HamiltonJet slams high NZ$ policy

Currencies

HamiltonJet MD slams John Key's acceptance of high NZ$ as "arrogant and not very intelligent"; says over-valued NZ$ big threat to its business

28th Jan 13, 2:55pm by Bernard Hickey

By Bernard Hickey

HamiltonJet Managing Director Keith Whiteley has told a Parliamentary inquiry into the manufacturing sector that the high New Zealand dollar was a major threat to the water jet propulsion system exporter's business.

"By far the biggest threat to our business is the over-valued exchange rate," Whiteley told the inquiry set up by the Labour, Green, New Zealand First and Mana parties in Parliament.

The National-led coalition government is not involved in the inquiry and no government departments are testifying.

Whiteley said the Reserve Bank's single focus on inflation was now out of date and it should look at other measures and targets, including the exchange rate.

He said HamiltonJet, which makes water jet propulsion systems for civilian and military use, had hedged most of its foreign exchange earnings in recent years at a rate of around 71 USc, well below the current spot rate of around 83 USc.

HamiltonJet was covered for the next two to three years at rates of around 74 USc and 56 Euro cents and was making about 9% profits on its curent sales of about NZ$80 million a year. It has over 320 employees being paid an average 25% more than the national average wage, and has more than 50% of the market globally for water jet propulsion systems smaller than 1 metre diametre. The Christchurch based company's major competitor is Rolls Royce Marine.

If the currency stayed up at its current elevated levels of over 62 Euro cents and 83 USc then HamiltonJet's profit margins would fall to 2%, he said, adding that HamiltonJet's use of hedging restricted its ability to invest spare capital in new equipment.

Whiteley was asked after the apperance before the parliamentary inquiry what he thought of Prime Minister John Key's recent comments that little could be done to bring the New Zealand dollar down and that it was good for importers and consumers.

"It really is an arrogant view and it's not really very intelligent," Whiteley said.

"The single target (of inflation between 1-3%) is now past it's use-by date. It's time the government did its bit," he said, arguing HamiltonJet was continually improving its efficiency and productivity.

"We are not looking for a massive downward adjustment. Below 75 USc and 55 Euro cents would enable us to remain competitive."

Labour Finance Spokesman David Parker said if a company with a such a strong technology and market position was struggling with the current exchange rate, then others would be struggling even more.

"If one of our iconic companies can't survive despite competing and winning a 50% market share against Rolls Royce Marine, then what hope have the rest," he said.

Whiteley was one of a number of manufacturers appearing in front of the inquiry from the Christchurch-based New Zealand Manufacturers and Exporters Association (NZMEA), which has called for a revamp of monetary policy to help bring down an exchange rate widely seen as 15% over-valued by the IMF and overs.. There were 131 submissions to the inquiry, which was more than the 40 made to a similar opposition inquiry into bank profits in 2009.

'Not picking winners'

NZMEA CEO John Walley began by saying: "Any number of indicators demonstrate current policies are failing." He called on the government to create a bias in favour of manufacturing jobs, as opposed to picking winners.

Pacific Helmets Managing Director David Bennett said his family owned company, which makes safety helments for firemen, police and paramedics in 90 countries, would like to stay in Wanganui, "but things are against us."

Wyma Engineering Manufacturing Manager Stewart Hyde said his company's response to the high New Zealand dollar was to strive to take local costs out of his product by doing as much outsourcing as possible. Wyma makes root vegetable polishing and processing machines that it exports to Switzerland, Scotland and elsewhere.

"We're like the octupus trying to get all arms out of the gaps in the cage," Hyde said, saying the company had outsourcing around 40 jobs. "The key driver is the exchange rate."

"To the extent the New Zealand government wants us to stay here, then policy settings are going to have to change to make that happen."

'It drives me insane'

Gordon Sutherland, the Managing Director of Christchurch Bronze engineering firm A W Fraser, was frustrated at calls from Government and other politicians for manufacturers to get more efficient.

"It drives me insane when people say get efficient: what do you think I've been doing?," Sutherland said, referring to A W Fraser's continual reinvestment in skills and equipment, particularly when the currency was briefly low during 2008.

"But now, should we invest? I'd have to have rocks in my head to invest," he said.

"We have to get an environment to invest and a currency at a level so we can employ people. We can't just live on growing things and mining things."

The New Zealand dollar continued to skyrocket higher and yet the government and the Reserve Bank continued to pursue the current strategy assuming the currency would eventually come right.

"The definition of insanity is keeping doing the same thing and hoping the results change. It's insane."

