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Opinion: I smell blood in the monetary policy water
July 3rd, 2008Politicians in power who fear losing their jobs can be dangerous animals. They will sometimes reach out to grab anything they can to stop being dragged out of power.
Issues where a political consensus has held firm for decades can be dredged up and contested to win a few votes and, more importantly, distract voters from the things that matter. I worry that this is what we’re about to see with the issue of monetary policy and it is a very dangerous development.
Late yesterday Winston Peters got up in parliament and asked the Finance Minister Michael Cullen about an obscure mention on Page 11 of the Reserve Bank’s Statement of Intent about the Reserve Bank looking at “options for alternative instruments.”
The Reserve Bank looked in late 2006 and early 2007 at Supplementary Stabilisation Instruments to try to beef up the power of monetary policy. This was at a time when the bank’s attempts to put up interest rates and slow the economy were being frustrated by home buyers using cheap foreign debt to take out low fixed rate mortgages.
The bank looked at tools such as a levy on fixed rate mortgages, but concluded that these measures wouldn’t make much difference and probably weren’t worth the risk. The heat appeared to have gone out of this issue as international interest rates rose and as the delayed impact of earlier increases in the Official Cash Rate finally took effect in the housing market and the economy more widely.
Meanwhile, the Finance and Expenditure Select Committee has been wending its way through an inquiry into monetary policy and most people believed any changes agreed between the two major parties would be tweaks rather than a direct challenge to the core of the Reserve Bank Act — it’s singular focus on inflation.
All bets are off now.
The question from NZ First leader (and Labour partner) Winston Peters appears to have been a carefully constructed opening salvo in an election year battle over monetary policy and the 1989 Reserve Bank Act.
The Labour-led government was careful enough not to have Finance Minister Dr Michael Cullen answering the question directly. Associate Finance Minister Trevor Mallard was put up as the pawn able to be sacrificed
if the idea sent up the flagpole was shot down.
Mallard said the Finance Minister and the Reserve Bank Governor Alan Bollard had agreed on the inclusion of the “alternative instruments” line in the statement of intent. He mused about how the focus on inflation worked when the bank was first independent, but in recent years high interest rates had caused collatoral damage through a high exchange rate. The government was “actively looking at alternatives to best serve the modern New Zealand economy.”
Then the Labour list MP Moana Mackey chimed in, asking if the government was open to ways to improve the operation of monetary policy. I found this the most interesting part of the whole exchange. Her question showed this discussion was no mistake. Labour really wanted to open up this debate. Winston on his own might have been seen as just a usual suspect. A Labour list MP asking the question is just plain obvious.
It then became clear what was going on. Mallard said National had frustrated attempts to forge a consensus in the Parliamentary committe’s enquiry. He went on to say the RBNZ Act had not worked well in the last decade.
Cullen did not go quite as far as Mallard in his subsequent comments. He said the government was not actively working on alternatives, but the Finance Minister agreed with Peters that the export sector had suffered disproportionately. He also said there had been more difficulties implementing the Act in recent years. This appeared more critical of the way the Act had been used rather than the Act itself.
Cullen has left himself an exit route if the debate goes pear shaped, but you can tell he wants to get a debate going.
It has already started, going by a vigorous discussion in the comments on our site following our earlier story. A lot of pent up frustration and pain is being unleashed by those who want lower interest rates and a lower New Zealand dollar. Those who fear inflation and the erosion of their savings will fight just as hard. A battle of the exporters and indebted vs savers and importers will now begin.
The moment Moana Mackey stepped up to ask Mallard that question was an important moment in our economic history. It was the moment more than 20 years of political consensus on monetary policy between the main parties broke down. Jim Anderton and Winston Peters have been critical of the Act for years, but neither of the main parties has really questioned the Reserve Bank Act’s singular inflation focus before.
We are now in new territory. The independence of the Reserve Bank and the level of interest rates will become a political football. Labour and NZ First will want to portray National as the defender of high interest rates and a doctrinaire approach to running the economy. They will try to connect the hard line monetarism of former Reserve Bank Governor (and National Leader) Don Brash with National Finance Spokesman Bill English’s defence of the Reserve Bank Act.
National equals high interest rates and callous monetarism. Labour equals sensible pragmatism that supports exporters and regular home owners. Very appealing politics to voters nervous about the economy and their disposable incomes.
