I often wonder why Dr B did not threaten to resign in recent years unless the Government gave him the tools to do the job. I have a vision of a rational man in a padded cell slipping into dementia as he struggles vainly with a lever labelled "OCR UP - OCR DOWN".

Have to say I cannot see variable GST to be practicable. A nightmare, surely, for small business?

I often wonder why Dr B did not threaten to resign in recent years unless the Government gave him the tools to do the job .

Simple, no one else would pay him that kind of salary - and not having a larger toolkit means he isn't actually accountable for anything other than inflation control.

That's the wonderful thing about strict adherance to the 1990 neo-liberal ideology.

Saw that Les, appalling isn't it.

We have something over 40 ministries and government department, Switzerland, with 7.6 million people has 7. Even the monolithic UK only has 26.

That's where the real problem is: the amount of tax needed to pay for this huge clobbering ediface of State. During this recession, here and overseas, the only jobs that have been saved via taxpayers money is State sector jobs. Obscene.

Mark : If Labour were still in power , they would acknowledge your concerns , and set up a commission to report on the number of ministries . .......... . And 6 or 8 years later , would admit that you were right , and then set up a new ministry to oversee all the others . Nice work , if you can get in on the gravy train !

What is our government spending per head of population like compared to other countries?

Would be interested to see some stats lined up. Anyone point me in the right direction?

Guys and gals....I really think you are picking on the wrong person totally....its like blaming a fat man's doctor (Bollard) for the ill health....the fat man should have eaten properly (Govn) and exercised (housing speculators) instead he did neither so we blame the doctor (Bollard)....then we say give us a pill to fix all this, forget diet and forget exercise just gimme a goddam pill ! and now! and for free....!!!

The fix is fairly easy it seems,

1) Fix the tax loopholes and "losses" on property, ring fence them.....fix the trust dodging so someone on high income cant get WFF and pays 39% tax.

2) Make the financial industry and company books open and transparent so trust is rebuilt (over time) in shares and companies.

3) Do like Brazil and put at tax on flows to stop/dampen the speculation in the NZ currency.

These would seem to be widely agreed on?

If so its really the Govn's job to fix...it is their responsibility to voters....IMHO

regards

But John, "non tradeable inflation" = public sector wages. It is a result of fiscal mismanagement. Dr Bollard and his team do what they can (and his new requirements for onshore capital raising are a real coup in my book) but fiscal policy is not his area. We have politicians for that.

We need an immediate 30% cut in public sector salaries over $250,000, tapering down to 0% for those earning $30,000 or less. We know the public sector is overpaid by approx 20%, so why not just bite bullet and get on with it. Call an election if need be.

The alternative is to try to hold public sector wages, fail, elect Labour, borrow as much as we can and then let the IMF make us cut the public sector 20% (ie reduce services), put the retirement age up to 72, and sell off all state assets to foreign buyers. It is that simple.

Steven - I like your points

Andy - What is his job description?

Roger - Cutting public services by 20% and putting up the retirement age to 72 sounds great, but you also forgot to add no public medical care for those over 80. They only worked for 50 years, so having 8 year off sounds fair, 16% of working life on holiday once finished, very generous.

@Paul: agree with your comments....re: oranges and crates...

Options like cut 20%, this achieves what exactly? (see below)

@RW: No we can put up taxes....to me to an extent there is no difference between a Govn providing a service and a private business...its either via tax for say healthcare or a premium to say Southerncross, its still a cost that the individual has to meet....all else being equal...So for healthcare Pharmac etc is a good reason why public healthcare provides better outcomes for less money....ie we live longer....however there are good reasons such as SOE's where a mixed model looks good, eg electricity and good reasons where private business looks good ie where there is real or close to it competition..um...though I cant think of any off hand....oh wait maybe the likes of pak-n-save....retailing etc....where ppl have a choice to buy or not.

I would rather the retirement age goes up than say means testing....ppl are living longer, so if they dont have private savings that allow them to retire early then they have to work longer...

As for over no care for 80 year olds well there is a case that in the last year of ones life the costs just to eek out that year are significant, so maybe we as a society should say where we spend that limited money. On eighty year old's to give them 6 maybe 12 months of low quality life, or 20 years for say a 50 year old of good quality. I think we should be allowed to and indeed make that choice....or pay tax to fund both....

Rob Says:
"Enforcing variable bank capital ratios will not work."

They worked very well ...till labour decided all the RB needed to do was use the OCR to control inflation and removed it...which eventually lead to the uncontrolled lending...

Rather shorted sighted ...."hey guys things are looking good, the RB doesn't need this anymore, and if we take it off them we can have a heap more political freedom...the days of boom and bust will never happen again cause the 'Free market' will look after everything"

Yeah right...

