Everyone
Else is Printing Why Shouldn’t We?
Why
the Greens Are Wrong About Money Printing
26
April, 2012
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.
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