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Westpac chief economist and Triple T Consulting founder expect the RBNZ will have to take the OCR into negative territory earlier than indicated

Westpac chief economist and Triple T Consulting founder expect the RBNZ will have to take the OCR into negative territory earlier than indicated

There is talk the Reserve Bank (RBNZ) might have to take the Official Cash Rate (OCR) into negative territory in November, despite it in March 2020 saying it would keep the OCR at 0.25% for at least 12 months.

Both Westpac chief economist, Dominick Stephens, and Triple T Consulting founder and managing director, Sean Keane, say the outlook has deteriorated since then, so the RBNZ will need to throw more fire power at the economy.

Stephens expects the RBNZ to signal its change of plan in its August Monetary Policy Statement, and make a 75-point cut to -0.5% in November.

When the RBNZ on March 16 cut the OCR from 1% to 0.25%, Deputy Governor Geoff Bascand told (in a video interview) that not all trading banks’ systems were ready to deal with negative interest rates.

He compared the situation to that at the change of the millennium when people were concerned about how IT systems would respond to the date ticking over from ’99 to ’00.

Yet Stephens said: “Holding off on a negative OCR until November should get around that, but the timing of the RBNZ’s move will depend on how long it takes trading banks to prepare, which is uncertain.”

High unemployment a key concern

While the RBNZ has launched a $33 billion quantitative easing (QE) programme, which it has publicly said it’s open to expanding, Stephens and Keane said it would need to do more to meet its inflation and employment targets.

Keane noted the concern RBNZ Governor Adrian Orr expressed during a question and answer session hosted by the Trans-Tasman Business Circle last week, around the possibility of unemployment getting into the double digits.

Orr said the RBNZ’s forecasts weren’t far off Treasury’s. In a better case scenario and with additional government support, Treasury sees the unemployment rate climbing as high as 9.5%.

Treasury didn’t forecast the impact of an extended lockdown with additional government support, but it said an extended lockdown without government support (a near impossible scenario) would see unemployment peak at 22%.

Stephens forecast unemployment hitting 9.5%, but said: “We now expect a deeper decline in June quarter GDP of 16%, because the Alert Level 3 restrictions are tighter than we previously allowed for."

Interest rates wouldn't go negative for households/businesses

He made the point: “The lower the OCR goes, the less marginal impact it would have on retail rates such as mortgage rates. Thus a 75-basis point cut from 0.25% to -0.50% would bring mortgage rates down, but not by anything like as much as 75 basis points.

“We estimate that, in New Zealand, the OCR could go down to -1% before further cuts had zero impact on retail rates. This effective lower bound is lower in New Zealand than in many other countries, because in New Zealand bank deposit rates are higher relative to the OCR.

“To clarify, we do not expect any of the interest rates paid or received by New Zealand households and businesses to go negative.

“In overseas jurisdictions with negative official interest rates, retail rates have almost always remained positive.

“We do, however, expect the 90-day bank bill to go slightly below zero. This is an interbank rate, but some business interest rates are expressed as a margin over the 90-day bank bill.

“Our forecast for the two-year swap rate is that it will reach a low-point of zero before rising again from September 2021."

Market will accept change of plan if it's signalled

As for the issue of going back on its word around keeping the OCR on hold for a year, Stephens said: “The RBNZ could probably hold its head high by pointing out that the Level 4 lockdown was a truly extraordinary event, and we doubt they would come in for much criticism.

“However, any move to break an earlier commitment would have to be carefully explained and justified.”

Keane made the same point, adding: “In all likelihood however the market itself will start pricing for a negative rate scenario by Q4 if the coronavirus crisis lingers, and the Treasury forecasts are in fact realised.”

QE expected to nearly double 

Stephens also expected the RBNZ to increase its Large-Scale Asset Purchase programme to $60 billion at its May 13 Monetary Policy Statement.

“We estimate that total Government debt will be over $130 billion by June next year, so the RBNZ will be on track to own about 45% of the New Zealand Government Bonds on issue,” he said.

“In our assessment even more monetary stimulus will eventually be required. In theory the RBNZ could just continue with an even bigger QE programme.

“But based on RBNZ commentary, we think they would prefer to switch to a negative OCR at that point.

“The RBNZ has said that it would be uncomfortable owning much more than 40% to 50% of the total bond market, because this would affect market liquidity and functioning. By contrast, the RBNZ has previously said that it favours the option of a negative OCR.”

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'Both Westpac chief economist, Dominick Stephens, and Triple T Consulting founder and managing director, Sean Keane, believe the economic outlook has deteriorated'

Wow, what a revelation.

Putting that to one side, as a new home owner on floating mortgage rate, I would be very happy if the OCR went to -0.5%. Retail rates at 2.5%?

The recent 0.75% drop only reduced the best advertised 1 year fixed rate of the main banks from 3.39% to 3.05% (i.e. a drop of 0.34%), so if the OCR were to fall by the same amount again I would only expect rates to fall to maybe 2.79% (a further 0.26%)

They've only dropped to 3.05% so far. They may yet drop a bit further in the next few months - most stuff was pretty much on hold during the lockdown, especially house sales.

