Oct 11, 2012
Everyone Else is Printing Why Shouldn’t We?
You’ve no doubt heard the Greens theory announced this week that the Reserve Bank of New Zealand (RBNZ) should print money to buy $2 billion dollars worth of Canterbury reconstruction bonds and overseas assets. Their theory being we will restock the Governments Disaster Fund and lower the NZD at the same time. As the disaster fund mainly buys overseas assets and the Christchurch rebuild has to happen so if we print money to fund it we don’t have to borrow from offshore. So this will help lower the NZ dollar, help our exporters, and save jobs.
As many have already pointed out the chief problem with this is that NZ still has relatively high interest rates so the RBNZ can still manipulate the price of money a bit lower yet. The others that are printing like USA, UK, Japan etc all have rates close to zero so they have nowhere else to go. This article on interest.co.nz has replies from the PM and the economist from the NZIER and has a good run down of both sides of the argument if you don’t want to read the Greens full policy linked above.
Devalue Our Way to Prosperity?
Hopefully the country doesn’t buy into the concept that we can devalue our way to prosperity – a ludicrous thought. Just because everyone else is doing it doesn’t mean we should follow. The greens believe overseas experience shows that QE doesn’t create inflation because you only would do it in small amounts. But overseas experience shows QE is rather more like cocaine than an energy drink. You might just want a pick me up but “once you start “(a bit like a tube of pringles) the market is addicted and “you can’t stop”. Japan has being going at it for a decade. USA and UK since 2008. Eventually this currency creation will come home to roost. No one knows exactly when or how badly, but it will have an impact in loss of purchasing power to the average guy and gal on the street.
Strangely the Greens- who would no doubt say they represent the “little guy” – haven’t given much thought to this. Their theory that a little bit of QE won’t hurt is naive at best. Even if we could just do “a little bit” of money printing, everyone else seems like they are engaged in an awful lot of it. QE to infinity seems to be in play now, so if the Greens think a little bit will lower the dollar for more than a brief period of time they are deluded. The USA is continuing to print money for the foreseeable future so a short burst by us would likely have but a short term impact.
They believe we will save jobs by doing this. I guess the theory is everyone takes a hit through loss of purchasing power and then we export more and save jobs. Kind of a let’s make us all poorer mentality. However as we heard the NZIER economist Shamubeel Eaqub say the other morning NZ has been losing manufacturing jobs since the 1970’s. However he didn’t comment why this is exactly. He did mention “structural imbalances” that the government needed to address. Why do these imbalance exist? Well we think it’s funny how this period (the 1970s) is about when the last link was broken with gold. Coincidence – we think not. As Mexican billionaire Hugo Salinas Price wrote in the articles we shared last week, these imbalances of exports and imports have only existed since the link with gold was severed.
No Easy Way Out
But we’re not sticking up for the Key government either. Unfortunately the way we see it the government can do little about the position we find ourselves in. Or rather what little it could do, it will not do. That is to dramatically cut spending and taxes which would cause very large short term pain for longer term gain. But like everywhere else in the west the ever growing welfare state means people will not vote for what hurts them – that is a fact.
Even if we remain a bystander in the currency wars (and that is an if) we will still feel the impact. All the extra Dollars, Euros and Yen floating around the world will be exported to here too. The RBNZ should be converting our foreign currency reserves into gold to shield us somewhat from this. And businesses who are currently making a profit should also be buying gold and silver as a means of hedging themselves from the likely ongoing significant fluctuations in currencies.
There simply isn’t an easy answer to the problems we and the world face. But it is deluded to think we can print our way out of them and not suffer in the process. De – Lu – Ded. We’ve got to look after ourselves. Be your own central bank and buy some gold and silver.