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PM Key says Japan money printing and currency wars a risk for NZ, but NZ unable to respond as money printing wouldn't devalue NZ$. Your view?

Posted in Currencies

By Bernard Hickey

Prime Minister John Key has acknowledged concern about the Bank of Japan's announcement of unlimited money printing and the risk of currency wars globally.

But he says there is little New Zealand could do because any move towards money printing here would be unlikely to drive the New Zealand dollar lower.

"Of course that's a concern if people are engineering a lower exchange rate through effectively fiscal easing policies," Key told a post-cabinet news conference in Wellington when asked about the Japanese move.

"But what can NZ do about that?  Any country that embarks upon printing money has to think through the ramifications of that," Key said.

The Bank of Japan yesterday announced plans for unlimited money printing to buy government bonds from next year in an attempt to drive the yen lower and boost exports. Bundesbank President Jens Weidmann warned this could trigger competitive devaluations that some have termed 'Currency Wars'.

"In the case of Japan they've had very low levels of inflation and that hasn't been their problem for a very long period of time," Key said.

"I still think from NZ's perspective we're on the right path. Printing money wouldn't necessarily see a devaluation of our exchange rate," he said.

Key pointed to a series of interest rate cuts in Australia had not led to a lower Australian dollar.

"Their exchange rate has appreciated, not depreciated. There isn't necessarily a straight correlation. In the US there's been a lot of different factors driving that," he said.

"In the end it's (currency wars) a risk. It sits in that whole basket of issues, which is that the global economy is still not fully healed," he said.

"That's one of the risks we face, that the US can't deal with its fiscal cliff issues, or there's problems in Europe or Asia. We're in better shape than we probably were at the beginning of 2012 globally, but we're not out of the woods."

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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35 Comments

Time for a Tui slogan here,

Time for a Tui slogan here, perhaps.
Would Key and English suggest that borrowing $300m a week from overseas last year did not hold the Kiwi above its real value?
I would suggest  that printing that $300m here instead would have had an effect.
Bring on the real experts and not the poli opinions!
 

Our PM has no idea what to

Our PM has no idea what to do, thats what he is saying.  Lets just muddle along until something external happens to wake us all up.  When that happens they will blame everyone but them selves. These guys are really hopeless. 

Hey you cut that out

Hey you cut that out Basel...wag your brush somewhere else...how else do you expect the international banking elite to profit from creating credit if they can't lend it to Tweak and Fiddle to waste on govt idiotic splurging...
Anyone wanna spot on the next working group scam?
 

While you are on the subject

While you are on the subject of govt idiotic splurging:
 
http://www.sharechat.co.nz/article/375fa5b4/government-sets-up-fund-to-g...
 
BNZ being the international banking elite to profit from this money going to the Ruataniwha Water Supply Project..

"While the government hopes

"While the government hopes to "get our money back", Prime Minister John Key suggested there was no expectation of dividends and that the scheme was intended to accelerate investment that might otherwise stall."
 
I'm going to sleep like a baby tonight in the knowledge that us taxpayers are 'hoping' to get our money back.  Yippeee!!
 
In fact, I might try my luck hawking a similar investment product at the Beehive tomorrow: sure, the govt may only get 0% on their money but on the plus side I'll let them enjoy 100% of their hope!

And the waste water (read

And the waste water (read cowdung effluent) will just be nonchalantly released into the downstream catchment. Never mind the cost.

Sleep easy

Sleep easy Basil:
 
http://www.interest.co.nz/rural-news/62828/new-crown-company-big-irrigat...
 
The Government also established a National Policy Statement on Freshwater

How about printing $300m

How about printing $300m every week and pay off overseas loans that are in $NZ .  Even if it didn't lower the NZ$ it would still be a win win situation because it would save the taxpayer a lot of money via interest payments.   But just imagine if it did lower the exchange rate.....

Any thoughts or knowledge on

Any thoughts or knowledge on the consequences of that Patricia, or do you believe in free lunches ?

No Grant A, Just cheaper

No Grant A,
Just cheaper lunches until the Economy wakes up to better export receipts.
Dairy farmers for example will get an extra 10% gross income if the exchange rate goes down 10% equivalent. More expensive tractors but the mortgage becomes easier to bear - unless you have one of those stupid offset ones the banks were peddling around some years back.
Sorry about the flat screens but you probably have at least five of them in the house already.

"unless you have one of those

"unless you have one of those stupid offset ones the banks were peddling around some years back."
Hi BB3, I have one of those offset mortgages and think its great. would love to know your opinion in a bit more detail on them, the more I learn the better.

Perhaps the wrong term on my

Perhaps the wrong term on my behalf. Not the home mortgage type -(a good one is great) but those mortgages with artificially low interest rates linked to overseas exchange rate risk that suddenly ballooned into extra capital repayment.

