By Alex Tarrant
The Reserve Bank should buy the government's earthquake recovery bonds, as well as overseas assets to replenish the Earthquake Commission's disaster fund, with newly created money, the Green Party says.
The move would reduce the need for the government to borrow from foreign lenders, therefore taking pressure off the New Zealand dollar, co-leader Russel Norman claimed on Sunday.
Norman suggested initially buying NZ$2 billion worth of bonds, then assessing the effects that had on the exchange rate and the economy before continuing or stopping purchases.
See below: Reaction from Prime Minister John Key; Reaction from NZIER economist Shamubeel Eaqub; What the Reserve Bank has previously said about quantitative easing.
Asked how much bond and asset buying with newly created money - dubbed quantitative easing (QE) - could eventually be targeted, Norman suggested New Zealand's trading partners had enacted QE policies of between 10% and 24% of GDP.
The government has earmarked NZ$5.5 billion for an earthquake recovery fund, while Norman suggested replenishing the Earthquake Commission's disaster fund to NZ$6 billion. Together, that NZ$11.5 billion would represent 5.6% of New Zealand's NZ$205 billion economy.
Meanwhile, the Green Party also wants the Reserve Bank to be given a broader mandate for the operation of monetary policy, other than just its primary mandate of price stability. Norman claimed giving the Bank other focuses such as "exporters and jobs," would lead to the Official Cash Rate being lower than it currently was.
The Green Party said use by the Reserve Bank of 'macro-prudential' policy tools - which it already has the ability to use - such as tightening loan-to-value ratios to limit mortgage lending, at the same time as lowering the OCR, would work in tandem with its capital gains tax policy to stem a possible revival in the housing market due to lower interest rates.
The Greens' policy follows comments from Labour Party finance spokesman David Parker that the Reserve Bank should be allowed to "give a wee bit" with respect to its inflation target so that it could consider equal mandates to price stability like the state of the tradable sector, employment, and economic growth. [See below for comments from RBNZ head of economics John McDermott that having higher inflation along with a lower currency might not alter New Zealand's real exchange rate.]
Print baby, print
Norman said the party's policy on quantitative easing - where a central bank creates new money to buy bonds or other financial assets - would help take pressure off the New Zealand dollar.
"We propose the Reserve Bank purchase, in a staged way, earthquake recovery bonds to fund the rebuild of Christchurch and overseas assets to rebuild the Natural Disaster Fund more quickly. Both measures will have an immediate downward impact on our exchange rate," Norman said.
“Buying Christchurch earthquake recovery bonds will reduce the need for the Government to borrow offshore. Currently, about 60 percent of all Government borrowing is from offshore," he said.
“Buying overseas assets to restore the EQC’s Natural Disaster Fund will prepare us better for any future natural disasters. The National Government raised the EQC levy in February raising yearly revenues from NZ$86 million to NZ$260 million. Treasury advises that the new levy rate will rebuild the Fund to its pre-earthquake level of NZ$6 billion in about 30 years.
“We need to speed up the rebuilding of the Natural Disaster Fund to get New Zealand’s safety net back in place. The Fund’s holding offshore assets will limit the risks to domestic price stability while placing downward pressure on the New Zealand dollar,” Norman said.
'Won't be inflationary'
Speaking on TVOne's Q&A programme on Sunday, Norman said the expansion of the money supply would not be inflationary.
"So if you look at the earthquake bonds, the earthquake building is happening already, so we’re not increasing construction activity. We’re actually just making sure that we’ve got the money to do it," he said.
"And the Natural Disaster Fund, which is currently empty, we would be restocking the fund with foreign-denominated assets, which is— and it’s important to understand this – the Natural Disaster Fund is stocked with foreign-denominated assets, because in the event of a big disaster in New Zealand, you want access to those overseas assets.
"So once you start purchasing overseas assets with New Zealand dollars, you don’t add to inflationary effects inside the New Zealand economy," Norman said.
'Whacky idea'
Prime Minister John Key said on Monday morning that the government's view was the Reserve Bank should have price stability as its primary target. He said the Green Party's quantitative easing plan was "whacky" and would lead to higher rates of inflation.
“The [Reserve Bank's] primary focus is inflation, and you can’t ask an organisation to have lots of different primary focuses, or it doesn’t make sense," Key said on TVOne's Breakfast programme.
“But you’ve got to remember, the Reserve Bank Act and the policy targets agreement is broader than that. It does say that they’ve got to look at output and they’ve got to look at all sorts of other factors," Key said.
The Reserve Bank’s mandate had been reviewed on numerous occasions.
“Last time, under the previous Labour government, in 2008 they found that we had world class policy. And most countries follow what we do," Key said.
“So this latest idea of the Greens to print money, that’s a pretty whacky idea. Why do we think that? Firstly, if printing money made you rich, Zimbabwe would be the richest country on the planet, and it’s not," he said.
“Secondly, what it does is it increases money supply. That increases inflation. That means your interest rates would go up – so your mortgage costs would go up and your business costs would go up – it means the cost of everything you buy would go up. It means your price of petrol and the likes would go up.
“So yes, it might bring your currency down, it might be a by-product of that, but at quite a cost to the rest of [consumers]," Key said.
"Countries that have really got themselves in problems with inflation, like Germany and Argentina, they will probably attest that [it’s been] not that great an idea.
"Also, our economy’s not in bad shape. The Greens are saying, ‘let’s deploy something that might work in a place like Spain, where there are terrible problems.’ But we grew at one of the fastest rates in the OECD, we created 57,000 jobs in the last couple of years. We don’t have a crisis. They could create a crisis for us, but we don’t currently have one,” he said.
'Everyone else is doing it'
Norman said New Zealand needed to copy major global central banks such as the US Federal Reserve, Bank of England, Bank of Japan, and the European Central Bank, which were all engaging in quantitative easing after lowering their benchmark interest rates to near zero.
“Since the Global Financial Crisis, our major trading partners have engaged in large scale measures that have devalued their currencies. Our productive sector has been the first casualty and, along with it, any chance of securing our long-term prosperity," Norman said.
“The UK, USA, Japan, and the European Union have deserted traditional monetary policy tools in favour of successive rounds of quantitative easing. New Zealand can no longer afford to be a pacifist in a currency war,” he said.
"Bernard Doyle, a strategist at JBWere, recently said that the Reserve Bank should intervene to drop the value of the kiwi dollar. New Zealand’s Reserve Bank is one of the few central banks running relatively orthodox monetary policy – “a rarity in the global economy with positive interest rates and no policy on quantitative easing”. In a world where the major central banks are breaking all the rules, Doyle argues that our position is no longer serving us well."
'Not even sure if it works'
New Zealand Institute of Economic Research economist Shamubeel Eaqub said those central banks had embarked on quantitative easing programmes as a "last resort," having exhausted all other options after cutting their benchmark rates to near zero.
“And the fact of the matter is, we’re not even sure if [the policies will] work," Eaqub said.
“Isn’t that what you get told at the school yard? Just because everybody else is doing it, it’s not a good idea," he said.
“They’re doing it because they’re desperate. They have no other measures. New Zealand is not in the same case. We can cut interest rates if we need to. We can increase government borrowing and government spending if we need to. We’re in a very, very different situation. This is not the time to weaken our economy and our policy settings," he said.
With regard to the Reserve Bank's mandate, Eaqub said there needed to be a decision made on what the Reserve Bank's primary target should be. The Bank shouldn't be asked to have multiple targets on the same level as each other.
“Either we deal with inflation, or we deal with exchange rate. You can’t have both. But at the same time, what we need to do, is we need to make sure we have real policies on things like superannuation – ageing of the New Zealand population; we need to have access to international markets though free-trade agreements; we need to deepen our capital ties," Eaqub said.
