Typing the date I notice that in the Christian calendar today is the Feast of the Annunciation –  the announcement of a coming Saviour and Redeemer – and that today it is nine months until Christmas.  One can only wonder how things will be, here and abroad, on Christmas Day 2020.

But what about current policy and related issues?  First, to get out of the way a couple of important, but less central or immediate issues.

The first is around accountability.  Personally, I’m uneasy that Parliament is simply closing down for the time being, in the middle of one of the most severe crises in our history, with an unprecedented usurpation of power by the executive.  But whatever the shorter-term questions, challenges etc (that the planned Select Committee is unlikely to do much about) there will be a need for a serious reckoning with how the authorities, political and official, handle all stages of this pandemic –  those past and those, perhaps over many many months –  still to come.  After the 1918 pandemic, the New Zealand government set up a Royal Commission, which reported back within about six months.  The report is here.   It seems like a good model for a variety of purposes: accountability, documenting issues and experiences, and learning from what worked well (and what do not) for future pandemics.     It would be a welcome commitment to openness and accountability if the Prime Minister would now commit that once the pandemic is passed such an independent and powerful Royal Commission will be established (in case there is a change of government before then, ideally that would be endorsed –  or done jointly with – the Leader of the Opposition.

In the meantime, a serious commitment to accountability and openness –  around contentious and highly uncertain re effect policies (and even choices not to act) –  would be enhanced if the current government would commit to the pro-active release of all Covid-related papers going to Cabinet, to Ministers, and to government agencies and officials who have either independent policymaking power or delegated authority to set operational policy on these matters,  (There might perhaps be a few  – very few exceptions – around national security, but openness builds trust –  or exposes weaknesses, which in turn is a basis for correcting and improving things.)

The second is around economic data.  New Zealand’s official data are pretty mediocre at the best of times –  one of only two OECD countries with only a quarterly CPI, badly lagging GDP numbers, no monthly read on the unemployment rate, and so on.   It is hard not to imagine that the official data will only get much worse this year, with long delays even if adequate numbers are finally able to be patched together.  It would be helpful for analysts if Statistics were to give an early outline of their plans and contingency plans.

But in the meantime, it would also be highly desirable if the authorities (whether SNZ or economic agencies like MBIE, the Reserve Bank or the Treasury) and getting together a timely public dashboard of high-frequency administrative data.  Things it might cover could include, for example:

• daily or weekly new welfare benefit applications,
• weekly bank credit data
•  weekly data on electronic payments
• daily or weekly arrivals data

These –  and no doubt others –  would be valuable not just now as we tumble into the abyss, but through all the inevitable ups and downs –  perhaps quite volatile ones –  in the coming months.   If/when we eventually get official data it will be good for the economic historians (and the Royal Commission) but for now we need a range of timely high frequency data (no doubt all stuff that could be compiled by people working from home).

What I really wanted to focus on today is the announcement by the government and the banks (and the Reserve Bank) yesterday afternoon.   There were very few details in the announcement, but what we know is this:

The package will include a six month principal and interest payment holiday for mortgage holders and SME customers whose incomes have been affected by the economic disruption from COVID-19.

The Government and the banks will implement a $6.25 billion Business Finance Guarantee Scheme for small and medium-sized businesses

The scheme will include a limit of $500,000 per loan and will apply to firms with a turnover of between $250,000 and $80 million per annum. The loans will be for a maximum of three years and expected to be provided by the banks at competitive, transparent rates. The Government will carry 80% of the credit risk, with the other 20% to be carried by the banks.

The Reserve Bank has agreed to help banks put this in place with appropriate capital rules. In addition, it has decided to reduce banks ‘core funding ratios’ from 75 percent to 50 percent, further helping banks to make credit available.

Take the “payment holiday” first.  I guess it was always likely for customers that were only fairly modestly indebted and had a fair amount of collateral to offer –  indeed, in those circumstances the willingness to offer such an extension is obviously sensible and mutually beneficial.

