I’d been thinking last week of writing a post looking ahead to the end of Adrian Orr’s term (due to have run until March 2028) and offering some thoughts on structural changes the government should be looking to make, to complete and refine the Reserve Bank reform programme kicked off by the previous government in 2018. Some of that is now overwhelmed by events, but the importance of the issues – and the medium-term opportunities to deliver a better central bank – hasn’t. So although I will offer a few thoughts at the end of this post on yesterday’s shock news, and the unsatisfactory handling of it, and perhaps even fewer on Orr’s overall tenure, first I’m going to focus on the future.
The Reserve Bank of New Zealand is one of the relatively few central banks in the world where the government is not free, when a vacancy arises, to appoint a person they have confidence in as Governor. One can mount a reasonable – although not entirely compelling – case that it should be very hard to dismiss a Governor (or perhaps even an MPC member), and it typically is. But the governorship of the central bank is a very major and influential role – affecting, when mistakes are made, all of us adversely, including perhaps the government’s own electoral fortunes. Against that backdrop our system is extraordinary: the government can only appoint as Governor someone nominated by the board of the Reserve Bank, a board which (a) has no electoral mandate or accountability, b) at least in the New Zealand experience will often have little or no subject expertise, and c) may well have been (this time is, but it was also so when Orr was first appointed) largely appointed by the government’s predecessors, reflecting their particular whims and patronage priorities. Nicola Willis – or Grant Robertson – might not be any sort of macroeconomist, but they are (were) accountable to the voters. Neil Quigley, Rodger Findlay, Jeremy Banks [oops, meant Byron Pepper] (all of whom have had questions raised about them) and the rest have neither expertise nor accountability.
Now, it is true that the Minister of Finance can reject a board nomination, but she cannot impose her own candidate. In reality the government can send messages to the board about what they don’t want (Helen Clark was apparently pretty clear she didn’t want to be served up with the name of a Brash clone – anyone who’d been part of the Brash RB), but those views carry no formal legal weight, and a Board could simply assert itself and insist on serving up only names it preferred. The government doesn’t get any say in what sort of person is nominated – no say, for example, in the job description or personal qualities sort. It is a stark contrast to the position re heads of government departments – who usually have no significant policy decision-making power – where the government can specify what they are looking for and can in the end simply appoint their own person. The same goes for members of the MPC – supposedly really powerful positions and yet the Minister can only appoint people the underqualified board (which has no routine responsibility for monetary policy, and thus no expertise) serves up. And here it is important to remember that the Reserve Bank isn’t just the monetary policy maker, but has key policymaking roles in a wide range of banking and financial regulation, stuff for which ministers are usually responsible. These legislative provisions should be changed, so that the Minister/Cabinet can appoint their own person – stick in some boilerplate expertise criteria, and perhaps offer the Board the chance to make suggestions, allow the FEC a scrutiny hearing before the person took up the job – and be accountable for that appointment. It would be an entirely normal model internationally.
The issue at present is compounded by the fact that the names to be recommended as the new Governor will come forward from the same Board (largely) that recommended Orr’s reappointment in 2022 (and with the same Board chair as was responsible for the initial appointment in 2017). No one outside government knows what possessed Nicola Willis to reappoint Quigley – who has a terrible record of his own, in blocking expertise when the MPC was first set up, openly misrepresenting the history later, and in covering for Orr almost throughout – but he is about the last person who should be playing a decisive role in choosing a successor. A minister who really cared about the future of the institution and its policies etc would insist that Quigley left now too, appointing a new chair to lead the search to replace Orr.
My next suggestion is that policymaking powers around banking (and insurance etc) prudential regulation should be removed from the Reserve Bank itself and handed back to the Minister of Finance. There is a decent case for having OCR setting being done by an independent body, and a fairly compelling one for having the application of prudential policy and oversight to particular institutions be done by an independent body. But even in respect of monetary policy, the inflation target is now set unambiguously by the Minister of Finance alone (previously used to be an agreement with the Governor), and pretty all other important policymaking regulatory power in our system of government rests with ministers – the people we can throw out. There is a lot of controversy around at present about aspects of the Bank’s prudential policy choices. I agree strongly with some of them, disagree with others, and generally am not convinced that the specifics matter quite as much as some of the critics claim (and I think on that I may be closer to Orr). But the people who should be making these policy calls are ministers. We elect them. We toss them out. Of course, they need expert advisers – so this isn’t a call to diminish Reserve Bank capability (in fact it probably needs strengthening – check how few research papers (0) they’ve published in the last decade on regulatory policy and financial stability matters), but to have a clearer stronger separation between policymaking and implementation (and, given the inflation target, what the MPC does is – influential – implementation).