Jeez John, just put  a tonne

Jeez John, just put  a tonne of gold in the vaults each day the NZD is over US 80cents and stop being so limp.

Of course you could drive the

Of course you could drive the dollar lower.  It is as simple as supply and demand.  More US$/yen relative to a static NZD - a higher NZD.  You want to drive it down - print more NZD.  You also have potential consequences - but of course you could drive it down. 
 
The government and RBNZ need to take their thumb out and do something.
 
I was mildly excited to hear English talking so boldly yesterday about land supply - until he backed down later.  An emerging, but documentable, trend is for young professionals with a +6 figure nest egg to leave NZ, get visas to America or elsewhere where land is cheap, and buy homes there.  House prices are quickly preventing many immigrants from coming to NZ, kiwi's from coming home, and a NEW wave of kiwi's leaving - this time not due to pay - but due to house prices.  Watch this space.

Running up external debt to

Running up external debt to GDP of 84 % is apparently without risk.
Running a trade deficit in excess of $ 1.5 billion is without risk.
Borrowing to pay the interest on the debt is without risk.
Forecast current account deficit of 7% is without risk.
Can't possibly print - too risky. Yeh - right.
Let's start by putting Treasury staff on salaries indexed to the TWI when National came to power. Will clarify their thought processes!
Today we are a nation running on borrowed money on borrowed time.

Sorry JB All of that detail

Sorry JB
All of that detail will not fit on the Tui billboard
;o)

Great post and well said. Key

Great post and well said.
Key is just running scared and seems to have no ideas except wait and hope then pretend he meant it all along.
 
USA and Euro are printing so much that it is almost inevitable we will import their inflation, so appropriate printing and using it wisely is a very good idea.
 
Why not print as part of a whole package of policies aimed at helping exporters? Print, lower OCR, use LVR's so cheaper doesn't go into houses so easily, broader tax, etc

It's very pleasing to see

It's very pleasing to see most posters here challenging Key's very superficial non arguments. He is right that the Aussies lowering their interest rates had no effect; just as lowering ours has not. It's the capital flows- the buying and selling of currencies- that makes the biggest difference. And our government through the Treasury Debt Management Office is the worst offender. The Aussies have not materially printed money either.
As an absolute minimum we should be printing enough to hold the dollar down at current levels, or our own industry and wealth has to be flying out the window. And if printing substitutes for foreign money for say government debt, then it should not be inflationary at all. We in any case have inflation at less than 1%.
If money printing is inflationary; and in time it is likely to be; the Japanese, Euro, Swiss, British, US, and other printing will be massively inflationary, even in NZ; and the thought that we will be able to stop it with a few tweaks of the OCR is dreamland. If oil and other commodities for example double or treble in USD terms, what do we think our response will be? We would have to put the brakes on everything else so hard that it would be economic suicide.
Far better, if printing is happening, that we are doing our share and targetting it at government foreign debt and the exchange rate; such that the currency is at least stable, and businesses and people can manage and invest accordingly. Such a policy will not be inflationary here so long as world inflation does not ecalate significantly.
Now it's just a free for all on property and the sharemarket; with significant real wealth leakage offshore in the process, while slowly killing off our productive industry. 
If Key, English and Wheeler really believe their spin, they need to make better arguments.

JK is under instructions to

JK is under instructions to not print. His masters require him to crash land the NZ economy.

I am just trying to think

I am just trying to think through the advantages of printing money to lower the exchange rate.
If the Reserve Bank prints money, we all know this will be inflationary and interest rates will eventually go up, so the first thing to do will be to borrow heaps and buy some houses. This will give us all tax-free capital gain, if we are quick enough. The flood of money will cause the market to boom and we can all sell out at the peak. Then foreign lenders will realise that we are on an inflationary path with our money supply, so interest rates on the money they lend to our banks will go up. So the banks will put their rates up and everyone who wants to borrow to buy machinery or houses will have to pay more. In fact not only will they pay more in interest but they will pay more for any imported production machinery or goods or petrol because the exchange rate will have gone down. Everything imported will go up in price, so we will all be poorer for that. And poorer for the higher mortgage rates we will be paying. Very poor. And locally produced products will go up because of increased transport costs. Even poorer.
But then on the plus side we will be getting more for our exports, in $NZ terms, so that should help reduce the poverty. But only if it trickles down to us workers. It will take a while for wages to start to climb to catch up with inflation, so we will all be going backwards financially in real terms until some kind of catchup occurs because we are all whining about the extra cost of living. This is the result of that well-known fact that in an inflationary economy it is those that are first in line to get their hands on the newly printed money that are the ones who benefit. It takes a while for the market as a whole to react to the drop in real value of the dollar, and wage rises are at the end of the line. Government and banks are first. By the time our wages increase, everything we buy will have gone up higher, and we will move into higher tax brackets, so we will be falling behind in purchasing power.
Of course, our wise government will spend on goods and services using the money it has created, so that will create demand for a while. It will spend on employing more government servants which will even help drive up wages. But that will soon evaporate unless it keeps printing and spending. But if it keeps printing the inflation rate will get higher, the interest rates will get higher, the inflationary spiral will continue...
At this point I have lost my way. It has all got a bit too complicated and I cannot see the great benefit of all that money printing. Can anybody point to a time when money printing gave a clearly identifiable net benefit?

