Andy,
I have been reading these pages for some time now, and none have evoked a feeling in the stomache like the one you have posted above .
I respect your comments enough to be assured that the comments you ascribe to Dr. Bollard are accurate, being" I will continue to slash interest rates in order that the consumer can be encouraged to rack up further debts and to ensure that savers deplete their savings and also eventually fall into debt".
I almost don't know what to say.
Please, "God Defend New Zealand", because our Reserve Bank Govenor surely can't be relied upon to.

"˜ I will continue to slash interest rates in order that the consumer can be encouraged to rack up further debts and to ensure that savers deplete their savings and also eventually fall into debt "˜.
Sounds correct to me.
1.5% approx OCR in winter is correct also.
The current primary restrictor on our economy is the fear of a 30% drop in house prices. It means the banks are afraid to lend properly.
Here's the fix.
A Sunday times article where Bernard and Gareth state the following:
Due to the unforeseen magnitude of the drops in interest rates over the past few months, we now update our house price drop forecast from 30% to less than 5% for late 2009.

The link takes me to a password protected file?

But from what this post covers it appears Bollard is delusional. Dangerously so.

Jill,

The only time to have fixed this problem was to have prevented it arising anytime between 5 and 30 years ago. The answer to what should now happen ranges between allowing debt to be destroyed rapidly to dragging the process out over years. The latter makes the process much slower and more painful than it needs to be.

What should be be allowed to happen is widely known but not accepted in central banker circles. Neither is it yet politically acceptable, but that is only a matter of time.

PeterR, Agree ..... perhaps the instability is not just limited to the actual economy?
Or is it just that we are irrational !!!!!!

Controlling interest rates needs to be left to the Market. The results of Bollard's actions will be interesting and some unintended and unexpected.Its the unexpected that worries me, we need savers or we will have to borrow more offshore, this action flys in the face of a common sence solution to our spending problems. The borrowing being done by countries of the west this year may exaust available credit then it gets interesting again.
Ive been reading about past depressions ,it appears in every one the papers tryed to put a positive spin as did the Govt and people with debt, every time it failed. Debt destruction followed.

Dr Bollard's speech needs to be read as he explains simply how the situation has evolved and points out the the 'world's fairly loose monetary policy' and the banking change from 'originate to hold' to 'originate to distribute' (securitize) .These aspects are well described.

Six months ago few of us this knew this paradigm had occured or knew much about the banking system's dirty underwear hidden under the glossy suits. PeterR ... even Obama is now giving them a bollocking!

Further to the paper, Dr B comments on material misallocation (surprise ..NZ Dairy Housing). He does indicate wealth destruction and the 'formidable task of getting the financial system back on its feet' (AndrewJ ..I think this will be after debt destruction plays iself out with disasterous consequences...Dr Bollard must know this too!.
Don't agree with the 'underpinning' notion of growing markets wanting protein (dairy produce?) Clutching at straws!!!

The biggest problem with the paper is... the horse has long bolted and Dr Bollard's bets are in in retrospect!

My question is ...was he as aware in December or did he keep quiet to avoid panic ? Now I suspect his object is to try to avert dejection ...hence the defeatism defensive paragraphs obviously added to the foot of a paper and uttered at the meeting in Canterbury.

I suspect he wrote this paper some time ago ??????? Is there an element of deceit or deception involved? I would like to know when the paper was composed rather than when it was published! If Dr B has only just written it he was clearly still in the dark in December!!!! Yeah right! Interesting that yesterday, Stephen Topliss (BNZ) used the term terrified in reference to the NZRB.

The public should read the paper rather than hear or read Newpaper reports. Perhaps it should be printed in a Sunday paper when people have time to sit and read?

Bernard, I would be interested to hear your response?

Here's how Bloomberg reported it;
http://www.bloomberg.com/apps/news?pid=20601081&sid=a8xVHdlHxwbE&refer=a...

"He has pared borrowing costs by 4.75 percentage points since July, the most aggressive reductions behind Moldova among 54 central banks monitored by Bloomberg."

"The economy fell into a recession in the first quarter of last year amid a housing slowdown and soaring energy costs. The worldwide credit freeze and subsequent global slump have damped exports and stalled investment, and may prolong the recession until the second half of 2009, Bollard said yesterday."

MAY prolong the recession until the second half of 2009?

Where does he get his rose coloured glasses? Maybe I'm reading him wrong, but I just don't see any of the indicators that the negative global outlook will reverse itself inside a matter of months?

The systemic risk of having huge household debts is not at all addressed in any professional way by the central bank. Actions for short term gain means long term pain awaits. When the pain will start depends on our lenders and future lenders. But debt is cancerous and the pain we feel may not be just a headache. The economic freedom will be killed eventually for most households.

Well put Mitch O

Dan dan that is a big swing from Bernard who has been quite rightly bearish on housing although a drop of 30% from ridiculous highs is still OK (unless you were foolish enough to listen to estate agents).

