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Adrian Orr on how a second Covid-19 outbreak will affect the RBNZ's QE programme, why he likes a negative OCR/term lending duo, and what the side-effects of all this stimulus could be

Adrian Orr on how a second Covid-19 outbreak will affect the RBNZ's QE programme, why he likes a negative OCR/term lending duo, and what the side-effects of all this stimulus could be

Reserve Bank (RBNZ) Governor Adrian Orr admits lower interest rates benefit asset owners the most.

He made the acknowledgement when asked by whether he was concerned the monetary policy tools the RBNZ is employing to meet its inflation and employment targets are benefiting those with debt, propping up asset prices and ultimately increasing inequality.

Orr recognised the situation, but explained the RBNZ was focussed on addressing the immediate challenge before it: high unemployment and a significant economic slump.

While low interest rates reduce savers’ incomes, Orr pointed out debt far outweighs savings in the New Zealand banking system. So overall, lower interest rates have a net positive effect.

From a financial stability perspective, Orr also said low interest rates improve cashflow.

But considering the side effects of the existing monetary policy model longer-term, Orr said, “You can reach these corner solutions where asset prices are so extreme, no one believes they are ever going to be held up, and you end up with volatility in asset prices.

“That is not our challenge, our purpose. We just have to be aware of that. And people, when they’re out making those investment decisions, have to be open-eyed, aware of those types of activities. It’s a global challenge.  

“We are heading off the first and most important worst possible outcome, which is a significant recession, deflation. Deflation is terrible if you own debt because the real cost of that debt is rising every day.”

Preferable to employ a negative OCR and a term lending facility at the same time

The RBNZ on Wednesday expanded and extended its quantitative easing (QE) or Large-Scale Asset Purchase programme from up to $60 billion by May 2021 to $100 billion by June 2022.

It also said the next cab off the rank in terms of monetary policy tools it could employ were a negative Official Cash Rate (OCR), ideally coupled with a programme whereby it would lend to banks at a low rate to encourage them to lend to households and businesses at a low rate.

Given the RBNZ gave guidance it wouldn’t cut the OCR before March 2021, the question is whether it could forge ahead with the term lending facility before then.

Asked this, Orr said the “first best choice” was to employ the tools at the same time, but he didn’t want to “rule out optionality” due to the uncertain environment.

“To our best efforts we want to be able to have a very well calibrated, designed package of instruments,” he said.

“Not because we think QE… is reaching a limit. It’s simply that it’s better to have a combination of instruments that doesn’t put an over-burning pressure, or unanticipated distortion, on any one part of the market.”

RBNZ to work with banks to design lending facility

While some of the lending facilities the RBNZ has been providing banks since the onset of Covid-19 have been aimed at providing liquidity in the market, Orr said this facility would be aimed at keeping the yield curve, and thus interest rates, down.

Asked whether there would be conditions on the facility, like a requirement for banks to use the support to lend to certain businesses for example, Orr said: “[Banks] will be incentivised, as opposed to instructed to on-lend. This is why we’re talking about it so openly now, because a lot of that calibration and getting that right needs to be done with the banks themselves, and also with people like yourself [a journalist], so you can understand and put the transparency on the whole programme.”

Orr went on to explain how the facility could work: “As an example, you [a retail bank] could come to us. You could get your term loan. But you’ll get top-ups or replacements as a function of what you’ve actually on-lent. And so that’s an incentive to be on-lending, rather than just stocking up your retail bank balance sheet with this cheap funding, at the cost of other forms of funding.”

Orr said the RBNZ was fortunate to be in a position to look at what other central banks are doing, and work with retail banks on a programme.

Too early to tell if a higher bond-buying cap would be distortionary  

Coming back to QE, Orr said news of community outbreak of Covid-19 in New Zealand had “no immediate impact” on the quantum of New Zealand Government Bonds the RBNZ committed to buying, nor the pace at which it would buy them.

“We want to be at least keeping pace, if not out pacing the debt issuance,” Orr said.

“The pace is not about drawing a straight line between now and June 2022 - it is simply the length of the indemnity we have. The pace is going to be a function of the impact we need to have on interest rates.”

The Finance Minister agreed to allow the RBNZ to buy up to 60% of the New Zealand Government Bonds on issue through its QE programme. This cap previously sat at 50%. Increasing it enables the RBNZ to “front load” its bond buying, reducing the risk of it running out of bonds to buy.

