By Bernard Hickey
Reserve Bank Governor Alan Bollard has told interest.co.nz in a Double Shot interview he is worried about the prospect for competitive devaluations globally and has warned against any slide into currency controls or trade restrictions.
Asked if there was a risk the New Zealand dollar would rise sharply if other nations engaged in competitive devaluations and trade controls, Bollard said that was unlikely.
"But nevertheless it's a bit worrying what is happening in terms of political rhethoric and action around competitive devaluations because I don't think it's going to help some of the countries involved," Bollard said.
"What does it do for NZ? You can think of various different scenarios with different effects, but it can't be good news for us," he said.
Asked if New Zealand would have to engage in its own currency controls or trade controls if other nations did something similar, he said: "It's not in prospect at the minute. We got through the crisis without the growth of trade protection. It would be very disappointing to see countries descend to that now."
The comments are made from 6 minutes into the second video below.
Elsewhere in the interview, Bollard acknowledged that attempts globally such as Basel III to toughen regulation on banks may not be successful ultimately as bankers were cleverer than regulators and may find ways around any new rules.
"Will they stop another 2008 criris? We're clever economists and regulators, but the banks are cleverer than us, and they're going to be ahead of us," Bollard said.
"There's going to be stuff that'll be going on that isn't what's envisaged now that's different from this time, that will be aiming to get around this stuff, so it would be a brave regulator who would say that's plugged for the future. That's always a problem regulating this industry," he said. The comments are made around 10 seconds into the second video below.
Bollard said new Basel III rules were now being introduced, some of which were similar to the Core Funding Ratio (CFR) introduced by the Reserve Bank last year to reduce the vulnerability of New Zealand banks to a freeze on wholesale funding markets similar to the one that occured in late 2008 after the collapse of Lehman Bros and AIG.
"They have plugged vulnerabilities around capital quality and quantity in those big international banks and they're going to make a difference there," Bollard said of the Basel III rules.
"They're done a few things that we don't think are necessary for our system like leverage ratios, and we're waiting to see how much national discretion we're going to have around those," he said.
'A very bad week in a very bad month'
Elsewhere Bollard talked about his experiences during the Global Financial Crisis, which he has detailed in his book 'Crisis: One central bank governor and the Global Financial Collapse"
The book is published by Auckland University Press and was the 6th highest selling non-fiction book in New Zealand last week according to Nielsen data, just ahead of a cookbook, but behind a book by professional public larrikin Mark Ellis. The first print run of 1,800 copies of Crisis sold out and a second print run of 600 has just been ordered.
"We haven't quite got to the Kiwi bloke level, but it's quite hot," he said of the success of the book.
Bollard acknowledged it was unusual for an encumbent central bank governor to write such a candid memoir of such a crucial time.
"If we'd had all the stuff the US put up with, I wouldn't be writing that book, but as it was, we came through it with a mixture of skill and luck and I reckon it's an interesting story. There's technical stuff in this, but there's human stuff as well. It's a crisis. In a crisis stuff happens. It's not all nice. People suffer. Here's a slightly personalised as well as a professional story," he said.
Bollard described the second week of October 2008 as a 'very bad week in a very bad month'. After the collapse of Lehman Brothers and AIG, countries such as Ireland and Britain started introducing deposit guarantee schemes, increasing nervousness in New Zealand's banking system.
He explained how close New Zealand's banking system came to serious disruption and what the government had done to ensure its survival.
'People were getting edgy, taking out cash'
"We didn't have that same sort of investment banking problem in New Zealand or Australia. That's them and we're us," he said of the international context.
"But by that stage we were getting phone calls from banks and from cash companies saying: could we have some more NZ$100 notes please and could you do it pretty quickly? We don't like to hear that at all because that means one thing, which is that people are getting edgy. It wasn't a bank run. We didn't get near that, but we did have to respond with extra supplies," he said.
"We take that very seriously because if you do get in a bank run it's very, very hard to stop. People were getting worried about that and at that stage we started thinking about designing a deposit guarantee scheme. We didn't want to do that. We knew it would be nasty, distortionary, there would be moral hazards, there would be bad incentive structures, there would be gaming, but we thought we had to be prepared. (RBNZ, Treasury and then Finance Minister Michael Cullen)"
Bollard said international events eventually forced the New Zealand authorities to structure and create a deposit guarantee scheme on the weekend of October 10 and 11, 2008. Australian Prime Minister Kevin Rudd announced an Australian scheme over the weekend, forcing New Zealand's hand at the beginning of an election campaign.
"At that stage we didn't have much choice. But unfortunately it was a very difficult time from a parliamentary, political, constitutional point of view because parliament had been dissolved leading up to the election. On the Sunday we were talking about, the Labour party were about to launch their election campaign. This was a very difficult time to do this."
Such a scheme would normally have to be passed through parliament before being enacted, but in this case was put in under the sweeping powers of the Public Finance Act.
Bollard makes the comments around the 4 minute 30 mark in the video above.
'All hands on deck answering 0800 calls'
"This was all tough stuff and we had to in a very short space of time suddenly make this scheme go real, and when Australia let us know at a very late stage they were doing it we thought we had until the end of Sunday to make it work, because we knew it would be very easy for funds to go out of the New Zealand system into the Australian system and it would have happened on Monday morning at 9am," Bollard said.
