (as much as the FMA promotes how good they are) will only retire an average life - if they can contribute enough. The KS funds even in PIE, after paying annual mgt fees, FIF / FDR, and taxes on dividends RWT, will result in the individual having less at retirement than the leveraged approach to buying a 2nd home.

Labour Party was not serious about widening the investment landscape for NZders. No NZ Political party has (after all FIF was introduced by Bill English). When you look at 20% of expat NZ citizens living abroad - there is good reason why.

[JBmurc]

@Aaron

I agree the housing affordability is a mess. But let's be mindful NZ is a small nation and it's choices are limited in terms of investments. The article is not biased adjusted in terms of inflation figures. As the principle amount on houses always rise (due to inflation), the % mortgage rates will continue to go down over multi-decade time frames. Can you imagine what 20% mortgage rates would be on a $1.5M house in Auckland? Think about it, 1978 is entirely different to the past 20 years - we have not seen hyperinflation yet.

Mr Church also neglects the fact that 1st time home buyers are unaffected by these changes in LVR. What Mr Church should be arguing about is how the average millionaire in NZ has become so rich solely on investing in residential / real estate properties. A far cry difference compared to the millionaires created in N. American through stock market investments in retirement planning. The NZ Reserve Bank is not to blame but if you ask me to compare. Well the NZRB has made people in NZ rich off buying houses vs in the US, the US Fed has made people rich from rises in the stock market. Talk about wealth inequality!

There's a lot of things wrong in NZ in terms of financial inequity. As in my other posts in other threads, the key problem in NZ lies in un-fair taxation. Those choosing to buy houses and holding for 10 or 30 or 40 years will definitely get the benefit of tax free capital gains. Those that choose to buy Kiwi Saver funds (as much as the FMA promotes how good they are) will only retire an average life - if they can contribute enough. The KS funds even in PIE, after paying annual mgt fees, FIF / FDR, and taxes on dividends RWT, will result in the individual having less at retirement than the leveraged approach to buying a 2nd home.

Labour Party was not serious about widening the investment landscape for NZders. No NZ Political party has (after all FIF was introduced by Bill English). When you look at 20% of expat NZ citizens living abroad - there is good reason why.

Its not just limited safe investments in NZ ... but costs of Land...high subdivision costs / monopoly of building products .. greedy tradies ...
If we could build nice new houses for a fair amount Vs average household NZ incomes then we wouldn't have a run away housing market

average annual NZ household disposable income (after tax and transfer payments) was $81,934...so using fair housing values 5x times = $405k

ultra low interest rates have also of course allow this to ballon... with everyone jumping on board

[Aaron]

ultra low interest rates have also of course allow this to ballon... with everyone jumping on board

Looks like Grant Robertson agrees with you.

https://www.stuff.co.nz/business/300288697/low-interest-rates-get-govt-blame-for-rising-house-prices

Obviously can't rely on Adrian Orr to do the right thing and start slowly raising them.

[macduffy]

Obviously can't rely on Adrian Orr to do the right thing and start slowly raising them.

Now that would give us world-wide exposure! A shame about the effect on exports, though.

:ohmy:

[SBQ]

Its not just limited safe investments in NZ ... but costs of Land...high subdivision costs / monopoly of building products .. greedy tradies ...
If we could build nice new houses for a fair amount Vs average household NZ incomes then we wouldn't have a run away housing market

average annual NZ household disposable income (after tax and transfer payments) was $81,934...so using fair housing values 5x times = $405k

ultra low interest rates have also of course allow this to ballon... with everyone jumping on board

Ultra low interest rates aren't the 'primary' cause. It's like arguing which came first, the egg or the chicken? I prefer to point at the NZ culture and NZ's lack of taxing capital gains on residential houses as the impetus of the housing problem.

I've lived in NZ for over 25 years and witness many gov'ts that have never been serious about taxing houses. I mean where else in this world where the #1 choice for getting rich, goes untaxed? How can that be? You may say the low interest rates made it worse ; yes I fully agree. But the driving factor will be from a tax perspective and the recent changes by Jacinda (moving Brightline test to 10 years - excluding mortgage interest rate deductions) do NOT address the primary reason why so many buy houses as investments.

I agree high cost of land development is a problem in NZ (Developmental Contribution Fees, cost of Notified Resource Consents, RMA) all add to the price tag and i'm afraid, all city councils "Have become dependent on these high fees" as these gov't workers rake in huge salaries. Inefficient at best. If you cut these fees down to half - where would the shortfall come? The $3.4B that Megan Woods announced last month is only a drop in a bucket for municipal gov'ts and will not fix the problem.

x 5 times = $405K ?? Not when 3/4 of NZ's population lives in the North Island and a good 33% of total NZ population living in Auckland? How about 85% of total population lives in urban areas (say your Alk / Wellington / Chch) ? Tauranga & Queenstowns are pretty hot expensive places too. I prefer to look at this which is more accurate at x 10 times on GROSS income. https://i.redd.it/ng1n24q608k61.jpg

Yes we can build affordable houses (capital improvements) by sourcing overseas ; but that would come at the cost of losing jobs in NZ. Would that be a good thing? You know we have a timber shortage but all those logs are being exported to China instead of being used for timber framing.

In all aspects, hard to believe NZ is still the land of milk and honey. I look at the next generation and I can't see much hope. Our university education is lacking (on the international scale) - despite how much $ parents sink into private school education. Our ability to invest as a NZ resident is skewed. The winners in NZ don't seem to help the needy much (not seeing much charity from that group).

[JBmurc]

Ultra low interest rates aren't the 'primary' cause. It's like arguing which came first, the egg or the chicken? I prefer to point at the NZ culture and NZ's lack of taxing capital gains on residential houses as the impetus of the housing problem.

I've lived in NZ for over 25 years and witness many gov'ts that have never been serious about taxing houses. I mean where else in this world where the #1 choice for getting rich, goes untaxed? How can that be? You may say the low interest rates made it worse ; yes I fully agree. But the driving factor will be from a tax perspective and the recent changes by Jacinda (moving Brightline test to 10 years - excluding mortgage interest rate deductions) do NOT address the primary reason why so many buy houses as investments.

I agree high cost of land development is a problem in NZ (Developmental Contribution Fees, cost of Notified Resource Consents, RMA) all add to the price tag and i'm afraid, all city councils "Have become dependent on these high fees" as these gov't workers rake in huge salaries. Inefficient at best. If you cut these fees down to half - where would the shortfall come? The $3.4B that Megan Woods announced last month is only a drop in a bucket for municipal gov'ts and will not fix the problem.

x 5 times = $405K ?? Not when 3/4 of NZ's population lives in the North Island and a good 33% of total NZ population living in Auckland? How about 85% of total population lives in urban areas (say your Alk / Wellington / Chch) ? Tauranga & Queenstowns are pretty hot expensive places too. I prefer to look at this which is more accurate at x 10 times on GROSS income. https://i.redd.it/ng1n24q608k61.jpg

Yes we can build affordable houses (capital improvements) by sourcing overseas ; but that would come at the cost of losing jobs in NZ. Would that be a good thing? You know we have a timber shortage but all those logs are being exported to China instead of being used for timber framing.

In all aspects, hard to believe NZ is still the land of milk and honey. I look at the next generation and I can't see much hope. Our university education is lacking (on the international scale) - despite how much $ parents sink into private school education. Our ability to invest as a NZ resident is skewed. The winners in NZ don't seem to help the needy much (not seeing much charity from that group).

So you think fair value housing in NZ should be 10x median income ?? I did some numbers in our my southern City... I could create a basic 3bd home for well under 400k(flat land on outskirts of city /New Transportable 80sqm house ... that should be a norm right across our large Landmass to population but sadly it isn't .. far too many hands out clipping the ticket..that and having Cities surrounded by coasts ...

I agree ultra low rates aren't the only factor increasing property prices but they sure have added fuel .. we purchased our last property early 2016 this was when we seen fixed 1yr rates come down from the high 5% in 2015 to mid 4% 2016 ... to present 2.25%. ... when watched our property go from $550k go to $950k in 5yrs ... no way that would have happen if rates had moved back to 2015 levels 5%+

Still this is just a few of many factors why we don't have affordable housing in Major centres ...

[Aaron]

Now that would give us world-wide exposure! A shame about the effect on exports, though.

:ohmy:

maybe bring in a financial transactions tax at the same time. Speculative money sloshing in and out of NZ at least the nz taxpayer could clip the ticket. An increasingly socialist govt might scare away the speculators.

