Russell Norman suggests Currency War

 Currency 101for Housewives:
Recent policy releases on behalf of the Greens have Norman in favour of New Zealand printing money or employing Quantitative Easing. A terrible idea.  How would it be bad for the New Zealand economy? Let me count the ways:

1: QE would produce an excess of money chasing the same amount of goods. This effect was last seen in 2001-2004 when New Zealand was flush with easy money. This was largely due to changes in monetary policy in the late 90’s, including the ability of the major trading banks to settle with the Reserve bank overnight and the employment of the OCR as the major tool to influence inflation and interest rates. Construction levels were low so money was predominantly invested in old stock for which there was a competitive market. There was a competitive market because of demographics and the the upsurge of property trusts to avoid the Rich Pricks Tax levied by Clark/Cullen in 1999. Inflation, inflation, inflation, eroding savings and causing the purchasing power of a wage packet to drop.
HOw QE worked for Venezuela: 

2. If you’re a country that employs quantitative easing, you impact your trading partners negatively. this in turn has a negative effect on your own economy.Do we really want to have a negative effect on our Pacific neighbors?
The NZD jumped as soon as the US commenced on it’s latest round of QE in September. For example, the effect of the third US QE round was to choke off any inflow of higher pegged currencies into NZ. In this scenario the net flow of money becomes outward. Less money goes into NZ jobs. This decreases the production of goods available for the US to purchase which shrinks the trade base between countries. The price of imports rise to the US rises. QE is only ever going to be self-defeating unless it is employed to stave off immediate bankruptcy.

3. Quantitative Easing will inevitably purchase debt.
When you’re printing money, it has to have something to purchase. The obvious result is the purchase of dept over which the purchaser has no control. The swiss franc has purchased a lot of Euro in recent history and the hazards here are obvious.

4.¬† As a flow on from the above: You don’t want to be purchasing shit outside your country, you want to be persuading other countries to purchase your stuff.¬†
Y’know so you can employ people and pay for pensions and welfare and shit. Google “balance of trade. A positive balance of trade erodes a country’s debt mountain and protects the most vulnerable members of society by enabling more tax to be directed to welfare.

5. If you start printing your currency willy nilly then every other bastard is going to do the same. 
This is the main argument that Norman has for QE within NZ. “They’re doing it so we should too”. The inevitable result¬† is a currency war. ¬† This is a very bad idea as New Zealand’s economy is very small and we will end up being very very rooted. Every forex player in the hemisphere will enter into play with us. Our currency then drops so our assets are easier to purchase which sends our dollar upwards. The major players can enter into a standoff without too much of a beating, as has been the case with the Chinese reluctance to revalue the yuan despite the incessant bleating of the US at diplomatic levels. But if we try to play ball the canny Chinese will see us and eventually raise our currency to parity with the $US.

If you were going to do anything crazy/drastic it would be to fix the currency for a defined period. Introduce some kind of emergency currency bill, pegged to the ChchEarthquake recovery measures. The diplomatic situation with the Chinese wouldn’t change if the dollar wasn’t pegged too low. And given their proximity the weight of their opinion should count for more than that of the US.

Just sayin

Monique Angel


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