The Reserve Bank set up an 0800 number on the Sunday night and was ready from early the next morning with many Reserve Bank staffers called in to handle 1,000 calls that came in that day from stressed depositers and bankers.
Asked about the potential for a bank run if New Zealand had not set up a scheme, Bollard said: "We would have been in a very difficult position because money could go out of the large banks into their large Australian parents or into their Australian branches seamlessly. In addition you can only speculate what would have happened to building societies, finance companies and credit unions if people had felt that they' weren't safe"
Should the scheme have included finance companies?
"We couldn't risk not doing it because if we hadn't they would potentially all have fallen over on that Monday morning. We still do have some good finance companies left even thought the business structure of a number of them was very bad."
Costello tells NZ to 'Get real'
Bollard said New Zealand's crisis response may have been more difficult if Australian Treasurer Peter Costello had been successful in pushing through the takeover of New Zealand bank regulation by Australian authorities in 2005. He said Costello's aggressive approach may actually have backfired, bolstering New Zealand opposition to any takeover.
Bollard described in the book how Costello spoke to a New Zealand-Australian leaders forum in Canberra in April 2005 about how New Zealand needed to 'Get real' and acknowledge that it had sold its banking system to Australia and Australia's APRA should now regulate it. Bollard makes the comments about 6 minutes 40 seconds into the video above.
"We were a little surprised at the strength of his attack on that and the rest of the New Zealand contingent were too," Bollard said.
"'He said you've sold the banks. We own the system.' We felt and feel vindicated in that, that NZ neeeded to have its own ability to handle, control and buffer its financial system, even though a lot of that is operated by Australian banks. And we've got more than 20 banks in New Zealand," he said.
"In a way he actually solidified New Zealand feeling about that."
Bollard and the Reserve Bank opposed the Costello push and eventually convinced then Finance Minister Michael Cullen to allow the Reserve Bank to retain control. This included ensuring the Australian banks had local subsidiaries in New Zealand with their own boards and that IT systems were based here rather than in Australia. That forced Westpac to set up a subsidiary here and ANZ to keep its IT systems in New Zealand.
"We were very pleased a few years later that that was in place and we could do stuff," he said, referring to the measures taken by the Reserve Bank to provide extra liquidity to banks in late 2008 and early 2009.
"What we wanted to be able to do was to make liquidity available that required local securitisation of rmbs. Could that have been done if we hadn't had some of those powers? I'm not so sure we could have put liquidity into the system. We certainly wanted to be clear that if things got really bad we could bolster the NZ system even if the Australian system was going in another direction. Now luckily it didn't come to that," he said.
Bollard made these comments around the 10 minute mark in the video above.
'Funding vulnerable'
"We also found, and the banks themselves found, that that their funding was much more vulnerable than we''d thought," he said.
"When those term capital international capital funding markets closed down or nearly closed down around the end of 2008 we all got a surprise then. And that's when we needed to be able to provide liquidity to the New Zealand. We wouldn't have done it for the Australasian system. Would the Australians have done it for New Zealand? Don't know."
Bollard then explained how the Core Funding Ratio (CFR), which ensures the banks have at least 65% of their funding through long term and local sources, had helped the banks reduce their vulnerability.
"That was one lesson we did learn from the crisis. Funding is vulnerable and very short term, and we felt we needed to push it longer term. The CFR does that. The banks actually were headed in that way already. Did we make the difference or did they decide to do it? Hard to say. They've done it. They are further up the core funding ratio than they need to be at the minute," he said.
"We still look at it going a little further but we don't want to stand in the way of credit during the recovery. We've always said we'll watch that very carefully."
Supplementary stabilisation measures?
Asked whether the Reserve Bank was revisiting its examination of supplementary stabilisation measures, Bollard said central banks around the world were looking at other options to keep their banking systems stable and economies sold.
"The world is looking at what the East Asians do, which is being much more focused and quite tough about deciding what classes of people banks can lend to -- loan to value ratios and income servicing ratios -- that's quite intrusive," he said.
"Then you've got a lot of the northern hemisphere saying these capital requirements and capital buffers and potential for countercyclical capital requirements -- could we use those?
"We done a little bit of work on that and it doesn't look that sensitive a tool for us. We think the CFR might be a better tool. We think it could make a difference.
The Reserve Bank and Treasury examined a range of supplementary stabilisation measures in late 2005 and early 2006, including restricting loan to value ratios, ringfencing losses on rental properties, imposing a mortgage interes levy and linking bank capital to cyclical risk, but decided in April 2006 not to proceed.
Too big to fail?
Asked whether New Zealand's big four banks (ANZ, ASB, BNZ and Westpac) were 'Too Big To Fail' he said:
"We don't call them that. We call them 'systemically important', but that's somewhat similar. They're extremely important for the economy. It's ironic. Those big four Australian are relatively more imporant to the NZ economy than they are to the Australian economy because they're a bigger proportion of it."
Some northern hemisphere authorities had struggled with extremely complex and inter-linked banks working across multiple regulatory jurisdictions.
"Ours aren't too complex or too interconnected, but they're certainly big and tremendously important for the NZ system. That's why we have a pretty well honed toolkit of what to do in the event of problems, which we hope we'll never face."\
Deleveraging?
Asked what impact deleveraging was having on the New Zealand and other economies, he said around 3 minutes 40 seconds in to the video above:
"We don't actually know because there's more deleveraging going on than we thought would happen. We're seeing it in the household sector, the farm sector and the business sector and the government sector. It's everything. It does mean there's less money sloshing around the High Street. We're getting good export prices but they're being used to reduce debt," he said.
The Reserve Bank dramatically reduced its growth outlook and forecast interest rate track in the September Monetary Policy statement.
"I think banks are saying, gee we'd like to lend a bit more now. Rather than not returning businesses' phone calls, it's businesses not returning their phone calls at the minute. So we do need to see that turn around. We've alway said we need to see business credit pick up and business investment pickup as well. If it doesn't then growth doesn't recover, but at the minute we're less worried about that."
'Monetary Policy still potent'
Asked if rising debt had dampened the effect of monetary policy through 2002 to 2007 and was now doing the same as debt was unwound, he said:
"On the way up. Yes. On the way down. No. We think Monetary Policy is pretty effective given we never got near that zero lower bound interest rate issue that some other northern hemisphere countries got to. We think moentary policy is effective and the OCR is very effective. There's a margin between funding and lending that wasn't there before, but given that most New Zealand mortages now are either floating or very short term, it's pretty effective."
The Reserve Bank had no complaints about how banks were operating in the market now.
"They want to lend and to get back into business and back into growth. But they're all appropriately cautious about the quality of lending so we have no complaints."
Questions and some answers.
Earlier I asked our readers what they'd like to ask.
Here's a few comments from others in a previous comment stream.
Chris B - Alright Bernard, here's 4 for starters:
(1) How much gold does the Reserve Bank currently hold? What is our policy on growing this strategic reserve over the next few years?
(2) We have a grossly overvalued currency coupled with a broadly deflationary environment and an economy that will contract in the september quarter (earthquake, SCF, snow-storms etc). In these circumstances, why on earth is the reserve bank not issuing NZD in exchange for foreign reserves + gold? This will (a) act to reduce the crippling appreciation of the NZD and (b) provide the nation with a critical fighting fund which is going to be required for the next few years. He has the power - is he just chicken?
(3) Does he belive there is scope to adapt the exisiting Core Capital Ratio to enable periodic rate adjustment, as an additional macroeconomic tool targeting total money supply? Has the reserve bank considered any other tools for directly controlling Bank-issued credit and addressing the explosion of M3 that it totally failed to control last time round? (4) How does he believe the advent of QEII will impact upon the NZD?
Les Rudd These are useful questions.
Re. #3, given banks have proven they can meet the requirements without too much purple, maybe the question could be changed to,
"How, can RB adapt the exisiting Core Capital Ratio to enable periodic rate adjustment, as an additional macroeconomic tool targeting total money supply?"
a) If RB targeted higher than they presently are (say 90%) would he expect the OCR peak to be lower or higher than the current projection associated with 75%? If lower, by how much?
b) What went on here: 'You cannot implement a problem – only a solution'
http://www.infonews.co.nz/news.cfm?l=1&t=0&id=53064
"We have worked with the Reserve Bank to ensure that the speed of implementation has been slowed down on their new “prudential measures” and capital asset ratio requirements of banks. While there has definitely been a tightening on availability of capital, the implementation of these new policies will now be at a far slower pace than originally planned, thus reducing even more stress among the farming community. We argued that speed on implementation was not the solution New Zealand needed."
Perhaps Conor English was referring primarily to this:
https://www.interest.co.nz/news/rbnz-delays-introducing-tougher-capital…
?????????
If RBNZ had been able to implement their plans as they originally intended would he expect the OCR peak to be lower or higher than the current projection for the next tighening phase?
c) If effective asset/land/capital gains tax were to be implemented, would he expect the OCR peak to be lower or higher than the current projection for the next tighening phase?
d) If only one familiy home could be funded with fixed rate loans - all other loans being on floating terms only, would he expect the OCR peak to be lower or higher than the current projection for the next tighening phase?
e) If c) and d) had been implemented prior to the last tightening cycle does he think the OCR peak would have been lower or higher? In addition, would our national private debt be higher or lower?
f) Is it correct that RB can utilise macroprudential approaches as a supplement to monetary policy, without the need to change the present Act?
Cheers, Les.
Christov
Not that I was invited to ask Bolly anything......but I think the obvious first question would be is your position ever performance measured..? if so by whom...and who might be watching their performance....?
Of course you B.H. are not an insensitive dolt such as myself and so perhaps something more along the lines of....
Dr.Bollard which if any of your input to policies has had the greatest positive effect in regards to an Export Led Recovery.......over the last two years...?
Dr Bollard do you see a potential for a return to trade protectionism and if so what effect do you see it having on an Export Led Recovery...?
Dr Bollard in respect to the NZD...where in all honesty do you see it trading as fair value...? Dr Bollard......at what point would you be concerned enough to act on an over-valued NZD/USD....
Dr Bollard ...Do you have an opinion on the under-valued Yuan and the effect it has on the Global Trade position...
Dr. Bollard ...do you have reason to believe we may need to prepare for eventualities that may arise from the Yuan ...not being re-valued...knowing the Americans position on this. I don't expect to see any of these aired but nice to get it off my chest anyway.
Iain Parker
Ask Bollard this;
If the entire money supply at external international level originates as monetised debt with interest attached owed to the private banking system, and the entire money supply at the internal domestic level originates as monetised debt with interest attached owed to the private banking system, given that when a loan is drawn down only the principal enters circulation, where does the money come from to repay both principal and interest?
83 Comments
At what point does your trust in the US$ start to falter, even privately. Do you think a prudent central bank should be converting at least a small portion of its reserve holdings into gold.
When the Federal reserve offers you another USD/NZD currency swap what would your position on this be. What would you do with access to this low interest money.
Your balance sheet is showing a large increase in "marketable securities" how long do you plan to hold these. Has the market value of these securities been tested recently.
What do you see is the role of the reserve bank in buying a range of other securities from small start up banks and finance companies (ref the Chris Laidlaw interviews last Sunday) to assist them to get off the ground.
About 68% or so of the US physical currency is backed by gold. The US has about 13 trillion in M1 stock, and about 8,200 tonnes of gold. About 4.2% of M1 is in notes and coins = 548 billion
Note: 1 tonne = 35,273.9619 ouncesapprox. 373 billion or 68.4%
Well, that is another story ... still better to pretend to have something compared to NZ stock piles of gold at 0.0000001% of currency.
Possibly why we pay a premium on our borrowings.
The US also has, amongst others, "reserve" status (about 63% of global currency reserves held by offshore banks) which gives them several advantageous. e.g. QE
But your right, it's a great ponzi design in more ways than one!
To Rob of the north..is OCR irrelevent....
Yes and No....
No the calculation is just now a bit more complex.....
So previously we had
OCR + bank margin = our retail floating rate...
We now have
OCR + effect of Core funding ratio + (any other tool the RB brings in) + bank margin = our retail floating rate.
Result is the same, so the OCR sets the floor..
Yes the OCR has largely become irrelevent as setting the OCR to control inflation will probably become not only non-effective but actually counter-productive....read up on peak oil and the cost of energy on an economy and GDP....Monetry Policy is a dinosaur IMHO.
regards
To answer Chris B's first question, the RBNZ doesn't have any gold reserves. I'm trying to recall a chart I saw recently and I think the remainder of our gold was sold around 1990. http://goldsurvivalguide.co.nz/how-much-gold-does-the-reserve-bank-of-new-zealand-have/
Noddy's gold reserves are still in the ground...and probably a dam good place to keep it considering what the politicians get up to. Who knows how many tons we have. Could be just 2 billion$ at todays us$ price or 200 billion$. Let's hope Gerry fails to find the golden stash.
Gold? NONE
http://www.rbnzmuseum.govt.nz/learningcentre/Answer.aspx?questionID=1
"How much gold does the Reserve Bank have in its vaults?None. Most of the gold reserves were divested in the 1960s. The last remaining gold was sold in 1990."
Question to the Governor: WHY? it at least it is 'real', unlike US T-Bills
Ask him:
1: Why have you been writing a book when you should have been focused on improving the NZ economy? How much of your tax payer funded time was spent on this book?
2: Usually people in your position write books when they are about to leave or have left...please tell us it's the former.
3: So you sold 1800 copies eh? Didn't realise you had that many friends?
Yes it can according to some.
Well what exactly is the reasoning for having one in the first place. If there wasn't one every bank would have to settle with every other bank somehow, each bank would have to have an account with every other bank. This adds up to a lot of money doing nothing, so they would probably all get together to set up some sort of centralised clearing house and you would end up with a privately owned central bank. The Government steps in and says I'll provide the clearing house for you. Is it to avoid this scenario, but why?
If the Govt steps in to avoid this why stop at a select few banks, why not provide a "reserve" account to everyone, all individuals and companies in the country - just to facilitate the transactions, make it optional, charge for the service even. Under this scenario you would never end up with a TBTF bank. The Government can simply say, well actually we don't need you, life will carry on we have a transaction system that will carry on even if you go under.
There was actually a quite remarkable experiment in 1932 in Austria. The Reserve Bank in the end asserted it's authority and killed it.
"The Wörgl-Miracle"
http://alt-money.tribe.net/thread/70e5eb29-853d-44ca-9faa-b789d1757037
Three Questions
1) What will he do if the Euro sovereign debt problems become a Lehman -style meltdown ?
2) There was a 'failed' NZ Treasury Bill issue about 2 weeks ago ( He might try to defend the failure and say it was not fully subscribed ... but say whatever you like , it failed ) . Does he see the bond market demanding higher yields on New Zealands sovereign debt in the near term , and what mechanism does he have to cope with the market forcing interest rates upwards.
3) The Finance minister wants the public to move from debt driven investment in property to vanilla- type saving in cash and equities . NZ interest rates are simply too low to attract savers to save ( its more efficient to reduce your mortgage or other debt ) When does he plan to give savers a net positive yield after tax and inflation?
Questions to ask Bollard:
1. When is he going to quit?
2. Does he realise that Keynesian economics has failed, or does he still believe in keeping the charade going as long as possible for the benefit of his Australian banking masters?
3. Has he heard of Austrian economics, and what does he think of it ?
4. What are his un-official thoughts on gold (aka real money).?
Following on from my questions above, if doing what I've outlined with fixed/floating rates (ban or part ban on fixed rate loans) is too radical, yet we really would like the benefits, how about the 'Principle Repayment Rate' (PRR) idea? It has the same benefits as banning fixed rate loans, eg. lower i.rate peaks (we all pay less for debt) and we end up with less national private debt.
Why not?
Cheers, Les.
Dr Bollard, in 2003 you cut the OCR by 75bps at a time when over the preceding 18 months, New Zealand house prices had risen 20%PA. Evidently this was a poor decision fueling a property bubble.
In 2008, you made the reverse error, holding the OCR at 8.25% until the economy was certain to enter recession.
What part do you believe that the exclusion of asset prices from the CPI in 1999 (in particuar the exclusion of existing house prices) played in the property bubble 2002-2007 and the subsequent housing market crash in 2008? Was it wrong to replace forward looking existing house price inflation with the rear-view-looking construction costs?
In hindsight do you believe that if you had made different OCR decisions that the property boom of 2002-2007 and the recent recession and prolonged downturn could have been softened or avoided?
If so, why have you not taken responsibility for your poor decisions (and resigned!)?
Bernard, Bollard deserves a absolute bollocking for his incompetence, so cut him no slack and give him plenty of stick! Considering Labour had no idea what they were doing, it was Bollard's responsibility to steer the economic ship - which he didn't just sail into the doldrums but virtually ran aground. Beat a confession out of him, a mea culpa!
I'm not sure if anybody has asked these, or something similar or not, but these are my questions.
1. What other tools would he like the Reserve Bank to have that would facilitate its management of the NZ economy, why those tools and how would they work?
2. With the benefit of hindsight perhaps, what regulatory rules would have been the best for the bank to have that would have prevented the failure of so many of NZ's finance companies? Or are failures of this type simply inevitable, regulations cannot prevent them and the only options are for depositors to be very wary of where they put their money?
Actually, ask him if he understands that energy underwrites all economic activity.
Ask him ih he acknowledges that energy is currently (with no change on the horizon) a physical resource, and that we are at or near the peak rate of extraction.
Ask him how 'economic growth' can be had in a dwindling energy-supply regime.
If he says 'efficiencies' ,or mentions 'discretionary', ask him about diminishing returns on the one hand, and doubling times on the other.
Ask him if they have a Plan B for the powerdown phase.
Powerdown.....I would definitely ask him your first question...because that is a real curly one for him in particular......... in that he like the rest of the Global Monetary Managers is adopting a don't talk about it ever...and let's wait and see who does attitude or once again it's the mortality getting in the way.
If no response to question one(that is cogent) little point in pursuing the rest.
Dr Bollard,
New Zealand is totally dependant on population growth to support our ageing baby boomers and as such one might think that the government would be doing everything in its power to retain our younger people and make it an attractive place for them to buy a house and raise a family - preferably a family with two or more children.
However government policy and bank lending policy continues to favour property investment for those wealthy enough to already own property and in the last 10 years property prices have risen well ahead of wage levels. This provides a massive incentive for younger people to leave the country.
Is the government going to take any drastic action to make owning more than one house completly unfavourable? As I expect this would lower property values and keep New Zealanders here and increase natural population growth.
But by all means, stick to the status quo, you'll all be old, rich and alone. Your children and their families will have migrated to Australia and you'll have only foreign migrants to look after you.
The interview is now up in two bits. The first bit at the top and the second one at the bottom.
I got to ask some of those questions, but not all. Ran out of time.
I'm now going to write up what he said for those who are time poor or bandwidth poor.
He said a few interesting things about banking regulation and what happened during the crisis.
He steered well clear of commenting on monetary policy. He conceded he was worried about the competitive devaluations happening elsewhere, but was confident we didn't need to change our monetary policy tools or capital system just yet.
cheers
Bernard
To what extent was the Reserve Bank complicit in the enormous destruction of NZ wealth from the collapse of the finance companies? To what extent was this due to the OCR being too low - resulting in bank deposit accounts paying a level of interest that was uncompetitive? Why did he not see the danger of the credit bubble in NZ?
Iain Parker
Ask Bollard this;
If the entire money supply at external international level originates as monetised debt with interest attached owed to the private banking system, and the entire money supply at the internal domestic level originates as monetised debt with interest attached owed to the private banking system, given that when a loan is drawn down only the principal enters circulation, where does the money come from to repay both principal and interest?
That is one hell of a question.
Presumably at some point someone has to default on their principle repayment.
Forget worrying about that KiwiDave. It's a rigged system protected by shite govt. You just make sure you move from cash into stuff that is safe from ongoing govt theft by managed inflation. The Kiwi toilet paper falls in value 30% per decade by design. You can be a dork and put your $100 dollar notes into a tin for ten years or use your noggin and buy a fush and chup shop. A little till fiddle here and there is all you need.
The answer is a rabbit.
Let me explain:
Mr Argy, an elderly chap, lends Mr Bargy, a sprightly young fellow, 100 shekels (or, if you prefer, 100 Dactarian credits: or then again 100 cleverly made pieces of coloured paper sporting ancient and enigmatic designs, each signed by the illustrious Mr Sprong in the presence of his 100 disciples), repayable in 12 months time with 7 shekels of interest.
We have Mr Argy with a debit balance of 107 shekels (a debit is an asset or an expense, I think that is still so) and Mr Bargy an equal credit balance of 107 shekels, being a liability to Mr Argy.
It so happens that Mr Argy, though the days of his rabbit catching youth are long since passed, is rather partial to a nice juicy rabbit. Curiously, it so happens that not only is Mr Bargy skilled in the now largely forgotten arts of the rabbit catcher but the going rate for a nice plump young rabbit is 7 shekels (or, depending on your choice of imaginary location, 7 Dactarian credits or 7 of Mr Sprong's most excellent pieces of paper).
One rabbit transaction later we have
Mr Argy with a debit balance of 100 and Mr Bargy with a credit balance of 100. The choice of imaginary units and locations is up to you dear reader, but don't mix them up (otherwise you will have interdimensional cross credits in imaginary locations and units that may be incompatible and irreconsileable - don't say you weren't warned).
Thus, as you see, the answer, in a manner of speaking is in fact a rabbit.
Please ask him this:
Which country's Central Bank has managed its fiscal/financial policies the best in the last 3 years of GFC ? And what can NZ learn from that for use here ?
What is his opinion of the direction the Federal Reserve is taking in US and whether the US dollar is fit to continue as a reserve currency ?
Thanks
Here...hang on a bit Gov...if you know the economists and banking lot are smarter than the regulators...always two steps ahead of the curve so to speak...aint it about time you lot involved the SIS in a game of spook the banks...like time to get tough...information is what you lack...start collecting it on the inside... Stephen Wilce is looking for work!
None of the key questions was answered:
As Dr.Bollard must be working in concert with Treasury and the Governemnet. what plans are in place to be able to repay our Government debt or are we to continue with taking on 25 Mill.$ a week to service obligations and interest on already existing debt?
And to whom are we beholden?
Are there plans to "restructure" our debt, what in plain English means to default on parts of debt?
Chances (necessity) of devaluation of our $?
And so many other questions of the bloggers above are not even in an aside hinted at, we are non the wiser if Dr. Bollard has any fiscal tools to employ to keep our heads over water.
Or can he really see any chance that the existing debt and high currency can be managed without causing great damage to the country?
Roger - it's just the way we do things, have a read through this thought experiment, Matt, Fred and I went through:
Always strikes me as odd that savers want the OCR hiked. (So much tongue, cheek bursting.)
There has to be a better way, ...... and there is, but did you see any evidence of an appropriate mindset in the interview that might even look for a better way?
Cheers, Les.
"where does the money come from to repay both principal and interest"
there is no need to create more money for the interest. Interest just cycles back to the economy as wages profits costs etc. The banks distribute their profits and have costs and unless a shareholder has billions in a mattress, interest has no impact at all.
Rather than money being accumulated by bankers from the interest, what is accumulated is things like land and property, where the property seller has the money now.
If you get a loan you then earn the interest from the sellers of the property bought with loans who now have the money. That interest money then cycles back to the economy for you to earn it again.
And if a bank had been in buisiness for years and then closes down in an orderly manner the bank has zero interest retained - it is all distributed into the economy *from where it came*.
Andrew - there seems to be a slight misunderstanding in your opinion
"no need to create more money for interest" and it just "goes back from where it came".
If this would be a such a simple circle, the worldwide economy would not be in the mess we are in.
Yes, the interest paid goes somewhere back, but the currency is devalued to the same degree.
And the initial loan given by the bank was not money there in their vault, but just a book entry at the bank, what for the debtor means he has to work and pay it back with interest, for the bank it is accounted for as a positive asset.
The whole process is explained in the video link provided, is a bit long, but a painless but hard hitting educational tool. I would recommend it.
http://video.google.de/videoplay?docid=6182802717158469419&hl=de&emb=1#
Gertraud
The video 'Money as debt' distorts the realities. It is true that as a working principle banks create the deposit money or inside money they lend to customers but this only has meaning when you see that inside money creation by bank AAA must involve liability creation if the inside money is spent buying goods from bank AAA's customers ***or*** the bank has to create interbank inside deposits (more liabilities) in favour of other banks ***or**** it is liable to actually find the government money or outside money that leaves the bank as a result of the loan.
A major component of the current crisis is that interbank deposit creation (inside money) where liabilities were created by Bank AAA owed to bank BBB were seen as risk free by the 'lending' bank BBB. But there were other components such as the Eastern creditor nations who reinvested back into the mortgages created by the banks. While at the same time all of this was coupled to the perception that in times of crisis the central banks backed by tax payers would bail out the system, and if the music stopped people could find a chair where they could access sufficient outside money or banknotes.
Money creation by private banks is 'a simple circle'. The part that is not simple is that a private bank can be prudently levered or dangerously levered. The fault likes in regulation rather than in the banking process.
On this thread there seems to me to be many commentators in possession of many financial skills and much knowledge. Are these the very people that could make a difference to our Country if they stepped forward? I can never understand why we just keep using the same people to run the Country. 121 approximately in operation and 121 'in waiting'.Wait a minute though haven't we had the 'in waiting' ones before. How strange is this? you mark my words in time we will vote back in the ones we previously voted out! It seems a mystery that it is not possible for a complete fresh group of people to present themselves together?I can't tell myself how clever Dr Bollard is..not very if you believe commentators on this thread.Can Dr Bolard change a tap washer? Are these people really serious in doing something to benefit NZ residents or are they just proffessional orators playing a game and we are the pawns in the game? It really does appear that this whole global financial thing is a game with the wrong people playing it and with the wrong intentions.We are left with hardly anyone to trust.I wonder where we all go from here? I 'll admit to be far from as clever as many of the commentators on this thread ( no nasty comments please) but I can't help thinking as far as NZ goes somebody had better think of something soon? I am correct are we really just hoping given time things we all come right!
Don't be too hard on Bollard. He was trained in a paradigm which no longer exists, which means he's essentially no more an expert than the next person.
He's probably an honest fellow, probably has a conscience, probably never be seen in a criminal court, but every time he advocates growth, he's actually doing something socially criminal - in that all our offspring will absolutely detest his kind for what they did.
No point denigrating or alienating the man, though. Just the message.
Bernard failed that, I suspect. I'm at the end of 400 metres of thin copper (where's Wally?) which end at an exchange which doesn't even have caller-ID, so I can't see the vid, but I doubt Bernard asked the energy question, and it's the only one that matters.
Just as asking a steward about tomorrow's menu was a waste of time that night on the Titanic.
doh, should have posted it as a Q......Simple Q what would be the effect of a declining crude oil supply combined with increasing demand due to the NZ economy.
Now if we saw the answer to that....that would indicate whether you could teach an old dog new tricks or not.
regards
Like your thread PaulE,would be great if it was as simple as "changing a washer",may well be that simple,but those with the influence make it very complicated,so complicated that only they "understand ".Money for exchange has changed to "finance".Still seems that if you spend more than you can earn you`ll end up in stook,that is unless you deal in currency,then you sell short ,and make millions.Philosophically stuffs me though.
Bernard, where were some tough questions, we wanted to see some poking and squirming going on!
Remarkable how the captain's of ill-fated ships can never answer simple questions like "what went wrong?" Letting them declare what a great job they did is worthless - should we be thanking Bollard, for saving us from an armageddon that he led us to?
Is the dichotomy here between spenders and savers? I am a saver by inclination but I have learned that to succeed in a society of spenders you must also spend, but on assets not parties.
So the classic Labour policy is party now, burn the doors if you are cold, inflate the currency to destroy savings and head economically in the direction of Cuba. To succeed in this environment you must borrow large and buy assets, let the party run and then sell before the party finally burns itself out and the hangover begins. For others the hangover will involve loss of all wealth in a mortgagee sale. This loss of assets will happen to individuals and to collectively owned assets. This is not a very intelligent way to do things.
The classic Conservative way is to head in the direction of Feudalism. Concentrate all wealth in the hands of a few and let them spend it on military adventurism. Economically sound at first but inhumanly unfair, not least on the people on both sides who get hurt.
This is New Zealand and we have a tradition of valueing fairness very highly. We have a welfare state which functions pretty well in the circumstances. If we can encourage saving without getting carried away on offensive mititary hardware (think LAVs - our Dear Leader Helen's toys) we can do well.
The concentration of wealth in the hands of savers is wise, provided it is not too concentrated, as it promotes sensible allocation of capital to productive ends (rather than partying). Letting the government get their hands on it is not a good thing as it is rare to get politicians who can handle the power. (Think Bush, Blair - from opposite ends of the political spectrum but both military adventurers).
Please note I am not against miltary spending. Just against adventurism. Spend it on stuff that defends our interests, an island nation with a small population needs a different military than a country with a large population on a large plain with few natural boundaries.
So besides changing the inflation target to + or - 2% I would probably take away the legal privileges of the unions. They have become a parasitic leftover from a time before the existence of the welfare state. But that only solves the economic dificulties, how to head off the adventurism that will follow?
I’m disappointed too. Considering the fact that the world is on the verge of collapsing (financially at least) – the interview is no more then a “good night story” – Bernhard, please more bite ! (just add 2 tablespoons of ……. to your coffee and it makes you courageous.)
Politicians and other civil servants need to be asked really hard and tough questions.
In the media often they say: Oh - I can answer that question in about 2 weeks time. But none of the journalists ask the same question again 2-3 weeks later - happened again and again in parliament, Q&A, etc.
Since we are on the subject, another question for another time would be
"What effect did changing the Reserve Bank inflation target from 0-2% to 1-3% have in stoking the fires of the credit bubble and house price boom in New Zealand."
To my mind that was a key bad decision. It flashed yellow lights to me to borrow more. What followed was a great big party in which we burned our wealth and thought we were clever.
I borrowed and bought a beautiful old house which I enjoyed, essentially free of charge (the rise in value covered the interest) for several years until the clouds of the coming collapse grew thick.
This is no way to run things though.
Bernard....I suppose a thank you is in order for at least asking a veiled version of a couple of my questions for the good Doctor to which I was left no clearer than if he had not answered at all.
Here are some observations I have made as to the importance of technique when in a cross examination style interview..........When you conducted the second interview about the book you appeared more comfortable /relaxed I would suggest because of the confines of the subject matter .
By sharp contrast in the first interview Q+A time your demeanor was less certain and at times almost apologetic and embarrassed for having asked the question...see 2 min 30 the question of "Too Big to Fail" as an example....you allowed him to escape completely unchallenged with a cheap line that is no doubt humorous at the R.B.N.Z but does little to make me smile let alone answer the question.
I am sure you will evaluate your own performance and draw conclusions that will improve your resolve to .......ask questions with the authority of an affected party on behalf of many many people who support you in doing so..........
I have no real desire to see "Bolly" disrespected by his interviewer..... but equally the questions should be treated with respect and pursued if unsatisfactory or flippant.
I understand that people of his standing availing themselves to you is important and must be treated with some sensitivity for future opportunities......but..in your line of business there is little room to let such opportunities pass without ...some....genuine....revelation...........and on that I was left feeling flat and none the wiser.
I think you do a great job there Bernard and in this area you can only get better...Cheers
Bollard: "we had to act very quickly to set up a GGS because Australia was about to do so and we din't want NZ banks to lose their funding to Australia'"
WTF is he talking about? NZ's BIGGEST banks ARE Australian so the GGS was pointless!
New Zealand 100% owned banks : kiwi bank (technically ), TSB, ? rest are Building Societies and NOT "banks"
Bollard: "we also saw the risk to many of NZ finance companies"
NO YOU DIDNT! that's why 90% went bung! The only one you have saved was so corrupted by POST GGS investors who couldn't lose that the whole thing has become a farce!
Bollard, your either an absolute moron OR you think WE are!
Bollard has a lot to answer for and quite frankly should of had his ass fired 5 years ago!
Just weak Bernard!, This MAN helped screw this country by following the Greenspan/ US FED Plan to the letter by leaving the OCR from 2001-2007 way too low while watching his debt bubble grow and not putting a stop to it with DECENT hikes in the OCR. Where's the "growth" Bollard and ALL those Labour Party tossers talked about now?
THERE WAS NO GROWTH! ONLY MORE DEBT and this guy thinks HE saved us from the brink? Ha LOL, unbelievable
Time for a RB governor who can think for themsleves without the mindless economic drones and lobbyist input from within & government interference from all corners
WE as a country have not escape "austerity" due to banking & government corruption. Why do you think many taxes/levies/and excise taxes are going up?
They (NZ government) just don't have the balls to call it what it is! "A transfer of wealth to those that commited fraud on all levels FROM those that were so stupid and drunk on debt that they didn't even realize they were being played like mugs.
The only way out of this is:
Because Bollard and his ilk have allowed so much "perceived" capital/wealth to be tied up in "property bubbles" that for one to retrieve some of it WE MUST TAX the f..k out of property from here on out. BUT....we must be VERY selective about it and here is how:
1: Capital Gains tax and land tax on all second+ properties owners excluding commercial . Shame we can't back date such a tax.... or can we? ;-)
2: NO 'super' for anyone owning more than one property as more than likely they lived off capital gains and payed bugger all actual tax in the past decade anyway
3: Make all commercial property owners pay FULL market price for using utilities (water/power) so they pay the SAME as the general public for those facilities. Yes they will pass those costs on, hence INFLATION which unfortunately is inevitable due to the property ponzi scheme. Is not a property ponzi scheme a form of 'inflation' anyway? ie, chickens come home to roost for us all.
Bollard's Brain: lending = growth
For banks YES, for everyone else it is NOT growth but Debt.
Banks are evil: Back in the Middle Ages anyone loaning money with interest needing to be paid was considered a criminal and normally hung or burned. How times have changed. When you borrow from anyone you become their 'asset & slave.' You get out of bed for them until that debt is repaid in full +interest. Avoid this at all costs, Live a life of what i call "poor freedom"
Yes, if people did not borrow from banks then i would not earn 'interest' myself BUT...........are you really earning anything greater than the "inflation' rate? (after fees/WHT etc) The answer is NO, because all that 'borrowing' others are doing actually helps push up the cost of living and the CPI. They borrow, make a capital gain, think they are then richer and then spend. That increase in demand pushes prices up(sometimes down depending on the object, ie ipad vs a head of broccolli). When prices increase you must either borrow more or earn more to compensate,. Wage growth is very inflationary, funny how the public sector have wages tied to inflation but very few of us in the private sector have that privillage particularly as individuals on individual contracts
"They want to lend and to get back into business and back into growth. But they're all appropriately cautious about the quality of lending so we have no complaints." AB
Rubbish..........here is the accurate comment Bollard did not make:
"They want to create credit and get back into blowing the property bubble and fat profits. But they're all being being held back by the CFR to a small extent and by the fear of the property ponzi bubble in Noddy deflating for a decade. As well their bosses across the Tasman are shit scared that the gargantuan bubble of property madness in Aust, is coming to an abrupt end...... as for the banks accepting a need to return NZ to real growth...well to them that is just a laugh....there has been no change in the underlying attitude of greed at the banks....given the first opportunity they will return to the same destructive behaviour that Clark and Cullen thought was just so great.
For goodness sake Iain...get with the real world...you are not going to change the munny system in a million years away from what you now have....the best that can be done is to regulate the banks and punnish the criminals in the system.
The simple truth is we will always be suffering from stupid politicians and foolish voters, thieving bankers and idiot investors. You can go on for the rest of your life wasting your time raging at the moon ...or start booting the right bums in wgtn.
Bollard seems to think the bank bosses have learned not to act in stupid ways, not to fund another property splurging madness in a greedy grab for profits...he is very very wrong. That is the real problem. Bollard lacks the govt support and personal will to smash the banks with a regulatory regime that forces investment away from residential property and rural land speculation. The current market turmoil is considered by the bank bosses to be a minor setback.
They will return to their past greedy behaviour. Nothing is more certain.
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