Joyce responds

Economic Development Minister Steven Joyce acknowledged that it was a challenging time for some companies, but others were doing well, particularly those more exposed to the Australian dollar than the US dollar.

"It's the way of the world," he said.

Joyce said it would be wrong to offer false hope of intervention in the currency because there was little the government could do to influence the US dollar.

"The 1970s and 1980s was the last time we tried that and look how that turned out," Joyce told Radio NZ.

"We're focusing on the things we can have an impact on," he said.

(Updated with more comments from manufacturers and Steven Joyce)

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58 Comments

by ngakonui gold | 28th Jan 13, 3:32pm 1359340328

Maybe his product is no better than others on the market.

Has this guys company had any tax relief or developement funding from the govt.?

How much tax does his company pay?

Bugger all would be the anwser

by iconoclast | 28th Jan 13, 4:06pm 1359342379

Wotchoo sayin' there ngakkers? - you bein' unkind are you?

HamiltonJet has been around a long, long time. If I recall correctly, HamiltonJet was a world leader in water-jet-propulsion, it was the first off the block, and if it was smart has its' patents and intellectual property all tied up. And yes, at the time I suspect it was helped out with export-development grants, but that was a long time ago. Those grants were only in respect of developing those export-markets. Not the product itself. Kiwi ingenuity. It was a Kiwi success story. Now it's a vibrant business. Profitable. Paying income tax fo' sho'. Not paying GST though. GST refunds galore. But, that is being destroyed. The next step will be for them to shift their operations off-shore. Stupid. No more tax. But, then, no more GST refunds either. Local jobs gone. Lost wages no longer circulating into the community.

by robby217 | 28th Jan 13, 3:47pm 1359341269

Surely the solution is to target markets where they aren't actively trying to turn their currency into toilet paper? For example NZDAUD isn't particularly high.

At the end of the day they can't have some sort of divine right to keep selling water propulsion units to US military when it is broke.

by Stephen L | 28th Jan 13, 4:46pm 1359344812

Defenders of the ever increasing exchange rate miss several points I think. Since the Nats came to power, the NZD USD rate has gone from the high 50cents area to 83c now, a rise of 50%. That means all government costs, local and central, along with quasi government costs like electricity and gas, have gone up by 50% in USD terms, plus whatever inflation rate has been applied to them. Hamilton Jet and other similar manufacturers have to help pay those costs, as well as probably reasonably enough their own staff 50% or so more in USD terms. To the extent they are not being paid, a direct result of the high exchange rate policy, is a tax on future generations.

The fact that Australia is perhaps the only other country we deal with that has also not managed its currency optimally for its trading industries is a red herring. Any Australian company looking for water jet propulsion equipment will look on the world market. The NZD AUD cross rate is almost immaterial. Regardless, Australia is probably not their main market in any case.

Mr Key does indeed seem arrogant and unintelligent on the subject. He does not even back up his view that there is nothing that can be done, with even a cursory look at all the other countries that are taking steps to manage their currencies to be competitive; and with any arguments as to why some of their steps would not be appropriate for NZ.

While a devaluation of 10-20% would be the best way to get our government costs at least down to somewhere near competitive international levels; as a very minimum the government and Reserve Bank most certainly should be ensuring the dollar goes no higher. A glance at any recent chart suggest it is still on a trajectory north; which is also where any of our country's wealth is heading off to.

by Basel Brush III | 28th Jan 13, 5:05pm 1359345944

And once they have devalued, let's print some NZ$ and use it to pay back the borrowings denominated in NZ$. Much of that is in NZ$ because that is the only way the lenders could get a NZ equivalent interest rate. That shifts the risk back on to those lenders. Tough.

by robby217 | 28th Jan 13, 6:37pm 1359351423

Can you please elaborate on what relevance NZ govt expenses expressed in USD terms is? I'm sure in nominal Zimbabwe dollar terms our expenses have also increased, but what is the relevance. To my knowledge NZ public servants are paid in NZ dollars

Why should a NZ dollar be 'worth' less than a USD in the first place?

I don't presume to know what the correct rate is, how do you determine this?

by Stephen L | 28th Jan 13, 7:47pm 1359355673

New Zealand in its total dealings with the world over time has to sell as many goods and services to foreigners, as it wants to buy from them. For 30-40 years we have not done so, selling assets, or borrowing huge sums against our assets to fund excess imports, foreign travel etc. Under National this excess consumption is growing on steroids, with the current account heading by Treasury's own admission to 6% of GDP. This in turn is enouraged by a too high and constantly appreciating exchange rate tolerated by the Reserve Bank; and supercharged by the government borrowing offshore to fund its now huge deficit. The funding offshore has foreigners buying NZD to loan to us; lifting the exchange rate, which in turn lowers NZ incomes and employment, lowering taxes and rasing social welfare payments, lifting the deficit in a vicious cycle.