I’ve also noted here before that there is a decent case for a structural separation of the Reserve Bank. When the Bank was first made independent it was basically a monetary policy agency with a few vestigial regulatory/supervisory staff. These days (even amid the general bloat) far more of the staff are on the regulatory side, and there are two significantly different (expertise and culture) prime roles. Even the sort of expertise one might need/want in a chief executive should be materially different: monetary policy is primarily a macroeconomic role, with some operational responsibility (markets, currency etc), while the supervisory side is a regulatory function pure and simple. Splitting out the regulatory functions into a New Zealand Prudential Regulatory Agency would parallel the Australian model; a system which has substantive matters, but also where alignment makes some sense when the biggest systemic risks etc here relate to Australian-owned banks. (If multiplication of government agencies was a concern, the FMA could be wound into a single financial regulatory body.)
Those changes can’t generally be made overnight (they all require legislation), but as a direction they have a lot to commend them, and I’d urge the Minister of Finance to take time in the next few weeks to reflect on the sort of direction she wants, before the momentum of the existing model takes hold. It is a busy time for her – the Budget will be more pressing – but medium-term choices matter too and this is her opportunity to stamp her mark on a better set of central banking arrangements.
One thing that doesn’t take legislation would be an overhaul of the Monetary Policy Committee’s charter, and particularly the culture around it. Setting up a Monetary Policy Committee was a good call by Grant Robertson – by the time it was done everyone agreed we needed to move away from the single decisionmaker model – but the specific path chosen was a fairly unproductive dead end. We had externals (three at a time) appointed – in one case solely (as OIA papers reveal) for her sex rather than expertise in the field – and then we never heard from them or saw any evidence that they made even a modicum of difference, even as they collected their not-inconsiderable fee and rounded out their CVs. This government has taken some steps to improve the quality of the externals – although they also extended again the term of an 80 year old member who was there through the worst of the costly policy mistakes on 2020 to 2022 – but there is still no sign of them making any difference in style or substance, and not the slightest accountability for their views. Much better to have a much more open system – as in the UK, US, or Sweden for example – where MPC members are open about, and accountable for, their views. Historically the Bank’s management – even before Orr- hated the idea, but in the real world everyone knows there is huge uncertainty and that processes are likely to benefit from open exploration of ideas, contest of views, and actual accountability. The Supreme Court manages to have dissenting opinions published. There is no reason why our MPC should not. And require members to front up to FEC from time to time, including in (non-binding) hearings before these powerful individuals take up their appointments. Good monetary policy is not an infallible text handed from heaven but, inevitably and appropriately, a process of discovery and challenge, in which everyone – or at least MPC members who are up to the job – would benefit from greater openness.
What of yesterday?
It is all highly unsatisfactory. We had brief press releases from the Bank and from the Minister but no real answers. We are told there were no active conduct concerns – although there probably should have been, when deliberately misleading Parliament has happened time and again, and just recently – and yet the Governor just disappeared with no notice on the eve of the big research conference, to mark 35 years of inflation targeting that he was talking up only a week or two ago, (I also know that one major media outlet had an in-depth interview with Orr scheduled for Friday – they’d asked for some suggestions for questions). And with not a word of explanation. If you simply think your job is done and it is time to move on, the typical – and responsible – way is to give several months of notice, enabling a smooth search for a replacement. He could easily have announced something next week, after the conference, and left after the next Monetary Policy Statement in May.
Instead, it is pretty clear that there has been some sort of “throw your toys out of the cot and storm off” sort of event, which (further) diminishes his standing and that of the Bank (but particularly the Board and its chair). It all must have happened so quickly that we now have this fiction that Orr is on leave for the rest of the month (the provisions in the Act require a temporary Governor to be appointed by the Minister only on the recommendation of the Board, and probably Orr just didn’t leave them time). After several hours of uncertainty, the Board chair finally decided to hold a press conference, which he didn’t seem to handle particularly well and (I’m told – I only have a transcript – in the end he too stormed off) we still aren’t much the wiser. It will, I suppose, provide much topic for conversation among the research geeks at the conference today and tomorrow (quite what visitors Ben Bernanke and Catherine Mann – BoE MPC member – will make of it all is anyone’s guess).
