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Adrian Orr affirms the RBNZ's tightening bias while calling on financial institutions to use their balance sheets to support NZ's economic recovery

Banking / news
Adrian Orr affirms the RBNZ's tightening bias while calling on financial institutions to use their balance sheets to support NZ's economic recovery
Adrian Orr

Reserve Bank Governor Adrian Orr is urging financial institutions to use their balance sheets to support struggling households and businesses facing higher inflation and interest costs.

Orr told those tuned in to a virtual Institute of Financial Professionals conference on Thursday to “retain their focus on looking after their customers”.

He said innovation and economic growth largely rest on the attitudes and conduct of financial institutions, particularly over the next year.

“We are going through a cyclical change at the moment,” Orr said.

“Monetary policy has largely run its easing course globally. In the absence of another demand shock that outpaces supply, monetary policy easing has done as much as it can. That means we’re going into a very different inflation and interest rate environment.

“You need to be working with your customers around making sure they can weather that change; understand that change.”

Orr noted the banking sector has thus far come through the pandemic “incredibly well”, reporting high profits. Having a go at the banks that protested the RBNZ requiring them to hold more capital, Orr said they were heading towards holding levels of capital they had claimed would kill them.

Indeed, ANZ NZ on Thursday reported a net profit after tax of $1.92 billion in the year to September - just short of its 2018 record of $1.99 billion.

Orr said the pandemic has seen the Government, which has spent several billions of dollars help keep people employed via the Wage Subsidy for example, absorb an enormous amount of household balance sheet risk.

Orr said household and business balance sheets accordingly look good in aggregate, which gives him confidence the financial system as a whole is stable. Nonetheless, there are individuals struggling at a time the decline in interest rates globally “has come to an end”.

BNZ chief executive Dan Huggins made a similar observation during another session in the conference, saying that while he wasn’t seeing stress come through BNZ’s balance sheet, it was a different story talking to customers - particularly those in the likes of hospitality.

ASB chief executive Vittoria Shortt said the stress hadn’t shown up “yet”.

ANZ chief executive Antonia Watson responded, “I agree with the ‘yet’… The people that are really hurting - we haven’t lent money to.”

Coming back to Orr, he said, “The financial system needs to step up and manage the vulnerable…

“They’re always the ones left to suffer and that is where political instability and shortness of business cycles occur.”

Orr explained that once financial institutions’ assets look a bit bad, or don’t behave as expected, they typically start pulling credit.

“That’s the usual play,” he said.

“Let’s make it different this time.”

Asked about whether the housing market could make a soft landing, Orr said, “I’m really nervous for new entrants to the housing market, the whole housing market vulnerability, and the continued desire for housing as an investment commodity…

“Twenty countries in the OECD in the last 30 years have had more than 30% decline in house prices… but we seem to think we’re different all of the time and the banks are pricing it as if we are different all of the time.”

Again, Orr noted it’s some households, not the banks (which have loans spread across a number of borrowers, who need to continue paying their mortgages even if they’re in negative equity) that are vulnerable.

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136 Comments

Meanwhile. Back to our Form 1 Economics class: "Now, children. What does the embryo of a preventable Financial Disaster look like?"

(Answer: 'The people that are really hurting - we haven’t lent money to + 'Let’s make it different this time.')

You couldn't make this stuff up! Orr and his RBNZ acolytes got it so wrong last time(s) that they reckon trying something even worse is going to help?!

The Answer, Adrian, isn't More Debt - no matter the cost of it - but better use of Disposable Income. That also doesn't just mean "Higher Wages!". It means a lower cost of the very thing that we can't do without, and that marginal Debt is now going to be shovelled into - The Cost of a Home.

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The people that are really hurting - we haven’t lent money to.

Exactly: Around 61% of NZ bank lending is dedicated to residential property purchases for one third of already wealthy households because the RBNZ offers them a RWA capital reduction incentive, to do so.

Bank lending to housing rose from $50,788 million (48.36% of total lending) as of Jun 1998 to $317,021 million (61.31% of total lending) as of August 2021 - source

Wealth effect or wealth illusion? The other therapeutic effect of lower-for-longer interest rates is the wealth effect. By driving up the value of future cash flows with lower rates of interest, all manner of assets – stock, bonds, and houses – increase in value and, thereby, can stimulate our marginal propensity to consume. More simply put, the imperative was to make rich people richer so as to encourage their consumption. It is not so hard to imagine negative side effects.

There are the obvious distributional effects between those who have assets and those who do not. Returning house prices in California to their 2005 levels may be good for those who own them, but what of those who don’t?

There are also harder-to-observe distributional consequences that flow from the impact of lower-for-longer interest rates on the value of our liabilities. This is most easily observed in pension funds.

