Days to the General Election: 28
See Party Policies here. Party Lists here.

ANZ New Zealand economists call for RBNZ quantitative easing 'in the ballpark of' $15 billion to $20 billion annually to soothe financial markets and ease bank funding costs

ANZ New Zealand economists call for RBNZ quantitative easing 'in the ballpark of' $15 billion to $20 billion annually to soothe financial markets and ease bank funding costs

By David Croy, Liz Kendall & Miles Workman*

Key points

The RBNZ has signalled that if further monetary stimulus is needed, it will conduct large-scale asset purchases (also known as ‘QE’).

• Quite separately from its monetary policy decisions, the RBNZ is also charged with implementing monetary policy and ensuring the orderly functioning of the financial system.

• Under its powers to implement monetary policy, the RBNZ has broad scope to intervene in markets. The RBNZ frequently transacts with the market in FX swaps and this power could be used to intervene in the NZGB market to restore smooth functioning in the wake of the recent blowout in yields that is threatening to undermine monetary policy settings.

• This is becoming a matter of urgency, with markets now very stressed. Bills/OIS and 3-month Bills/LIBOR spreads have widened dramatically, yields on NZGBs have risen significantly, and the curve has steepened sharply.

• The knock-on impact in the high-grade market has been significant, with the rise in the risk-free rate (ie. NZGB yield) exacerbated by a sharp widening in credit spreads, which is in turn undermining policy settings and threatening financial stability.

• Large-scale asset purchases will also be required soon. Net core Crown net debt will increase to 30-50% of GDP over the next 5 years, with issuance of NZGBs perhaps increasing to $23-25bn over fiscal 2021 and 2022, maybe more.

• We think RBNZ QE in the ballpark of $15-20bn per annum will be needed to soothe the market and ease funding costs. This is consistent with the pace of QE seen in the US during QE3 post-GFC. If anything, more stimulus than this could be needed, given the simultaneous global fiscal blowouts that look to be in train.

The details

In response to the rapidly evolving COVID-19 situation, both the RBNZ and Government have stepped up to support the economy. The OCR has been slashed, bank capital freed up, and Government spending is set to ramp up enormously. And there is more to come.

The RBNZ has signalled that they will support the functioning of the financial system and will conduct large-scale asset purchases if needed. Both of these are both becoming more urgent, with markets now very stressed. There are two immediate issues:

• Bills/OIS and 3-month Bills/LIBOR spreads have widened dramatically, with inter-bank markets trading much higher to the OCR than normal.

• Yields on NZGBs have risen significantly; the curve has steepened dramatically, and the spill-over effects are visible across the physical bond market.

Both these developments represent a perverse and significant tightening in financial conditions at a time when easing is necessary – this needs to be addressed urgently.

The RBNZ is responsible for deciding the appropriate monetary policy stance to stabilise the economy and meet its targets – a decision made by the monetary policy committee, which is likely to involve QE in due course.

But in addition to that, the RBNZ is responsible for implementing monetary policy; ensuring that markets trade in an orderly fashion consistent with monetary policy settings. The legislation around that is not prescriptive. It is flexible, so that the RBNZ can do what is necessary to ensure sound functioning of markets, provided action is consistent with its mandate to implement policy settings (rather than change them). There is nothing to stop the RBNZ from intervening aggressively to calm markets at the current juncture.

There are a number of steps that the RBNZ can take (in addition to the steps already taken) to help contain the blowout in yields and spreads. These include:

• Remaining active in the FX swap market to maintain downward pressure on short basis.

• Purchasing NZGBs as part of its monetary policy implementation to ensure smooth functioning of domestic markets. This is quite separate from QE. The aim would be to get both short- and long-end bond yields down to a level more consistent with the level of the OCR and the RBNZ’s forward guidance, and to fill the liquidity void. We see this is as crucial step to ensure that issuance of Government bonds can be maintained, with the next NZDM tender due at 2.00pm today.

• Later on (whether at the May Monetary Policy Statement or earlier), begin a large-scale asset purchase programme. This is QE in the ‘traditional’ sense, and although there is a perception in the market that the RBNZ is not ready or eager to embark on this, we believe they have the capability and can commence it at any time, now that the 25 March OCR Review has been cancelled. As Governor Orr said in an interview yesterday, LSAPs would require the MPC’s go-ahead, but as Monday’s OCR cut demonstrated, MPC can convene at any time.

Right here and now, purchasing the NZGB 21s and perhaps longer bonds would do a lot to support market functioning. Yields on the 21s shot up around 25bps after NZDM cancelled the buy-back, which has had a huge impact on the short end and wider bond curves. Other initiatives will be required in time, but soothing the bond market is the most pertinent concern at present.