The relevance of the government costs is that, assuming most exports are traded in USD (or at least not in NZD), then our exporters have to sell 50% more goods and services than they did 4 years ago to pay for our government. That is another way of explaining the concept of crowding out. The government, central and local, as a share of the economy has almost certainly grown through this process, even with modest clamping down on services.

These are just a few of the many reasons why an over inflated exchange rate is very negative, and why nearly every other country is trying to manage their rate down.

A fair value in my opinion is when the current account is in balance; but from where we are now, even holding the rate where it is would be a positive compared to the water torture fairly consistent drive upwards. There was I thought a faint hint at the end of December that Mr Wheeler does understand that, and just may try and hold the TWI where it is. Time will tell.

by robby217 | 29th Jan 13, 4:06am 1359385604

Yes, I follow and I take you point about selling assets to cover for our consumption habit of the last x years. And increasing size of govt

What I wonder about is there anything on the taxation policy side to help. ie zero tax for manufacturers etc.

I was reading "dying of money" a book written in the 1970's and the scarey thing was it describes the world of today. It had some interesting policy ideas/combinations, paradoxically some of the ideas would be heresey for the left of politics, and others would be heresey for the right, which made it an interesting read. One of those ones where you have to suspend judgement until you've read the entire book to take in the persepective it offers.

The issue I have is if everyone is trying to 'manage the rate down' as it were, will anything change, seems to me you have to manage it down faster than the next guy. Where does this ultimately lead?

by Nic the NZer | 29th Jan 13, 4:02am 1359385353

I agree this is standard economic thinking about the world Stephen, but I would challenge some of that.

New Zealand in its total dealings with the world over time has to sell as many goods and services to foreigners, as it wants to buy from them.

Why?

A fair value in my opinion is when the current account is in balance;

Very few countries are close to in current account balance. The US runs a massive deficit, China runs a massive surplus. Most economies have run one or the other for long periods of time. Why should NZ target a balance in this world? In fact I challenge the assumption that the world is in some kind of balance, especially when you include finance costs into the balance of trade.

But lets say your country has been running a deficit for the last 40 years, what obligation is there to work your butt off exporting to try to balance this. This seems fundamentally crazy, especially for any members of the country who were not taking part in the so called 'binge'. I say so-called because I don't think its in any way correct to talk about economies living on a credit card, thats another dumb house hold analogy for the economy, and the analogy really doesn't apply to groups of people.

I agree this is the game which is played, but it just seems like a crazy game to participate in. I suggest there are more sensible ways to organise your economy than geared towards participation in a slightly manic game.

by David George | 29th Jan 13, 9:16am 1359404197

Crazy game? True but it's the only one we've got. The consequences of running current account deficits for forty years are real. We can't just say "I don't like this game anymore".

What happens is your Net International Investment Position detirorates at a rate broadly equal to the current account deficit. So foreigners own more of your assets and debt each year by the amount of the CA deficit. Once you get a NIIP of 90% of GDP ( http://en.wikipedia.org/wiki/Net_international_investment_position ) you're on a very slippery slope indeed - the current account deficit starts to blow out exponentially as interest payments and profits to your overseas owners are paid for with even more borrowing and asset sales. This stuation should have corrected years ago via the floating exchange rate mechanism - clearly doesn't work as advertised.

Now what? Eventually the overseas owners will loose faith in the economy - the currency collapses very quickly and before the economy can adapt organiclly, interest rates increase dramatically, massive unemployment ensues, standards of living plummet, loans default and vast swathes of collaterall assets become the property of overseas lenders - farms, factories and homes.

Simply put we have been consuming more than we have been producing.

Dr Tim Morgan:

"The Western response to diminishing production was to expand service industries, but there has to be significant doubt about how much real value is created by doing each others’ washing, eating more fast food or having more frequent manicure sessions. Meanwhile, the relationship between debt and incomes was getting ever further out of control"

http://ftalphaville.ft.com/files/2013/01/Perfect-Storm-LR.pdf

by Nic the NZer | 29th Jan 13, 9:18am 1359404294

Crazy game? True but it's the only one we've got.

I doubt it, the economy could be organised in all kinds of ways, all that is needed is for the country to change its rules of investment and business. There are a plurality of all kinds of different ideas internationally.

The consequences of running current account deficits for forty years are real.

Really, what are they?

We can't just say "I don't like this game anymore"

Why not?