“Those are the kind of fundamental things that the government can influence through policy. The exchange rate is not one of them," he said.
The Reserve Bank had already been looking at using macro-prudential tools as further instruments to try and stop future asset bubbles.
“So it’s already happening in the background, and it’s actually a good thing. The Reserve Bank has a fairly wide mandate to make sure there is stability in the economy," Eaqub said.
"But you have to look at one measure to control. When you’ve got a very blunt tool, you’ve got to make sure you’re fairly focused on one particular thing," he said.
What the Reserve Bank says:
Former Reserve Bank Governor Alan Bollard, whose ten year stint at the Bank ended in September, said last month that quantitative easing policies from major central banks could turn into a form of 'monetary protectionism' if they set in over the long-run.
If so, that would create significant implications for exchange rates, capital flows and competitiveness in the world economy, Bollard said in the Reserve Bank's September bulletin. It would be disappointing if this were the case, although it was still too early to tell if competitive QE would be a long-run affair, he said.
In March, Bollard and RBNZ head of economics John McDermott tackled questions from opposition members of Parliament's Finance and Expenditure Select Committee on quantitative easing.
On what impact such a policy might have on the New Zealand dollar, Bollard said a lot would depend on what the market thought the central bank was trying to do with the QE, how credible they thought that was going to be, but also on what other pressures they saw in the New Zealand economy.
“The sorts of growth rates we’re talking about [in New Zealand], while not huge, are actually reasonably strong by OECD standards now,” Bollard said in March.
“So, if being completely hypothetical, we were to try and put in place some form of quantitative easing at the minute, first of all they’d scratch their heads because they wouldn’t understand what we were trying to do," he said.
"Secondly they’d say that this country is growing and is near full capacity – that’s got to mean inflationary pressures. Therefore the OCR is going to at some stage have to go up faster than it otherwise would.
"Therefore the NZ dollar might look attractive to buy in," Bollard said.
"I don’t know, is the answer. But I wouldn’t just assume it would depress the value of the New Zealand dollar."
Meanwhile, McDermott said quantitative easing could lead to inflation, which would mean the real exchange rate may stay the same even if the nominal exchange rate did fall.
“If we were to have expansionary monetary policy – either low interest rates or quantitative easing – more than would be the case for our inflation target, you could imagine a case where the New Zealand dollar would depreciate – that would be fine – unfortunately we’d have more inflation, and the real exchange rate wouldn’t really change," McDermott said.
"New Zealand’s competitive position won’t actually have improved. Our tradable sector won’t have gained any advantage from that particular policy move,” he said.
128 Comments
Sorry to say but seems like the only option in the multi-country / nations fight for survival.
We have imbalanced, ideologically driven economies for last 30, 40 years.
Fighting problems with usual means would be a waste of time - when others just "kill" us.
If we don't fight there will be no NZ. Just few places for retired rich - in nice spots.
And we will be serving them .....for a long time.....
Hence a CGT, level the playing field....
In terms of a rich hidy hole though its pretty cleat that the USA for one has gone for the swiss with a vengence, they buckled and so would we.
Also if you look at say Greece its pretty clear there is a danger of the rise of "extremist" political parties" when the traditional parties fail to heed the voter. So really unless they suspect democracy there is a real possibility that at some stage we the voter blow National and Labour away. Their duopoly only lasts as long as they keep enough of us happy....so 51%....when 50+% of us are p*ssed its bye bye time.
regards
but why are high interest rate mortgages better? whats being done is the OCR puts up the rate and we have to pay overseas investors more for no reason other than to stop us spending on something else like ipads.
As an alternative why not make GST variable instead of the OCR? decide that say 12% is "neutral" so anything above that gets put into a rainy day fund during say a boom. In a recession drop the GST to 8% to stimulate and draw the difference off the fund.
At least that way NZ benefits from the higher rate.
regards
Steven
Your variable G.S.T. idea is the best idea I have heard anyone come up with for a very long time. I have always hated paying foreigners high yields when the govt wants to cool the economy, as long as the govt could be trusted to leave the higher G.S.T. funds untouched to have when they needed to lower the rate.
It just makes good sense.
Thats an interesting idea, and original to my knowledge. I have a couple of challenges though, which need to be thought through,
1) You are cutting back government revenue as GST is already about 12%, does this create a deficit or does income tax need to be raised to balance this policy.
2) Doesn't GST effectively target low income groups, I guess thats why you want to lower it to get there, but if its not the low income groups doing the housing speculation (funding the payments deficit) does that make this an effective policy?
3) Isn't the OCR component actually the part not going overseas? When I think about the interest rates I break it down into two margins, the OCR and then the bank margin on top. As far as I can observe the bank margin is roughly inverted compared to the OCR.
4) I know the GST hike was considered a massive dis-incentive to housing speculation, c.f Hugh Pavletich constant complaining about it, oh sorry Hugh always says the GST component pushes housing out of reach of the youth, blah, blah, blah. Doesn't lowering it make this an incentive to housing speculation?
That approach is confusing the issue, Steven initially tried this with PAYE a couple years back and I shot him down on that one, now it is GST, the percentage of disposable income is the key, those who with a low income consumer a higher percentage of income on necessities, so in relative terms the gst change has, as a consequence, a relatively larger effect on their income.
People with larger disposable income may consume more but a gst change in relative terms will have less effect on their disposable income and options, therefore less change to their behaviour.
Believe it or not people already struggle to calculated gst, the error rate in compliance will be large with such an approach. Most baby boomers will not change to cloud based accounting systems in their lifetime and therefore it will cause its only problems in this respect.
Concerning property it will only have an effect on new builds not the existing housing stock so there goes it main effect on property.
Investment in the financial world is exempt so there is little effect there except for lower disposal incomes.
On balance it takes more from the low income working poor to the consolidated fund where it is never seen again. Bring down the exchange rate you help the rich who are exporters - great as I'm one, however a double wammy for the poor.
See it has a regressive.
That approach is confusing the issue, Steven initially tried this with PAYE a couple years back and I shot him down on that one, now it is GST, the percentage of disposable income is the key, those who with a low income consumer a higher percentage of income on necessities, so in relative terms the gst change has, as a consequence, a relatively larger effect on their income.
People with larger disposable income may consume more but a gst change in relative terms will have less effect on their disposable income and options, therefore less change to their behaviour.
Believe it or not people already struggle to calculated gst, the error rate in compliance will be large with such an approach. Most baby boomers will not change to cloud based accounting systems in their lifetime and therefore it will cause its only problems in this respect.
Concerning property it will only have an effect on new builds not the existing housing stock so there goes it main effect on property.
Investment in the financial world is exempt so there is little effect there except for lower disposal incomes.
On balance it takes more from the low income working poor to the consolidated fund where it is never seen again. Bring down the exchange rate you help the rich who are exporters - great as I'm one, however a double wammy for the poor.
See it a regressive.
That approach is confusing the issue, Steven initially tried this with PAYE a couple years back and I shot him down on that one, now it is GST, the percentage of disposable income is the key, those who with a low income consumer a higher percentage of income on necessities, so in relative terms the gst change has, as a consequence, a relatively larger effect on their income.
People with larger disposable income may consume more but a gst change in relative terms will have less effect on their disposable income and options, therefore less change to their behaviour.
Believe it or not people already struggle to calculated gst, the error rate in compliance will be large with such an approach. Most baby boomers will not change to cloud based accounting systems in their lifetime and therefore it will cause its only problems in this respect.
Concerning property it will only have an effect on new builds not the existing housing stock so there goes it main effect on property.
Investment in the financial world is exempt so there is little effect there except for lower disposal incomes.