Orr said it was too early to tell if enabling the RBNZ to buy up to 70% of the bonds on issue, for example, would create too much of a distortion in the market/crowd out other investors.

He commented: “Very often the New Zealand debt market is flow-driven, so the weekly level of purchases will have quite a significant impact - up or down - on interest rates. So it’s not just the end level, it’s the pace at which we are doing it.”

See the video interview for more on the RBNZ’s latest monetary policy decision. For those interested in Modern Monetary Theory, Orr shared his thoughts on this towards the end of the interview.  

For more on Wednesday’s monetary policy decision, see this initial write-up and this more detailed follow-up.

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At least he's 'honest'. What he can't say is that the ruling elite are terrified of the disintegration of the wealth effect. They never really talk about it at length mainly because they don't really understand it. But they're definitely aware of it and why they need to maintain asset prices at any cost.


At least now an acknowledgement of deflation, policy favouring debt holders ...


No, he still doesnt get it, a negative OCR IT HAS NEVER EVER WORKED !
Show us Mr Orr how well it has worked in Europe and Japan ?
If you dont get that its confidence Mr Orr in our futures you DONT BORROW.
It might be time to step down. Tell us why you have to BUY 60% of debt now Mr Orr which will soon be 100%.

If you were in his shoes, would you want to live with the accusation that you didn't try?

Of course, why would you press the throttle while driving towards a cliff? I assume he's planning to jump off the car before the drop.

Is he not worried about his name and legacy?

As a society we do not tend to blame leaders retroactively but usually to the ones that happen to have to deal with problems when they become obvious, he's probably smart enough to know that.


Exactly. All this debt is a result of stupidly low interest rates. Low rates are the problem not solution.


to benefit the homeowner he has to sell, then what buy another overpriced asset? no it benefits speculators in the housing market, it's screwed incentives and locked a generation out of ever owning a house.

locked a generation out of ever owning a house

You can get places in Christchurch for under 300k. That's only about $150 a week in interest these days.

what the rent income, i have some landlord friends looking for returns.


How many of them are 'as is, where is' garbage? Even at 300k many of them are ridiculously overpriced damp and mouldy money traps with major issues. Plenty of these gems have served their time earning rent and you think they are just the thing that should be offloaded to people already struggling to afford such a bargain?...

Yeah, but it won't be insta friendly for the "Social" ZS

Heaven forbid, the most expensive thing one ever buys be pleasant.


Favours the leveraged. Totally favours the banks profit position more like. Who owns the banks again. RBNZ independence....yeah right.



Meanwhile back in the real world, please tell us where negative interest rates have had a positive effect! .....anyone? Come on I’m sure one of you at the RBNZ knows the answer! Look at the real world not the made up land of central bankers all of which led by the FED are taking is down a very slippery slope. They have the heads in the “it works on paper so should work in real life”. It doesn’t of course which is why the entire world is trying to solve a massive debt crisis by issuing even more debt. What’s next? Blow the debt balloon Up so much that the only way out is to press the delete button. That might work.... unfortunately though the level of debt would have completely destroyed world economies. But maybe that is the plan after all.


Really the only way out is a mass debt jubilee. They won't admit it, but it's coming.

Deflating your currency is, in effect, a debt jubilee though, because it reduces the value of the debt and much easier to enact than an actual debt jubilee. Currency debasement has been the standard tactic far more often and recently than anything else.

I disagree. Reason is that a debt jubilee, those that don't have any debt would also get credited into their accounts the amount of money those with debt got as a reduction in their debt (essentially everyone get's say 100k, it goes on debt first, but if you have any remaining, it goes into your account as a top-up). Deflating your currency does not have the same benefit for those who have been good and not got into debt.

No faith in the RBNZ or banks to make any meaningful changes. Ponzi bank profits seems to have some untouchable status. We need to change the tax. Change to shift tax to assets and then let debt speculation become uneconomic.

Guess they may as well give everyone a free house then. What's the difference?


Good interview, excellent questions.
In his answer, Orr put a lot of emphasis on the word 'mandate'. They're doing everything to keep inflation at 2%, because that's their mandate. It's a legit reason I guess, he wasn't put there to control asset prices. I find the idea of "inflation MUST be 2% at all cost" incredibly stupid and outdated, but people can't vote on RBNZ's policies.

"Inflation" of what? the CPI? What about the parts of housing that aren't captured by the CPI? As many have indicated on this forum in the past the CPI is not a complete measure of inflation, but a selective one.