But do note that this offer by the banks  –  how much was it a genuine offer, and how much were they coerced into it –  includes (or seems to) all existing residential mortgage and SME borrowers.  Just on the mortgage side, that includes those who will have taken on loans in the last year or two with LVRs well in excess of 80 per cent.  It seems highly likely that market-clearing house prices will be falling at present, perhaps really rather a lot, even if the market is highly illiquid and there won’t be any open homes for the time being.   And although people don’t have to stump up with the cash for the next few months, interest is still accruing.  Floating first mortgage rates are still around 4.5 per cent, and on a $500000 mortgage a household will  run up perhaps another $12000 of debt in the coming six months.    An 80 per cent LVR last month could easily be a 100 per cent LVR next month, and worse than that if the security had to be realised in the near future.   Typical business lending interest rates are higher than those for residential mortgages.

I am not, of course, suggesting that banks should waive the interest.  But these continued high interest rates just reinforce the absurdity of the Reserve Bank Monetary Policy Committee simply refusing to cut the OCR any further, having cut it by only 75 basis points in the biggest economic slump of our lifetimes.  Setting monetary policy in a way that delivered, say, zero per cent low-risk retail lending rates would deliver real sustained relief to borrowers, and treat depositors as is appropriate at present (time having no value, or even negative value).

And what of the business loan guarantee scheme?  It looks relatively attractive to the banks, especially as (at present) there is no sign of any guarantee fee, however modest, and will enhance/underpin to some extent and for some classes of customers their willingness to lend a bit more.  Since banks know their own customers they still need to make decisions about which firms are likely to survive, with enough prospect or security that the bank is likely to get its money back.

But I doubt it will be that attractive to many businesses at all, and they may be something of an adverse selection problem in those who actually seek to use it.    And those interest rates –  the official statement says “competitive transparent rates”, while RNZ this morning referred to them as “normal commercial rates”.  Time has little or no economic value at present, at least across the economy as a whole.  Risk-free rates should be negative in a deflationary slump like this, and normal commercial rates –  which always carry a risk margin – probably should be pretty much zero.  That is hundreds of basis points less than firms are, and will, actually pay.  Fixing that would provide real relief, and perhaps a bit more willingness to take on a bit more debt, but the Minister and the Governor simply refuse to do anything about it.

But if debt service relief –  real relief, not just delays –  would be of considerable help, the real issue remains the dramatic slump in revenue many firms have already seen and that many more are just now beginning to experience.   And there is extreme uncertainty about (a) how much worse things might get (bounded at zero revenue I guess, but often with fixed outgoings), and (b) when, and how strongly even then, things might improve.  No one knows, and certainly your typical owner of a modest-sized business doesn’t.  Many of them won’t have much collateral, and they will have low profit margins at the best of times (Martien Lubberink at Victoria yesterday highlighted that The Warehouse group seems to fit that bill), and for many it won’t be obvoius why it is worthwhile to borrow, rather than to simply close down now and perhaps get lucky enough to be among the earlier people to realise any remaining assets.  Even if there is a robust business there five years hence, it won’t be so for the current owners if they take on lots of new debt in the interim.

It may get a bit tiresome to keep reading it, but the government’s approach still does not seem to recognise –  or if it recognises the point, be willing to do anything serious about it –  that the biggest issues around the survival of firms is dramatic income loss and extreme income certainty.  While they avoid confronting that more and more businesses will close by the day.

Which, of course, brings me back to my income guarantee proposal, guaranteeing households and firms (to the extent they maintain paid employees) 80 per cent of last year’s net income for the coming year.    It is the sort of national economic pandemic insurance policy we might well have signed up to if we’d thought seriously enough about the issue 20 years ago (experts have always advised that a really severe pandemic would be along one day).   We can’t –  or shouldn’t –  go offering that level of comfort indefinitely, but given the position successive governments have kept net public debt to (zero per cent on the best OECD measure), we can –  and should –  certainly do it for a year.  It buys both firms and households (borrowers) and banks a reasonable amount of time.  If, perchance, economic life looks like returning to normal in six to nine months, it would have served its purpose, and avoiding many liquidations and insolvencies.  If there is still huge uncertainty, or worse, by then, everyone can start adjusting further.  It isn’t a policy that will or should save every firm, or perhaps even every household, but it would offer a valuable affordable buffer –  one that we’ve either paid the premium for in the last 25 years (getting/keeping that low debt) or could do so over the 25 years after the crisis in over.

And we should back it up with a 20 per cent (legislated) temporary cut in wages (and probably rents).  There are plenty of households that are going to do just fine economically this year, even as the economy’s capacity to generate returns has slumped dramatically.  It is about fairness, shared sacrifice, (and perceptions thereof) and about actually easing the burden on some of those firms (whose “profits” are now deeply negative) everyone wants to hold together if we can.  Complement it with a windfall profits tax if you like for the few firms that might do exceptionally well through all this.