Yeah I'd expect down to 2.9%.
Then if it went to -0.5%, retail down to 2.5%, maybe 2.6%

3.39% to 3.05% (i.e. a drop of 0.34%)
That's actually a drop of over 10%


Good luck with finding banks depositors willing to subsidize you with such low rates. I won't be one of them for sure.

Yeah so massive interest relative to loaned money, look at credit cards still at 22+% wow!
Great idea to go negative, hmmm I wonder who has tried that and over 10 years destroyed there WHOLE bond market.
Lets do what the EU did, great idea.


"“To clarify, we do not expect any of the interest rates paid or received by New Zealand households and businesses to go negative.

“In overseas jurisdictions with negative official interest rates, retail rates have almost always remained positive.

“We do, however, expect the 90-day bank bill to go slightly below zero. "

So in truth this is about propping up the banks again! Pay them to take money, and charge others interest for using it!

We need to get Kiwi taxpayers sending more money off to Australia! This will do nicely.


Do they want a run on the banks?


They seriously must do. Has anyone got any confidence in any part of our financial system anymore? They would rather go bust than let inflated house prices drop to reasonable levels? Its insanity.


If its like the end of other long debt cycles - people will realise that the money they own could become worthless (or worth less..) as the government can't guarentee its future purchasing power. Gold might be the only option near term.

"people will realise that the money they own could become worthless..."

Yes- debt is going to collapse

Paper wealth debt will collapse, but not the real money - for sure as they carried intrinsic value for transaction. Hence the word cash is king.
For example.. even with worthless amount of money, it's a traded medium to buy 1 million worth loaf of bread at some point in Zimbabwe.
Not many interested to swap that loaf of bread with paper deeds of properties, with heaps debt liabilities behind it.

FB this is a silent signs within Banks, How ready are they to 'deflate' their F.I.RE economic gains from the ponzi scheme since 2013, the ponzi racked up to 70% profit. Bank fund run by mom & pop is assure to happen, lost credibility is another. As my advised been monitored/listened/executed by RBNZ even to the OCR points, so? here's a clue from me to the OZ Banks, as what you need to do, it is dire & hard, but you must do it: Follow what Deutche & HSBC Banks did the past 6-9months, quickly! this is to buy more time of OZ/NZ public psyche. That you're willing to 'sacrifice, like the rest of them'. Put your sheep coat in time wolf!

For banks, reasonable drop in house values (to 50% their current price) and going bust are one and the same. So they are very sane (as far as their own interests are involved) to do anything to slow the pace of, and reduce the magnitude of, the inevitable drop in house values.


Exactly right. In the last two months I moved all my expired term deposits to other investment vehicles, including overseas accounts (yes they have pitiful rates, around 1%, but at least they are guaranteed). There is no way I am going to take any risk with NZ banks for such low rates and no deposit guarantee. My remaining term deposits are expiring within the next 6 months and I am not renewing any - at such low rates it is just not worth it. I will let other fools support this ridiculous mis-pricing of risk. I am keeping only enough cash in NZ banks for 6 months expenses.

Could you please give me some insight into how to do open accounts in Australia etc. I think your idea is great

Give them to me, I'll open a bank account for you..

- As I am a dual European Community and NZ citizen, opening accounts in most European countries has been straightforward for me personally. I don't know if it would be easy to do so if you are not a European Community citizen, but I am pretty sure it must not be difficult to so do.
- I also had a dormant AU account which I am planning to start re-using very soon. I also understand that it is not difficult at all to open a bank account in Australia as a foreigner (see for example)
- Regarding the US, it is actually surprisingly very difficult, in a country that is supposedly open, in all cases where you are not a US citizen or permanent resident. I gave up on that some time ago, but if somebody knows how to do it I would gladly get any recommendation/suggestion.

Yup! counterparty, and exchange rate risk. Surprise surprise off we go to transferwise

Bit late now, but be patient soon we increase our bubble to OZ - then do it quickly! - some of us already long anticipated this, even expand to ASEAN secured Banks (not many Kiwis pondering as to why even ANZ opening up branch there?) - for now your options is just to spread it within non-OZ banks, cooperative type of banks, banks that put their loan book into things that you consume to survive - primary/fresh produce. Most OZ Banks are just that ... being bought into F.I.RE scheme too much, scary eh? - you can 'take this advise or leave it'.
(In the end the question remains for all readers: what you've got to loose by taking such advise?)

Doing same and sending money to my Aus acc.

Our dollar dropping like a stone against AUD. Was blindly holding out hoping for... who knows what and who was I kidding. The usual NZD to AUD bouncing up and down not happening now. Seems to be going only one way so gonna bite bullet and send another tranche to Aus now.

Before it drops any further.