Decisions about interest rates will become politically questionable. Foreign investors will begin to wonder just how independent the Reserve Bank is. If Bollard cuts rates unexpectedly, someone (probably me) will ask if Bollard has quietly taken direction from the Finance Minister because the government doesn’t really believe in the Act or the Policy Targets Agreement. If Bollard unexpectedly increases rates, the temptation for the Foreign Minister and the likes of Mallard will be to criticise their own central bank.
There will be a period of limbo. A change in the Act will be impossible before the election. But it raises the stakes of the election result enormously. If Labour gets back in or looks like getting back in then foreign investors will assume, correctly, that interest rates are likely to be lower than they otherwise would be.
Luckily we have a floating currency for now, although even that must be up for grabs in any debate. That means any loss of confidence will see a relatively orderly exit. Unlike in 1984 when speculation about a Labour devaluation after an election win virtually bankrupted New Zealand in the space of a few days, the currency would simply collapse.
This would not be the end of the world, although it would feel pretty close to it. Unlike in 1984 when most of our foreign debt was in US dollars and owed by the government, our debt is now owed by Australian owned banks and just over half of that is denominated in New Zealand dollars. However, it would mean that fixed mortgage rates would almost certainly rise and inflation would run rampant.
Perversely, any attempt to push down the Official Cash Rate unnaturally would undermine foreign investor confidence in New Zealand. We need that confidence. Every 90 days foreign investors choose whether to let us keep NZ$60 billion in debt we owe. That is four times our total export receipts over those 90 days. If they are worried about our ability to keep inflation down they will pull that money out. That will cause the New Zealand dollar to collapse and inflationary pressures to rise.
Our fixed mortgage rates are set off interest rate swaps markets, which are determined daily by foreign investors and closely linked to exchange rate markets. We benefited from low swaps rates and low fixed mortgage rates through 2004/05/06 because interest rates globally were low and cash was sloshing around the world’s financial markets.
For now, foreign investors will sit on their hands because they believe our monetary policy regime won’t change under a National government and National are well ahead in the opinion polls.
National Finance spokesman Bill English reiterated his commitment to the current Act this afternoon.
“If inflation management is thrown out at this critical point in the economic cycle, inflation expectations will rise, interest rates will stay higher for longer and economic recovery will be delayed,” English said in a release.
“The statements from Labour signal an end to any pretence of sound economic management, and once again have the smell of a desperate attempt to be seen to be doing something before the election,” he said.
Game on.
For now foreign investors will probably ignore the faint whiff of blood emanating from New Zealand’s monetary policy framework, and ultimately the New Zealand dollar.
The polls say National will win and therefore there will be no change.
But if those polls change tack or there is an unexpected Labour victory the sharks of the financial markets will smell that blood and attack. There will be financial haemorraghing everywhere if that happens. Interest rates would either rise or be higher than they otherwise would have been (ie fall less than other nation’s rates). A sharply lower dollar would ensue, along with higher inflation. Enormous financial pressures would bare down on the big banks who owe the foreign debt. A real recession with sharply rising unemployment would be a strong possibility.
In this limboland before the election, monetary policy will become a political football and the Reserve Bank’s 20 year old focus on inflation is threatened. If those hard inflation targets crumble into some sort of mushy peas and spuds of a monetary policy framework we can say goodbye to relative economic stability.
You have to almost feel sorry for Alan Bollard. No matter what he does now, he is a political target.
I hope he has a thick skin and can avoid watching parliamentary question time too closely. Wednesday’s version can’t have been any fun.
Meanwhile, foreign investors will now care a lot more about political opinion polls. Here’s a good taste of the average of the political polls, thanks to David Farrar at kiwiblog.
Tags: Alan Bollard, David Farrar, Kiwiblog, Michael Cullen, Moana Mackey, monetary policy, Trevor Mallard, Winston Peters
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July 4th, 2008 at 12:14 am
What on earth does Moana Mackey know about monetary policy? Very very scary.
July 4th, 2008 at 6:28 am
Unless of course we bring into “creation” our own money supply backed by the future utilisation of our own resources, instead of leaving that power in the hands of the privately owned central banks as it is currently.
July 4th, 2008 at 8:58 am
Really excellent piece Bernard. Like you I fear the consequences on the Forex markets if inflation targeting is abandoned in its present form.
