Raf Manji on the lessons from Christchurch for a COVID-19 world, and a lesson from Japan pointing the way to fixing local government funding and building infrastructure

Raf Manji on the lessons from Christchurch for a COVID-19 world, and a lesson from Japan pointing the way to fixing local government funding and building infrastructure

By Gareth Vaughan

We will never get a better chance than now to sort out the broken local government funding model and upgrade New Zealand's infrastructure which can effectively be funded for nothing, argues Raf Manji.

Manji is a strategy and risk consultant, former investment banker and ex-Christchurch City Councillor where he chaired the strategy and finance committee.

Manji says there are lessons from the Christchurch earthquakes for the whole country as we battle COVID-19 and a major economic downturn.

"The central city was cordoned off for two years. We had military on the streets here, you had places you couldn't go. Even though we could congregate together we had 18 months of ground shaking, businesses shutdown. We had the wage subsidy which worked really well. We had a lot of people working from home, we had kids not at school," Manji says.

"So we experienced a lot of those social issues that we're experiencing now, and the economic ones. And I think the impact of insurance and all the insurance claims that some people still have today, had a huge impact."

If you take people trying to rebuild their houses in the same way as people trying to rebuild their businesses, you're going to have exactly the same issues. Do I get an insurance payout, how can I get my house rebuilt, how can I get my business back off the ground, do I need to leave it, do I need to take the money and move on?" 

"The mental health impact is going to be huge. We're still dealing with that down here," Manji says.

"The lessons from Christchurch need to be learned, that you need to provide the appropriate help to people and you need to try and help people back on their feet."

"I saw the Minister of Finance talking about the small business loan direct from the Government. Brilliant. At 0% that's exactly what you need. You need cheap funding to let people get some cash back into the business and work things out," adds Manji.

"If we had a proper public bank you'd be able to do that a lot quicker, and I think that's something we certainly need to look at."

He notes that after a crisis people share their visions for a new society and a new way of doing things, but most of these ideas never actually happen, even if they're good to talk about.

"What we do need to do is not have delusions of grandeur, of big projects, of stuff that sounds great but [is] very difficult to get off the ground. What was done well here was rebuilding horizontal infrastructure," says Manji.

"I think the Government and the Infrastructure Commission should be ready to go with that. It's not sexy stuff but actually if they spent $10 billion, $20 billion on renewing underground pipes, sewerage systems, flooding systems, that would be the best return of money because it needs to be done."

"And every single local council around the country has got infrastructure projects backed up. And they don't have the funding because the ratepayer model doesn't work. So this is the chance to finally sort out the funding model between central and local government. And if you've got that money flowing through the economy at that base level, you are supporting the whole economy anyway. Don't build convention centres and all that kind of nonsense. It's a complete waste of money. Put the money into stuff that you know has to be done, and where you have a lot of jobs to be created," Manji says.

"And we can fund this stuff now at nothing. We will never get a better chance to upgrade our country's infrastructure as now. So that's what I'd be focusing on." 

'The RBNZ should buy bonds direct from Treasury at 0%'

Manji is an advocate of the Reserve Bank buying government bonds directly from the Treasury at 0% with the Government then using proceeds from this to fund infrastructure. This could be an extension of the Reserve Bank's existing $33 billion quantitative easing programme through which it's buying government and local government bonds in the secondary market to push down interest rates.

Neither Finance Minister Grant Robertson nor Reserve Bank Governor Adrian Orr has dismissed the possibility of the Reserve Bank buying bonds directly from Treasury's Debt Management Office. Even though neither Robertson nor Orr has endorsed the idea either, there's speculation it could happen. (Manji wrote two articles on this concept for interest.co.nz in March. They're here and here).

"In terms of the public sector we have got work to do and we want to fund that in the cheapest and quickest way possible. That doesn't mean that we can't still have the central bank participate in the bond market. [But] it doesn't have to do all its bond purchasing from the Government in the bond market, it can do it directly," Manji says. 

"It still will be regarded as a debt on the government's books. And theoretically it still needs to be paid back. The main difference is the financing. We don't need to pay interest on it so why should we?"

"At some point in the future depending on monetary conditions at the time, depending on where inflation is, depending on where other economic indicators are, the Government may not pay that off. So it may just become part of the permanent debt and at some point the Reserve Bank may just wipe it. That's the monetisation aspect of it. But you don't need to actually answer that question right now. The main issue right now is that it reduces the interest cost for the Government. So if it's for public spending that's absolutely appropriate," says Manji.

