Armstrong on Labour and Reserve Bank

October 6th, 2013 at 10:00 am by David Farrar

John Armstrong writes:

Not wanting to compromise the bank’s independence, Key had to accept the bank’s right to write the restrictions in its own terms.

Not so . Cunliffe made vague noises about not interfering with the bank’s independence. But he intimated a government would effectively instruct the bank to have regard for first-home buyers by writing that requirement into the policy targets agreement that a new government signs with the bank soon after taking office.

Cunliffe’s stance reflects his intention to give Labour a more bolshie image. He is exploiting the fact that Opposition parties can promise more than governments can. And he knows interest rates are likely to rise before the election.

But Cunliffe has to be careful. With Labour also committed to making the take heed of exchange rate fluctuations, Cunliffe has to avoid leaving the impression that Labour’s answer to every economic problem is to fiddle with the ’s mandate – and thereby neutering the institution in the process.

I think it is clear the Reserve Bank will cease to be an independent entity under Labour. It will be back to the 70s.

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33 Responses to “Armstrong on Labour and Reserve Bank”

  1. Redbaiter (8,350 comments) says:

    The Reserve Bank just gives a means for socialists in National and/or Labour to control our economy.

    Abolish it.

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  2. Antarg (38 comments) says:

    According to information on yourstrawman.com, privately owned reserve banks are at the heart of most of the problems facing the world today.
    There certainly seems to be a credible case for having an interest free currency that’s tied to assets with real value.

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  3. Anthony (789 comments) says:

    It’s great the Reserve Bank is trying measures other than raising interest rates for everybody to try to cool Auckland house prices.

    For many years first home buyers needed a 20% deposit, and of course sometimes did get help from parents with this. Why is a return to those conditions so bad?

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  4. tvb (4,326 comments) says:

    The Labour Party does not believe in honest money. And Russell Norman thinks you can print money to increase wealth. It is government by the feckless for the feckless of the feckless.

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  5. gravedodger (1,546 comments) says:

    And so many socialist tossers suggested Key was Muldoon 2013.

    Idiocy knows no bounds.

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  6. Fox (205 comments) says:

    It is not the Reserve Bank’s role to interfere with the housing market and attempt to control house prices.

    It’s mandate is to ensure an inflation bandwidth target is met.

    Somebody needs to explain this to Graeme Wheeler.

    If the Reserve Bank takes it upon itself to stride outside it’s given mandate, then the Government has every right to step in and shunt it back into line.

    Also you really have to question Wheeler’s ‘logic’.
    Somehow he has decided that hard working, low income Kiwis struggling to enter the housing market at even the lowest rung, ought to cop the entire blame for the extraordinary house price increases across the board, whereas at the same time wealthy foreigners, pockets lined with cash, and Asian investors with access to enormous amounts of virtually interest-free money remain free to bid up the price of houses across all sectors to almost limitless levels, and miraculously escape even the slightest mention in his diatribe!

    A complete and utter joke.

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  7. adamsmith1922 (890 comments) says:

    Fox I am afraid you are the weakest link, your ‘argument’ does not stack up.

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  8. gazzmaniac (2,307 comments) says:

    It’s great the Reserve Bank is trying measures other than raising interest rates for everybody to try to cool Auckland house prices.

    It is not the Reserve Bank’s role to interfere with the housing market and attempt to control house prices.

    Except that is not why they are doing it. They are doing it to protect the financial system from a housing bubble.

    While I do like Red’s comment (yes, I was the one thumbs up), personally I think it would be sufficient if the Reserve Bank didn’t tell banks how to run their businesses, and let the banks decide which loans to approve and not to approve. I’d do that at the same time as telling the banks that there is no chance of a bailout if they fuck up.

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  9. gazzmaniac (2,307 comments) says:

    I fail to see why that comment deserves a thumbs down. Please elaborate.

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  10. gazzmaniac (2,307 comments) says:

    Ditto.

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  11. Sir Cullen's Sidekick (872 comments) says:

    That is what the people want. The opinion polls prove it. Cunliffe has the mandate to do what he wants. So don’t grumble pal.

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  12. Viking2 (11,368 comments) says:

    fox @ 11.07 and gaz @ 11.17 are both correct.

    This problem started with easing on bank lending ratios world wide under the Bazille agreements. The bankers don’t seem to be able to pull their banks back to prudent levels of lending and govt.’s are not inclined to stop borrowing so something needs doing. Unfortunately, NZ is so tiny in the world money market we will get clobbered every which way. Wheeler is endeavoring to bring them back to sensible inside NZ
    BNZ seems to agree.

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  13. Fox (205 comments) says:

    I fail to see why that comment deserves a thumbs down. Please elaborate

    Direct quote from the great Wheeler himself: “Restricting lending to borrowers with low deposits can help reduce the upward pressure on house prices, especially as banks have been competing aggressively for borrowers with low deposits”.

    ‘Reducing upward pressure’ translates into controlling house prices.