The pressure on bond markets will only increase from here unless action is taken, and large-scale asset purchases will be needed very soon too, given the extent of the economic fallout and the magnitude of the coming fiscal spend both here and offshore, which will only put more pressure on bond markets.

The Government has unveiled a broad COVID-19 response package and signalled more spending will come. This, alongside lower revenues and automatic stabilisers will increase Government debt dramatically. The impact depends on the path for GDP, the scope of more stimulus, and many other factors. But we estimate that net core Crown debt may need to increase $60- $120bn to 30-50% of GDP. In that environment, reassuring markets would require asset purchases at a very large scale. Compared to the Half-Year Update guidance, this could see increased bond issuance by around $50b (or more) on a cumulative basis to June 2024.

That is a lot. Too much for the market to absorb. We think RBNZ purchases of NZGBs in the ballpark of $15-20bn will be needed to soothe the market and ease funding costs. Such a pace is consistent with the pace of QE3 (in percent of GDP terms) seen in the US.

Back then we were also in the midst of a sovereign debt crisis. The backdrop is different now, but we do have a synchronised fiscal easing coming down the pipe globally, with this crisis set to overshadow the GFC in terms of magnitude. Annual gross NZGB issuance in 2021 and 2022 could potentially increase beyond the circa $20bn issued in fiscal 2011. Given that, we believe the market needs RBNZ action of a larger magnitude than anything seen or envisaged before. Times are anything but normal and time is of the essence.


*This article is a report released by ANZ NZ's economics team. It can also be found here. David Croy is ANZ NZ's strategist, Liz Kendall and Miles Workman are senior economists at ANZ NZ. 

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

119 Comments

32
up

The expectation of future earnings is erased. It's gone. Poof. You can prop the "markets" up all you like, no investor is going to put money into a business without an expectation of future earnings. All this would do is prevent the economy from properly resetting, putting us into a Japanese style stasis as we've run out of future consumption that we can bring forward. My taxes will be used to create and keep alive zombie companies, and my wealth will be inflated away by your mad money printing. I don't consent.

13
up

Precisely! The insanity of trying to fix the problem with the same thing that caused the problem is bewildering. How these people retain their positions is beyond me.

Its called culture - and the idea of that is that it can become a race to the bottom where its a competition to see who can be the best of the worst. I've worked in a few government departments in Wellington and witnessed this first hand.

I'm not saying Orr is that - I actually quite respect the guy as a person, but think the system is broken and he's inherited an untamed bear that needed training from an earlier age.

This is a big part of what I'm watching in the US. How many companies are going to collapse?

Borrowing money with no income to pay it back, or companies that are heavily loaded with debt used for share buybacks rather than actual work. This has fueled the crazy P/E ratios, and their market has a very long way to fall.

Even flagship companies like Boeing look dodgy - is this the end of an era or am I over extending myself with this line of thinking?

I got around to looking at what happened to Boeing. The Boeing I remember was an engineering driven company which meant they didn't have the serious safety failures experienced by McDonnell Douglas. Like the cargo door that ripped out and took some passenger's seats with it.

Apparently when Boeing bought the remainder of their company it was not for the technology but the corporate structure that could kiss up to wall street for funding. The culture changed over time to end up led by a bunch of pants on head morons with that culture extending down to lower management. So no engineering where safety is the most important sales feature of aircraft.

Boeing as a company may or may not completely reform. If they don't they will cease to exist.

So that's part of the end of an era. The other is when Enron collapsed all the rotten fraudulent accounting practices spread to the rest of America's public companies. Perhaps this is a major change for many reasons that have all stacked up.

Get the feeling its become a bit like Nasa - no need to push the envelope because off guaranteed funding. That is why I look at Elon Musk with some respect, basically showing companies like Boeing (at least space division) who to improve productivity - it requires risk and hard work.

Is our belief in "productivity", risk and hard work not also part of the fallacy?

companies that have done share buyback should have to sell all those shares again before they receive any "help"

Comment of the year.

15
up

And that has worked where?

Me thinks we need a whole new look at banking/economics/governance in our western society. Some fresh ideas because what's been going on the recent period of time, to me, seems insane.

I think if you really look at it, it has been the dependency on QE that has brought us to the current situation we are in now

I agree QE is needed when things are really bad such as the GFC, but they failed to turn the taps off afterwards and have skewed John Keynes theory of stimulating growth when there is none - the central banks caved to political pressure to keep markets rising for 11 years without a natural correction leading to a bubble in asset pricing

Now we have distortions in asset markets with Stocks, as well as typically 'safe haven' assets (Gold/ T-Notes) all falling at the same time, which is the opposite of what is considered traditional theory and what retirement saving and risk models are based upon

QE distorts free market pricing and traditional risk measures, and creates state dependencies - so I think we are not at the point where this is needed yet

Now we have distortions in asset markets with Stocks, as well as typically 'safe haven' assets (Gold/ T-Notes) all falling at the same time, which is the opposite of what is considered traditional theory and what retirement saving and risk models are based upon

Don't forget the property ponzi. But all you say is entirely correct. The ruling elite thought it was too clever and the general populace has been by and large happy with the deal. They just never really expected any unintended consequences.