A lesson from Japan

Manji says his interest in this area developed when he was trading the yen and Japanese government bonds, or JGBs, in the 1990s.

"One of my two big losing trades that I remember quite well in that period was being short JGBs. And that's because the Japanese were printing money like crazy. And I thought clearly bonds are going to go down. [So] I had a short position for many years and they just kept going up and up and up. It caused me to really investigate what was going on. Speaking to people at the Ministry of Finance in Japan, Bank of Japan and other specialists over there, to try and understand what they were doing."

"And that's what really led me to investigate the money transmission mechanism in the government bond market," Manji says.

And whilst Japan has been "in a bit of a slump" since the early 1990s with its share market never getting back to the heady heights reached at the end of 1989, Manji argues the country's economy has still functioned well.

"[Japan] hasn't had a lot of inflation, it hasn't had a lot of growth. And Japan is what I regard as a highly advanced but post-consumer society. The birth rate has dropped, they don't have a lot of immigration...but people are still well off. It's quite a high standard of living and everyone seems reasonably happy," says Manji.

"There are a lot of social issues [in Japan] that are worth investigating, but from a financial perspective that growth imperative is not driving the interest rate anymore. So interest rates have pretty much come to zero and the cost of money is nothing."

Now, Manji says, the Japanese experience could be New Zealand's future.

"History would show us that this is actually the future. And that's why the Japanese experience is so important to understand. Not just from the financial perspective, but from an economic and social perspective. And you notice I don't lump finance in with the economic and social because finance is a different beast altogether. That's why a lot of macro-economic models don't work because they don't have money in there in the right way. And I think that's what we've been learning over the last 10-20 years, is that money plays a specific role in the economy." 

"The US experience is interesting. If you remember 2010, 2011 everyone was going on about the national debt in the US, Congress was shutting down and the national debt was going to be $10 trillion, $11 trillion and the world was going to end according to the Republicans. It's now $24 trillion and the world has not ended yet. And it's probably going to go to $29 trillion because actually it doesn't really matter. The debt sits in the economy somewhere. Either it's on the public balance sheet or the private balance sheet. It's actually the stock of money in the system so someone's got to own it," Manji says. 

"Let's say all that debt gets paid back, the money stock contracts. So the way the monetary system is designed is actually you need new debt coming into the system. And that's the role of the commercial banks, to create new debt. So every time they create a loan that creates the deposit which is the other side of the bookkeeping entry and the money stock grows."

"And then of course you've got the velocity of money circling around the economy. But if we stop creating money, that whole thing stops and the economy contracts. And I think we have to be very careful in the situation we're in now to not get too carried away, with everyone cutting salaries and all this kind of stuff, because austerity doesn't work. It shrinks the economy and actually leads to very poor outcomes, especially for lower income and lower socio-economic people," adds Manji.

"We just have to know that if inflation were to rise, it's easy enough to drain that money back out of the system. And you can drain it out the same way that we do now. You issue more bonds, so you drain liquidity out of the system, or you raise taxes. But the real question is, is that going to happen?" 

"It is hard to see that we're going to be in a high inflationary environment, certainly not caused by monetary issues. If inflation comes like it did in the 1970s, it will come through a commodity shock and probably won't hit New Zealand because we don't have food issues. So in a way we become the Saudi Arabia of the 1970s where we have a commodity that the rest of the world needs and that's good quality food. We produce enough food, I think, to feed 40 million people," says Manji.

"So that now becomes even more important. And that stewardship of our food production systems becomes something that we want to invest even more in."

*This is the eighth interview in a series looking at reactions to and potential policy responses to the coronavirus pandemic and evolving economic downturn. 

The first interview, with staunch critic of the economic mainstream Steve Keen, is here. 
The second interview, with director at economic advisory firm Landfall Strategy Group David Skilling, is here. 
The third interview, with Motu and Victoria University's Arthur Grimes, is here. 
The fourth interview, 
with Patrick Watson, senor economic analyst at Mauldin Economics, is here.
The fifth interview, with Climate Change Commission Chairman Rod Carr, is here.
The sixth interview, with Director of the Centre for Sustainability at the University of Otago Janet Stephenson, is here.
And the seventh interview, with Frank Jasper, chief investment officer at Fisher Funds, is here.