I guess it is probably true that Orr can’t be forced to explain himself, although since he is still a public employee until 31 March I’m not sure why considerable pressure could not be applied. But even if he won’t talk the answers so far from either Willis or Quigley really aren’t adequate. You don’t just storm off from an $800000 a year job you’ve held for seven years, having made many evident policy mistakes and misjudgments, as well as operating with a style that lacked gravitas or decorum etc, with not a word. Or decent and honourable people, fit to hold high public office don’t.
The suggestion seems to be that budgetary pressures – the Minister wanting to cut the Bank’s next five-year funding agreement are at the heart of it (and a careful read of the Reserve Bank statement hints at that). I had heard a story – apparently well-sourced – that the Bank had actually been bidding for a material increase in its funding, on top of the extraordinary increases of the last five years, but whether that is true or not the Minister does seem to have signalled coming cuts, and Orr has long been known more for his empire-building capabilities than for his focus on lean and efficient use of public money, But every public sector chief executive in Wellington has had to deal with budgetary restraint and, so far as we can tell, not one of them has tossed his/her toys and stormed off. It isn’t as if the Bank had been relentlessly and exclusively focused on its core business, with not a penny to be spared the poor taxpayer. In any case, from what comments have been let out it seems that final future budget decisions had not even been made yet, so surely it can’t be the whole story.
Comments by Quigley suggests that perhaps Orr was getting to the end of his tether, and some one or more recent things made him snap, reacting perhaps more than a normal person would do faced with the ups and downs of public sector life. It seems highly likely the budget stuff, and the desire to keep pursuing whims, was part of it, but it can hardly have been all. I don’t suppose he felt any great compunction about misleading Parliament so egregiously again…..but he should. And all this time – having stormed off with no adequate explanation – Quigley declares that he still had confidence in Orr. Surely yesterday confirms again that both of them, in their different ways, were unfit for office.
Oh, and for those puzzled by it, the title of this post refers to the latest estimate of the losses to the taxpayer from the Bank’s rash punting in the government bond market in 2020 and 2021. $11 billion dollar in losses. Three and a bit Dunedin hospitals or several frigates or…..all options lost to us from this recklessness, undertaken to no useful end, and a loss which Orr endlessly tried to play down (suggesting it was all to our benefit after all), and which not one of his MPC members – one now temporarily acting as Governor – even either dissented on or gave straight and honest contrite answers about. It has been 43 years since a Reserve Bank Governor was appointed from within. That is an indictment on the way the place has been run. Successful organisations tend to promote from within. Orr (and Quigley) do not leave a successful organisation, but one of yes-men and women. The place needs a fresh broom to sweep clean. One hopes the government cares enough to ensure it happens,
croaking cassandra 
Well summarised.
I do hope Nicola reads this……. we appear to repeat the mistakes otherwise.
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Is that $11 billion dollars a public sector loss or a private sector asset? Or is it both? In double entry accounting it is always both. For every debit there has to be an equivalent credit.
Where did the $11 billion go? It went into the private sector as cash – I assume. If so, then that is an $11 billion credit into the private sector.
Have I got that correct from a macroeconomic perspective Michael?
The private sector pays the taxes. Which begs the question – did private sector taxpayers really lose $11 billion or did they actually gain $11 billion.
Bit of an MMT puzzle there or you. You’re welcome.
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No takers? No one here study accounting?
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Government spending = private sector income
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Sorry, I replied to this, but somehow the reply seems to have disappeared. Yes, it was a wealth transfer from the public sector (and taxpayers’ generally) to (bits of) the private sector (here and abroad). As govt grants to film makers are transfers that leave the taxpayer generally worse off, even as some private sector people are made better off.
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But isn’t who ends up with the money in the private sector a question of distribution? That’s not what I’m looking at here. At the macroeconomic or aggregate level, the $11 billion was transferred, as newly ‘created out of thin air’ money from the RBNZ (a drawdown on public sector side of the ledger) into the private sector as deposits into commercial banks and other entities. Is that a correct interpretation of the operations that took place?