Seems awful important to you what some foreigners are willing to invest in the NZ economy.

Why?

by David George | 29th Jan 13, 10:17am 1359407828

Yes, we should (or rather should have) change(d) our rules of investment, business and savings. I believe our behaviour was fundamentally altered by the 70's and 80's inflation curse - thank you Richard Nixon. Investment became debt rather than equity funded, capital gains were chased, returns on production became secondary, savings rates plummeted, consumption soared on the back of cheap easy credit and governments were happy to let the party roll on.

We haven't seen the consequences yet - we still have some saleable assets and willing lenders - but it would be super dumb to assume that is, even remotely, sustainable.

We should have been investing our own capital in our own country and investing in other countries as well to some extent. We don't have that option now with a current account deficit substantially higher than the savings rate. We shouldn't need foreigners to own our retail, malls, power companies, breweries, farms, factories, forests, hotels, insurance and banking. The fact that they do plus massive foreign debt obligations pretty much seals our fate.

See the link from Tim Morgan, part three - Globalisation.

http://ftalphaville.ft.com/files/2013/01/Perfect-Storm-LR.pdf

by Nic the NZer | 29th Jan 13, 10:55am 1359410108

Well thats interesting, certainly a lot of information in the analysis, but that doesn't make the basis for the forecast rational.

In my opinion blaming Nixon for the US leaving Bretton Woods is not really correct, there are pleanty of decisions to blame Nixon for, but not that this would have happened to any president in office at the wrong time.

Also the idea that the economy is in equilibrium is a myth of economics, so the idea that the government can setup a system where this will happen with the right incentives is fundamentally wrong. Its just the wrong basis to make government decisions.

by David George | 29th Jan 13, 2:40pm 1359423633

Thanks for the reply, Nic. I'm not suggesting that micro managing the economy to achieve equilibrium at all times is possible or even desirable. The problem is that the natural response to a persistent current account deficit - a decline in the exchange rate - is clearly not working. It simply cannot work so long as our people and Government are prepared to borrow and banks are free to create credit. So reduce that propensity for private debt and Government deficits and the problem will (or would have) solved itself.

The Government needs to (and does) create incentives to encourage certain behaviours and has instituted reforms to encourage saving (Kiwisaver) or reduce consumption (GST) however they should have gone a lot further - maybe raise some luxury import duties or a capital gains tax and a high tax free threshold for saving deposit interest payments for instance.

I'm sure there is going to be a hell of a mess to go through - makes you wonder if we wouldn't have been better off with a gold or commodity backed money system all along.

by Crooked Thumb | 28th Jan 13, 11:55pm 1359370500

As an employee of this firm I could perhaps offer some informed comments (but that is for others to judge). We do not sell to the US Military (i.e. they don't buy our products), and our sales to Australia are not that significant, they never could be, there isn't much demand either actual or latent there

We sell all over the globe, our units are priced in $US (hence the looming profitability problem). Every day I remind myself that I owe my job to the Hamilton family whose loyalty to their fellow NZers is getting rarer these days. Under any other ownership model this enterprise would have relocated offshore years ago

I think Keith's comments (and for him to enter this forum shows just how frustrated he is) deserve a hearing. High end manufacturing must.survive in NZ if we are to have any hope of averting a descent into third world status (i.e. a low wage economy where most of the wealth flows offshore).

We could remain ideologically pure and ignore the fact that large players on the globe are running "beggar thy neighbour" policies, to ours and others' detriment. Is it their "divine right" to do this and we don't even consider what might be an effective response to these threats to our economic wellbeing?

John Walley has for a long time now been arguing that our current policies are decimating manufacturing in this country, and without it, three quarters of the population may as well leave. There will be nothing for them to do here except work on thje land or cater for tourists visiting this odd little country.

by robby217 | 29th Jan 13, 4:00am 1359385227

Well that is the thing it is obviously a company of engineering excellence combined with a great and remarkable history.

(Sorry I thought I had seen something on HJ website about US military landing craft using twin waterjets)

How is the companies asian business growth? By asian I don't just mean China where they are likely to do the old take-it-apart and copy the design trick. But countries like Thailand, Malaysia etc perhaps places where better incomes are leading to some tourist spending and perhaps future demand for sightseeing craft etc ?

My question is if we join beggar thy neighbour and lets assume best case of holding parity of where we are now, what happens if unintended consequences kick in such as increasing cost of raw materials and imported componentry etc. I'm sceptical that much can be solved in the monetary policy side without at least some adjustment in government fiscal priorities and taxation setup. [As NZ pollies have basically sat back for 20year with fub, doing nothing outside of quaint social engineering and welfare spending.]

