Bernard Hickey argues we will need to reunite monetary and fiscal policy under co-ordinated control if we are to find a successful path through the global 'financial repression'

Bernard Hickey argues we will need to reunite monetary and fiscal policy under co-ordinated control if we are to find a successful path through the global 'financial repression'

By Bernard Hickey

Committing heresy is unfortunately becoming more common in the world of central banking.

The world's most important central banks are printing money like there's no tomorrow.

Interest rates in the world's biggest economies have been near 0% for almost four years and look like staying that way for another four years.

Central bankers are increasingly thinking about how their policies are being offset or are working in partnership with governments to fund their spending.

The old days of central banks being able to stand aside from governments and run policy independently are ending.

In the rest of the world they are having to 'get down and dirty' and talk and act in concert with governments over how to run economies and banking systems.

Yet here in New Zealand the belief that the Reserve Bank should be utterly independent appears a non-negotiable.

Even Labour, the Greens and New Zealand First are not suggesting the Reserve Bank should be stripped of its independence. They want to change the Reserve Bank Act and set a different set of monetary policy targets for an independent Reserve Bank Governor to pursue, but ultimately they want to keep their hands off the day to day running of the Reserve Bank.

Many would say that is a good thing, regardless of the state of the economy. A whole generation of bureaucrats and policymakers who are now in their 50s and 60s will immediately point me back to the bad old days when the Prime Minister and the Finance Minister, Robert Muldoon, ruled both fiscal and monetary policy with an iron fist.

And it's true, an independent central bank using one tool, the official cash rate, to target one target, inflation, seemed to keep things simple and pure in the days when inflation had to be beaten and there was room for the central move interest rates up and down.

But what happens when interest rates hit the 'zero bound' and central banks have to start using unconventional measures such as government bond buying, often referred to as Quantitative Easing?

Central banks then become much more directly involved in fiscal policy, either in the form of financing it directly by lending to the government, or by repressing interest rates to help governments fund their deficits.

New Zealand is wee way away from the zero bound, but not that far.

This week the Reserve Bank of Australia cut its official cash rate, Business NZ called for new Reserve Bank Governor Graeme Wheeler to cut our Official Cash Rate from its current record low 2.5% and financial markets started pricing in a 0.25% cut over the next 12 months.

As the global economy slows and the developed world struggles to deal with an ageing population and widening wealth inequalities we may get to that zero bound sooner than we think.

So it's worth then thinking about how our central bank would operate when it has to muddy its waters with those of fiscal policy. A combined Fiscal-Monetary policy commission to better coordinate RBNZ and Government activity has already been suggested at a Treasury conference last year.

The final Rubicon to cross is independence itself.

It's time to think the unthinkable. Just like all the other inthinkables we've had to think about since the Global Financial Crisis erupted four years ago and shattered the myth that orthodox economic policy actually made the economy more sustainable and stable.


This piece first appeared in the Herald on Sunday. It is used here with permission.

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the govt and the reserve bank should be joined at the hip after all how does the reserve bank know what to target if they don't know what policies the govt of the day plan to introduce.
a normal household operates it's finances like that  or at least mine does ,where people who earn know what spend and what to spend it on.

No no no no no no no no no no no
Very bad idea.

No no no no no no no no no no , yes ! ...... you are right ....
..... orthodox economic policy was not responsible for the GFC , as Bernie keeps alleging ..... the unorthodox crony capitalism was , ... as was government greed to retain power by buying votes through welfare programmes , which have unbalanced economies around the developed world ...
Bernard has gone on record , had his " epiphany " that the system is broken , and needs more centralist planning , more dabbling and tweaking , from the very bureaucratic lunatics who were largely responsible for crunting it in the first place !

Exactly. The central banks got us into this mess, now they think they are going to get us out of this mess by, you guessed it, printing even more money. What was that definition of insanity again?.................

as was government greed to retain power by buying votes through welfare programmes , which have unbalanced economies around the developed world ...
That's right Gummy. What better way for the craven in the Left to buy elections and keep themselves in power than by pushing more and more junk onto New Zealand's legions of welfare junkies. Everybody's happy baaby, yeaaah!