The ‘debt’ sits on the public sector side of the ledger as a number in an account at the reserve bank, and, in theory, needs to be paid down over time so bond markets are happy about the overall level of debt on the public sector side of the ledger.
What an MMT lens highlights is that there are 2 sides to every transaction, but many economists treat government debt as money that goes into a black hole and disappears for ever. That isn’t what happens – in reality government debt is private sector income and savings. The money the government leaves in the economy after taxation – i.e. the government’s deficit is a surplus in the private sector.
If a government achieves a surplus, it is removing more money from the economy than it created in the first place (for a given time period) – it is literally shrinking the money supply and reducing private sector savings and income.
Inflation is the constraint on government and private sector spending not the amount of overall debt in bonds or the ratio of government spending (in isolation) as a percentage of GDP.
The ‘loss’ of the $11 billion dollars (I think) highlights the duality of macroeconomics that simply doesn’t apply to a household budget analogy of an economy.
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To take this further – if the government stopped issuing bonds and paid down all current and future obligations – to reduce so called government ‘debt’ – what would savers do with their money? Would investors and current asset holders be happy if we achieved zero government debt by halting bond issuance, if it meant they also have no safe harbour assets?
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Michael – I know economists don’t like to talk about the mechanisms and operations of the monetary system but from your perspective and knowledge of the reserve bank – is this statement about where the money came from and how it was distributed factually correct – in the general sense? Or have I got it completely wrong?
“At the macroeconomic or aggregate level, the $11 billion was transferred, as newly ‘created out of thin air’ money from the RBNZ (a drawdown on public sector side of the ledger) into the private sector as deposits into commercial banks and other entities. “
I’d love to know if this is basically how it happens or if there is a different mechanism – what is it?
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This economist is v keen on the operational detail.
Steps:
1. RB buys govt bonds on market. Credits bank settlement accounts at the RB with the proceeds
Later
2 RB starts selling bonds back to Tsy, debiting the Tsy account at the Reserve Bank
3 Some other Rb bonds mature while they are still holding them. Maturity met from Crown account at the RB
4. Tsy has a loose target level of balances in its account at the RB, so over time it replaces the maturing or repurchased bonds by selling others on market (new issues). That boosts the Tsy account at the RB, and is paid for by transactions that reduce banks’ account at the RB
5. To the extent that the RB purchases exceed the market value of the sales, settlement cash balances would stay higher than otherwise (still now far higher than pre-Covid)
6. RB pays a market rate of interest (the OCR) on those balances.
Hope that helps
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Thank you. Yes, it does. Give me a few conversations with Chat GPT so I can understand what all those different accounts mean and which side of the ledger they sit on and how the money is created and where it flows etc.
But it sounds like I’m in the ballpark somewhere … or maybe in a neighbouring property to the ballpark. Let me see if I can get over the fence by tomorrow.
The person who ‘discovered’ MMT was a US Treasury Bond trader called Warren Mosler who worked with and spoke to people in the US Fed and Treasury about what they actually did. There real actual operations and how new money is created and flows through the economy etc. And then went “wait a minute – so government spending isn’t paid for with tax revenue?”
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When you pull on that thread and work backwards it changes your perception of what an economy is and how it functions. I would compare it to realizing the sun doesn’t revolve around the earth – it’s the other way around.
The private sector is dependent on the output and mass of the fiat issuing state for its direction of travel and energy. Not the other way around.
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Michael a question about step one – you state the ‘RB buys govt bonds on the market’ and ‘Credits bank settlement accounts at the RB with the proceeds’- what does it buy the bonds with? Where is the ‘credit’ coming from?
Where does the RBNZ get the cash in NZ dollars it uses to make the purchase of the bonds? When it needs to purchase more bonds than its selling?
Does the RBNZ go to the IRD and say hey we need some tax revenue so we can buy some government bonds – how much tax have you collected this year, and can you transfer it to our bond purchasing account please? That doesn’t seem likely to me.
Or is there some other mechanism it uses that we aren’t aware of to obtain the cash it needs to credit those accounts? Is it – as MMT claims – created out of thin air – typed into a cash settlement account at the reserve bank using a computer keyboard – is that mechanically and operationally, correct?
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There is nothing “MMT claims” about it. The RB creates those deposits out of thin air (which works so long as banks are broadly happy to hold the resulting deposits, which in turn is why the RB pays a market interest rate on them.)