Also do you think HJ is able to generate some degree of price inelasticity with buyers due to its reputation/market position etc? ie even if the price has to go up 10% international customers will still buy due to the technical superiority/brand reputation/reliability.

Not the greatest analogy perhaps, but say when considering an Airbus/Boeing purchase how much of a factor is price, and how much is the features, efficiency, technical advancement made in a particular model etc.

by robby217 | 29th Jan 13, 5:01am 1359388876

A further point, how much effect would lowering the currency have on imported componentsy etc, what % of stuff is sourced entirely locally? . Couldn't profitability be affected this way as well, (which seems like a buggered-either way argument). However (and bear with me on this), if local costs are the issue, then perhaps the RBNZ should run a deflationary target (within NZ) of say 2%, couldn't this actually be better for business? That is to say less pressure for payrises for exporting companies and internal costs over time would fall relative to the overseas business you are doing?

Now of course home-owners etc would have an abortion under such a scenario, however tough titties they have had their fun in the sun. I guess it would also depend on the level of debt exporting companies are carrying also. I've never understood the 2-3% inflation is wonderous but 2% deflation is complete heresey argument (ie the assymetrical nature of it).

by Nic the NZer | 29th Jan 13, 5:23am 1359390232

A further point, how much effect would lowering the currency have on imported components etc, what % of stuff is sourced entirely locally?

Yes, but as long as the US dollar is a good proxy for both import and export costs this component nets out in any manufacture. Also a lower currency value is likely to encourage more local consumption, or lower levels of import consumption.

I don't think the RBNZ could force deflation if they wanted to (except by triggering some kind of financial meltdown (say by not delivering cash to ATM's), which would be highly unpredictable by nature), can you suggest a mechanism by which this can be achieved? At best their job is to keep a lid on inflation, but in fact I think this is even a large ask for any central bank. Central banks are less able to control of the economy than is widely believed.

by robby217 | 29th Jan 13, 9:26pm 1359448012

Yes, but as long as the US dollar is a good proxy for both import and export costs this component nets out in any manufacture

How good of a proxy is it? For example does oil track US$ index. I'll have to go check.

Can you suggest a mechanism by which this can be achieved?

Increase in interest rates for home borrowing. That would be nicely deflationary. So long as you could shield business *somehow*. I don't think holding back ATMs cash would do much, given that credit money in the economy (say M3) is far greater than cash deposits (M1) for example.

Central banks are less able to control the economy than is widely believed.

I completely agree, but then wouldn't this count against the argument about them being able to manage the currency?

by Basel Brush III | 28th Jan 13, 4:36pm 1359344197

Sorry ngakonui and robby, this is not about one exporter called Hamilton Jet.

It is about the value of the NZ$ and a group of incompetent politicians who are unable or unwilling to appreciate that they are placing their country into permanent penury.

Regrettably this subject is not the only one that these same clowns are ready to do the ostrich trick on. Maybe if they keep their heads buried something will kick them up the backside eventually.

Can we afford to wait for that to occur?

by dobrydan | 28th Jan 13, 9:35pm 1359362142

Correct me if I'm wrong but didn't JK make his millions from currency speculation?? I would have thought he'd be an expert on the matter..

As for your comment above; Nov 2014 can't come sooner enough...although too many Kiwi's are living the good life with cheap imports (somewhat short sighted)...so it's more than likely these bozos will be relected anyhow...

by notaneconomist | 28th Jan 13, 9:57pm 1359363424

Bernard Hickey - judging by the comments above it is high time interest.co.nz journalists printed a factual account of what would happen if the NZD is lowered. A picture of the economy on todays exchange rate and say lowering the dollar to say .74 against the USD.

Take the total debts of NZ at todays exchange rate and provide figures of the total debt at .74.

Provide import and export figures comparing the two exchange rates.

Provide the inflation/deflation calculations that will occur.

If the dollar goes down you you will need to adjust unemployment figures.

You will need to do adjustments on interest rate charges. I would suggest that you use a model where a true reflection is acheived. For example after 6, 12, 18, 24. 36 months etc

The main taming device for inflation is interest rates. As soon as the inflationary effects are exceed the RBNZ mandate interest rates will be the mechanism of control Your model will have to incorporate increases in interest rates and be time modelled. The higher the interest rates are the more money will leave the country as offshore investors seek exposure to the higher interest rates.