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Much to agree with here. No-brainer really. Mainstream macro with its quantity theory models of inflation, money multiplier models of banking and knee-jerk fear of fiscal deficits due to financial crowding out just can't explain Japan or the US. If you can't explain the ongoing functioning of Japan and the US despite ongoing deficits and huge QE programmes you don't have a valid theory. I know you're gonna shout - "industrial capacity and creditor nation" or "reserve currency status" but really the fact of the matter is sovereign currency issuing developed nations can run ongoing fiscal deficits without any bond vigilantes intimidating them as long as they respect real capacity constraints.

The obvious IS worth shouting!
Japan had a massive trade surplus and decades worth of national savings born of the hard yards trodden after WW2 heading into its financial experiment; the USA had the world's Reserve Currency and scalable industrial production (the US could seal its borders entirely and do ok).
Just see what happens to New Zealand, which has neither, or any other comparable economy, if it tries the same trick!
(NB: As the author of this piece admits, he didn't understand what was going on when the Yen didn't drop in value. And just because he's 'seen the light' doesn't make his view, today, any more valid that when he was trading JGB's)
eg : https://www.youtube.com/watch?v=p5Ac7ap_MAY )

I am guessing you are scared by balance of payments constraints? Well, I predict NZ are going to do exactly what Manji suggests. As will UK. As will Australia. They will have to. To prevent a depression - where not just your neighbour, but you too loose your job. The government can always deficit spend to bring spare domestic capacity and idle labour into productive use. Granted, it can't create resources that don't exist domestically. It may have impacts on the current account balance and inflation, but I suspect far less dramatic than you predict.
MMT and balance of payments

Not scared, realistic - the C/A deficit blowout will prove an unmitigated disaster.
But you are right, NZ, The UK, Australia - everyone, will do the same WRONG thing. ( It's why, when John Key uttered those word on TV in America "You don't get out of debt by borrowing more money" was taken around the back of the Central bank shed and beaten mercilessly! "Go back and get you people borrowing, like the rest of us, or else!" And so he did). All Central Banks will coordinate their strategies. But that doesn't mean they are either right or they will work. And, no. It won't prevent a Depression - that's baked in.
You actually see the error of this policy in your words "Granted, it can't create resources that don't exist domestically.". The very resources that will be needed to try to run our bankrupt country.

BW, I was very interested in your view until you mentioned resources. By this I assume you mean the natural resources to build things like a manufacturing industry? But Japan has virtually none, yet has still succeeded. Why should a lack of these be an issue to us if we are to learn from them?


What we can learn from this is the current private banking model is not working, and its pretty easy to understand why.

90% of banks ownership in NZ is owned overseas, which means 90% of their profits (its exactly more due to economics of scale) are not seen locally. $5 billion per annum is a big number to replace; especially when NZ's biggest company Fonterra is lucky to make $500 million profit in good year. Where Roger Douglas saw it as a good idea to sell banks to overseas interests, god only knows. Maybe it was in the same business model he applied in his time as a failed pig farmer.

If people want to know how Germany is so successful, look no further than community owned banks and businesses. Most (if not) all their profits stay local, so governance ensure sustainability. Private banks owned by others outside the area they operate care not for the damage they create financially or socially. Their objective is profit maximisation, and this extends to selling assets they acquire during mortgagee sale to their mates.

The sooner government print money direct to the people the better. We don't need these parasite middlemen banksters clipping the ticket for more locally generated profit to disappear offshore.

The Government is already 'printing money and giving directly to the people". It's called an OCR at 0.25% instead of market-determined % rates at ( pick a figure) 10%?

To add to that, and you seem to be well versed in Werner's research - Germany got rich lending to profitable businesses - not into asset speculation. That credit guidance is important to maintain, irrespective of who is doing the lending.

Yes, not for profit regional banks.

That formula is breaking down with low to negative interest rates while the conglomerate banks are eating their lunch with lending concentrated on the residential property space.

I agree that in the near term avoiding big talking flashy schemes is important as we just need to get going but it is also important to use this opportunity to make a change for the longer-term better as well.

