Adrian Orr's future now joined at the hip with Labour's Grant Robertson, dissolving the rest of the Reserve Bank's closely-guarded projection of political independence since 1989
Thanks Bernard. Could you please explain more about the role of LVRs (maybe on Friday). Quoting from your post, we have that in 2013, LVRs "effectively discriminated against first home buyers" But in 2020 the removal of LVRs helped "wipe out another generation of renters hopes for the home ownership they know they need to build healthy and secure futures for their kids." -Thanks, David.
You’re assuming that the RATs will be in power. Isn’t that a little presumptuous a year out; even if they and their bank rollers control most of the media (excluding you of course!)
I have always thought the five year term was what provided independent monetary policy? The Governor was likely to have to fulfil the role with different Governments. When the appointment is made, the Government does not know if the RBNZ Governor will be working for the opposition or themselves. For example, Adrian Orr will now work with the current Government, the one elected in 2023, and the one elected in 2026. However he chooses to manage the NZ economy in that time, it is likely to be independent of the Governments he ends up working with.
I know that Luxon and Willis are just playing politics especially given they won’t give credible options for actions they would take eg actual policy or actual alternatives, but given the reserve bank is all happy to support the NZ housing market at all costs, doesn’t that mean they, under Orr, actually align very well with National policies?
After the Truss scandal we know it’s unlikely any major party will propose completely unfunded tax cuts, so it’s more likely National will fund their tax cuts through some short term operational ‘cost efficiencies’ despite the long term consequences.
National can just as planned strip the Rbnz of the maximum sustainable employment directive and we’re back to status quo for NZ no matter who is at the helm of the Rbnz (not to mention, doesn’t the Rbnz ‘officially’ make decisions as a group, not just the one person?).
Adrian Orr’s greatest mistake was the failure to ensure banks could operate with negative rates pre pandemic. They are nothing new and the ECB has had them for nearly a decade. This failure led to the alphabet soup of LSAP and FLP and the enriching of the rich.
Mistakes from March 2020 to June 21 are potentially forgivable. The failure to prepare for negative rates is not. It is an easy decision not to reappoint him at all and would have made an easy scape goat for a progressive Minister of Finance. From a position of weakness he now has to look like a tough inflation fighter.
- what is our average inflation over the past 5 to 6 years?
- how does our average inflation compare with average inflation over the same period for our major trading partners overseas
- in the current environment, NZ’s inflation rate of ~7% when compared to our trading partners at ~9% doesn’t seem too bad (in the short term at least)?
- what if we did manage to get our inflation rate back under 3%, but our trading partners continued at higher levels: imports would then become too expensive? that doesn’t seem appealing.
- should the 1% to 3% band for target inflation be revised, of put on hold temporarily?
- it seems the biggest cause of inflationary pressure currently is rising interest rates and money policy?
- should the RBNZ Governor’s integrity be called into question for persisting with a monetary policy that is going to damage the economy in order to control the economy, simply because ‘that’s his job’?
Thanks Bernard, really interesting read, particularly with wider context to RBNZ history.
This echos to me with how the Surpreme Court appointments in the USA have become so political. That example in the USA is a much more extreme example, but shows the leaking of politics into independent bodies.
Interesting that you say Bernard, that Nov 8th, 2022 is when the independence of the RBNZ ended. Was of course also the date of a Lunar Eclipse -clearest over NZ and Australia. And if one is interested in such things, as I am, might mean 'eclipses are harbingers of change - they usher in evolution'. How cool is that!
I agree that the independence should be and is over. Our institutions must be democratic and have elected oversight in the interests of the country and the best interests of our people and environment.
As it was and is they have been a pernicious force funding destructive offshore banks (still) and corporations instead of directly funding into productive activities and sectors that can enhance NZers quality of life and work for good for example by direct funding housing as they used too.
Obviously tax was much higher then for individuals which doesn’t seem necessary now given we can see where all the unearned and predatory wealth is going now. Not NZ and not in the public good.
Fundamentals this transparency is a good thing and I support Adrian Orr if he takes seriously who he works for. The NZ public.
Funding for lending to private banks and other subsidies to Corporations must stop.
Infrastructure services and housing health and education need investment to ensure we have a strong future not a quarter disabled and disadvantaged population and abuse of women and children institutionalised illegally. Recipe for a disastrous Mad Max future we can all see coming.
The threat to markets come from private debt not government debt which can be held and retired as is in the best interests of NZers.
No Government has got their head around or counted and paid for where the truly productive work goes on in the economy.
They need to start and get on with the democratic reform and levels service and investment in critical infrastructure and resilience NZ needs.
It’s great the politicians are even daring to speak about this secretive unelected banking hegemony making fools of them and us all.