Good to have you back , DB .... the problem is , the craven left-lite ( little Johnny & the Gnats ) are now supporting the seriously dopey middleclass welfarism of Cullen / Cunliffe ....
.... we need an alternative party , such as Bob Jones & his NZ Party back in the 1980's .... someone to shake the living daylights out of Labour & the Gnats , and their cosy duopoly ...
Labour & the Gnats are equally complicit in screwing NZ into a social welfare cradle-to-grave state .... the Greek path of indulgence , entitlements , and bankruptcy ...

Really, lets not forget Brash's tax cut bribe in 2005 and JK's repeat in 2008 shall we....Where did that last one go? seems it mostly went into the already bubbled housing market.....really bright that was....not.

Bribing people with their own money?

.... actually , robby217 , a great swathe of the voting public in NZ still havn't twigged to that fact ..... they still remain under the delusion that the government is a big caring matronly mother , and she'll take care of their every need , make it all better ....
Hence NZ Labour's 2005 campaign slogan , " don't put it all at risk " ..... the " all " being the entitlements packages Clark & Cullen were dreaming up , to re-distribute income from one person's pocket , into anothers .... Cullen was the master of picking a buck out of one pocket , and slipping 50 cents back into the other ....
..... Kiwis  ..... no wonder the national symbol is the sheep  ! ... Wakey wakey , sheeples , the pollies have been lying to ewe !!!

I must be a bit slow on the uptake lately.  Just opened up Fridays copy of the NBR.
And there he his, Mr Hickey.
Shortlisted with a few others to front CloseUp, as Sainsbury is moving on. (Page 15)
Didn't seem to give him too much of shot,  with entries like these.
'Tough, intellectually rigorous and supremely depressed - Bernard could be the dark horse to watch.'
And ......
'A stint fronting closeup could also be the next logical step for the leading financial journalist and editor who might sieze the oppertunity to promote his latest website venture  .... even while bursting into tears as he reads the day's buiness headlines.'
Thats a bit harsh NBR.

Funny as all hell , but , you've got to admit ...... and they have nailed the man "even while bursting into tears as he reads the day's business headlines " .....
...... that's our Gloomy Boy Hero !

The amoral NBR's side swipe shouldnt be un-expected.
I wouldnt think there is any love lost between them....

The interesting thing about that NBR quote was their need to introduce emotion into the debate.
You only do that when your own argument is lacking substance; it's the mark of lightweights and losers.

The "NBR" label alone has always been an excellent indicator IMHO.

We need to first in the race to the bottom?
 What wrong with old fahioned morals, you know a days hard work and all that?

That twit from the Greens thinks we should print money too, cause everyone else is doing it
Perhaps ''real world experience of QE is it does not cause runaway inflation'' is because the FED is fighting deflation.

Lets do it the California way, fuel prices are killing these guys and alot of its their own fault.,0,707362.story

I always like your comments Andrew and read them although I do find it interesting that you never bump into the majority of Americans who do ok in a material sense.

Its where I live, when im down in San Fran people are doing fine and their are more jobs . Its stil,l even here a lot wealthier than home.   Its just a lot of debt and these guy's have every thing even if they cannot afford it. California is in a mess with lots of welfare abuse etc. Need to drive and see a friend in Phoenix and thought I'd go from there to a mate in Wyoming, will be interesting to see how they are getting on.

 "It is still even here a lot wealthier than home" exactly this is generally the case and lost on a lot of readers on this thread, I know a lot more working poor in NZ which is overlooked.

My children are at high school, they tell me they get to do twice as much work as at home. Every  second friday they have a homecoming football match, school band, cheerleaders the works. Itsimpressive, all stand for the National anthem hands over hearts. No sloppy kids shuffling around with their heads down no Marajuana wafting through the crowd like home. 
 They are after excellence, they expect a standard of behaviour long lost in the public system at home. My daughters Math teacher always has her lunch in her room so she can help any kids that need it. They start school at 7.15 am we get up at and then they have sports at 4.30-6 and 3 hours school work a night. They celebrate success.
  The car park is full of new cars and many children have very smart cars purchased by parents. Its a different world.  Oh and 1400 children at the school.
 we live in a world of mediocrity.

A typical American public school?

"we will need to reunite monetary and fiscal policy under co-ordinated control if we are to find a successful path through the global 'financial repression'
Translation: We need more powers of financial repression to find a path through the global financial repression.