While I have every bit of sympathy for anyone in the export industry at the moment I think lowering our dollar in any form or capacity would have disastrous effects. NZ does not want to involve itself with the current practices that are occuring around the world and Key is certainly not stupid or arrogant on this issue. I have little respect for any export business who are running to opposition parties and drumming support for intervention when they know it will have disastrous effects across the whole of NZ economy.

Sorry Bernard I know have provided you with a very comprehensive article to pull together but think that is highly important that this information is put together to stop much of the speculation that is written on these pages.

by Nic the NZer | 28th Jan 13, 10:09pm 1359364157

You do realise that the total debt doesn't change at all with the exchange rate, don't you?

by notaneconomist | 28th Jan 13, 10:23pm 1359364994

Nic - George Soros. ....Black Wednesday Sept 1992. Taxpayer Liability 3.3 billion.

by Nic the NZer | 28th Jan 13, 11:23pm 1359368606

You do realise that NZ doesn't participate in any scheme similar to the European exchange rate mechanism don't you?

by notaneconomist | 29th Jan 13, 8:28am 1359401286

Do you understand Foreign Reserve Assets and Foreign Currency Liabilities?

by Nic the NZer | 29th Jan 13, 9:30am 1359405053

http://www.guardian.co.uk/business/2012/sep/13/black-wednesday-20-years…

The ERM demanded that currencies stayed within a band set in relation to other currencies in the club. To maintain the currency values relative to each other, countries with the most valuable currencies had to sell their own and buy the weakest. In September the deutschmark was the most powerful currency and sterling the weakest within its band.

You do realise that NZ doesn't participate in any scheme similar to the European exchange rate mechanism don't you?

by notaneconomist | 29th Jan 13, 3:19pm 1359425954

NN - you don't understand the basics of supply and demand. You also have problems in understanding the trading market in currencies. NZD is actively traded.

by Nic the NZer | 29th Jan 13, 9:23pm 1359447794

I believe we were discussing your fictisious, and scaremongering argument, against the reserve bank taking action to lower the NZ dollar. In fact NZ doesn't participate in anything resembling the ESM, and clearly your analogy with previous events in the UK doesn't apply.

by Nic the NZer | 29th Jan 13, 12:20am 1359372005

The higher the interest rates are the more money will leave the country as offshore investors seek exposure to the higher interest rates.

This sentence is a real gem! Have you even the faintest idea how reality works?

by notaneconomist | 29th Jan 13, 3:24pm 1359426279

NN - You print you increase the money supply. If you devalue the NZD while increasing the money supply - what do you think happens?

by Nic the NZer | 29th Jan 13, 9:29pm 1359448147

Exporters stop sending manufacturing jobs off shore.

by notaneconomist | 30th Jan 13, 10:58am 1359496713

Short term relief - long term pain. Short term relief people may feel wealthier but the inflation side will eventually catch up as there is a lead in time.

Structural issues not addressed.

by Nic the NZer | 30th Jan 13, 11:33am 1359498804

So about how many years is that lead time? Its been at least 4 so far for the US economy to suffer some kind of massive inflation. At what stage do we get to stop hearing these ridiculus scaremongering pronouncements.

by notaneconomist | 30th Jan 13, 6:56pm 1359525395

China and Japan are still buying US debt. So in effect the US is exporting their inflation as the interest rate is driven down.

NZ would not have this capacity.

by Nic the NZer | 30th Jan 13, 9:11pm 1359533497

Meanwhile in Japan, after 20 years they are still waiting for the inflation to set in, and they are domestically funded.

Nope, you are still making up the facts to fit your conclusions.

Other countries doing QE include the UK, and most of the Eurozone. Good luck finding a consistent reason non of them have suffered massive inflation yet.

by notaneconomist | 31st Jan 13, 10:35am 1359581709

USD is the worlds reserve currency. The US can keep printing as everyone wants access to it. China an Japan own US debt which is another means of accessing USD. China an Japan also need access to the US market for their goods.

Japans deflation is another issue related to the internal demand for credit that was spent on property.

China and Japan both have significant export production capabilities which require access to the US.

Increasing the money supply is inflationary. The US prints USD and then exports its debt which keeps inflation under control. The printing of USD drives the USD lower which assists their exporters. Win Win for the US and the USD.

Maybe you need to understand economies like Argentina who's currency was pegged to the USD to see the consequences. Reserves run out trying to maintain the pegged position.

I don't like the situation of the high NZD as I'm also a primary producer. But the fact is that NZ cannot afford to intervene in any great capacity. NZ currency is not much good in any other markets. You don't see investors lining up to exchange their GBP, Euro or US currencies for NZD. Most of the demand for the NZD is for internal demand not external.

by Grant A | 28th Jan 13, 11:09pm 1359367792

Notanecomonist - please do not come on this site and start quoting us consequences. It is far more fun just bleating about what wrong, arguing for something that must change, being insulting about other people even if they are perhaps better informed (i.e. key), and ignoring consequences - we don't care about consequencies, because we can always blame someone for that further down the track.

