With New Zealand’s debt at 153,253 million and inflation through the roof I think you ought to save these two articles because they reveal what the media is trying to conceal.
Why do they not tell the truth?
This may explain part of the reason.
Reserve Bank repeatedly warned Government money printing would lead to house price inflation
Feb 05 2021
Grant Robertson and the Government were warned in January 2020 that there was a ‘significant’ risk Reserve Bank money printing would push up house prices and deepen inequality. Despite calls from the Reserve Bank that the Government would need to act to blunt the effects of this, nearly 13 months later, nothing has been done.
In November last year, when the national median house price hit $749,000 – up by more than $100,000 on the year before – Grant Robertson sent a now famous letter to Reserve Bank Governor Adrian Orr.
Since March, the Reserve Bank had been printing tens of billions of dollars and pumping it into the economy using something called LSAP (Large-Scale Asset Purchases). The LSAP worked; New Zealand’s unemployment rate of 4.9 per cent is well below where economists feared it might be.
But the LSAP has had some negative side effects too. Asset purchases have pushed interest rates down, unleashing a wave of cheap lending that has sent the housing market rocket to record highs in the midst of a global recession.
Robertson had initially been sceptical of the link between the Bank’s money printing and high house prices, but the Reserve Bank letter marked the point at which Robertson officially acknowledged that not only was the Bank’s money printing having an effect on the housing market, but that he and the Bank should work together and do something about it.
He took a long time to reach that conclusion. Earlier in the year, he’d been sceptical that there was a strong connection between the Reserve Bank’s money printing and out-of-control house price inflation.
“It’s not really the way I am thinking about it, our fiscal response has been to respond to the crisis and its effects,” Robertson said.
“But all of those issues, particularly in terms of how it will roll out in the housing market are still to come,” he said.
However, the Reserve Bank warned Robertson in January of nearly all the adverse consequences of money printing on housing and inequality in Aotearoa.
Policy advice released to Stuff and others under the series of OIA requests warned that an LSAP programme would lift asset prices like housing, deepen inequality and require some kind of intervention.
The Reserve Bank even warned that some kind of new governing arrangement for the Bank would be needed if it used tools like LSAP. This is because those tools step so far beyond the Bank’s traditional role in setting interest rates and into areas typically controlled by the Government.
The Bank thought there was a small but not inconceivable chance of this happening given interest rates over the world were fast approaching zero so, on January 29, 2020, it sent Robertson advice on what it was doing.
The Reserve Bank and Treasury should begin work on institutional and governance arrangements for what to do if the Reserve Bank started using tools like LSAP. This somewhat compromised the traditionally strict independence of the Bank and Treasury.
“With interest rates at historic lows, there is a risk that monetary policy could become constrained if interest rates fall towards zero.
“In such a situation, we consider it prudent that the Reserve Bank has alternative tools available to stabilise the economy and that the governance arrangements relating to the use of alternative tools are clear, comprehensive and effective.
It said that the Bank did “not think there was a case” for using these tools “in the near future,” but said that it would look to develop the tools and governance arrangements over the next six months to make sure they were ready if they were needed.
The Bank called these tools UMP, or Unconventional Monetary Policy. It includes things like negative interest rates, forward guidance, term lending to banks, and LSAP.
The advice came with several warnings, saying the “magnitude of the macroeconomic stabilisation benefits is highly uncertain”.
It also warned that there were significant trade-offs to each tool being used, including unfairly distributing winners and losers in the economy. The bank said that these were “externalities” and warned that they were “outside the Reserve Bank’s current mandate”.
Because those externalities were outside of the mandate of the Bank, it advised Robertson that it might be a good idea to look at how the governance of the UMP tools would work in practice; this would make sure that some of the unintended consequences in areas like the housing market could be managed.
Those risks were severe. The Bank developed a traffic light system for the severity of the effects of the new monetary policy tools. Green ones had “benign” trade-offs, while red trade-offs were the “most significant”.
Of the five kinds of UMP that the bank considered, LSAP was the only one considered to be rated “red” for its effects on inequality and fairness – the other tool the bank used this year, a form of term-lending, was rated orange, while all the other tools were given a green rating.
The Bank warned money printing might not have a neutral impact across society.