Interesting commentary on the Mnister of Finance and the RBNZ

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Apr 27, 2022, 11:24:51 PMApr 27

Now this is just an opinion piece but the author has serious
credibility. Of particular interest is the last 2 paragraphs.

Crash McBash


Apr 27, 2022, 11:46:15 PMApr 27
On Thu, 28 Apr 2022 15:24:50 +1200, Crash <nog...@dontbother.invalid>

>Now this is just an opinion piece but the author has serious
>credibility. Of particular interest is the last 2 paragraphs.

I do not subscribe to see that article. It may become public in a few


Apr 28, 2022, 12:15:37 AMApr 28
On Thu, 28 Apr 2022 15:46:10 +1200, Rich80105 <>
Apologies - I forgot it is Premium content:


The Reserve Bank has a formal objective to keep inflation in the range
of one to three percentage points, as specified by the Remit for the
Monetary Policy Committee, which was signed and "agreed by" the
Governor and Finance Minister.

This range constitutes the official definition of "maintaining
stability in the general level of prices" in the RBNZ Act. However,
both signatories to the remit have gone and wilfully ripped up their
sworn aim.

Let's build the prosecution's case. Exhibit A is that the defendants
already admit it. At the last meeting of the Bank's Monetary Policy
Committee (MPC), members confessed that "annual consumer price
inflation is expected to peak around 7 per cent in the first half of

Are the shocks hitting us short to medium term? No.

The bank says, "A broad range of indicators are highlighting … ongoing
inflation pressures."

Has the misconduct of monetary policy, which has been inciting the
inflationary breach, ended? No. The bank says that the Official Cash
Rate (OCR) "is stimulatory at its current level".

Not only has NZ's inflation target been ignored, but those responsible
for achieving it are still pouring gasoline on the fire.

Exhibit B comes from Professor John Taylor, inventor of the "Taylor
Rule". That rule is a simple formula explaining how a Central Bank can
quell an inflationary shock. It has proved a robust guideline when
setting Official Cash Rates around the world.

The rule states that an increase in the OCR of more than one
percentage point is required when inflation increases by one
percentage point. The reason is to ensure that real interest rates go
up to reduce borrowing.

Without a rise in real rates, debt-financed spending can continue to
fuel inflation.

So what's been going on in NZ? Annual inflation, measured at March
2021, was 1.5 per cent. Annual inflation at March 2022 was 6.9 per
cent. In other words, inflation has risen by more than five percentage
points this past year.

However, the RBNZ has only increased the OCR by a little over one
percentage point over the same period, sending short-term real rates
deeply negative.

The Taylor Rule is powerful evidence that there has been no intention,
whatsoever, of our authorities to meet their obligation of keeping
inflation on target.

Exhibit C is NZ's record-low unemployment rate, which stands at 3.2
per cent.

Unemployment sharply increasing would have been a justification for
holding back on steep hikes in the OCR to contain inflation. Yet the
MPC says "employment is above its maximum sustainable level".

In their defence, the Governor of the RBNZ and Finance Minister have
claimed others are doing the same.

"Global consumer price inflation is high, well above most central
banks' targets", argues the Monetary Policy Committee.

Attempts to present the situation abroad as being the same as in NZ
are misleading.

Although the US Federal Reserve also has a mandate of "stable prices",
these words are not defined in terms of an inflation target that has
ever been "agreed" by the Fed Chair and US Treasury Secretary.

For most of its history, the Fed baulked at providing even its own
internal definition.

A target did emerge when Ben Bernanke was chairman but the Fed
subsequently changed it into one that was intentionally vague and
ambiguous. Targets are not all alike, contrary to the MPCs

In stark contrast, our RBNZ has no discretion to play around with the
meaning of price stability. The point of the explicit inflation target
signed off between the RBNZ Governor and Finance Minister has been to
"provide a clear agreement between policymakers, thereby limiting the
scope for discretionary policy actions", to quote Adrian Orr, writing
for OECD Policy Studies in 1994.

