Tuesday 29 April 2014

Show Me the Monetary Policy! [updated]

“I STAND UNASHAMEDLY FOR raising people’s wages,” said Labour’s David Parker this morning, as he announced a policy to lower real wages.

Go figure.

imageLike all New Labour’s policies in this New Age Under Cunliffe (somewhat like the Age of Aquarius in that they’re all mostly dripping wet), their new “monetary policy” – i.e., giving the Reserve Bank more power to control the exchange rate by controlling people’s savings rate – seems to have been thought up on the hoof and issued in haste, without any pause for reflection along the rushed road to release.

Let’s be clear. It’s not wrong to talk about changing what the Reserve Bank does, because by their very existence they are already doing far from what would occur in an unhampered market.

But the specific and stated aim of The Davids’ policy is to further loosen monetary policy and command the Reserve Bank to  lower the NZ dollar, made high by being considered a commodity currency, by having interest rates marginally higher than elsewhere, and by having a government still borrowing hundreds of millions of foreign currency every week assorted welfare and election bribes.  (An avalanche of inflow not expected to fall under Messrs Parker and Cunliffe.)

The net effect of  all that, for better or worse an with no intent to do so, has been to raise the purchasing power of our dollar.

Which means, yes, that the prices exporters get are not translated back into as many local dollars, but it does raise sky-high the ability of businesses here to buy capital goods and supplies needed for production, thus lowering their costs; and it does, when you think about  it further, mean that every worker’s wage goes that little bit further when buying any of the thousands of goods and services whose production is priced in a foreign currency.

In other words, the worker’s real wage has been going up as the exchange rate does.

Which means that the pleas by Labour and Green politicians to lower our exchange rate amounts to a plea to lower real wages.

EVEN WORSE, THEY WANT TO lower real wages at the same time as making workers’ saving compulsory.

And not just make it compulsory: to tell workers every six weeks exactly how much they will be saving. By order.

And not just to lower workers’ living standards and to take this money out of his pocket by force, but to give it (via the Kiwisaver scheme that is little more than Welfare for Bankers) to essentially the top ten or twenty crony companies in New Zealand.

This is not just delusional, it’s fucking sick.

Haven’t New Zealand voters already told politicians they’re utterly opposed to compulsory saving? Oh yes, so they have, in that 1997 referendum in which 91.8% utterly rejected Winston’s self-serving scheme to suck NZers dry. But with Winston now making it a bottom line in coalition negotiations, The Davids have dreamed up a scheme to load more on the backs of their supporters poorer while scratching that of Winston.

And this is on top of the conventional policy giving power to the Reserve Bank to meddle with our money, the result of which has been to make every dollar worth about one-ninetyfifth what it did when the Reserve Bank was first invented.

AND EVEN IF THIS latest ruse did work as they hoped it will, the so-called “improved competitiveness” resulting from purposeful currency depreciation is a delusion in any case, as Australian economist Frank Shostak explains:

The so-called improved competitiveness resulting from currency depreciation in fact amounts to economic impoverishment. The "improved competitiveness" means that the citizens of a country are now getting fewer real imports for a given amount of real exports. While the country is getting rich in terms of foreign currency, it is getting poor in terms of real wealth — i.e., in terms of the goods and services required for maintaining people's lives and well-being.
    As time goes by, the effects of loose monetary policy filter through a broad spectrum of prices of goods and services and ultimately undermine exporters' profits. A rise in prices puts to an end the illusory attempt to create economic prosperity out of thin air.
According to Ludwig von Mises,

The much talked about advantages which devaluation secures in foreign trade and tourism, are entirely due to the fact that the adjustment of domestic prices and wage rates to the state of affairs created by devaluation requires some time. As long as this adjustment process is not yet completed, exporting is encouraged and importing is discouraged. However, this merely means that in this interval the citizens of the devaluating country are getting less for what they are selling abroad and paying more for what they are buying abroad; concomitantly they must restrict their consumption. This effect may appear as a boon in the opinion of those for whom the balance of trade is the yardstick of a nation's welfare. In plain language it is to be described in this way: The British citizen must export more British goods in order to buy that quantity of tea which he received before the devaluation for a smaller quantity of exported British goods.

    Contrast the policy of currency depreciation with a conservative policy where money is not expanding. Under these conditions, when the pool of real wealth is expanding the purchasing power of money will follow suit. This, all other things being equal, leads to currency appreciation. With the expansion in the production of goods and services and the consequent falling prices and declining production costs, local producers can improve their profitability and their competitiveness in overseas markets while the currency is actually appreciating. Note that while within the framework of loose monetary policy exporters' temporary gains are at the expense of other activities in the economy, within the framework of a tight monetary stance gains come not at any one's expense but are just the outcome of the overall real-wealth expansion.
It must be appreciated that, contrary to popular thinking, both tight fiscal and monetary policies provide support to wealth generators while undermining non-wealth-generating activities. [The Davids, and their assorted advisers], by pleading for looser policies, are in fact asking to strengthen wealth-destructive activities and thereby recommending a prolonged economic slump.

That conclusion won’t surprise you, even if it does The Davids.

THE FACT IS, WE we have two basic choices regarding exchange rates. We can either work to the exchange rate we have. Or we can tell this irresponsible government –and whatever next government anyone can cobble together -- to stop borrowing $300 million of foreign currency a week, to stop spending money they don’t have,  to start living within its means, and to leave money in the pockets of New Zealanders instead of taking it from them with every new scheme they dream up.

UPDATE 2: Even the suits don’t fancy it:

  • “Labour's proposals to allow the Reserve Bank to adjust KiwiSaver contributions rather than interest rates to control inflation could hurt savers and see debt repayment delayed until retirement, KiwiSaver experts warn.”
    Labour KiwiSaver plan could hit savers, warn experts – NZ HERALD


gregster said...

Fucking sick alright!

Labour knows New Zealanders are as dumb as Americans, and will vote for idiots of either team, and will never front up to parliament with their guns.

Anonymous said...

what will the enforced savings be invested into?
will there be a proportionality arrangement which says you can stick x% into the NZ sharemarket, but y% needs to go into govt bonds? Will we end up with a retake of the EQC and all those billions sitting invested in the kitty ready to be used to rebuild a devastated city... only to find a cupboard loaded with IOUs.
enforced govt bond buying scheme much?
are they scared no bugger is going to lend to the govt soon?
or is it just another kitty to raid come election bribe time?


Anonymous said...


Please do gather your mates together & rock up to parliament with your guns. Should certainly make the 6 o'clock news more interesting.

gregster said...

Not only do I get forcefully robbed every day - I'm faced with moronic 6-o'clock-news-watchers wishing me and my mates to fight their battles too. Pure evil.

Please do gather your mates together & rock up to parliament with your guns.

Mr Lineberry said...

Fronting up is easy - anyone can do that; it is using the guns that gets things changed - and virtually everyone who moans about this sort of thing wimps out long before that point haha!

"I don't want to get into twubble"

The US Declaration of Independence signatories were hardly the first people to complain about 'no taxation without representation' (such a view was common amongst businessmen in Leeds at the time, for example), but they loaded the muskets and were prepared to fire them, and commit treason, to change things they were unhappy with.