Bad John

March 7th, 2011 at 2:00 pm by David Farrar

On Breakfast this morning:

Corin: On the cost, 15 billion dollars now Treasury is saying, and 1.5% of GDP, does that make a cut in the official cash rate, some help for monetary policy, pretty much essential this week?

John: Well that’s a matter for the Reserve Bank Governor, and it’s for him to decide and him alone to decide what happens on Thursday …

And that’s where ideally the sentence should stop. But the transcript continues:

but certainly the markets have factored in a likely cut in the official cash rate, and you’ve gotta say lower interest rates probably help the country, but that ultimately is a matter for the Governor

That is a subjective view that lower interest rates help the country. They don’t help long-term if they lead to excessive inflation.

On this case I agree with the PM, but the difference is I am not the PM. By making those comments, we have a possible headline that if Bollard does not lower interest rates that the “PM thinks Governor is not helping New Zealand”.

I’m a bit of a purist. I beleive there are only four people in New Zealand who should not express a view on what the Reserve Bank Governor should do – that is the Minister of Finance, the Prime Minister, the Leader of the Opposition, and the Shadow Finance Minister. They are all his current or future effective bosses, and any comments from them puts pressure on the Governor – even if unintended.

Also politically commenting is not wise. If the Governor happens to do what you say, then there is a suspicion he was pressured to do so. If the Governor does not do what you say, then the media will paint it as a row.

The bottom line is that while the public like having a Prime Minister who will answer questions on almost every issue and subject – potential changes to the official cash rate should be one you don’t answer except to say :”It is a matter for the Governor”

I’m with the Governor

February 8th, 2010 at 8:48 am by David Farrar

The Herald reports:

Prime Minister John Key has vowed to stick with his goal of closing the income gap with Australia, despite an embarrassing dismissal by the Reserve Bank Governor who said there was no chance of it happening.

Speaking on TVNZ’s Q+A programme yesterday, Alan Bollard said Australia had been “blessed by God sprinkling minerals” and had handled its economy well. He said New Zealand would do better to make the most of the “crumbs that come off the Australian table”.

He said it was up to the Government what its own goals were, but he did not believe catching up with Australia was possible.

However, Australia’s success was good news for New Zealand and the real challenge was in working out how to capitalise on it.

The Governor is quite right that it is not practical to think we can close the gap with Australia by 2025 – quite simply the gap is just far too large.

However I think we can aspire to something more ambitious than making the most of the crumbs that come our way from Australia.

Even if the gap is not closed by 2025, we do want a very strong focus on higher levels of economic growth so the gap gets smaller, or at least doesn’t grow as quickly.

There are effectively six scenarios going forward, from worst to best:

  1. NZ growth rate in next 15 years is even lower than for last 15 years, meaning gap between Australia grows even faster than previously.
  2. NZ growth rate in next 15 years is the same as last 15 years, so the gap grows as fast as previously.
  3. NZ growth rate in next 15 years is higher than the last 15 years, but still not as fast as Australia, so the gap continues to grow – but slower than before.
  4. NZ growth rate rate in next 15 years matches that of Australia, so the gap remains relatively constant.
  5. NZ growth rate in next 15 years is higher than that of Australia, but not high enough to close the gap by 2025, so the gap closes but is not gone by 2025.
  6. NZ growth rate in next 15 years is so much higher than Australia’s that the gap is closed by 2025.

Now like the Governor, I don’t think No 6 is realistic. We are starting too far behind. But personally I’d be pretty delighted with either No 5 or No 4 – both would be absolutely major achievements. Even No 3 would be better than the status quo.

New Zealand Reserve Bank Annual 2010

December 26th, 2009 at 12:00 pm by David Farrar

The Dom Post reports:

Reserve Bank Governor Alan Bollard has ways of keeping a lid on details of his mythical double life as a “beer-swilling bogan tough dude”.

He just buys all the copies of the spoof book New Zealand Reserve Bank Annual 2010.

Downtown Wellington’s Unity Books sold all 55 copies of the satirical book before Christmas, leaving an information vacuum for central bank watchers until mid-January.

The book, by South Island author David Haywood, portrays Dr Bollard drinking a dozen DB Brown before heading off in his ute to “sort out the Briscoes lady once and for all”.

“I don’t generally read books containing violence, pornography and tough dudes, but in this case I have made an exception,” Dr Bollard said. “Overall I feel it enhances my reputation.”

I’ve read a copy and found it very funny. Good to see Dr Bollard having a sense of humour over it.

Asked if he was considering legal action against the author, Dr Bollard said: “I have my own way of getting back at someone I don’t like.”

Dr Bollard is not expected to raise interest rates for authors or anyone else until the middle of next year. Aside from that, he can bar satirists from becoming bank executives.