On balance it takes more from the low income working poor to the consolidated fund where it is never seen again. Bring down the exchange rate you help the rich who are exporters - great as I'm one, however a double wammy for the poor.
See it as regressive.
" If I buy houses and sell them for a higher price ,no tax on diffrence ? "
True, IF it is only 'the' ONE family home. Anything above that IS liable for CGT now IF (heres the catch) you sell it for a profit above what you paid. Hence many PI's never sell if possible.
What needs to change is the tax on "possession" alone. i.e. any more than one property owned is taxed regardless of income from it. Base the tax on actual sales figures for similar properties.
"Anything above that IS liable for CGT now IF (heres the catch) you sell it for a profit above what you paid"
Not quite correct Justice. It is only liable now if the intent at time of purchase was to sell it for a profit. If you can prove that your intent was to hold it as a long term rental then the profit will not be taxable. Truth is the majority of ma & pa PI's always intended to sell at some point.
Same loophole applies for the "family home" where the real intent is to renovate while living in it and onsell for a profit later but this cannot be proved by IRD. Only time IRD catches these ones is if it is being done on a "regular" basis.
Firstly Wolly, I think the Pinky needs to go unless it wasn't Norman dragged away kicking and screaming during a Commie visit here a few years back.........so maybe Wishy might suffice...as an adjective.
That said, it's all just jawboning , pie in the sky stuff, and little to get upset about or fear for that matter......on a positive side it is the type of rhetoric we would have liked to see from the happless Bollard during his borishly long stay at the party....coping the doughnut.
Inevitabley Wolly ...we...need to do something ..!,either pre-empting the RBA or sliding along after them like a wetback economy. ....or we could just keep borrowing for housing investment here in Real Estate Utopia...The Land of the Dumb White Clod.
Russel Norman and the Greens - It's about time you understood cause and effect. This claptrap is nothing more than a vain attempt to disguise the real problems NZ'ers are facing.
I am disgusted that the Greens could promote a policy that would directly create hardship for the whole of NZ. NZ needs a little bit of inflation and it appears that it would be more beneficial to have a higher band than what the RBNZ is currently mandated to apply.
If the Greens wish to broadly experiment with the economy then they as a Political party like all others should directly pay for any induced mayhem. Now that would be accountability wouldn't it ! The status quo of NZ'ers having to foot the bill for incompetent Political interferring is where all problems lay. Put your money where your mouths are Greens!!!
Trolleyboy - I don't agree with all the borrowing National is doing or the fact that they haven't cut back spending and become efficient operators. There are far too many people dependent upon the Nanny State and its time NZ'ers were weaned.
It's party politics that are ruining this country.
Notaneco it's just jawboning , and you know full well in the trade off if they could form an Administration the policy would be diluted drastically.........
We sit around here day in day out saying we need to check the smug complacency the Nat's Govern with, unfortunatley this is one of the ways it happens.....through opposing views on policy...
As I said only this morning Key announced to the media printing would negatively affect mortgage borrowers...as if he was blowing out a candle, or telling the population to forget it, and probably successfully..!
They don't want you talking about it...they don't want it on the table, they want the Status Quo, and on and on we go blowing bubbles and borrowing our way to oblivion.
Christov - I know the likelyhood of it happening is limited at the moment. However I'm accutely aware of the power of suggestion and that many people will not understand the implications of money printing and may consider it a necessary evil next election without understanding the effects down the track. Everything any Government does for the short-term has a long term effect and yet the politicians and voters never seem to comprehend this fact.
Downsizing or shifting to efficient delivery systems is hampered by employment contracts, redundancy provisions etc so its a slow process trying to get the bloat out of the system and wean the people off the Nanny State.
We only have to look at recent protests and media attention to see how the people dislike the weaning process. They are more vocal than a herd of cows and calves at weaning with just as many testing the fences trying to reunite.
In regards to taming down the housing bubble I think we all need to be very aware of the discussions on the debt levy/tax that is being discussed.
You highlight my point Notaneco about Key's unwillingness to discuss the ramifications of Q.E. as if ...we... the public, don't need to know what the counter proposals are, we don't need concern ourselves that Small MFG exporters are going to the wall daily now, we don't need to bother educating ourselves to have some level of financial comprehension of the policies that decide our direction short or long term.
We just need to trust, the Greens don't know what they are doing..... and the Nats do...!
This isn't religion you know...? a leap of faith is not necessary if factual data can explain best practice.
I might add, if the RBNZ Governor admitted to minimal understanding of Macroeconomics, just who are the Nats taking counsel from....?
They don't know either Notananeco....but they do know what works for the borrowing agenda.
Christov - not sure if you've listened to the Reith Lectures - here's a link if you get a chance.
http://www.bbc.co.uk/podcasts/series/reith#playepisode4
Time for another lesson in knowing what you are talking about notaneconomist,
Everything any Government does for the short-term has a long term effect and yet the politicians and voters never seem to comprehend this fact.
In fact almost every economist agrees that in the long term the level of money is neutral. Obviously this entirely undermines whatever point is being made about QE.
http://en.wikipedia.org/wiki/Neutrality_of_money
Clearly if this is correct, and most schools of economic thought agree that it is, or that the short term implications are more important anyway, then the short term implications of a policy like QE are the only relevant considerations.
Also,
NZ needs a little bit of inflation and it appears that it would be more beneficial to have a higher band than what the RBNZ is currently mandated to apply.
Didn't you claim the exact opposite just a couple of days ago, while trying to defend your argument that the government should employ fewer people to create a more healthy economy, in fact you claimed that this excess government was inflationary and that this was a negative thing. We are all glad to see you are capable of developing your thinking, so congratulations!
Nic, doesn't the Austrian school of economics disagree that money is neutral?
Something to do with you can create money but can't control where it goes in an economy, and the distortions on relative pricing.
Also the phrase "almost every economist agrees" is troublesome, this line of thought brought us: subprime is contained, great moderation etc etc
Possibly, its too hard to tell what the Austrian school of economics believes or does not. I am not willing to pay any attention to the Austrian school regardless, though I find it hard to differentiate their position from the Neo-classical one, because they reject the scientific method (c.f Praxeology). Actually I don't think they do reject this concept because they appear to reject endogenous money and claim exogenous money, which is really the only compatible position on this issue.
Its only considered correct in the long term as I said, as well. One description of Monetarism (which is of course deeply flawed), is that it was a policy to eliminate the short term effects of monetary expansion and contraction as an economic variable. Of course it didn't work, because thats not how the economy actually works.
My description of almost every economist is just to point out that nearly every model implies that the author appears making up the model to suite the policy she promotes. This is also implied by flim-flaming on the evil-ness of inflation to suite her argument. I personally think economic policy would be much better if it could be selected by direct democracy, I guess I agree with you on this point that you should not trust any single persons opinion too far.
Nic the NZer - You would need to ask the question......Is economics a Natural Science or a Social Science????
http://en.wikipedia.org/wiki/Praxeology
Using a scientific method to predict future economic outcomes is really only a form of gambling. von Mises points out in the link above that subjective values cannot be calculated mathematically.
http://en.wikipedia.org/wiki/Action_axiom
Neither, praxeology is not science,
Austrians argue that empirical data in and of itself cannot explain anything, which in turn implies that empirical data cannot falsify a theory and that economics is not a study where the scientific method applies.
http://en.wikipedia.org/wiki/Praxeology
But you are correct about the gambling part, Physics says exactly this in the thought experiment of Maxwells demon.
The second law of thermodynamics has only a statistical certainty.
http://en.wikipedia.org/wiki/Maxwell's_demon
Which hardly means that your coffee will spontaniously retain its temperature...
NIc the NZer - The topic discussed under a previous article was the effects of the 1980's. You posted a link to a report and I pointed out that the report was good in the fact that it listed the effects and that the effects were not the cause !
