C’mon Grant

Written By: advantage - Date published: 10:40 am, November 18th, 2020 - 51 comments
Categories: business, capitalism, climate change, Economy, employment, grant robertson, jobs, Keynes, labour, Media - Tags: reserve bank

This government must demonstrate that it has the ability to lead the New Zealand economy where it has stated it wants it to go. It does not want more headlines like the average house in Auckland now being priced at $1 million.

With the Reserve Bank off the chain, there’s no sign of that ability to lead much.

The concern that the Reserve Bank chose to provide another $28 billion in unrestricted loans to banks has caused left and right to unify in concern this week. That’s how bad it’s got.

To get to Dr Cullen first.

Dr Cullen is really clear that the Reserve bank is not only misdirected and out of control, but also that the Minister of Finance doesn’t appear to have the will to alter their course. The changes to the Reserve Bank Act in 2019 gave the government the power to direct the Monetary Policy Committee to pursue other objectives than price stability and ‘maximum sustainable employment’. Dr Cullen says that “to use this new power is, essentially, the nuclear option in the operation of monetary policy.”

The Minister of Finance and the Governor of the Reserve bank both signed this remit last year of the Monetary Policy Committee on a single page. This joint statement says:

Our priority is to move towards a low carbon economy, with a strong diversified export base, that delivers decent jobs with higher wages and reduces inequality and poverty.”

Read that text again slowly.

Dr Cullen is pointing out that when the Reserve Bank is deliberately putting untagged money into this economy, the result is to make a housing price boom even worse. It’s not achieving any of the government’s stated economic aims.

Now, I sure ain’t slagging the Reserve Bank off at this point. Pretty much everyone near a bank was pretty happy that the Governor Mr Orr intervened to provide stability in providing $30 billion to banks in March this year.

That March intervention shows that the Reserve Bank can and does act to restore financial stability to banks being able to actually get debt to lend. But having used the “nuclear option” once, as Dr Cullen puts it, it doesn’t want to stop pressing that big red button again.

Through 2020 plenty of people from left and right have talked about quantitative easing as a great way to form a new orthodoxy for running an economy. We were supposed not to worry about flooding new debt into banks because rapid inflation was dead. But what’s happened is that fresh mortgage money has caused hyper-house-inflation. House prices are going up so fast that they are stripping New Zealanders of their last hope of financial independence.

We are way, waaay overdue an economic summit that enables the government to show that it actually has the collected powers remaining to lead this economy and this country towards its economic goal stated above. That doesn’t mean entirely breaking the independence of the Reserve Bank of New Zealand. It just means showing that you have the capacity and will to engage hard with the problem: to show you can form policy with public debate that prepares the ground for large policy changes.

As Dr Cullen notes in his column, what was considered orthodox in the operation of monetary policy has moved a long way since 2008. That there is no economic policy brains trust operating at the top of this government is screamingly obvious right now: even an old medium-dry like Dr Cullen is sounding fresh at this point.

Nor do we see our Finance Minister forcefully pulling its Wellington leadership into line. We need to see Minister Robertson point to Mr Orr and point out bluntly: Me Dog, You Tail. Maybe he needs to repeat it: Me Dog, You Tail.

Which brings me back to National’s Andrew Bayly. His statement about the need to rein in the Reserve Bank sounds remarkably like a progressive from the Labour Party wrote it.

Because there is no requirement for that $28 billion put into the banking system to flow into productive parts of the economy, the new funding “will flow straight into the already unaffordable housing market, when it could and should go towards new house builds, local business and our agriculture and horticulture sectors.”

It is the view of the National party that “the Reserve Bank can, and should, be requiring banks to direct this new funding into productive parts of the economy, particularly business lending. We have seen this happen in Australia.”

The Australian Reserve Bank governor foresaw the risks of Quantitiative Easing and set them out in November last year. He saw a blurring of lines between monetary and fiscal policy as an issue if the central bank was buying large amounts of government debt at zero interest rates could be seen as money-financed government spending. “This could damage the credibility of a country’s institutional arrangements and create political tensions. Political tensions can also arise if the central bank’s asset purchases are seen to disproportionally benefit banks and wealthy people, at the expense of the person in the street.”