Buy Govt bonds or T bills. Seriously, no one is forcing you to hold cash in a bank. You earn a risk premium with an NZ bank deposit that you can forgo for safer options. Sack-up and stop complaining.

Already have some Govt bonds. On which I had some very nice capital gains, by the way.
However there is no way I am going to buy any new issues at such low returns, artificially kept low by the RBNZ's QE program. Again, I am not subsidising somebody else's mis-pricing of risk.
PS: I am not complaining, simply thinking about the best course of action in an environment where risk is badly mis-priced. I want my money to work for me, not to freely subsidise others' overexposures and share the risks of their bad decisions.

NZ term depo's are, relative to wholesale rates, some of the highest in a Western economy mostly due to the lack of deposit insurance and because NZ is an importer of capital. You make the choice to invest your money with them and earn that risk premium, the risk-free alternatives are much lower as you note. Having said that, bank CDS prices are still quite low - you can insure ANZ for 5 yrs at 63bp for example, 10yrs at 1% - both below the long term average. So the talk of a bank run is fear-mongering by the uninformed.

I was looking for the AU parent CDS the other day and couldn't find them. Is there a public source?

Not that I've found, these are from one of the large market data providers as at today.

Maybe what you're forgetting is how strong, or should I say week, the insurance company you're hedging your bets with. From memory, the biggest one in US had to receive life support from the Fed a few years ago.

It's not the bank run you want to worry about, it's the bank having solvency problems, being frozen and an OCR haircut. I mean sure, you still get most of your money, but not all.

Bail-ins are what we have. And that does not guarantee you any particular return on your deposit in the event of a banking crisis.

Your counterparty isn't an insurance company, it's a clearing house. They are centrally cleared to minimise credit risk (so cash collateralised)

Yes you are right the bank CDS prices are still quite low (surprisingly so, I would say).
However I would not assume so easily that this is a correct reflection of the actual risks. Very similar mis-pricing of risk happened just before the GFC. From what I remember, big financial institutions got burned by buying into wrongly priced risk. The market is not always right, especially when subject to manipulation by Governments and Reserve Banks. If you read the latest Australia Financial Stability Review (April 2020), you read (page 11):
"Over-the-counter withdrawals of cash from banks were elevated over the second half of March as some customers with large balances sought to hold precautionary funds. This included a number of customers making very large withdrawals (more than $100,000, and in some cases into the millions of dollars)..... The elevated demand has since abated."
And this only related to physical withdrawal of physical cash.
The RBNZ is playing with fire by reducing rates any further. Regardless of whatever the CDS pricing may suggest.

@Independent Observer .......Maybe they do want run on the banks !

Your savings would be safer literally under your mattress that in a Bank that could go bust due to a run

Don't be so melodramatic, negative interest rates are common (Switzerland, Euro zone, Japan, Sweden) and about to be more common.

Yes, but you might not have known that there is a small difference: their deposits are guaranteed. And, in the case of Germany, for example, or even Japan, we are talking about solid, much bigger economies that are inherently seen as safer by most international investors.

The article is referring to wholesale rates, not retail. Retail bank deposit rates won't go negative.

Correct. They retail rates have never been negative in Europe either (with a couple of exception). The relationship between OCR and retail rates depends on many factors.

By the way, you are massively underselling NZ. I know it is vogue to run NZ down here, but there are markets we can look at to dispel the many factually incorrect statements thrown around.

Sovereign 5 Yr Credit Default Swaps (US$)
Japan 82bp
UK 36bp
Germany 24.5bp
France 42.5bp
Australia 30.3bp
Italy 232bp

New Zealand 29bp

It was not my intention to undersell the NZ economy, which I think is in not such a bad shape at all. Your numbers are correct and speak quite eloquently.
The big problem with the NZ economy is the housing bubble, but on the other hand I have great faith in its resilience. I would not swap it with most of the European Countries. Countries such as Italy are real basket cases. My share allocation is heavily invested in the NZ economy, by the way.
My worry is that the NZ financial system has been and is being seriously undermined by the efforts to keep the housing bubble from bursting, at the expense of the real economy, promoting ever-increasing formation of unproductive debt at the expense of capital formation and productivity increases. Ever cheaper money is not going to solve anything, but only make the problem bigger and more difficult to solve later on.

CDS are the market price for the risk. They may or may not be fairly priced, but regardless you can buy protection if you desire. New Zealand is not perfect, don't get me wrong. My point is it is relatively better off than many give it credit for. NZ does have higher than average private sector credit however it has a lot lower public sector debt. These forces will play out. Would you rather be in a major European city or NZ right now?


Ah, yes. Let's do what hasn't worked so spectacularly elsewhere.
"But it has! Look. The Financial System is still going". And what we don't know is how it would be behaving today if it had been left to its own devices. No one does. But what we do know is what a disaster the current policy has visited on us.
Step outside and have a good look around you. Debt trapped in unproductive enterprise as far as the eye can see.
If it wasn't such a mess, why is the RBNZ even contemplating follow-the-leader? Because there is now no other viable alternative apart from hardship
It's going to turn from a mess into a disaster, and we don't have the courage to change course.