The greedy specuvestors took on lots of risky debt. Bought several properties to rent out at excessive prices. Priced the more sensible potential buyers out of home ownership trapping them as renters. Had the cheek to negatively gear the properties so they didn't have to pay hardly any tax, now benefit from the RBNZ and governments latest policies that use tax payers money to prop up their property empires. This is sick and twisted and Orr needs to go. He is causing more harm and seems incapable of changing direction.


To be fair, the issues you raised should be handled via government policies. Land value tax would be a good start.

Gee FB
You really are grouchy!
You continue this narrative and really sound like Quade Cooper.
Despite your repetitive posts - NZRB aren’t involved in a conspiracy solely focussed on keeping house prices up and advantaging home owners. Sure it is a consequence, but their prime focus is about financial stability and that includes you keeping your job.
This is the reality, get over it, start to adapt to the conditions, and stop being a Quade.
Continual bleating achieves nothing. :)


So financial stability includes removing the LVR restrictions (which they freely acknowledge was a big part of helping financial stability), right when financial stability was needed? And the result? 40% of home buyers with high LVR in Q2...

Yeah, they really are interested in financial stability!

It was removed to allow restructuring after loan holidays, where capitalised interest my push lenders over lvr thresholds

Then the changes should have been only applied to restructured loans.

Stability governed by desperation?. In Orr’s desperation he makes a strong case for money to be governed by the stability of mathematics..., bitcoin.


So the word from the top is if you have no debt or assets your f#$@$d. Oh but keep working and spending we need that


I just spent 12 hrs doing hard physical and mental work producing a tangible and exportable product. I come home to have some sob tell me because I have no debt he going to make sure I'm worse off.
So I don't get rightly wiped out I'll just say I am annoyed about this.

On the other side of the equation, I spend 5 hours a day just commuting to and from my place of work (thankfully by public transport) because I don't buy into the whole idea of saddling myself up with a disproportionate amount of debt even if interest rates are low.

Is it paying off? Big Time. Is it necessary? Probably not if central bank policy were different.

Good on you mate, I hear you .. buy some Bitcoin.

It gets worse: they will take your money in tax and hand it to wealthy old folk regardless of need. The ways in which they transfer your wealth to older asset owners are multiple.

Oh, did I mention it gets worse? Having constantly sought tax cuts and reduced assistance for others while they were paying tax, some of those lovely folk now also want the government to take your money and use it to pay for private health insurance for them.

While low interest rates reduce savers’ incomes, Orr pointed out debt far outweighs savings in the New Zealand banking system. So overall, lower interest rates have a net positive effect.

From a financial stability perspective, Orr also said low interest rates improve cashflow.

Who is kidding who?

Wealth effect or wealth illusion?

The other therapeutic effect of lower-for-longer interest rates is the wealth effect. By driving up the value of future cash flows with lower rates of interest, all manner of assets – stock, bonds, and houses – increase in value and, thereby, can stimulate our marginal propensity to consume. More simply put, the imperative was to make rich people richer so as to encourage their consumption. It is not so hard to imagine negative side effects.

There are the obvious distributional effects between those who have assets and those who do not. Returning house prices in California to their 2005 levels may be good for those who own them, but what of those who don’t?

There are also harder-to-observe distributional consequences that flow from the impact of lower-for-longer interest rates on the value of our liabilities. This is most easily observed in pension funds.

Consider two pension funds, one with a positive funding ratio and one with a negative funding ratio. When we create a wealth effect on the asset side of their balance sheets we also drive up the value of their liabilities. Lower long-term interest rates increase the value of all future cash flows – both positive and negative. Other things being equal, each pension fund will end up approximately where they started, only more so.

The same is true for households but is much more ominous, given the inequality of wealth with which we began the experiment. Consider two households: one with savings and one without savings. Consider also not just their legally-defined liabilities, like mortgages and auto-loans, but also their future consumption expenditures, their liability to feed and clothe themselves in the future.

When the Fed engineered its experiment to promote the wealth effect, the family with savings experienced an increase in the present value of their assets and also an increase in the present value of their liabilities. Because our financial assets are traded in markets and because we receive mutual fund and retirement account statements, we promptly saw the change in the value of our assets. We are much slower to appreciate the change in the present value of our liabilities, particularly the value of our future consumption expenditures.