I then referred to the problems encountered as: the inability for business to borrow, high interest rates, high inflation etc. The problems that arose in the 1980's resulted from the activities in the 1970's, high levels of Govt debt, subsidies tarrifs etc and it was this excess Govt spending along with other issues that was inflationary.
I think you have deliberately misconstrued what I wrote to suit your own idealogy.....and you think I'm the bigot..........!!!!!
It is the PERCENTAGE of inflation in any economy that is the significant factor.
I am afraid you are totally wrong about the causes of the NZ recession in the late 1980s. As indicated by the fact that these symptoms are discussed in the Rogernomics page of wikipaedia, the recession was the eventual result of Rogernomics policies, thats the consensus, if you want to suggest a different history the onus is on you to suggest the evidence for it. Its also pretty clear that if Rogernomics didn't lower interest rates, allow businesses to borrow or lead to a high inflation rate, it was a failure, because it was basically financial liberalisation and suppost to address these areas of the economy directly.
However I can see I have been remis addressing your question,
You state "an economy with zero Government is unstable and this fact is known to economic theory" - Please provide facts to back up your statement !!! Where and When has this theory ever been tested?
Well as you can obviously see you can't practically test an economy with zero government, thats why economics creates mathematical models. Some of the earliest models exhibited the problem of instability,
http://en.wikipedia.org/wiki/General_equilibrium_theory
Walras could only work out that his Tattonement process converges under un-realistic conditions of an invisible hand existing.
http://en.wikipedia.org/wiki/Walrasian_auction
and eventually it was shown that a model with zero government is unstable unless un-realistic assumptions are imposed on the agents.
http://en.wikipedia.org/wiki/Sonnenschein%E2%80%93Mantel%E2%80%93Debreu_theorem
For the lay-person, the conditions described above essentially imply that every agent in the economy is exactly the same, e.g there is exactly one economic agent.
So as you can see some of us are rather offended at a national scale economic experiment based on wishfull thinking that everybody is essentially enough exactly the same person.
Nic the NZer - You cannot mathematically model human behaviour and the subjective value in a forward position. You can only mathematically model human behaviour after the events have taken place.
As I have said before:
"Theory is when you know everything - But nothing works.
Practice is when everything works - But know one knows why.
In our economic Lab of NZ theory and practice are combined - Nothing works and nobody knows why".
You state "an economy with zero Government is unstable and this fact is known to economic theory" ..........well I have a theory or two of my own.........can I predict your future response to my postings on this site? Mathematically modelling past history based on your behaviour - yes I can. But if I change my behaviour........and keep off this site, a different outcome would occur.
In regards to the 1984 snap election and the 1987 crash and recession - read some history. If you think Rogernomics caused the sharemarkets to plunge around the world then you are seriously mistaken. As I have stated before NZ was not well placed to deal with the 1987 crash and recession in NZ. Debt run up by NZ Govt's in the 1970's and early 1980's was the problem.
So what you are in fact saying is that NZ should carry out a national scale economic experiment (for a second time), and since we can't model the experiment we could not possibly predict the outcome (though note that the outcome predicted by those mathematical models is not good) we will have to hope that its beneficial? Apparantly you believe that is the best response, NZ shouldn't do something constructive and considered, NZ should do something frivolous, experimental and predicted to go badly wrong.
The RBNZ certainly seems to think that financial de-regulation lead to inexperienced lending institutions lending into a property and stock market bubble. The instability of the de-regulated market being pretty clearly forecast by the affore mentioned Arrow-Debreu model.
http://www.rbnz.govt.nz/research/bulletin/2007_2011/2009dec72_4hunt.pdf
Funny they don't mention NZ government debt, tarrifs or subsidies not even once. They seem to be saying it was encouraged by some financial reforms, I wonder who was behind those, do you think it was Roger?
I think NZ should stick to a simpler course, ignore your ignorant, biggoted, a-factual, a-historical opinion.
It is the PERCENTAGE of inflation in any economy that is the significant factor.
Is that what we call the inflation rate? or do you have some other definition of inflation to share with us who don't have the foggiest idea what the PERCENTAGE of inflation means or why its significant.
I think what you mean is many ppl do not follow the austrain school of economics as preached by a minority of libertarian types such as yourself. So you condesentingly decide they dont know whats going on when actually they may well do....
What you are quoting is classic demand side, "make it cheap enough and ppl will buy" it ignores debt and fear. Fear because dumping employment contracts for instance makes ppl fearful and they reduce spending.....it actually produces the opposite effect the voodoo economists expect.
In terms of nanny state, ppl chose the society they wish to have and belong to, what you are doing is dissing the 99.99% of the ppl who do not hold your extremist views.
regards
Nice big 4 litre monster?
so happy to pay $3? $4 a litre?
http://www.youtube.com/watch?v=wKsnCXBXi7I
The problem is when it happens you are suddenly illiquid as everyone else is trying to sell as well.....30% is just the BB problem, peak oil and debt will make it far far worse. me I'll sit here for a while and see what unfolds...
regards
The foremost problem in these discussions,is that they very quickly reduce to idelogical bunfights with idelogical rhectoric eg Joyce.
Joyces argument were he invoked the greens imaginery friend ( pixies) at the bottom of the garden,then suggested that his imaginary friend the market was pricing the NZ$ fairly was in fact an own goal.
The obvious fact is that the cash and carry trade is having an increasing input into the $value and it is neither confident in the resilience of the NZ market which is evident in the assets where over 42% is in short term positions and at the narrowend (call) the hot money is in the firemans park by the exits.
2007 at call 19.698 billion 2-90 days 58.430 billion
2012 at call 27.280 billion 2-90 days 48.793 billion.
Here one can argue for higher costs( non resident WHT) for short term parking and lower costs for long term parking.
I dont support the Greens , but Russel Norman , unlike others in the Beehive , seems to understand that the strong NZ$ could cause problems for all of us yet . His idea will weaken the NZ$ ( while this would normally be a bad thing) is not a bad thing when everyone else is actively weakening their currencies to be competitive.
Quite right. At least the Greens want to discuss the options available and their implications for NZ, rather than simply batting away any suggestion that may alter the status quo by labelling it as a 'wacky' idea. The way Donkey immediately draws the link between money supply - inflation - mortgage rates to appeal to the debt-laden masses instead of discussing the pros & cons makes me sick. The least he could do is project some sort of facade to show that he may have considered all the options at some point...
Good point, I watch parlimentary TV when I can and Im appaulded...its like kinder garden, except for the Greens. eg Maggie what ever she's called (ex tv presenter). Bloody hell, whomever voted for her should be made to watch her "perform" for say 30 hours as penance...
regards
Hi, the devil however is in the detail. My worry is once you point down its very hard to pull up even if you want to. Russel N is for me a nice front man for the Green's its the rest you need to watch. Im a green party member and frankly I'd be worried having the green's anywhere near economic policy reigns, in fact maybe petrified...
;]
regards
I do not know enough to comment on the merits or problems of QE as sugested by Dr Norman ,however simply rubbishing any ideas that come from Lab/Grens is stupid and dangerous and shows lack of insight and objectivety. US,UK , Europe and Japan and others are all enagged in QE, are they all greens/Lab type?
What should we do ,just wait and see and borrow, sell land and other productive assests and be happy that this is good stretegy?
There is a stark choice facing New Zealand but it will only get more urgent and polarised as time goes by.
National and Labour are the two "orthodox" parties of the status quo. Bank based credit system with inflation targetting RB and little regulation. Finance sector gets primacy as do big corporates. Those within both these parties who know the current system is not fair or providing the best outcomes are even more scared of the reaction of the financial markets to alternatives and hence they keep quiet and hope for the best but are probably positioning themselves as individuals for the worst. Major risk from doing nothing but feel its better than be blamed for doing something and it not working or being savaged by the markets.