I've been re-reading this from Dalio last night.

I'm getting more convinced that we're at the end of this debt cycle. No further actions by government/central banks will be beneficial - they may actually just do more harm. It could be time for mass defaults on debt and restructuring of the system that we've known since '45 or '71 - however you want to look at it.

Problem seems to be that nearly everyone (bankers/economists) are caught in the business cycle (short debt cycle) frame of thinking. Bit like the story of the ant and the ferrari (only knows red so thinks that is how the whole world is - but its just lacking higher perspective).

When collectively they realise that monetary and fiscal policy has no further benefit - but instead further damage - then we might be able to move forward. But its going to be painful as a lot of businesses and households will default on debt obligations.

Friend on mine has been asked to quote on doing three commercial valuations for mortgagee sale, and its only the first day back.

Hold onto your hat. In fact, upgrade to a hard hat because its going to be a very bumpy ride for those who paid to much with little equity.


One gets the feeling that this is going to be like explaining to a child that their dearly loved pet is sick and needs to go to the vet and be put down. Its going to be painful but there's no point letting this animal live any longer - its old, tired and grumpy and is biting the children.


Its a weird dog as it seems to be subservient and frightened of the older people but knocks the younger people to the floor and keeps biting them every time they try and get up?


Its the only dog the older people have known and come to accept and love its bad characteristics - but simply because they don't know any better and are too old to accept change - even for the benefit of the future.


My first post-L4 purchase is going to be a safe

Make sure it weighs over 80kg. Two men and a hand truck can easily move anything less. Oh. And bolt it too the floor, not the walls.

Japan's official cash rate has been between 0.1 and -0.1% for the last decade. Note that their housing market hasn't been recovered for the same period.

But their inflation rate rose above 1.5% in one of those years! I think we can chalk up that as another win for central banks. Clearly a successful policy we should be emulating.

But their inflation rate rose above 1.5% in one of those years!

As a regular visitor to Japan, I understand this subjectively, particularly in food service. Where Japan is quite different in terms of inflation is the consistently low price inflation in non-discretionary spending: day-to-day FMCG spend and transport.

Yes, I noticed eating out was quite a bit pricier when I went back last year, compared to 2015.

My favourite sushi train next to Meguro station used to be Y100 per plate in 2016 now Y150 in 2019..

Note that their population has been stable/declining and their gdp per capita growth has generally been better than NZ

Forgive me but, speaking generally to comments posted here - should I read this is a Real Estate Agent speaking whenever the idea of "bank runs, Banks going bust soon" gets brought up?

why would you assume its a REA saying that? You don't think non-REA are looking at the crap going on and wondering if cash on hand is more useful than numbers in a bank mainframe that are subject to OBR?

I'm certainly curious about where to keep my cash..
Lots of questions, like what happens to offset accounts in an OBR event.. do they get left alone? Does the money transfer over to reduce the mortgage so you lose access to it, or are the offset accounts treated like any other deposit account and get cleaned out for the bank?

Good questions but my guess is it's all on the table, all up for grabs by a bank. That's what the all obligations belts and braces terms allow for.

An offset account will be cleaned out for the bank. Dangerous to your finances to assume otherwise. If SHTF and they need to close and do an OBR haircut, they will haircut everything they can see. If you have money you are worried about in an offset account, make a lumpsum payment to the mortgage account ASAP unless you plan to withdraw or spend it in the near future.

Are we about to follow Japan's failed monetary policies where enough is never enough?
BOJ Paves Way to Buy More Short-Tenor Bonds to Offset Supply
U.S. Stock Futures Rise After BOJ Stimulus Boosts Asian Equities

First, what happened this past week when the price of oil to be delivered in May was priced at a negative $50(ish) dollars per barrel? And much more importantly than the bizarre price, what does the back-half of the oil futures curve say about the medium-term condition of the global economy? Nothing good unfortunately. Second, why do well respected names in the financial industry continue to believe that US Treasury yields will rise? They are called Bond Kings and one of them recently had to take off his crown (temporarily). But was it the Fed’s changing policy that caused the change of heart? Or was it the bond market all along who was signaling the bond kings wore crowns but nothing else? Third, the important German ZEW survey shows very sharp pick-up in optimism. No surprise, ZEW survey respondents traditionally respond very positively to central bank ‘liquidity’ programs, even if the real economy does not follow through. Fourth, the multi-decade Japanese experience regarding ‘overwhelming’ purchases of stocks and bonds is instructive for investors counting other advanced economy central banks buying financial instruments. It seems bullish, on the surface at least. But recently the Bank of Japan opened the taps and increased their equity purchases to record amounts. The result? A 31 percent decline. Link

Only game in town now

Can someone help me understand.
Are they saying they expect the OCR to go negative, but that banks will keep interest rates (marginally) above 0% for their depositors?

yep, the banks'main focus is making (heaps) of money, so their margin will be a bit more at this time.