[Aaron]

Ultra low interest rates aren't the 'primary' cause. It's like arguing which came first, the egg or the chicken? I prefer to point at the NZ culture and NZ's lack of taxing capital gains on residential houses as the impetus of the housing problem.
I disagree the list you provided has Sydney ahead of Auckland. Aussie has a capital gains tax and a housing affordability crisis. You might be able to tell us if your beloved Canada also has a capital gains tax and high house prices.

Although there are many reasons for high house prices in NZ I would argue that monetary policy and low interest rates are the main reason. In the herald today they discussed rising house prices since 1981. If you take a graph of the NZ OCR over that same time you will notice that the OCR has fallen over this time in an inverse relationship. A well established relationship that as interest rates fall asset prices rise. We have had 30 years of falling interest rates that have become more and more extreme after each crisis and coincidentally (I don't think so) house price rises becoming more and more extreme.

People like investing in houses because the reserve bank guaranteed capital gains are untaxed (true), but surely the fact that monetary policy pretty much guarantees you a gain is a big plus to current investors (not so much for future investors if interest rates change course). Also it is simple to understand, you have some control of your investment and you don't have some guy in a suit clipping the ticket come rain or shine or allocating him/herself a ridiculously large salary at your expense. And most of all you you can use a lot of leverage to amplify gains as long as you know the NZRB and the National or Labour govt has your back.

[Aaron]

NZ doesn't have a comprehensive capital gains tax much of the developed world does. If Australia, Canada, UK etc have historically high house prices to income then it won't be capital gains tax being the main driver. Although it will play a part. What they do have in common is lower and lower interest rates and loose monetary policy.
Check for yourself
https://www.global-rates.com/en/interest-rates/central-banks/central-banks.aspx

[Aaron]

Interesting read
https://thespinoff.co.nz/business/30-04-2021/bernard-hickey-mortgage-lending-needs-restricting-whether-banks-like-it-or-not/

Reminded me Adrian did try to force the banks to increase the amount of capital they hold from around 10% to closer to 20%. But turned back into a jellyfish as soon as covid hit.

[Aaron]

You read articles like this and realise that rising rents are at least partly(if not wholly) due to crazy monetary policy. The NZRB is largely responsible for this. Maybe rather than controlling rents governments should get out of controlling interest rates and let the market weigh up risk and decide.

House prices would not be so ridiculous and landlords would not have to constantly push up rents to justify the price they paid for their property if prices were based on a reasonable current yield rather than a future capital gain aided by rising rent.

In the current environment the price of a house seems more dependent on how much you are allowed(willing) to borrow, rather than the yield provided by the investment because as we all now know the tax free capital gain is where the real money is made.

https://www.stuff.co.nz/life-style/homed/renting/124985520/rent-controls-would-be-a-big-mistake--nz-initiative

the NZ initiative point out keeping rent at below market rate is a bad thing yet don't mention keeping interest rates below market rates as a bad thing. I guess consistency is not part of their way of thinking.

[macduffy]

the NZ initiative point out keeping rent at below market rate is a bad thing yet don't mention keeping interest rates below market rates as a bad thing. I guess consistency is not part of their way of thinking.

If the RBNZ wasn't setting interest rates, what are these "market (interest) rates?

[Aaron]

If the RBNZ wasn't setting interest rates, what are these "market (interest) rates?

I guess I would need to understand international finance better and the nature of money in a fiat currency system.

If banks and finance companies are the market place for interest rates we did see finance companies successfully attract capital through higher interest rates (and back handers to "financial advisors") although obviously the risk assessment by the lenders of the capital was not very good.

How are NZ banks funded as the article below points out the more banks lend the more money gets created. Do banks even need depositors? I read of central banks printing money and buying bonds, does this fund banks in NZ.

The OCR influences all other interest rates, but how if banks are free to set rates however they like how does it do this.

[dobby41]

How are NZ banks funded as the article below points out the more banks lend the more money gets created. Do banks even need depositors? I read of central banks printing money and buying bonds, does this fund banks in NZ..

Yes banks need depositors because they can only create a multiple of what the borrow - capital adequacy ratio I believe.

[SBQ]

NZ doesn't have a comprehensive capital gains tax much of the developed world does. If Australia, Canada, UK etc have historically high house prices to income then it won't be capital gains tax being the main driver. Although it will play a part. What they do have in common is lower and lower interest rates and loose monetary policy.
Check for yourself
https://www.global-rates.com/en/interest-rates/central-banks/central-banks.aspx

The underlying factor is 'what % of the total population' is able to afford the house they live in? Both Canada and Australia have CGT, but i'm sure Sydney & Vancouver only represent a small % of the total population in each country (and so be it were the top 1% are able to buy those places). When 33% of NZ's population live in Auckland region, then yes we have a problem. Vancouver might be only 1% of Canada. If you look at other major cities in Canada like Edmonton, Calgary, Quebec City, Montreal, even Ottawa, all have exceedingly affordable housing (the latter being the most affordable and Ottawa is gov't central, like Wellington govt). The only 2 real outliars are Vancouver and Toronto and I do believe a large part of that is more to do with Canada's approach multiple ways of taxation to discourage landlordism (if there's such a word?). When Jacinda made that landmark speech in March, the stats were staggering. Some 40% of ALL property transactions were made by those who already owned multiple houses. 15,000 houses were purchased by those who already OWNED 5 OR MORE houses!!! Shocking if you ask me and well beyond the realm of things when you compared to Canada. The critics got it wrong in their reporting. Like which came 1st, the egg or the chicken... people's behaviour dictates first - they're always going to go for the tax free capital gain which is still the best game in town in NZ. In Canada or in the US, the best game in town to get rich is owning shares through retirement savings (for which in NZ have nothing except the dismal Kiwi Saver). No TFSA/IRA no RESP / Education savings plan. No Disability savings plan (which all of these grow 100% tax free and not limited to only domestic stock exchange).

https://www.youtube.com/watch?v=JwoImm6FgCM

Things are not fair and the fairness is easily judged when you look at other countries. The middle class NZ resident with Kiwi Saver will have less of a portfolio at retirement than the Cdn or US resident investing in the same shares. Corporate taxes are lower in Canada & US than in NZ. Income taxes are lower there too. The Vancouver home of similar value to the Auckland home, will be larger, more comfortable, better in every way than the Auckland home (so if you want to go and compare things like cars - you need to look at apples vs apples). There no Toyota Corolla that ends up being better in Canada than in NZ ; but on the issue of houses and standard of living - then there's a clear difference. The low interest rates set by central banks over the past decades are not the cause - the OECD has set it clear that NZ houses have ran away in terms of affordability and you can't simply put it down to low mortgage rates. Again, blame the behaviours of landlordism.

[FTG]

The underlying factor is 'what % of the total population' is able to afford the house they live in? Both Canada and Australia have CGT, but i'm sure Sydney & Vancouver only represent a small % of the total population in each country (and so be it were the top 1% are able to buy those places). When 33% of NZ's population live in Auckland region, then yes we have a problem. Vancouver might be only 1% of Canada. If you look at other major cities in Canada like Edmonton, Calgary, Quebec City, Montreal, even Ottawa, all have exceedingly affordable housing (the latter being the most affordable and Ottawa is gov't central, like Wellington govt). The only 2 real outliars are Vancouver and Toronto and I do believe a large part of that is more to do with Canada's approach multiple ways of taxation to discourage landlordism (if there's such a word?). When Jacinda made that landmark speech in March, the stats were staggering. Some 40% of ALL property transactions were made by those who already owned multiple houses. 15,000 houses were purchased by those who already OWNED 5 OR MORE houses!!! Shocking if you ask me and well beyond the realm of things when you compared to Canada. The critics got it wrong in their reporting. Like which came 1st, the egg or the chicken... people's behaviour dictates first - they're always going to go for the tax free capital gain which is still the best game in town in NZ. In Canada or in the US, the best game in town to get rich is owning shares through retirement savings (for which in NZ have nothing except the dismal Kiwi Saver). No TFSA/IRA no RESP / Education savings plan. No Disability savings plan (which all of these grow 100% tax free and not limited to only domestic stock exchange).

https://www.youtube.com/watch?v=JwoImm6FgCM

Things are not fair and the fairness is easily judged when you look at other countries. The middle class NZ resident with Kiwi Saver will have less of a portfolio at retirement than the Cdn or US resident investing in the same shares. Corporate taxes are lower in Canada & US than in NZ. Income taxes are lower there too. The Vancouver home of similar value to the Auckland home, will be larger, more comfortable, better in every way than the Auckland home (so if you want to go and compare things like cars - you need to look at apples vs apples). There no Toyota Corolla that ends up being better in Canada than in NZ ; but on the issue of houses and standard of living - then there's a clear difference. The low interest rates set by central banks over the past decades are not the cause - the OECD has set it clear that NZ houses have ran away in terms of affordability and you can't simply put it down to low mortgage rates. Again, blame the behaviours of landlordism.