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  14. Redbaiter (8,350 comments) says:

    “While I do like Red’s comment (yes, I was the one thumbs up), personally I think it would be sufficient if the Reserve Bank didn’t tell banks how to run their businesses,”

    They more than that, they provide a framework for socialism to impose itself upon the economy. Eventually we will pay a heavy price for socialist excesses and the reserve bank will have played a big part in that cost.

    We do not need a reserve bank. We do not need either Labour or National manipulating economic factors.

    What people in NZ seem slow to realise is that every time you set up any kind of system for govt to interfere, you are by default giving Labour the chance to interfere if they win government.

    Whenever there is any government role in business, you just need to ask yourself, “Do you want the hard left communists of Labour/Greens making decisions that impact on the economy?”

    All of those here upticking the idea of the Reserve bank have not made one sensible comment on the issue raised in the OP-

    What happens when Labour gets in???

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  15. gazzmaniac (2,307 comments) says:

    Fox – that’s far better than an unexplained thumbs down.

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  16. Fox (205 comments) says:

    What happens when Labour gets in?

    Labour is going to interfere in the markets not matter what precedent the Government before it sets.

    If a system to interfere with a certain part of the economy doesn’t exist, they will simply create it.

    So that makes the whole point you’re trying to make mute.

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  17. Viking2 (11,368 comments) says:

    Frank Newman: Interest rate rises and Meridian

    It should come as no surprise that interest rates are likely to start rising from about April next year. Last week the Governor of the Reserve Bank, Graeme Wheeler, reaffirmed that outlook but was more specific about the size and speed of interest rate rises.

    http://breakingviewsnz.blogspot.co.nz/search/label/interest%20rates

    Again, it will be provincial New Zealand paying for Auckland’s problems.

    Higher domestic interest rates are likely to attract overseas investors into our money market and cause the Kiwi dollar to rise. Farmers and foresters (and any exporter) will not be very happy when they convert their overseas currency into New Zealand dollars, and that loss of income is likely to be felt in the provinces.

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  18. Redbaiter (8,350 comments) says:

    “So that makes the whole point you’re trying to make mute.”

    Exactly the opposite. That there is so little opposition to government by principle interfering in economies that voters assume that Labour will “fix” it and therefore vote for them.

    My idea is to generate as much support for the free market, and massive opposition to governments running the economy. If I am successful in this, Labour won’t get elected.

    I have said for so long we have one big socialist coaliton running NZ and only get to vote on who leads that coalition. That coalition has to be destroyed before we can get governments out of markets and to stop interfering in our lives in every other way as well.

    Stop electing big govt. socialists in Labour and National. Stop endorsing their interference. Stop supporting the framework that allows that interference. That is how we fix the economy.

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  19. Redbaiter (8,350 comments) says:

    Btw, its “moot”.

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  20. Monique Angel (272 comments) says:

    Sometimes I the distant thunder of applause after reading your comments, Redbaiter.
    It’s not a case of right wing vs left wing anymore.
    It’s more a case of my Socialist “Dick with Everything”, Government beats your Socialist “Dick with Everything”, Government.
    Which is why you got the thumbs down, Boys.
    You just offended the National Party supporters, many of whom are not necessarily right wingers.

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  21. Fox (205 comments) says:

    That coalition has to be destroyed before we can get governments out of markets and to stop interfering in our lives in every other way as well.

    Well good luck.

    I can recall ACT having a similar kind of agenda.
    Currently they’re hovering at around 1% in the polls I believe.

    You certainly have your work cut out for you. :)

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  22. Monique Angel (272 comments) says:

    That’s thanks to MMP, Fox.

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  23. Dennis Horne (2,371 comments) says:

    Where does the “money” come from? From the banks. Produced out of thin air: fiat money. Fake. A scam permitted by the reserve bank. Fractional reserve banking must be controlled — strictly controlled — we have seen what happens when it’s not. It’s all right for the USA to print money, it can sell it to the rest of the world, we can’t.

    To have no reserve bank, the money has to be “real”, backed by wealth, not debt – as it is now. Back to gold? Of course not.

    But despite what the naysayers say, gold has real value. Because people believe it has. They know well the paper from the state is worthless. That’s why nobody saves it. The only way to get ahead is to borrow and buy a real asset; repay with cartoon money. And then pay no tax on your increase in wealth. Scandalous. Politicians’ vested interests prevent change.

    Governments are less interested in increasing wealth than increasing their tax take. That’s why they don’t care much what the economic activity is, as long as it produces tax for them. Serving coffee has the same value as shearing sheep. No, it doesn’t.

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  24. Simon Arnold (108 comments) says:

    Fox:

    “It is not the Reserve Bank’s role to interfere with the housing market and attempt to control house prices. It’s mandate is to ensure an inflation bandwidth target is met.”

    The RB’s primary function “is to formulate and implement monetary policy directed to the economic objective of achieving and maintaining stability in the general level of prices”, but it also has responsibility, inter alia for “promoting the maintenance of a sound and efficient financial system” (and has to take this into account when performing its primary function). This leads into Part 5 of its Act that deals with the “Registration of banks and prudential supervision of registered banks”, and this includes using its powers to avoid “significant damage to the financial system that could result from the failure of a registered bank”.