I would love to see how many depositors will stick with the banks if rates go any lower.

Firsthomecryer - in case it hasn't been said enough, note that the banks do not fund off the OCR- an OCR cut only lower rates if the banks can lower their deposit rates accordingly, and strangely enough, depositors are reluctant to receive a pittance, except in the short term situations like this where cash is temporarily king) - in fact lowering the OCR squeezes banks margins as the free deposit funds held in cheque accounts become less valuable (one of the reasons that the many reasons european banks are so weak).


Will they put pensions up to compensate? Negative rates take from savers and give to borrowers.

Pensioners with deposit accounts lose out. A lifetime of saving and being careful is trashed.

People who are working will have to save more for their retirement. A lot more.

Lots of nasty tradeoffs here. Why are they airbrushed away? Where are the boundaries?

Under what conditions does this lead us down the Argentina path where we all slowly learn to keep our savings in a USD account?

What are the likely triggers for mass capital flight?


Pensioners, along with everyone else who saves and lives within their means, will be sacrificed at the altar of conventional monetary policy in the hopes of divine intervention for the banks and indebted.

I'm not sure they really believe in it anymore. They do it because it's all they know. There will be people who do understand this stuff, but they will not be working in government as their careers would not advance.

Insightful and pertinent comment thanks.

The government should base the pension on the mimimum wage. Articulate it to being means testing, I was amazed 30 people on 300K were claiming it (I guess Winston is one of them). The numbers between 200- 300 K is quite high. Also kiwis who haven't lived in NZ for the last 20 years ( as per an NZ First draft two years ago) If you ate not going to get a satisfactory return on your bank investment open up a KiwiSaver account and invest your savings in a Conservative Fund.

I suggest you don't re-invest in term deposits. When a run on the banks starts (and if rates go any lower, this is almost a certainty), rates will have to go up again to attract savers. Or at least your money will not be subsidizing the fools who believed in the real estate Ponzi scheme.


Maybe I'm being complacent (been known), but I think short term bank runs are unlikely here. It is the long term destruction of the pillars of the economy that concerns me. A civilised society works for both savers and borrowers, landlords and renters, factory owners and factory workers, young and old. Our society is based on what is fair and reasonable behaviour that benefits everyone.

The danger is that we become polarised and adopt us and them policy. If we want to go down this path we need only adopt policies that take from one group and give to another. We will become a South American style republic. Is this what we want? Really?

It comes down to whether you encourage choice or manipulation. A good business transaction, freely entered into without pressure on either side, makes both parties better off.

You are being much to complacent around these banksters, who need to be put out of business under this crony capitalism model.

Not much choice in this country already, with limited competition in any of life's essentials. The way the government debt is building, we'll be joining South America in no time.

The commerce commission, led by yes minister plants, have allow aggregation of competition. Rod Dean ended up with one of the cushiest jobs out, for his compliance with this aggregation.

Meanwhile, successive governments have implemented endless paper work and compliance requirements on small business, suffocating them out of existence. One suspects this compliance has all been on the advice of the big four accounting firms, who work for big business; that largely benefit from reduced competition.

Compliance costs, where the cost benefit is marginal at best, have now made the cost of doing business too great for the small operator. Like low deposit rates, risk has to be repriced with alot of this unnecessary compliance and paper work canned. What happened to common sense around health and safety?

Throughly agree Rodger - the banks are solid enough and only the truly uninformed will think theyre safer having their cash sitting under their pillows, but the long-term damage to the balances in the economy that you talk about, which will be accentuated now that the RBNZ has entered the mickey mouse domain of money printing, is the real worry.

Exactly, with MMT someone always pays, its just a case of whether or not they realise they're paying (inflation is poorly understood by most). Thankfully savers have had the last 10 years to learn about it - I suspect most won't make the same mistake this time around.

All completely useless. Fiscal policy is needed to inject new money into households pockets so that it can "trickle up" and trigger a multiplier effect with businesses having some profit to chase after. RBNZ should direct credit Treasury's Westpac account with $50 billion and say off you go then.

I'm actually a firm believer in the trickle down effect, it's just we've typically misunderstood who is on top. Increasing the incomes of workers will increase their spending, which then trickles down to the owners of businesses as income and the government as tax take.

Nicely put.

When on earth is the Governor of the Reserve Bank going to acknowledge we have a DEFLATION problem looming?

Prices of food in Europe are falling , and prices of white goods have already fallen.

Right now Petrol in Wisconsin is US$1,21 a GALLON or around US 30 CENTS a litre .............that's around 45 New Zealand cents a litre .

How do NZ oil Companies think they are going to be doing business-as -usual ?

When this oil oversupply in the market arrives on our shores , it will be spectacularly deflationary.

The unemployed will accept lower wages , and the retailer will be forced to sell for lower prices as he competes for my $ , and all of this is deflationary.

The costs of services will also fall , as competition heats up

$1 a gallon in Green Bay and $0.75 in Manitowoc. Meanwhile gas at my local pump is still $1.94 a litre, hasn't moved in over 4 weeks now.