Rob - your concerns about loop-holes in the liquidity ratio rules have been raised before:

http://www.interest.co.nz/ratesblog/index.php/2009/10/23/opinion-reforms...

Interested to get other opinions on this aspect?

Noting that it's being implemented now, it's worth discussing/looking at and getting it right, or maybe we might eventually face solutions involving less liberty, more compulsion and more taxation - the first four options listed in John's article. All of which are functional, but....

Another idea here, that might(?) have less potental for loop-holes:

http://www.interest.co.nz/ratesblog/index.php/2009/10/23/opinion-why-new...

A Principal Repayment Rate (PRR) used along side the OCR. It only affects those creating the demand for credit, has greater immediacy effect than varying liqidity ratios, encourages saving, reduces debt - and where would it leave OCR, NZD vol. and value?

Les,

I do not think that any form of enforced capital ratios will work in the long-term, simply because financiers and/or bankers stand to profit greatly from circumventing such rules so will apply considerable resources to doing so. However it is legislated, a loophole will (sooner or later) be found and successfully exploited in this 'globalised' and information-rich world.

There is one simple and time-tested way of enforcing sensible capital ratios: it is called a recession. During a recession, asset prices fall and over-leveraged institutions fail. More conservative lenders survive and even grow.

Extraordinary measures were taken to avoid recessions in 2001, 2003/4 and again in 2008, with dramatic interest rate cuts, and most recently with direct measures to prop up over-leveraged banks (particularly in the US and UK).

Perhaps we have made a fundamental error here? Perhaps periodic recessions and failures of financial firms are a necessary component of a healthy financial sector, and should be embraced rather than avoided?

Allow, even encourage, recessions every 5 - 10 years, and allow over-leveraged financial companies to fail. Any other form of capital ratio control will be doomed to failure, as it will be circumvented by banks or abandoned by a future government.

There is no need to take any notice of what an old engineer might have to say, but surely someone in government and the rest of public service can take the time to read and work out the implications of:

http://www.treasury.govt.nz/publications/research-policy/tprp/09-01

There are a couple more that I will post the links to in the morning.

We are at the point of "read "˜em and weep".

Roger, I did not miss your point, I have just changed my attitude a little and seek to get more enjoyment from things :-?

I guess it is how you look at the pay cycles, when the business man is making lots of money you do not hear people saying they should take a pay cut as that would mean the cost of the services/product that we buy from them would be cheaper.

Yet when the business guy is doing bad he expects the government guy to suffer with him, yet the government guy misses out on the gravy years that the business guy gets.

I thought that was the stability offered by a government job that offset missing out on big pay years.

Now if they are so highly paid, why were there not more people screaming to take the jobs during the boom years, and now they complain about them in the down times?

Do not get me wrong, cuts need to be made, but the focus of where those cuts are made are I guess out point of discussion. Cut the services, retire the BB later and let them die after a full and ripe life.

I've been a fan of re-implementing reserve asset ratios so would support that.

However if we really want to fix things we need to start at the beginning and that is the supply of money itself.

It is, to all extents and purposes, purely debt based. It's not "real" money given there's only about $4bln of actual notes and coins in the country.

Before we do anything we need to constitute a new clean supply of money. Whether we have to actually print the notes and store them somewhere or not, we need to create a non-debt based supply of money.

Then we can actually control it.

End of story.

Drop me a line when hell freezes over :-(

alan stewart : Informed comment please . Less of the personal abuse.......... Rodney is considered to be the good looking one in our family ! And he doesn't need you to make him look the fool . He is perfectly capable of doing that for himself !

Pitty we don't have a nuclear arsenal, we could then do as Russia has done and renationalise their energy assets. Putin was demonised by the corporate raiders and their media arm for expropriating their assets, but if you studied it broadly enough you discover that they sucked Gorbachev into their web of predatory lending deceit and obtained ownership of those energy resources in the same fashion they got ownership of ours. The banker/corporate complex plundered Russia before Putin, just as they still are here in NZ ( that was before they now want to sell them back to us because they are past there use by date)

You only have to read the books of Rob Muldoon to understand this:

"Following the second oil shock in 1979 the volume of petro-dollars increased but the position of the non oil developing countries began to look less attractive, particularly as some of the new industries that were being developed found that when they came on stream their products, and steel was an example, were facing, protectionist barriers in their natural markets in the wealthy industrialised countries, in some cases the very countries that had provided the loans to build the plants."