SBQ. Sorry, but it looks like you need to be called out again. You may want to "fact check" yourself before attempting to build your arguments. Otherwise you may find that the basis of your points are being built on quicksand and that they will be dismissed as quickly as you appear to be glibly dispensing them.

QUICK FACTS:
Vancouver's population 2.6M (approx 7% of Canada. Certainly not 1%)
Sydney's population 5.3M (approx 21% of Australia. Surely this shouldn't be called a "small %")

To further illustrate what's actually happening, despite Aussie having CGT, house prices in greater Sydney increased by over 8% in the March Quarter. Even higher than Auckland at 7.2%. Vancouver; I'll leave you to look into that, rather than potentially further embarrass.

The actual reality is significant house price inflation has been, and still is, occurring in multiple markets across the globe. NZ is NOT some sort of unique/special case.

With the ongoing global "Everything Bubble", arguably created by QE, TINA et al, one could say that it isn't really a surprise.

[SBQ]

SBQ. Sorry, but it looks like you need to be called out again. You may want to "fact check" yourself before attempting to build your arguments. Otherwise you may find that the basis of your points are being built on quicksand and that they will be dismissed as quickly as you appear to be glibly dispensing them.

QUICK FACTS:
Vancouver's population 2.6M (approx 7% of Canada. Certainly not 1%)
Sydney's population 5.3M (approx 21% of Australia. Surely this shouldn't be called a "small %")

To further illustrate what's actually happening, despite Aussie having CGT, house prices in greater Sydney increased by over 8% in the March Quarter. Even higher than Auckland at 7.2%. Vancouver; I'll leave you to look into that, rather than potentially further embarrass.

The actual reality is significant house price inflation has been, and still is, occurring in multiple markets across the globe. NZ is NOT some sort of unique/special case.

With the ongoing global "Everything Bubble", arguably created by QE, TINA et al, one could say that it isn't really a surprise.

If you don't believe in the past 30 or so years NZ's unaffordable housing is not unique enough to be ranked #1 by the OECD for the poorest familes, then you must belong on that camp of those that own lots of residential properties. For a progressive nation, this is not something NZ should be proud with. I stand corrected the Vancouver / Sydney % population ; but I won't back down on NZ's culture for landlordism.

https://www.rnz.co.nz/national/programmes/thepanel/audio/2018780873/nz-top-of-housing-unaffordability-report

Your % difference does not change the fact, vast majority population in Canada or Australia do not use houses as a vehicle to make their riches. Is my 33% population figure in Auckland that far off? Show me some figures on % of all houses that are rental vs owned by 1st home owners? Then you have something to argue about.

Don't try to justify the means why NZ houses are unaffordable to MOST of the general population by saying it's the same in other OECD nations. It's not. Those countries have done far more for the middle working class than NZ has ever done. But i'm not trying to skew and change the topic. It's not a justification that say Sydney is as expensive as Auckland despite they have CGT. You need to look at the struggles of the middle class and low income workers in both parts. When a high % of houses are in rental state, that means more of the population can't afford to own their 1st home.

[FTG]

...then you must belong on that camp of those that own lots of residential properties.

Your % difference does not change the fact, vast majority population in Canada or Australia do not use houses as a vehicle to make their riches.

Don't try to justify the means why NZ houses are unaffordable to MOST of the general population by saying it's the same in other OECD nations. It's not. Those countries have done far more for the middle working class than NZ has ever done. But i'm not trying to skew and change the topic. It's not a justification that say Sydney is as expensive as Auckland despite they have CGT. You need to look at the struggles of the middle class and low income workers in both parts. When a high % of houses are in rental state, that means more of the population can't afford to own their 1st home.[/QUOTE]

SBQ.....just settle a little huh. .........You are jumping around with a pumped up chest like an over-excited teenager on their first date. And, once again making wild assumptions. In this case on which "camp" I'm in and my opinions on what is driving the deterioration in house affordability in NZ. If you want to successfully "argue" on a forum site then my suggestion to you is keep your boundaries clear on what is fact and what is your opinion. Dressing up your opinion & assumptions as fact is not going to help you win any solidly principled based argument.

You may want to pause & consider that I made NO reference to your "landlordism" opinions. I simply held you to account for your glib assertions re the numerical facts regarding other cities/markets.

Whilst discussing & sticking to the facts, here is something further for you to consider. The MAJORITY of NZ housing stock is still clearly owner-occupied. Yes, the % has reduced over the decades (peaked around 75% in the 90's from memory), but it still sits around 65% today. Meaning up-to only 35% are owned by landlords. When compared to other markets, it's very similar actually. Home ownership figures elsewhere:

Australia - 67%
Canada - 68%
UK - 65%
USA - 66%
Denmark & Sweden (supposedly very "progressive & modern" countries) - 61 & 64%

These facts are a little confronting for you perhaps, but I trust that it makes you pause and reflect a little more on your epistemological framework. Just maybe you will consider that there are some other key drivers to why we are getting the current outcomes in NZ, and just maybe they relate back to the Subject Line of this forum thread. ;-)

QUOTE: ASSUME - and you will end up making an ASS out of U & ME

[Aaron]

Yes banks need depositors because they can only create a multiple of what the borrow - capital adequacy ratio I believe.

Yes your right looking at CBA's 2020 annual report deposits are 69% of total assets and debt issues 14%, equity is only 7% of total assets.

I had better shut up as I don't know what I am talking about. Does anyone know of any good online courses for understanding the banking system?

[Aaron]

Many thanks FTG I have found SBQ is pretty fast and loose with the truth/facts, good to see someone pointing it out.

Sadly I am not the only one making s*it up.

[SBQ]

Dressing up your opinion & assumptions as fact is not going to help you win any solidly principled based argument.

You may want to pause & consider that I made NO reference to your "landlordism" opinions. I simply held you to account for your glib assertions re the numerical facts regarding other cities/markets.

Whilst discussing & sticking to the facts, here is something further for you to consider. The MAJORITY of NZ housing stock is still clearly owner-occupied. Yes, the % has reduced over the decades (peaked around 75% in the 90's from memory), but it still sits around 65% today. Meaning up-to only 35% are owned by landlords. When compared to other markets, it's very similar actually. Home ownership figures elsewhere:

Australia - 67%
Canada - 68%
UK - 65%
USA - 66%
Denmark & Sweden (supposedly very "progressive & modern" countries) - 61 & 64%

QUOTE: ASSUME - and you will end up making an ASS out of U & ME

So the Labour Party is over-reacting for nothing about the cost of housing? The stats Jacinda made were of no interest?

There are other reasons why Denmark & Sweden have lower home ownership - from what i've been told, they focus their investments towards share ownership rather than holding it all in a dwelling. Perhaps you can be eager enough to fact check this out?

The 65% ownership figure does not tell the whole story. Try looking at the composition of it such as by age group and if you have noticed (or missed out), the trend for the past 25 years? It's been well commented by the media:

https://www.tvnz.co.nz/one-news/new-zealand/new-zealands-home-ownership-rate-plunges-lowest-level-in-70-years

https://www.theguardian.com/money/2020/feb/10/home-ownership-ons-rent

and as my architect designer friend told me last week, "Seniors do not like to pay rent for a dwelling they live in". If you have children, what will it be when they grow up trying to buy their first home?

Australia from what I recall still allows negative gearing so for the wealthy, real estate is still their best game. I would imagine the UK would be similar ; hence similar housing affordability issues. The US is different and you can see up and down home ownership % over the past decades; though their tax approach to owning houses is a lot different. Canada if you missed, had an increasing trend on home ownership for the past 25 years. Again, what's the OECD's view on NZ's housing? A bunch of waffle? Do they say the same for Aus/Can/US/UK ???