Yes. And also, people we want to sell our produce to (esp China) have taken and continue to take, a big hit to exports as people elsewhere are in shutdown, so not importing as much.
Hence China and elsewhere will expect to pay less, and OUR export income will hence be less.
Government is going to have a HUGE revenue hole in next year.
NZD will consequently come under huge pressure.

Sort term deflation at best. Then you watch inflation go ballistic due to disrupted supply chains, lack of volume, bankrupted companies, mass of unemployed producing no products or services and all that freshly printed cash chasing less and less product.

Essential items up, the ones that will deflate won’t matter as they won’t be a priority buy.

This is my line of thinking too. People tend to forget that moving all manufacturing to China has been a massively deflationary background force for decades. That's about to go into reverse.

The freshly printed cash is just replacing the hole that is left by the massive decline in earnings, jobs and GDP. The amount printed is not in addition to anything, it's just trying to replace what is being lost. That is not inflationary.


If you don't understand money, then you will miss what is coming. Whether you label asset prices going up as appreciation or inflation it matters not. Reserve Bank quantitative easing is simply the dilution of money and the lowering of interest rates makes that money more worthless. This has been going on for years and is probably not about to stop. The great debt reset won't occur through a monumental crash in asset prices. It will occur with a monumental crash in the value of the dollar. The risk being stagflation or hyperinflation. If you understand what I have said, then you will understand why the NZX50 is at 10600. That is not much of a fall when you consider the position we are in. If the dollar is halved in value then you might see that at 20000 soon. It is time to protect your wealth and that is not with cash in the bank!!

How then? HELP!!!

Could be.
But that reads like something out of an MMT lecture manual.
What we have about us today isn't just a financial crisis; it's a physical one as well.
MMT would justify your thoughts if it operated in isolation, but it doesn't.
Millions; billions of workers are going to offer their services for less and less of an income ( will you, if whatever you do can be done by another that can take your job for less? Will you, too, compete with your income structure?). In that environment, cash and credit balances of all sorts appreciate and purchasing power escalates.
Today's environment is one of economic and health emergency, that leads to massive unemployment and a deterioration of the structures we have had in place for probably the last 70 years.
Understanding money isn't about 'what it was' but about 'what it's going to be' and once this monetary madness has proven ineffective, a system of market-based value for money will likely emerge.
That's higher interest rates; suppression of inflation and a wind-back of Globalisation.
The alternative is 'more of the same' and that will make matters worse.

"Understanding money isn't about 'what it was' but about 'what it's going to be"
Money is a means of transaction and the supply of that money is controlled. That money madness you speak of has kept the world from some very dark days following the GFC. You are assuming and effectively betting that the current system will collapse and change radically. I am assuming what has been going on for the last 40 years will continue. The biggest problem in the world is the level of debt. When you have policy makers talking about negative interest rates, quantitative easing, helicopter money, minimum wage levels, universal wages then you should expect to see that occur before the ultimate crash and reset.

So what should one do with their money if not in a bank? I’d appreciate suggestions.

Kiwibonds, or open a bank account in Australia for deposit insurance of up to $250,000 AUD. If you bank with one of the big four today, you can open an account with their parent a little easier because you can verify your identity at a local branch and have them scan and forward to the parent.

Do you know if the deposit insurance is valid for non Australian citizens/permanent residents?

Yup it applies to any depositor.


Not so fast. The scheme is not automatic and must be activated by the Federal Govt. Secondly, money has not been set aside for this purpose. So if they even decide to activate it, how can they pay it?

My suggestion would be to keep whatever liquid funds you have in an RBNZ authorised bank.
Forget the "take it to Aussie for the $250k Guarantee" stuff. It's a crutch.Go to Aussie if you want t play the exchange rate by all means, but not for 'safety'. It's irrelevant. None of 'our' banks will fail into oblivion. They might be 'rationalised' merger or taken into state ownership, but they aren't going away. EXACTLY what the OBR is for - to ensure the smooth transition of an OPEN bank into resolution ( find another parent)

(We all remember what a disaster for the UK the Royal Bank of Scotland was don't we? It was magnitudes beyond anything we have at risk here. And yet, today, the bank still exists; with Public shareholding still, and depositors funds are just as safe as they were 15 years ago. The same thing would happen here if needs be)

The RBC still exists and Fred is living it up large on an obscene pension.
Yes, the same thing will happen here. The ones that should be up against a wall will be living large.

GFC mk 2 but amplified somewhat.

Physical gold via the Perth Mint

What's the margin that's charged these days?
Last I looked it was 25% over the market rate of Gold to buy in and 25% below the market rate of gold to sell out. ( that's' for relatively small retail transactions - say $100k or less)
So a round trip cost you 50% of the market rate of gold!
Now, sure, you might pick the right movement and either reduce or amplify that built-in cost.
But whatever the margin is, it has to be overcome just to break even.