The cost of the credit crisis

February 27th, 2009 at 12:34 pm by David Farrar


This comes from Reserve Bank Governor Alan Bollard’s presentation to the PM’s Jobs Summit.

US$39 trillion is a lot of money. It is 390 times the size of the NZ economy.

This is why things are going to get a lot worse, and why local measures (no matter how worthy) will have little effect.

World University Debating Champs

January 4th, 2009 at 10:28 am by David Farrar

The world university debating champs have been happening in Cork.

Congrats to the Vic A team of Stephen Whittington and Polly Higbee who made the semi-finals. They were Opening Government on the topic “That governments should subsidise home ownership.” There are four teams in a debate at worlds (Opening Gov, Opening Op, Closing Gov, Closing Op). Opening opposition was Harvard A – featuring Lewis Bollard, son of Reserve Bank Governor Alan Bollard. Harvard A won the semi and were 2nd Gov in the final with the topic “This house would ban abortion at all stages of development”.

The overall winner was Oxford A on a 5-4 split.

Also congrats to former Vic student Christopher Bishop (G2) who was a judge, and chaired the judging panel for the other semi-final.

Bollard admits risks in depost guarantee scheme

October 14th, 2008 at 7:04 am by David Farrar

The NZ Herald reports Alan Bollard discussing some of the flaws in the Government’s hastily announced deposit guarantee scheme.

I am going to touch on that in a later post. First I want to reflect on whether Governor Bollard and Secretary Whitehead have acted properly during this period of Government. A reader (a former senior official in Government) makes the case in e-mail to me that Bollard and Whitehead should have insisted that the Government consult with the Opposition on the scheme, before announcing it. The reader says that “in his day” the Governor and Secretary would have threatened to resign rather than damage the independence of the public service and the Reserve Bank.

This scheme provides a guarantee of $150 billion for deposts – the largest contingent liability in history. It is being done without parliamentary sanction and by a Government in the period just before an election. Traditionally in this period major decisions are not made unilaterally, let alone one of this magnitude.

Did Bollard and Whitehead advocate for bipartisan consultation, and if so why did they not insist on it? Would consulting with the two people who might be Prime Minister and Finance Minister in less than a month have detracted from economic stability and constitutional integrity or enhanced it?

Think of what a disaster it would have been if the Government announced the scheme and the Opposition then did not back it? The result would have been worse than never announcing the scheme in the first place.

I say this with great hesitation and respect for the Governor and Secretary. But their actions have undermined confidence in a neutral public service. To not insist on consultation with the Opposition for a $150 billion guarantee, just four weeks before an election, was misguided at best, and reckless at worst.

Sunday Snippets

June 8th, 2008 at 12:40 pm by David Farrar

For that long Sunday afternoon:

The NZ Book Council have a very cool website to encourage reading. They’ve done it as a Windows operating system.

Scrubone does a fisking of No Right Turn’s outrage at National over citizen juries. Also on that issue, Russel Norman at Frog Blog agrees with some of my suggestions around Citizen’s Juries – specifically the need for multi-partisan agreement not narrow agreement.

Paul Walker responds to Matt McCarten’s hysteria over the Business Roundtable.

Whale Oil likes his stats comparison with Kiwiblog. Obviously girls and guns work 🙂

Craig Foss looks at how Dr Cullen is financing his tax cuts – he is borrowing $6.4 billion and also selling $6.4 billion of financial assets breaking one of his four tests. This last one is particularly cunning as it allows him to claim gross debt remains on track. This si why net debt is the better indicator.

Colin Espiner reviews the Reserve Bank MPS and the polls.

Bernard Hickey believes Alan Bollard has gone soft on inflation, as does the Westpac Chief Economist.

Blog Bits

April 10th, 2008 at 2:26 pm by David Farrar

No Right Turn blogs that he believes the NZ First advertisements do breach the Electoral Finance Act as “a reasonable person would regard it as an encouragement to vote for NZ First”. I agree. As Idiot/Savant says it is not a survey, it lays out policy and encourages approval of it.

Poneke has more on the BBC story on climate change which got modified. The reporter denied he did it under pressure, but an activist has blogged she successfully pressured him to change it.

The visible hand in economics looks at fixed vs floating exchange rates.

The DAFT Party has a solution for China over Tibet. It is to rename China to Tibet, and declare they are all Tibetians. The PRC Government should see the sense of this now they are running a market economy – you replace a tarnished brand with a more positive brand!

Bernard Hickey has video and a blog post on Alan Bollard’s speech suggesting we are talking ourselves into a recession. Bernard says we’re not, and if we do have a recession, it is because we deserve it! Them’s fighting words! It’s a lengthy excellent post with many graphs.