But just because we don’t trade our future consumption expenditures on the stock exchange does not mean that the conventions of finance do not apply. The family with savings likely ends up where they started, once we consider the necessity of revaluing their liabilities. They may more readily perceive a wealth effect but, ultimately, there is only a wealth illusion.

But what happened to the family without savings? There were no assets to go up in the value, so there is no wealth effect – real or perceived. But the value of their future consumption expenditures did go up in value. The present value of their current and expected standard of living went up but without a corresponding and offsetting increase in assets, because they don’t have any. There was no wealth effect, not even a wealth illusion, just a cruel hoax.

Does this guy not know what happened to ACC?

ACC announces $8.7 billion deficit for year as interest rates plummet
ACC has posted an $8.7 billion deficit for the year, with record-low interest rates taking a major chunk of out its long-term forecasts.The corporation presented its 2018-19 financial results to Parliament on Wednesday, with a huge increase in its "outstanding claims liability" (OCL) producing its highest-ever deficit and overshadowing other results.The OCL is the amount of ACC estimates all its current claims will cost over the next 100 years. Lower interest rates mean the fund has to invest more now to cover costs down the track.

The RBNZ cut interest rates in half five times since July 2008 and has proposed to do so again. When interest rates are cut in half the present values of cash flows are doubled for both assets and liabilities.

Don't confuse him by presenting real world examples. It will shatter his delusion of how the world works.


If you want to start a generational war, this is the way to do it Younger people are already disproportionately negatively affected by recessions when it comes to employment outcomes. Now their position is being deliberately made worse (higher house prices lead to higher rents, do even if you are not in a position to buy you are still affected) by policies that deliberately prop up asset holders at the expense of non-asset holders. I have jo problem with policies that aim to protect a family home. But policies that also protect speculators investments are a huge problem.

I'm a property owner and investor. But I agree with you. Saving is being punished, borrowing rewarded.

“You can reach these corner solutions where asset prices are so extreme, no one believes they are ever going to be held up, and you end up with volatility in asset prices."
And by "volatility" he means price drops. In my book, that is not the correct phrase to use!


EXISTING asset owners.


If your economy [banking systems] depends on ever inflating asset prices, eg, 'housing' AND if asset-prices-decreasing will crash your system ..

.. there is a name for that .. it's called: A Ponzi Scheme.

He needs to find a way to get money into the pockets of New Zealanders without resorting to asset price inflation. Now the Reserve Bank holds government debt he has that opportunity by just "forgiving" it, so driving inflation through government spending.


Orr is just an anti Robin Hood.


Try this on for size. "House price inflation is terrible if you don't own a house because the real cost of a having roof over your families head is rising every day.”

Well there you have it. Leverage up on as much debt as possible. Throw caution to the wind. Buy a dozen houses and go tenant farming. You will be protected AT ANY COST because it would be "terrible" to be exposed to any risk or consequences for overpaying. The capital gains are untaxed and the reserve bank has got your back.

Debt having consequences for the indebted would be far more terrible than the spectre of Mr Orr laying waste to the futures of the next generation or kiwis and the generations after that.

No DTIs. No LVRs. No constraints on speculators. No brakes on the runaway train. Full speed ahead with negative rates and money printing and the debasement of your life savings.

Why would anybody want to work some micky mouse job when Orr is going to confiscate your wealth, hand it to landlords and push up house prices faster than your earn.

We would have been much better off letting the virus run its course.


What they are doing is sickening. Young people should be protesting.

Agree. There's not enough general awareness unfortunately and a strong feeling of powerlessness amongst those most affected.

I now understand how helpless the poor Zimbabwean people felt when Mugabe was in power.

Really, Zimbabwe?? You have no idea what you are talking about, whatever issues you face are trivial in comparison to the average Zimbabwean. I suggest you sack-up and stop whining.


“ While low interest rates reduce savers’ incomes, Orr pointed out debt far outweighs savings in the New Zealand banking system. So overall, lower interest rates have a net positive effect.”
Would we be in a better position now if we had more savings than debt? Yes! But that will never happen as we can’t pay back debt without going into a recession. We are on a one way street that we can’t do a u-turn on without carnage. All for what? Who benefits from this system? Definitely those that have had assets particularly from the 80’s onwards but mostly the banks who loan credit/funny money and get the spoils of our hard labour in return. The saying “if you tell a lie big enough and keep repeating it it will become the truth” rings true. Adrian and any economist with half a brain knows that this won’t work, is the single biggest cause of inequality and is further ruining the prospects of generations to come but they don’t say/won’t do anything. Maybe they believe the big lie themselves?