So what has been driving OCR decisions? Populism.

After keeping the cash rate so low for so long and embarking on a $53
billion Quantitative Easing (QE) programme, the bank is now in panic
mode. It is panicking at the prospect of a full-on policy reversal
that will highlight past mistakes and provoke widespread debt

Those having trouble paying back their mortgages in the next few years
can blame our RBNZ Governor and Finance Minister. They encouraged a
borrowing binge to buy houses at wildly inflated prices, financed by
dirt cheap credit, turning a blind eye to the breach of the target to
which they mutually agreed and not learning the lessons of the Global
Financial Crisis in 2008.

The RBNZ was once lauded around the world for making NZ exceptional.
It pioneered inflation targeting. We became the gold standard of
monetary credibility.

Now our hard-fought success and huge reputation built up over 30 years
lie in ruins.

Exhibits A, B and C reveal how the RBNZ and Finance Minister have
overseen the trashing of their "agreed" inflation target.

The official defence is that other Central Banks are just as bad.
That's not true. Not one of them operates under the same laws as ours.

The US Fed Chairman and Treasury Secretary have not broken any
agreement. By comparison, our RBNZ Governor and Finance Minister have
driven a truck through the single most important agreement
underpinning our economic security since 1989.

• Robert MacCulloch is the Matthew S. Abel Professor of Macroeconomics
at the University of Auckland.


Crash McBash


Apr 28, 2022, 12:26:38 AMApr 28
For some reason I can see the Horrid's premium article despite not subscribing...

It's a damning case against the Minister of Finance and the Governor of the RB. That first home buyers will find themselves in mortgage distress is down to their illegality and incompetence. To all Kiwis that are seeing the living costs become unlivable, it is down to the same two idiots.

The wreckage of the NZ economy is now becoming visible to all. Thanks to Robbo and Orr. The Dumb and Dumber of NZ Finance.

Willy Nilly

Apr 28, 2022, 3:06:14 AMApr 28
>Apologies - I forgot it is Premium content:

Thanks for a very interesting read. So RBNZ had a clear, simple, and
well-defined contractual remit to increase the interest rate 1% for
each 1% of inflation. They did not -- evidently to enable the massive
QE spending of this government, i.e., to "be kind".


Apr 29, 2022, 12:35:00 AMApr 29
No the OCR rate needs to be more so the OCR needs to be in the order of 7%
(or more) by my under standing.

That would have some flow on affects which would not be kind to John and
Jane Doe's wallet if they had a mortgage.

If Taylor's law is correct then inflation will bot be under control until
the OCR is slightly ahead of the inflation rate.

It'll take time, 10 years say.


Apr 29, 2022, 3:15:38 AMApr 29
I was not previously aware that this "Taylors Law" - and it is not
clear from the thread whether it is in the government instructions to
the RBNZ. Sudden changes of the OCR rate would seem to be undesirable
(in whichever direction), and increasing them in line with inflation
seems to be contrary to what the Reserve bank has actually done since
Don Brash was Governor. Where did the "Law" come from?


Apr 29, 2022, 6:57:55 PMApr 29
On Fri, 29 Apr 2022 19:15:38 +1200, Rich80105 <>
It is explained in the article I cited and with the text quoted
earlier in this thread. To be accurate it is 'Taylor's Rule'. Read
the article again for context. This is the text of my original post:

"Now this is just an opinion piece but the author has serious
credibility. Of particular interest is the last 2 paragraphs."

Crash McBash


Apr 29, 2022, 7:40:35 PMApr 29
On Sat, 30 Apr 2022 10:57:54 +1200, Crash <nog...@dontbother.invalid>
Thanks Crash I will look again.

Here is another article that talks about inflation and what needs to
happen. While inflation could be regarded as an unwelcome outcome of
the effects on the world of both Covid and the Russian invasion of the
Ukraine, I suspect it could justifiably be seen as a separate issue,
similar the global financial crisis - it has certainly not been an
easy time to be in government.

jaouad zarrabi

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