Thanks for the feedback, yes property is in this mix as well due to easy credit and low interest rates

I would say 100's of years of economic history and boom and bust cycles say that fundamentals are fundamentals and not helicopter Ben untested Keynesian concepts adopted by all world central banks
They have created the 'everything bubble' where their are now 'virtual currencies' backed by nothing, and derivatives of derivatives, and banks still sell CDO's with new acronyms..
I'm not too worried about what's happening now in the markets, I just think it's bringing delusional people back to their senses realizing that risk exists - even if it systemically caused by the people in charge of it and things shouldn't go up in a straight line quickly
it is far better (and more sustainable) to have a slower and steadier market than massive volatility which creates it's own fear based momentum

Re Covid 19 - its a bit overblown - but it's good we are trying to protect our elderly and people very susceptible to it

I think it's about to be that bad, though.

[ Deleted. Please read the email we have sent you. Ed ]

Wow.

Personal attack or what?

Nope. Speculation which I would have considered salient to the discussion.

can we see a redacted version of the comment? I'm curious now

33
up

That's in the ballpark of $5000 per tax payer per year. To 'soothe' the bwankers aching butt.
Yet many people here in the comments section are absolutely OUTRAGED by the idea that the poorest kiwis would get $25 extra per week.
For comparison, the latter costs about $100 per tax payer per year.
Double standards much? Are you guys really this selfish? Or insane?

Comment of 2020 so far

I don't agree. QE will make a difference and will keep people in jobs, it's also not mutually exclusive to direct cash hand outs. All these will happen eventually, Govt.'s and Central Banks are going to keep responding with bigger packages until it finally works. Public debt doesn't matter when interest rates are zero and you are literally buying the bonds. Short term deflation, long term inflation.

You want to keep people in jobs where they have no work? We will doom this country to decades of malaise if we follow this path.

No we won't and they are going to do it, so what you or I think is totally irrelevant.

The US is into QE 4. Has it worked?? NO. Its kicked the can making the situation worse and worse.

Be reasonable, the stock markets there were on all-time highs until we were blind-sided by a pandemic. QE doesn't work overnight, but it will over time. It is a blunt tool but it works.

Great comment.
There's several people on this website, a minority, who are this self interested and will be praying for bail outs.
They are the minority here but the majority in society.

Unthinkable. Just absolutely, mindbogglingly preposterous.

At that point, may as well nationalise the banks to boot.

That would be preferable.

Agree - seems insane to me these institutions that set the margins, then pay executives massive wages, then claim they need outside assistance as soon as times are tough - its outrageous and corrupt. I don't see how this is any less corrupt that might happen in a socialist country - yet we try to take the moral ground over them saying capitalism/neoliberal economics is the 'fair' and 'upstanding' way of doing business. Really?

...so we'll do it.

NO NO NO!

The LAST thing we need to be doing is kicking this can down the road and socialising the costs. That hasn't worked for the past decade. Everyone involved needs to understand that capitalism of the variety we have demands depressions as a clean up mechanism and a way for governments to understand how to make the financial system more resilient LONG TERM, not just for the next couple of months.

Contra to the comments about 'soothing the bankers', I look at what bankers actually do:

  • Supply working capital to e.g. exporters (who have to spend much money to accumulate inventory, months to years before it sells)
  • Supply overdraft and short-term loan facilities to businesses who experience temporary cash-flow dips but are otherwise sound
  • Supply FX purchase and sell facilities for businesses who deal with offshore suppliers and buyers

Now squeeze any of those, and who actually feels the pinch???

Yup. The point is not to save the bank(ers) per se, but rather if the banks go, we're all ****ed.

15
up

When you put it like that, it sounds like bankers are the second coming of Jesus Christ.
The question isn't "are banks useful?". It's "do these wankers deserve to be saved every single time they drive themselves bankrupt by pursuing ever riskier ways to achieve record high profits?".

Well, it's both. Who else bears the costs if the banks go?

Strict bank regulations were supposed to prevent situations like this. But whenever new regulations are introduced, banks cry like spoiled toddlers because regulations hurt their profits.

And they'll turn out to be the biggest welfare queens in the country, if they get their way.

Landlords and property speculators in my opinion - but I've been raising that here for about 5 years now.

We need a banking system, we don't need banks.

