Yeah right. No country can prosper with a monetary policy such as ours which primarily encourage excessive (overseas) debt creation. :(

The reserve bank needs to stop setting interest rates and let the market do it. They have proven to be totally inadeqate at it. If the market was allowed to set the rates then when demand for money is high and supply low then the price of money (interest) would be high and visa versa.
History has proven time and time again that artificially setting any price never works and allways leads to either chronic supply or demand problems. inflation takes care of itself when normal supply and demand dynamics are allowed to work.

the reserve bank needs to stick with making physical money and focus more on regulating banks and financial institutions so they act ethically and have healthy balance sheets.

Like the rest of the world's politicians and central bankers, they (the RBNZ and NZ Govt) are deluded. Governments created this problem by allowing their central banks to increase their money supplies exponentially, leading to one bubble after another and unprecedented global debt levels. So, the clowns who created this problem (Greenspan, etc, etc) and the politicians behind them are now supposed to fix the problem?? The same guys that created it in the first place!! Yeah, right..
We are heading for a depression, make no mistake. Our best hope is that it is only as bad as the 1930s.
Our only hope is a return to sanity with policies such as these:
- Buy up some decent gold reserves and tie the NZD to a fixed gold price band. All paper currencies (backed with thin air) are heading for collapse. The only answer is to return to the store of value which has endured over millenia. Every idiot thinks that devaluation is a good thing in respect to export competitiveness, etc. If it is such a great strategy, why don't we just devalue by 90%? We'll be really "rich" then. We could then give Gideon Gono (Zimbabwe's central banker) a call and ask him about high-speed printing presses.
- Cut all taxes down to a flat 10-15%
- Lay out a constitution mandating balanced govt budgets without the ability to run deficits.
Alas, none of this will happen. Instead, we will borrow more, spend more and print up more paper money...all this will lead to high inflation, more wealth destruction and a much lower standard of living. It's very simple, you cannot spend more than you earn forever....you will go bust eventually.

John Key wanted to turn us into a financial service centre and tax haven for his banking buddies;
John Key interview with Fran Wild NZ Herald July 20 2005, have a read folks and look where his beloved Ireland, that he wanted model us on, is now.

"Why not have an offshore banking industry based here?" he asks.

"In the right conditions you could attract 200 banks to register here - each with a CEO and staff. You could attract insurance companies. Bring back lots of Kiwi accountants and lawyers. Single out clusters - such as high-class yachts - or other special sectors as the Irish did."

"If you get the framework of the economy right the market will sort it out."

http://www.nzherald.co.nz/company-taxation/news/article.cfm?c_id=691&obj...

The model of perpetual growth that Key and his cabinet executive and the army of unfettered free market radicals that have infested our public service for 50 years or more, is now debunct for all to see. Cant wait to find out what plan B or C might hold for us.

Quite simply you can't keep creating more credit, suposedly borrowed forward, to be backed by the assets it creates in the future, without keeping a very good eye on just whether the planet has enough sustainable resources to build those assets, and when it does exceed that capability, hyper inflation causes violent instability or even worse extinction is not outside the realm of possibilities. Continual excess liquidity of created credit will eventually see us poo in our own nest.
http://www.millenniumassessment.org/en/index.aspx
http://www.optimumpopulation.org/opt.earth.html

No wonder the dero's are hard out looking for another planet that will support life.
But just who do you think will have the money to afford to buy a seat?

Jeez Iain I almost had a laughing fit after reading that, especially this little JK pearler: "Bring back lots of Kiwi accountants and lawyers." I couldn't imagine a worse nightmare. Neglecting productive enterprise in favour of a paper shuffling pseudo-economy is exactly what got us into this mess.

First of all lets not be small minded and look at whats really going on here. How about starting at the top:

1) Global monetary policy and credit creation is controlled by a small group. It's a monopoly on the medium of exchange being credit.

2) Money is debt. This group creates credit which is debt then charges interest on it.

3) Fractional reserve banking. After the central banks have created the credit the commercial banks are allowed to lend up to about 90% of their capital reserves.

4) Income tax was created by governments to help pay for interest on money borrowed that the government them selves have the legal right to create and issue interest free.

I believe complete monetary reform is the most important issue right now.

Follow the white rabbit:
http://video.google.com/videoplay?docid=-515319560256183936&ei=HDWfSbHRO...

"saying the existing framework was "sound" and "world-class." However, Government also recognised that with the current framework. . . " world class is hardly a recommendation.