If anyone still wonders why we're in the financial crapper , have a peeksie at Damien Grant's article in the NZ Herald , " Heavy Tax burden borne by the few " .......
...... the NZ gumnut is spending $ 73 billion annually ..... two-thirds of it on welfare , health & education ..... that spending equates to $ 33 000 per employed person in the country .......
And this hand-over-fist wasting of the productive output of the nation's workers and businesses is typical of countries around the developed world .......
...... since 1999 , the government has devoured every penny of GDP growth in NZ , and more ...... we're borrowing from China to grant ourselves WFF & other middleclass welfare rubbish ...

but Gummy if you give our programs a nice important sounding name, like bludging for families, we can all pretend it isn't welfare!.

Yep. As Marc Faber says, the West has become fat & lazy. Too much entitlement mentality. We've lost the edge basically. No need to get ahead, the Govt will look after us.

Rubbish, In which case the US with its minimal entitlements should be far ahead, instead its a basket case. Ditto china...
So maybe look elsewhere for the problem(s). Like oh peak materials and energy and too much debt...

Rubbish , in the USA the bottom 47 % of workers pay zero income tax ; and the subsidies & entitlements are given massively to high income earners and to big business ..... to the tune of $US 1 trillion , annually .....
.... the only peak is in some people's limited outlook ...... fortunately they're overwhelmingly outnumbered by folk who see the world as abundant , and replete with opportunities for creative and brave souls ....

Of course Mr Bear Hero you get a very missleading picture if you just look at the federal income tax. You should probably look at the Payroll tax which makes up roughly the same percentage of the government income as the income tax.

They dont, parrot head is repeating what mutton head said......

A self portrait steven

No speckles...

Oh god I can tell you make great canon fodder, that's a Romney bare faced lie (or he deserves the title mutton head take your pick)...and here you are stupid enough in parroting it.

US with minimal entitlements, actually not the case, on  a State level many actually do, have a look at Washington state as an example, I only mention this one as I have a detail knowedge.
Washington State is far from alone on a state by state basis. Similar for Western states for starters.
As usual Steven is wrong.

Depends on what you term minimal, compared to NZ the US had less entitlements, and a lower life expectancy as a result.
eg there is no universal free healthcare, and I think its something like 25% of Americans have no access to care or are crippled with costs, currently rising at 7% per annum. 
Unless its changed un-employment is for a maximum of 5 years over a person's working life, though that I think is currently extended due to the GFC.
In which case a lot of americans would be left to starve.
I class that as pretty minimal.

Was waiting for your generalisations to fob off the obvious, you really don't know.
Their healthcare is certainly an issue, although it is here as well, if you have a look at a lot of medical care here is now critera based with the result of  limited access and this does effect peoples health, quality of life and current life expectancy.
It ok to not have a clue about the US as you don't live there however you could invest sometime actually finding out what is happen in your home country which you appear to ignore.

I am aware of the health situation here, and yes its rationed, it has been for a decade or two. However its a safety net as you can actually pay for private care if you can afford to. In terms of life expectancy Im not aware that there has been any drop in stats on that in all means point it out.
Considering your strong political bias, yes sure I can understand you spitting tacks...whatever....

No political bias at all, is that your best, nothing worse to see a good mind like yours wasted on incorrect assumptions...or is your message all your care about regardless?

Do you know how much of that $33k the housing supplement accounts for? I'm curious...

From Wolly's figure of over $NZ 1 billion per year for the rental supplement  , around $ 500 per worker , every year ....
.... WFF is costing  around $ 1600 per worker , every year .... and the Gnats have increased it ( gotta keep those voters primed for the 2014 election ) ....

Thanks Gummy Bear Hero

Actually if you looked at real stats and lets take the US as an example the top 1% has taken all the productiviy gains for the last 30 years.
So income for workers over the last 30 years,
and the kicker,
"the incomes of typical workers would be 30 or 40 percent higher than they are if inequality hadn’t soared."
Also lets see you back up your contention that the NZ tax take has taken up the GDP growth, knowing how full of crap you are I'sd like to see evidence...
Then consider how much private debt has grown and the cost of servicing that debt.
ergo the govn cant have taken it all as clearly debt servicing alone has increased.

i work 30 hrs a week and earn less tha33k
my wife works 28hrs and earns less than 33k
so thank you to all the full time and overtime hungry workers for helping the govt out with my share.