Many who have been insolvent for years as they rely on:
Land prices continuing to rise
Interest rates to keep dropping
Labour to keep getting cheaper (see immigration)

All underwritten by the banks. Notice there is nothing in there about earnings or productivity. These are zombie companies which NEED to be cleaned out, so we have the lean/mean/productive companies left before the cycle starts again.

Will it be painful? Absolutely it will. It may require us to reset the banks even. But bailing them out because they didn't do due diligence on the people they were lending to institutionalises bad behaviour. Just as bailing out failing zombie companies who haven't created a rainy day fund also encourages bad behaviour.

We need to create a system that encourages resilience in the face of the occasional disaster. That's definitely not what we currently have. A reset is what is required, see Mauldin's articles on this site.

13
up

I think the banks will desperately regret allowing property investors to use equity in previous purchased properties, to buy more investment properties. To me, its always been a ponzi system that needed to be stopped.

Property is the investment that will hold value.
MAny on here have been saying that buying property is not productive and we should be investing in shares!
The Man has been stating the opposite and let us see who was correct?

Not cautious, even now TM2?

It's a bit weird how you refer to yourself in the third person. Just saying.

And what will happen to the army of employees who work for these zomobie companies once they are set loose? what will happen to the tax income of government with their PAYE and GST gone and them added to "unemployment benefit"?
Do you see factories and manufacturing returning to NZ from Asia?
Everyone just says that money supply has prevented the "real" "productive" economy to lag behind. The way i see it is that developed worlds who could no longer afford well taken care off workers, appropriate health and safety standards, suitable environmental protection etc, transferred them to Asia where there are no such barriers. They THEN started to print money and financialise the economy and inflate the "Service" sector etc to coup with the reality. it has not been the other way around. Sure, what has happened has been a painkiller to numb the pain. But stopping taking the pain killer will not make the illness to go away. Are we really ready to meet this massive challenge? Can you blame the government for thinking that we are not?

Just as has happened over the centuries, they should be in more productive enterprises, more concentrated in the service industries. Industries will change, new ones will be created, which will employ those who are willing and able to work and improve themselves.

What is the alternative? Print more debt to keep these companies afloat forever? Until we have workers literally doing nothing and getting paid by government debt? There is no alternative if you want a competitive and functioning economic system.

The song 'With or Without You' springs to mind

Coronavirus has brought on the present crisis, not the Banks. Having said that, the banks have not behaved after being bailed out the last time. So they have to pay. How is the question ? For a short term assistance now, they should be asked to forego majority ownership, excessive pay/bonuses, dividend repatriation, etc. Banks should be turned into Public Private Partnerships, with the Public having a stronger say.

The ponzi scheme is collapsing. Invest now!

Not yet....not yet...

Mind boggling stupidity. EU has engaged in endless QE and negative rates and they have destroyed the bond market to the point that the ECB is the ONLY buyer. And this is what they propose? Unbelievable. I fear that this period of panic will be seized upon by govts everywhere to enact dictatorial powers and idiotic policies like this, which will ultimately lead to untold economic misery and hardship for hundreds of millions of people. The media/govt/central banks will have a lot to answer for when all this is over..

When we get to helicopter money and UBI I think we'll see a normalisation of our economy.

Incidentally I think government has to come to the party here to support consumers. We've had the business leg of this but now it's time to put cheques in the mail.

No

Wow, so ANZ are admitting they have no way though this and they want the government to print them a bailout. Just no! This will really test the government during election year.
(If the government is borrowing knowing it will be QE'ed this may as well be printing.)

But haven't they been saying for years now that they've been very prudent with their lending, no issues with stress tests - can survive whatever the economy throws at them?

Honesty is non existent when this much money is involved. Just a bunch of group think that if everyone's doing this it must be OK and that they are probably too big to fail. I'm assuming backup plan was meant to involve John Key being on the board but unfortunately the wrong party is power at the moment.

If it ever got desperate banks could just call loans in. If Banks go down everyone else will be taken with them.

Might start calling this virus the Black Swan (or BS)? Either way, its cause a massive shift in confidence, and confidence drives lending, and we have no confidence, so nobody is going to lend IMO. Are we ready for a 50-60% fall in NZ property prices this year?

10
up

"Please print $15b a year so the banking industry can keep sending $5b offshore in profit each year"

How about no.

When the printing presses start up it's time to buy a scarce asset like Bitcoin. No central authority can dilute your Bitcoin.

1 Bitcoin will always be 1/21m of the total supply.

10
up

The hair on my bum is a "scarce asset". That doesn't make it worth 5000 USD a piece though.

Nice asset.

Was Borat who traded in pubic hair wasn't it? Quite valuable...

there are plenty of girls online who make money from their bums so dont be so quick to devalue your assets

I guess I just haven't found my target (paying) audience yet.