That’s fairly prescient, as well as honest.

He was also quite clear with the Australian Federal and State leadership that they needed to stop propping up businesses with wage subsidies and start investing in actual projects with actual jobs with a focus on infrastructure projects, maintenance of existing assets, and spending on skills. In other words, use debt for productive stuff not used for more property investor mortgages.

Our RB must heed that and do the same. Now, of course we can say that because house prices also rose under both Dr Cullen and under National that we should just discount their opinions. But they are both right. As is the Australian Reserve Bank Governor.

We don’t have to put out an amateur wish-list of what we think will solve the housing crisis. We do have the right to say to both Minister Roberston and Adrian Orr: stop trying to put out a fire with gasoline.

Thank God Dr Cullen is.

We should pay greater heed to Dr Cullen that Andrew Bayly because Dr Cullen had the policy chops to face massive financial challenges and help solve them for most of us with far-sighed initiatives.

Dr Cullen pushed for the creation of the New Zealand Superannuation Fund. This recognised the risk associated with our current system where universal retirement superannuation benefits are funded by the current working population. The fund has developed into a well-respected and well-performing sovereign wealthfund which has set a high standard in socially responsible investing.

He pushed for the creation of KiwiSaver. He recognised that a widespread employment-based savings scheme was the best way to help Kiwis save for their own retirement. It incorporated the latest behavioural finance thinking in its design – incentives without compulsion. Over half of New Zealand now has a Kiwisaver account, and collectively we have amassed nearly $60 billion in or Kiwisaver accounts. It has provided so many New Zealanders with the opportunity to build a diversified investment base and take responsibility for much more of their own retirement.

He also formed the Portfolio Investment Entity (PIE) tax regime, which restored equality of capital gains between investing individuals and professionally managed portfolios.

He faced really hard economic problems and implemented strong policy and altered our entire economic direction.

This government hasn’t tried any structural policy innovation even close to what Dr Cullen has done.

More leaders are stating strongly that it’s time they showed they can. And will.

51 comments on “C’mon Grant ”

Comments are now closed

Pataua4life 1

18 November 2020 at 11:10 am

Why are you not surprised. Labour went into the election promising nothing and nothing is been delivered. Perfect.
- greywarshark 1.1
  
  18 November 2020 at 11:26 am
  
  Oh please cheer up a bit. You seem to be so down all the time. Find something to be happy about will you – a bit Pollyanna – give our hankies time to dry.
Pat 2

18 November 2020 at 11:19 am

The government created the problem for themselves by ruling out CGT, wealth tax and standing behind the real estate market…dont blame the RBNZ whose job isnt to maintain housing affordability (even if they could)
- Anne 2.1
  
  18 November 2020 at 11:41 am
  
  The government created the problem for themselves by ruling out CGT…
  
  And who have to take some of the blame for that? The Greens.
  
  No-one is denying a CGT-type tax is overdue, but to bring it up immediately prior to a General Election was abysmal timing. Horses frighten easily even when there is nothing to be frightened about.
  
  It’s possible they may have lost some votes but fortunately some of us – who normally vote Labour – gave our vote to the Greens because we recognise they have an important role to play especially around Climate Change.
  - Pat 2.1.1
    
    18 November 2020 at 11:43 am
    
    Not sure how you determine the Greens have contributed to house price inflation
    - Anne 2.1.1.1
      
      18 November 2020 at 11:49 am
      
      Apols for being unclear. Clarified what part of your comment I was responding to while you were replying.
  - Cricklewood 2.1.2
    
    18 November 2020 at 1:54 pm
    
    Stop blaming the Greens for Labours chicken shit approach to anything mildly difficult. Jacinda has huge political capital thats gonna burn on a house price bonfire shortly.
    - Foreign waka 2.1.2.1
      
      18 November 2020 at 5:25 pm
      
      Crinklewood, not just house prices but inflation in real terms. People will not be able to afford the basics soon. Everybody I spoke too agrees that food prices have gone up by some 10-12% in the last few months, rent – I don't even go there, Insurance for home loan borrowers is astronomical. Meanwhile, mass redundancies, billions paid to the same companies that sack people in great numbers and yet the people loosing their jobs have to wait for weeks to get a call from WINZ processing their applications. And the list goes on. Something is very wrong here, it looks like a hands off approach, no planning at all. All National needs to do is consolidate, plan their strategy and …wait.
      