I really hope it doesn’t take much longer before the government is finally willing to confront that “income loss and extreme uncertainty” nexus, and be prepared to take steps that meaningfully address it, in ways that help stabilise for now (and to the extent possible) firms, households, and (thus) underpinning the ability of banks to lend.

Oh, and what stops them just getting on and doing the little it would take to dramatically cut interest rates?

And so the die is cast and the motley crew (of, I’m sure, well-intentioned people) that make up our government have decided on a lockdown  Liberties are shredded, but I guess people will still be free to shop at The Warehouse.  It seems a curious business.

We must hope the strategy “works”, but the problem seems to be that (a) it isn’t clear there is a strategy (just another tactical choice), and (b) it isn’t really clear what “works” means here.    The Prime Minister yesterday referred to those standard worst-case types of death numbers, that have been around pandemic planning for years.     And she talked in terms of how the lockdown should probably dampen the local outbreak.  But there was no sense of how we get from a four-week lockdown to the end, when the virus is no longer a threat (whether the hope of a vaccine is realised, or because a less-lethal version just becomes part of the normal mild perils of winter).  In particular, there is no sense of how many lives any particular set of policy responses are credibly likely to save, in a world population with no underlying immunity.   I guess the only honest answer is that no one knows, but it would be good to have sense from the government of the central estimates they are working with, and the confidence bands around those estimates.  Without anything like that it is all but impossible for citizens to reach a view on the merits of any planned set of interventions, or a strategy.

There are various efforts around to attempt at least sketch outlines of a cost-benefit analysis (though typically of “policy intervention” defined very generally).  Some people simply object to such exercises as somehow immoral in the face of the threat.  I disagree.  I think they can help frame some of the discussions society has to be having.  Even if, say, you or I might give everything (if necessary our very lives) to save our children, that simply isn’t the way public health policy (or any other area of public policy for that matter) actually works.   We make choices about costs and tradeoffs, whether it is about speed limits, food safety or (closer to this blog) bank capital.

A few weeks ago, I tried to tease out, in a back of the envelope sense, some of how one might like to think about the issues (towards the end ofthis post).   A couple of extracts

According to the Treasury’s CBAx spreadsheet, the value of a statistical life (price community would pay to avoid premature death) this year is just on $5m.   25000 people at $5m each is $125 billion.  However, the evidence so far – including the Chinese data –  is that the deaths are very concentrated among older people.   On the Chinese data –  which may have its weaknesses –  the median age of those dying looks to have been as high as the late 70s, whereas the median age for all New Zealanders last year was 37.3. Remaining life expectancy at 80 seems to be about a quarter of that at 37, so we can chop down that maximum possible saving (from avoiding premature deaths) to no more than, say, $31 billion.

But, of course, even that is too high, since the implicit assumption is that all those lives could be saved with appropriate policy responses.  And from everything I read that seems incredibly unlikely.  Often people seem to talk about using policy measures and costly private actions (distancing etc) to spread out peaks and reduce the intense, perhaps overwhelming, peak pressures on the health system, and thereby (a) reduce the number of deaths and (b) make the whole experience less intolerable for those who would die anyway and those who, while sick, live.   Obviously I have no idea how many lives might be saved in total, but no one seems to seriously suppose it is anything like all of them.  If it was half, it would –  all else equal – be worth spending $15 billion or so to avoid those premature deaths.

Of course, there are other potential benefits to be added, including any sustained impairment of health (eg lung functioning) for some of those who recover.

Probably three weeks ago $15 billion seemed a really big number.  Sadly, now it is chicken-feed relative to the output losses New Zealand will suffer this year.  The loss in the June quarter alone could end up getting on for doubling that, if the lockdown gets extended much.

But in any such discussions, it is also worth bearing in mind that we need to think about marginal effects on both sides of the “equation”.   How many lives will be saved over the next couple of years by the planned set of interventions vs the additional economic cost from the New Zealand’s government’s interventions.  Both what the rest of the world’s governments do, and what the wider public (here and abroad) do anyway isn’t, in principle, relevant to the calculation.    And a great deal of the economic losses we are now facing, and about to undergo, are already baked-in.   There would be no tourists anyway, as just one example.  There would be massive investment uncertainty.  There would be increased physical distancing and postponement of events, and so on.