Don't discount Rule 34

And if there's a market for draughty old houses in Waikikamukau there's a market for you. Just needs more central bank credit, maybe.

JV a question - how much will your Bitcoin be worth if the internet collapses?

If the internet collapses nothing will be worth anything.

JV, I know people like to make fun of BTC and crypto in general but at the very least they have a vision to solve the problems we face today, the problems we face by the backward approach the central backs have towards economics as outlined in this article. People say there needs to be a better way but the ridicule the very people working on alternatives. If you don't follow Charles Hoskinson from Cardano/ IOHK, I found this be a timely reminder of what crypto is really all about.

https://cryptonews.com/videos/cardano-s-charles-hoskinson-goodbye-20th-c...

crypto backed by actual hard assets I agree. Be it gold, oil or some other desirable asset. But a crypto based on nothing!
Nah, BTC is a ponzi, only staying 'alive' due to a few very big holders who can keep it there ....and some religious like followers.

Governments and central banks are discussing banning cash and going fully digital currency. They are desperate to hold on to power and control, even if that means screwing their own citizens. Nothing new about that from a historical perspective. So, with this in mind, do you seriously think that they will allow competing currencies like Bitcoin, etc, which are threats to them? They can ban them all in a heartbeat and in all likelihood will...especially during times like this.

A few days ago I thought we would see 30% to 50% house price collapse within the next three to six months. I am now starting to think that I have been too optimistic.

Clearly you were pumping up house prices with that optimism.

What are you basing this on?

It seems to me that fundamentally there is still a large supply issue with housing that wont be fixed soon. I would tend to agree that housing is over priced especially when considering the average house price 5 years ago but not by 50%.

Id probably agree with the predictions that there will be no or little house price growth coming up.

However, I could also see an alternative where the demand gets even bigger through growth but supply being constrained by the disruption to financing, regulatory processing for consents, construction (both materials and labour). NZ is a safe haven now and in the long term.

Paulywalnuts, unfortunately many commenters are not business people and just throw personal opinions around, it bears the same weight as saying it will snow in 6 months time

"NZ is a safe haven now and in the long term." - Based on what? Do you really think there are only a handful of Wuhan virus cases in NZ? I bet testing 10000 random people right now would come up with more than the number of officially confirmed cases.
NZ isn't a safe haven, it's a careless one.

Many areas in Nz will see some drops but many will hold up and eventually increase again.
My Tip! Christchurch is good buying!

if your expectation of future is that hourly labour will be $5 an hour then you may be right. Even in 1970s, it took 6 years for property values to drop by 40%. Lets really hope that we are not back to 1970s and Muldoon!

Now let me understand this correctly, and I note some (only) of the comment stream seem to get this, the banks (I do get that this is only one), after having lobbied and squeezed Governments to have less controls on them, and then essentially operated as if there is no downside anywhere, are now saying to the Government that they need to bail them out of a mess that they should have been cognizant of and factored into their business models?

My advice to the Government, any bailout should be to the people. ensure the banks cannot bugger off across the horizon taking their depositors funds with them. Make sure that first home buyers don't loose their shirts when the banks try to call in their loans, and for sound, well run business's don't let the banks screw them!

The four major banks have taken over a $billion each in profit in each of recent years. Where is that profit now? Time to put it back in!

Yip, my patience is done for the banking class and the current system we're operating under. Is my understanding correct, that they are most likely to come under significant pressure because they have lent to much $$ to residential property and peoples mortgages are too high?

Yep. These are the same bwankers who vehemently resisted and cried "but the free market!" at every proposed regulation. It's a really disgusting behaviour.

And the landlords/speculators who used equity in other properties to buy more properties. My gut feeling has always been, this isn't right, what happens when the market turns - its going to be an absolute mess.

Yep, the commercial banks in their current form are 90% of what's wrong with the existing financial system. You'd think with the annual 'record profits' they siphon off the country they'd surely have the foresight to tuck some of that away for a rainy day.

The balance 10% is Central Banks ?

Banks, like any other businesses, have vested interest in not being regulated themselves.. So it is only natural that they complain about regulation. It is really up to NZ Reserve Bank to determine the appropriate level of regulation. They say that they have upgraded the bank regulation post GFC. We will see how much truth is in that very soon. RBNZ listening to Banks as how to regulate them is like I regulate the amount of sugar intake of my 3 year old daughter by letting her chose what to eat all the time. Ice Cream will be the only food.

This is the Big Reset.

I had no shares (other than pocket money in a Long Short fund) coming into this, and on Feb 24 thought I was well positioned and conservative in mainly cash and bonds ... but this bond rout will soon take this years bond gains.

To say gutted after years of pathetic returns to stay safe, would be a mild term.