Fixing houses, roads (many several times) and general infrastructure kept our economy going but projects like Margaret Mahy Playground, the riverside walkway and market, Turanga etc. have made the struggle feel somewhat worth while.

The challenge is to play both the short and long game at the same time, one, so we make it to the future, the other so it's a future worth working towards.

Panther, the problems with Tauranga are many, but most driven by crony capitalism.

Town planning has been corrupted by the big developers, where their growth has been subsidised by the ratepayer. Ever wondered why the traffic is so bad. Future employment land in Papamoa was turned into housing, so workers now have to travel 20 kilometres across town to Tauriko. It gets worst, the Town Planners are doing very little about creating more employment land in Papamoa, where there's loads of rurally zoned vacant land available along the Highway and Tara Road.

Turanga is the new library Christchurch - I can't speak to Tauranga's problems.

I can’t stand Tauranga. It’s turning into Auckland without Auckland’s diversity, vitality, culture and opportunity.
Nice climate and one nice beach, though.
It’s a poster child for bad planning.


Somewhere in the midst of that the dysfunction of the bureaucracy has to be addressed. In Canterbury the sniping and power struggles between the regional body and the local council, in a great time of need, has been appallingly counterproductive. For instance the local council has had to donate money to citizens to fight water by the billions of gallons being given away. There would not be one sane ratepayer in Canterbury that would agree that it should. Why do we need regional councils anyway?

Agreed, should just merge the whole lot, same with DHBs - should be four - South Island, Lower, Mid and North in North Island.

The duplication and inefficiencies we tolerate in the name of local democracy boggles the mind.

Agree. Let’s do it.

Auckland merged small councils into a 'supercity'. Now I feel they are less democratic - certainly it feels as if the big decisions about my local area are being made by strangers who do not know the area and its people. Certainly it made sense bringing services into conformity (entrance prices for kids swimming, garbage collection, etc) and the good public library actually became better. The promise for savings was a joke - staff numbers expanded with another layer added on top of the old seven bosses. For the result see: https://www.tvnz.co.nz/one-news/new-zealand/auckland-council-rich-list-s...

Is there any proposed benefits measure the get-together has achieved?

Libraries - now 57 I can borrow from and no charge for ordering a book. That is an example of the rationalisation that was promised. But so was a reduction in staffing numbers and costs and that was a big failure. The aspects of a council that impact the public are well hidden away from democracy: Watercare, AT, ATEED, etc.

And NZ becoming one country with australia would never work for us in much the same way. However we are already being screwed by them in various ways

Maybe there is a happy medium where regional services are run by a combined body? Could regional council's be merged with the service providing parts of the individual council's while maintaining local council's representative functions and budgetary control?

Back office systems, but the alignment of process on top of them, a lifes work!!

And the lack of accountability of a far-removed public-sector- led-city stalling projects that are badly needed in other parts of the country with endless regulatory reviews and business case studies.

We really do risk become a country of two places: A capital city where everyone's earnings hum along just swimmingly, and the rest of the country who struggles with huge unemployment, and those who are working having to wait a long time for their purchasing power to return to pre-Covid19 levels. All the while, enduring the same issues the non-delivered projects were meant to solve.

I would like to see the Nats go further right than just to the right of centre.
Make a real genuine pact with Act and go much more libertarian. Then I would be interested in them.
One of the things they could do is cut the hugely wasteful Wellington bureaucracy by at least 50%.
And do some genuinely interesting and libertarian things with the RMA, rather than their usual useless tinkering.
Pipe dreams, of course.


The old ways are dead. The left think everything is broken but don't want to be held accountable for not changing anything. National is developing an authoritarian Brash-era platform where the only person responsible for fixing life's problems are the individuals. But we don't live in that world any more.

It's possible to work a full-time job and not be able to afford food and shelter.
People lose tens of hours a week sitting in congestion just trying to get to and from work.
It's also possible to not work at all and have all sorts of people run interference on your behalf.
We persist with taxing inflation of earnings regardless of whether wages are maintaining purchasing power.
It's simply not rational to blame individuals for not overcoming obstacles put in place by the state.

None of these problems are solvable on a left-right spectrum. It's no longer fair to expect people who do work to subsidise those who don't when those who do are facing huge living costs with little assistance. It's no longer acceptable to have people lose weeks of their years stuck in traffic because projects are stalled on the desks of civil servants who aren't facing any wage pressure or performance measurement. It's no longer morally right to pay accommodation supplements to some and distort housing outcomes for everyone. And it's not acceptable to promise the earth for those on the lower rungs who do want to better themselves and then never give them a chance at a better life because you're politically untouchable even if you don't deliver.