Rant over...

Doesn't the mandated funding ratio determine the gap between savings and debt?
So, if we want more savings and less debt then this needs to be addressed. Just stick fingers in ears to deal with the banks squealing.

The reserve ratio is what? 10%? A lot of that is funded by wholesale borrowing and here’s the kicker. Someone’s deposits in the bank are just somebody else’s debt. 97% + of the money in circulation is debt.

The reserve ratio is what? 10%?
There is no reserve ratio in NZ - we do not employ fractional reserve lending multipliers in this country.

That’s not my understanding. What do we employ then?

There were two major evolutions in money and banking that seem to fall outside the orthodox narrative. The first was a shift of reserves and bank limitations from the liability side to the asset side. The second was the rise of interbank markets, ledger money, as a source of funding rather than required reserve balancing: replacing the old deposit/loan multiplier model. Courtesy of J. Snider from Alhambra

But from the point of view of the bank, it has acquired the security without giving up any cash; the counterpart, in its balance-sheet, is an increase in its liabilities. There is expansion, from its point of view, on each side of its balance-sheet. But from the point of view of the rest of the economy, the bank has ‘created’ money. This is not to be denied. Hicks (1989, 58)

We start with the idea of credit creation, specifically a swap of IOUs between a bank and myself involving a bank loan that is my IOU and a bank deposit that is the bank’s IOU. Nothing could be simpler, and yet the mind rebels, especially the well-trained economist’s mind, because this simple operation increases my purchasing power without decreasing anyone else’s. It seems like alchemy, or anyway a violation of some deep conservation law. Real productive resources are the same as they were before, and the swap doesn’t change that, does it? Spending of the new purchasing power adds another layer of perplexity. If spending increases but real resources do not, then it seems logical that the increased spending must exhaust itself in higher prices—that is the intuitive appeal of the quantity theory of money. My purchasing power may increase, but everyone else’s decreases because their money balances buy less. From this point of view, the alchemy of banking seems like a kind of theft, something to be deplored in the name of economic science and if possible outlawed in the name of the general good. Link

“ The Reserve Bank says it's increasing the amount owners contribute from $8 of every $100 of lending to $12 as it moves to reduce the probability of a banking crisis in New Zealand to a one-in-200-year event from about one-in-100 years now.”
Link -

It’s been a long day, want to try and explain succinctly?

This is bank capital contributed by bank shareholders.

Not Fractional Reserve Banking

Thanks, in essence though just skinning the cat another way. Banks still need x amount to loan y amount?

And yet Australian banks were able to transfer, up until recently, upwards of $4.0 billion annually back to their parent companies in Australia from an 8% stake in their lending business. But it is depositors and other creditors underwriting the balance of the risk for a fraction of that return on their 92% equity stake.

Question Audaxes; I own a small number of bank share (in the scheme of things, a minuscule amount) which i bought on the share market (so the bank didn't get any of the money I spent to buy them), but i have not had to contribute any extra funds to provide for bank capital - ever. Considering that each year the banks disperse a fair portion of their 'profits' to shareholders, where does that 'shareholders funds' come from?

When your bank makes a shareholder's capital call you will get a notice to participate.
Other than that banks issue secondary capital calls via bonds, preference shares which maybe offered again via a notice to shareholders or institutional private placement. Retained earnings also contribute to shareholder capital.

Check out this RBNZ document - The current regime in New Zealand - section 98 onward starting at page 25 of 57 PDF

Yes I understood the retained earnings part and usually note that on the reporting, but I wasn't sure about the rest, although suspected pretty much as you have indicated. The silence on the other areas though made me wonder. I have participated in other companies capital calls on a number of occasions, but none for the bank, since i bought the shares some years ago. Performance wise (dividends) they can look attractive but the purchase price is steep, so yield is marginal, and their value has gone backwards in the last year or so.

Shareholder funds is the money a company (in your case a bank) gets from issuing share capital to people who pay for it. The shareholder can then sell their shares to others in the share market (and as you said the money will not go to the company/bank), but that initial money the bank got for issuing the share (or notes or whatever) remains in the bank's balance sheet as paid in capital. Also, the net after tax profit is added to the shareholder funds and the dividends paid reduces the funds.


Is there anything the normal pleb can do to instigate a no confidence motion regarding Adrian Orr?

He is destroying our young peoples futures !