We simply don’t have to do it the way 33 years of lack of governance and rampant greed destroying lives and failing in duties and obligations in law by Government have caused by treating people like liabilities and not investing in them or protecting our critical infrastructure and people as the valuable if invisible assets we all are whether paid or unpaid or able to “work” or not.
We are a connected ecosystem that needs acknowledging nurturing and it’s Governments job to make it so and what they’re elected to do in a democracy not allow unelected rich folk and private banks and dominating male class interests dictate to us against our personal safety and best interests.
The reserve bank is never above politics, no more than it is detached from economics. At times, it seems to drift towards partisan interests, as now but its primary responsibility is to the ruling capitalists class. The historic examples of Muldoon and Truss amply demonstrate what happens when party politics class with the interests of our rulers. The puppets are pushed firmly back in their boxes. Never mind democracy thank you. Likewise for other organs of the state as Bernard refers to with US Supreme Court appointments. The class interests of RBNZ are never more clear than now when its only solution to inflation is the punish working class wage earners and mortgage holders with increased unemployment. Investors, of course, are well insulated from this punitive policy by being able to pass the costs on the tenants. That’s a key function of the Loan to Value Ratio policy- to sort out the rich before giving loans.
Relevant to all of this discussion and not mentioned by politicians or you Bernard is the fact that all monetary policy decisions about interest rate levels in the period that has influenced inflation have been made by a committee, not just by the Governor, unlike the period prior to Orr’s appointment. It’s a bit rich to blame the Governor alone now for supposedly faulty interest rate settings when these decisions were made by a committee in a structure put in place precisely to ensure a Governor alone could not have such power any longer.
Naive question : how it is that the government can contemplate regulating fuel prices, yet seems to regard intervention in retail grocery or banking markets as impossible or improper?
As far as the way forward is concerned, debating the length of term in office would be a distraction.
As Luxon and Willis explained so well, we must begin with an independent investigation into whar has happened these past few years. These policies have damaged many people’s sense of security, physical and mental health, sense of life purpose, trust in society, patriotism, and so much more. Indirectly, they threaten our democracy. Despite Covid presenting the perfect opportunity to do the opposite!
The Opposition is finally earning their pay by speaking up for us. It’s time The Government started working for us as well.
"interregnum"? phew didn't expect a $100 word in my morning read. I'm going to get another coffee
Thanks Bernard. Could you please explain more about the role of LVRs (maybe on Friday). Quoting from your post, we have that in 2013, LVRs "effectively discriminated against first home buyers" But in 2020 the removal of LVRs helped "wipe out another generation of renters hopes for the home ownership they know they need to build healthy and secure futures for their kids." -Thanks, David.
You’re assuming that the RATs will be in power. Isn’t that a little presumptuous a year out; even if they and their bank rollers control most of the media (excluding you of course!)
Will wait with interest the results of the RAFIMP tomorrow.
I have always thought the five year term was what provided independent monetary policy? The Governor was likely to have to fulfil the role with different Governments. When the appointment is made, the Government does not know if the RBNZ Governor will be working for the opposition or themselves. For example, Adrian Orr will now work with the current Government, the one elected in 2023, and the one elected in 2026. However he chooses to manage the NZ economy in that time, it is likely to be independent of the Governments he ends up working with.
Hi Bernard,
I know that Luxon and Willis are just playing politics especially given they won’t give credible options for actions they would take eg actual policy or actual alternatives, but given the reserve bank is all happy to support the NZ housing market at all costs, doesn’t that mean they, under Orr, actually align very well with National policies?
After the Truss scandal we know it’s unlikely any major party will propose completely unfunded tax cuts, so it’s more likely National will fund their tax cuts through some short term operational ‘cost efficiencies’ despite the long term consequences.
National can just as planned strip the Rbnz of the maximum sustainable employment directive and we’re back to status quo for NZ no matter who is at the helm of the Rbnz (not to mention, doesn’t the Rbnz ‘officially’ make decisions as a group, not just the one person?).
Adrian Orr’s greatest mistake was the failure to ensure banks could operate with negative rates pre pandemic. They are nothing new and the ECB has had them for nearly a decade. This failure led to the alphabet soup of LSAP and FLP and the enriching of the rich.
Mistakes from March 2020 to June 21 are potentially forgivable. The failure to prepare for negative rates is not. It is an easy decision not to reappoint him at all and would have made an easy scape goat for a progressive Minister of Finance. From a position of weakness he now has to look like a tough inflation fighter.
Bernard, I have a few questions:
- what is our average inflation over the past 5 to 6 years?
