Quantitive Easing -Made in New Zealand-

...the Greens are currently proposing a round of quantitive easing 'printing money' (so they say it) to ease the pressure on the dollar and help the manufacturing sector in NZ to stay competitive - however, with a reserve bank interest rate of 2.5%, there's plenty of room towards 0% to achieve the same outcome

...in light of the relative high reserve bank interest rate, quantitive easing in NZ would be a completely misguided response to current economic challenges

...what had the Green Head been smoking before letting loose such misguided policies

Kind Regards

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Originally Posted by ananda77

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...what had the Green Head been smoking before letting loose such misguided policies

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Probably nothing. He has always been capable of spouting nonsense economic theories while stone cold sober.The worrying thing is he has aspirations of holding the finance portfolio in a Labour/Green coaltion - and Labour seems to give creedence to his latest ramblings. ....... help......

This talk is just going to unnecessarily spook people. Key said he thought this was "wacky", so it would be unlikely to pass a parliamentary reading anyway.

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Originally Posted by gonzo56

This talk is just going to unnecessarily spook people. Key said he thought this was "wacky", so it would be unlikely to pass a parliamentary reading anyway.

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But we have Greens, Labour and NZ First proposing changes to the RBNZ.

I think Key needs to stop dismissing these guys with these sort of quips and actually justify why they are wacky. Otherwise, if people dont know better, we may end up with it at the next election.

Brash did a good job on 'The Nation' a few weeks ago . This guy from Infometrics (in his personal capacity) has also had an attempt: http://www.tvhe.co.nz/2012/10/08/no-...-lunch-for-nz/

But he is going against Ganesh Nana from BERL.

...think 'wacky' is the right word as reality has shown in the US that the QE-policy had hardly any effect on the trade weighted USD-index. OK, long term mortgage rates eased somewhat but here in NZ that would be easily achieved by lowering the RB interest rate

...anyway, why would New Zealand want QE, pushing reserve into the banking system with the desired outcome of lowering interest rates, so people start taking on even more debt and forcing already hot property prices even higher - and reality in the US has shown, that QE has definitely only saved the big banks from collapse as they were able to use the additional reserves to speculate in foreign currency transactions and foreign interest rate arbitrage - and currently, are the only ones together with global hedgefunds to buy up US properties at large

...how would such outcomes be desirable for the New Zealand economy

Kind Regards

Unfortunately, the Greens have set up the 'economic agenda' and now they are firmly in control of it. Even Ganesh Nana was on National Radio this afternoon defending those ideas - fair enough, BERL is the left-wing economic think tank. Labour is so power hungry that they will bend over backwards to accommodate a coalition with the Greens and NZ First that I'm sure that the RBNZ Act will be changed in 2014 - god help us!

The left has had this recurring obsession with destroying the value of currencies, but the issue is not about fostering exports and "save jobs" - they love inflation because inflation is a tax that detroys savings. Destroying savings make people be more dependent on the state.

Sadly affair, unfortunately. I cannot see how we can stop this kind of policy nonsense. By the time everyone works out that the lunacy of such a policy is a complete failure, we won't have a NZ as we know it. To top it all off, we'll likely have another housing bubble; real estate is one of the very few things that can protect against hyperinflation. Most of the other options are outside the reach of the prole.

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Originally Posted by CJ

But we have Greens, Labour and NZ First proposing changes to the RBNZ.

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....and they all expect the oldies to vote for them....... How will Winnie explain to his fan club why this will be so wonderful for them?

Dont get me started on the Greens, or the idiots who voted them in.....
Just because the rest of the world prints money doesn't make it right here!

What do you expect out of the National Frying Pan into the Green fire. if it happens blame John Key for the present economic mess

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Originally Posted by POSSUM THE CAT

What do you expect out of the National Frying Pan into the Green fire. if it happens blame John Key for the present economic mess

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I certainly wouldn't blame Key. He's doing the best thing possible - leave well alone. He knows no better than the markets, and doesn't pretend to. The last thing we want is Norman, Cunliffe/Parker/Peters and the like trying to 'fix' things. For a kick-off, they're not broken. Go for a wander around the planet and youll soon see how well NZ is holding up compared to most of the world.