"But what can NZ do about

"But what can NZ do about that?  Any country that embarks upon printing money has to think through the ramifications of that," Key said.
 
Seems to me that almost every other country have thought about it and decided to go ahead - why are we different? Is JK so clever that he is the only person in the world that knows a secret?
 
The other comment that bothers me is when he says printing may not bring the $ down - but equally it may bring it down, or at least stop it rising forever.
 
JK is obviously concerned about his legacy after he is gone - but he could be remembered as the man that sat around and did nothing while we sunk.

"Printing money wouldn't

"Printing money wouldn't necessarily see a devaluation of our exchange rate," he said.
Please note this softening from the equivalent of
"Not over my dead body"

Printing money would be waste

Printing money would be waste of time and would make no difference. Printing money only buys time but does not fix the underlying issues. As you can see in the USA and Europe it has made little difference to economic growth or employment and eventually money printing will eventually come to an end. Money printing makes you poorer as a nation as the currency becomes worthless.  New Zealand currency will depreciate naturally when the commodity cycle comes to an end. When this happens we will have a weaker currency and a weaker commodity price.  Currently we have a strong currency and a relatively strong commodity price.  Unfortunately we cannot have a weak currency and a strong commodity price being a commodity currency.    We just have to sit tight for the time being and do nothing, and by doing nothing shows the Pure NZ Natural way to the rest of the world.  

Currently we have a strong

Currently we have a strong currency and a relatively strong commodity price.  Unfortunately we cannot have a weak currency and a strong commodity price being a commodity currency.
 
 
Only because international bankers say so. There has been a link for a while, but it is ultimately a fabricated link put there in case of a meltdown so the money men don't lose too much.
If we have many exports, not just farming and profits, the link will weaken

Fair value would suggest a

Fair value would suggest a current account roughly in balance. Ours is I think -5% of GDP and getting worse. That's roughly $1billion a month out of balance (and loss of wealth to foreigners at the expense of our productive industries); and is made so by the mercantilist policies of the surplus countries.
Only we can break this cycle of wealth destruction, by active RB and government action. Some controlled money printing to at least keep the exchange rate from going higher as a result of foreign printing, would be a good start. Fund the government deficit of coincidentally $1billion a month with it, (rather than borrowing from foreigners to do so) until fair value is reached would be my solution.
 

If you are going to print

If you are going to print money, do not follow the current model and give it to the bankers so that they can lend it to the masses, we are already debt slaves.

The money printed should go straight to the masses to pay down their obligations to the bankers.

Its a crazy system in the US etc at the moment where they print it give it to the banks so they can lend it to the punters who are already over burdened with debt.  The economy doesn't win, the punters dont win, the only winners are the bwankers.
 
 

The USA has pushed the debt

The USA has pushed the debt ceiling issue out to May 2013.  Based on sell in May and return to the market in September, we may see a weaker NZ dollar in June.
Although there seems a lot of optimism globally at the moment since the financial crisis its hard to see any positive long term solution to Europe, USA or even Japan. Everything seems to be based on how long bankers can stay in their position for long enough milking big salaries or even politician hanging in for as long as they can before handing the crisis over to the next individual before it all explodes.  It does seem like issues just get extended out rather than tackle them head on which is why you have to be pretty bearish particularly so when there is so much optimism that the worst is over.  Currency wars/manipulation seem hot on the agenda for 2013. How can you rig your currency without printing money? maybe the USA can by triggering oil prices to sky rocket through certain actions.

Amazingly smart interest.co.

Amazingly smart interest.co. readers and dumb government! How can Key not understand that borrowing overseas drives the dollar up so printing money takes that driver out of the equation allowing the dollar to go down. Printing money is no more inflationary than borrowing..... the same amount of money is funnelled into the economy, but with no interest costs. Printing money is the only sensible approach to funding the Christchurch rebuild. However, lowering the dollar hurts the overseas corporations that own much of New Zealand when they take their profits offshore.  Holding the NZ dollar high is just another in a long line of government actions to benefit overseas corporations at the expense of the New Zealand taxpayer and future generations.