July 4th, 2008 at 9:04 am
And just to note the ECB put its rates UP last night (confirming a recent trend from central banks, Indonesia moved up the other day, the Fed. must now be nervously eying the mess they have got themselves in, with a $ falling off the back of their cuts now spewing inflation into the US economy). Against the back-drop of a) rapidly rising inflation here (5% plus soon) and b) other central banks raising rates, the risks of a NZ$ rout if rates here are cut loom large.
July 4th, 2008 at 9:12 am
The government wants cheap affordable housing but dosnt want a house bubble to collapse. It wants low interest rates but behaves in ways that create high interest rates. It wants high wages but over regulates and over taxes to create falling productivity and low real wages. It wants to increase its spending, with out increasing the economy.
Long ago we lost control over our interest rates the reserve bank wont be able to lower interest rates. We need to start saving and reducing debt! We need real productivity gains which will take discipline and hard work to implement and Im afraid some suffering. History will regard Labours time in office as complete folly.
We have a currency collapse and a debt crisis coming our way brace yourself!
July 4th, 2008 at 9:23 am
Bernard
We must be coming up to an election because otherwise the Nats could have leaped on the fact that repeatedly its been stated that government spending has been a huge driver of inflation, unfortunately all those with their snouts in the trough also vote.
I think with a decent lead in the polls the Nats can spout rhetoric for another six months and then start slashing gov spending next year, hopefully they will be afforded a year of high primary production before the true tsunami hits, that is where will our tourist industry go at $200 oil?
Neven
July 4th, 2008 at 9:24 am
Bernard your two graphs show it all. This from Bloomberg this morning:
“European Central Bank President Jean- Claude Trichet played down prospects of further interest-rate increases, saying the quarter-point move today will help bring inflation back below 2 percent.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=aTrDLgfAcCkU&refer=home
But hang on – your first graph shows that ECB interest rates are still FOUR PERCENT lower than ours. The Europeans may have just taken an aspirin against inflation, but we have been on chemo for some time now.
Second graph – overseas debt. Note that our very high interest rates have not stopped (and in fact probably encouraged) a relentless increase. You need to plot the point on this graph where our debt servicing capacity is exhausted (call it “peak debt” if you like). That’s when overseas investors bale out (regardless of our high interest rates) and our house of cards collapses; given our declining economy this point is now much closer than we would like. No explanation from you on how current monetary policy is going to solve this problem.
The way the economy is at the moment is completely unbalanced and unsustainable. If we keep going the way we are now the NZD will crash anyway. So who do we turn to then? Exporters? Well the chemo has already taken care of many of them.
Disappointing that you treat such an important issue in a purely political manner.
July 4th, 2008 at 11:16 am
It appears to me that the real “nigger in the woodpile” here as with all matters of governance, is Party Politic s where the good of the Party (and its members) is put ahead of the good of the country (and, of course, those that elect them).
The objective is always the same. To gain or retain Power.
MMP has been an interesting experiment but it hasn’t worked. MP’s need to be more accountable to their constituents than to their “Party”.
July 4th, 2008 at 11:17 am
It is the height of irresponsibility for politicians to be speculating about the country’s monetary constitution in fragile economic conditions and on the eve of an election campaign. The select committee inquiry was the proper place to put forward reasoned arguments, and none of the heavyweight submissions to it advocated a departure from the Reserve Bank’s price stability goal. The search for ‘alternative instruments’ is futile – inflation is a monetary phenomenon, and the Reserve Bank has the necessary and sufficient tools to control inflation. The problems lie elsewhere: excessive government spending and cost-raising regulation, slumping productivity growth, and the Reserve Bank’s misjudgments over the last cycle that you documented very well in an earlier blog.
July 4th, 2008 at 11:24 am
If I can be so bold as to suggest that the entire system needs overhauling, rather than looking for scapegoats in the mess we (and the rest of the world) find oursevles currently in.
High taxes with no lateral thinking about how to encourage saving, other than to throw our own taxpayers money back at us in ill thought out schemes such as Kiwisaver with no consideration of protecting people damaged by those speculating on property is not long term. Those hurting from high rates and high house prices are the people we should be helping by looking at schemes to avoid this sort of bubble occurring, sorry to say it but capital gains tax or someting similar, and whilst we’re at it what about deposit protection schemes. No one needs an umbrella when the sun’s shining but you buy one for when it does in the future.
I still believe Bollards comment about lowering rates was driven by political pressure and this recent discussion backs that up.