Getting back to the reserve bank making $ out of fresh air. Not all banks are the same. That is larger banks in NZ have the ability to weather more risk and be more competitive on mortgage rates. The better question is, what % of the banks in NZ are foreign owned and how much of the profits they make, goes abroad? Does the reserve bank not care who their $ is lent to and knowingly, the profits are sent abroad if these banks are foreign owned?

[Aaron]

I heard on the radio this morning Janet Yellen suggested interest rates may need to rise a "little" bit to make sure the economy doesn't overheat.

I guess the market reaction caused her to reverse course quickly.

Still zero hedge asks "did she just start the process of thinking about thinking about thinking about normalization?"

Not a chance, inflation is needed to take care of the debt so owners of assets can keep their gains without making any effort.

[Aaron]

Janet Yellen's about face on interest rate rises or tightening of the monetary supply.

https://www.reuters.com/world/us/treasurys-yellen-interest-rates-may-need-rise-modestly-2021-05-04/

Yellen said during The Atlantic event the main goal of Biden's programs is to help reverse decades of widening economic inequality.

Fed policy while she was governor has exacerbated economic inequality and more govt spending isn't going to change inequality while the underlying problem remains the same.

[macduffy]

Wasn't she only stating the obvious - that interest rates will inevitably rise, sooner or later.

[Aaron]

Wasn't she only stating the obvious - that interest rates will inevitably rise, sooner or later.

She was saying that they may need to rise a bit to stop the economy overheating as in the near future.

Is it obvious they will rise? A 20-30 year trend down, obviously not straight down but no thought of raising rates in a significant way as the debt becomes too large to deal with an interest rate rise.

I would have to check but I think the Japanese govt would have to use its entire budget to service debt if interest rates in Japan rose 1 or 2%.

Obviously she spooked the markets and she isn't even in charge of interest rates.

Powell has said he is not even thinking about thinking about raising interest rates.

[JBmurc]

Powell knows he can't raise rates.... the bubbles will pop .. he will keep kicking the can down the road talks about normalising rates at some time in the not too distant future

[winner69]

Interesting speech by one of Adrian's offsiders

The Future of Maori
https://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Speeches/2021/speech2021-05-06-the-future-is-maori.pdf?revision=27abe5fa-da2d-4996-a697-ee2cd5d14487

[Aaron]

Looks like I am not the only one unsure about the outcomes of NZRB policy.

https://www.interest.co.nz/news/110370/rbnz-concludes-based-inconclusive-international-research-it-doesnt-know-what-impact-low

Do low interest rates raise asset prices? hmm tough question to answer Adrian Morron.

per the NZRB
“The overall effect of monetary policy on inequality depends on the strength of each channel, which may reinforce or offset each other. Therefore, the overall effect of monetary policy easing on inequality is indeterminate."

Well we have had 20-30 years of falling interest rates so what has happened to wealth and income inequality in NZ over this time? It would be interesting to know if it has increased, decreased or stayed the same. Even then we can't be sure if interest rates and monetary policy were the reason for any change.

This from Berl
"In March, the Reserve Bank dropped the Official Cash Rate (OCR) from one percent to a record low 0.25 percent. Interest rate cuts at all major lenders have followed. The intention is to maintain confidence in markets. However, this has the potential to have a long term impact on home ownership and wealth inequality."
https://berl.co.nz/our-pro-bono/inequality-and-new-zealand

I am unsure if BERL is making stuff up or perhaps have some insights or common sense not available to the NZRB.

[SBQ]

Looks like I am not the only one unsure about the outcomes of NZRB policy.

https://www.interest.co.nz/news/110370/rbnz-concludes-based-inconclusive-international-research-it-doesnt-know-what-impact-low

Do low interest rates raise asset prices? hmm tough question to answer Adrian Morron.

per the NZRB
“The overall effect of monetary policy on inequality depends on the strength of each channel, which may reinforce or offset each other. Therefore, the overall effect of monetary policy easing on inequality is indeterminate."

Well we have had 20-30 years of falling interest rates so what has happened to wealth and income inequality in NZ over this time? It would be interesting to know if it has increased, decreased or stayed the same. Even then we can't be sure if interest rates and monetary policy were the reason for any change.

This from Berl
"In March, the Reserve Bank dropped the Official Cash Rate (OCR) from one percent to a record low 0.25 percent. Interest rate cuts at all major lenders have followed. The intention is to maintain confidence in markets. However, this has the potential to have a long term impact on home ownership and wealth inequality."
https://berl.co.nz/our-pro-bono/inequality-and-new-zealand

I am unsure if BERL is making stuff up or perhaps have some insights or common sense not available to the NZRB.

Your last link is of most interest and should be a real eye opener on NZ's inequality.

The problem with monetary policy is it does not discriminate. When the approach to lowering interest rates, with the intent to provide economic stability to businesses does collateral damage. That being it makes the rich get richer. Something so elementary in macroeconomics that I wonder why people never come to that conclusion.

Anyways about rising asset inflation (particularly residential houses) in NZ. I bring back the question, 'which came 1st, the chicken or the egg?'. Central banks around the world are not at fault for this and instead, I put the blame at "investor behaviour" because they got a free ticket to borrow more cheap $ and buy more and more houses because the banks and the NZ Gov't makes it so easy. All while the reserve bank wanted to maintain liquidity for the financial markets to keep things afloat, at the same time causing more inequality (as the report cites)

I put it all down to bad gov't policy - such one as allowing no CGT on residential investment properties - yep best game in town. Bring on the inequality band wagon with Kiwi Saver at the working class and houses for the wealthier which is a better ride. The 20% that own 70% of NZ's wealth enjoy rubbing their hands and the wealthier oligarchs love sending their children to private schools.

[Aaron]

Bank of Canada may have worked out that central bank policy is helping to create inequality.

Stanley Druckenmiller has worked it out too and he seems pretty smart.

https://www.zerohedge.com/markets/druckenmiller-theres-been-no-greater-engine-inequality-fed

Glaring and expanding wealth inequality is destructive to society. While there will always be inequality and successful capitalism should rightfully reward those that work hard and come up with great business concepts the artificial exponential enrichment of the few by a “government created agency” (Jay Powell) is not in the purview of the Fed’s mandate.

Same could be said of the NZRB.

[SBQ]

Bank of Canada may have worked out that central bank policy is helping to create inequality.

Stanley Druckenmiller has worked it out too and he seems pretty smart.

https://www.zerohedge.com/markets/druckenmiller-theres-been-no-greater-engine-inequality-fed

Glaring and expanding wealth inequality is destructive to society. While there will always be inequality and successful capitalism should rightfully reward those that work hard and come up with great business concepts the artificial exponential enrichment of the few by a “government created agency” (Jay Powell) is not in the purview of the Fed’s mandate.

Same could be said of the NZRB.

Doesn't mean anything and Bank of Canada is saying "It COULD... but we will look into it". BIG difference to what we have here in NZ where it's very clear the wealthy got rich off owning multiple houses. Anotherwords, the low interest rates in Canada does not mean (to the same effect as in NZ) of the wealthy rushing out to buy more houses as i've mentioned before, the taxation and gov't policies in place already discourage the investment into buying multiple houses as a way to excess profits. The statement made by the Bank of Canada is simply a pre-warning "Inequality could be widen more in Canada due to QE". Do you understand the difference and compare it to what's happened in NZ?

[Panda-NZ-]

An interesting alternative perspective from ARK's Cathy Wood:

US is set up for massive deflation.

https://nz.news.yahoo.com/arks-cathie-wood-says-u-160519316.html

Though she probably would say that given all her high pe funds.

[Aaron]

https://www.stuff.co.nz/life-style/homed/housing-affordability/300316220/fears-reserve-bank-faces-choice-between-recent-house-buyers-and-economy

I don't think he got this right. The choice isn't between house buyers and the economy, it is between home owners and tenants or older asset owning generations versus younger generations wanting to get ahead.

The economy does not want to see rate rises either as this will drive up the $NZ making exporters less competitive and a lot of businesses are carrying debt and enjoying cheap capital.

The choice is now that not just asset prices are inflating but also consumer goods prices are rising, do you squeeze the tenant further with inflation or do you not back the asset owners/risk takers/job creators with loose monetary policy. Anyone buying a house on what has been described as an expensive market is taking a risk. Is it the NZRBs job to protect them or provide a sound stable currency. I know the NZRB is in their words "The Reserve Bank manages monetary policy to maintain price stability, promotes the maintenance of a sound and efficient financial system, and supplies New Zealand banknotes and coins." But central banks have been using monetary policy to protect risk takers from taking any losses at the expense of price stability and the maintenance of a sound efficient financial system.
The wealth effect and trickle down economics are bulls*it yet that seems to be what is driving the RBNZ and central banks around the world.