Surely there are other blogs where you can go and debate with othesr who want that sort of stuff ?

by notaneconomist | 29th Jan 13, 9:22am 1359404566

Grant A - Haha..... I always keep my smile on....despite the ramblings.

by Bernard Hickey | 29th Jan 13, 7:37am 1359398241

FYI have added these comments from Joyce:

"It's the way of the world," he said.

Joyce said it would be wrong to offer false hope of intervention in the currency because there was little the government could do to influence the US dollar.

"The 1970s and 1980s was the last time we tried that and look how that turned out," Joyce told Radio NZ.

"We're focusing on the things we can have an impact on," he said.

by Stephen L | 29th Jan 13, 8:50am 1359402654

Joyce seems to be disingenuous. He surely knows the currency to effect is the NZD, and not the USD. Mountain and very small molehill. You don't have to move the mountain; and moving the molehill (NZD), or even keeping it where it is relative to the mountain (USD), is very much within NZ's control, and relatively easy to manage, if there is even modest determination to do so.

For reasons I can guess at, but am not sure of really, he just doesn't want to. Possibly the effect on short term consumption of foreign goods becoming more expensive could be a greater hit to his constituency for 2014, than the slightly longer term positive effects on manufacturers, import substituters and tourism that would come from a managed rate.

by Stephen Hulme | 29th Jan 13, 12:16pm 1359415012

You don't have to move the mountain; and moving the molehill (NZD), or even keeping it where it is relative to the mountain (USD), is very much within NZ's control, and relatively easy to manage, if there is even modest determination to do so.

Stephen L- very bold statements - do you have a plan that would circumvent hedge funds partying with our economy? It's the old story of supply creates demand and sometimes it's insatiable.

by Stephen L | 29th Jan 13, 1:08pm 1359418105

Stephen,

You are more expert on the details than I am, so will defer to you to some extent. First off though, to suggest there is nothing to do, as Joyce is, is simplistic at best, if not downright incorrect. Where are the arguments that if the steps taken that are proposed by the Greens/ Labour are taken, what are the estimated consequences, good and bad?

To answer your question; I would not print money and channel it through the commercial banks, as other countries appear to be doing, as that will as you say, likely just create extra demand by creating the supply. I would though print money to loan it to the government to pay its deficit; rather than have the government borrow from foreigners for its deficit. At least until the currency is stable or devalued by say 10-20%. This effectively I believe is the Greens proposal- they package it as paying for rebuilding Christchurch, but really it's paying for part or all of the deficit. This internal printing circuit does not obviously increase the supply for foreigners to play with. In fact it reduces it.

The RB could print and buy foreign securities to match some of the capital flows coming in; and they may now be doing a bit of that; but why separately have the government borrow foreign money in the first place, if we are going to do that?

They could also print to pay off some of our foreign debt, again taking demand out of the equation, but fixing the deficit first makes more sense to me.

I can provide links to articles if needed, showing hedge funds will not try and fight a semi determined government trying to keep its currency down. (They would fight attempts to keep it up.)

by Basel Brush III | 29th Jan 13, 9:52am 1359406339

So, Bernard, just ask the erudite Joyce what would happen if we revalue the NZD upwards. Just make it equal to the AUD for a start.

Whoops Fontera staggers, dairy farmers suicidal, tax take decimated.

Wonderful idea. Lets do it.

by Christov | 29th Jan 13, 9:24am 1359404664

The politics of the Smug are now the norm.... from Parata's retention of her portfolio, to Billy Bob's responses to the housing Bubble, Williamson's handling of the Crafar debacle, Gerry (the Fat man's) outpouring of sympathy for insurers, John boy's up yours attitude to objections to asset sales......and now the Ballbusting hitman for the Administration affectionately dubbed "nothing shit's me Joyce"( and that's no Joke) steps up to show solidarity in arrogant indifference.

This Administration has no intention of dollar intervention (warranted or not) ,the notion of captured monies( in the guise of ongoing investment) is still a major part of the Agenda and anything that may inhibit that process is deemed unacceptable, regardless of casualty ...end of story.

This day forward our illustrious leader has earned the title Johhny the Finger..