I want National to fall over themselves to make life better for every-day Kiwis who get up and go to work. Less congestion means more time with family. Tax brackets adjusted with inflation at least gives wage earners a chance at preserves purchasing power. I want money collected from people in Auckland used to improve Auckland - not just roads and motorways, but actual transport - and vice versa around the country, without having to go through the Wellington spin-cycle. And if it means raising benefits to make those who can't work comfortable, then do it, and lift them as high as we can go. But not for people who won't work at the expense of those who do. That isn't going to fly anymore.

""It's possible to work a full-time job and not be able to afford food and shelter."" True. Keep saying it.

Yep, and it's morally wrong. Individuals can't bootstrap their way past systematic failure at a state level, even if they do literally everything right. Take a risk, go to uni, learn a professional, graduate into a low-wage economy, pay down student debt and still be flatting into your 30s.

Deep down I suspect the Nats know this isn't right, even the most zealous of them. The key is getting their policies to reflect this. Who knows, by protecting those Kiwis who want to get up and work and making life easier for them, they might pull a few of the old school trade unionists along with them.

They're clinging onto the John Key school of thought which was only good for short term prosperity for asset owners and short term political gain for him personally.

When they realise that JK was just pushing what was good for him for the period he was in office and start looking beyond that, with a utilitarian perspective, then they might be able to consider what is good for the country 10, 20 or 30 years from now - not just what is going to make someones property portfolio rise 10% a year.

And I say this as an ex National voter and will likely vote for them again in the future if they get their policies and people right.

Key inherited a property market that had been vastly inflated so people would ignore the fact they were being taxed 39c in the dollar over $60K - people kept spending money if they felt rich, even if it was only on paper. It was already screwed. He made it worse by not repealing the RMA in full immediately, then never getting around to doing anything about it at all. Pointing out that it started under Labour would mean agreeing they hadn't done anything about it, so he avoided talking there being a problem at all. In the end, it took down Bill English and robbed the country of his social investment programme, which I suspect we are all poorer for having not seen come to fruition.

A decade of Labour councils with no incentive, no clue and no desire to reform (why would you make politically difficult decisions when you can just lift rates every year instead?) has only made the problem worse. And it starts to grate after a while given the outrageous promises around Kiwibuild, the total lack of delivery, and no one in the media showing any interest in applying the blowtorch to Ardern in the way they did to Key or English. Worth remembering that house prices were, until Covid19 came along, still making solid progress in one direction.

It gives me the shits to see these sort of sweeping macro-prudential changes being authorised by the people who campaigned to change things that were apparently inhumanely broken and then failed to get even a single one of them across the line.

Well put. And I don’t really think on a left-right spectrum, unless I am lazy. I think there are some libertarian policies that could work well, and which are not in conflict with some more interventionist approaches.
Unfortunately, the political world and most people are still aligned with that binary left-right thing in a tribal way.
Labour had some interesting non-binary policy but their delivery has been abysmal. For example, some of Twyford’s ideas around planning regulation were quite libertarian.

I am not his biggest fan but today I take my hat off to Liam Dann who has written an excellent article:


All fine and good points but would cause a ZLB trap

RBNZ could buy a collateralised bond from the govt when buying directly from the DMO. An easy form of collateral could be the infrastructure deeds that the proceeds will create

Build a new highway etc, but toll it, the RB can own it, and always sell it back to the Govt or the market if it needs the money back

Infrastructure assets like a road toll provide guaranteed yield, and the RB could set that in line with the OCR in order to control interest on the excess reserves

In times of rapid out of control inflation, these assets are more credit worthy than Govt bonds.

In times of rapid out of control inflation, these assets are more credit worthy than Govt bonds.

Inflation - I wish - point me to a DM sovereign bond market where term note yields reflect such a scenario.

Furthermore, would it not be better to supplant the RBNZ with bank lending using the same government collateral, and leave the RBNZ to pick up under performing bank assets and nurse their issuers back to health, much the same as the Fed managed with AIG? Then we can avoid the possibility of government picking winners without consequences.