IMO it is wrong but it won't change any time soon 65% of NZ owns a house so they have no reason to get upset about this and we live in a democracy.

Please note any reference to the NZRB was not the royal ballet but my mixed up acronym.

[Aaron]

More of the same.

https://www.stuff.co.nz/business/125248142/reserve-bank-holds-ocr-but-says-increases-inevitable-in-medium-term-on-current-projections

Anyone in power expressing concern about house prices, is not being genuine.

[Aaron]

Were independent central banks created to ensure price stability and a sound financial system because politicians could not be trusted with this.

https://www.interest.co.nz/bonds/110650/rbnz-chief-economist-says-central-bank-might-continue-buying-government-bonds-some

I guess if financial stability is rising debt then job well done. If 2% inflation provides stability 4% should provide twice as much stability. Is this why house prices are so stable? They have been averaging 7% for a long time and recently seem to have gone super stable. No wonder economics and banking is so difficult to understand for the average person.

I see Adrian trying to talk down house prices as he doesn't have the balls to do the job he was entrusted with.

https://www.newshub.co.nz/home/money/2021/05/time-for-house-price-growth-to-come-to-a-grinding-halt-reserve-bank-governor-adrian-orr.html

Only FOMO keeping them up??? I would suggest monetary policy is driving the FOMO but what do I know.

[Aaron]

“When looking at the future of our balance sheet, it should come as no surprise that climate change and sustainable finance is at the forefront of our minds,” she says.

https://www.goodreturns.co.nz/article/976518725/rbnz-balance-sheet-almost-triples-in-size.html

How about you stop pushing prices up to create a "wealth effect" so people consume more, that might be a start if you are concerned about climate change. It also will align with the banks "stated" goal of "maintaining price stability".

Is climate change even a part of the central bank role?

Are these statements taken out of context or is Vanessa Rayner a f**king idiot.

[macduffy]

Good points, Aaron. It seems that everything has to be seen through a climate change lens these days. A sound financial system doesn't need to be "justified" in that way.

[Aaron]

Good points, Aaron. It seems that everything has to be seen through a climate change lens these days. A sound financial system doesn't need to be "justified" in that way.

I was thinking that monetary policy designed to push up prices to create the wealth effect so people will consume more runs counter to any real attempt to address climate change if it is man made. Any talk is just hot air unless you are looking to actually change the consumption led constant growth model that society is currently based on. Not that this is any of the RBNZ's concern as it is not part of its mandate.

Our elected representatives should be making the hard calls and overhauling the mandate of the NZRB if it is not working for society.

https://www.newsroom.co.nz/ideasroom/political-beliefs-masquerading-as-science

Unfortunately I can't access Don Brash's response as I am not a subscriber to this site.

[Panda-NZ-]

Interest rates are the only tool reserve banks are given.
After that's exhausted they hand a pile of money to the govt for free to spend on what they wish.

Reserve banks need more tools such as variaable income tax rates (moved up when there's austerity, down for easing).

Don is not right on much but a variable component to kiwisaver rates is an idea which is sound (combined with the fixed 4%). Tax and Kiwisaver both have better coverage than mortgages.

[winner69]

Our Adrian obviously doesn’t really understand his role ....and has far too much spare time

https://www.stuff.co.nz/business/125332396/reserve-bank-spends-100000-on-rebrand

[Aaron]

Our Adrian obviously doesn’t really understand his role ....and has far too much spare time

https://www.stuff.co.nz/business/125332396/reserve-bank-spends-100000-on-rebrand

I guess everything else is under control. Why not fiddle.

[macduffy]

I guess everything else is under control. Why not fiddle.

Exactly! And it's only 100 Grand; plenty more where that came from.

:mellow:

[Aaron]

Confirmation bias, not sure of the author and appreciate it is not the RBNZ but they are following the same path.

https://www.zerohedge.com/markets/two-pins-threatening-multiple-asset-bubbles-part-2

Asset price inflation = Financial stability
Consumer Price Inflation = Inflation

I didn't appreciate the difference until reading this. That could be why inflation is so hard for me to understand.

I now feel like a fool complaining that the RBNZ was not doing its job on price stability letting house prices go ballistic.

I went back to the RBNZ website this morning to refresh myself on their mandate which used to be;

"The Reserve Bank manages monetary policy to maintain price stability, promotes the maintenance of a sound and efficient financial system, and supplies New Zealand banknotes and coins."

But it has changed with the rebranding. Now it is.

"Toitū te Ōhanga, Toitū te Oranga. We enable economic wellbeing and prosperity for all New Zealanders."

I thought maybe Adrian Orr thought he had become an omnipotent god like creature but this is actually "the purpose" in the Reserve Bank Act 1989. I did not realise just how amazing and powerful the central bank is.

When they say "all NZers" do they just mean NZers with assets?? Otherwise I don't think they are achieving their mandate unless they believe in trickle down economics. Is growing wealth inequality a sign of too little trickle down economics or too much?? I am not sure although I am leaning toward too much.

[SBQ]

Confirmation bias, not sure of the author and appreciate it is not the RBNZ but they are following the same path.

https://www.zerohedge.com/markets/two-pins-threatening-multiple-asset-bubbles-part-2

Asset price inflation = Financial stability
Consumer Price Inflation = Inflation

I didn't appreciate the difference until reading this. That could be why inflation is so hard for me to understand.

I now feel like a fool complaining that the RBNZ was not doing its job on price stability letting house prices go ballistic.

I went back to the RBNZ website this morning to refresh myself on their mandate which used to be;

"The Reserve Bank manages monetary policy to maintain price stability, promotes the maintenance of a sound and efficient financial system, and supplies New Zealand banknotes and coins."

But it has changed with the rebranding. Now it is.

"Toitū te Ōhanga, Toitū te Oranga. We enable economic wellbeing and prosperity for all New Zealanders."

I thought maybe Adrian Orr thought he had become an omnipotent god like creature but this is actually "the purpose" in the Reserve Bank Act 1989. I did not realise just how amazing and powerful the central bank is.

When they say "all NZers" do they just mean NZers with assets?? Otherwise I don't think they are achieving their mandate unless they believe in trickle down economics. Is growing wealth inequality a sign of too little trickle down economics or too much?? I am not sure although I am leaning toward too much.

Great post and it may be Jacinda had something to do with the rebranding of the NZRB's role. My understanding with inflation... it's a product of having too much $ in circulation in the economy (what Macroeconomics class has taught us). You know, the "quantity theory of money" and the money supply. The lessor of 2 evils; inflation or deflation? The latter is far worse to the economy by a LONG shot. So while the rich got the benefit from rising inflation, overall it's a better outcome than where 'everyone loses' in when assets collapse in value and permanent unemployment trends.

[peat]

economists saying that they dont think RBNZ has a clue

NZ’s “economic indicators continue to acquit themselves very well". "These, in turn, suggest the economy is on a much stronger footing than the RBNZ appreciates,” said Toplis.

Did NZ dodge a double-dip recession? | BusinessDesk (https://businessdesk.co.nz/article/economy/did-nz-dodge-a-double-dip-recession) (free article)

[Aaron]

I don't think any economist has a clue including the ones at the RBNZ. I think they will continue to choose the path of least resistance. The modern day soothsayers might as well be reading goose entrails

Adrian said the reason for dropping interest rates and keeping them low is to achieve his employment mandate and he wasn't worried about house prices. The herald today suggests he was too successful as there is now a shortage of workers. So I guess we need to recognise this success by the RBNZ. Maybe now he should increase interest rates as labour shortages and house price rises might suggest this is what he should be doing. House prices won't stop rising until interest rates go up.

As one commentator said if you don't buy whatever you can now while money is so cheap you might look back and regret the lost opportunity.

SBQ I keep hearing deflation is way worse than inflation although I guess the only proof of this is the great depression. They focus on the tightening of the money supply back then at the wrong time exacerbating the depression. Not much is said about the build up of debt prior to that in the 1920s. Wealthy people telling me that inflation is better than deflation - yea right. Like taxing the rich less will lead to a better society as the wealth will "trickle down".

I would much rather pay more for my investments, goods and services next week???

[peat]

I don't think any economist has a clue

true dat

I assume you understand why deflation is considered so horrible.
Demand evaporates. Economy dies... vicious circle downwards as people save knowing their money will be worth more.
Value judgements depend on the perspective so yeh you could be right that inflation suits wealth. But, no one wants to visit Moribundsville.