- how does our average inflation compare with average inflation over the same period for our major trading partners overseas
- in the current environment, NZ’s inflation rate of ~7% when compared to our trading partners at ~9% doesn’t seem too bad (in the short term at least)?
- what if we did manage to get our inflation rate back under 3%, but our trading partners continued at higher levels: imports would then become too expensive? that doesn’t seem appealing.
- should the 1% to 3% band for target inflation be revised, of put on hold temporarily?
- it seems the biggest cause of inflationary pressure currently is rising interest rates and money policy?
- should the RBNZ Governor’s integrity be called into question for persisting with a monetary policy that is going to damage the economy in order to control the economy, simply because ‘that’s his job’?
Thanks Bernard, really interesting read, particularly with wider context to RBNZ history.
This echos to me with how the Surpreme Court appointments in the USA have become so political. That example in the USA is a much more extreme example, but shows the leaking of politics into independent bodies.
Interesting that you say Bernard, that Nov 8th, 2022 is when the independence of the RBNZ ended. Was of course also the date of a Lunar Eclipse -clearest over NZ and Australia. And if one is interested in such things, as I am, might mean 'eclipses are harbingers of change - they usher in evolution'. How cool is that!
I agree that the independence should be and is over. Our institutions must be democratic and have elected oversight in the interests of the country and the best interests of our people and environment.
As it was and is they have been a pernicious force funding destructive offshore banks (still) and corporations instead of directly funding into productive activities and sectors that can enhance NZers quality of life and work for good for example by direct funding housing as they used too.
Obviously tax was much higher then for individuals which doesn’t seem necessary now given we can see where all the unearned and predatory wealth is going now. Not NZ and not in the public good.
Fundamentals this transparency is a good thing and I support Adrian Orr if he takes seriously who he works for. The NZ public.
Funding for lending to private banks and other subsidies to Corporations must stop.
Infrastructure services and housing health and education need investment to ensure we have a strong future not a quarter disabled and disadvantaged population and abuse of women and children institutionalised illegally. Recipe for a disastrous Mad Max future we can all see coming.
The threat to markets come from private debt not government debt which can be held and retired as is in the best interests of NZers.
No Government has got their head around or counted and paid for where the truly productive work goes on in the economy.
They need to start and get on with the democratic reform and levels service and investment in critical infrastructure and resilience NZ needs.
It’s great the politicians are even daring to speak about this secretive unelected banking hegemony making fools of them and us all.
We simply don’t have to do it the way 33 years of lack of governance and rampant greed destroying lives and failing in duties and obligations in law by Government have caused by treating people like liabilities and not investing in them or protecting our critical infrastructure and people as the valuable if invisible assets we all are whether paid or unpaid or able to “work” or not.
We are a connected ecosystem that needs acknowledging nurturing and it’s Governments job to make it so and what they’re elected to do in a democracy not allow unelected rich folk and private banks and dominating male class interests dictate to us against our personal safety and best interests.
I know what I would do.
The reserve bank is never above politics, no more than it is detached from economics. At times, it seems to drift towards partisan interests, as now but its primary responsibility is to the ruling capitalists class. The historic examples of Muldoon and Truss amply demonstrate what happens when party politics class with the interests of our rulers. The puppets are pushed firmly back in their boxes. Never mind democracy thank you. Likewise for other organs of the state as Bernard refers to with US Supreme Court appointments. The class interests of RBNZ are never more clear than now when its only solution to inflation is the punish working class wage earners and mortgage holders with increased unemployment. Investors, of course, are well insulated from this punitive policy by being able to pass the costs on the tenants. That’s a key function of the Loan to Value Ratio policy- to sort out the rich before giving loans.
Relevant to all of this discussion and not mentioned by politicians or you Bernard is the fact that all monetary policy decisions about interest rate levels in the period that has influenced inflation have been made by a committee, not just by the Governor, unlike the period prior to Orr’s appointment. It’s a bit rich to blame the Governor alone now for supposedly faulty interest rate settings when these decisions were made by a committee in a structure put in place precisely to ensure a Governor alone could not have such power any longer.
Naive question : how it is that the government can contemplate regulating fuel prices, yet seems to regard intervention in retail grocery or banking markets as impossible or improper?
Great synopsis of Muldoon era ty
Fantastic podcast, Bernard! Thank you very much!
As far as the way forward is concerned, debating the length of term in office would be a distraction.
As Luxon and Willis explained so well, we must begin with an independent investigation into whar has happened these past few years. These policies have damaged many people’s sense of security, physical and mental health, sense of life purpose, trust in society, patriotism, and so much more. Indirectly, they threaten our democracy. Despite Covid presenting the perfect opportunity to do the opposite!
The Opposition is finally earning their pay by speaking up for us. It’s time The Government started working for us as well.