The Rise and Fall of a Young Turk, by Rob Muldoon 1974
page 68-69
"The American political system today is based on favours given and received, and is hopelessly corrupt. Some parts are more corrupt than others, but it is almost impossible to be a successful politician in the USA and remain an honourable man. The USA is not alone in this of course, and parts of Asia and Africa are very much worse. The political darlings of our so-called "Liberals" are in many cases unscrupulous thugs who could give lessons in brutality and corruption to the Mafia."
page 70;
"Where do they go from here? I do not know, but unless America throws up a number of men of courage and genius in the next twenty-five years I believe that the classical symptoms of the decline of a civilisation will turn into a reality."

The New Zealand Economy, A Personal view, by Rob Muldoon 1985
Page 33-34
"In May 1961 we raised a sterling loan of 20 million pounds, a substantial sum for those days. In February we had gone on the domestic market for 10 million pounds and taken 13.7 million. We were on the market again in June for 15 million pounds. In March the Reserve Bank moved to reduce the level of bank overdrafts. We brought in hire purchase regulations and restrained public expenditure to the greatest possible extent. We put a restriction on the allowances for overseas travel and we tightened up import licensing. If the figures sound small today then the March deficit, which continued to increase for sometime, was a record at that particular time."...........
"We announced that we would be joining the International Monetary Fund and the World Bank and a principal reason was that it would give us access to drawing rights. Although this had not been in our election policy, we carried out our policy by appointing various advisory bodies in the economic field, the principal one being the Monetary and Economic Council, a three member council with supporting staff which had the task of advising the Government on matters of economic policy, but most importantly, the right to publish its advice, in various forms, with various amendments to its composition and order of reference, the Monetary and Economic Council and its successors have continued up until the present time."
page 52;
The fact that even in good years we did not show an overall surplus on our external current account and had to borrow and even draw from the IMF was also of concern, so that we were forced to move to restrain not just consumption, but capital development as well.
page 61;
It was in 1967 that, as a result of the wool slump, we borrowed into the higher tranches by way of drawings from the International Monetary Fund and gave the fund a controversial letter of intent. The semantics of a letter of intent as debatable then as they are today when the Fund has some 40 such arrangements. When the leftwing politicians and academics claimed that the Fund had laid down conditions before permitting us to draw in the higher tranches, I insisted, as did the Fund, that it was up to the Government of the member country to indicate the policies that it would pursue in order to restore balance to its economy, while the Fund made its decision on whether or not to agree to the drawings in light of the policies that were proposed."
Page 71
New Zealand has a record that is second to none in its support of international institutions of which we have been members, and our willingness to obey the rules, both in letter and in spirit. We have been constantly disappointed however, by the fact that so many countries - and among them some of the most affluent - have for domestic political reasons been prepared to bend or even ignore the rules when it suited their purpose. The history of the IMF and its sister organisations since the break down of the Bretton Woods system has unfortunately been one were short term self interest has overridden long term wisdom. That this has now apparently been recognised can not alter the unfortunate history of the years since 1971.
page 109;
Following the second oil shock in 1979 the volume of petro-dollars increased but the position of the non oil developing countries began to look less attractive, particularly as some of the new industries that were being developed found that when they came on stream their products, and steel was an example, were facing, protectionist barriers in their natural markets in the wealthy industrialised countries, in some cases the very countries that had provided the loans to build the plants.
page 153;
The international institutions must be reformed with a mandate that fits the needs of the 1980s and into the 21st century. The immediate debt crisis must be dealt with, not as a bale out of either the heavily indebted countries or commercial banks but as a means of averting the collapse of the worlds financial system with a resulting world wide depression such as we have not had since the 1930s, a depression from which no countries economy would be immune."

John - yes, read em' and weep indeed - especially you desrcibing those who govern us as "leaders".

Iain - yep, I think I can appreciate how some of our suggestions/solutions might seem, "..akin to tinkering.." I like raf's and your solutions, I think they'd work, however, as raf says, "...when hell freezes over." So my personal approach to supporting the debate for change is try to head in, or nearly in the appropriate direction, but realise we'll be taking small incremental steps, rather than quantum leaps - because most people are not happy with quantum leaps, even when faced with chasms that require them - if fact most are not even happy with the smallest of incremental steps - right, or wrong, that is how it is, at present at least. So in the context of the debate associated with this article, my preference is extend, improve, develop utilise something that we now seem to have (back?) in place and is working, to throttle inflation and debt, that is, increasing the reserve ratio. It's not perfect, hence my various questions about loop-holes etc. (Thanks to both you and Rob for your help.) Plus we should remember, RBNZ using it to control inflation has not been their primary concern, the effect they are getting is collateral it seems and good for the nation, it must be, look who's complaining....

I'd like to know how we can improve on it's funtionality and how it can be brought more into play as a useful complement to the OCR in the form of an effective, efficient credit volume control to help control inlfation more effectively and reduce over-valuation and volatility of NZD.

Cheers, Les.