Consider two pension funds, one with a positive funding ratio and one with a negative funding ratio. When we create a wealth effect on the asset side of their balance sheets we also drive up the value of their liabilities. Lower long-term interest rates increase the value of all future cash flows – both positive and negative. Other things being equal, each pension fund will end up approximately where they started, only more so.

The same is true for households but is much more ominous, given the inequality of wealth with which we began the experiment. Consider two households: one with savings and one without savings. Consider also not just their legally-defined liabilities, like mortgages and auto-loans, but also their future consumption expenditures, their liability to feed and clothe themselves in the future.

When the Fed engineered its experiment to promote the wealth effect, the family with savings experienced an increase in the present value of their assets and also an increase in the present value of their liabilities. Because our financial assets are traded in markets and because we receive mutual fund and retirement account statements, we promptly saw the change in the value of our assets. We are much slower to appreciate the change in the present value of our liabilities, particularly the value of our future consumption expenditures. [emphasis added]

But just because we don’t trade our future consumption expenditures on the stock exchange does not mean that the conventions of finance do not apply. The family with savings likely ends up where they started, once we consider the necessity of revaluing their liabilities. They may more readily perceive a wealth effect but, ultimately, there is only a wealth illusion.

But what happened to the family without savings? There were no assets to go up in the value, so there is no wealth effect – real or perceived. But the value of their future consumption expenditures did go up in value. The present value of their current and expected standard of living went up but without a corresponding and offsetting increase in assets, because they don’t have any. There was no wealth effect, not even a wealth illusion, just a cruel hoax.
https://realinvestmentadvice.com/the-wisdom-of-peter-fisher/

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How does lending more to the already wealthy, to buy more rental properties, help the vulnerable?

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It doesn’t. You might find this video on Defining the Common Good Economy interesting, interesting take on the history and distortion of Economics https://youtu.be/AUxKhAGexpA and the book he mentions is excellent.

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Great video link - thanks!

Ethics/moral philosophy - if only we taught the basics as part of the NZ curriculum.

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Ha Ha..I agree with you Kate, but maybe they should teach how to add and subtract and balance a checkbook first!

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Bang on 👍

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Who created this inequality and unrelenting huge swathes of cheap money in the market? 

Intelligence is when we think before we act. But RBNZ didn't think before they acted on their journey to cut interest rates and fill the economy with so much cash that people thought they might never have to give back.

 

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Good one Adrian. It's starting to rain now, the banks want their umbrellas back.

 

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Enough to drive one, even at 11am, 'to the pint'

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Mmmm beer

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How can such a statement, at such a late stage in such an obvious bubble, go unchallenged?

Reminds me of Bollard's 'Crisis' not one word on any page suggested Bollard was even vaguely aware of what had happened. Orr should read Keen's 'Can we avoid another financial crisis'.

The answer is: NO. 

The question then is one of culpability?

 

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I’ve drafted an opinion piece with my take on this story. Stay tuned…

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He can't remove LVRs last year and tell the banks to 'get out there and lend' so the banks did as requested....and now say he's very concerned for those same group of people. They literally may have sacrificed those peoples house deposits to kick the can down the road 24 months....'we need new entrants to keep the ponzi alive....but we've run out of eligible entrants....so we're removing the loan to value restrictions so we can get the last of the cash from the last willing entrant....'

To now turn around and say hes concerned for those people - how can you do that? Its exceptionally two faced. If you were concerned about them you should have never let them into the market in the first place.

No wonder people around the world are losing faith in state run institutions - they don't have peoples best interests at heart.

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In Ireland the contraction in the jobs market from '07 to '09 meant many migrant workers headed home and young people overseas. That's what really crashed the property market, everyone had been ultra focused on supply but it was demand that fell off a cliff.

That's why I think border reopening will be important for the property market.

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So that our high skilled young can leave and be replaced by Uber drivers?

As a society we have been throwing our young people under the bus - we have allowed older, more well off people, to throw stones down at them from the ivory tower of home ownership and financial security. And we wonder why so many have anxiety, depression and in some instances, suicide issues. Change the environment and the peoples lives will improve.

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Exactly! It seems to me that NZ is willing to let young kiwis go and replace them with immigrants with lower expectations in order to keep further increases in rents and house prices. NZ is largely for property owners and immigrants that will serve them. Young people should move overseas, even in Australia's most expensive city Sydney you can save a lot more than here in the same job. It's what I did and it changed my life dramatically. 

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One generation has shat in the nest which was well prepared for them by their parents generation. The nest now isn't habitable for their own young and they are confused as to what has happened and who is to blame.

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As well as blaming "one generation" u make it sound like this is unique to nz. Wake up and see how wrong u r

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This isn't a NZ only thing...but its certainly at the extreme end of the scale in NZ. But also true in countries like Australia and Canada.