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Thanks for replying Michael. I watched your interview on the Platform, and I agree with your point about humility and being able to say “hey, sorry, we got that wrong, we’re reviewing what we did and what we can do better next etc”. That is something so many of us need to think about more. Orr did not demonstrate that in any of the interviews I watched and if he had shown some humility, it may have won him more support – if grudgingly, from the wider business community.
I really want to dig deeper into government bond issuance, and I will use your list above to do this but for another day when I have more time (Michael clutching face in despair at the thought of it).
From what you have said so far, the MMT explanation of a fiat currency monetary system is not theoretical but a simple description of what takes place in the real world.
Is that correct? And if so, why an earth do we not use that model and understanding in any of our economic thinking, discussions, policies and conceptualizations of the economy?
The truth is, that the idea that ‘taxpayer money’ is used to fund and support the government is completely wrong from a macroeconomic perspective.
The government is not dependent on the generosity of the private sector as its source of revenue – as we are led to believe. The opposite is the actual reality. Would you agree with that statement?
Why do we hold onto and utilize a model of the economy that is the opposite of what it is in the real world?
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Michael – if you have time, I would love a response to my question about the fiat currency monetary system being accurately described by MMT. And why this description is never used or acknowledged by economists – who convey a description of the economy that has the private sector as the source of the money supply.
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A couple of different dimensions there. In terms of how the monetary system operates what you describe as the MMT story is really just the way all central banks describe how the system mechanically works. Only people who don’t are straight ideologues with agendas, or in some cases textbooks (I recall rolling my eyes at my son’s macro textbook in places).
Where we differ – or where I differ from MMT (and I laid out my views fairly carefully on the blog a few years ago) is about how best to think about fiscal policy. It is technically the case that the govt could spend without limit – either borrowing in the bond market or simply “forcing” banks to accept additional settlement cash balances (the latter depends on the central bank being willing to allow overdrafts to the govt), but that fact doesn’t change the raw macroeconomics. If the govt makes additional claims on society’s limited resources those pressures have to be met through taxation, inflation, or by higher than otherwise interest rates squeezing out private demand and spending. Generally it is more transparent and accountable for govt operating spending to be met by taxation – somrething Parliament controls and authorises on our behalf, govts having first made the case that the associated spending is needed.
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Thanks Michael. I really appreciate this reply, and I will digest and analyse this with my other teachers ChatGPT and DeepSeek.
TBH – the more I learn about and confirm the MMT analysis of macroeconomics the more disturbed I’m becoming.
I’ve contacted the RBNZ email address with questions about the MMT description of the monetary system in NZ and requested links and documents to confirm or refute this description.
Your reply is essentially that the concept of ‘taxpayers funding the government’ is useful to ensure accountability and transparency and supports the political system by constraining unlimited spending growth – basically.
But it isn’t real – we are conducting our economic policy based on a made-up conceptualization of how the economy works. How can this lead to good economic outcomes in the real world?
You may want to refresh your understanding of MMT – “It is technically the case that the govt could spend without limit” – this is not what MMT states – the government can spend up to the limit of under-utilized resources and capacity in the economy. I.e. inflation is the limiting factor on government spending.
“If the govt makes additional claims on society’s limited resources those pressures have to be met through taxation, inflation and higher interest rates” – Yes this is what MMT states and adds – “what do we do when resources in the economy are not limited or are being underutilised?” “What do we do when low interest rates fail to lift growth or capacity in the economy?”
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On your penultimate para, you are missing the distinction between technical and political. The MMT claim is that in a floating exchange rate system govts can spend without limit (or tax) – which is loosely technically correct – and I wasn’t suggesting that I thought they advocated doing so.
That said, I’d taken Stephanie Kelton reasonably seriously and so was a bit disillusioned when US inflation took off, resources were overstretched, and she wasn’t interested in fiscal restraint.
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Further to the idea of demand supply mathematics – these no longer hold when a resource is abundant – Aaron Bastaani – Fully Automated Luxury Communism. Interesting book written in 2016 mulling over resources that want to be free – that is they want to become ubiquitous and delivered at zero cost to the consumer.
Information – the total dissemination of all human knowledge accessible to anyone with internet access.
Solar energy is free – after you install and maintain the solar panels – there is zero input cost to receiving sunlight – basically free energy. Ironically solar energy is widely used in the fossil fuel industry to reduce costs.