Also lets not get carried away and think we are the only ones hurting here, the US and Europe have so far had it far worse than us and lets pray it stays that way. The Fed may have overcooked it’s rate gambles and any central bank repo rates are at the end of the day a blunt sword against issues that need a delicate surgeons knife.
July 4th, 2008 at 1:39 pm
One thing I found really boring about working in central government, was the way in which long-standing policy personnel fought religiously to “close down” any discussion of alternatives. Their defence of (what they referred to as a policy ‘option’ – an oxymoron if ever there was one!) “no change”, or in other words the “status quo” was truly beyond belief. I thought, no wonder the public views bureaucrats as stifling innovation. I always laughed when I counted the ratio of policy paper paragraphs devoted to defending the status quo vs exploring alternative options – normally around 4:1. “Yes Minister” alive and well!
I view much of the opinion here as similarly wanting to “close down” the general public consideration of alternatives – and I cannot understand that from non-government officials. There are other perspectives in society out there, for example;
http://www.3news.co.nz/Video/Sunrise/tabid/572/articleID/60093/cat/167/Default.aspx
So surely it’s worthy of deliberation? I have no opinion yet as to which approach – given the extraordinary circumstances the global economy finds itself in – is right for NZ. But what I do know for certain is that suggesting it is “irresponsible” for the public and elected members to even consider the matter makes no sense at all.
I note Roger Kerr mentions above that “none of the heavyweight submissions [to the SC process]…. advocated for a departure..” but who is to say who is and isn’t a “heavyweight” – and moreover why should the public take any comfort that “heavyweights” (whomever they might be) are always be right?
As I said before, I’m keen to hear all perspectives – there is something that tells me that globalisation has come a long way in 20 years, and the fundamental economic environment of NZ now, as opposed to back in 1989 is dramatically different.
No one is suggesting, as Bill English states in his press release that inflation management be “thrown out” – these are silly, emotive words indeed – intended simply to “close down” the discussion of options and to stifle the potential for innovation.
July 4th, 2008 at 2:42 pm
[...] Rates blog: Initial response (*) (ht Bryan Spondre); Rates blog Email exchange with Dr Cullen (*); further opinions (*) [...]
July 4th, 2008 at 3:09 pm
What’s the big deal?
Voters said they were tired of Old Mother Hubbard and wanted a big friendly Father Christmas to hand out presents to all, both naughty and nice.
They said they wanted more social spending by the state and voted in proud socialists who delivered exactly what voters said would buy their next vote – the free lunch.
It’s not much wonder Cullen says he agrees there has been difficulties implementing the Act in the last decade – over the same time Labour have been working directly against low inflation.
As conscientious objectors they’ve driven an enormous increase in government spending and state employment which in turn has driven confidence, private consumption, house prices and huge mortgages.
Now having spent every last cent they’ll start blaming RBA policy mistakes, naughty private households, arabs, wage/price spirals – anyone and everyone except themselves.
I guarantee you won’t hear Helen saying “You know, in hindsight, we shouldn’t have spent all the money”
HO! HO! HO! – MERRY CHRISTMAS
July 4th, 2008 at 6:11 pm
Neil C
I’ve put a couple of extra charts into the story referring to the ‘peak debt’ you talk about.
I’ve looked at the debt servicing to export receipts ratio.
About 17% seems to be peak given previous exchange rate cycles. We’re there now.
You argue I’m being too political.
I wish I didn’t have to be. I wish this was apolitical. But it’s not anymore.
cheers
Bernard
July 4th, 2008 at 7:49 pm
you cant be apolitical if you work for fairfax media!
July 4th, 2008 at 9:08 pm
Mr Mallard said in his press statements today 3-7-08 “the focus on inflation was appropriate when the bank was first INDEPENDENT.”
Take note that despite things of ceremonial token gesture, such as the Policy Targets Agreement, the RBNZ for all intentional purposes is completely autonomous of Government. It is the return demanded of our bonds and treasury bills at auction that truly sets our Official Cash Rate. More recently New Zealand’s dealings with our international financiers has been officially handed over to the New Zealand Debt Management Office, just scroll past the rather bizarre disclaimer;
http://www.nzdmo.govt.nz/securities/tendering
The big problem with attempting to give relief to mortgage payers by way of lower interest rates, is that in turn will lower our dollar, which will in turn instantly massively increase our already almost unserviceable foreign debt, on balance sheet and off balance sheet, that is already contracted by Bonds to be repaid at interest out of the future taxes of the nation, thus the mortgage payers repayments might decrease but his taxes will have to increase to compensate for national debt repayment, or more of the nations utilities be sold to profit at all cost corporations to pay down debt, meaning he will have to pay through the nose for services.