In the year ended May 30 2012 , $NZ 20 billion on welfare , 13 billion on health , and 11 billion on education ...... and a further 4 billion on core government expenditures ....

The following articles in last week's Economist seem relevant:
This is a study by the IMF of 26 episodes since 1875 of public (government) debt being greater than 100% of GDP; and how that was in the end reduced, as it had to be, on the "what is not suustainable won't be sustained" principle. Some excerpts:
POLITICIANS across the rich world are quarrelling over how to deal with public debt. Yet the most important actors in the drama may be unelected central bankers, according to a study by the International Monetary Fund. 
Growth, spending cuts and tax increases did their bit, but the make-or-break factor was monetary policy. Low or falling nominal interest rates and (higher)inflation were crucial to reducing the debt-to-GDP ratio. When interest rates were high and deflation rife, consolidation failed. 
Another article supports one of Bernard's common themes:
Called "Sponging Boomers"
A key excerpt follows:
Sadly, arithmetic leaves but a few ways out of the mess. Faster growth would help. But the debt left by the boomers adds to the drag of slower labour-force growth. Carmen Reinhart and Kenneth Rogoff, two Harvard economists, estimate that public debt above 90% of GDP can reduce average growth rates by more than 1%. Meanwhile, the boomer era has seen falling levels of public investment in America. Annual spending on infrastructure as a share of GDP dropped from more than 3% in the early 1960s to roughly 1% in 2007.
Austerity is another option, but the consolidation needed would be large. The IMF estimates that fixing America’s fiscal imbalance would require a 35% cut in all transfer payments and a 35% rise in all taxes—too big a pill for a creaky political system to swallow. Fiscal imbalances rise with the share of population over 65 and with partisan gridlock, according to other research by Mr Eschker. This is troubling news for America, where the over-65 share of the voting-age population will rise from 17% now to 26% in 2030.
That leaves a third possibility: inflation. Post-war inflation helped shrink America’s debt as a share of GDP by 35 percentage points (see article). More inflation might prove salutary for other reasons as well. Mr Rogoff has suggested that a few years of 5% price rises could have helped households reduce their debts faster. Other economists, including two members of the Federal Reserve’s policymaking committee, now argue that with interest rates near zero, the Fed should tolerate a higher rate of inflation to speed up recovery. 
Now I know NZ's main problem is private debt, (quickly growing to public debt)but the principles are the same.
So our Reserve Babk is critical to get us out of our current account mess. Am not sure Bernard makes the case for stopping independence very well. If anything Bollard's recent comments suuggest he would have done some key thinggs differently. So why didn't he? Was it just timidity, or was it someone pulling his strings?
The Reserve Bank targets need to be set by the government; they should have a committee for sure- including one or two overseas central bankers who've been at the sharp end of some other countries messes. But they should probably still be independent.

IIEA modeling on future oil prices....$160USD at today's prices. We blew up in 2008 at $147.  If you correct for inflation today that would be $169 btw....arguably we saw $110 this year and that was enough to send us back into recession.
2006 US incomes peaked....some very good charts in this one,  the staggering bit is saudi's production is higher today then it was, but its internal consumption has climbed so much that the NET is less (9mins in).    Slack disappears in 2015/ think you are paying a lot now?  (10mins 40secs)  It also measn that the US has to invade Iran in the next 2 years while it can "afford" to lose Iranian exports....."afford' is relative of course....
Steve Keen was 'er 2  Compares today with the Great Depression..........

Yeah that's just what New Zealand needs. The Reserve Bank under the direct control of the Minister of Finance and the Prime Minister. Imagine it, the Reserve Bank following the commands of David Cunnilife, David Parker and Russel Norman.
Bernard, give your stupid self an uppercut.

While criticism of Bernards' theory might be levelled for economic reasons, I can't see how it can be in anyway justified in terms of small minded party politics. At least you are being true to yourself and consistent in that I guess. Your one eye has still got it's blinker on.