      Labor has so far delivered nothing of substance, where there is a noise some money is thrown at it to make it go away -courtesy of the taxpayer. We may still see some more issues with corona virus due to boarders being essentially opened somewhat. And to top it all off, lets look at negative interest rates that will hurt everybody except the rich.
      
      Not impressed at all.
      - In Vino 2.1.2.1.1
        
        18 November 2020 at 8:08 pm
        
        I like your term "inflation in real terms". Not the official rate, which our Establishment always manages to subtly understate.
        
        You are right – if rent and any other under-estimated factors jump, people in the real world will be unable to survive, despite our Govt. pretending that inflation is very low.
greywarshark 3

18 November 2020 at 11:29 am

What a great image. A group of solid, keen types striding forward looking tidy, well-dressed in their matching suits, on their way to make policy to give us a world fit for men to live in.
- Sabine 3.1
  
  18 November 2020 at 12:03 pm
  
  women and children needn't apply in a world fit for men in the image of the empty suits above.
- Chris 3.2
  
  18 November 2020 at 12:05 pm
  
  Yeah, and with Lees-Galloway, Clark and Nash by his side, how can Robertson go wrong?
  - Patricia Bremner 3.2.1
    
    18 November 2020 at 4:01 pm
    
    Lees Galloway is out of the Government. That is an old photo.
    - Chris 3.2.1.1
      
      18 November 2020 at 4:24 pm
      
      Like I said, how can Robertson go wrong?!!!
      - greywarshark 3.2.1.1.1
        
        18 November 2020 at 8:34 pm
        
        Well I don't know for one, nothing comes to mind so I ask 'How can Robertson go wrong'?
        
        Chris 3.2.1.1.1.1
        
        18 November 2020 at 8:50 pm
        
        He can't because he's got David Clark and Stuart Nash at his side, and Iain Lees-Galloway has left parliament.
        
        alwyn …
        
        18 November 2020 at 9:10 pm
        
        Who is the one between Lees-Galloway and Robertson?
        
        Chris …
        
        18 November 2020 at 11:33 pm
        
        Just some DPS guy.
        
        greywarshark …
        
        18 November 2020 at 9:14 pm
        
        I do hope you are right – you are thinking that he will do stuff aren't you? In social policy terms doing nothing is a policy so he can't hope to keep his hands clean of risk anywhere.
        
        Chris …
        
        18 November 2020 at 11:34 pm
        
        Everyone knows Labour can do no wrong.
        
        Stuart Munro …
        
        19 November 2020 at 6:55 am
        
        Since the unmitigated failure of Rogergnomics, Labour's wrongs are chiefly sins of omission. They don't do things – which is politically safe but disastrous misgovernance. Better than the active looting of the Gnats, but only marginally. Could not be mistaken for good governance or things like the housing bubo could not have arisen.
        
        Chris …
        
        19 November 2020 at 12:22 pm
        
        Welfare 'reform' under the Clark regime is a perfect example, except they actively turned the screws, no doubt partly in the knowledge people wouldn't expect it 'from a Labour government', but also because they know most people don't care about the inadequacy of the benefit system and its related problems.
Anne 4

18 November 2020 at 11:37 am

Like the Mafia boss and his team at the top on there way to attend a meeting. 😉

Its become a bit of an iconic image. Some keen cameraman saw the potential for a bit of humour there.
- Sabine 4.1
  
  18 November 2020 at 12:04 pm
  
  imagery above substance, which in essence is the current labour lot. A whole lot of image and expensive suits and nothing in the fridge for dinner and no rents paid.
Gyrogearloose 5

18 November 2020 at 12:45 pm

Well pne good thing about house prices rising is that builders now have a pretty good incentive to takes on extra workers and get busy building more….
- KJT 5.1
  
  20 November 2020 at 11:57 am
  
  People who want new houses, need to be able to afford them.
  