Orr (RBNZ more correctly) is guided by the Reserve Bank Act and is meeting the conditions of that.
Rather than directing your anger at RBNZ you should be directing it at the Government and the Act . . . but far easier having Orr as a whipping boy.

Dont forget he is appointed by the Govt and should get some whipping as he is the one setting the policy.
He is meant to be independent, yeah right.

Yes, don't forget to thank Bill English for refusing the RBNZ a debt to income tool when they requested one a few years back.

Great article Jenee and much needed.
Sadly there are many on this site who aren’t going to note the points made and question their deeply entrenched conspiracy theory.

Say I want to get to the moon. But I'm in an economic recession. What do I need to get to the moon? Expertise. Technology. Organisation. Entrepreneurship. Along comes the RBNZ. They say: No, you need lower interest rates. The reason you haven't made it to the moon is that you don't have economic confidence. Lower interest rates will help you to be more confident. Ok cool I say thanks for that. I go outside, and look at my backyard and realize I am not a rocket scientist. All this cheap money will not get me to the moon. Similarly, all this cheap money will not provide the necessary tools for an economic recovery. Cheap money incentivizes lazy pr*cks who have rent slaves. Expensive money incentivizes better ideas. Good luck everybody.

Sorry hit report button while scrolling.

Thanks for asking the hard questions Jenee.
Upsetting to hear the two examples referenced as 'cashed up rich people with no debt' vs 'people with mortgages'. Casually ignores generations below and generations to come.

Oh to have Orr on the 7pm tv slot with these tough questions put to him so all of Nz can start to learn the bull shyyyt these guys are serving us.

Why is this guy trying to undermine his own government? Is he hoping to gather some much wanted publicity from this? It does nothing but damage his own party and he’s no less Trumpian than Judith.

I don't see why this is controversial. A quarantine breach is the only likely explanation.

Gorn to the Shredder.

Why have we outsourced out economic policies to a non democratic institution? These decisions are so important for the countries future yet we let somebody who's never been elected by the public decide for us.

Do you really think they are independent?
On paper yes in reality no.

Of course they are not, but if you are suggesting they depend on the executive power we would be looking the wrong way.

Orgr acknowledges but does not do anything to control bubble but everything to support and boost bubble....WHY ? Reflection of policy being framed for and to support rich and speculators by government and policy maker like Mr Orr.


Great interview Jenée. Really appreciate your hard work.

[Comment deleted by editor]

I actually saw him walking down the street a few weeks ago in Wellington... I did a double take and lost him in the crowd.

You are right though, if I see him again, I will likely have a strongly worded conversation...

Please don't. He is following his mandate.
If you made a stuff up at work you would not want randoms accosting you in the street.

I don't know...

If people express their displeasure in a civil manner then it may actually be useful. The fact is, Reserve Bank governors also push back against government and ask for more measures and tools, or changes of mandate, when they feel it is important. Thus it may serve well for the population to convey their thoughts to both elected and appointed representatives.

I read an RBNZ document in recent months where they seemed to state their intent to ensure house prices keep rising. Is this really part of their mandate?

If they state that, then its out there. Not hidden. And if the govt disagreed then I am sure that the govt would give them a good old thrashing. (If indeed there were any in govt who has the necessary experience, training and background to know what the consequences of such a mandate would have in conditions we have here now).

Thus it makes sense for plebs to tell their elected and appointed representatives to represent their plebeian needs - not just those of an other few.

When the plebs are ignored and the rich are protected revolutions normally transpire.

Orr acknowledges low interest rates benefit asset owners the mosti

IF knows that why not put policy in place to avoid assisting creation of even bigger bubble - REASON :No Intend


This is so disheartening. Anyone saving, constantly watching house prices inflate faster than their ability to save, just got another kick in the guts. The asset owning class will always be protected.

CPI and TWI indicate that our currency is holding its value just fine.

"While low interest rates reduce savers’ incomes, Orr pointed out debt far outweighs savings in the New Zealand banking system. So overall, lower interest rates have a net positive effect."
“We are heading off the first and most important worst possible outcome, which is a significant recession, deflation. Deflation is terrible if you own debt because the real cost of that debt is rising every day.”
"The RBNZ on Wednesday expanded and extended its quantitative easing (QE) or Large-Scale Asset Purchase programme from up to $60 billion by May 2021 to $100 billion by June 2022.
It also said the next cab off the rank in terms of monetary policy tools it could employ were a negative Official Cash Rate (OCR), ideally coupled with a programme whereby it would lend to banks at a low rate to encourage them to lend to households and businesses at a low rate."