David B...while I support your position on it , I think it a tad naive to assume the Ministry does not already have influence over the RBNZ, Bolly's tenure satsfied me there was considerable influence on a number of occassions.
 Equally you could have said imagine the RBNZ being under the direct control of Billy Bob and the Currency trader.....ah no wait , we do know what that's like don't we..?
From the top bucko......don't f#*K with the Forex......, Don't beggar the borrower.

GBH and others time to forget traditional “Anglo – Saxon slavery” mentality.
I recommend a few bloggers to read some interesting articles how Nordic countries such as Sweden are dealing with social/ economic problems. and learn from it.

Sorry Walter this is an economics website, talk of values, ethics and morals has no place here. Everyone out for themselves brother, don't worry about who you trod over. Survival of the fittest you know.

I don't think there are many here who want to learn Walter.
it is obvious that if you believe in democracy then an unelected Government servant should not control the economy.  He should be acting on a Government's instructions so that any bad economic decisions fall back on those who were elected.
Nothing can be achieved when all the power is in the hands of an economist.

The article in the Economist is quite scathing of the Swedish economic model , Walter .... what are we to learn from that ?
..... interesting that only one of Sweden's biggest companies was formed after the 1970's , when the overburden of government regulation really began to suffocate the citizens and business ......
The only Swedish model worth following is to be found here .. not click on that....Bernard's call is an error of judgement I think...the real problem is the Kiwi culture that creates the sick govts and supports the lying scum pollies who continue to see for themselves a fat salary for being gobshites...
The culture will not change unless forced by an economic collapse. Take a look at the real world in Europe....
"Veneto is the latest in a number of European regions to rally for independence, including Catalonia and Scotland. And according to Pizzati, the trend isn’t going away anytime soon.

“Sicily and Sardinia have strong movements for independence too…soon after us, it’s going to happen to other regions of Italy…and probably in other places in Europe like Belgium or Spain,” he said.
Sorry Bernard but your call will fall into the void between the ears. The key to a better future is to discourage the use of parasite credit, while also exposing pollies for what they are on a 24/7 basis.
Wheeler takes his orders from the Beehive and the parasites..end of story...the RBNZ has never been independent. It is a puppet regulatory toy for the banks to determine how the economy will operate to benefit them.
This economy totters along the property trading pathway guided by the parasites dishing out the credit and extracting the wealth.

 Wolly’s article is perhaps more realistic then your “wild comment” Gummy. I recommend this link to learn more about Sweden’s economic and social success. Published in July 2012.
The Swedish economic model is perhaps the most ambitious and publicized
effort by a capitalist market economy to develop a large and active welfare
state. For a long time, many viewed the Swedish model as a more humane
and successful form of capitalism and thus as a model for other countries
to emulate.

Walter , it was you , not Gummy , who posted that article by the Economist !
..... and that article was , quite correctly , scathing of the Swedish economic model , which is stifling growth and innovation .
My partner knows some Filippinas who live there , and they report that they hate the oppressive overburden of Big Brother ......
..... freedom , Walter , us braveheart Anglo-Saxons demand our freedom from the grubby big hand of Nanny State ....

Roger (Gummy) – I provided 4 links, please read, learn and understand them in  context. What I learned here in New Zealand is a constant conflict in social/ welfare issues I have never experienced in other countries to such an extent.
Yes – freedom - perhaps the “Anglo- Saxon slavery” mentality needs some major correction.

Havn't got time to learn , Walter ..... must rush , 'cos I'm late for school ....
.... I'll try to get those links read during playtime ...
Ciao !

..... don't forget to look thru that you tube piece re the Fed I gave you...

35 minutes is a tadge too long for the Gummster ..... 3 to 5 minutes is enough before my attention begins to .....
.... sorry , what were you saying ?

Gummy – as I expected you are such an ignorant brick.
PS> D. Chaston don’t delete that - we can say that to each other. We know each other for a long time – went almost to school with each other, but he was a slow learner.

Had to give you a thumbs up for that one , Walter ....... ziiiiiiinnnnnnnnnnnnng !
..... actually , I've never found bricks to be so thick as you think I am ....

Key has announced the concept of printing would negatively impact mortgage borrowers....without expansion or extrapolation......
 True or not Normans boat will not float after that little soundbite served up to the Media, and taken by them for distribution ,as if God himself had spoken....
Is there no one will rid me of this Turbulent Priest......piss weak Media.

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