  Meanwhile speculators are making fortunes, turning over existing ones.
  
  Why go to the risk of building?
- Pat 5.2
  
  20 November 2020 at 12:38 pm
  
  And how many more houses do you estimate it will take to make them affordable?
Adrian 6

18 November 2020 at 2:34 pm

A CGT would not have made a rats arse difference to the current stupid prices in Auckland, even if a form of one is overdue. Story yesterday in Herald of a couple with a child who had looked at competed at over 30 auctions but said "Fuck it, we're going for it" and paid well over the top just to live in inner Auckland. Maybe parents gave them a million bucks just to get them out of the bloody house.

Banning auctions would make more sense than a CGT in this climate.

Sensible questions. Why is there a stampede for houses at any cost ? Was there a backlog of demand because of Covid, it takes only small numbers to deliberatly or even inadvertantly manipulate a market in the short term? Where are these young buggers getting the millions from, even if just for the deposit ? Do they really think the real cost of these huge prices are going to be sustainable, and by that I mean that in the old days of unrestrained inflation within a few years the high price paid seemed reasonable because of escalating inflation and incomes rising to match ? Just exactly how many houses are going for high prices, it may only be a few but the lemmings are reading the alarmist headlines’and irrationaly reacting to them? Has anybody read a headline that shouts "Hoüse Sold For GV! , I'm sure theres still a few out there probably even a lot more than the headline grabbers.?

Government can do fuck all if people persist in being stupid, if everybody just stopped buying houses for 6 months the arse would drop out of the market. Good luck with getting anybody to do that.

And for all the bitching about Adrian Orr, he has after years of complaints by the very people no doubt previously complaining about the cost of mortgage money given the country rates comparable to ones the rest of the world has had for years. The market will no doubt stabilise soon, as they all do eventually when it runs out of muppets, so give the poor bugger a break, he's at least given us what we have been screaming out for for decades.
- greywarshark 6.1
  
  18 November 2020 at 2:42 pm
  
  Questions that I haven't seen put down before plainly with questions about outcomes. Thanks Adrian. And it does remind me of the run on oil & gold shares in Australia in the early 70's. The frenzied bidding each other up. I hope this isn't going to be a government in waiting. Being a bridesmaid but never the bride doesn't apply any more. We NZs are family, and need to be a co-operative one, looking out for each other, and better run than a hell of a lot of families are in this deluded country.
  
  But running out of muppets. It seems they reproduce faster than a Covid-19 virus. And I like the muppets, they have good attitudes as a rule. So horsefeathers to whoever took their name in vein and put it into the bloodstream.
- Andre 6.2
  
  18 November 2020 at 2:47 pm
  
  People are paying ridiculous money because it doesn't cost much to service a ridiculous mortgage. 2.69% fixed for three years makes people think they can afford an awful lot.
  
  A couple both in full time work at minimum wage are in about the same position servicing a million-dollar mortgage as I was 12 years ago servicing a $300K mortgage on a senior engineer's salary.
  - Adrian 6.2.1
    
    18 November 2020 at 7:37 pm
    
    Thats my point Andre
- RosieLee 6.3
  
  18 November 2020 at 6:30 pm
  
  People keep buying houses because they know they can rent them out for exorbitant money and cash in on tax free capital gain. It's absolutely immoral.
  - Adrian 6.3.1
    
    18 November 2020 at 7:39 pm
    
    You are going seriously backwards renting out a 2 million + dollar house and paying a mortgage even at less than 3%
Ffloyd 7

18 November 2020 at 4:21 pm

What happens when interest rates go up as they probably will? Can these people still service their mortgage?
- Andre 7.1
  
  18 November 2020 at 4:44 pm
  
  Nope. Not if they're stretched at 2.7%, a 1% rise in interest rate would add roughly 40% to their mortgage payments. Partly depending on how much they put on interest-only.
  
  That would bring the spectre of a lot of mortgagee sales, stressed too-big-to-fail banks, and all around panic. Interesting times. No idea what would be a sensible way to navigate through that kind of scenario.
  - Pat 7.1.1
    
    18 November 2020 at 5:21 pm
    
    and the option of the Gov offering lower rate mortgage finance to those in stress as the banks apply pressure as they did in the eighties is not available…a situation that will be accentuated next year as rates decrease even more.
    