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I wonder if you are aware of the irony in your comment. 

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Really.   He knows the reality of what he is living.  Care to argue with that?

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They still had population growth those years. It was largely due to a contraction in the availability of credit though people leaving did have an effect.

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You couldn't make this shit up!

Our dystopian future has well and truly arrived!

What an absolute disgrace he and his organisation are.

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Could you ask him when did he come to the profound realisation that house prices can and do fall? Seems to have come just in time for a reserve bank governor!

In fairness, RBNZ was only ever given a blunt tool so I agree he’s culpable to the extent that he didn’t bring any skill to the effective use of the tools he had, neither did he contemplate using other levers at his disposal particularly in the financial stability space

I also think it is the failure of our institutions – both RBNZ and Parliament. RBNZ didn’t care if it had an effective set of tools and government for not properly empowering the institution it created.

In the end, those who were naive, ill-informed and imprudent, got sucked in thinking they’re playing by the rules – but as we know at some stage the easy money game must come to an end, the hysteria must end. The economic pendulum is about to swing, I just hope it’s not too financially painful.

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Time to highlight and not with just one  article but to purse it just like Orr pursues his lie and manipulation - keeps on repeating till eternity till it seems like fact.

He believes "Repeat lie 100 times till is believable as ultimate truth" and to be honest he gets away ....as no one pursues and ask counter questions when they ......

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Homeowners and banks will be fine as long as assets held continue to be revalued upwards. That's reliant on continued RBNZ stimulus.

Only if homeowners are forced to spend less than they earn will the economy slow.

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The ponzi can't go forever. Growth is logical if it resembles interest rates and inflation. Speculation is not growth. So increases can't continue forever. Even redwoods only grow as high as they can and then fall to ground and die. 

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Check your facts about redwoods mr/ms NGK. I think you would have been better off using poplars for your false premise

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Sorry Squishy but I disagree, the upcoming problem is not so much asset values but it is cashflow, the ability, or rather inability to service ever increasing interest costs.  Values may drop for sure but most banks will not mortgagee sell your house for that reason, they will though once the mortgagor can't pay the interest costs.

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Asset price = sum of future cash flows / discount rate.

Cash flows are the asset price...but equally the higher denominator of rising interest rates could be significant. But then also if inflation rises faster than wages or income (if pricing a rental or a business), then the available cash flows could be even less as they have already been chewed up by rising costs!

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ANZ consumer confidence index today, you cannot keep the locals down.

  • Inflation expectations went ballistic, rising more than 1% to 6.2%. House price inflation expectations lifted from 6.1% to 6.7%. and  
  •  
  • Consumer confidence fell 7 points to 98 in October, with both perceptions of current conditions and expectations down sharply.
  • The proportion of people who believe it is a good time to buy a major household item didn't rebound from last month's 20-point fall - it remained at -7.  
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I just find it so odd that he removes LVRs so that people can over extend themselves with debt, and now come out and say that he is very concerned for those same people!

You can't have it both ways Mr Orr. You removed the restriction and people acted but now you are very worried for them? You are complicit in the stupidity because you allowed it! In actual fact, you encouraged it - you told the banks last year to get out there and lend in order to prevent the house of cards from collapsing!

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Exactly.

After house prices went crazy post covid, he came out and said "I didn't tell people to go out and buy houses".  He claimed lowered rates and removed LVR restrictions to ensure banks wouldn't pull lending on existing customers - yet the LVR restrictions are about NEW lending and he basically opened the floodgates to further prop up the ponzi. 

I believe his constant comments where he warns of a housing correction are simply his way of covering his ass.  He will say "I did warn everyone" all the while enacting policies that exasperate the bubble.  

He tells banks they need to hold more capital to guard against a "1 in a 100 year event".  Then we GET a 1 in 100 year event (covid) and he defers the capital requirements.

He is now warning banks about the way they manage risk - after he just remove LVR restrictions allowing Banks to load up on high risk debt.

The simple truth is he knows full well the massive systemic risks he has helped create.  And his idea of "financial stability" is to make sure it doesn't blow up on his watch.  He is so worried he just threw open the lending floodgates when covid hit and there was a risk house prices could drop.  Then when it quickly became apparent the emergency rates were causing out of control inflation he is now saying "don't worry its just transitory" we can "look through" it. 

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He's not fooling anyone.

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"...is to make sure it doesn't blow up on his watch.."

This is the most impressive comment here.

Short term thinking. Without a good sound long term strategy. The bane of NZ.

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Geoff Bascand leads the Financial Stability departments in the Bank, responsible for forming and implementing policies to promote a sound and efficient financial system.