It's what he does best, and seems to be working for him thus far.....

by waymad | 29th Jan 13, 10:10am 1359407428

Interestin' thread, chaps and chapesses.I do recall that a Torygraph staple theme (AEP, Jeremy Warner and others) is that it's not arithmetically possible for:

all countries to export their way outta the hole simultaneously
all countries to run a current account surplus simulttaneously
all countries to devalue their currencies simultaneously

But of course, bein' as how I is old, tired, grumpy and cynical, I mighta misunderstood....

by Christov | 29th Jan 13, 10:25am 1359408333

That be so waymad.....but it be a case of the natural order of things post competition, finding a place in the trading positions through proactive management.

To do nothing...has been the position of this Administration for the past 4 years or so , let's review the yeild from that position pre asset sales, and form an opinion as to whether it is better to have been more proactive regards Monetary policy.

Regardless of where the Market places us Exchange rate wise The N.Z. dollar is over valued to the tune of 10C at least....based on IMF conclusions erring on the side of caution .

Yes for every winner there has to be a loser to balance the ledger, but post competition.

I'm not sure where the DNS's fit in to the accounts.

by Craig | 29th Jan 13, 10:32am 1359408766

Yes for every winner there has to be a loser to balance the ledger, but post competition

True, and by sitting in the do-nothing chair, we are looking at the latter unfortunately.

by Christov | 29th Jan 13, 10:48am 1359409707

Effectively that was what I implied Craig, the DNS's are Did Not Starts, therefore not in the race.

I fancy the RBNZ pictures us as a welcome parasite on the RBA's horsie....unfortunatley their horsie is a little overweighted for the event with all that loot the foreign competetors have popped in their saddlebags...and the track is heavy.

by waymad | 29th Jan 13, 11:46am 1359413185

So, chaps (where Re the chapesses, one asks???)

just how much $ will it take to Do Sumpfink Aboot the $NZD value, and where will it come from?

A lifetime of budgeting and accounting does tend to leave one wiv a Propensity to ask Obvious but Awkward questions....

Should I buy shares in Fuji Xerox, Heidelberg etc?

by Christov | 29th Jan 13, 12:05pm 1359414343

Well let's just start with making ourselves look less attractive to laundering and so forth for a start Waymad, I mean post the next RBA announcement ,we'll be looking downright yummy as a money dump.

There are inhibitive processes we could use to dissuade carry trade and so forth....but now that would be cheating ....obviously we can't intervene in the Chinese capital infux into housing, because Johnny the Finger says that's racist....

The obfuscation around investment in N.Z. on the part of the Prime Minister has been ...insulting to intelligence to say the least....but hey , it's money trader speak after all.

Print....? maybe only to produce the three dollar bill featuring Johnny the Finger giving the salute with an obverse of Parata being a true survivor....coming up smiling.

We're innovative like that Johnny said so.

by Christov | 29th Jan 13, 12:47pm 1359416837

I'd advise you to send that warning anyway mist...as he does work for you..he just forgot he did is all.

Happy New Year BTW.

by Kate | 29th Jan 13, 1:15pm 1359418535

Point is - once Aussie starts beggaring us, their neighbour - what then, Mr Joyce?

by waymad | 29th Jan 13, 2:28pm 1359422882

Gotta luv dat Freudian slip there Christov - 'Chinese capital infux'

That's not a Winstone Gander out-take, by any chance?

by Christov | 29th Jan 13, 2:31pm 1359423080

Just no sliding it past you is there waymad...glad your not the censor here, or I'd be joining Ivan on the cold benches for the duration.

by Andrewj | 29th Jan 13, 3:25pm 1359426300

Much of the places we export to are in recession, this must impact exports. The USA and Europe are not buying much of anything at present, the Malls are empty.

Also Jet units love gas and gas is much more expensive than it has been, the days of running V8 motors at full rev's may have come to an end for many of us.

The other problem is, NZ is so bloody expensive, I just talked to a friend who has a friend with a big tractor, he got quoted $27k for new tyres, so he imported them from the States for $7k. WE need to stop the huge profits being made by certain sectors in NZ, including building materials.

by notaneconomist | 29th Jan 13, 3:46pm 1359427604

Andrew - exactly. farmers are very aware of the issues. At least we have the internet for shopping around didn't have that in the 1980's.

The builders need to investigate a cooperative for supplies. They are letting the monopoly players dictate. Interesting stuff on NZ Cooperatives (that is never in our media) quite a few from NZ made the Global 300 list according to nzcoop.

by Andrewj | 29th Jan 13, 3:58pm 1359428331

If you want I can go and get photo evidence of prices for you, and you can ask retailers to' please explain'

The latest was a 32 inch ride on mower, club cadet, 1k