[Aaron]

true dat

I assume you understand why deflation is considered so horrible.
Demand evaporates. Economy dies... vicious circle downwards as people save knowing their money will be worth more.
Value judgements depend on the perspective so yeh you could be right that inflation suits wealth. But, no one wants to visit Moribundsville.

I don't agree but that is coming from a place of ignorance. Where are the examples of deflation being a huge problem?

Not sure if this lady knows what she is talking about but seems logical to me. Reading the key takeaways anyway. Maybe some confirmation bias choosing this link.

https://www.investopedia.com/articles/personal-finance/030915/why-deflation-bad-economy.asp

Yes sure a debt deflation will cause asset prices to fall and people might close their wallets for a while in a self reinforcing cycle but you will still need to eat, fix your house and buy a car if you need to. Investment opportunities will open up debt will be defaulted on. "Creative destruction" is a current buzzword, apply it to the financialization of the economy and it doesn't seem that bad.

Without it we will get continued inflation which to date has only been good to the owners of houses and other assets and if the Central Banks succeed in inflating away the debt at the expense of savers and non-asset owners it seems a little unfair. I suspect I am arguing with home owners whose property prices will have a big effect on their retirement plans so they can see the benefit of inflation daily in house price rises.

Money for nothing, someone else is paying for your free lunch.

[JBmurc]

we are presently living through the roaring 20's .... we all know how that ended up last Century ... and they had rates from 4%-5% so room to move when it blew up and cost so many jobs across many sectors

Covid was the match that ignited the inflation bug to really kick into gear with easy money policy .... the FED is the lender of last resort (Is where NZ Govt borrowed 60bill)... the FED chair has stated the FED Mandate may be changed and forced to also be the Buyer of last resort and if this happens INFLATION will run much higher than target levels ..

[JBmurc]

we are presently living through the roaring 20's .... we all know how that ended up last Century ... and they had rates from 4%-5% so room to move when it blew up and cost so many jobs across many sectors

Covid was the match that ignited the inflation bug to really kick into gear with easy money policy .... the FED is the lender of last resort (Is where NZ Govt borrowed 60bill)... the FED chair has stated the FED Mandate may be changed and forced to also be the Buyer of last resort and if this happens INFLATION will run much higher than target levels ..

[SBQ]

I don't agree but that is coming from a place of ignorance. Where are the examples of deflation being a huge problem?

Not sure if this lady knows what she is talking about but seems logical to me. Reading the key takeaways anyway. Maybe some confirmation bias choosing this link.

https://www.investopedia.com/articles/personal-finance/030915/why-deflation-bad-economy.asp

Yes sure a debt deflation will cause asset prices to fall and people might close their wallets for a while in a self reinforcing cycle but you will still need to eat, fix your house and buy a car if you need to. Investment opportunities will open up debt will be defaulted on. "Creative destruction" is a current buzzword, apply it to the financialization of the economy and it doesn't seem that bad.

Without it we will get continued inflation which to date has only been good to the owners of houses and other assets and if the Central Banks succeed in inflating away the debt at the expense of savers and non-asset owners it seems a little unfair. I suspect I am arguing with home owners whose property prices will have a big effect on their retirement plans so they can see the benefit of inflation daily in house price rises.

Money for nothing, someone else is paying for your free lunch.

I prefer this reason why deflation is bad (leads to greater, worse things...)

https://www.thebalance.com/what-is-deflation-definition-causes-and-why-it-s-bad-3306169

You don't have to look far in the past 10+ years how the EU is doing. They've essentially have never came out of the GFC in 2008 and like in that article why deflation is so bad; the EU problem is interest rates no longer are effective once you go negative interest rates.

"Once rates have hit zero, central banks must use other tools. But as long as businesses and people feel less wealthy, they spend less, reducing demand further. They don't care if interest rates are zero because they aren't borrowing anyway. There's too much liquidity, but it does no good. It's like pushing a string. That deadly situation is called a liquidity trap (https://www.thebalance.com/liquidity-trap-examples-with-5-signs-and-5-cures-3306141) and is a vicious, downward spiral."

And the article continues on where deflation is beneficial - except that in NZ, we do not have the innovation that can spur on to a recovery from a market collapse. Smaller countries like NZ need pay closer attention to the central bank rate and to ensure it never falls in a situation like Japan or in the EU. As Ray Dalio has repeatedly said during the COVID crisis, "Not all central banks around the world are the same... it's a matter that currency risk would be the greater threat and the reason why in times of crisis - global markets flee to the USD".

[Aaron]

Where is the deflation in this chart?

https://www.interest.co.nz/charts/real-estate/median-house-price-growth

Why isn't the RBNZ doing something about it?

I stand corrected Adrian has done some thing.

https://www.newshub.co.nz/home/money/2021/05/time-for-house-price-growth-to-come-to-a-grinding-halt-reserve-bank-governor-adrian-orr.html

You won't talk down the market, actions speak louder than words Adrian, grow a pair and do your job, raise interest rates.

[winner69]

Where is the deflation in this chart?

https://www.interest.co.nz/charts/real-estate/median-house-price-growth

Why isn't the RBNZ doing something about it?

I stand corrected Adrian has done some thing.

https://www.newshub.co.nz/home/money/2021/05/time-for-house-price-growth-to-come-to-a-grinding-halt-reserve-bank-governor-adrian-orr.html

You won't talk down the market, actions speak louder than words Adrian, grow a pair and do your job, raise interest rates.


Increasing OCR not in his DNA

[Aaron]

Increasing OCR not in his DNA

True but he is on the case with Debt To Income limits. (DTI)

https://www.stuff.co.nz/business/125458249/reserve-bank-gets-new-tool-to-control-house-prices

The bank said its analysis showed tools such as debt-to-income (DTI) limits were likely to be “the most effective additional tool that could be deployed by the Reserve Bank to support financial stability and house price sustainability”.

“Although we do not have a remit to target house prices directly, our financial policy tools can help to ensure prices do not deviate too far from sustainable levels,” Reserve Bank governor Adrian Orr said.

“We believe that a ‘sustainable house price’ is the level that the price would be expected to move towards over several years, reflecting the underlying drivers of supply and demand for housing, including population growth, building costs, land supply, and interest rates,” he added.

Purpose - Reserve Bank of NZ Act
(1)
The purpose of this Act is to promote the prosperity and well-being of New Zealanders, and contribute to a sustainable and productive economy, by providing for the Reserve Bank of New Zealand, as the central bank, to be responsible for—
(a)formulating and implementing monetary policy directed to the economic objectives set out in subsection (1A), while recognising the Crown’s right to determine economic policy; and
(b)promoting the maintenance of a sound and efficient financial system; and
(c)issuing bank notes and coins in New Zealand to meet the needs of the public; and
(d)carrying out other functions, and exercising powers, specified in this Act.
(1A)
The economic objectives are—
(a)achieving and maintaining stability in the general level of prices over the medium term; and
(b)supporting maximum sustainable employment.

As long as the CPI does not properly reflect inflation I guess Adrian is all good.

Maybe someone can interpret what "sustainable house prices" as defined by Adrian mean. A tool more effective than DTI limits to calm house price inflation is to raise interest rates.

[dobby41]

Increasing OCR not in his DNA

The OCR is a very crude and blunt tool.

[Panda-NZ-]

I prefer this reason why deflation is bad (leads to greater, worse things...)

https://www.thebalance.com/what-is-deflation-definition-causes-and-why-it-s-bad-3306169

You don't have to look far in the past 10+ years how the EU is doing. They've essentially have never came out of the GFC in 2008 and like in that article why deflation is so bad; the EU problem is interest rates no longer are effective once you go negative interest rates.



Plus national debt becomes so much worse with deflation.

You sort of have to pick one now and its a good problem to have -- you're either worried about debt or inflation since it cant be both.

[Aaron]

Plus national debt becomes so much worse with deflation.

You sort of have to pick one now and its a good problem to have -- you're either worried about debt or inflation since it cant be both.

That is the problem the central banks want inflation to take care of the debt they have allowed to build up. Adrian Orr and all central bankers will never raise interest rates by any significant amount no matter how much I moan and whinge.

https://www.zerohedge.com/markets/michael-big-short-burry-greatest-bubble-all-time-all-things-two-orders-magnitude

[Aaron]

DTI limits will ensure the central bank can continue to drive up house prices with low interest rates and easy money but overleveraged poor people won't destabilize the financial system.