... and he just resigned. 

Honk Honk. 🤡

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and the continued desire for housing as an investment commodity…

I don't get it. I'm no economist but it seems to me the above is easily solved by rent control regulation (a fixed weekly rent maximum price). Looking at you Jacinda and Grant.

To ask the banks to keep lending into a high risk market is ludicrous.

The only way out is lower property prices.

MTCW.

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Rent control has been tried in NZ (& many other failed states) before - along with wage & price controls...the lessons of 1982. Will fail again.

Yes, lower property prices is a way out: however any High School economist will say change either/both Supply & Demand to achieve a lower price point on the equilibrium curve

 

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Hilarious - yes, I agree, the economics you have been taught in High School is a crock.  The same orthodoxy the RBG was raised on.

 

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You might find this video interesting in regards to fixing the mess we are all in globally Kate.  Its a pretty simple yet impressive answer, though I can only imagine the likely levels of push back it would get from the powers that be on every level. 
https://youtu.be/AUxKhAGexpA

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Absolutely superb - just watched it on your earlier link to it. Excellent.

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Except both National and Labour only look at the supply side of the issue, and completely ignore the pressure they have placed on demand by running net migration above 50k per year.

yet for close to a decade they just kept up the same immigration policies that have created the current housing shortfall.  

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The supply narrative is an easy and convenient one. And they can simply offload to local government, and point the finger at councils.

Who certainly have played a role in all of this, but not to the extent government makes out.

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The problem with this is that costs go up. Council rates and mortgage rates are the big ones. So the rents would have to rise when these do.

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Why only rents should be fixed by a central bureaucracy? Why not car prices? or food? healthcare fees (GP visits and dentists)? Should we not regulate wages? 

In some countries, people who though prices are something that you can fix without the consent of the supplier of goods and services, managed to have revolutions, they either confiscated the assets of the previous suppliers or forced centrally set prices on them. Did not work in long term. Such governments turned up to be just as bad (I am being conservative, because in reallity they are actually a lot worse) than the system they replaced. 

 

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"Why only rents should be fixed by a central bureaucracy? Why not car prices? or food? healthcare fees (GP visits and dentists)? Should we not regulate wages?

In some countries,..." = NZ, 1982 Some of us were there & remember the cure was at least as bad as the disease.

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Yes, I was there. We had our first born that year. And despite those who try to imply it was hard/awful or whatever... I am certain we found it much easier to pay a mortgage, own a car, take lots of holidays (with the kids) in NZ and overseas and feed the family.... and all on a single income throughout that period of our lives. 

When there was a wage freeze - it was just so easy to quit and find another job paying better.  When there were carless days, I don't ever recall being inconvenienced. When there were import licenses, we just didn't upgrade the car stereo and bought a second-hand TV. Never owned a dishwasher (aside from the kids) until they left the fold :-).  Always able to afford to have pets. Always able to swim at the beach or in the rivers. Always had a fizz boat. 

So, yeah, I was there in 1982 as well.

 

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We already have income-related rents in state housing (no more than 25% of household income) - effectively a form of rent control and it works - that's why the waiting list just grows and grows and grows. 

Meantime, all those folks who are on that state house waiting list in unaffordable rental housing are getting a supplement from the taxpayer to subsidize their rental costs.  My point is, if we bring in universal rent controls by way of a weekly rent maximum via a formula based on CV (and pegged to no more than 30% of household income for the city/region) - then the accommodation supplement goes.  

 

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Rent control will fix the rental market but not in the way you are expecting and hoping for young Kate.

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Thanks (young - I wish).

And yes, I'd be expecting it to be world leading - better than anyone could hope for.  I've never seen my proposal implemented anywhere.  And, it would get rid of the accommodation supplement.  If rents are in line with the accepted affordable measure (no more than 30% of median household income) - no government subsidies are needed.

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"Help, please, save me.  I messed up. I really messed up badly"

Take some comfort Adrian.  The reality is that while the last 30% rise in house prices was totally your fault, entirely predictable and blindingly obvious beforehand, the whole OCR/CPI Reserve bank model is fatally flawed and at some point anyway was always going to end up in an almighty economic and social disaster as I have been vainly going on about for years. 

Successive governments total failure to address the supply and demand pressures for housing, and further, use house prices as a totally stupid economic stimulus, are a large part of the disaster that we face.

Re the Banks balance sheets.  They will probably need all that ammunition and more just to survive what we will inevitably face at some point.  There is going to be no escaping that one.

