Zoom Out To Lunch

Bernard & Jarrod: Is QE money printing?

Bernard Hickey talks to Kiwibank Chief Economist Jarrod Kerr about the Reserve Bank's latest move to buy council bonds, and whether New Zealand's 'Quantitative Easing' programme amounts to money printing, or is a sensible attempt to unfreeze financial markets.

Bernard Hickey and Jarrod Kerr talk about the latest financial and economic news in their daily 'Zoom out for lunch' video running for the duration of the lockdown. Today they talk about US jobs data showing fast-growing unemployment in the world's largest economy, including six million jobs lost in just two weeks. They are also joined by Newsroom Pro business correspondent Andrew Patterson to talk about Auckland Airport's plan to raise $1.2 billion in fresh capital.

They are then joined by David McLeish, who is the head of fixed interest for Fisher Funds, which manages $9b of funds. They talk about the Reserve Bank's decision to widen its bond buying to include Local Government bonds as well as central Government bonds in its programme of Quantitative Easing..

They also look at the history of Quantitative Easing over the last decade by central banks in America, Europe, Britain and Japan. This involved the central bank crediting reserves to the accounts of banks with the central banks, in exchange for Government bonds. 

Some see this is money printing, but as McLeish points out, the money isn't actually created in spendable form until it's in the account of a consumer or business, which is only possible once money is lent and deposited in the banking system. This 2014 paper by the Bank of England details how it is done.

True money printing would see the Government giving money directly to consumers, as is being done in America via US$1,200 cheques being sent to each adult, as long as the Government grants are being funded by central bank lending. For now, the Reserve Bank has not gone to that full extent.

However, McLeish said, and Kerr agreed, that the Reserve Bank should also consider buying corporate bonds as part of efforts to support financial markets.

This is part of a daily 'Bernard and Jarrod Zoom out for Lunch' webinar series during the lockdown. 

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