Today’s price-fixing by the central bank [update 4]
Over the last few days, every bullfrog and his legrope has been debating the interest rate that Alan Bollard should announce this morning.
At nine o'clock this morning Alan Bollard, government appointee, will stare into the cameras and tell you what he’s decided interest rates should be in this economy for the next quarter, and all everyone wants to talk about is is he going to make history? Will he fix ‘em at their lowest rate ever?
Doesn't the whole situation strike you as odd?
Everyone's been debating what the government's flunkie is going to do. Better they'd been debating why we stand for a government flunkie to be setting the most important price in the economy: the price of loanable funds.
Better they'd been debating whether an economy in which the most important price is fixed by a bureaucrat can truly be called a free market.
Better they begin to realise that it was price-fixing of precisely this sort by the world's central bankers that was the primary cause of the whole bloody financial crisis.
Try debating that, while you work out what you're going to with your savings now there's no longer any interest to be earned on them.
UPDATE 1: NEWSFLASH, 9am: The “saviour” of the New Zealand economy licked his finger, stuck it in the wind, and decided to slash the economy’s interest rate by 1.5 percentage points. Which means the basic nominal interest rate a negative real interest rate.
Expect would-be savers, especially those who rely on interest income, to be very concerned about their future. Expect the pool of real savings to diminish. Expect the essential liquidation of shaky positions to be postponed, and the malinvestments they represent to continue on consuming real capital, like zombies sucking up the resources needed for recovery.
Understand that it is these liquidations and this pool of real savings that are both needed for recovery to happen. And ask yourself what this latest bout of price fixing will do to assist, or postpone, that recovery. . .
UPDATE 2: Did someone say “sound money”? How about we start debating that, especially since it’s so clearly and desperately needed?
UPDATE 3: Pictured at right is the record of the Reserve Bank’s price-fixing over the last decade, including the latest precipitous fall (pic pinched from Kiwiblog):
UPDATE 4 (11am): Hmmm, wonder what this does to the NZ dollar?
Wow. Who would have thunk it. Real money is leaving the country, to be made up (no doubt) by the stuff that comes out of the Reserve Bank’s basement.