Mind you poor people probably aren't supposed to be part of a financialized economy anyway.

https://www.msn.com/en-nz/money/other/rich-will-get-richer-and-poor-will-get-poorer-broker-s-warning-over-govt-s-new-plan-to-cap-monster-mortgages/ar-AAL5EDf?ocid=msedgntp

[SBQ]

Plus national debt becomes so much worse with deflation.

You sort of have to pick one now and its a good problem to have -- you're either worried about debt or inflation since it cant be both.

Not really. It depends on what kind of national debt we're talking about. Last I recall the US debt is nearly 75% internal (domestic) - hence my comment before that not all central banks around the world are the same and do not have the same footing.

Also debt is only a perspective of view. During the 2008 GFC, we saw countries like Greece and Spain fall in crisis and when it came to issuing bonds, who came to the plate to buy? Note that when a country is in crisis - there simply isn't the domestic $ going around where the gov't can borrow. So instead it seeks foreign borrowings ; well would you know China (at the time being flushed with $) never came to their tables. But when ever the US issues T-Bill, China never says no. How does this reflect to the RBNZ?

[Panda-NZ-]

Not really. It depends on what kind of national debt we're talking about. Last I recall the US debt is nearly 75% internal (domestic) - hence my comment before that not all central banks around the world are the same and do not have the same footing.


Well many govts could borrow at negative real interest rates (10 year bond yield).

Every household has much more debt than the govt which doesn't get much attention from the public but inflation alleviates that burden from them too.

[Aaron]

Not really sure about the chart midway through the article. Price to Rent and Price to Income with 100 being the average and anything over being higher than average. Not sure I understand but NZ topped the chart so well done Adrian Orr NZ not only first in cricket but top at house price inflation and expanding wealth inequality.

The RBNZ doesn't get nearly enough credit for its achievements.

No choice but to plough ahead with the current policies though. Not sure how or when it ends but it is hard to see it ending well for the majority of people.

https://www.zerohedge.com/markets/albert-edwards-fed-trapped-epic-bubble-it-can-never-normalize-rates-again

SBQ I see your beloved Canada second on the chart, what happened I thought you were suggesting Canada's tax policies and NZs were the main drivers for house price inflation. Do both countries have a similar tax regime around taxing houses?

[SBQ]

Not really sure about the chart midway through the article. Price to Rent and Price to Income with 100 being the average and anything over being higher than average. Not sure I understand but NZ topped the chart so well done Adrian Orr NZ not only first in cricket but top at house price inflation and expanding wealth inequality.

The RBNZ doesn't get nearly enough credit for its achievements.

No choice but to plough ahead with the current policies though. Not sure how or when it ends but it is hard to see it ending well for the majority of people.

https://www.zerohedge.com/markets/albert-edwards-fed-trapped-epic-bubble-it-can-never-normalize-rates-again

SBQ I see your beloved Canada second on the chart, what happened I thought you were suggesting Canada's tax policies and NZs were the main drivers for house price inflation. Do both countries have a similar tax regime around taxing houses?

I have not been following Zerohedge reporting for a long time as I do not find their information factual and is very subjective how they spin their narrative.

For eg. Zillow has real factual (far more accurate data) of the # of house sales around the US and tracks those selling in say California, and the same people, buying in other states. If you look at the national rise in US house prices (likewise in Canada), they do no compare to NZ's massively high rise in house prices for the same period. Also you need to take population in proportion of house pricing ; in NZ (and correct me if i'm wrong), maybe 80% live in places that experienced insane returns. While in Canada and the US, you are not seeing 80% of the population with home prices that risen 30%. So I would question ZeroHedge's data source and how they are spinning their narrative of inflation and the massive housing bubble.

I opinion? Don't ask these guys. Ask someone like Warren Buffet who has been around far long than these guy reporting were born. I'm not seeing Buffet liquidating Berkshire's share position in fear of a massive bubble in the stock market (or housing market). If I recall correctly, he was saying the Berkshire's investment in housing and construction is very healthy. We had a stock market crash in 3rd week March 2020. The housing policy in US/Canada is in far better position than in NZ. What more to say?

[Aaron]

I have not been following Zerohedge reporting for a long time as I do not find their information factual and is very subjective how they spin their narrative.

For eg. Zillow has real factual (far more accurate data) of the # of house sales around the US and tracks those selling in say California, and the same people, buying in other states. If you look at the national rise in US house prices (likewise in Canada), they do no compare to NZ's massively high rise in house prices for the same period. Also you need to take population in proportion of house pricing ; in NZ (and correct me if i'm wrong), maybe 80% live in places that experienced insane returns. While in Canada and the US, you are not seeing 80% of the population with home prices that risen 30%. So I would question ZeroHedge's data source and how they are spinning their narrative of inflation and the massive housing bubble.

I opinion? Don't ask these guys. Ask someone like Warren Buffet who has been around far long than these guy reporting were born. I'm not seeing Buffet liquidating Berkshire's share position in fear of a massive bubble in the stock market (or housing market). If I recall correctly, he was saying the Berkshire's investment in housing and construction is very healthy. We had a stock market crash in 3rd week March 2020. The housing policy in US/Canada is in far better position than in NZ. What more to say?

https://www.zerohedge.com/markets/canadian-housing-market-gone-berserk-investors-stir-bubble-fears

[SBQ]

https://www.zerohedge.com/markets/canadian-housing-market-gone-berserk-investors-stir-bubble-fears

Not even remotely the same. What did Auckland do since the start of Covid? Well over 30%? NZ Nationally?

If you ask me, 20% of recent housing purchases falling in the investor category is not a lot. The BOC has a lot more tools than the RBNZ. They do stress tests on houses, they do speculation assessments. Again that ZeroHedge is just spinning their narrative. The fact being is the Canadian Gov't has done a lot more than NZ in getting 1st home buyers into a home and building more and more houses than ever. Look at ll the high rise buildings going up in Vancouver and Greater Toronto area? Makes Auckland look like a joke standing still.

Again.. 20% ? Let's recall what Jacinda said in how many houses in NZ were sold to people who already had 5 or more houses?

[Aaron]

I had thought our disagreement was that I thought loose monetary policy and low interest rates were the main drivers of the current house price rises in NZ and that you thought it was mostly the tax policies in NZ.

Probably a combination of both and no doubt other factors such as the supply issue, population growth, desperation of first home buyers and investors realising that central banks are gunning for inflation to take care of debt and are not even pretending they are worried about price stability. Yield doesn’t matter anymore as capital gain is where it is at.

Similar to NZ the US, UK , Sweden, Denmark, CANADA etc etc. are experiencing house/asset price increases. Do all these countries have the same tax policy?? Did they all neglect to build houses like NZ? or perhaps there is some other reason why asset prices across the developed world are inflating. Hmmm.... tricky I wonder what it could be, but it must be happening in all these countries at the same time. I will have to put my thinking cap on as to what might be the main driver behind house price rises globally.

You raise so many points that I don’t have time to fact check, I am not even sure that we are arguing over the same issue. I would need FTG to look over many of the statements you have made to make sure you are talking from your mouth this time rather than your a*se and then assemble these statements into some sort of cohesive argument. Maybe clarify what your point is and we can go from there.

[SBQ]

@ Aaron:

I'm not denying that record low interest rates aren't a cause of record high housing prices. No one is saying that. What i'm hitting hard is the obvious ; not all investments are created equal and what we have in NZ is truly unique to the rest of the world. One, an absence of CGT on the sale of multiple houses over the long term (+10 years). Two, as described in the following article, a very high % of investments pooled into NZ real estate compared to anywhere else.

https://businessdesk.co.nz/article/the-life/looking-back-the-nz-housing-boom-when-and-how-it-all-began

You mentioned Sweden and Denmark? Perhaps you should check what % of the country holds their investments in their real estate market? They know better that $ invested in overseas equities in a diversified way is a far better bet then coercing their citizens with archaic tax that only favour the fueling of higher and higher house prices that we see in NZ. After all it's not that low interest rates helped fueled the craze in NZ, but rather - we have a unique situation that exasperates the growth exponentially. Let me quote again:

As New Zealand house prices continue to soar, it is worth examining the origins of this amazing boom. Why has New Zealand’s average house value rocketed from just $25,500 in Dec 1980 to an estimated $715,500 at the end of last year?