    Interesting times indeed
    - Foreign waka 7.1.1.1
      
      18 November 2020 at 5:30 pm
      
      Negative interest rates will pump even more money into the property market. Good lord where is the logic?
      - Pat 7.1.1.1.1
        
        18 November 2020 at 5:41 pm
        
        Maybe…but it dosnt matter how cheap the money is if you dont qualify for a mortgage or cant afford the rent….the decreasing interest rates reflect the decreasing ability to service the growing debt….negative rates wont solve that problem, and its all very well encouraging alternative investment but you have to have something that isnt too risky that will offer an improved return and there are few options around.
        
        Quite simply the debt is too large to be repaid….and ultimately it wont be
  - greywarshark 7.1.2
    
    18 November 2020 at 8:31 pm
    
    So to defy the do nothing types we could introduce a series of small wage rises to both stimulate the economy a little, but also to help those on minimum mortgages to pay off something, repairs etc. And that spending will bring more GST at 15% as low income people don't have tax avoidance.
- Herodotus 7.2
  
  18 November 2020 at 6:03 pm
  
  The current interest rates cannot increase at any rate that we have seen previously – Unless inflation goes the way of the early 80's. Those in debt would be unable to service any debt – So now debt is too big to fail.
  
  I find it so sad that "we" have created this problem with central bank print up to $28 billion to lend to banks at the Official Cash Rate with few strings attached. But we are told that is not the Reserve banks problem they are to manage inflation. Well they have not done that very well with inflation ranging from 2016-2019 between 0.64% to 1.85% , yet they are to achieve a range from 1-3% averaging 2%.
  
  https://www.rbnz.govt.nz/statistics/key-graphs/key-graph-inflation#:~:text=Under%20the%20current%20Policy%20Targets,the%202%20percent%20target%20midpoint.
- Nic the NZer 7.3
  
  18 November 2020 at 6:09 pm
  
  In considering this we should understand that the RBNZ has the most influence on interest rates. So in saying that interest rates will go up just what are you claiming will force the RBNZ to increase its policy rate?
  
  You can observe the RBNZ role from their chart of the monetary policy rate and its relationship with the banks 90-day bills rate (which is the interest rate banks lend settlement funds to each other at).
  
  https://www.rbnz.govt.nz/statistics/key-graphs/key-graph-90-day-rate
  
  In terms of bank stability the RBNZ will want to avoid wide spread mortgage defaults and will set the OCR considering this.
- Adrian 7.4
  
  18 November 2020 at 7:40 pm
  
  Exactly my point as well.
Adrian 8

18 November 2020 at 7:48 pm

I think the Gummint hopes the loose money will go to businesses hoping to gear up for the big infratructure plans. If some gets siphoned off for housing its all part of the same world. Just don't try to pick winners, it all ends in tears.
greywarshark 9

18 November 2020 at 8:57 pm

As Observer said on Nov.16 https://thestandard.org.nz/open-mike-16-11-2020/#comment-1766705 – Obsrver

A reminder: no MPs have been sworn in. Parliament has not started. Next week the government will set out its programme ("speech from the throne").

Again, standard procedure. Have attention spans diminished so far that we've become sugar-filled kids in the back seat … "are we there yet?".
Incognito 10

18 November 2020 at 8:58 pm

Photograph by AF archive / Alamy
Adrian Thornton 11

19 November 2020 at 1:27 pm

"House prices are going up so fast that they are stripping New Zealanders of their last hope of financial independence." here in this statement you have one of our main problems…New Zealanders have swapped wage growth and job security for capital gains on domestic housing, in other words we have turned human homes into nothing more than a tradable commodity…with results that should surprise no one.

Obviously Labour NZ because beholden to their short term liberal ideology will be of no use in solving this problem of course..in fact as we are seeing will only make matters worse…what a shame.

Turn Labour Left!
Nic the NZer 12

19 November 2020 at 1:36 pm

This is a quite missleading discussion. Overall an invalid model of how the banking system works is presented to be fact with the implication presented that QE funds have flowed into the housing market and caused the recent price increases. Acting on the basis of this model will not control house price increases.