You're missing a decimal point there. It would have been 2.5%. With the recent high demand, coupled with a supply shortage of gold coins, some bullion dealers were paying a premium over the spot price to buy back gold.

Totally agree. Free money is here, just have to make the right choices, same game different rules as always.

Asset prices *have* crashed. The S&P500 has not recovered to where it was, no ones pensions are back to where they were in 2019, no ones Kiwi's saver has been fully restored. Somewhat, sure, but a whole bunch of "wealth" remains missing.

And house prices will come down. And in in addition to them coming down, they will also not being going up and a whole lot of people rely on them going up. It will be a combination of banks tightening, unemployment, lack of tourism, lack of immigration and change in sentiment that provoke continued property correction but the currency devaluation will be occurring concurrently.

So whilst I agree wholeheartedly that currencies will devalue, I don't agree that nominal asset values will not also reduce.

For the short term, most things will become nominally cheaper, at the same time as currency devaluation. Until the currency wars and pushing on strings no longer works.

Our Kiwisaver already recovered since the big hit in March. Aggressive fund. Most of the rest of your sentiments I agree with though. Especially the bit about people relying on rising house values. Can't see that happening anytime soon.

Doggog, interesting post, you have whet our curiosity, so how do you suggest one should protect their wealth? Property? Stocks? Bonds? Gold? Crypto? Funds? or what else?

Consider two neighbours with similar houses. One decides to sell and cash up while the other person sits tight. Now you have to guess who will be better off in ten years time. People on this site are suggesting that the cashed up person will be in a better position as asset prices are going to go down and appreciation is a thing of the past (good luck). Protecting wealth while holding cash is going to be difficult when that cash is a manipulated fiat currency.
The problem with switching to other assets is you need to avoid buying in at elevated prices due to the FOMO effect. An example of that was in January 1980, where gold hit a record high at $850 per ounce. Don't lock Kiwisaver loses in by switching to cash or very conservative funds like many are currently doing. Finally, don't be surprised when physical cash is removed from circulation as it is a vector of the Corona virus and your account has a negative interest rate. Effectively a taxation on cash holdings.

AUD/NZD is 1.071 and rising rapidly. We can't even move our money to Oz now. NZ is in so much trouble here and there are lots of people who can't see it?

Remember when it was 1.37 just 9 years ago?
1.07; 1.17 is still a relatively strong NZ$.


Duh...lowering rates will do nothing for real economy.
You are trying to get people to borrow more, when unemployment is rising.
people borrow when feeling secure about ability to service debt. Ie NOT at moment.
Does not matter what interest rate is.
One tool in the bag only and its broken.
New tools required.
Such as , try reversing some of the trend of inequality of last 45 years, by which the top 20% hovers up all the wealth gains whilst rest are sold debt to keep up with Joneses. That means incomes at median have to be higher
and you need wealth taxes to reduce taxes on bottom 40%.
Labour should have been doing this but Winston wouldn't allow it.

Would that be Shane? He's got billions to give away, er, sorry, invest. Got it from Labour, last I heard. I think you're plan might be a bit like one of Baldrick's, that it could end up with a lot of different results than the one that you are expecting. It has been tried before, I think, maybe in South America, perhaps.

mike, the bottom 40% pay no (or very little tax) tax as they receive more direct money than they pay in PAYE, GST, fuel tax etc. This is an indicator of inequality (where 40% of people cannot afford to pay tax) but it is not correct to say that they are paying taxes).
But, based on the wealth stats at 2018, the top 20% households of NZ own a net wealth of $1,750b ad the Q4 households own $709b. I am sure that if wealth was going to be used as a tax base, we would have observed a signficant drop in these figures :) but even at 50% of these wealth levels a wealth tax on household net wealth greater than q3 average wealth of $340k would raise about (0.5% for wealth in excess of $340k and up to $736k and 0.7% on wealth in excess of $736k) would bring about $3b which if given to the bottom 20%, their household income will increase by $10k a year. That should be a decent boost to their spending.

Duh...lowering rates will do nothing for the real economy.
- So when the people holding the 80 billion of mortgage debt go to to renew their loans with lower interest rates, there will be no effect.

you need wealth taxes to reduce taxes on bottom 40%
- Negative interest rates combined with a cashless system will effectively tax the people with money

New tools required
- What are they? Let it all burn to the ground and look for the grass shoots. If you look at most people in NZ they are pretty happy with what they have. Sure there is inequality, but that is not an unsolvable problem and is mainly centered around poor housing supply / quality.

Put simply, MMT, QE, Stimulation or wherever other names one cares to put on it DESTROYS JOBS and so the economy.
If 'workers' can accumulate wealth by being the beneficiary of state money creation via asset inflation, then why would they work; why would they bother to actually produce anything?

Maybe you should read some MMT - that's Modern Monetary Theory, a description of how the macroeconomy works. You've gotta have a balance. The govt can fill the gap in aggregate demand with new money. We will still have taxes/rates/fines to pay, which creates a fundamental demand to earn NZ dollars. MMT people often advocate for a publically funded Job Guarantee which CREATES JOBS when the private sector falls short.