As I've said over and over: this is the excesses made by central banking burning off, and they have made the entire investment market toxic (even my cash fund is day after day losing money, and every bank I'm in is slashing term deposit rates).

Unbelievable.

Yip its madness. I think allowing central banks to drive interest rates to zero or near zero for such a long time (saying its for growth, but looked like asset pricing) could be highly regrettable in the years to come.

Easy answer - Nationalise the whole lot of them!
That's pretty much what is being suggested with this package, but the shareholders get to keep their equity.
Either: Let them go - survive on their own ( they won't or can't so that's not an available option - 'cutting our noses off to spite our faces' etc) or
Nationalise them

It's coming one day soon, anyway, so why prolong the agony and the cost?

(Oh, and for those who suggest "Governments can't run banks!'. Really?! Could the Government have done a worse job than the current crop of 'bankers'?!)

And here's a name for the new bank - a redundant one stripped from the carcass of one of the assumed entities - the National Bank of New Zealand!

It is RBNZ monetary policy that sets the behaviour of banks. 80 years, but especially the last decade of central command stimulunacy - ultra loose monetary policy and never any real commitment to tightening/normalising - has taught bankers and the public to ignore risk and treat money as if it were free, and justified ludicrous bubble asset valuations.

A central bank system is a command system reliant on a huge state: it was the death of the price discovery of free markets and the death of free markets themselves, therefore, reinforced with over-regulation (particularly the monstrous AML) and over-taxation.

But yes, sadly, people like yourself that want the communist state will blame the wrong cause. Because you never get causes right. And so we will lurch to giant big brother states taxing the hell out of every potential recovery, just as individually we are herded to bound lives where we're all trapped in the gulag of each other. Life by committee. Jesus.

And people like yourself think that we can magically reinstate some form of economic nirvana that never really existed in the first place?
It's over, Mark. the whole lot. It doesn't matter now what we do, it's not going to work. The accumulated debt will overwhelm anything that's tried. You, of all, people, must know that ( your analysis of SCF is a classic case of financial forensics)
But if you want to leave it for the 'free market' to solve this problem - then go for it! It's going to be a disaster.
Nationalisation isn't 'forever'. It's a stopgap measure to let us catch our breath.
Anyway, we'll all know how this pans out soon, and my pick, as you will gather, is - not well.

Nationalisation isn't a stop gap measure. It's kicking the can down the road so our children can pay for the mess we've created. We should have dealt with this in 2008. Instead we buried our heads in the sand. Now you're asking us to shove them just a little deeper.

Out of interest, if you had powers to make changes, what would you do?

And yet who visibly influences the RBNZ and government in recent years? And the Fed (for example).

That's like blaming consumers for all of Coca Cola's plastic pollution without acknowledging the massive marketing spend that Coke puts into making people buy their products.

The overarching point is that the taxpayer should not be expected to bear the cost of these muppets' risk taking without there being an appropriate punishment or curtailment for the banking sector or return to the taxpayer.

It would appear to me that the banks behaviour sets RBNZ monetary policy. The financial stability mandate is pure BS. If this was truly the case banks would never have become too big to fail. When credit/money supply is the lifeblood (rightly or wrongly) of civilisation you don't have its creation in the hands of private corporations... absolute power and all that.

Economics doesn't understand the cause. Economic theory based on observing human behaviour under certain "market" conditions, and assuming all humans behave and are incentivised the same way without taking into account historical concepts and causes of market conditions. Economic theory assumes human behaviour without understanding any of the emotional, psychological or environmental/societal drivers and then does its best to command human behaviour.

Your free market never existed and was based on a philosophy that has nothing to do with markets.

So yeah, the big reset is needed. Humanity can start again.

If the banks really are "too big to fail", then it's in the nations best interest. Rather than extracting billions in profit from this country each year and sending it offshore, let them contribute it to the public coffers.

We have run kiwibank okish, so governments can run banks. That was setup to counteract NZ getting a bad deal from other banks, and as a result it created some competition, and service improved.

Whatever help the government gives the banks this time around, the banks should be asked to give in return equity shares to the government, so governments can benefit by future dividend payments and also exercise some management control. Partial nationalisation or PPP, whatever. Fair dinkum ?

Did this after 2008 GFC ... Banks gave themselves huge bonuses and continued their irresponsible ways.. I say no QE ever.

Yep, let er crash and burn. The resulting personal carnage, societal breakdown and anarchy a minor evolutionary detail. The millions of deaths a mere stalinist statistic.

Would it be a benefit to close down all share market trading for 3 -6 months, maybe longer? In the US they are at least looking at reducing hours of trading., and it has been closed down before. The next problem the government has is many people kiwi saver account will be decimated, and if companies fold, then will they recover? My kiwisaver is looking good, but mine is in a cashfund as I was using it for buying a home.