They don’t reflect inflation, as we are and have been in a global deflationary environment since around 2005 onward (which is here to stay for now)

Your solution doesn’t control IOER in this context so you would see non-linear interest rate responses in general deposits. The point of the infrastructure assets is not to create infrastructure, it’s to create non-financial assets that can be sold to eventually match off the CB liabilities created, & non linear interest responses on the cash assets created.

It creates one way fiscal control held by the RBNZ, similar to how the RBI has structured things.

My confusion arises here:

RBNZ could buy a collateralised bond from the govt when buying directly from the DMO. An easy form of collateral could be the infrastructure deeds that the proceeds will create.

If the bought bond (IOU) is the asset surely the reserves (government claim) it creates have to remain on the RBNZ's balance sheet - liability ledger for IOER accrual - how does the transmission of finance credit to the private construction sector bank accounts, to build the collateral, occur thereafter, up until the bond is sold and the reserves retired?

The reason they take claim over the assets is so they can control interest on excess reserves. The reserves pass through the governments books, it is not “good” for the money it’s creating, but the collateral is.

They could sell other non monetary assets on their books also (they have many)

IOER must be a fiscal control of some form when the RB is buying directly off the DMO. Else the reserves once they reach private sector accounts will distort deposit rates and render the cash rate essentially useless.

They could sell RB bills to prop the cash rate up but it entirely defeats the purpose and taxes would have to rise if the RB were operating at a loss because of it.

You can give out reserves but you can’t really control the interest rate on it without paying cashflows that accrue on it. Else you hit the ZLB quite quickly.

Edit: to answer your question, the financing of the projects reaches the private sector via wages/transfers for building the instruments

To receive reserves back they sell the assets to either the govt, or to the market directly.

The reason you use hard assets, land, infrastructure, whatever, is due to inflationary environments, hard assets hedge the real asset position of the RB/Govt, whereas govt bonds perform very poorly in inflationary times, especially if it is due to loss of faith in govt credit

IOER must be a fiscal control of some form when the RB is buying directly off the DMO. Else the reserves once they reach private sector accounts will distort deposit rates and render the cash rate essentially useless.

Once again, what is the transmission mechanism to finance the private sector builders of the collateral project while the RBNZ also balances it's ledgers, bought DMO bonds on the asset side, created reserves on the the liability side?

The private sector isnt financed? I never said they would be. It’s government infrastructure... They’re paid via wages/contracts to build.

It’s not private investment.

Reserves can accumulate in the private sector via government payments you do realise?

I can understand that the RBNZ prints notes (currency) and offers to sell them to banks. Banks accept the the RBNZ's promises to pay as an asset and credit the RBNZ with their own IOU bank liability (deposit). An RBNZ asset offsetting the note liability. Both bank's (inside money) and the RBNZ's (outside money) balance sheets are balanced. There is a transfer across the inside (banks) and outside (RBNZ) money boundary.

When the government issues government IOUs (bonds) existing inside savers exchange their deposits (Bank IOUs) for Government IOUs, allowing the government to spend them into the system. It is always the inside banks creating these savings via lending in the public arena to facilitate this arrangement.

When the RBNZ offers to buy these bonds via LSAP operations the authorised RBNZ counterparty bank traders purchase them from the owners and credit them with savings deposits, bank IOUs. Thereafter, the traders sell the bonds to the RBNZ in return for reserves (IOUs) which act as an offsetting asset against newly created deposits for the bond sellers. Once again the inside and outside money boundaries are traversed and all parties' balance sheets are balanced.

Please offer the same for your plan.

Sorry but you’re off on a complete tangent, it’s not even on topic anymore.

Which part would you like me to explain?

Would you say the wage subsidy has created reserves in your opinion?

Your own words: RBNZ could buy a collateralised bond from the govt when buying directly from the DMO. An easy form of collateral could be the infrastructure deeds that the proceeds will create

Exactly. Answer the question, yes or no?

A few dozen faceless men in a cluster of Central "Banks", hitched to a team of esteemed academics and born-again experts, most of whom have never worked a productive day in their lives, think they know better than an open market of price signals from untold billions of businesses transacting trade in untold different products.
The problem isn't us, it's them.

"There are a lot of social issues [in Japan] that are worth investigating, but from a financial perspective that growth imperative is not driving the interest rate anymore. So interest rates have pretty much come to zero and the cost of money is nothing."