So really the level of debt is his biggest concern and his solution is to increase it?!!!!!!

Actually this whole thing looks like we need to protect the private banks - giving them cheap money to lend out. Great solution in a economic crisis, increase private debt, maximise private bank profits!

An unintended consequence maybe one or two banking OBRs. The savers have a % of their savings wiped out to fund properties that have been foreclosed on and that the bank still own and can sell on without worrying about a loss. It is a neat way of transferring funds permanently from a saver to the bank.


Now I understand the problem - Orr thinks a recession is the worst possible outcome. It really isn’t. I’m disappointed by his lack of imagination. Sometimes avoiding ‘bad’ will get you ‘worse’.

The more I read and watch what is happening around the world the more I realise that the central bankers led by the FED have 1 mission To be the buyer and sellers of last resort. Their plan is to completely wipe out the middle classes along with their small and medium sized businesses. Orr said they had plenty of time to see what his happening elsewhere. Really! You see something not working and decide to implement it here eg negative interest rates. I can see us ending up with personal debt increasing on an unprecedented scale but this won't be supported by increases wages. We could end up with deflation where the cost of the loan goes up when real prices are falling which will wipe out another tranch of middle class. When will people realise that the only thing central banks care about is banking stability. This will end badly, far worse than many can even imagine. But that is the central bankers plan led by the FED.

Yeh it's like watching your kid just starting out in life. Well I can let them do what I think they're about to do (even though they've been warned once already), and wipe the tears and put a bandage on the scrape they're about to get. Or I can jump in right now and stop them learning about consequences.

Everyone here has been talking about debt owned privately. The bigger problem is public debt. The real reason for private debt being protected is that if debt is not protected then public debt will increase especially in recession. Orr exists because the government enacted His role. He is there to look after debtors and extort from savers. This has been going on since 1700. Time for a change of management .

Watch form 13.20 if you are are impatient.

Michael Reddell (no fan of Orr) has This to Abdication of Responsibility.

Of course, the MPC did pledge to buy a whole lot more government bonds, over the next couple of years. They still to seem to believe that such actions make a real-world difference to things that affect the inflation/output outlook. But they are wrong to do so. As it happens, I’ve this week been reading Stephanie Kelton’s MMT tract. The Deficit Myth. Much of it is a socialist tract, beloved no doubt by Bernie Sanders (her former boss) and Alexandria Ocasio-Cortez, but a fair bit of the first half is a (really clearly written, if somewhat loaded in interpretation) articulation of how fiat money systems work. It is all stuff most serious central bankers know, even if they don’t use her language. One of her arguments that it really doesn’t make much difference whether the government pays for its activities by creating settlement account balances at the central bank or by selling bonds (she calls one “yellow Treasurys” and one “green Treasurys”). And in the current context that is much the same as my argument: the Reserve Bank buying tens of billions of government bonds (generally yielding less than 1 per cent) and issuing tens of billions of dollars of settlement account balances earning, currently, 0.25 per cent just doesn’t – and wouldn’t reasonably be expected to – make much useful difference to anything. It is just an asset swap, doing little more than shifting around interest rate risk (the Crown is now quite highly exposed if something dramatic happens and interest rates need to rise a lot in the next few years).

A lot of anger in the comments about economic fact. Lower interest rates fuel asset prices. The only counter is to ban trade or levy higher taxes.

The only counter is to let recessions happen.
Not kick the can down the road.

Those are the rules of the game.

Dr Phil !! .. Oprah !! .. somebody help him !! .. Orr has made some financially literate, keyboard enemies this day lol ;)

All this is nothing new though. Glad so many of you are developing a greater understanding of central banking. I'm really impressed with my fellow Kiwis today.

My view is that Orr is simply following the narrative. His playbook was created by the actions of the FED and ECB during the GFC.
What Mr Orr might not be so sure of, is the context.
NZ has not had a GFC moment. In particular, NZ has not had a real estate induced recession that threatens to implode into a deflationary crash.
The RBNZ is front running the possibility, whereas the GFC was about surviving , minimizing, recovering .. This can make for different outcomes..?? the side effects might be more than he thinks...
Also..NZ has a better playbook , in that we have a coordinated fiscal and Monetary playbook that puts money into ordinary peoples hands

The unintended consequences is that it looks like its going to throw petrol on an existing fire. ie.. Asset prices
I'm also guessing Investors will rotate out of financial savings assets (money) and into harder assets .
Even Farm prices might start going up again.
We end up with a real dislocation between economic reality and the FIRE economy...Assets prices.