MMT sounds great in theory. In practise you may get capital flight. The country could become uninvestable. So no new capital projects. Exactly as we have with mining. Investment will flow to places with better managed currency with less volotaility. The most stable currency will attract savings out of the country. We risk becoming New Argentina.

MMT might work if we actually knew what the boundaries were and if there was the political will to steer clear of them, but that is a big ask.

MMT gives a framework, a description, a lense, a way of viewing what is happening in reality. What that does is to show you the policy options available and what their effect will be. You want a "better managed currency with less volatility"? MMT describes the system that achieves that. You want to understand what's happened in Argentina? MMT explains what went wrong. There is no such thing as "uninvestable" when you are the investor of last resort and there are people and resources available in your country. A sovereign country regulates the flow of capital how it wants, the question is what do we want.

I understand what you are saying regarding MMT skywalker, but for NZ or any other small open economy, there will always be the risk of capital flight (because of foreign investment and currency devaluation issues), which is why I think at the IMF recent meeting on Asia/Pacific economies in regards to the pandemic they did a massive u-turn and suggested that capital controls would be needed, which for the longest time they were fundamentally against. For a country that has any kind of reserve currency, this is not such a heightened risk, but NZD is not that.

Cheers gingerninja, glad to hear some good analysis of some of the potential issues around NZ fully exercising its monetary sovereignty. I reckon capital flight risk can be mitigated by stronger capital controls and regulations around foreign ownership and investment. However I also reckon we can use an MMT framework to design monetary and fiscal policy to create a more stable and prosperous economy and society, which would give strong fundamentals to the NZ dollar.

You get capital flight when you are the odd man out. The whole world is in synch with huge debts and a Covid problem. In the USA some are worried they will trash their dollar and cause a run on it. Where will they go? Yuan, Yen all the same. Print Print Print or your dollar will appreciate in this current world.

Well - do tell me which one/s of my advises that not being followed by RBNZ.
NOTE: I've advised them to put double digit inverted figures post this May.. before the final bottom pit of -10 to -15 basis points. On May you all should see the 10 or 15, this is Psychological number/last warning to.. Banks!

Read a lot of comments here about depositors. The only carrot you could offer is guaranteed deposits. I would be interested to know at the moment do the 'Japanese housewives' prefer 2.3% in NZ TDs, or, 1.01% guaranteed in Aus ??

Is it possible to transfer money to an Aussie Bank account where deposits are g'teed

That horse has bolted. The NZD is being devalued at an increasing rate. The AUD/NZD chart is becoming exponential.

Wee bit dramatic, look at the 10Y time frame.

All those that moved cash here to buy houses must be stoked.

its not easy to open a bank account in aussie now from this side due to the new AML laws, just remember to next time you are there for any future needs

Surely driving all depositors out of the NZ banking system worse that protecting the property debt ponzi. Have to say the Iceland model of letting bank owners and ponzi proxy holders have an almighty haircut looks better and better every day.

DC, I saw this news first on the Herald online, I clicked on it but it wouldn't let me read it unless I contributed, so… I jumped on Interest because I know I can read it for free (although I'm choosing to contribute). Of course Interest's readership will continue to climb if free but is your revenue increasing as well?
Personally I believe Interest's articles are worthwhile paying for, beware not becoming the media outlet for cheapskates

To bastardise a Denis Leary quote: "I have the solution to the debt problem in this country. Not less debt, but more debt. Get more debt, and give it (all) the bleepin' people."

The RBNZ will do whatever it's told by the banks as always, the message now is clear. We do not need more debt bubble but stimulus to real productive economy happening here, not overseas.

We are a two bit economy with a one trick central bank and there is no level of depravity that they won't stoop to in order to prevent their enormous housing bubble from bursting.

Nothing matters more than keeping the property market propped up. The degeneracy is just beginning. If you are not a homeowner they will take everything you have.

MMT is Monopoly Money Therapy.

Magic miracle torture. will soon be

I find it interesting that people worry about their bit of cash in the bank. People should be more worried about their level of debt because the banks have their arse covered by the equity in your house and they may knock on your front door wanting it back if you cannot service that debt. House prices would have to fall an unprecedented amount and there would need to be a tsunami of them listed before the banks fail. Multiple forces at play to reach an ugly balance for anyone overleveraged right now.

What you have described applies in the good times as well. Borrow too much and lose your job you have a problem. Hopefully most people who leverage up realise they are taking a risk. Most leveraged people have worked out that if the housing market crashes, so do the banks and all the depositors accounts. So the policy makers will go thermonuclear to stop that. Wall Street knows this well - too big to fail.

The banks dont just crash there is an order to the events. Firstly the housing market crashes and this takes time. During this time the banks go on the defensive. By the time the banks crash your in the same boat as Lebanon right now with riots on the streets. The housing market can take a big dive without it affecting the banks.