$4.2 billion spent on destructive economics
I bet you didn't know that the Reserve Bank spent $4.2 billion of your money last year in order to prop up its flawed economic model. $4.2 billion! Reports NBR:
" The biggest gambler on the New Zealand dollar is the Reserve Bank, which has been playing the currency market to the tune of $4.2 billion in the last year to try and keep the price of the dollar down, according to figures published by the Bank.
"This raises two obvious questions: how long can the Bank continue to sell into the market while the dollar remains relatively high? And should our central Bank be taking a punt of this size with public money in the hope that it may be helping exporters keep the dollar slightly lower?"
Here's some questions that might occur to you about now:
Why is the Reserve Bank trying to keep the price of the NZ dollar down?
Because NZ interest rates are higher than the rates of other comparable countries round the world, attracting foreign buyers for local dollars.
Why are NZ interest rates higher than the rates of other comparable countries round the world?
Because the Reserve Bank's flawed economic model requires that it jack up to interest rates to squelch rising prices.
Are prices rising?
Yes. Partly for reasons of supply and demand -- important price signals the Reserve Bank is trying to squelch -- partly because Government spending is out of control; and partly because the Reserve Bank itself has been inflating the money supply. (To the extent it's been inflating the money supply by fifteen percent year on year for the last half-dozen years, the Reserve Bank hasn't been fighting inflation, it's been causing it.)
Is this sustainable?
Is this rational?
What do you think. In this headlong and destructive pursuit of what it calls 'price stability', there are two prices which experience rampant instability: the price of the NZ dollar, and the price of money. That's right, the myopia over price stability has led to galloping instability in interest rates and mortgage rates and the exchange rate -- along with dislocations, malinvestment, and the threat of a lingering recession . The rationalistic "basket of goods" by which price inflation is measure may be made to appear stable, but the prices we actually pay for mortgages, capital and foreign exchange are all over the place, and the economy the Bank was supposed to stabilise is found to be anything but. The $4.2 billion the Reserve Bank spent last year is only a small part of the cost of this flawed economic model.
In other words: removing real price signals from the market (or trying to) plays havoc with your markets. The law of unintended consequences strikes again.
NB: If at this stage you'd like to get your hands on a more rationally sustainable economics to understand all that's gone wrong, and why, and what to do about it, The Austrian Business Cycle Theory is online and free, and with essays by Ludwig von Mises, Friedrich Hayek, Roger Garrison and others explaining both the Austrian concept of the capital structure, and how governments and their central banks are the central cause of both inflation and depressions, it's timely reading.