The markets are just adjusting in response to the expected reduction in income from all companies. Delaying for 3-6 months won't help small retail investors as they get no benefit from dollar cost averaging and the heavily discounted shares. In the US the shares have been extremely overvalued for a long time.

Shutting the market would help those with outstanding options that they would end up owing a lot of money as they would likely have the contract cancelled due to the market not being open and no potential to hedge their positions. In other words it would bail out a bunch of broken hedge funds that the world would be better off without.

In the end this is just a liquid functioning market. This differs from property which is highly illiquid.

For those with kiwisaver accounts these are the times that people are better off not looking at the balance. Remember the number of shares is unchanged, only the price per share has changed. Those that look at the balance and sell will fully realise their losses.

More unemployment - exchange workers, fund managers...they all probably have mortgages. How do they pay their bills? Might just make the problem worse.

We think RBNZ QE in the ballpark of $15-20bn per annum will be needed to soothe the market and ease funding costs. This is consistent with the pace of QE seen in the US during QE3 post-GFC. If anything, more stimulus than this could be needed, given the simultaneous global fiscal blowouts that look to be in train

Unsecured credit spreads are widening because a bank such as ANZ is witnessing a collapse in it's share market value. This perception should in reality spread to the bank's customer deposits because they are no more than unsecured bank IOUs.

Forget about LSAPs, since the creation of inert, illiquid bank claims to RBNZ balance sheet reserves has proved to be worthless globally. Because: "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

Firthermore,

A recent Bloomberg article described central bank easing with the phrase “pumping money into the economy.” That’s a misconception. Monetary easing is actually an asset swap. The public was holding savings in one form, and now it holds it in another. The Fed buys Treasury securities from the public, and replaces them with currency and bank reserves (base money) that someone has to hold, at every point in time, until the Fed sells its bonds and retires the cash. All monetary policy does is to change the mix of government obligations held by the public. Only fiscal policy – specifically deficit spending – changes the total amount of those obligations.

Historically, base money has earned zero interest. Forcing people to hold more zero-interest money makes them more eager to chase interest-bearing alternatives. That response made for a very pretty relationship between the ratio of base money / nominal GDP and the level of Treasury bill rates at any point in time. In recent years, the Fed created such a huge pile of zero-interest money that the only way it could raise interest rates, without slashing the size of that pile, was to explicitly pay interest on excess reserves (IOER).

Without IOER, short-term interest rates would only be about 12 basis points here because the Fed’s balance sheet (of Treasury bonds purchased from the public), and the corresponding pile of base money (held by the public instead) is still ridiculously large. If the Fed lowers interest rates today, it won’t be by “pumping money into the economy.” It will simply be by lowering the interest rate it pays on excess reserves. It may even create more reserves by buying more Treasury securities (QE), but again, even that is an asset swap.

Now, if you’re saving for retirement or some other purpose, the fact that you hold bank reserves rather than bonds doesn’t make you suddenly abandon your retirement plans. Nor does all of this unconventional money have much effect on spending in the economy. As I’ve shown before, the trajectory of real GDP growth during every U.S. economic recovery, regardless of the stance of monetary policy, is well described by simple mean-reversion where the “output gap” at the recession low gradually contracts at a rate of about 8% per quarter. It’s not monetary policy that gives you a recovery. It’s time and mean-reversion.

Even boosting the price of financial assets as a result of yield-seeking speculation doesn’t give you much of a wealth effect at all. In fact, except for the early part of an economic recovery or recession, where changes in the S&P 500 are generally just leading indicators of actual economic data (rather than driving economic changes), fluctuations in the S&P 500 have no correlation with subsequent economic activity at all. Economists have known from the time of Modigliani and Friedman that changes in the prices of volatile assets don’t materially affect people’s spending.

Tinkering with security valuations doesn’t create aggregate “wealth” – it simply takes future returns and embeds them into current prices. Long-term “wealth” is largely unchanged, because the actual wealth is in the future cash flows that will be delivered to investors over time, and once a security is issued, somebody has to hold it at every point in time until that security is retired. The only thing elevated investment valuations do is provide an opportunity for current holders to receive a transfer of wealth by selling out to some poor schlub who pays an excessive price for the privilege of holding the bag of low future returns over time. Link

Only fiscal policy – specifically deficit spending – changes the total amount of those obligations.

The ideal alternative funding source would also be available on demand by being created ex nihilo domestically, without the need for any capital by the lenders.

Should such a debt instrument or funding source exist, it would be the most attractive source for the sovereign borrowers concerned, and not utilising it would be negligent. To find it, one could ask the debt origination experts at a leading international bond investment bank whether it could be designed. But securities firms could hardly expect to earn money on such an instrument. Fortunately, they will not be needed to design such an instrument: It already exists.

