Down To Earth Strikes Again on QE
In a blog post in August 2020, we raised concerns about the Reserve Bank's Quantitative Easing (QE) Program, which it had just begun to embark upon. Under the heading, "You may have just signed away a fortune" we wrote that "Yesterday, the RBNZ was given permission to expand its QE program up to $100 billion. Under this scheme the Bank 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. 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".
Just over one year later, that is exactly what has happened (in addition to the QE program fueling house price hyperinflation). The Bank is sitting on a $4 billion LOSS that will have to indemnified by YOU, the taxpayer. The pointless $100 billion QE Program has indeed incurred huge losses due its purchasing of long-dated government bonds. As we foresaw, the reason is that inflation & interest rates are on the way (sharply) up, so bond prices are correspondingly going down.