Gold is not the answer, a primary responsibility a Government has is to protect private property and and money in the "bank" needs to be treated as that (private property) unless it is loaned to someone else. Therefore the Government needs to provide people with access to a reserve account that pays zero interest and has zero risk of being lost (and it can't be loaned to anyone else by the bank that holds it). So you are saying that a central bank has to have an amount of gold in the vault exactly equal to the amount of money in circulation? This might work if every dollar in circulation is paper money but a modern economy doesn't work like that.

The answer is split banks into a trading function (a commodity utility that could even be totally internet based) and an investment function (all other banks and financial institutions and all of these listed and/mutuals/depositor owned). There's nothing wrong with fractional banking "per-se" (and it shouldn't be treated as a conspiracy), leverage allows money to be created/loaned cheaply into productive investments (but a zero interest reserve deposit should be re-introduced)

The fix is to split the banks, lower taxes, lower public servants wages by the same amount seed capitalise a bunch of new (local) banks, and let the existing lot fall over if they are going to. No guarantees!

International price shocks - let a floating exchange rate sort it out but don't artificially prop the currency up with high local interest rates (or currency swaps with other central banks).

Alastair - If only you could get a large proportion of decent civil minded people to watch 3 hr documentaries such as Money Masters and study the tried and tested successful debt free based monetary systems of days gone by, how things could be so different.
Zeitgeist Addendum is another very good award winning documentary of about 2.5 hr;
http://www.youtube.com/watch?v=NT-2fenmLnc
But if you dont have that amount of time these 3 excerpts(about 30 min) are full of hard hitting facts;
http://www.youtube.com/watch?v=PpYTVJ9ZxD4

gold is not the answer, all that glitters is not gold, including gold. try living inside an ingot. it is very dense- so what. it reflects yellow - so what. it is over valued - POP - yep just like oil, fx, property etc. it is only good for carrying around in your pocket. and that was in the days before electronic banking. now you can carry your exchangeable product on a thin magnetic stripe on the back of you Amex.

i would rather have a house thankyou. i could even paint it gold, that would be one ingot you could fit inside...

This must have been said on the basis that if the lie is big enough our prespective may be too narrow to notice.

Finance Minister Bill English released Government's response to the Finance and Expenditure Committee's inquiry into New Zealand's monetary policy framework, saying the existing framework was "sound" and "world-class."

You could argue "world class" but that standard has got most all countries of the world into dire economic strife. As for delivering the primary role of the RBNZ in maintaining financial stability, that has been an abject failure.

If Bill's view is to be believed we don't need to change anything - just carry on the same only with some government stimulus and the extension of some more credit - and all will come right.

I think the RBNZ's role should be limited to maintaining financial stability. To achieve that you probably want someone other than an economist in charge. Someone who at least aspires to do better than this extract from an interview with Grant Spencer in the Business Spectator:
http://www.businessspectator.com.au/bs.nsf/Article/Grant-Spencer-$pd20090209-P448B?opendocument&src=rss

Well, with hindsight, you'd do a lot of things differently. There was a very sharp deterioration in the latter part of last year. Practically all of the commentators, when the credit crunch first started in late '07, once we got over the Christmas hump, were saying 'OK well, it's just about over'. That was also the mood through the earlier part of '08 "“ until we were hit with the Lehman Brothers shock, which really made things substantially worse. So policy has to adapt to events as they unfold and in the earlier part of last year we couldn't foresee the Lehman's collapse and the fallout of that nor could any other central bank. So, we've responded as events have unfolded and I think probably in a similar manner and time profile to most other central banks.

Someone who can see the obvious coming rather than notice then react to what has already happened when it shows up in the stats.

Also covered by Alex here:
http://www.interest.co.nz/ratesblog/index.php/2009/02/11/rbnzs-spencer-s...

AS I understand it, our whole economic system in the west is basically controlled by the central banks ie the federal reserve in the united states, and here in new zealand the Reserve Bank. This type of system goes back in history, and if im not mistaken, is one of the things america tried to abolish when it was been settled, as this system was in use in england at the time "the bank of england'.
THey have control of our financial system, through control of the money supply, which effects the amount of inflation, and through interest rates, the 'price of money'
Also, they loan money to the government, at interest, which we the public then have to pay through income tax.
THis system is fraudulent, as the bankers are making money out of loans
we need to overthrow this corrupt system which benefits the few investors in central banks!!

good article and nice