First off we should understand that the banking system does not on lend deposits, it creates new funds as it lends. This leads to the actual constraint on bank lending being the number of credit worthy borrowers coming in the door, and not the amount of deposits with the bank.

This is the model of banking presented by the Bank of England and even in the first summary paragraph clearly contradicts the idea of QE funds flowing into a market via banks.

https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy

Moving to the quoted statements of the RBA governor. "This could damage the credibility of a country’s institutional arrangements and create political tensions. Political tensions can also arise if the central bank’s asset purchases are seen to disproportionally benefit banks and wealthy people, at the expense of the person in the street.”

This paragraph is completed by a further sentence. "This perception has arisen in some countries despite the strong evidence that the various monetary measures supported both jobs and income growth and thereby helped the entire community." With the overall implication being entirely altered from a picture of QE inflating asset prices to one where people believe QE is inflating house prices however in reality its functioning as a broadly beneficial intervention.

Reversing slightly to Andrew Baylys claims about the RBNZ QE program, now obviously he makes the same kinds of unsubstantiated harm claims as are discussed by the RBA governor. If we understand the implications of how bank lending functions however we can see that what is mostly happening is that there are many more credit worthy borrowers asking for housing loans rather than business loans. The way to support profitable business opportunities being obviously to support the demand an employment sides of the economy. I don't see how this could be construed as a progressive position as it spuriously undermines how the govt is willing to carry out its demand and employment support at least partially mitigating the economic harm of the lockdowns.

Back earlier again the authors own claim is that "Pretty much everyone near a bank was pretty happy that the Governor Mr Orr intervened to provide stability in providing $30 billion to banks in March this year.". But in practice QE was essentially a mechanism allowing the RBNZ to fund the ongoing budget deficits while still operating inside conventional monetary policy. This disconnect is highlighted from the linked interest.co.nz article "But contrary to Gordon and Kendall, Manji has been calling for the RBNZ to do QE by buying bonds direct from Treasury, rather than doing so through the secondary market (enabling banks to clip a ticket in the process).". So we can observe there was no threat to financial stability being acted on. Effectively the same outcome could have been achieved entirely by cutting out the financial system ticket clippers.

So in summary, the implication that QE money is flowing into the housing market and inflating house prices is missleading and this implication is mostly not drawn by the linked articles.
Nathan Kerr 13

20 November 2020 at 9:40 am

So, the Covid Wardens (aka as Senior Labour Leadership), with Wrong Turn Ardern — have done the following in the last 4 weeks:
- No Cannabis Law Reform
- No movement on Poverty, especially Child Poverty — by not having a Christmas Bonus for Benefits
- Watched on as house prices skyrocket
Do not vote Labour in 2023 — this will send a message to the Covid Wardens, and Wrong Turn Ardern….the message is…do not take our votes for granted…ever!
- drmumdough 13.1
  
  20 November 2020 at 3:23 pm
  
  WHY EVER NOT (vote Labour in 2023)?
  
  I am surprised that most Aotearoans aren't loudly yelling for more of the same.
  1. No Cannabis Law Reform-And so no tax and compliance to have to bother with by the growers, croppers and dealers. No GST on a tinny.
  2. No Christmas Bonus for benefits (beneficiaries)-Therefore no assertions that St Christopher or even JC exist and are up there in heaven looking out for y'all the way our Fairy Godmother PM claims to be. At least if she (Madame Jacinda) can play God, we may finally be able to write Christmas out of the script, and save us all a lot of bother and a lot of expense.
  3. House prices skyrocket-Hopefully to the moon, because domestic property speculation, capital gains derived and the economic flow on effect is about the only guarantee Aotearoa has of domestic economic security. If the profits from this industry leading to greater disposable income slows down, most everyone in NZ will be up Sh*t Creek without a paddle.
  - solkta 13.1.1
    
    20 November 2020 at 3:55 pm
    
    no assertions that St Christopher or even JC exist
    
    That is not the role of a secular state.
Nathan Kerr 14

21 November 2020 at 9:10 am

Thanks drmumdough — that put a smile on my face