Non orthodox policies from the Greens but more likely from new more reformist parties who want to take a big risk on radically different monetary, tax and welfare policies that blow the status quo to bits and are prepared to ride out a short term storm in the form of punishment from the financial markets in order to create a different long term solution.
A populist party advocating radical policies like a debt jubilee and public credit or Gareth Morgan's Big Kahuna or FTT will only get traction with the public after a crisis and business as usual is absolutely untenable to enough people.
Well said Russell Norman. So many red-herring objections it's difficult to know where to start. At least there are less and less disingenious flawed technical objections, like the "huge reserves" and inflation bs:
http://www.interest.co.nz/currencies/61380/labours-parker-monetary-policy-says-rbnz-should-consider-nz-employment-growth-infla#comment-708497
At least Alex gets it.
It seems that those who should know better are now making a mainly political objection with the standard of living arguement. So consider, our standard of living is less based on our earnings but more on our borrowings (mainly private, with too much in ag.) and we will be less and less able to service the debt as the real economy erodes under the influences of an overvalued and volatile currency. Isn't it time our 'leadership' addressed this? Clearly not, Key and co. seem to care more about us being comfortably numb to the prospects of our future generations with the electoral anesthetic of us having our flat-screen TVs rather than addressing a flat-lining real economy. It's dumb.
Cheers, Les.
NZMEA says - The exchange rate matters
“The quantitative easing Russel Norman described over the weekend is one of the options that are being used overseas to deal with exchange rate competitiveness. Spending the money directly into the earthquake rebuild and building foreign reserves are both worthy objectives but they are different issues – it is worth noting that those who say printing money is a problem are happy to borrow and pay interest on money printed by other central banks.”
More here:
http://www.realeconomy.co.nz/313-the_exchange_rate_matters.aspx
I think a better understanding of the status quo may improve the standard of discussion and expose the enormity of reserves looking to find a home against NZ's limited intervention resources.
As central banks broaden their currency holdings, it will
become increasingly obvious that the scope of Bretton
Woods II is widening, or even that Bretton Woods III is in
the making. The original Bretton Woods was the system of
deliberately fixed exchange rates which prevailed from
1944 to 1971. Bretton Woods II was the inadvertent system
of managed exchange rates which prevailed last decade due
to massive Asian central bank reserve accumulation and
bilateral recycling into the source country such as the US
and Europe. This system has since been blamed (unfairly)
for pre-Lehman asset bubbles such as US housing. Bretton
Woods III will also be an inadvertent system of managed
exchange rates, though more multilateral as capital inflows
into emerging markets are recycled into G-10 and EM alike,
as long as the country offers a AAA or an improving credit
rating.
This phenomenon is often cited as a depressant on FX
volatility, though empirically it is difficult to confirm that
reserve accumulation is an independent driver of aggregate
FX volatility. (Regressing VXY Global on the global PMI
index already explains over half the fluctuations in
implieds, and adding reserves to the mix provides little
additional explanatory power on the margin.) It is notable,
however, that realized skews in newer reserve currencies
such as AUD/USD show a tendency to flatten as central
bank reserves build. That is, sell-offs in the currency are
becoming less volatile relative to rallies (chart 12), which is
circumstantial evidence of currency diversification. Hence
the usual caution about ever shorting these pairs for
anything other than very brief horizons, and some
justification for the elevated levels of many pairs in the face
of poor domestic fundamentals. These are familiar
dynamics to currency investors, though in view of the time
required to achieve proper diversification, almost permanent
ones. Read JPM Article
Les, if we damage our credit rating your wishes will be granted but then another set of insurmountable problems will replace those that are currently an impediment to job creation.
Our per capita liabilities are such that any increase in them by whatever form is prohibitive to economic development. The demands placed upon our workforce are not consistent with the pay scales of cheap labour.
Stephen - ok, so you've not contested my reply to the erroneous "huge reserves" objection, but you are saying foreign lenders would then require more rent for their own QE printed money. However, as we gradually printed, as RN advocates, we could gradually earn and save more, thus requing less borrowings, what's wrong with that, for NZ Inc.?
What you've said, or rather the way you've said it, sounds scarey - but why and for whom, is NZ becoming less dependent on debt so scarey?
Cheers, Les.
What you've said, or rather the way you've said it, sounds scarey - but why and for whom, is NZ becoming less dependent on debt so scarey?
Good luck on the credit front - but I don't foresee cheaper car, oil, pharmaceutical etc imports in your uptopia or an expansion in those able absorb the likely cost increases.
The sky has not fallen in on the Swiss in the event them deciding to defend their real economy.
They did not need earthquakes or even a current account deficit it was enough for them to see what know really pays the bills under threat, pragmatic to the end, they acted.
Good on them.
Stephen - what has that comparison got to do with this issue when considering the way they are solving their problem is how we could solve ours? (Re. the link I referred you to in an earlier comment, the one that leads to a discussion with Alex about the fact that we do not need "huge reserves")
Here's one for you, if you really think NZ and Switzerland are NOT comparable in terms of the nature and relative importance of their respective real economies, why are the Swiss doing what they are doing?
Les, because they are being encouraged to do so by nations who wish to halt the desertion of depositor's credits from European banks.
Which nation is actively encouraging NZ to print and intervene by selling NZD to buy USD to discourage a run on another nation's banks into ours?
I thought the Bundesbank has just approved Australia, and probably by default NZ, as a destination for their excess reserves.
Stephen - another red-herring:
"With today’s measure, the Swiss National Bank is acting in the interest of the country as a whole."
http://www.snb.ch/en/mmr/speeches/id/ref_20110906_pmh
I see nothing about other nations encouraging them to help halt the desertion depositors credits. Where have you seen that supposition?
I hope the RB has the number for Bundesbank.
The swiss had ppl buying swiss francs enmass as they ran from the EU....no one see's NZD being bought as a safe haven, not when NZD Govn bonds are 5%+ thats almost danger territory.
If you cant see the basic huge difference then thats a worry. It strrikes me you are really looking for any excuse to put into play to get what you want without fathoming the consequences / side effects which can be drastic.
regards
Stephen - your'e not Wolly are you?
The expansion in real economy earnings that you doubt could also be enhanced by a rebalancing of the tax system, that could also be used to offset some of the initially imported cost impacts. For example, reduction of fuel excise duty and repeal GST, and make up the revenue with a land-tax and CGT on non-land based assets. (And I'd knock down income, corp and trust tax to one unified lower level = more offsetting.)
Cue Bernard and reuniting monetary and fiscal policy:
"So it's worth then thinking about how our central bank would operate when it has to muddy its waters with those of fiscal policy. A combined Fiscal-Monetary policy commission to better coordinate RBNZ and Government activity has already been suggested at a Treasury conference last year."
Well said Bernard, I call it joined-up thinking. Problem is, doing any new thinking ....
Cheers, Les.
Les its a game of relative, you use "gradually" like its controlable, there is no evidence that it can be controlled, quite the opposite. In effect you also are working on "all else being equal" Look to Greece, spain etc for just how un-controlable that is....6 weeks to 3months and the game is over and arguably its over in that first week...its only the ECB and other central bank buying that Greece survived some weeks, NZ doesnt have the luxury. I think Greek debt is now 33% or something, not that I think anyone is buying.
Inflation is very much the future expectation of inflation, so buyers of debt will look into the future and put up what they are asking for in terms of interest if they think the QEing will be substantial and ongoing (or simply walk away from the bonds on offer) That could be worse, a bigger and faster impact then us trying to "gradually" pay off debt. If say the bond rates goes from 5.5% to 7.5% it could happen quicker than "gradually the result is we have more interest to pay off so are worse.