If the RBNZ has to be a short term lender of last resort then so be it.

The smartest thing Michael Cullen ever did was not allowing Australian owned Banking subsidiaries to be domiciled in Aus.......

Peter R have you got any data on:
"value" (discounted or Not) of our Real estate market residential
Cash on deposit
Offshore funds required to fund shortfall?

Nick,

The figure I have seen used for the value of residential property is from memory $600 billion if that is what you were asking. Alternatively, the real estate industry got to an income of about $2 billion pa, but I am sure that has contracted considerably.

For cash on deposit I think you probably want M3 or M3R (M3R excludes non residents) from here:

http://www.rbnz.govt.nz/statistics/monfin/c3/data.html

And you would get an indication of offshore funds required for private claims from the difference between PSC or PSCR and M3 or M3R - basically the difference between NZ deposits (M3 money supply) and private sector credit (PSC).

well Doc Bollard... you give me your half a million p/a for doing sweet fanny adams, if i was to earn as much as you for each of your errors, i too would think it is not a good time to pull down the shutters. i would be spending up a storm with the almost free money handed to me doing almost nought, making the most while my position lasted. i think if we were to pull anything in any direction it would best be your head out of your arse.

Defeatism....Honda know they are being thrashed. UK is shutting production for 4mths! It is all crashing so fast now that if you open your window Dr Bollard you will be able to hear the roar of it all approaching......In Japan there is so much uproar in the Diet (Parliament) I don't think they can hear the noise outside of business crashing either.Yes, I agree, pull up the shutters open the window and listen....the noise is terrifying.....or is it just the gentle mooing of the over population of cows you can hear?

An apt portrait by Tom Scott ?

http://www.stuff.co.nz/0a17218.html

Tonz
Your comment's on Japan start to be confirmed by mainstream media,
http://www.telegraph.co.uk/news/worldnews/asia/japan/4394451/Japanese-ec...

Correct me if I'm wrong but isn't this the same A.Bollard who not so long ago declared the recession to be over? I can't help but compare his job performance as RBNZ Governor to that of his predecessor. Don Brash was disliked by many sector lobbyists precisely because he kept his eye on the ball and was able to use monetary policy to keep inflation within the guidelines he was required to. What was wrong with the NZ ecenomy during his tenure wascertainly not his fault. I believe that Mr. Bollard has insufficient real world experience to be an effective Governor and the last couple of months have served to reinforce that belief. He was too slow to act when the looming property bubble became apparent. I also think he does not have a strong enough character to resist political pressure in the conduct of his duties. This became apparent just before the election with the way the bank guarantee scheme was initiated.
I do have a problem with the economists' definition of a recession i.e. two successive quarters of negative GDP change. The problem is it is a purely quantitative measure and takes no account of the QUALITY of the activities that are being measured. In the context of NZ for example even a layman such as myself can see that for years we have been "enjoying" a debt-fuelled consumer-focussed expansion that could not continue forever. As Dickens put it long ago " Income one pound expenditure one pound and sixpence result misery." I would love NZers to GROW UP and stop thinking they can leave their debts for future generations to sort out.
Keep up the gospel Bernard some of us are paying attention. To paraphrase Paul Keating this is the recession that I think NZ has to have.

Grand idea to not give in to "defeatism". We ought fight defeatism tooth and nail. Tis a scourge. We are Kiwis. We can do it...tomorrow, maybe. Perhaps a Government committee should look into it. Sounds hard work. We'll probably fail anyway. We always do. After all, we are only Kiwis.

Don't be too tough on our Governor.

Only a man of his vision and foresight was able to state confidently late last year that we would be emerging from the recession after Xmas with slow growth.
It should now be all over - Yeh Right !

As Gareth M said - he hasn't a clue and what he does makes no difference at all anyway.

Debt got us into the crap - it's hard to see how just a little more will help us now.

And the fun hasn't even started.
Wait ill we see double digit unemployment later this year.

Come on Kiwis, don't let defeatism take over !!

We can do it !! Spend Spend Spend !!! Borrow Borrow Borrow ! ! !

Tell the Banks Lend Lend Lend ! ! !

Work the Eptos machines till they melt !!

Fill our wallets with Credit Cards.....our homes with trash from China....
Built bigger Mcmansions....live the life you deserve...

Let Alan Bollard earn his pay honestly by being correct !!!

Dr. Bollard's remarks are both prudent and sincere; just my opinion. The RBNZ cannot play a quarter of a match under Union rules and when the game gets out of hand simply switch to Netball because the points come faster. He does not make the rules. New Zealand could default and announce a new currency based purely on gold and silver tomorrow, but our community will simply become a closed economy, no different than North Korea, or Zimbabwe. Yes, the "Nothing to fear, but fear itself" comment made me cringe. But once I got over that I heard him tell us that we while we have survived the battle, it has only been because the heavy fighting was somewhere else. He is telling us we need to keep our powder dry and our lamps filled with oil, because another, much nastier fight lies ahead.