    It was more in this context that the LVL changes were made. The concern was that the action of individual banks could have exposed the banking system to significant risk if the housing market corrected. Note also the LVL stuff only relates to Registered Banks because this is the limit of the RB’s powers.

    The issue for Labour is that they are wishing to intervene here. There is a clear procedure already laid down in the Act whereby the Govt can intervene (Section 68B) and it would be a very brave Govt IMHO that would seek to intervene using those powers to prevent the RB reduce the exposure of registered banks to the risk in their LVL portfolios.

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  25. gazzmaniac (2,307 comments) says:

    Gold only has the value that people assign to it. Until recently there wasn’t really even any use for it. Its main use is for a store of wealth, and it has value is only because people give it value. It is no better than state backed fiat currency.

    I would support currencies that were backed by commodities. It is a great idea. I also think it would be great if a company like Fonterra could issue bearer bonds backed with milk powder, or say Foodstuffs with grocery backed bearer bonds (*they kind of do that already with supermarket vouchers).

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  26. holysheet (339 comments) says:

    If the problem is caused by high house prices in auckland, why can’t the banks charge a higher interest rate in auckland. This could be set by the Reserve bank just for them and leave the rest of us alone. Is this too simple or am I missing something?

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  27. Redbaiter (8,350 comments) says:

    “You certainly have your work cut out for you.”

    ACT got confused about its mission. It became “the Liberal Party”.

    Big mistake.

    Now its “the Liberal Party as lead by John Banks”.

    Even bigger mistake.

    The main thrust of any strategy has to be the destruction of the Labour/ National sclerotic coalition.

    Its not impossible. Although it definitely won’t happen if nobody tries.

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  28. Griff (7,387 comments) says:

    monkey factor
    We need to differentiate between liberal right wing and conservative to the benefit of both.
    or place the loonys in a boat and tow it over the 200 mile limit.

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  29. mikenmild (11,247 comments) says:

    ACT was always an economically and socially liberal party. It’s problem has been splitting and the disastrous leadership changes, from Hide to Brash to Banks as it has become more and more of a joke. Its love affair with the Sensible Sentencing Trust was also a huge mistake, as in its early years ACT was consciously targeting itself at more informed voters than the get tough on crime rabble.

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  30. Griff (7,387 comments) says:

    Brash brought influence from the national party coagulating with the deal that led to conservative banks elected in Epson to keep the blue rinse set happy.
    Socially liberal they acknowledge the state obligation to insure the worst off are not left to beg on the streets in their principles.

    encourage individual choice and responsibility and the pursuit of excellence in all fields of human endeavour;
    enhance living standards for all New Zealanders through sustainable economic growth and international competitiveness;
    enhance choice and diversity, and raise standards of achievement in education;
    ensure that all New Zealanders have access to quality health care and have security in retirement;
    maintain social and economic support for those unable to help themselves and who are in genuine need of assistance;
    provide for the nation’s security and the protection of individual lives and property;
    explore and implement practical and innovative ways to protect the natural environment;
    maintain sound economic management, including (but not limited to) a balanced government budget, price stability and a free and open market economy; and
    limit the involvement of central and local government to those areas where collective action is a practical necessity.

    http://www.act.org.nz/principles

    encourage individual choice and responsibility.

    Liberal.

    Not

    conservative.

    retardist

    authoritarian.

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  31. UpandComer (528 comments) says:

    everyone needs to remember it was Labour’s incompetence with state housing, and lethargy, ignorance and neglect of general housing that meant in 2008 they had to underwrite the entire banking sector to the tune of 100 billion dollars – I get itchy all over with the brass hypocrisy they have highlighting this issue now, when National once again has had to clean up their awful stinking mess and has done a good job.

    One of the primary reasons we have a reserve bank that is independent is to prevent political economic cycles – do any of you (I’m looking at you Red) think that Labour and the Greens wouldn’t adopt the utmost cynicism to screw the scrum with their ‘smart-interventionism’ notwithstanding it will be useless as we are a small open economy subject to the world interest rates.

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  32. Viking2 (11,368 comments) says:

    The fact is the main trading banks whilst strictly adhering to the new policy (especially as their operating license is at stake, not something they are likely to risk for one second) will not for a moment relinquish their desire to continue to build their business by lending against property as a secure asset. These banks are hardly going to be able to settle back and report to their shareholders that they have seen their profits fall because of this policy. Their shareholders will rightly expect them to seek to find alternative lending options to make up for any potential loss of clients in the high LVR market.

    This is where that contrary position comes in. If you are not a first-time buyer or an investor. If you have a healthy equity ownership in your property and you are possibly looking to buy a house or refinance. You may well now find out that your local bank is even more happy to see you, greet you warmly and encourage you to discuss options with you.

    The fact is that for every large value low-LVR mortgage that a bank can write, will effectively allow them to offer a lifeline to first-time buyers and investors.

    http://www.nbr.co.nz/article/silver-lining-new-lvr-restrictions-ck-146750

    good article about how the banks will move in housing.

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  33. Fisiani (1,025 comments) says:

    The Cunliffe believes that everyone accepts, loves and obeys him. He has loyalty ledges to prove it. How dare you question the word of The Cunliffe.

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