Under the current Labour executive you get the International Money Club and their locally recruited co-operatives by puppetry, under the National executive you will have them in the drivers seat.
The ideological debate surrounding banking and whether private or public interests should control the money supply or if slavery should be legal, has been on the political agenda since the code of Hammurapi 1700BC and is certainly not foreign to the Labour Parties of the world.(as shown below)
EXCERPTS FROM INTERNATIONAL UNIVERSITY SOCIETY
Reading Course and Biographical Studies
- Section Two
Transcript of an address broadcast on BBC radio October 23, 1931, by Arthur Henderson long time Chairman of the British Labour Party;
Pg 148-9.
We propose that that the banking and credit system of this country should be made a national service. We propose this because, as Mr MacDonald and Mr Snowden have insisted so often in the past, it would be folly, particularly in the light of recent experiences, to leave private banks to be masters of the nations destinies. As recently as Tuesday last the Prime Minister, as reported by the daily herald, admitted that there is no doubt at all that the financial arrangements of the city are bad and must be changed so that the wealth of the country should be used for the benefit of the country and not for speculating and gambling. How does the Prime Minister propose to achieve this change if not through the policy of the Labour Party, which both he and Mr Snowden supported before they joined their present allies? Yet it is Labours proposal with regard to banking and credit that he has sought fit to hold up to particular ridicule. In 1928 Mr Snowden submitted our banking and currency policy to the annual conference of the Party. The Party statement declared that as regards the Bank of England, its constitution ought to be such that it would be directly under public control and its governing body should be responsible to the community and not to individuals. That is precisely what the Labour Party says today.
In recommending this proposal Mr Snowden said;
” I believe in the suggestion made in this report that the Bank of England should be under the control of what we may call a public corporation set up by Parliament, with Parliament laying down the general principles upon which this corporation would work.”
That is not all. Though he gave reasons why he did not believe the time was yet ripe for the nationalisation of commercial banks, Mr Snowden declared that, in regard to the nationalisation of all other banks, ” In principle I am in favour of that.”
=====================================================
Good luck to you and your family
Social Credit or Bust
Check out some very common sense economic reform alternatives at this link ;
http://www.globalresearch.ca:80/index.php?context=viewArticle&code=COO20070511&articleId=5615
A big shout out to Roger Kerr, protégé of Roderick Deane, protégé of the IMF
July 5th, 2008 at 1:31 pm
Bernard the fact that you have only gone after the messenger(s) without giving any consideration at all to the message itself shows that you consider this a purely political issue. But why is monetary policy such a holy cow before which we must kneel and about which constructive debate is to be considered tabu? Oh the markets might react? They certainly yawned loudly last week. Overseas investors know nothing is going to change in a hurry – we do indeed have an independent reserve bank within a stable democratic system. Robust debate during such times of global economic upheaval can only be helpful. National (understandably perhaps) believes they can sleepwalk to power and can safely ignore this issue – for a country that is in the predicament (evident from your graphs) in which we currently find ourselves, this is not helpful. I look forward to:
1. Hearing your opinion on what happens when we reach “peak debt”
2. Your upcoming post on the merits/inadequacies of instruments, other than raising interest rates, to target inflation. Roger Kerr might think they are all bollocks but several other contributors to your blog have made interesting suggestions.
July 6th, 2008 at 11:39 am
Bernard, you are pointing fingers at others, you assume that you are “the expert” after achieving cheap exposure in the wake of housing market meltdown . The calls to consider our moneatry system have been raised by Ganesh and a noble prize winner economist who had no plitical affiliation at least in NZ. NZ has the highest interest rate, no wonder cash flows in but more importantly goes out and keeps us locked in the status quo. Why is it a taboo to review the monetary system, the world is changing and new thoughts should be welcomed.I believe that your writing has polticised the issue more anyone else. Any system that affects the society should be open to discussion and innovation.