And while this is happening ... the next narrative will be wealth taxes... ( fire extinguisher. )
Irony is that RBNZ and Govt are the enablers of the growing wealth gap ( monetary inflation ) and then while accelerating this, they decide to appropriate the wealth because the wealth gap is growing.
This basically ends up destroying the Middle Class. and upper Working Class.

Growing wealth gap is a real issue ... and is more complex than simply appropriating wealth and redistributing it. ie... the nature of our Monetary system turns Savers into Speculators. Even the Family home , which not so many yrs ago was looked on as a "consumable" , has become "financialized" , and turned into some kind of investment that has invisible income ( imputed earnings ) , that should be taxed.

Monetary and Govt policy has turned savers into property speculators... Nothing greedy or evil about, it is just people learning to survive financially...

And now we reach a point where a home is unaffordable to most younger people... and We have the RBNZ opening enabling even higher asset prices... to the point where they are, even moreso, disconnected from economic reality.

"Orr pointed out debt far outweighs savings in the New Zealand banking system".
If you remember, few years back, zero down mortgages were very popular among speculators. I think that a majority of debt in NZ is held by property investors (say 5% of the NZ population) and large companies. So, in essence, Orr is saving a few and throwing 95% of Kiwis under the bus. Very sad. I think it is not hard to look at the data and see the asset holdings of those in debt and then make a wise decision. It is not fair for the government to pick winners and losers.

we have seen this play before and we know how it ends- taxpayers bailing out rich, increasing income inequality and creating a generation dependent on the government handouts.

This government needs to voted out but unfortunately, no better option. we have two options- immature and incompetent labour party or another ready to sell us off.

There is TOP but it's a wasted vote, not interested in them unless they get to 2%

Basic Rule for Investors
Never borrow short and invest long
Basic Rule for Finance Companies
Never borrow short and lend long

Deputy RBNZ governor Geoff Bascand was in the news a month ago exhorting the proletariat to go and borrow and invest in "productive" things

Anyone who borrows today at low interest rates will be insane to go and invest in property which is not liquid at or above the purchase price. If the RBNZ Introduces negative interest rates the retail banks will become very enthusiastic in encouraging people to borrow to consume.

The mistake the Finance Companies made in 2008 was they borrowed short and lent long on property developments which suddenly proved to be iliquid

Perhaps not currently, but certainly within the next two years RB will need to raise OCR higher than pre-COVID levels. The unemployment that will result will be the biggest test, but that can be overcome with direct fiscal stimulus from central government, rather than volatile debt. It seems they think they are reducing the volatility of the debt simply by reducing the interest rate. Having chronically low interests rates is never ideal.

Stealing by stealth and creating funny money is not laughable.
Paying someone to do it is criminal.
If this was a Court of Law, there would be no contest.
If this was a Just System, I know a group of people who would be locked up and the key thrown away.
Fiddling the books is not proper book keeping.
Taxing people who actually "Work" is an asset to this fair country of graft. Methinks not.
Theft used to be a Capital Offence.
Now it is just sleight of hand and inadmissible as evidence.
I do believe we have reached the limits of modern day slavery and deception.
Please can we return to a single rule of law.
Cash is king, ones and zeros, fly by nighters.
I did not win Lotto. But 10 did become millionaires over night. Most electronically zapped in History.
Plus tax. That is how desperate we poor people are.

Significantly increase unemployment benefits and allow unemployment to rise with higher interests rates. People work because they need money and in stable socio-economic conditions this is usually a mutual interaction that benefits both parties more than just in a fiscal sense. But here RB are attempting to have lower interest rates to stimulate economic activity, and the employment/investment that goes with it. This is inefficient and creates more complications that we will struggle to deal with long term resulting from eventually hyper-inflation, requiring higher interests rates and/or higher taxes to create surpluses. It is better to increase the interests rates now while we are managing COVID than in the future when the higher interest rates would stagnate long-term growth. They need to give people the money directly via the benefit system and stop acting as if this is a typical economic downturn. The vast majority of those unemployed people will want to return to work out of boredom, this isn't going to create a dependency issue. Public debt is highly securitisable, but they are unwilling to fully utilize it, resulting in unsustainable private debt which in turn creates liabilities for the public purse as it is tethered to national economic activity.

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