In the meantime young Kiwis are best advised to get the hell out of the country.  It is their only hope until after the forthcoming shit storm has finished and sanity is hopefully established.  (but don't bank on it)

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Indeed. Using a heavily fudged CPI number as your tool for "measuring inflation"  & therefore for setting monetary policy was always a horrible idea that was going to end in tears. In all fairness though the RBNZ was just following the mandate set forward by the NZ govt of CPI targeting. So the govt is where the buck stops (no pun intended) if you ask be. Not that this will stop our blame everyone but herself PM from throwing Orr & RBNZ under the bus.

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The blame has already started if you look at David Parker's comments last week. Everything the Government has done has failed and they will need a scapegoat. Orr will be the fall guy. It could, however, be a good thing. We may get some people with the strength to do what's necessary. I'm not convinced that Orr and co are strong enough to contain inflation.

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Yup Orr is a patsy. He will be blamed & replaced. His replacement will also be facing a lose lose proposition.

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That, from Parker, was telling. It was also:

- nasty

- defensive

- disingenuous

- arrogant 

And somewhat unfair, given HIS government changed the RBNZ'S remit.

Muppet.

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This is a real gem from him;

“The financial system needs to step up and manage the vulnerable…

I could feel sorry for him except for the fact that he's laughing all the way to the bank.

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Yeah its an absolute s%# show Kate - almost unbelievable. How did we allow our society to become so lacking in good principle and character?

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Not 'almost'...

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Orr said, “I’m really nervous for new entrants to the housing market, the whole housing market vulnerability, and the continued desire for housing as an investment commodity…
 

Remind me again please who slashed the LVR requirements for investors? Refused to curtail IO loans and refused to implement DTI even though everyone was crying for it. I just can’t remember… 

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The more time you spend thinking about it, you realise that central banks are the problem and not the solution. The sooner as a society we can reform central banking, the sooner we can move forward collectively with a common purpose. The status quo is going to result internal division and a society that destroys itself from the inside out. It may not be an external war this time around that ends the long debt cycle, but instead internal conflicts between people being crushed by central bankers, and people being put on a pedestal and protected at all costs.

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".....is going to result internal division and a society that destroys itself from the inside out."

Too late. Already happening and the pace is accelerating. Home owners vs life long renters. In many cases the latter want to get ahead but by virtue of age and overpriced housing/low wage will be barred from ownership. Throw in an increasing number of NZers dependent on the State for housing and/or accommodation grants then mix with a racial divide (media feed this daily) = A real cluster F.

The NZ superannuation system kinda worked when you were a freehold retiree. The nominal payments kept you fed. Turn the clock forward 30 years and we'll have a generation that needs both housing and a pension in their retirement. Unsustainable. Hello Venezuela and Argentina.

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A very good comment - horrific as it is.

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I think if a boomer decided to be a life long renter, given the opportunities they have been gifted to become debt free....well I don't feel much pity for them. i.e. buy your first house in the 60's or 70's for $30,000 and at point of retirement probably earning $70,000 or more with interest rates close to zero! Everything fell into place for them perfectly to pay off debt for retirement around now.

The real hurt starts for the generation where that cycle reverses and they are asked to take on million dollar mortgages with the potential for wage stagnation and rising interest rates....

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Many Boomers (in their 20's at the time) also chose to vote Muldoon to scrap the user pays superannuation scheme (much like Kiwisaver) in favor of non-means tested super.  Ironically today they complain that Government super doesn't pay enough, and also ironically flame people in their 20's today for being financially frivolous.    

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The boomers/gen x will for the most part have comfortable retirements. After that generation expect a "old people poverty" issue to be facing society.

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Renting after the separation of assets after divorce has destroyed the retirement prospects of several boomers I know.

They don't really have the option of leaving this clown country, but at least can take solace in that they don't still need to raise a family and they will be dead in ten or twenty years.

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Nothing to do with a 'clown country' - it was our clown belief in growth-forever economics, got us into this corner.

Every country fell for the shyte; those that didn't we castigated, invaded, coup'd, embargoed or indebted into compliance.

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The old "everywhere is as bad as here" trope gets tiresome.

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Actually everywhere else is typically worse. I would rather stay in NZ than chuck a dart at a map of the world then have to go and live there. Just watch some Aljazeera news Brock it will make you feel good. Nothing like tyres burning in the middle of the street, protesters getting shot at with live rounds and a few military coups taking place not to mention the number of places round the world at war, famine, drought and air that's not even safe to breathe.

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Oh for Christ's sake. "The news" is not an accurate representation of the world. Kiwis have such a warped view of the outside world through the crap they get fed on television.

It's on the news because it's extremely unusual.

Yes, some parts of the world are awful. Most parts of the world are not. Broaden your horizons more once Jacinda lets you.

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Been to many places already Brock from as far back as 1990 when a few of them were already shit. There is a reason I'm living in New Zealand, done very well here and its a paradise by comparison. I guess I have always had realistic expectations and a different attitude to most people these days.

