Mike Hosking: Why are we not asking questions about Funding for Lending?

Author
Mike Hosking,
Publish Date
Tue, 13 Oct 2020, 8:52PM
(Photo / 123RF)
(Photo / 123RF)

Mike Hosking: Why are we not asking questions about Funding for Lending?

Author
Mike Hosking,
Publish Date
Tue, 13 Oct 2020, 8:52PM

One of the more perverse aspects of this year, are the things that have become a part of our lives we never imagined would

Funding for lending will be one of them. I love this stuff; it’s as dry as dust and yet such a critical part of our lives directly affecting each and every one of us.

And yet, in a years’ time, a decade’s time, many will not have a clue about it.

The desire to learn is in us all, especially as kids, and tragically so many lose it as the years go by.

Funding for Lending is the Reserve Bank’s next step in its so called tool box in trying desperately not to have us sink like an economic stone.

They will lend directly at a discounted rate money to the banks. The theory is they will then pass that cheaper money on to us. Cheap money is designed to stimulate the economy.

We borrow hopefully to expand …whether that’s a renovation or a new house or a new business or a new department or a pivot

The more enticing you make money, hopefully the more of it we want. It’s like a sale: you don’t need that top, but its 50 percent off.

FLP could be here next month. It probably won’t be but it could be.

After that its negative interest rates. Apart from the workings of it, which I find endlessly fascinating given it’s a mix between the factual, i.e. the cost of money, and the psychological, i.e. are we emotionally stimulated by the prospect?

The big question I have is why are we here? How desperate are we, how out of left field is this stuff really, how close to the edge is this? And what happens if it doesn’t work?

FLP isn’t new. It’s out there internationally, and so is QE, so are negative interest rates. But that doesn’t make it good or right or effective.

It’s like comparing our economy to Zimbabwe’s: just because they’re worse than us, doesn’t make ours good.

But the trick here is if we don’t know how this stuff works, if we don’t understand it, how do we ask the questions?

FLP means you essentially, for example, as a depositor get nothing for your money, or if you’re a borrower your loan is virtually free.

Is that good? How much debt gets raked up at next to nothing, and if inflation fires up and interest rates rise, how many get caught out unable to pay the bill?

What happens when some countries get some economic traction stop printing money and we are caught swimming in debt?

What if FLP doesn’t work, do negative interest rates, and what happens after negative interest rates?

How negative can you go before it’s absurd? When I asked Don Brash this the other day, he laughed, which would have been fine if he hadn’t previously been the Reserve Bank governor.

Point is, this is on the edge; we’ve never been here before. It’s either our saviour or path to ruin. So how come you don’t know about it yet?

 

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