Bayly says Govt must tell Governor Orr "to stop throwing more and more printed money at our overpriced housing market"; Cullen wants direct financing of Govt infrastructure spending
There's since been growing analysis to reinforce that climate risk/sustainability is a good proxy for investment choices, due to long-term benefits and short-term multipliers (tho I agree with the above that potential investments into new housing supply are also critical - and could be climate-aligned if designed well!).
Bernard do you think Bayly's comments hint towards the Nats becoming a more populist party like the Tory's in the UK? Or is this just politically convenient for them to take this position
Basically, Bayley is complaining about the inevitable result of the free-market and yet wants more of it by removing the RMA and probably other regulations.
Oh, wait, he wants more regulation for lending to go to business. Chances are that the 'businesses' will just be lending to buy housing.
Then there's the fact that 'the normal' that he wants the housing market to return to was massive lending for housing pushing house prices up that has been happening for the last ~20 years.
And, IIRC, the government has actually freed up land to have housing built upon it. Doesn't seem to have worked as the right-wing have said it would.
Then we should consider that, as we adjust to climate change, we're not going to have private cars any more which means that local communities are going to have to be walkable. That, of course, means higher density housing closer to the CBD and that spreading out large cities isn't going to work.
And, yes, our monetary system needs looking at as its not the Gold Standard system that was brought about by the Bretton Woods agreement. We keep acting as if it is and its causing major problems but it was dropped, unilaterally, by the USA back 1971. We need to change our monetary system to reflect the new reality even if we're 50 years late.
Our new monetary system needs to accept that all NZ$ are created by the NZ govt and enter the economy through government spending, that private banks aren't allowed to create money at all in any way, shape or form, that purchases in NZ must be by the NZ$ only, that the exchange rate of the NZ$ is based upon a trade weighted index and, finally, that Kiwibank makes 0% interest loans available for first home buyers and businesses.
Government spending is what keeps the economy afloat. Once this is recognised there's pretty much nothing that the government cannot afford to do as long as the country has resources available to do it.
Bit of a worry when it's the guy from National who's making somewhat more sense than the current Labour minister. But predecessor Michael Cullen is the only one fully on-the-money with his just getting the cash straight to people and housing. I wonder if he is re-thinking his neoliberal doctrines these days...
Agree on the Cullen view. The problem with Bayly's view is he hasn't thought through the implications of challenging RBNZ independence and what it should do without being able to lend freshly printed money to banks without strings attached. Even more QE? Much looser fiscal policy? I asked Bayly this and he had no answers.
This is the right kind of challenge to the RBNZ and the banks. Based on current behaviour, the money the RBNZ provide to banks goes straight into housing debt. Its not obvious based on evidence that this is likely to change. Banks send the profits to Aus, thanks RBNZ! Its not popular in NZ I know, but looking at Aus SME or productive debt there are well organised alternative channels which appear to be performing well (relative to mainstream banks) in distributing productive capital. NZ's medium term hole is going to be productive growth and income growth. If Labour wants wage inflation this may not be achieved by inane house prices. It seems strange that house inflation seems to be protected by policy, RBNZ, banks, I wonder if any other class of asset / debt would receive this level of nurturing.
Great point. Effectively, it is a too-big-to-fail market with the most monstrous moral hazard problem because more than 60% of bank loans are now exposed to housing and household spending (and small business investment) are resultingly much more sensitive to house prices. I joke that we don't have an economy, we have a housing market with bits tacked on now. That's how the Reserve Bank sees it because they're using it as their main easing channel. They know that's how our banking system works and how homeowning consumers think. They have no influence over renters because they have no savings or debt that is connected to interest rates. Seen credit card rates lately...a disconnect with the 0.25% OCR. Cheers AB
An older emailer with a long memory writes: 'Fancy Cullen saying that. He was such a vociferous critic of Social Credit in the 198O’s when that Party was in parliament led by Bruce Beetham.
Jim Bolger has also questioned why the govt needs to pay back money it borrows from itself ( the RBNZ) which is a big step further than Beetham ever suggested. He only proposed 1% interest relatable loan from the RBNZ to finance infrastructure. Another thing he suggested was that the rate of repayment be moved up/down by the RBNZ as a tool to manage inflation. All seems quite rational against what we see today!'
From another emailer: "To have a Labour Prime Minister state that the only thing she is prepared to comprehensively tax is labour is an utter travesty. I have voted for them all of my life. No more. They should be honest and rename themselves The Capitalists’ Party. Because that’s who they represent. What sort of “kind” society is this when my three kids (and tens of thousands of others) can’t afford a house and – as you predicted – Orr is tipping billions into the coffers of banks, property developers and mum and dad speculators?
