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  • rmacculloch

Yesterday, the Reserve Bank of NZ was given permission to expand its Quantitative Easing program up to $100 billion. Under this scheme the RBNZ is using cash to buy government stock. The aim is to depress long term yields to make borrowing cheaper. But should world interest rates start rising, the value of those bonds will drop.


Potential losses incurred by the RBNZ under this scheme could run into billions of dollars. Just so you know what you may have got yourself into, the Minister of Finance has signed a "memorandum" which opens the door to you, the taxpayer, reimbursing the RBNZ for such losses.


Here is the Memorandum:


https://www.rbnz.govt.nz/-/media/ReserveBank/Files/News/2020/Letter-from-Reserve-Bank-to-the-Minister-of-Finance-6-August-2020.pdf?revision=d82407ae-ee1c-4eb6-9118-f37613396b31&la=en

  • rmacculloch

DownToEarth Kiwi is not taking a position on which political party is offering the best policies for the 2020 election. Why? Not because we seek to be non-partisan. Instead the reason is that the platforms of our major parties are practically identical. For example:

  1. National and Labour both supported the wage subsidy scheme during the lockdown.

  2. Both parties support a similar bunch of packages to prop up businesses in the aftermath of the lock-down.

  3. Neither National nor Labour have proposed a reform to our health-care services, even though the world is experiencing the greatest health crisis in a century.

  4. Both parties support large-scale infrastructure projects, financed by borrowing. Each party is simply proposing different favored pet projects. Neither party has committed to a ranking of projects based on a strict evaluation of their costs and benefits.

  5. National and Labour are both refraining from highlighting to the public the key assumption behind how they "plan" to reduce the public debt to GDP ratio, without cutting wasteful government spending nor increasing taxes. The assumption is that interest rates on the debt stay lower than the GDP growth rate over the following decades. Should interest rates become higher than GDP growth rates, then our exploding public debt to GDP ratio will blow up even more, regardless of which party wins.

 

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Robert MacCulloch