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"“I’m really nervous for new entrants to the housing market, the whole housing market vulnerability, and the continued desire for housing as an investment commodity

Anyone looking to know what "Crocodile Tears " are, this is it.

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Steady on. Do you want to go back to the.  1982's Think of the unintended downside. Not just short thought out solution

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“I’m really nervous for new entrants to the housing market, the whole housing market vulnerability, and the continued desire for housing as an investment commodity…

Another vested interest wanting to get ahead of the curve so they can admonish themselves of any blame when the disaster unfolds.

For how many years have informed commentators been shouting "fire" while the banking cartel have been pouring petrol on the blaze?

Now they want to dress up as the fire brigade.

Despicable.

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State run institutions around the western world appear to have corrupted themselves to a point where they think their purpose is to serve themselves and not the people - forgetting its the people who pay for them to exist. We need significant change so that these institutions actually serve the people once again and give young people hope that they will have a reasonable future. At present, younger people believe they exist to crush them or make their lives worse at the expense of those who are already well off. 

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Exactly. And it's multiple institutions.

We also have a government, in  kahoot with it's obedient agencies, forcing a whole lot of 'top down' crap down our throats, with minimal if any consultation.

Covid, 3 waters reform, housing supply bill etc etc

This is a weird version of 'democracy'

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Yes having spent part of my career working in a few different government agencies in Wellington, you can see that the various ministries run the show and it was all about looking good for whatever minister happened to be in charge at the time.

It was never 'what is the right thing to do for the people we are serving' it was more 'what can I do to make myself look good to the minister and get ahead of my peers within the ministry'.

As a result the culture was toxic and dysfunctional with zero accountability for the beneficial use of tax payer money.

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Exactly mate, I concur, having spent some limited time in and around  ministries.

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I'd like to write a book about my experience/impressions.

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Same experience I had working in govt departments and also a stint in the beehive. 

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I certainly believe this but also put the onus back on the various ministers for not knowing how or incapable of managing their HoDs or CEOs whatever they are called these days. Also the threat of firing is an unlikely scenario with today's employment relation issues. I would also like to see the highly paid (>150-200k/year) be far more easily removed with the employment relations act being appropriately amended.

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The central banks are "indepenent" from the government.

Which means they are independent from accountability.

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"State run institutions around the western world appear to have corrupted themselves to a point where they think their purpose is to serve themselves and not the people..." A dysfunctional zenith embodied by that most international state run institution, the UN.

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To be fair to the UN, even they have come out and labelled housing in NZ a 'human rights crisis'. That's more than our elected officials or the idiots at the RBNZ have ever admitted to. 

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it's not a human rights crisis. It's a population crisis. There are no rights with an overshot population. And yes, even the current NZ population is overshot, beyond fossil energy.

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'Despicable' is the perfect choice of word.

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Adrian Orr is infuriating. He says all the right things about housing bubbles, the vulnerability of FHBs, et cetera... and then acts as if he believes the exact opposite. He is deluded if he thinks that banks will be extending credit to stressed hospitality and tourism businesses as we slide into a global stagflationary recession, just because he asked them to nicely. If banks are forced to lend, it will be mortgages. That's what they want to do, and it's what Reserve Bank policies still encourage them to do.

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Ability to withstand exceptional cognitive dissonance is a critical personality trait of the modern central banker - to the point of being being delusional.

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Yep I reckon he's well and truly delusional. Probably pathological.

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Orr said the pandemic has seen the Government, which has spent several billions of dollars help keep people employed via the Wage Subsidy 

Several?  Last time i looked it was $17 BIllion ...and rising.

All down the toilet.

 

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Surely Orr is a strong contender for the worst NZ public servant of the last 30 years. 

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How can banks really help SMEs in Auckland financially when the PM is stopping many of them from operating?  Extending loans, reducing interest, cutting fees is futile if businesses can’t open their doors.  And given there is no certainty or date going forward when businesses can restart -  is it Red light day?  Dec 20?  Or January, February?  Perhaps Melbourne is the model - 245 days lockdown - NZ could beat this and retain its world-besting status.  In which case the banks can just call in the receivers as a more realistic strategy.  
 

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NZ has always had a massive inferiority complex needing to be the best, most awesome, most extreme, most woke, most authoritarian...

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Adrian has made a string of terrible policy decisions over the past couple of years.  They say hindsight is 20/20, but so many people on this forum expressed disbelief at the stupidity of them at the time.

His clown advisors told him that blowing an asset bubble for the "trickle down wealth effect" was a good idea and that asset bubbles are easy to "mop up" afterwards.  Then gloated about it to the press.

This mess is not looking so easy now is it?