Steven - in answer to this reply and the other two, I think we need to appreciate where RN is suggesting we start from, that is, two limited tranches of money that would tend to see us improve debt servicing ability, not the opposite. Further rounds might be useful after that, however before then the OCR could be reduced and inflationary impact dealt with by other means, as dicussed many times before on Int.co, perhaps even variable GST. HT Steven, we have suggested that but have been knocked back on the facts 1) its a tax (and we mustn't muddle monetary with fiscal, cue Bernard and his recent suggestion.), 2) it's complicated in terms of implementation. However, you are in good company, because as you know Don Brash has in the past suggested variable fuel excise duty as a supplement to the OCR. More on other ideas that could be used for non-tradeables inflation control, here:
http://www.johnwalley.co.nz/193-imf_paper_on_macroprudential_i.aspx
You make points about risk wrt CHF and NZD, so let's reduce yield on NZD, which is why specs are prepared to take the risk. You may have read the stats, John, Selwyn and I have quoted on NZD trading volumes and the fact it does not remotely reflect real trade money flows.
Nonetheless I'd still say we should not ignore the SNB success and what's to be learnt from them, eg. even with a strong(?) fin.sec they see their real economy as important enough to defend; one doesn't need "huge reserves" to rectify overvaluation; there are no losses, see the discussion I was having with Alex T, on yonder thread. As for a "tank", lucky us, we get the benefit of a floating currency that the countries you have quoted cannot have. Would it get that extreme, I doubt it, just purposefully adjusting away from being so vanilla could see specs fly the coup to find richer pickings elsewhere, leaving with an ex.rate that is more about real earnings than leverage.
Plus see 'wtf' comment at 09 Oct 12, 11:28am, the last paragraph, maybe that's the case. Should we be manipulated like that?
Also see my comment at 08 Oct 12, 2:18pm, for some more about the (hyper)inflation red-herring.
Cheers, Les.
Les, if we damage our credit rating your wishes will be granted but then another set of insurmountable problems will replace those that are currently an impediment to job creation.
Stephen H.......I posed this scenario to you only last week, perhaphs you thought I was being flippant at the time , I don't know, but I was referring to the RBA having painted themselves into a corner, minus a bolthole ,when it occured to me there was still an out although it may have unforeseen consequences.
Only Three weeks ago the IMF, who lets face it influences the credit rating watchdogs, stated Australasian banks were heavily exposed to Foreign lenders, but thought...yes thought ,they could stand a stress test.
Now indulge me if you will, but if the slowdown in China continues while the internal /external upward pressure on the currency continues, it may give cause for such a test to happen.....
Depending on the level of downgrade that would follow, it would , create downward pressure on both the AUD and NZD and allow just cause for the RBA and RBNZ to expand the toolbox....with a percieved threat of possible intervention that would at least keep the carry trade for one , in two minds......as, even right now, I don't think the carry trade or Foreign lenders see any teeth in the collective Australasian Jaws.
Wouldn't it solve all of our problems if we just pegged the Kiwi dollar to the Iranian rial ?
... we have alot in common with those guys : They love eating sheep , we produce alot of the stuff ....
We love burning up oil : they produce alot of crude ...
Iran has a bunch of incomprehensible mad mullahs running the joint , NZ has little Johnny & the Gnats ...
They love eating sheep ...?....oh , oh , eating....I thought they wanted them live because there were no good looking goats left.
Funny you mention the good news this morning GBH, I was having coffee with the wife in bed watching the 6oclock news, and I turned to her and said ...crap news today, she said what are you talking about it's all pretty good with little bad news for a change.....and I thought...Geesus, I've been brainwashed by Hickey into recieving pleasure from bad news..!
wow..! suddenly I could hear birds and my coffee tasted good again.......
Yep I'm on the mend .
And that is the guts of it Ralph...! The likelyhood of instructing sheep to evaluate something through process of thought rather than just accepting a dismissal because the word "Whacky" was included when adressing it , only serves to reiterate the smug contempt Key Governs with.
You see sheep , you don't need an explanation because either A. you wouln't understand it, or B. I couldn't give you one that would bear scrutiny....
As I regard you financially illiterate, I would suggest it's A...but in case your not ,B. works for me too.
Peasants..!
Just remember we have a GDP less than Melboune city - so nothing we do has any impact anywhere ever - so we can do what we like.
If you believe the satus quo is optimal then you also have to set out how we get the trade balance back in surplus - sufficient to pay the compounding interest on our $ 260 Billion of gross debt - Net Debt minus CHCH of 80 % of GDP.
There are horrific figures as right now we are borrowing to pay the interest on our external debt.
Called a Ponzi scheme in any other circumstance and it will end in sadness.
Only question is when.
So - suggestions please ?
We need about $ 10 billion of incremental export income net of any import components.
New Zealand should not intervene with trying to bring down the currency and should only be done as very last resort. All western developed countries want to have a weak currency and have an export lead recovery. Not everyone can have a weak currency. The world is in a process of trying to readjust competitiveness from the East to the West (ie rising Asian currencies and weakening European and USA currencies to be competitive). Ben Bernanke the money printer has helped devalue the US Dollar through continuous money printing while at the same time is exporting inflation around the world. If New Zealand is to print money we will find ourselves with a worse inflation problem further down the track and this will be far severe for New Zealand. The best thing for New Zealand to do, is to do nothing and the best thing for Ben Bernanke to do is to do nothing (no more money printing). Sometimes to do nothing is the best option and ride out the storm.
Print baby print, just give me a few days notice so I can get out first, or even second would do.
Got to watch out you dont upset uncle sam though look whats he gone and done to Iran.
http://www.bloomberg.com/news/2012-10-07/turning-iran-s-currency-crisis…
Hypertiger
The currenciess of the world derive their strengh or weakness from the US dollar.
Iran was cut off from US consumer debt inflation...aka US dollars.
Any moron that knows how the global system operates could see this from a trillion miles away.
The current state of the US economy was known about decades ago.
Prior to 2008 it would have been stupid to attack Iran...but now with US consumers maxed out...it's easy to cut off Iran...because the US Dollars required to sustain them just don't exist anymore.
2001 was where the end of the line for the New economy took place...1971-2001.
Basically 1971 to 1982 was the reorganization period from the old economy to the new economy...2001 to 2008 was the organization period from the new economy to the war on deflation.
You are all just little play things.
The regime in Iran was put there to provide the pretext of economic annihilation 3 decades later...the revolution was like all revolutions...staged to fool the population into thinking they gained independance from their owners.
hypertiger
“So this latest idea of the Greens to print money, that’s a pretty whacky idea. Why do we think that? Firstly, if printing money made you rich, Zimbabwe would be the richest country on the planet, and it’s not"
Now that Mr Key was a brilliant dismissal of a complex and many sided argument. You really do prove that style over substance wins all debates, so thank you once again sir for explaining these difficult issues to a poor pleb like me.
Matt - you don't sound like a pleb. Re. the Zimbabwe red-herring, have a look at this and enjoy the irony in Key's dismissal of RN's very valid proposal:
http://www.nakedcapitalism.com/2011/04/what-are-the-preconditions-for-hyperinflation.html
How much sooner will we have the precondition of reduced productive capacity under Key's regime than we would under Norman's?
Cheers, Les.
If New Zealand prints money the currency drops for a short period of time to 75 cents on the USD. Along comes Mr Bernanke for QE4 . Kiwi back up to 82 Cents. Europe will also print money until the cows come home so no advantages their. What New Zealand can do is wait for the Chinese hard landing , but first we have a round of QE from the Chinese to boost the market , so maybe in the second half of 2013 the Chinese economy will faulter and the Aussie will slip along with the kiwi.