It's a simple economic formula; open the immigration taps and don’t build enough houses, then throw on petrol with middle NZ families owning five rental properties each. And 40,000 empty homes in Auckland shorting the market. Called pulling the ladder up behind the boomers."
And my response: he politics of change and of inequality are brutal. To change things you have to ‘take’ things off powerful people and give it to poor and weak people.
The wider the inequality, the harder it gets.
Until the centre will not hold anymore.
We’re getting a sense of what that looks like in America.
Sadly, we’ve been here before. In early 1900s, America and Europe were very unequal, there was unfettered free trade and few protections for workers. America’s democracy was corrupt and bought. It took Teddy Roosevelt, the breakup of Standard Oil and the beginning of worker protections and rights. Then came October 1917 and Capitalists spent the next 40 years first dealing with the fallout of WW1 and then fashioning concessions to keep the peace. It worked, until the capitalists forgot and got greedy.
Beginning of the end was the Basel capital model that effectively said lending to people to fund domestic housing was the best thing since sliced bread and moved banks away from their traditional role of funding business lending and infrastructure capital growth.
Methinks it’s time to upend the Basel model ....especially in the light of deposit insurance, and the money printing that is going on.
Maybe tweak the capital rules to allow lending on infrastructure and housing development to have concessional rates given the backing by government.
Great point. RBNZ has flexibility to divert from Basel, but it hasn't gone too far. Ultimately, I reckon we should move to a Chicago Plan model of banks having 100% equity to back their loans. Could be ratcheted up over 100 years to avoid a fatal economic heart attack. Here's more on the Chicago Plan. https://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf
Wow. This could be the start of a massive rupture in our political economy.
Maybe. We'll see Brendon.
Absolutely, I wrote about this back in March that QE needs more targeting, especially toward infrastructure that supports climate mitigation and adaptation. No shortage of problems to fix! https://www.stuff.co.nz/environment/climate-news/120675292/coronavirus-stimulating-the-economic-recovery-with-climatefriendly-projects
There's since been growing analysis to reinforce that climate risk/sustainability is a good proxy for investment choices, due to long-term benefits and short-term multipliers (tho I agree with the above that potential investments into new housing supply are also critical - and could be climate-aligned if designed well!).
https://www.camecon.com/news/green-recovery-plans-more-effective-than-return-to-normal-stimulus/
https://www.lse.ac.uk/granthaminstitute/news/building-back-better-a-net-zero-emissions-recovery/
Excellent David.
Bernard do you think Bayly's comments hint towards the Nats becoming a more populist party like the Tory's in the UK? Or is this just politically convenient for them to take this position
Cheers Zac. I think Bayly and National have seen a hot button and pushed it, without thinking through the implications.
Basically, Bayley is complaining about the inevitable result of the free-market and yet wants more of it by removing the RMA and probably other regulations.
Oh, wait, he wants more regulation for lending to go to business. Chances are that the 'businesses' will just be lending to buy housing.
Then there's the fact that 'the normal' that he wants the housing market to return to was massive lending for housing pushing house prices up that has been happening for the last ~20 years.
And, IIRC, the government has actually freed up land to have housing built upon it. Doesn't seem to have worked as the right-wing have said it would.
Then we should consider that, as we adjust to climate change, we're not going to have private cars any more which means that local communities are going to have to be walkable. That, of course, means higher density housing closer to the CBD and that spreading out large cities isn't going to work.
And, yes, our monetary system needs looking at as its not the Gold Standard system that was brought about by the Bretton Woods agreement. We keep acting as if it is and its causing major problems but it was dropped, unilaterally, by the USA back 1971. We need to change our monetary system to reflect the new reality even if we're 50 years late.
Our new monetary system needs to accept that all NZ$ are created by the NZ govt and enter the economy through government spending, that private banks aren't allowed to create money at all in any way, shape or form, that purchases in NZ must be by the NZ$ only, that the exchange rate of the NZ$ is based upon a trade weighted index and, finally, that Kiwibank makes 0% interest loans available for first home buyers and businesses.
Government spending is what keeps the economy afloat. Once this is recognised there's pretty much nothing that the government cannot afford to do as long as the country has resources available to do it.
Fair points. A lot to get people's heads around.
Bit of a worry when it's the guy from National who's making somewhat more sense than the current Labour minister. But predecessor Michael Cullen is the only one fully on-the-money with his just getting the cash straight to people and housing. I wonder if he is re-thinking his neoliberal doctrines these days...