It is hard to put numbers on any of these items, but the discipline of writing the assumptions down, expressing realistic confidence intervals, articulating the basis for your judgements on each line item, and then disclosing that material to the public should be a part of what is going on now  It is also at least partly about accountability, for some staggeringly big choices governments are making now, and look set to continue to make in some form or another for some time to come.    I don’t have a strong view myself –  interesting question to ask is whether, if there was a referendum today you would support the lockdown – but confidence in judgements being made is only likely to be enhanced if there is good, robust analysis underpinning those judgements.

(And here we should make only little allowance for the mad rush; they’ve had two months to learn from Wuhan and prepare and yet in all too many fields of government it is increasingly clear how little that time was used for serious bad-case planning and preparation.  That seems particularly evident –  perhaps just because it is my focus – in the economic policy area.)

Of course, the more immediate issues now are around economic policy.   The interviews on the morning shows this morning suggest an announcement from the Minister of Finance later today around credit.   Unfortunately, there is still no hint in any comments from the Governor or the Prime Minister that they are yet willing to do what is really needed.   Simply being willing to extend credit to firms might be helpful, but it isn’t really the issue, because for many firms it simply won’t be worthwhile to borrow, taking on more debt against the totally unknown horizon at which something like normality might resume (hint, it isn’t after four weeks).     We need a comprehensive system of income guarantees (80 per cent of last year’s net) for individuals and for firms that stay fully staffed and capable, for the year ahead.   Just possibly, the guarantees would not prove to be needed for that long, but that is really beside the point now: what matters now is uncertainty and expectations, and not just for the next few weeks (still what the wage subsidy is doing).  (My macro-stabilisation package here.)

This sort of guarantee is the sort of policy (“ACC for the whole economy” as someone put it to me) that will help buy a reasonable amount of time, and give firms some confidence in a willingness to take on debt (while still leaving each firms’ owners to make their decision about likely future viability).  Is such a scheme likely to be expensive?  Sure, but in a sense we paid the premium already, in that low public debt over the last few decades.  We should expect the (unwritten, implicit) policy to be honoured, not obviously as some matter of law, but of charity and good economic sense.

The other thing where there is no progress evident at all is on securing a substantial easing in monetary conditions, and substantial relief of servicing costs (not so much the cash outlay as the legal liability) of borrowers.  On RNZ this morning the Governor was talking up all his tools, but it all really amounts to almost nothing.  He can do large scale asset swaps, and in doing so ease some pressures in specific markets.  But monetary conditions are tightening and they need to be loosening a lot.  He talks of the further tools he has at his disposal, but apart from easing specific stresses, they simply don’t amount to much, nothing like the scale of the need (and one of his own MPC, his chief economist) told us that just before the crisis really intensified).

Interest rates need to come a lot further down.  Business and household borrowing costs at present probably should be no higher than zero.   Even getting towards that would require the OCR to be set significantly negative.  That can quite readily be implemented.  It really needs to be done, and the indifference – and bluster, bordering on outright misrepresentations –  from central bankers, including our own, on the failure to adjust interest rates is frankly quite incredible, ie almost literally unbelievable.  OCRs don’t stop being effective at zero, it is just that too many central bankers stopping trying (while doing lots of handwaving).

A former colleague, from mostly a banking supervision background, left a comment yesterday disagreeing with my call for negative rates.

I’m sure (well, know) he isn’t the only sceptic, here and abroad, but that isn’t going to stop me championing an idea whose time is long overdue (after all, the near-zero bound only exists because of government regulatory restrictions and monopolies –  it isn’t a given of nature).

What to make of Geof’s specific arguments?

First, I don’t accept that it would be destabilising to the financial system at all –  if anything, at the margin it would assist financial stability by shifting the burden from borowers (increasingly indebted in most cases) to depositors (time is offering no real return right now).

I also don’t belief that there would be anything like the sort of flight to Australia Geof suggests.  After all, exchange rates –  even NZD/AUD are volatile enough and transactions costs high enough – to swamp any possible small interest gains.   Perhaps more to the point, in a floating exchange rate system, unless there is a run to physical cash – and recall that under my model cash would be more expensive to purchase/withdraw –  the total deposits in the banking system do not shrink because someone seeks to withdraw money.    For every seller of NZD there has to be a buyer.  And, frankly, the more people wanted to sell NZD at present, the better –  a materially lower exchange rate is one more helpful part of the stabilisation package.