At least he has the honesty that Ardern and Robertson are lacking, to make it crystal clear that asset values are NOT a one-way street and he is deeply concerned about what rising rates are going to do to those sucked in at peak stupidity.  Still the more simple folks on here persist in pushing the myth that house prices can never fall because "they won't let them" and "Nu Zuland is diffrunt".

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No bank and its executives are going to pay from their profits. It's the savers deposits which are on target now. Be prepared for the Bail Ins.

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IMO they need to bring this legislation forward under urgency;

Drafting of the legislation will now get underway, and the Bill is expected to be introduced to Parliament towards the end of the year. The scheme is expected to be in place in 2023.

https://www.stuff.co.nz/business/124915006/deposits-of-up-to-100000-guaranteed-under-new-scheme

And/or suspend the OBR rule in the meantime.

That's how you get banks to use their own balance sheets in a crisis.

 

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Be like in April last year Kate - had relatives taking as much cash from the banks as possible and hiding it in their freezers and burying it in their backyards.

Guess that is a good option in a deflationary recession, but in an inflationary induced recession (which might be where we are headed), I'd probably want to get what interest I can!

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Current interest rates are close to none atm https://www.kiwibank.co.nz/personal-banking/accounts/#savings

Does it matter where the cash is kept ? 

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Agreed. Not suggesting depositors need to take action, but it is in the government's best interests to provide some security to depositors.

What happened with the GFC in the US is that many people who had mortgages and lost their jobs - started drawing down on their savings in order to pay the mortgage. It is in a government's best interest to provide some form of depositor guarantee - I suspect NZ is one few (if not the only) OECD countries that does not.  

 

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Why should the tax payer provide insurance to cover a bank?

Sounds like a great way to encourage even more bad bank behaviour?

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Yeah agree - banks would reduce TD rates even further to fund the cover required - just to protect depositors from the excessively loose/risky mortgage lending.

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And chuck out the ability to issue covered bonds as well.

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Orr said, “I’m really nervous for new entrants to the housing market, the whole housing market vulnerability, and the continued desire for housing as an investment commodity…

That sounds to me like an implicit acknowledgement that Orr knows still much higher interest rates are coming (which he has not explicitly stated so far)

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Only partly.

It also recognizes that on many measures housing unaffordability is profound, and all those measures suggest a very vulnerable market. 

And of course this has been the case for several years  but a crash has been averted by repeated cuts to the OCR and other measures. 

The ammo has run out....

2022 will be an 'interesting' year.

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I think there's a Wellington consensus that the OCR will keep rising. I'm not sure if that information makes its way out of the insiders' bubble forcefully enough.

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"The yield on the U.S. 20-year bond on Thursday rose slightly above the 30-year bond yield for the first time, according to traders, a move that garners attention because of investor sensitivity to inverted yield curves that can be a harbinger of recession"

https://www.reuters.com/article/global-markets/global-markets-global-eq…

 

This makes things interesting with the 30 year yield falling below the 20 year.

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Coming back to Orr, he said, “The financial system needs to step up and manage the vulnerable…

Yes, Mr Orr, please do something... 

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Desperate times call for desperate measures....Very desperate if you suddenly have to call on the Aussie banks to "Go easy on us poor Kiwi's" . In my lifetime of experience with the Australians, your about to get screwed.

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The banking equivilent of an underarm bowl maybe?

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I think if you Google the term "Possum in the headlights" it literally has a picture of Orr! Unbelievable.  

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The stupidity is mind blowing.. The head our reserve bank is saying to a bunch of Australian banks. 'Hey Friends, you know all that money that I stole from future New Zealand taxpayers, and gave to you with no strings attached at a ridiculously low interest rate, can you now give it back to us please?'

The response will undoubtedly be. ' Hey fool.. we would love to but we have spent it on either 10x earnings loans to FHBs or share buy backs to ensure the non productive class are fantastically rewarded for the work they dont do. If you want some help, you will need to give us some more taxpayers money'..

Really we are in bad place with our current RBNZ structure.

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Orr is the the Author of all this.... I dont think much of his speech.

Ultra low interest rates has caused suffering for most savers... especially the "vulnerable " ones who rely on Savings income in retirement.

eg. $100,000 earning 2% with 4% inflation and 20% tax ..... Savers lose  2.5% per yr in real terms.  ie. Orr is destroying their Capital.

Is the financial sector making record profits..?

Does he care..?  NO... Central Banks and the financial sector are cold hard bastards... when push comes to shove ( just look back over history )

He has wreaked havoc by profoundly over stimulating....( Maybe appropriate if we were having our own version of a GFC... BUT NOT as a covid response ).

He has sucked many people into taking on debt at , what is, ultra low financial repression rates.