Agree on the Cullen view. The problem with Bayly's view is he hasn't thought through the implications of challenging RBNZ independence and what it should do without being able to lend freshly printed money to banks without strings attached. Even more QE? Much looser fiscal policy? I asked Bayly this and he had no answers.
This is the right kind of challenge to the RBNZ and the banks. Based on current behaviour, the money the RBNZ provide to banks goes straight into housing debt. Its not obvious based on evidence that this is likely to change. Banks send the profits to Aus, thanks RBNZ! Its not popular in NZ I know, but looking at Aus SME or productive debt there are well organised alternative channels which appear to be performing well (relative to mainstream banks) in distributing productive capital. NZ's medium term hole is going to be productive growth and income growth. If Labour wants wage inflation this may not be achieved by inane house prices. It seems strange that house inflation seems to be protected by policy, RBNZ, banks, I wonder if any other class of asset / debt would receive this level of nurturing.
Great point. Effectively, it is a too-big-to-fail market with the most monstrous moral hazard problem because more than 60% of bank loans are now exposed to housing and household spending (and small business investment) are resultingly much more sensitive to house prices. I joke that we don't have an economy, we have a housing market with bits tacked on now. That's how the Reserve Bank sees it because they're using it as their main easing channel. They know that's how our banking system works and how homeowning consumers think. They have no influence over renters because they have no savings or debt that is connected to interest rates. Seen credit card rates lately...a disconnect with the 0.25% OCR. Cheers AB
An older emailer with a long memory writes: 'Fancy Cullen saying that. He was such a vociferous critic of Social Credit in the 198O’s when that Party was in parliament led by Bruce Beetham.
Jim Bolger has also questioned why the govt needs to pay back money it borrows from itself ( the RBNZ) which is a big step further than Beetham ever suggested. He only proposed 1% interest relatable loan from the RBNZ to finance infrastructure. Another thing he suggested was that the rate of repayment be moved up/down by the RBNZ as a tool to manage inflation. All seems quite rational against what we see today!'
From another emailer: "To have a Labour Prime Minister state that the only thing she is prepared to comprehensively tax is labour is an utter travesty. I have voted for them all of my life. No more. They should be honest and rename themselves The Capitalists’ Party. Because that’s who they represent. What sort of “kind” society is this when my three kids (and tens of thousands of others) can’t afford a house and – as you predicted – Orr is tipping billions into the coffers of banks, property developers and mum and dad speculators?
It's a simple economic formula; open the immigration taps and don’t build enough houses, then throw on petrol with middle NZ families owning five rental properties each. And 40,000 empty homes in Auckland shorting the market. Called pulling the ladder up behind the boomers."
And my response: he politics of change and of inequality are brutal. To change things you have to ‘take’ things off powerful people and give it to poor and weak people.
The wider the inequality, the harder it gets.
Until the centre will not hold anymore.
We’re getting a sense of what that looks like in America.
Sadly, we’ve been here before. In early 1900s, America and Europe were very unequal, there was unfettered free trade and few protections for workers. America’s democracy was corrupt and bought. It took Teddy Roosevelt, the breakup of Standard Oil and the beginning of worker protections and rights. Then came October 1917 and Capitalists spent the next 40 years first dealing with the fallout of WW1 and then fashioning concessions to keep the peace. It worked, until the capitalists forgot and got greedy.
Very good Ken Burns doco. Tells the story https://www.onnetflix.nz/ken-burns-the-roosevelts-an-intimate-history/21185
Beginning of the end was the Basel capital model that effectively said lending to people to fund domestic housing was the best thing since sliced bread and moved banks away from their traditional role of funding business lending and infrastructure capital growth.
Methinks it’s time to upend the Basel model ....especially in the light of deposit insurance, and the money printing that is going on.
Maybe tweak the capital rules to allow lending on infrastructure and housing development to have concessional rates given the backing by government.
Great point. RBNZ has flexibility to divert from Basel, but it hasn't gone too far. Ultimately, I reckon we should move to a Chicago Plan model of banks having 100% equity to back their loans. Could be ratcheted up over 100 years to avoid a fatal economic heart attack. Here's more on the Chicago Plan. https://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf
Perhaps time to revive the State Advances Corporation...
Some researchers from Auckland Uni are suggesting just that, along with a reinvented Ministry Of Works https://cdn.auckland.ac.nz/assets/auckland/arts/our-research/research-institutes-centres-groups/ppi/policy-briefings/ppi-housing-full2.pdf