July 6th, 2008 at 1:10 pm
Alan Stewart,
I write a blog for Fairfax’s stuff website and am paid (a bit) for it. My full time job is here as the managing editor of interest.co.nz. Fairfax is not political. The range of political views in fairfax publications is wide and intense. Interest.co.nz is not political either, although it ’s fair to say we’re not a big fan of state spending and would like tougher monetary and fiscal policies.
cheers
Bernard
July 6th, 2008 at 1:28 pm
Neil C, S. Imran
Neil C – I’m all in favour of a good debate. In a previous life (Editor of The Independent) I looked at the alternative supplementary stabilisation instruments and concluded there wasn’t much point. I’ll look at them again though. Good idea.
On peak debt. We appeared to have reached it and the New Zealand dollar is falling of its own accord. All part of the automatic stabilisers. I do have a point of view on what we should do, developed over a few years. We should keep the existing system and strengthen the PTAs. Very happy to be the host for the debate though.
If you have a proprosal we can republish in 800 words or so, I’m very happy to host it as a guest comment.
kind regards
Bernard
July 6th, 2008 at 2:17 pm
Bernard I don’t have access to your archive but other contributors (Andy Hamilton?) have made suggestions. I don’t claim to have a panacea, but monetary policy that lets us reach overseas debt 120% of GDP/17% of export earnings sure ain’t working. We are also ruthlessly exposed should there be any further “credit-crunch-like” events in the global economy. The NZD is not falling of its own accord; it is falling because the Reserve Bank has moved to a loosening stance – a move which you have vehemently criticised. I think Bollard has done an excellent job given the stark limitations of the tools at his disposal and doesn’t merit being accused of “going soft on inflation”.RgdsNC
July 7th, 2008 at 1:43 am
Roger Kerr says all the “heavy hitters” putting forward submissions for the Select Committee inquiry into Future Monetary Policy were all for the status quo. Their were only 93 submissions(I read them all) to the Finance and Expenditure committee, at closing, on what is the single most impacting issue facing this nation today, which would indicate only a very small portion of the population have any knowledge of international banking practice. It was no surprise to see the “heavy hitters”, who are fast setting about acquiring most of the means of production of this nation, thus control, of what was once histories greatest opportunities of equal opportunity, pushing for the status quo, sometimes in an almost threatening manner. Interestingly one of Mr Kerr’s “heavy hitters” turned up with a late supplementary submission, it was from the US federal Reserve, a collective of privately owned corporate banks that masquerade as a public institute;
http://www.parliament.nz/NR/rdonlyres/D1C0B312-195C-4020-A849-0B37DD467A59/67368/ReserveBankofNewZealandGovernorSupplementary1.pdf
Incidentally Mr John Key spent two years on the Foreign Exchange Committee of The US FED before returning to NZ claiming to be here to save the state house “brothers” from the gutter.
To the farmers out there, there is a massive difference to those leveraged to the hilt, and the cashed up rural professional’s and those that have just cashed out of the now plummeting stock market, who now own 45% of NZ farmland, broken up into equity partnerships so shares can sold capital gains tax free.
To those that say we do not have a lot of Govt debt, only private, there is both what they call off balance sheet debt and on balance sheet debt, also debt swaps for Government stocks, our net debt position is 400 billion odd dollars, closer to 180% of GDP, not 120% http://www.johnpemberton.co.nz/html/financial_reports___other_data.html
Plus the fact that our bankrupt commercial banking sector is now being tapped into the tax payers vein just as is the case overseas, as the evidence compiled at this link clearly shows, just click on all the IP tabs in collated order;
http://www.johnpemberton.co.nz/html/financial_reports___other_data.html
Good luck to you and your family
Social Credit or bust
July 9th, 2008 at 10:28 am
Those interested in this topic should look at the opinion piece “Time to change interest policy. Reserve Bank needs to focus on targets other than inflation” from Kel Sanderson + Ganesh Nana in the print edition of this morning’s (9 June) DomPost. Unfortunately no hyperlink available through stuff.co.nz but some excerpts as follows:
…”The interest rates it sets attract foreign money into New Zealand. This money is from people who want the high rates, but do not want to invest long-term in New Zealand.”…
…”None of this short-term, high-interest-rate money is invested in productive factories, new technology, and training that would increase our productivity and incomes.”…
We use it to buy each others houses at over-inflated prices of course. No wonder the paper-shuffling economy wants to preserve the status quo – they’ve made a lot of money from it (as the productive sector suffers…).
July 9th, 2008 at 10:56 am
Neil C
I’ve asked BERL to send us the comment piece for us to republish here so everyone can have a good look at it and debate it.
cheers
Bernard