His financial repression play book is , in fact, destructive... ( Maybe appropriate as a response to a financial crisis , maybe...but not our current situation )..

The Guy has thrown petrol everywhere..... and is now asking the financial sector to light the matches ... kindly, in a supportive way  ...  Yeah right..

 

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Roelof...very well said.

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LOL. Where to start.. actually I won't bother. This man is a CLOWN that the top circus acts in the world would love to get their hands on.

The collapse of the system as we know it is coming, what time to be alive.

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Is Orr really the RBNZ governor, is it actually Ardern?

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Just what would it take to force a complete overhaul of our badly broken banking system? After the Great Crash of '29, that is what happened. let me quote; "Then as now, the unwarranted enjoyment of sovereign support of activities inessential to the provision of money to the public was identified as the major cause of the problem. In 1933, the Glass-Steagall Banking Act therefore established a rigid separation of firms permitted to engage in securities dealing, or investment banking from those permitted to engage in deposit-taking, lending and payments services to companies and individuals, or commercial banking". This was taken from the book Money by Felix Martin. This lasted into the 1990s.

I would go further and adopt Irving Fisher's proposal which he spelled out in his paper, 100% Money.

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All I can say is…

License to be Bad - by Jonathan Aldred and https://youtu.be/AUxKhAGexpA

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Is it not as simple as 'we had no other choice'?

Soon as Govt needed billions to support lockdown, meant Govt needed $$ and for that they needed it issue bonds. They needed folks to buy them, while not shit-canning the NZ$ to insure exports remained competitive... therefore they had to be in sync with rest of money markets else get flooded.

If you want a scapegoat then it's Govt requiring lockdown - what was the alternative... let it rip! We'll never know what the outcome of that would have been... probably pretty devastating.. would it have been the better outcome in long-run?

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There are always choices...  which is probably why there is a place for wise and experienced leaders.

RBNZs' biggest job is price stability ( inflation ) and financial stability... 

Easy enuf to judge their performance based on that.   ( hindsight allows us to do this )   ( crackup housing boom comes to mind )

That they might have felt compelled to "swim with the herd ", does not make them unaccountable..does it ?

They threw the kitchen sink....     kinda felt like there was "free money for all"   ( at one point Govt was paying 0.44% for money borrowed ).

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I'm just putting forward the fact they needed to support Govt borrowing by lower interest rates which couldn't be too far out of step with rest of money-world.

On the matter of regulating Banks... how far do they go? What would the Ozzies do if RBNZ went 'too far' dictating how they lend?

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Why do I feel like this is Déjà Vu? 

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Where did they go crazy in auctions this week?

The inventory has been increasing for last couple of weeks or am i hallucinating? 

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Seen it all over North Shore Auckland. 

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I get more and more nervous every time Orr speaks.

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"Get down there and sell, Mortimer, sell!"

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Its suddenly a relief after many years of disbelief. Our monetary authorities did nothing - seemingly encouraging debt and risktaking. Are they not there to ensure financial stability?

 

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Orr has fallen for the bait to not impliment DTI.

 

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Instead of lecturing everyone else, I would have thought Orr would be trying to trying figure out how he can fix the mess he has made of inflation.

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Orr hasn't made a mess of inflation. 8 billion people consuming a finite planet, have made a mess of inflation.

Inevitably.

But paid players should have sounded warnings.......

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"Adrian Orr affirms the RBNZ's tightening bias while calling on financial institutions to use their balance sheets to support NZ's economic recovery"

What Mr Orr actuallly means :

Economy Recovert = House Price Growth = Ponzi

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Not happening. Aussie banks are on track to disburse a one time special dividends for their shareholders.

Social responsibility is not what banks are known for and the term is only used when it supports the banks' narrative such as why they need to raise lending rates and or lower their regulatory capital requirements to help lending to businesses.

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I mean, are you f'ing kidding me Orr???

Coming back to Orr, he said, “The financial system needs to step up and manage the vulnerable…

“They’re always the ones left to suffer and that is where political instability and shortness of business cycles occur.”

YOU were the one that have just caused the vulnerable to suffer with your absolutely over the top reaction to the pandemic and your utterly inept response to repair damage of your own making. You dramatically overshot in so many directions (house prices/inflation/lending/printing) and you are refusing to act on any of them quickly enough to make a difference.  My god, If he wasn't looking in the mirror when he said this, he should have been.

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Who else agrees IO, after he made the wrong call, has become a massive whinger

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That's not how banking works. If you follow banking/finance, failure/fraud then this series is excellent.  It talks about the S&L and since in the US and globally. The Best Way to Rob a Bank Is to Own One https://youtube.com/playlist?list=PL5wue8oAUyGq1LJuid3NT1QIQUQ2kcEhP 

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