"Price stability" isn't working

After at least two "interventions" in the foreign exchange market in as many weeks, NBR reports Kiwi at 22 year high against US dollar. So that worked, didn't it.

Bollard says the "fundamentals" show the dollar shouldn't be soaring so; but the fundamental fact is that Bollard himself has set it soaring with interest rates high enough (he thinks) to dampen housing prices that have been made high by over-regulation -- interest rates high enough to send manufacturers offshore. Fundamentally, Bollard has lost it, and repeated calls for legislative quick fixes show that.

We don't need mortgage levies, capital gain's taxes or a tax grab on rental property owners. What's needed is an immediate lessening of regulation on land supply and construction, an immediate removal of the planners' stifling ring-fences around NZ's major cities, and immediate rejection of this absurd and destructive obsession with "price stability."

As Frank Shostak explains, "the policy of price stability always leads to more instability." I think Alan Bollard is slowly being taught that lesson, don't you? An article in the forthcoming Free Radical explains this apparent paradox; says M.A. Abrams, it comes about through a complete misunderstanding of the nature of monetary inflation:

In an economically progressive community (that is, one where the real costs
of production per unit are falling and output per head is increasing), any
additions to the supply of money in order to prevent falling prices will be
hidden inflation; and in a retrogressive community, (that is, one where output
per head is diminishing and real costs of production are rising), any
contraction of the supply of money in order to prevent rising prices will be
hidden deflation. Inflation and deflation can occur just as well behind a stable
price level as when the price level is rising and falling...

Thus, in the case where [economic progress] due to increased saving is
corrected by additional money for consumers, the result is to prevent any
[increase in the efficiency] of production; and where a fall in prices due to
improved knowledge is corrected by additional money, the result is to force a
transition to less [efficient] methods. In both cases the fruits of
progress are rejected because of a determination to keep prices stable.
Moreover, in both cases the correction of the attempted advances has involved
the abandonment of some of the higher stages of production where certainly some
of the factors used are highly specialized and these will therefore become
unemployed as a result of the transition.

It's time to cut the Reserve Bank Stabilisation Act loose. That's one thing that could be done immediately.