Most likely though QE3 is "unlimited" so he doesnt really need to annouce a QE4. I fear how far our milk exports will go south because of hard landings. Our export markets have to earn to pay us unless they print it enmass....which is starting to look like an avalanche. If they are too broke though, and I think its likely the milk solids price etc could collapse <$4 anyone? how many of our farmers go to the wall at that price? Will the banks up to their eye balls in leverage and incompetant loans given out like confetti to earn bonuses need us the voter / PAYE to bail them? yes I suspect thats on the cards. Right now as a small saver Im really worried that my few K is going to go bye bye to pay for what assholes have done.
:(
Personally I think there needs to be some jail time, that way the mobile bankers running around in flash company cars realise there is an impact on them personally....just what law would jail them is another matter.
:/
regards
As Martin Wolf of the Financial Times notes:
"The essence of the contemporary monetary system is creation of money, out of nothing, by private banks’ often foolish lending. Why is such privatisation of a public function right and proper, but action by the central bank, to meet pressing public need, a road to catastrophe?"
Key will know he's in trouble, being backed by someone who has it 100% wrong.
Actually, the noticeable thing about Key, is that he appeared on Morning Report. He's steadfastly not done so, until now. Cracks starting to appear in the facade, methinks.
The greens approach is playing while the ship sinks, but it will have the useful spinoff of pulling our 'spending' into line with what is underwriteable. One way or the other - the other being a bidding war in a scarcity paradigm - money has to become 'worth' less.
Banging heads again – bravo !
Again, again and again the same issue the nation talks about – endlessly - without any progress. Why not try something clever in this country- a little bit different ?
The Reserve Bank introduce parallel to the NZ$ a NZ gold currency with the positive consequence of:
- Stabilising and rather lower the NZ$
- Secure and protect the NZpublic from losing value on the NZ$, especially in inflationary times.
A free choice for each New Zealand individual with many positive advantages for our economy.
http://www.youtube.com/watch?v=GXC44l942bE
http://news.goldseek.com/GoldSeek/1337670000.php
I would assume its the worry of "the thin edge of the wedge" Take a look at what happened to the greek bond rate when it started to go wrong it went expotential....there was a maximum of 3 months and it went over 7%, ditto spain. It may well be argued confidence was lost within the first weeks...
Govn bond rate is hovering under 6%, so I dont see much of a margin of error but ten year rate is 3.8% I think, borrow over 10 years....if inflation is 2~3% its hardly costing at all.
regards
Well, the main reason for the Reserve Bank to be independent is so it can act quickly whenever it needs to. Politicians are always years behind in their thinking. So, for instance, polticians will introduce a subsidy for low income earners to buy houses after the prices have risen, ie at the worst possible time.
It is a timing thing. By the time the trend is obvious it means the greatest fool is probably buying and the smart money who followed the trend are cashing up and getting out of Dodge.
If the Aussie dollar collapses against the USD, and there is a good chance it will, then the NZD will probably go with it. The cure for high prices is high prices.
Basically Mr Bernanke policy is a disaster for the world. Printing money has created complete wealth distruction in the USA. Not only have they seen the house prices collapse , but the weaker dollar has made Americans poorer through currency depreciation combining a double negative wealth effect. In New Zealand we currently have a stable housing market and a strong currency which has made us richer compared to the rest of the developed world back in 2007. New Zealand will be fine since we do food and sell to the rest of the world. Prices of dairy will still be in demand even with slowing growth in Asian such as China. The USA is becoming cheaper as wages have stayed low and the currency has depreciated making the USA a more competitive market for exports. The USA is becoming dirt cheap. Europe is trying to follow the same path by printing money to become competitive. The world is still going through a period of painful deleveraging (only about half way) but at least there are signs that thing are starting to happen even if the world is still in a recessionary environment with bumps until 2017. New Zealand does not need to follow the same path of currency distruction like in the USA or Europe. Doing nothing and letting the economy ride out its own course is the best path even when things appear painful. For example it safer to hold good company bonds in Kazakhstan than it is to be holding USA bonds and eventually get nothing back.. New Zealand has the Hobbit and the Christchurch rebuild to look forward to in the coming years that will give a big boost. Farming and agriculture will continue to be cool and it is what New Zealand does well and does not need currency intervention. having a strong currency will also attract skill workers from overseas since they will see that the currency is worth something compared to Europe and the USA.
Starfish1....The subprime collapse was pre QE......and while I'm no fan of QE at all, I think you have to get a grip on the global landscape as it is rather than as it should be.
The worlds reserve global currency as in the USD has engaged in QE....that is the reality.
What we do in response requires thoughtful deliberation or unforeseen events to overtake us...that is the reality.
We are approaching a position of beggar the borrower....we are exposed and becoming more so with every borrowing we undertake.....that is the reality.
You will find a point to regret having a strong currency while being a very small player in a very big game....and I don't think it that far away if the rhetoric out of the RBA is anything to go by, there is ...real concern....and little control being voiced from themselves.
What many here are arguing for is some consideration from the current Administration that they are listening , evaluating ideas on merit, responding with factual data to support their position in an engaging way.
What this adimistration has been to date is aloof, arrogant in terms of mandate,dismissive without evaluation , unrepentent for errors made, elitist if you like.
When this type of remote or disconnect from the Public / voter / taxpayer /employer /etc. occurs it undermines the confidence in that Administration.
Key's privatisation agenda takes precident above all things from where I see it ,including the Christchurch rebuild .....
Interesting points Count. I thought Key's glib comment that you might as well print up some money for Christmas was rather telling. From my point of view that's a really good way of doing QE - give it to the people not the banks. Steve Keen's solution is exactly that - print money, give it directly to the people on the condition they use it to repay debt.
Steve Keen and Michael Hudson are two of my very favourite economists (sounds like an insult to call them that since 95% of economists should have been de-frocked and made to walk bare headed through the streets covered in ashes). Trouble is, while I think they diagnose the problems well, I fear their solutions would have very nasty unintended consequences.
Keen and Hudson are two of my favourites as well. Both are capitalists but anti the ponzi finance of the banking sector. They regard increasing debt and its accompanying interest as an unearned extractive rent in most cases where the economy is nothing more than a series of toll booth opportunities for private interests fiananced by big banks and guaranteed by the public.
Keen's Debt Jubilee or QE for the public is misunderstood. He does not propose printing money and giving it to everyone under the current system. The Jubilee would be accompanied by massive banking reform and reregulation and probably equally massive tax changes, particularly the introduction of land and other asset taxes. The idea is to reset the economy to a low debt point with different drivers and incentives for investors within the economy. He has said that credit able to be created by the financial sector would have to be reduced by an equal or greater amount than that created under the Jubilee.
There would be no getting your Jubilee money, paying down debt and then loading up again so we were back where we started. Compulsory debt retirement would be deflationary if the banks where prevented from recreating credit paid off. Inflationary pressure would come from those not in debt now with extra money (but necessary to avoid moral hazard) and by the freeing up of income that was being used to pay interest. This could be offset by suspension of welfare payments for 12-24 months and the paying of the Jubilee money in tranches. Many of the banks would shrink to a fraction of their current size as the interest income evaporated and stopped disappearing offshore.
The biggest risk is probably the reaction of the financial markets given the free floating currency. The financial sector would react violently and I would suggest lobby their politicians to exert huge pressure on any NZ government including sanctions. Like the anti nuclear legislation, the US would want to make an example of any small country bucking the system. The banks here and politicians like Key, English, Joyce and Carter would play the ammagedon threat for all it was worth.
Yes, well I'm not for revolutionary change myself, it just opens the door for an opportunistic power grab by nasty bastards. Better to mull the options and act at the margins.