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Key scarce resource is labour (and yes, I know about recessions, but the general proposition about the constraints on expansionary macro policy remains).
Can you think of any resource other than sunlight that is near practically free (ie don’t have to ration use, as say one has to with fresh water)?
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Thank you. I will read your article. But I also want to put aside MMT’s prescriptive ideas – which are not really any different from Keynesianism.
My first point of focus is on the non-MMT part of this – the real-world operation of the fiat currency monetary system and why this does not play any part – at all – in the economic discussion more generally. I don’t understand why that is. It would be like Physicists hiding the ‘theory of relativity’ from public knowledge and shared understanding without any apparent good reason.
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When it comes to constraints on spending, I don’t think you will find any difference between yourself and an MMT economist. The assumption that high levels of government spending and large bond issuance is inflationary is context dependent – like most things in economics.
Poster child of MMT – Japan – has low interest rates, low inflation and high levels of employment and price stability. Not huge amounts of growth but the seem okay with that as price worth paying.
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Michael – is hydro energy generation capacity a ‘key scarce resource’ in NZ? Or do we deliberately curtail our investment in hydro capacity and generation to artificially create a certain level of scarcity and maintain a higher (than it needs to be) price?
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I think it is (scarce). The existing operators have free use, but there are only so many rivers (and political/enivronmental constraints on damming some of those remaining unused), so whether directly priced or not rationing is real. If tidal power ever becomes viable it will be closer to practically abundant
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I’m not saying hydro power capacity is limitless – I’m asking if we deliberately hold back on investment to increase capacity that is available – in some cases where consents were granted decades ago – to protect the income and asset value for current asset holders in the sector now and into the future? Regardless of the overall economic outcomes in the rest of the country.
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Are their outstanding consents for new hydro developments? I’d been under the impressiom environmentalists had stymied all future development on that front
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Sorry you could be right on that – I think those consents are for solar or wind.
You could ask the same question about Muldoon’s spending binge on infrastructure projects back in the 70’s – I think. Would we be better off now as a country if he had not done all of that and focused on keeping government debt down or maintaining high asset prices instead?
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Michael, sorry to keep on about this but I’m in deep now. As a concrete example of how ‘the private sector pays for the government and is the source of revenue for the economy’ concept can lead to bad economic policy ideas – I came across an economist in the US talking about reducing government spending to 0% of GDP.
Which would mean the private sector would be responsible for all money that circulates in the economy. It has a number of ways it can do this:
1. Draw down on savings
2. Take on debt from commercial banks
3. Through exports to foreign markets that brings in new NZ dollars when foreign currency is converted.
4. Invade Australia and claim all of there mineral resources exports.
This economist in the US is thinking that ‘the government is funded by taxation’ and that ‘taxation is removing money that the private sector created’ and so, conceptually, it follows that government spending at 0% of GDP there will be ‘more’ money available to the private sector. Is this true? Would there be more money available to the private sector if the government spent nothing? I guess tax would be zero so that would be an increase to the private sector of sorts. But something about that doesn’t feel right.
What would be the economic outcome in the US if it moves towards a target of government spending at 0% of GDP and consequently (I assume) no new Treasury Bond issuance. And presumably zero money creation by a reserve bank. Would you need a reserve bank in this case? The private sector could create all the money needed through private loans. Banks that fail? Let them fail as many economists like to say – they should not be propped up with ‘taxpayers money’.
Given what we know about the fiat currency monetary system – in reality – would the US economy continue to function with zero percent government spending and no taxation? What would it look like compared to how it looks now?
My interpretation of how this US economist sees things unfolding, presumably, is that the private sector will be better off without the ‘burden’ of government spending.
That the goods and services needed by people in the US will be provided by the private sector alone – private sector entities and individuals that want a particular service – including military and infrastructure or health etc. can obtain it in the private sector – which will rise to meet the demand that the government no longer does with the additional revenue, labor and customers it now has available.
Would you agree that this is the model of the economy that this economist is using? Is he correct? Does he hold this conceptualization because he believes that the private sector is the source of revenue for the government?
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In der Beschränkung zeigt sich erst der Meister: The Australian twin-peaks model, with PRA and APRA, might work, but success is not guaranteed. Just look at the UK FSA, which after failure was merged back into the BOE and the now dysfunctional FCA, or the ECB’s SSM, which mishandled Banco Popular.