It is one of the oldest and simplest debt ‘products’ in existence: a bank loan contract. In our modern monetary system, which is dominated by digital money transactions, the total amount of digital money is controlled by banks and their bank credit creation (Werner, 2005, Ryan-Collins et al., 2012, Bank of England, 2014a, Bank of England, 2014b). For nominal GDP to grow, more (GDP-based) transactions must take place. This requires a larger amount of money to change hands to pay for this larger amount of transactions. The main way in our debt-based monetary system for more money to be used for transactions is for banks to create more bank credit. In other words, banks need to find borrowers willing and able to borrow from them, so that they can purchase the promissory notes issued by these borrowers. Such promissory notes can be tradable (corporate bonds for instance) or non-tradable (such as standard loan contracts).

Past approaches to debt management have focused on a narrow set of funding tools and debt restructuring, including complex derivative instruments. But the simplest, most plain-vanilla of debt instruments, the bank loan contract, has been unduly neglected, despite superior characteristics.

Enhanced Debt Management suggests that governments of crisis-affected countries should immediately halt the issuance of new government bonds and also the borrowing from the Troika, and instead raise the public sector borrowing requirement by entering into loan contracts from the banks in their country. Since aggregate private debt is much larger than government debt, and banks are the single biggest providers of the former, they are also able to provide for all the funding needs of the government. Banks used to be involved in direct lending to governments, but as the IMF/World Bank manual underlines, this has been actively discouraged for the past twenty years or so.20 Link - 4. A better option: Enhanced Debt Management

do we borrow a lot of euros?that is a steep fall.

Ha ha only yesterday I wrote about it, when high & profitable? the capitalist really discounted everybody else, by the time needs bail out? asking Govt/central bank/general tax payers to pay for the cost. Convenience eh?
This is how sneaky clever they're... those in upper echelon of ruling govt? to make such decision? no matter how you look at it? - their 'sub-conscious' bias already been 'bought'.. to join the Banks party..Sad, but easy to spot. This guest writer, clearly discounted of years profit under those Banks belt, their parents greed been exposed recently for world to see in OZ, now? this? annual? when came about regulatory came upon them? such as CAR, bank deposits guarantee,LVR etc vroom the whole leeches out an about resisting it, when about to be in red 'a little?' suddenly ask govt. help/tax payers bail out - C'mon, are we really that stupid? - for sure nothing we can do as they've bought those ruling elite with wealth enticement etc. - then their second, third, fourth, fifth ties governance echelon - But think again, how long they can play this? - Not even consider this little bug last Nov 1019 eh? - I guess so, my guess it will be the same when super large space object about hit this planet. In every adversity, strong leadership is needed at every upper echelon of decision makers - it is wrong to listen to those with vested/bias needs, whilst always presented themselves in the name of 'greater goods' or for 'whole country/it's citizen' etc. - Certain creatures in this planet was born fixed, not to be/cannot be changed - our job is to easily spot them. Remember analogical term; this is like a human body, play around to tweak this & that for certain body parts, listen to the boss (A/Hole)... before you knew it? we never recover from the real stage 4 metastasis cancer illness. By then, those sneaky posterior part.. already jumped ships. NZ wake up !

So if QE goes ahead, what's the advice for people holding cash? Buy assets?

The power brokers are out to destroy wealth. Hence QE, OBR, corporate bailouts and on it goes. Negative interest rates would be here if the bwanksters computers could cope.

The virus is providing the cover. This is enabling a global lock down so the public don't take to the streets and drag these criminals to account. Imagine what will happen in the USA when they realise their 401's are worthless?

A lock down of us all of us is required while this financial reset takes place. All to convenient.

from the UK star tabloid "crack down on the bog roll bandits"dont be shelf-ish

ANZ New Zealand economists call for RBNZ quantitative easing 'in the ballpark of' $15 billion to $20 billion annually to soothe financial markets and ease bank funding costs.................MAYBE................to give more loan to speculators so that housing ponzi continue.....................

Are these the same economists that a few weeks ago picked property to continue to rise and a recession unlikely? grrrrrrrrrrrrrrr

Biggest beneficiaries in the land, out for more socialist welfare.

It's the proles money! Give it to the people! Use vouchers if you dont trust the people but cut out the f'n middleman and go direct. Let's try trickle up for a change. That's how it happens anyway. Nationalize failed banks they are the problem not the solution.

This is central banks around the world coordinating a global takeover. Last week in nz a law was passed allowing govt to force you to sell your home or business.

Today Trump signed the defense production act..effectively the same legislation. Central banks will bail out everyone and buy and own everything. We will be slaves..

Hell no. Let the bubble deflate.

Days to the General Election: 28
See Party Policies here. Party Lists here.