Japan's real growth has collapsed because monetary conditions are tight, which equates with low interest rates.

Global interest rates, global money. Take it from here Milton Friedman:

After the U.S. experience during the Great Depression, and after inflation and rising interest rates in the 1970s and disinflation and falling interest rates in the 1980s, I thought the fallacy of identifying tight money with high interest rates and easy money with low interest rates was dead. Apparently, old fallacies never die.

"The debt sits in the economy somewhere. Either it's on the public balance sheet or the private balance sheet. "The debt sits in the economy somewhere. Either it's on the public balance sheet or the private balance sheet. It's actually the stock of money in the system so someone's got to own it," Manji says. " Manji says.

No, it's a stock of demand on the future.

And as Steve Keen stated this morning (Sundays,RNZ) very clearly, the future can no longer underwrite. Can you start asking this question please, Gareth?

Japan lol .. where the government owns 75%+ of the stock market and they've had stagflation for decades ..

Talk about credit apartheid .. 0% interest rates for businesses - 20%+ interest rates for non-business clients and entrepreneurs .. ummm, can we all say "malinvestment"? What an economic hack!

Pretty sure capitalism requires capital .. to have capital you need a rate of interest, not a course headed to negative rates.

What about the youth living in shoe boxes? Huge numbers of men living on the streets ..

[ Personal insult removed. ] blah. We're all still driving round the Cathedrals ruins. [ Personal insult removed. Just don't do it. Stick to the issues. Ed ]

You do know what stagflation is don’t you?
It’s low/no growth and high inflation.
Japan has not had stagflation.

Was referring to "The Lost Decade" OR the "Lost 10 Years" - the period of economic stagnation in Japan following the Japanese asset price bubble's collapse in late 1991.

The effects were very long lasting concerning monetary policy .. even flowing into today's Japan.

The risk with lots of Govt Bonds issued is if/when inflation marches and the reaction to it.
If you use taxes, real consumption plummets; real production follows.
If you repurchase bonds the NZD plummets and real consumption drops. Cost of fuel would seriously impact prices again.

Really interesting piece, thanks Gareth.
I have long thought we will ‘turn Japanese’ regardless of Covid-19.

Demand has collapsed.
Investment has dissolved.
While these conditions hold, Govt. print money, don't borrow.
Top level, the apps.
Bail out the individual, less the corporate.
In the core level.
Support BOP receipt generators.
Support increasers of productivity.

Let the core and the app level engage themselves.
It's about jobs, jobs and prospect of increasing income.

Avoid value shaming, or telling people what values to hold.

Keynes v Kalecki....and in the long run we are all dead.
What is the purpose of the economy?

Economists and politicians always come well prepared for the last economic crisis don't they?

Unlike 2008/9 businesses face a solvency rather than a liquidity crisis. Offering government "loans" that overlook this is just digging a deeper hole.

Last time were in a position to reduce interest rate and infuse liquidity in the market but now interest rates are at bottom and any further reduce may not have any effect or marginal effect besides low interest rates are the new norm so cannot be used as a tool anymore.

Unlike last time this is a major health crisis which has effected demand and supply and the only economy left for now is dole and freebies by government and how much can each government go out to print money.

Next in line may be government going down.

'Businesses face a solvency rather than a liquidity crisis'. Well done, you nailed the problem in 9 words.

Another local government guy insisting the council's projects must be done when the ratepayers backs are already broken.
Households can't have every desirable thing, neither can councils.

He isn't in local government anymore and does mention the funding model is broken so I am not sure either criticism is warranted.

Seconded. I've met Raf a coupla times and he is one of the smartest chaps around. LG is definitely broken: too much Unelected staff, too little democracy in terms of citoyen contributing instead of being fed staff-selected options, reliance on sources of revenue that are rigid, reliance on Councils which are infested with proto-politicians of the worst, attention-seeking stripe for what does pass for democracy, and in general being shambling manifestations of Parkinson's Law.

All the money govt is putting into the system should be done through Kiwibank.
Get the interest rates up so it's worth people having money in the bank instead of buying houses.
End the accommodation supplements.

In short do the opposite of the last 30 years. Give us our lives back.

Quality interview that touches so many things. Some very good thinking going on that I would like to see expanded on.