New Zealand doesn’t need another authority in an already crowded commission/authority landscape. Banks answer to a fleet of captains—Willis, Goldsmith, Simpson, end-captain Luxon, the RBNZ, Treasury, MBIE, FMA, ComCom, etc. Everyone is responsible, so no one is.
Add to that a revolving door of bureaucrats and appointments based on connections rather than competence, and perhaps it’s time to focus on rowing our waka with the oars that we have been given.
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Maybe but the current model isn’t working well and the people haven’t been good either. If the RB had been working, and had a strong bench to succeed Orr, I might not argue for structural separation, but the problems are real enough on multiple dimensions that I think a change of structure, of people, of powers, would be an opportunity. But no guarantees (ever).
One of my drivers is there is no obvious person who would do excellently both the mon pol and supervisory.regulatory policy job.
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If suitable leaders are scarce, creating another authority may be the incorrect answer. I believe a capable governor can be found, but we are our own worst enemies in leadership selection. New Zealanders have become increasingly uptight about choosing officials. There are hoops, with candidates navigating various sensitivities, e.g. around culture. I am sure this affects our international standing and domestically productivity.
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Interested in your suggestions sometime (perhaps DM) on who would be strong candidates for the “big Governor” role.
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Air New Zealand chief executive Greg Foran resigns – and so it begins – major NZ corporate sector layoff announcements coming over the next 2 to 3 months. Foran is the starting gun.
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hi Michael, thanks for analysis. Any hint that the capital review played a hand in the abrupt departure or could there be a change to the capital framework in the near future given a push for more competitive conditions or at least easier conditions for smaller rivals to the main four?
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I noticed Pattrick Smellie was running a hypothesis on those lines in BusinessDesk yesterday. I’m a bit sceptical ,as at present all the relevant policymaking powers rest with the RB rather than the minister, and in a normal Orr I could see a threat along those lines leading him to dig in his toes. But if he was generally getting to the end of his tether perhaps it was one of several factors that caused him to snap, decide it was all too much, and just walk out. Still very strange behaviour – no notice, no press conference and explanation etc.
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Well, I nominate Michael Reddell as the new governor of the Reserve Bank. I know the process is complicated, but wouldn’t it be nice to have you there with your experience and no-nonsense attitude?
Gosh, we can do with some people who can focus on core business and let the stupid stuff go.
I wonder if we can hire Javier Milei or Elon Musk for a day, or a week. The place would be unrecognizable after that.
I watched BizNews (SA) interview Robe Hersov the other day, a billionaire who is trying to save the place from economic destruction. He was incensed that a country of 60 million can have 32 ministries. NZ, with a population of 5 million has 46!
What the heck is going on in the corridors of power?
Regards, Jan
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Loosening or removing DTI’s and LVR’s and removing overseas home ownership restrictions are all levers the government can pull to this year get local credit growth and foreign exchange directed into the housing market – might be what keeps that sector above the sinking tide of the rest of the economy in 2025.
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Unnamed NZ economist writes this today when surprised by the rise in stressed mortgages in NZ:
“The sudden sharp rise in non-performing residential mortgage loans figures during January was, for me, an unpleasant surprise.”
And
“Well, I concur with those who have speculated that the new spike in the stressed loans figures was due to the deteriorating labour market position. It seems to fit as an explanation.”
‘Speculated’? Has anyone in NZ heard of John Maynard Keynes? Do any of these people study economics or look at historic macroeconomic data?
I’m just stunned by this statement – what do these people do? What data do they look at when making their assessments and analysis?
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This rise indicates a good hunting season for buyers – those who can access low-cost capital – as hapless, recently un-employed Kiwis are forced to sell up and move out of their homes in large numbers.
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The power to create .”deposits out of thin air” must not ever be a political option.
There must be a sound economic basis ,which tha RB was appointed to manage.
In the past resultant consequential inflation has destroyed peoples savings and some industries.
NZ needs to know why Orr resigned.? Speculation is rife and the NZD is in decline.
This is very dangerous for NZ.
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Thanks Rosecavens. There is little evidence in historic economic data of uncontrolled inflation in most modern economies since the second world war. Institutions in the financial system appear to be reasonably good at preventing inflation getting out of control in most cases – including now. Some countries even manage to do it without throwing themselves enthusiastically into a recession.
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