Financial adviser, Darcy Ungaro, invited interest.co.nz journalist, Jenée Tibshraeny, to discuss all things government debt on his NZ Everyday Investor podcast.
The pair talked about the Treasury signalling there's room for government spending to do more to support the economy beyond COVID-19, in this structurally low interest rate environment.
They talked about how government finances are different to personal finances - at least in the sense most the debt issued by the Government during the COVID-19 crisis is owned by the Reserve Bank (RBNZ) thanks to its Large-Scale Asset Purchase (LSAP) programme.
The RBNZ has bought around $53 billion of the $66 billion of New Zealand Government Bonds (NZGB) issued over the past 15 months:
Darcy and Jenée also discussed the difference between inflationary pressures coming from supply chain hold-ups and high oil prices, versus inflationary pressures coming from a hot housing market. They wondered how much sustainable economic growth - stemming from productivity and business growth - there was.
They talked about how the RBNZ is expected to tighten monetary policy - perhaps by slowing its weekly bond purchases before lifting the Official Cash Rate, as ANZ strategist David Croy suggests.
They considered behavioural economics and how people might not respond to an interest rate hike rationally.
They discussed how on the one hand people might keep borrowing and investing on the belief the housing market at least is too big to fail, and will ultimately always be propped up by the government and central bank. But on the flip side, Jenée wondered whether the first Official Cash Rate hike in seven years would scare people, and have a particularly large chilling effect - especially as mortgage holders consider their abilities to service increasingly large bundles of debt.
Darcy and Jenée talked a bit about how the RBNZ wants to have debt serviceability tools in its macro-prudential toolkit. Jenée mentioned how the RBNZ is under political pressure, as the blunt monetary policy and financial stability tools it's been deploying don't always align with government policy.
You can listen to the podcast below: