Alan Bollard is slowly turning Japanese

Opinion: Bernard Hickey reckons lower rates for even longer and longer show Alan Bollard and the NZ economy are ever so slowly turning Japanese. Your view?

27th Oct 11, 9:21am by Bernard Hickey

By Bernard Hickey

Alan Bollard doesn’t seem very Japanese at all.

For a start he is very tall and says exactly what he means. He also likes to quote African proverbs when he’s feeling a little cheeky during news conferences. These are not the sort of things Japanese central bankers do or say.

Unlike Japanese central bankers, Bollard is reluctant to intervene in exchange rate markets and his monetary policy statements and news conferences are a lesson in transparency and usefulness.

I’ve never seen him refuse to answer a question.

There is nothing inscrutable or opaque about Alan Bollard or the Reserve Bank of New Zealand or the New Zealand economy.

Yet, ever so slowly, he, and we, are turning Japanese.

Bollard’s decision to leave the Official Cash Rate on hold at 2.5% and signal they’ll remain there for some time wasn’t surprising in itself. See our full news article here.

Earlier this week after softer than expected inflation figures and weak business confidence, most economists pushed their forecasts for the next Official Cash Rate out to June 2012 from March 2012.

It seems as if every time a new piece of data comes or through a new crisis summit happens in Europe or the United States, the date for the long-forecast OCR hike seems to get delayed.

Back in April 2009 when the OCR was cut to 2.5%, no one would have thought that almost two years into an economic recovery it would still be there.

It was raised to 3% mid-way through 2010, but quickly slammed back down to 2.5% on March 10 after the Christchurch earthquake. This was supposed to be an emergency cut that was quickly removed.

Yet seven months later it is still there and is now expected to stay there for almost another year longer.

At this rate the OCR will have been at or near 2.5% for more than 3 years.

This is the sort of thing that happened to Japan’s economy time and again through the 1990s and 2000s.

At least twice the Bank of Japan tried to lift its rates from rock bottom levels to somewhere near normal. Every time the rate hike kicked its indebted economy in the guts, forcing the rates to be put back down.

Japan’s property market boomed during the late 1980s and then bust spectacularly going into the early 1990s. Its official interest rate was slashed to 0% and has been stuck there for virtually two decades. Nominal Japanese GDP is still below where it was in the early 1990s.

Large parts of Japan’s economy staggered on in a zombie-like state. Banks hoarded deposits, repaired their balance sheets and did little lending. Consumers sat on their wallets, put money in the bank and embarked on a multi-decade attempt to save their way to prosperity.

Sound familiar?

We’re not at the Japanese type situation yet, but we’re slowly turning that way, as are many of the developed world economies.

Banks in Europe and the United States are also staggering along like zombies. Unemployment rates are rising. Consumers and companies, particularly the richer ones, are hoarding cash and battening down the hatches.

That’s why the Reserve Bank was suitably cautious in its obviously dovish statement today.

Inflation is cooling to the middle of its target band. The cooling global economic outlook is pressing down on commodity prices.

Bollard said he would only increase interest rates gradually if the global economy didn’t slow down our economy.

Get ready for lower interest rates for longer, and longer, and longer and longer…

We should start preparing ourselves for Japanese rather than African proverbs at the next Reserve Bank press conference.

Slowly, but surely, Alan Bollard and the New Zealand economy are turning Japanese.

Official cash rates

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Source: RBNZ

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67 Comments

by Roelof | 27th Oct 11, 9:59am 1319662771

Yeah.... Heading towards the liquidity trap... The end game of Central bankers version of Keynesianism.... We seem to be only one cycle behind USA in this regard... ( at some point the ocr could well be less than 1% )

The irony is that it doesn't work... It entrenches systemic and structural imbalances.

It encourages malinvestment and causes investors to chase marginal returns, and results in the mispricing of risk.

Rather than encouraging saving it does the opposite... ( They will have to make savings compulsory )

The other thing I'd say is that a fixation on the CPI is kind of meaningless unless it is taken within the context of wages and salaries.

The principles of exponential growth come into play... If CPI averages 3% for the last 30yrs and average income growth average 2% over the last 30 yrs... over a period of time there is a huge GAP between real incomes of 30 yrs ago and now.

Don't u think the CPI should be linked to Wage growth rates..???? ( to better understand the underlying reality )

Don't u think some kind of "standard of living " index would be more meaningful..??

by steven | 27th Oct 11, 10:11am 1319663476

Not Keynesianism....

This is mess is the logical result of laissez faire / Rand policies aka Greespan....he is not a Keynesain in any shape or form. He describes himself as a Libertarian/Republican...and I think even that's "show" .....

Keynes describes what a liquidity trap is, the perverse impatcs/results, and how to get out of a liquidity trap once in it, or how to avoid it going into it.

Around the globe we seem hell bent on doing the opposite to Keynes answer to a liquidity trap, go for austerity....he and PK show that will result in a [mega] depression.....

regards

by skudiv | 27th Oct 11, 11:12am 1319667168

I'm pretty sure Keynes theories live and die with that fact that governments print their own money. I don't know of a single developed country that prints it's own money, therefore keynes theories become irrelevent, and dangerous.

by steven | 27th Oct 11, 12:29pm 1319671774

You dont understand Keynes I think, hence why you dont understand the liquidity trap problem and it looks like you are doomed to clap your hands at austerity measures (or doing nothing) which will drive us into a depression. Hence why JK will sit there and "react" so its do nothing if he possibly can.....

NB QEing is printing in all but name, the US and UK Govn's for two are doing so.....

Beyond that I strongly suspect Peak oil makes Keynes work impossible....ceertianly to the extend PK for instance thinks could be done.....

Never mind we get to participate in the world's greatest depression, implimented by ourselves on ourselves.....

regards

by skudiv | 27th Oct 11, 4:03pm 1319684602

You don't understand QE or where money comes from I think. The Reverve bank of England, and The Federal Reserve are not government owned operations, they are OLD MONEY institutions, privatly operated and owned. The money is not free. Keynes theory of burying money in an old abandond mine, and then leasing the mine out to entreprenuers so they can dig up the mine and recover the money, is only realistic if the money has no value to the govt. The govt has to pay the money back to the fed or the RBOE plus interest. That is how money works and why I will say again, I know of no govt in the developed world that prints it's own money. In the USA they have Federal Reserve Notes, we call them USD.

by skudiv | 27th Oct 11, 5:08pm 1319688487

"If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing." (p. 129)

by Nic the NZer | 27th Oct 11, 8:14pm 1319699647

This is obviously an analogy, but it's a good one. Keynes is showing that unemployment could be eliminated if that is what the government wanted to do, because it can create money to pay for work. There would of course be some economic consequences to this, but it is a counter to anybody claiming that governments can't create jobs.

by skudiv | 28th Oct 11, 4:00am 1319727617

Governements can't create money, they have to borrow it from the old money banking cartel of the Fed or the RBoE etc. NZ has a reserve bank, govt owned, yet in the past 90 years we haven't borrowed a cent from it. Why is that? That is exactly what a democratic governement working in the best interests of the people would do, why borrow from overseas investors when you own your own bank? 4.5 billion in interest, of taxpayer money, that has been spen on buying groceries, going to private institutions.

by Nic the NZer | 28th Oct 11, 4:19am 1319728780

Didn't the government create money this way to pay for the original state housing program? There is certainly no reason why they can't.

by LloydM1 | 28th Oct 11, 6:31am 1319736674

Yes they certainly did

http://digitalwarfare.co.nz/index.php?option=com_content&view=article&id=49:michael-joseph-savage-explains-how-public-credit-was-used-to-build-33766-state-houses&catid=37:articles-nz&Itemid=56

The reason why this has not been done since, gets raised continually, and it is something that Bernard should ask, and I would like to know if he has a clue on this or an opinion. It is as important to NZ as the FED question is to America, and you don't see the MSM talk about that either, nor the BoE, why might that be?

If I had to speculate, I would say that the answer lies in some arbitrary treaty NZ may have been signed into, and/or hidden inside some piece of legislative policy never read or seen in the light of day. Why can't this question be answered, because I know of no reason other than "The RBNZ is foreign owned" !

http://www.rbnz.govt.nz/about/whoweare/0131419.html - Why is that shield red (Rot Schild)

by skudiv | 27th Oct 11, 8:05pm 1319699101

Please refreain from putting words in my mouth, and presuming what I think, you have NFI what am saying. The current economic system, and all Industrial age systems are full of landmines, recessions, depressions, inflation, deflation, boom, bust, debt, interest, liquidity traps, debt interest death spirals, bankruptcies, debt slaves. This is total BS non of these are the product of hard work and a days wages for a days labour. They are monetary problems, not problems of the real economy. All I can use is the current debt based monetary system, it rules my life. WTF life is meant for living! Governments and central banks can destroy my wealth, enslave my children with debt, all with the click of a button and a few words. That is total BS.

Money should be simply a medium of exchange, a way of trading labour for labour, and good s for goods. That is how it worked before bank and government manipulation, trying to fix the mistakes of past manipulation, or even worse as a means of transfering the wealth (defined as labour already done) from the working class to the money holding class. That is a BS way to live. Call it what you like, I call it BS.

by LloydM1 | 28th Oct 11, 6:59am 1319738369

Skudiv, you will not find the answers to your conundrum on this site, as you see there are people who discuss theories and ideologies which are in no way capable of being applied into the horrendous mess that now masquerades for the Global Economy. You simply can't apply academic theory to fix what we now have, but the majority of folk on this blog feel that they can, or at least it seems to be the situation.

Unconventional situations require unconventional solutions - I use the word unconventional, because the financial world and the economies which are blowing up have been designed to do so, this is what we see in front of our eyes, and the more the financial world blows up, the more the wars expand, and the closer large parts of the world move towards desperate violence and a police state.

More than happy to be wrong, but I sadly I see no evidence that will be the case, just take a look around the world, and read some good historians!

by skudiv | 28th Oct 11, 8:24am 1319743468

Cheers mate, I enjoyed reading that.

by LloydM1 | 28th Oct 11, 6:05am 1319735102

Steven when you say implemented by ourselves on ourselves, can you elaborate that?

I would say that the coming depression has been totally manufactured by criminals, with help of crominal governments & the ignorant, sometimes greedy, but mostly desperate public being soled into and sucked into their own bondage....

by Colin | 27th Oct 11, 11:42am 1319668964

Laissez Faire

‘the theory or system of government that upholds the autonomous character of the economic order, believing that government should intervene as little as possible in the direction of economic affairs’.

The system is awash with rules and regulation.

Steven you are right insofar that the mess was created by Greenspan the policies of whom have been continued by Bernanke. Contray to what Greenspan proclaimed he was light years away from Laissez Faire economics as is the current financial and economic system.

Greenspan and the current Fed have been hugely interventionist the Fed has whenever possible pursued inflationist policies recklessly holding the interest rates in negative territory for years to force the markets and individuals towards risky assets. They sort to inflate assets (bubbles) to try and generate economic activity to cover the debt from the previous binge. The markets have indulged in massive speculative behavior ultra low interest rate eventually leading to most of the western world becoming involved mass speculation in housing. They all but wrecked the core of the credit system.

Current Central Banks are now trapped desperate to continue down the same path they are terrified of the debt mountain they created however the psychology of most consumers has turned their appetite for debt gone as we move closer and closer to a deflationary spiral.

by steven | 27th Oct 11, 12:44pm 1319672673

Its relative....if we go back to the GD we had regs put in place to ensure this would never happen again....these were removed.....so we have less of the critically important regs and whats left has not been enforced....in effect Laissez faire.......Its not the number of regs its what they do and if they are even used.

There is a

Former Bank Regulator Bill Black

(not sure if taht will work as a link) gentleman that is worth the watch/read. Youtube has enough clips to watch.....

if not, http://www.youtube.com/watch?v=I4cJv-D7JPo

"Greenspan and the current Fed have been hugely interventionist", oh I totally agree...On Greenspan.....but his actions are the result of him refusing to see that his Rand/laisez faire policies / direction were doing the damage......If you look at the UK labour parties antics in the 1970s we see the same thing with pseudo-keynesian policies.

The problem is they both knew the political answer they wanted but not if it was actually possible so they took a tool that lloked fairly close and used it as it was not intended to try and get there, and they failed.

"The markets have indulged in massive speculative behavior ultra low interest rate eventually leading to most of the western world becoming involved mass speculation in housing. They all but wrecked the core of the credit system."

by your own words this has been allowed to happen, therefore its in-sufficient regualtion/policy, in effect laissze faire.....

"Current Central Banks are now trapped desperate to continue down the same path they are terrified of the debt mountain they created however the psychology of most consumers has turned their appetite for debt gone as we move closer and closer to a deflationary spiral. "

Totally agree, and its ironic that after rejecting Keynes for 30 years the neo-cons / neo-classical economists have half-heartedly attempted a Keynesian solution the the liquidity trap problem.....however its too little too late....and Peak oil will guarantee it will fail.

regards

by Colin | 27th Oct 11, 1:57pm 1319677063

Stephen all that was needed was for the Fed to recognise that the party was getting out of hand and to raise interest rates and not by .25% at a time over 13 months but in 1% bites the debt binge and speculation would have ended. The Fed has a strong inflationary bias they are terrified of deflation (then debt bills then have to be paid) watch Bernanke over come months as soon as US inflation starts dropping or gets very low more madness will emerge eventually confidenance in the Fed will collapse.

Cheers

by Nic the NZer | 27th Oct 11, 8:44pm 1319701470

Yes, because we all remember how mortgage lending was completely stopped in NZ when interest rates reached 15%. Oh wait, that didn't work.

by Anarkist | 27th Oct 11, 2:34pm 1319679250

"Greenspan and the current Fed have been hugely interventionist the Fed has whenever possible pursued inflationist policies recklessly holding the interest rates in negative territory for years to force the markets and individuals towards risky assets."

Actually no he wasn't at all interventionist. The world banking system has an array of self-regulating mechanisms of its own, and the powers of Central Bankers to influence the financial markets are in my view, overstated.

In reality the low interest rates that prevailed in the 1990s, were due largely to the structural imbalances in the world economy, due mainly to the hopes of U.S. policy makers and corporate leaders that they could get a free lunch from offshoring or automating the vast majority of industrial productive capacity to low cost, immature economies in East Asia, beginning in the 1970s, effectively transforming their own countries, into what they optimistically called, post-industrial societies. Unfortunately due to the structure of the post-1970s "free-market" reforms, there was inadequate effective demand in either the East nor West, to consume the production of these new industrial centres. This created in effect an oversupply of both production and capital, leading to falling rates of profit and low rates of interest, which drove the need to encourage the unwise offering of cheap finance to individuals without the means to repay their debts that occured in the 2000s.

"The most aggressive experiment in monetary policy ever conducted is now under way. Japan is printing yen in order to buy dollars in such extraordinary amounts that global interest rates are being held at much lower levels than would have prevailed otherwise."

http://blog.mises.org/archives/001544.asp

"The background for this policy action is one that I've explained to regular readers of this blog repeatedly. Namely, that China's irrational decision to keep the yuan grossly undervalued requires it to amass such enormous amounts of foreign exchange reserves that creates massive excess liquidity."

http://stefanmikarlsson.blogspot.com/2007/04/china-worlds-largest-foreign-aid-donor.html

In fact Alan Greenspan showed remarkable restraint. He definately took a hands off approach to managing the Financial Markets.

A typical restraint on compensation increases has been evident for a few years now and appears to be mainly the consequence of greater worker insecurity. In 1991, at the bottom of the recession, a survey of workers at large firms by International Survey Research Corporation indicated that 25 percent feared being laid off. In 1996, despite the sharply lower unemployment rate and the tighter labor market, the same survey organization found that 46 percent were fearful of a job layoff.

http://www.bis.org/review/r970305b.pdf

by Colin | 27th Oct 11, 2:52pm 1319680363

Well you know the markets have a saying don't fight the Fed and most would say for good reason

by Anarkist | 27th Oct 11, 6:23pm 1319693025

They may do so, but that doesn't necessarily make it so.

Maybe this was something that made sense at some time (wouldn’t it be nice if it were that easy?), but the truism simply isn’t true.

http://seekingalpha.com/article/45012-dont-fight-the-fed-why-not

by Bernard Hickey | 27th Oct 11, 10:58am 1319666285

Roelof

Excellent points on the liquidity trap. I also think there's a risk of a Japanese style balance sheet recession.

Not sure I know the answer.

But plenty of room for the RBNZ to cut further if needed.

Another 2.5%.

Just watch central Auckland house prices rise when that happens...

cheers

Bernard

by hamrod | 27th Oct 11, 11:21am 1319667717

What is the way out of a liquidity trap? I would guess money printing and government spending. The US seems to be trying a version of this but all the money they print goes straight to the banks (as a number of their banks are required to accept it). As people already have as much debt as they can manage and more, there is no demand for loans, it thus it goes straight into the share market and commodity markets looking for a return.

In our case does it make sense for the NZ government to print money and with it undertake large scale public works, increase spending on education and health etc in an attempt to spread that money as far and wide as possible and ease the value of our dollar and devalue our debt?

by steven | 27th Oct 11, 12:57pm 1319673457

Yes and no....The problem is with inflation is that its an expectation of a long run event....so the last thing you do is increase spending that is for ever, this includes tax cuts...so spending more on education and health operational stuff isnt the solution, its actually bad. You dont do tax cuts either, you hand the voter a one off tax refund cheque, this stimulates once. OZ for instance with its first time house buyer subsidy is a great example of such a thing that worked.

Spending on infrastructure that a) reduces future costs and b) is a one off, is the best bang for the buck as a stimulus as it doesnt feed into long term inflation expectations.

However and this is the kicker....this isnt a V or U shaped recession this is an L shapped one due to peak oil....so sadly large one off projects spending is probably counter-productive unless its green tech say....

So no its doenst make sense to print

regards

by Nic the NZer | 27th Oct 11, 12:10pm 1319670652

I think that the way out is basically along the lines of the post great depression policy (for the US), but other countries should do similar things of a smaller scale. I also think the 100% money plan is a pretty good idea, even better than a Glass-Stegal equivalent would be.

This would be obvious if, in a reversal of history, we repeat the last post war settlement and form a new nation for all the believers in neo-classical economics. Once they have their own nation (where they can set their own economic policy) it should be fairly obvious to everyone else what we have in common and want to do.

by steven | 27th Oct 11, 1:03pm 1319673794

"fairly obvious to everyone else" most of the developed world is neo-classical so Im afraid not. So since say I (we?) am not....its incumbant on me/us to "form a new nation"....aka my discusions with tribeless and suggesting he leaves NZ on a plane and does that as he is the minority...

Sadly for him and me I guess we dont have ftl (faster than light travel) so there are not empty planets we can take.

regards

by Nic the NZer | 27th Oct 11, 8:26pm 1319700401

I hope you are wrong about this, I still believe its mostly the effect of propaganda, still I would send even people like Paul Krugman if he holds onto any of his neo-classical equilibrium fairy stories. Most significant progress made by deomcratic governments was done by following the mandate of people. Macro economic progress is the same here.

by skudiv | 27th Oct 11, 11:54am 1319669644

I totally agree the CPI should be linked to wage growth. It's just a tottaly irrelevant figure without interpretation just assumptions by the masses. A more meaningful name for the CPI would be "currency debasement - quality of life debasement". Japan is an excellent example of how meaningless it is.

Also look at GDP, still below its peak in Japan, in NZ we are hoping like hell it will grow because we will be stuffed without it. Take the destruction in Chch, this will boost GDP, yet it is very bad for the economy. To prove this imagine an earthquake in Auckland and Wellington as well, apparently GDP will grow because of these events, yet they will be massively bad for the economy. More relevent figures may also include a debt per capita ratio, my household owes $750,000 according to this ratio, another ratio would be debt growth minus gdp growth, or interest per capita, there are more.

It doesn't help that some people I talk to don't even know where money comes from, and think it probably still is backed with gold.

by John Kelly | 27th Oct 11, 3:11pm 1319681479

Always thought exponential and compounding were pretty much the same thing.

by Roelof | 27th Oct 11, 3:28pm 1319682503

mist42nz....

I thought compound growth was an exponential function..???? ( I'm not that knowledgeable about this )

1% over time may not be significant.... BUT it is death by a thousand cuts when it comes to standard of living.

I don't really accept the CPI ...as telling the true story.

I look at nontradables... at housing .... etc.

For me it is summed up by looking at Money supply growth.

In 1988 m3 was $38 billion... In 2011 it is $191 billion.. (eyeballing that...maybe 7% compound growth) ( It is interesting that 6% is also approx. growth rate in housing values..??? )

6 or 7% ..... I'm noticing this in my own generation

cheers Roelof

by skudiv | 27th Oct 11, 4:46pm 1319687195

Any and all growth is exponential growth. even 0.1% growth, means doubling every 700 years. This is the defenitive explanation of the exponential function, and how it realates to population, oil, money. Great stuff

http://www.youtube.com/watch?v=F-QA2rkpBSY

by skudiv | 27th Oct 11, 4:38pm 1319686733

1% growth doubles every 70 years. The doubling time is simply put the % dvided by 70.

by Basel Brush III | 27th Oct 11, 9:54am 1319662456

Ah so.

No hope for a realistic exchange rate then. And our assets will continue to fall to external buyers.

More debt or more dividends floating off to the overseas owners.

Don't panic Mr Mainwaring.

by Roelof | 27th Oct 11, 10:02am 1319662946

not just dividends.... but maybe also "savings".

http://www.infochoice.com.au/banking/savings-account/term-deposit-interest-rates.aspx

by Wolly | 27th Oct 11, 11:13am 1319667199

Quite right Roelof...time to move the remaining savings into an account across the ditch...remember to stay below the govt guarantee level in each bank...no such cover over here.

by steven | 27th Oct 11, 9:57am 1319662643

Yep.....and not just NZ as we can see.....Japan was lucky though, it has been able to survive purely based on its very high domesitc savings, it has had to borrow little from overseas. This though is set to change as the japanese "hosuewives" who have done the saving withdraw to live on in their old age......So japan will be doing like the US and the rest of us, borrowing more and more overseas...the Q is off whom.....and except of course they are hugely indebted already.

This of course is the best case scenario.....the entire world staggers along like a zombie, oil starved and weighed down by debt we cant pay off. Im scratching my head just how that is achieved.....I just see the logical and highly probable outcome to be a collapse into 20~30 year depression....

regards

by David B | 27th Oct 11, 10:02am 1319662931

2.5% OCR for NZ. It's the new normal.

I don't think New Zealand will be like Japan. Japan has some unique features that New Zealand does not have that contribute to Japan's problems such as excessive saving by the Japanese people and an aging declining population.

by steven | 27th Oct 11, 10:15am 1319663712

So if we are not like Japan the other option is worse.....depression/recession......

Excessive saving has arguably saved Japan from worse, its allowed successive Japanese govns to borrow internally at virtually no cost....

not sure what you mean by an "aging declining population" ie the context.....NZ's is going there, Japan is just sooner....

regards

by skudiv | 27th Oct 11, 11:15am 1319667320

Not to mention, consistent trade surplus.

by Roelof | 27th Oct 11, 10:15am 1319663710

USA said they would never repeat the mistakes that Japan made...

In the end thou, they are kind of compelled too.... because they want to maintain the "status quo".... because they are reactive to unfolding events.

They become drivers of the "bus" that we are in .... and as John Key said in one of Bernards videos'.... Govts' simply REACT to events... and thats' it...

by steven | 27th Oct 11, 12:13pm 1319670832

yes, in fact Ive seen a few comments that say despite the US critisising Japan its laughable that now the US is in the same position they are actually looking even weaker and doing worse. It may well be that in hindsight (50 years from now) it will be considered that Japan did remarkably well and the US policy is/was a disaster.

Govt's react, I think this is a choice to an extent....if you put yourself in way of harm and stand on a railway track and then try to get out of it when you see the train coming, OK.....a wiser man wouldnt stand on the railroad track (for long) IMHO.....however thats a long term issue that is more appropriately aimed at Labour for doing so little for 9 years....JK hasnt got much space to move now......

regards

by Nicholas Arrand | 27th Oct 11, 10:30am 1319664605

So, if savings; today’s income stored for tomorrow’s use, are ‘expensive’ ( the cost of keeping them at 2.5%, or lower, is a penalty versus the cost of today’s goods, rising) and debt; tomorrow’s income spent today and saving’s mirror, are cheap, then the real question is - why? The answer must only be one of either, (1) savings are going to get even more expensive (rates will fall further) or (2) whatever the intended use of today’s debt is, is not worth the risk, even at low interest rates, of buying at today’s prices. So we are either going to get – lower interest rates or lower asset prices…In my view,…both!

by iconoclast | 27th Oct 11, 10:50am 1319665812

Bernard Hickey says "I’ve never seen Alan Bollard refuse to answer a question"

Really. Go back and have a look at that taped interview of yours. Unless evasion is not a refusal.

by Stephen Hulme | 27th Oct 11, 11:21am 1319667686

Clearly it is a case that the government and the RBNZ have helped out only thieves and fraudsters and are continuing to do so, but few people have any remedies .

I think that more damage has been done to the 'Price Discovery' brand than either financial houses or governments care to accept. - Financial markets as they are currently structured are not a place where money really exists and industry funding occurs.

Witness NZX's demise - the banks will follow if we allow the likes of Bollard etc to persue this craven self-serving charade.

Interest rates at present levels serve only to facilitate the transfer of wealth from those least equipped to cope. Thus the over priced Trade Me IPO will emulate the disastrous Feltex and Allied Farmers issues.

by steven | 27th Oct 11, 2:53pm 1319680429

I dont think its fair to blame Bollard myself, our succesive Govn's yes....

regards

by Kate | 27th Oct 11, 4:02pm 1319684522

Financial markets as they are currently structured are not a place where money really exists and industry funding occurs.

How true.

And when 'price discovery' cannot be relied upon, Hayekian theory falls apart.

by Roelof | 27th Oct 11, 10:56pm 1319709413

yes...

"Interest rates at present levels serve only to facilitate the transfer of wealth from those least equipped to cope."

Totally agree with this..!!! " " "

by Ms de Meanour | 27th Oct 11, 11:21am 1319667710

Bernard, I've read this and your previous remarks about the RBNZ very carefully and I am afraid I still do not understand what it is that you think the RBNZ should do and what effect you think that action would have in addressing the problems you identify.

Could you perhaps go back a step and explain it more clearly?

by steven | 27th Oct 11, 2:57pm 1319680645

I dont think its up to Bollard, he's more like the ambulance man at the bottom of the cliff shouting up and warning the Govn and us of the cliff edge......he's been doing it for ten years and the Govn of the day has ignored him (largely), IMHO.

The fact we havnt fallen off I think is due to him and luck more than anything else........luck runs out however.....

regards

by Bernard Hickey | 29th Oct 11, 12:15pm 1319843734

Ms de Meanour

The RBNZ is working to its Act and the Policy Targets Agreement. It's also responding to things it can't influence, including government spending/taxation policy and the global economy.

I think we need to review the Act and give the RBNZ some friends (ie running budget surpluses and saving more).

Somehow we need to have a lower real exchange rate and encourage production, saving, investment and exports rather than the spending, borrowing, importing and selling of assets we've been doing for the last decade or so.

cheers

Bernard

by skudiv | 27th Oct 11, 11:43am 1319669035

Japan Govt debt/GDP 200%, be nice to turn japanese. Honestly what are the monetary dynamics involved in a deleveraging economy? Paying off debt reduces the amount of money in circulation, leading either to increased government spending to keep the money supply constant/growing/shrinking less rapidly, or deflation which will very quickly put an end to any dreams of deleveraging, or mass defaults which could also be called deleveraging. Japan offset these effects through massive governement spending, and also being a trade surplus nation.

Unemployment rates rarely went over 5% in japan, again would be nice to turn japanese. Many other factors involved then just low interest rates.

by steven | 27th Oct 11, 3:02pm 1319680958

The Japanese govn also had the fairly unique position of being able to borrow off its public at virtually no interest......this however changes as more and more Japanese retire and sell theirs bonds etc as they have to live of the capital as there is no interest to live off......they are the vanguard of the BBs in effect......When this happens the Japanese Govn has to borrow abroad and with a debt of 200% GDP the odds of that at fractoions of a % are what?

Japan could very well be the next Greece and there is no EU to bail them....

Unemployment rates also I think is reflected in the public employee roles which suggests greatly over-staffed.....I cant see many in NZ and certianly in here taking that quietly.

;]

regards

by KanucK | 27th Oct 11, 9:44pm 1319705099

Japan will never be the next Greece, unless Japan joins the EMU and adopts the Euro and surrenders it's sovereign fiat currency - thereby losing any control over it's own monetary & fiscal policy.

As for bailing, the Japanese Reserve Bank can always buy as many government bonds as required, should the housewives or bond terrorists decline to do so.

by scarfie | 28th Oct 11, 9:02am 1319745770

I would not be so certain of that. Japan long ago recognised the importance of minerals, they went to war against the might of the USA in an effort to secure them and they continue to kill whales in Antarctica so they can show a historical link there when it is eventually carved up.

Trouble is there is only 20 years left of some critical minerals and Japan is resource poor in that regard. Go to the USGS and see for yourself the current reserves versus production

The world will run out of oil and Japan doesn't have its nuclear safety net anymore.

by dosser | 27th Oct 11, 12:14pm 1319670889

When a bonsai stops growing, you know it's dead.

by Alexander | 27th Oct 11, 5:25pm 1319689512

Finally Europe has a Deal

http://www.bbc.co.uk/news/world-europe-15472547

by skudiv | 27th Oct 11, 6:05pm 1319691922

After marathon talks in Brussels, the leaders said private banks had agreed to take a 50% loss on their Greek debt. No CDS event then, the euphoria is making me dizzy. Imagine insuring something, then after an accident not claiming insurance. Would you just cancel all your insurance?

Another scenario, your neighbour declares bankrupt and gets 50% wiped off his mortgage, would you do the same?

by Andrewj | 27th Oct 11, 6:07pm 1319692069

Europe is now leveraging for a catastrophe

By Wolfgang Münchau

It is time to prepare for the unthinkable: there is now a significant probability the euro will not survive in its current form. This is not because I am predicting the failure by European leaders to agree a deal. In fact, I believe they will. My concern is not about failure to agree, but the consequences of an agreement. I am writing this column before the results of Sunday’s European summit were known. It appeared that a final agreement would not be reached until Wednesday. Under consideration has been a leveraged European financial stability facility, perhaps accompanied by new instruments from theInternational Monetary Fund.

http://www.ft.com/intl/cms/s/0/d89b0c32-fb51-11e0-8df6-00144feab49a.htm…

by skudiv | 27th Oct 11, 6:28pm 1319693284

No kidding, /s. Potential losses increased from 440bln to 1.4trn. All this financialy engineered money needs to be repaid, if you can't pay it back in the golden age of cheap fossil fuels good luck. Money systems built on the foundation of economic growth into eternity = Epic Fail.

by LloydM1 | 27th Oct 11, 9:56pm 1319705775

So who is taking bets on this being exactly like the deception over the US deficit ceiling farce which lead to the Super Congress consolidation of power over the finances?

Listen to all the calls for a new World Government Central Bank from the vatican among others. This is theatre, the Euro may well die, either way this is nothing less than leading the narrative and the fraudulently bankrupt west into a consolidated financial control centre, a la the super congress.

Skudiv, this engineered money is fraud, and should never have to be paid back - Why are people still not awake to this fact? The derivatives fraud which is causing this global crisis is not being addressed, why cant people get their heads around it, and insist on listening to the red herrings, of which the Greek situation is one of them!

It is now about trying to break Germany who are the only solvent country in Europe, and the pressure will continue until Germany is as farked as the rest of us, so we better hope the German people are able to stand their ground, because once Germany is broke then its all bets off!

Once the US & Europe have been crushed , lets see who is then in charge of the consolidated aftermath!

by scarfie | 28th Oct 11, 9:13am 1319746425

Agree.

Interesting you bring the Vatican into this. When things get really bad and the scramble for money extreme (as if it isn't already) look to see the confiscation of assets of the various churches. The UN has had a resolution drafted for a few years now, just waiting of the right time to implement it.

Even here in New Zealand the Churches hold vast amounts of property.

by skudiv | 27th Oct 11, 6:37pm 1319693842

American Protests starting to get ugly as the police open fire with non leathal weapons.

by Kate | 27th Oct 11, 8:09pm 1319699374

And OWS organisation is getting sharper;

http://www.occupytheboardroom.org/#go

by Colin Riden | 27th Oct 11, 7:24pm 1319696685

Slowly, but surely, Alan Bollard and the New Zealand economy are turning Japanese.

Bernard, I think not. Japan produces massive current account surpluses - USD 155 billion in 2010 (as a country they are getting richer) , while we consistently run deficits - USD 4.5 billion, and are getting poorer. TSY has just forecast (best case scenario) that our current account deficit will increase to 6.9% of GDP by 2016 (NZD 17.7 billion per annum).

http://en.wikipedia.org/wiki/List_of_sovereign_states_by_current_accoun…

Those current account balances are ranked by country, best to worst - Japan is second after China and ahead of Germany at third. NZ is ranked 169, 23 from the bottom and worse than Ethiopia, Aghanistan, Chad, Sudan, etc.

Oh that our economy would turn Japanese and we started to produce more than we consumed.

by skudiv | 27th Oct 11, 7:47pm 1319698053

Oh that our economy would turn Japanese and we started to produce more than we consumed. Exactly

by Andrewj | 27th Oct 11, 8:10pm 1319699418

Yeh but, we are ahead of the USA who is bottom at 191

by Colin Riden | 27th Oct 11, 8:27pm 1319700469

True - the US comes in with a current account deficit of USD 1,800 per person against NZ at not much over USD 1,000 per person. But TSY has forecast NZ's current account deficit (best case scenario again) rising to about NZD 4,000 per person by 2016.

Take a bow John Key!