See, I've been learning from John Key's "change at a pace kiwis can go along with" style of politics. This is despite the fact that my natural inclination is get stuck in and make radical changes. Otherwise known as jumping in boots and all. Trouble is it is just not good to get yourself into a situation where it's death or glory. Better to be cunning, but in a good way.
Alan Bollard's Core Funding Ratio is a good example of being cunning, but in a good way. He introduced it and no-one noticed for about six months, but it gives the RBNZ much greater control of monetary policy than it might appear. They just need to keep putting it up at a gentle pace so that as the years go by we end up lending to each other.
Roger - I agree it was a good development, however in it's current form it doesn't necessarily follow that we will end up lending to each other, which would be good state of affairs. The CFR would need to be modified, or another ratio employed, to specify the % of domestic funds banks have to use. At present the CFR only focuses on duration of funding, (X% longer than 12 months) not the origin of funding. Also note, the use of Covered Bonds weakens monetary tightening effects, and extra associated with CFR. Cheers, Les.
Normally I would agree but I feel we have probably passed the moment where incremental change will have any effect. The point at where the interest bill overwhelms the ability of income to service it is too close in many countries. The banks and their ability to create credit and determine what gets financed and what doesn't gives them inordinate power. They need to be put back in a box. The TPP, WTO etc are all designed to remove the ability of politicians to control the economy and put the control in the hands of the "market" ie banks and corporates. Once the TPP is signed any country wanting to withdraw or enact policies in its own citizens interests will be punished by secret tribunals with sanctions. If anyone thinks NZ will be on an equal footing in those tribunals with the US or any of the major players I think you have to revisit the history books. Or we acquiesce, accept our place at the feet of our masters and try to make the most of it, hoping for a pat rather than a belt to the head.
oh boy, where to start on this list....
1) Not Bernanke; Greenspan, Reagan and Bushie, they created and furthered this mess...Bernanke is the poor sod at the bottom of the cliff left to clean the mess up...while he fights off congress determined to make it worse.
2) US House prices were a bubble, caused by the libertarian Greenspan...it burst, oh dear.
3) Americans are not directly poorer through currency depreciation, if they are paid $1000USD they are still paid $1000 USD so domestic purchasing power isnt greatly effected just imports. The other way is to have internal devaluation so that $1000USD wage is now $750 USD, that means domestic goods and imports are harder to afford, the impact is worse.
4) Our housing market is 40 to 50% over-valued, it just hasnt burst here yet.
5) Dairy prices can and probably will collapse as the rest of the world is too broke to buy....
Now I can agree on do nothing, any action could make things worse and un-controlable.
6) I'd say good company bonds in kakastan was an oxymoron myself, without a good rule of law which to be fair the USA mostly has, such a strategy strikes me as "daring".
7) "Farming continue to be cool", see 5) and then add in high deb, =s "oh god".
8) High currency (to attract workers), well internally that makes no difference a) it only makes imports cheaper, b) allows those workers to ship money home, which is bad for NZ anyway, we need the money to stay in NZ. Also its likely NZers will be coming home so they will need the jobs....
regards
It is sad to see that the political class in NZ is as naive as those in the US to believe that printing paper tickets is a solution to anything. This is mere Keynesian alchemy.
Ignorance is bliss, knowledge is misery!
How anyone believes in the Central Bank money printing myth (counterfeiting) is beyond me. Central banks setting interest rates, is NOT A FREE MARKET principle. The Central Banks of the world set the interest rate (almost ALWAYS) below the market rate by satisfying the heightened demand for their low cost money with newly created money. This newly created money is added to the stock of money available and in addition, the commercial banks counterfeit their own credit atop that provided by the Central Banks through the Fractional Reserve Banking System. For a full explanation, use Google.
So, getting back to whether the money printing is by having the Central Bank provide credit to banks at the central planners’ low interest rate or by buying Govt Bonds; these both cause new money to be added to the economy. Unfortunately, the injection of new money does NOT give rise to additional goods and services, so the effect of this inflation is that there is a greater supply of money and the same supply of goods, so the value of money in terms of purchasing power is reduced, thus prices rise.
Unfortunately, the first receivers of the new money, just like in any counterfeiting scam are the main beneficiaries whilst the Jonny come latelys are the ones who are burdened.
So in summary, most lose so that a few gain. The trick is, as in all good scams, that there are few winners and many losers. This means that the winners win big while the losers find it hard to discern what has happened to their savings.
Note that this scam is not only perpetrated with Government protection, but is actually promoted and encouraged by Governments.
Moral of story, trust neither the Government nor its counterfeiters. If printing ever more paper tickets was a road to riches, Zimbabwe would be the envy of the world!
The free market with sound money is the only fair and equitable mechanism for the allocation of scarce resources, not Governments and their Central Bank Counterfeiters!
The moral of this story is you do not understand keynesian economics or it seems how complex the real world is. Not that Im saying I understand the worlds economic system either mind you, no one does..
The model you describe is not keynes work...its political voodoo work. Keyenes work states that the only time you want to print or QE is when up against the zero bound trap when QEing wont produce inflation, at best it reduces the effects of deflation unless you do enough of it....Now once out of that situation the excess money could cause inflation, then the Govn has to remove it. The easiest way is with borrowing as that has to be re-paid.
free market yada yada, that is a different but failed voodoo economic model, the proof of that is right in front of our eyes, today.
regards
You my friend are a believer in Keynesian economics. Keynes may have implied that the credit expansion is to be reversed when things are good, but when have you ever seen this? No Govt will ever reverse it as this will induce a recession! Reread what I wrote and understand it, there is no alchemy in credit expansion, just the fraud of counterfeiting.
I suggest that you look at the link below to wiki on the growth of M3 and tell me that the money supply does not just grow and grow!! There is a graph of Australia & NZ. They are pretty much in lock step. M3 in Australia grows at around 10%pa! I see no where a retracing of the ever growing money supply. If you believe that the Govt doesn't just expand the money supply, then why, and especially with all of the productivity improvements in the last 25 years, have prices of consumer basics only ever risen??
It is sad to see that the political class in NZ is as naive as those in the US to believe that printing paper tickets is a solution to anything. This is mere Keynesian alchemy.
Ignorance is bliss, knowledge is misery!
How anyone believes in the Central Bank money printing myth (counterfeiting) is beyond me. Central banks setting interest rates, is NOT A FREE MARKET principle. The Central Banks of the world set the interest rate (almost ALWAYS) below the market rate by satisfying the heightened demand for their low cost money with newly created money. This newly created money is added to the stock of money available and in addition, the commercial banks counterfeit their own credit atop that provided by the Central Banks through the Fractional Reserve Banking System. For a full explanation, use Google.
So, getting back to whether the money printing is by having the Central Bank provide credit to banks at the central planners’ low interest rate or by buying Govt Bonds; these both cause new money to be added to the economy. Unfortunately, the injection of new money does NOT give rise to additional goods and services, so the effect of this inflation is that there is a greater supply of money and the same supply of goods, so the value of money in terms of purchasing power is reduced, thus prices rise.
Unfortunately, the first receivers of the new money, just like in any counterfeiting scam are the main beneficiaries whilst the Jonny come latelys are the ones who are burdened.
So in summary, most lose so that a few gain. The trick is, as in all good scams, that there are few winners and many losers. This means that the winners win big while the losers find it hard to discern what has happened to their savings.
Note that this scam is not only perpetrated with Government protection, but is actually promoted and encouraged by Governments.
Moral of story, trust neither the Government nor its counterfeiters. If printing ever more paper tickets was a road to riches, Zimbabwe would be the envy of the world!
The free market with sound money is the only fair and equitable mechanism for the allocation of scarce resources, not Governments and their Central Bank Counterfeiters!
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