The average New Zealand house is now worth 28 times more than it was 40 years ago while the NZX 50 Capital Index has appreciated a more modest tenfold over the same period.

Meanwhile, United States equity markets have completely outperformed the country’s housing market over the same 40-year period. The median US house price has appreciated just five times since Dec 1980 while the Dow Jones Industrial Average has risen by 33 times, the S&P 500 Index 28 times and the Nasdaq by a massive 64 times.

Forty years ago, New Zealand house prices were much lower than US house prices, but our prices are now more than 50% higher.

One does not have to think that the primary cause of NZ's housing problem is due to the RBNZ bringing rates so low. Every country around the world has been doing this. You could mention housing prices in the US are at record levels - but are they compared to the price of NZ house? A BIG NOPE. In Auckland we think paying $2M for a house not much more than a 3 bedroom state house is expensive. In the US, paying $2M for a house.. overall would be far more grand, larger, more comfortable, wider streets, larger section sizes, just like the vehicles they drive over there. It's pretty much to the level that NZ's housing situation is in a league of it's own. Why wouldn't it be? You have an absence of any demand controls without CGT. A near non-existent supply side of building houses. Yes if you ask me NZ is unique.

As referenced before, just look at the composition of the investments in NZ; what % is held in the NZX vs in houses? Therefore when you mention US, Sweden, or CANADA, i'm afraid the situations there are different and that's not purely due to record low interest rates but rather, the decades upon decades of the NZ gov't making bad choices. At least I know growing up in Canada, high housing prices only benefit those that can own but ultimately, the losers are the next generation wanting to buy their 1st home. So by their composition investment make up, it's clear retirement planning is not concentrated upon owning houses. The tax rules give all the benefit for the working class to invest in more productive areas - like in the stock market / equities. But what we have in NZ is entirely the complete opposite.

[SBQ]

I should also add that in that article, they blame the cause at the RBNZ (hence low interest rates). I disagree. The argument is about which came first, the egg or the chicken? It's the behaviour of NZ investors (property) lavish appetite of buying multiple houses to form their retirement portfolio. The banks in NZ, whom are mostly foreign, are only here because the people dictate so and all along, decade after decade, the NZ gov't watched along, did nothing, 3 years in.. 3 years vote again. 3 years done nothing and continued to pass the buck along.

[Aaron]

I should also add that in that article, they blame the cause at the RBNZ (hence low interest rates). I disagree. The argument is about which came first, the egg or the chicken? It's the behaviour of NZ investors (property) lavish appetite of buying multiple houses to form their retirement portfolio. The banks in NZ, whom are mostly foreign, are only here because the people dictate so and all along, decade after decade, the NZ gov't watched along, did nothing, 3 years in.. 3 years vote again. 3 years done nothing and continued to pass the buck along.

I would suggest 30 years of lower and lower interest rates and monetary policy and interest rate intervention every time asset markets try to correct have incentivised investors to take on more debt at lower yields bidding up asset prices knowing that central banks will ensure investment success. Without the central banks and targeted inflation the capital gains would not be as significant. Tax policy was/is the cherry on top I suppose.
Lately houses have increased nearly 30% annually despite the loss of interest deductibility and an extension to the bright line test. If your arguement holds true these actions should have tempered the price rises. What else has changed, Adrian Orr has tried to talk the housing market down because he is not going to his job and raise interest rates, further encouraging everyone.

Price stability, moral hazard just a couple of concepts foreign to a central bankers way of thinking.

[SBQ]

It wasn't too long ago (2011?) interest in the bank account was paying near 9 or 10% - did housing prices collapse? I don't recall being so. I agree, just like before when people ask me where to invest $ in NZ? I regretfully say, "Buy houses". Hence 'it's still the best game in town'.

If you ask around Vancouver why house prices are so high there - i'm sure you will get a different answer. They aren't saying it's due to decades and decades of low central bank rates. When Trudeau was voted in, he assembled a special task force at the CRA (ie IRD) to look at the hot Vancouver housing market. Their conclusion? They pointed the finger at rich Chinese $ flowing into the Vancouver real estate market and most of them were not paying any taxes on the capital gains by claiming the purchase as a principal resident (while living in China). Unlike NZ that banned non-residents from buying, Canada instead went and taxed them knowing that it was $ to be had. But not severely enough because these high caliber buyers were using Vancouver real estate as a way to launder their $ out of China. So it did not matter what the local domestic mortgage rates were or how much taxes they had to pay as locals had no chance against dirty $ when comes to bid for a house. And what better way to address that dirty money than the Cdn gov't by taxing most of it (psst they get them by taxing their overseas income by using the house as the trap). Then there's the 20% tax applied to non-residents on the purchase price (if you think GST is bad). Full capital gains tax on the sale of the house requiring the owner to front up 33% of the value of the house before it goes for sale. City Vancouver also addressed taxation by putting rates at the highest figure (ie no senior or principal residence discount), a Vacancy Tax, etc. But here's the real story ; if you ask those rich Chinese buyers, they will tell you today like I say right here in NZ, "It's still the best game in town".

Fortunately, the dirty money from China does not flow anywhere else into the small cities of Canada. They draw the line at having to make more than one connecting domestic flight when going back to China; convenience to them is still king. They even tried to move $ to surrounding places around Vancouver like Victoria - but then those municipals also imposed the same Vacancy tax etc.

On the supply side, there's still plenty of places to live in Vancouver if you want big city lifestyle (50 story high apartment buildings). This is typical of any major growing city and unfortunately, something Auckland does not have. How else can you get more people to live in the same given area? You knock down a 2 or 3 dwelling pad, and go multistory UP. But we have stupid RMA in NZ where one can't be even a whisker past the recession plane blocking the neighbour's sun light. So instead of addressing they key problem of supply (the RMA), they think well maybe we should be moving all of Auckland's future development in the North Shore or far south in the farmland of Pukekoe. What kind of prehistoric thinking is this? And then load up the traffic on the Auckland Harbour Bridge. Oh gov't doesn't want people to drive cars.. so we have a cycling problem on that bridge. Where does this end?

[Panda-NZ-]

It wasn't too long ago (2011?) interest in the bank account was paying near 9 or 10% - did housing prices collapse? I don't recall being so. I agree, just like before when people ask me where to invest $ in NZ? I regretfully say, "Buy houses". Hence 'it's still the best game in town'.



Should put in a foreign buyers ban like here.
Local chinese can't even buy the land the property sits on, in their own country.

[SBQ]

Should put in a foreign buyers ban like here.
Local chinese can't even buy the land the property sits on, in their own country.

How is that relevant? Both NZ & Canada have different tax treatments on the same asset class. The ultra wealthy Chinese aren't fleeing China because they can't own land where they lived. Look at how high Shanghai apartments cost - I can assure you it's not about the land ownership issue. It's the simple fact that dirty money can leave China under the radar. When you look closer at Vancouver - they buy the west side, ultra $5M+ which pretty much does not affect the rest of the housing market. These ultra wealthy do not compete with the local buyers in the way we see in Auckland by competing directly with first time home buyers. So the CRA suggestion was, just tax em! and you know what? they gladly pay for it because it's dirty $ anyways. ie Huawei CFO Meng Wanzhou that was arrested ; when they flow their $ in, so does all the China corrupt officials (or those with ties), that found Canada an easy place to park their wealth.

Earlier in the year a Harcourts agent told me (at an open home end of my street) saying the foreign buyers ban in NZ did absolutely nothing in cooling our hot housing market. He beliefs it was FOMO (Fear of Missing Out) and irrational thinking of buyers will to pay anything just to get into a home. We didn't talk about taxation as that was much more complex issue.

[Aaron]

This article doesn't discuss tax as a cause of runaway house prices globally.

https://www.nzherald.co.nz/business/runaway-house-prices-the-global-winners-and-losers-from-the-pandemic/LAUVJYIWEF6QJINUMMC7W6FX2I/

Risk is if interest rates rise.

https://www.nzherald.co.nz/business/banks-at-risk-of-disorderly-correction-if-nz-house-prices-keep-rising-sp-warning/R4VMDVUKMW263NPJOJBY53LYSI/

The greater test of the housing market will come once mortgage rates start to rise from their record lows, it said.

However, just today, further mortgage rate drops have been announced.

Listened to Megan Woods briefly on a current affair show, but the bit I heard they were debating whether house prices are too high and what is the govt doing about it.

The NZRB is the problem they should be interviewing Adrian Orr as to what he is going to do about it.