Reidy did her homework and once Orr had completed a tour of his realm in the avuncular manner of an uncle showing a young relative his collection of obscure 1979’s rock memorabilia, Reidy got to work.
Orr has presided over the most sustained evisceration of the economic value of our dollar in Reidy’s lifetime, and she wanted to know why. She proceeded to clobber the governor in the manner of a frustrated fur-sealer working out their anger management issues on the last remaining seal-cub of the season.
The main issue of contention was the failure to be honest as to the drivers of our current inflationary problem. Perhaps, the reporter demanded, it was the $53 billion of treasury debt Orr had purchased with money he’d created on his laptop?
Orr spluttered at the indignity and protested that the bank had had their own actions reviewed, and urged Reidy and her viewers to read that report.
Fair play. So I did.
Published in 2022; In Retrospect; Monetary Policy in New Zealand 2017-22. The remit was to review what the bank did in the lead up to, and during, the pandemic.
Let’s do a quick re-cap.
The Reserve Bank has one tool; the ability to set the price of debt. A crude analysis is that the higher the price of debt the less economic activity, the lower is the inflation rate. Orr set the price to next to zero and he did this back when Covid was safely in the lab. Or in a pangolin. Or wherever it came from.
Once the pandemic arrived we had a crisis. The minister of finance committed to borrowing to get us through the crisis, and the governor committed to purchasing much of that debt.
The main issue of contention was the failure to be honest as to the drivers of our current inflationary problem. Perhaps, the reporter demanded, it was the $53 billion of treasury debt Orr had purchased with money he’d created on his laptop?
Orr spluttered at the indignity and protested that the bank had had their own actions reviewed, and urged Reidy and her viewers to read that report.
Fair play. So I did.
Published in 2022; In Retrospect; Monetary Policy in New Zealand 2017-22. The remit was to review what the bank did in the lead up to, and during, the pandemic.
Let’s do a quick re-cap.
The Reserve Bank has one tool; the ability to set the price of debt. A crude analysis is that the higher the price of debt the less economic activity, the lower is the inflation rate. Orr set the price to next to zero and he did this back when Covid was safely in the lab. Or in a pangolin. Or wherever it came from.
Once the pandemic arrived we had a crisis. The minister of finance committed to borrowing to get us through the crisis, and the governor committed to purchasing much of that debt.
I am not here to debate that policy. Not today at least. But one effect we have observed has been sustained inflation.
Let’s look at this very simply. We didn’t increase the things we produced. We did magic up $53 billion dollars in an economy that does about 300 billion a year of turnover.
The question should be; was this worth it? But the 120 page report didn’t go there.
The authors conclude; “In part inflation has been driven by unanticipated global supply shocks beyond the control of the Reserve Bank…” Which raises the question, what was the other part? Well. Not Adrian. “There is, however, currently little evidence suggesting that a higher monetary base has contributed to inflation pressures.”
This isn’t credible. And when it comes to monetary policy credibility matters. In one of the more lucid paragraphs the report looks at the risks of using alternative monetary policy, such as printing $53 billion, and concludes that if the bank does not achieve its objectives “...the public have lost faith in the Reserve Bank’s ability to achieve the Remit’s objectives.”
The context is that if the bank didn’t print money the financial system might have failed, but this overlooks that price stability is the one objective that most of us simple folk look to the bank to achieve. And it didn’t achieve it.
And when inflation did arrive the bank pretended that this was a temporary, or transitory, blip, and did not represent a sustained decline in the value of our currency. So they ignored it. Which made the problem worse.
Throughout this report there are lists of lessons learned; yet it is clear that the real lesson; that printing money debases the currency and leads to inflation, is not amongst them. At this point it becomes wilful blindness for the bank and its governor not to confront this issue.
And it is even more remarkable when most commentators think inflation was a fair price to pay for avoiding a recession, or worse. I am not amongst them, but that is not the point. The governor’s refusal to acknowledge even the prospect of any miscalculation makes his continued tenure intolerable. And irrational.
The report cites a survey conducted by the central bank on the confidence citizens have in the ability of the bank to control inflation, and the response was that we don’t. The main three reasons cited were; external factors (Ukraine war, etc), a lack of trust in the bank, and the bank being unresponsive to events and focused on other priorities.
We have seen Adrian Orr, consistently over six years, place greater emphasis on factors such as employment ahead of price stability. And this matters. As the authors of the report state;
“If the public believes that Reserve Bank has the will and capability to manage inflation over the medium term, monetary policy will need to react less forcefully to shocks than it would otherwise.”
The reality is, we don’t.........The full article is published HERE
Let’s look at this very simply. We didn’t increase the things we produced. We did magic up $53 billion dollars in an economy that does about 300 billion a year of turnover.
The question should be; was this worth it? But the 120 page report didn’t go there.
The authors conclude; “In part inflation has been driven by unanticipated global supply shocks beyond the control of the Reserve Bank…” Which raises the question, what was the other part? Well. Not Adrian. “There is, however, currently little evidence suggesting that a higher monetary base has contributed to inflation pressures.”
This isn’t credible. And when it comes to monetary policy credibility matters. In one of the more lucid paragraphs the report looks at the risks of using alternative monetary policy, such as printing $53 billion, and concludes that if the bank does not achieve its objectives “...the public have lost faith in the Reserve Bank’s ability to achieve the Remit’s objectives.”
The context is that if the bank didn’t print money the financial system might have failed, but this overlooks that price stability is the one objective that most of us simple folk look to the bank to achieve. And it didn’t achieve it.
And when inflation did arrive the bank pretended that this was a temporary, or transitory, blip, and did not represent a sustained decline in the value of our currency. So they ignored it. Which made the problem worse.
Throughout this report there are lists of lessons learned; yet it is clear that the real lesson; that printing money debases the currency and leads to inflation, is not amongst them. At this point it becomes wilful blindness for the bank and its governor not to confront this issue.
And it is even more remarkable when most commentators think inflation was a fair price to pay for avoiding a recession, or worse. I am not amongst them, but that is not the point. The governor’s refusal to acknowledge even the prospect of any miscalculation makes his continued tenure intolerable. And irrational.
The report cites a survey conducted by the central bank on the confidence citizens have in the ability of the bank to control inflation, and the response was that we don’t. The main three reasons cited were; external factors (Ukraine war, etc), a lack of trust in the bank, and the bank being unresponsive to events and focused on other priorities.
We have seen Adrian Orr, consistently over six years, place greater emphasis on factors such as employment ahead of price stability. And this matters. As the authors of the report state;
“If the public believes that Reserve Bank has the will and capability to manage inflation over the medium term, monetary policy will need to react less forcefully to shocks than it would otherwise.”
The reality is, we don’t.........The full article is published HERE
Damien Grant is an Auckland business owner, a member of the Taxpayers’ Union and a regular opinion contributor for Stuff, writing from a libertarian perspective
3 comments:
Worst governor ever. Can anyone name a worse one? Exactly.
When you have 2 former governors coming out and criticizing him, that's saying something about his ability, priorities and his hidden agenda.
He will be another labour loving appointment i will not miss.
But but he comes highly recommended by the financial wizard Grant Robertson who signed him up for another term.
How to get a new governor? I thought he was recently reappointed for another 5 year term. Is it as simple as asking him for his resignation?
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