I read somewhere that up to 98% of all foriegn exchange trading is speculative.

Here we have the Reserve Bank trying to "trade the market " as well.

The volatility in our exchange rate is UNBELIEVABLE.......

It has been obvious that the way we try to manage things with our inflation targeting does not really work... and has some bad side effects.

In the "Globalized world".... our reserve bank, using the tools it uses actually helps to exasperate the very thing it is trying to moderate.

It sees inflation rising so it puts up the OCR...... A rush of money flows into NZ in the form of Uridashis' ..etc... which causes the $NZ to climb higher..... leads to a continuation of the speculative boom..... gives the strange contradiction of a high $NZ and a shocking Current Account Deficit....
SO... the Reserve bank sells the dollar to try to make it go down... but at the same time raising interest rates...which makes the dollar go up....,,

AND then there are the real victims of the drama... the Exporters..... They have been beaten...raped....and pillaged by this dizzying merry-go-round of extreme volatility in the Dollar.
Nobody cares....

Has the Reserve bank learnt anything...???? Has it tried to be counterintuitive and figure out something that works...????

When the next round of inflationary pressures arrive....what will the Reserve bank do..???
More of the same..???? I think so....

The actions of the Reserve Bank over the last 7 yr are a part of the reason for our current mess.
Sure they are constrained by the tools they use... but is that any excuse..???
They are Smart ones who are experts.....
Surely they must see that yesterdays approach is not suited to a Global world that moves capital around.... like a school of fish avoiding a shark.

Bernard,

You often mention "Quantitative Easing (Printing Money)". ie. this is what happens when the RB buys an extended range of "assets" to aid "liquidity", but that in it's own right isn't printing money. . . . unless the RB pays more than the asset is worth. Now that would be plain wrong. If a bank wants to collateralise mortgages (to access cheaper interest rates) let them sell them on the open market. And if assets are illiquid there has to be a reason for that. Our RB is falling into the trap of subsidising privately owned banks.

Fred, you'll be very interested in Rothbard's essay on Fractional Reserve Banking, here:

http://www.lewrockwell.com/rothbard/frb.html

Regarding your query directly above, and quoting from this eassy:

Here's how the counterfeiting process works in today's world. Let's say that the Federal Reserve, as usual, decides that it wants to expand (i.e., inflate) the money supply. The Federal Reserve decides to go into the market (called the "open market") and purchase an asset. It doesn't really matter what asset it buys; the important point is that it writes out a check. The Fed could, if it wanted to, buy any asset it wished, including corporate stocks, buildings, or foreign currency. In practice, it almost always buys U.S. government securities.

Let's assume that the Fed buys $10,000,000 of U.S. Treasury bills from some "approved" government bond dealer (a small group), say Shearson, Lehman on Wall Street. The Fed writes out a check for $10,000,000, which it gives to Shearson, Lehman in exchange for $10,000,000 in U.S. securities. Where does the Fed get the $10,000,000 to pay Shearson, Lehman? It creates the money out of thin air. Shearson, Lehman can do only one thing with the check: deposit it in its checking account at a commercial bank, say Chase Manhattan. The "money supply" of the country has already increased by $10,000,000; no one else's checking account has decreased at all. There has been a net increase of $10,000,000.

But this is only the beginning of the inflationary, counterfeiting process. ...

roelof - you make some good points. This guy makes a bad point, but he and his mates are running the show, and they are no better than the last lot of muppets:

http://www.stuff.co.nz/business/industries/agribusiness/2555258/Economy-...

"When asked if the Government had any plans to alleviate the damage done to exporters by the volatile exchange rate, Carter said there were no plans at all.
"At this stage we have no intention whatsoever to change monetary policy. I appreciate the frustration brought on by the rapidly fluctuating exchange rate... After three government reviews, each has concluded there is no better mechanism for the control of the dollar."

Or is it just that better inflation control don't really suit those who generate wealth by inflation of passsive or low productivity assets, in our 'asset tax haven' aided by 'the subsidy that got away', that is, ineffective asset taxation.

Good points roelof, like many that are made here, with some consolidated into Bernards welcome, 'pointy' prescription pieces. However, really, no matter how much blog traffic and discussion might be created on this and related subjects, don't expect appropriate change to the relevant policies anytime soon; a little tinkering perhaps maybe, but anything that will disturb the status quo - get real. Roger Douglas couldn't do it, so why expect folk a pale shade of him to even get close to the things he, seemingly, overlooked? If you are X/Y with little chance of a timely, substantial family inheritance, better to take Bernard's advice, book your tickets and get on out of it before the debt bomb explodes:

http://www.interest.co.nz/ratesblog/index.php/2009/06/30/economic-weathe...

No Selwyn. The banks aren't gouging. The instigator of our demise is the reserve bank/fractional banking system itself. And to fix that, involves a philosophical change, nay, basically a revolution.

Seems like you are right and right Les. Apathetic till the canoe goes over the waterfall! So not long to wait now.

Mark, all the evidence I have says banks are gouging but they are only doing what the law, monetary policy, customers and competitors will allow. That puts us largely on common ground. You can't blame banks for being banks you have to blame our politicians (of many makes and vintages) enacting allowing policies that have encouraged this outcome. God forbid that we should have policies that are in the best interest of New Zealand and New Zealanders.

The person that wanted adults with children had a good point. Why will boomers ever vote for the next generations interests. It's not going to happen, short of an XY revolution and then I am not sure they have the numbers to make a difference. What a depressing state of affairs.

Mark,

Hey, thanks for the link, I think it's very wrong that a central bank is able to buy any "asset" at all let alone one that can't be valued on an open market. All the RB should be is a clearing house between banks and the place to deposit reserves. If a bank can't maintain a positive cash balance with their reserve bank then . . . your reserves must be zero. Isn't that why it's called a reserve bank?

Fractional banking? There's nothing really wrong with it, without it interest rates would be prohibitive, the rules (reserve ratios, loan to value ratios etc.) just need to be enforced and no bank should be allowed to become too big to fail. Iain makes good points about their ownership.

Banks "profit gouging"? What does it mean for a bank to make a profit? It's not as if they take a raw product at one price add value to it and sell it at a higher price plus a profit. Money to a bank is just bits in a computer. Owning a bank is a license to print money - literally.