Finally, Geof also notes that lower interest rates won’t do much to boost spending right now.  That is, of course, true and a point I’ve been making throughout.   The point of policy right now is not to boost spending (the time for “stimulus” will be later) but, in this case, to ease servicing burdens materially, and to help stabilise and reverse the falls in medium-term inflation expectations that risk materially complicating the recovery phase, by starting us off with higher real interest rates than those we went into the crisis with,

There is always resistance to paradigm shifts, and too many central bankers and the like are operating within a paradigm that simply isn’t open to negative interest rates –  even though in New Zealand we went for years with substantially negative real rates a few decades ago.  That really now needs to change, and fast.  Our Reserve Bank could show the way.  Our economic policy position, our stabilisation options, would be improved if they did.

UPDATE: I remembered that I meant to mention an idea a reader passed on this morning.  Since many many businesses will fail anyway, and in many cases that may involve personal bankruptcies, in respect of personal guarantees of business borrowings, in this exceptional climate is there a case for considering cutting in half the period in which someone who goes bankrupt is unable to be involved in running a business.  Like everything in this crisis, there are risks, but it might be an option worth some officials thinking about.

It astounds me that I have not seen this chart once in the New Zealand media (or from any of our political and bureuacratic officeholders –  I hesitate to call them “leaders”).

Australia confirmed their first “community outbreak” case on 3 March, when there were 33 cases in total (just fewer than we had yesterday).

It is much the same locally-exponential pattern we’ve seen in so many other countries.  If current rates of increase continue then by the end of tomorrow Australia will have per capita numbers akin to those in the US or UK yesterday.  That is the sort of impact exponential growth has.

There was routinely a lot of trans-Tasman travel.  There is, apparently, still a lot of travel this way as people try to get home.  And while in the last few days self-isolation was supposed to be practiced, there are numerous stories of it simply not being following consistently.  My worst one was a story someone told me the other day: they’d gone to the hairdresser, who was young and pregnant. The hairdresser passed on the story of a customer who’d come in the previous day and commented that while she was in self-isolation she really needed to get her hair done.  The hairdresser, perhaps unsurprisingly burst into tears.

All this means that one can think of New Zealand and Australia as having been essentially a Common Virus Area –  what is mine is yours, and what is yours is mine.  Since we haven’t been doing the sort of aggressive mass testing that some have called for –  although the pace has stepped up in the last few days –  it seems simply irresponsible for the government to be running policy on the presumption that we do not have community out break here.  No one can be certain, but the question has to be what is the safer assumption to make decisions on right now.  Given the rest of the world, given Australia, given the lags (when you confirm community outbreak you should wish you’d acted a couple of weeks earlier), the only sensible approach now is to assume presence, and act accordingly.  But apparently in an interview on Newshub this morning, the government’s chief official on health matters said they were still assuming the opposite, staking a great deal on their view being right.

I see the Prime Minister is to speak at midday.  We’ll see what she says.

For me, I’m less interested in specific announcements or new rules, but on whether there is evidence that (a) they are going to break with the past and actually take the public into their confidence and engage on the issues, options, costs and risks, (b) whether they finally are willing to front with the public on the severity of what is to come, health or economics, (c) whether there is any sign of a developed stable framework for thinking about policy responses through time (d) whether they any sense of an exit strategy for whatever approaches they adopt, (e) whether there is any sign they have identified what things they belief to be more important than public health in this specific situation, and (f) whether they have thought through seriously how sustainable, economically or socially, whatever strategy they adopt is, or whether they are still just attempting to buy “a bit more time” and risking lurching again before long.

These are difficult issues, and few leaders here or abroad seem to be handling them at all well, but no one made any of them take office.

I had been planning to write a post today prompted by the economic and other policy choices and trade-offs implied by the very useful Imperial College paper published earlier in the week, but I might now come back to that –  and particularly questions about whether suppression strategies are worth the costs to the economy and society and its freedoms and values, if anything like what the Imperial College authors suggest it implies were to be an accurate representation of the issue.

UPDATE: Unfortunately, the PM’s statement did not seriously or adequately address any of the sorts of issues raised in the paragraph a couple above.

The apparent complacency of our key economic agencies is almost beyond belief at this point.

Thus, the Prime Minister told us yesterday that The Treasury’s advice “at the weekend” was that the economic impact “could” be larger than the recession of 2008/09 (as she loosely termed it “worse than the GFC”).  As various articles have pointed out, real GDP fell by just over 3 per cent over five successive quarters in 2008 and 2009.  The unemployment rate rose from a one quarter trough of 3.3 per cent to a one-quarter peak of 6.7 per cent (looking at the quarter-to-quarter volatility it is probably fair to talk of a three percentage point increase).

If that is – or even on Saturday was – still Treasury’s view, it is quite seriously worrying.  Whatever the outcome for the March quarter –  which still has two weeks to run, weeks that are likely to be pretty bad –  it isn’t at all hard to envisage a fall in the June quarter alone that will swamp the entire fall in real GDP in 2008/09.  Just remember the international tourism sector. We used to have one.

Recall that the Secretary to the Treasury is an observer on the Reserve Bank Monetary Policy Committee, and attended the meeting on Sunday where they agreed to cut the OCR 75 basis points and to commit not to cut in further for a year.  This was the same meeting the Governor emerged from to tell the press conference yesterday that only on “some scenarios” would there be a recession in New Zealand.  Surely, if the Secretary to the Treasury –  who unfortunately has no national policymaking experience or background –  thought differently she’d have conveyed that view pretty forcefully in the meeting.   Or are the Governor and the Secretary on the same pages.

But that was yesterday.   This morning three interviews with senior RBers, each members of the MPC, have become available.  I missed most of Orr’s on Radio NZ so may come back to that when it is available on the website.  So for now, lets just stick to comments made by Chief Economist, Yuong Ha on RNZ this morning and an interview Deputy Governor Geoff Bascand gave yesterday to interest.co.nz.   Complacency, combined with lack of any evident framework for thinking about and responding to the challenges, seemed to me to sum things up.

Yuong Ha was quoted saying that the Bank has given a considerable stimulus yesterday, with the 75 basis point interest rate cut.  But surely one could only judge “considerable” relative to the scale of the shock.   And in typical downturns, the OCR has been cut (or bill rates fallen pre-OCR) by 500 basis points or more –  in that 2008/09 downturn that the Treasury says this “could” be worse than – we cut the OCR by 575 basis points.  This MPC has cut by 75 basis points, and has committed not to cut any further for a year.  Ha claimed to be quite unbothered at the inability to take rates negative –  because bank systems can’t cope –  despite the Bank having given us no previous hint of such a problem, including in the Governor’s speech last week.  After all, he said, “we have lots of other ways to add stimulus”.

His favourite, and that of the Committee, appears to be large-scale purchases of government bonds.  That, all else equal, will greatly boost settlement cash balances at the RB, but so what?  That doesn’t lower servicing costs or returns to depositors,  and there is no identified transmission mechanism where it makes much difference to anything. I’m not opposed to such purchases –  as I said yesterday, the Bank should probably now stand in the market to buy any government bonds at 0% yields –  but on their own they won’t do much (recall that normal 500 points of easing).

Ha was then asked about the exchange rate, partly about where it is at now and partly about options to lower it by direct fx intervention.     Remarkably –  or sadly, perhaps what we have come to expect from this MPC –  he expressed himself quite pleased with the exchange rate and the buffering it was providing.  But again, he seems to forget –  or more likely chooose to skate over –  the fact that in serious downturns exchange rate buffering often involves, for New Zealand, 20 per cent plus falls in the exchange rate.     In TWI terms, that was almost exactly the extent of the fall over 2008/09.   And this time?   The TWI averaged 70.1 in the second half of last year (71.1 for the month of December) and, according to the RB website, was 68.7 yesterday.     It has barely fallen at all.

So the Bank can’t or won’t cut interest rates, (perhaps not entirely unrelatedly) the exchange rate hasn’t fallen much, and yet even The Treasury accepts this “could” be bigger than the GFC-associated recession.  But Ha isn’t bothered.  Government bond purchases will  do the job apparently.   Almost unbelievable.   (The same Ha whose comments from last week I quoted yesterday, suggesting that asset purchases could really only do a little, at the margin.)

But that performance was almost trumped by someone who, with much more media (and policy) experience, the Deputy Governor Geoff Bascand.   He wasinterviewed on interest.co.nz, video footage and all.

And he just seemed extraordinarily complacent.   Bank funding was just fine and would be for months he thought.  There was no sense, for example, of suggesting that banks might want to tap markets while they still can just to be on the safe side (as one courageous NZ bank treasurer actually did in early 2008).

But this is the bit that really got my goat

But for a number of them, their IT systems “aren’t ready and can’t cope with negative rates”.

“New Zealand hasn’t really contemplated negative rates in the historical period that we can think about. It’s a bit like a Y2K thing in a sense that they’re all set up to be positive, zero, or positive numbers,” Bascand said.

“It doesn’t mean that you couldn’t create some work-arounds eventually, or adjust this, but right now [this] doesn’t seem to be the key thing to do.

“We’ve got other ways of putting stimulus into the economy if we need to. Taking on additional risk of doing something that may or may not transmit, or work properly, doesn’t seem like the smartest thing to do.”

Take first that “other ways of putting stimulus into the economy if we need to”.  It reveals both a complacency about the economic shock, a misunderstanding of quite what easier monetary conditions do right now (would mostly ease servicing burdens and redistribute burdens), and that belief in other mechanisms which is simply belied by the evidence –  and by the comments of the Chief Economist only last week.

But it was the unreadiness of systems bit that really takes the cake.    He blithely tells us is “like a Y2K thing”, but never seems to recognise a profound difference.  Under some mix of commercial imperatives and central bank and other official pressure, there was a huge expensive effort undertakem to ensure that the financial system was ready for Y2K (I was heavily involved at the time, including the policy precautions).   The issue was recognised several years in advance and appropriately prioritised.   As it happens, Adrian Orr was the Bank’s chief economist at the time (although I guess it wasn’t an issue that much involved that bit of the Bank).

And then he claims

“New Zealand hasn’t really contemplated negative rates in the historical period that we can think about.

which is simply false.  As I mentioned yesterday, at the height of the euro crisis, in the dying days of his governorship, Alan Bollard set up an internal working group (which I chaired) to look at monetary policy issues and options should short-term interest rates get near-zero.  That report, to the (then-internal) Monetary Policy Committee, explicitly canvassed the possibilities of negative rates, including the wider (physical currency conversion) risks and limits, including in the light of international experience to date.  That report explicitly identified -0.5 per cent as appearing likely to be a true floor, and identified system constraints as a potential issue.

As a result, among the recommendation were three specific ones on that score: that we ensure that the Bank’s own internal systems (banking system, NZClear etc) could cope with negative rates, that we liaise with the Treasury to ensure that the DMO could handle negative interest rates, and that the Bank’s prudential supervisors should liaise with banks as to whether their systems could adequately cope with negative interest rates.

That report was dated 31 August 2012.  I do not recall anyone disagreeing, or refusing to accept, those recommendations.

Now, to be sure, that particular eased and passed.  But negative rates did not become less of an issue for advanced country central banks, with notable examples of countries with extensive experience in recent years being Switzerland, Sweden, Denmark, and the euro-area.

And yet today the Reserve Bank of New Zealand can blithely tell us that banks’ systems aren’t ready.  This despite the Bank’s proud repeated boast of the advantages of having monetary policy and bank supervision in the same organisation.  I’m simply staggered at this failure, this utter lack of preparedness –  all the more so because past Bank publications had openly talked of negative rates as a policy option for New Zealand.

And who bears responsibility.  Well, in a few days time, Adrian Orr will have been Governor for two years.  Plenty of time to ensure the Bank was ready for  a crisis even if his predecessor had been a bit slack (crisis preparedness is really core central banking –  the crash fire brigade that needs to be excellent, even as you hope they are never needed at all).  And, even more so, Geoff Bascand has been Head of Financial Stability (responsible for the whole supervisory and regulatory side of the Bank, as well as sitting on MPC) for almost three years.  (Oh, and then there is the small matter of the Board, who are supposed to have held the Bank to account, including ensuring things like crisis preparedness: Quigley has chaired the Board for more than three years now).

And yet, with not a hint of apology he blithely tells us banks aren’t ready and –  perhaps as egregious –  it isn’t really worth making it priority to fix that now.

It is simply breathtakingly inadequate.  They become more incredible –  literally hard to believe, impossible to have any confidence in, by the day.

UPDATE: For anyone here looking for views on the government’s economic package today, I suggest having a look at my Twitter feed (here).  A more considered post on the package will be forthcoming tomorrow.