Hey, maybe the CTU will fix everything. I had to laugh when I heard some rep of theirs on the radio claiming they will come up with the solution. She mentioned our manufacturing sector needs to copy Sweden. I've just arrived back from Sweden, 7.6% unemployment and the factories closing down with work going to Asia. What they do is mine their resources and have a vibrant weapons manufacturing industry. I'd like to see her sell that one to Russel "gimme my flag back" Norman.

Norman reckons all our main trading partners are printing money so NZ should start with 2 billion and distribute it -nice- of course Norman does not understand that the QE strategy is ANYTHING but printing money - rather its a swap of reserves for bonds increasing bank reserves

-NO increase in net financial assets-

...if there was, the US would already be plagued with inflationary/hyperinflationary pressures as a result and the USD would be pudding - so as Key says correctly, the Green QE idea -its a fool's paradise-

Kind Regards

Norman publicly showing off his currency expertise against an ex currency trader......akin to a chimpanzee poking a stick at a sleeping tiger....Good on ya Dr Norman The NZ political scene has been boring of late ...looking forward to the show.....:D

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Originally Posted by ananda77

Norman reckons all our main trading partners are printing money so NZ should start with 2 billion and distribute it -nice- of course Norman does not understand that the QE strategy is ANYTHING but printing money - rather its a swap of reserves for bonds increasing bank reserves

-NO increase in net financial assets-

...if there was, the US would already be plagued with inflationary/hyperinflationary pressures as a result and the USD would be pudding - so as Key says correctly, the Green QE idea -its a fool's paradise-

Kind Regards

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Stick around. The US willl certainly experience hyper inflation, might take a year or so.

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Originally Posted by fungus pudding

Stick around. The US willl certainly experience hyper inflation, might take a year or so.

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A rather doomsday prophecy type of post there F P.

Definition of Hyperinflation (Wiki):... Economists usually follow Cagan’s description that hyperinflation occurs when the monthly inflation rate exceeds 50%

well something got to be done but I guess if you don't work in the export sectors ...it's not a problem..well if the NZD dollar continues to rise against the USD , EURO I can promise you it will....

like the "Tiwai smelter"
-Workers at the Tiwai Point aluminium smelter were told today Meridian Energy had walked away from its electricity contract negotiations, a union boss said.

State electricity company Meridian had been under pressure to renegotiate an electricity supply deal with the cash-strapped smelter, which uses 15 percent of the country’s electricity each year.

Rio Tinto, which owns the smelter, had said it could close if it could not secure a cheaper electricity contract with the state-owned supplier.

---A higher NZD will for sure seal the deal and in the south cost thousands of jobs ,,,http://www.stuff.co.nz/southland-tim...-help-on-Tiwai

--personal I agree against helping the consumers of NZ over the exporters ,,,I don't know of the best way in doing this but just allowing the likes of the US to force there dollar downwards(USA latest idea print 40billion per month till it looks better + zero rates for as long as it takes) while we sit and watch how cheap LED T.V's are while we see exporters get crushed...

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Originally Posted by fungus pudding

Stick around. The US willl certainly experience hyper inflation, might take a year or so.

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...NO because in the same way the Fed can flood the market with trillions, they can starve the market of trillions -its all a matter of a key stroke- might take a year or so, that's what the dooms sayers are preaching since forever

Kind Regards

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Originally Posted by ananda77

...NO because in the same way the Fed can flood the market with trillions, they can starve the market of trillions-its all a matter of a key stroke-might take a year or so, that's what the dooms sayers are preaching since forever

Kind Regards

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the FED + US gov wants Inflation

pulling the money thats been created fast enough =the 1930's depression ...call in all the loans crush the banks,savings,sharemarkets , spending & jobs......... get out by once again by inflation thanks to WW2 spending ......

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Originally Posted by JBmurc

the FED + US gov wants Inflation

pulling the money thats been created fast enough =the 1930's depression ...call in all the loans crush the banks,savings,sharemarkets , spending & jobs......... get out by once again by inflation thanks to WW2 spending ......

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...JBmurc, you also get it wrong - NO increase in net financial assets- since the start of the US QE program - QE is NOT printing Money - its a swap of reserves for bonds to increase reserves in the banking system

...the Greens plan however involves straight forward targeted money printing to lower the exchange rate as a result to help the NZ economy. The plan also involves targeted use to rebuilt CHCH and the Earthquake fund. Anyway, with a Reserve rate of 2.5%, this plan is plain nonsense

Kind Regards

Hmmm
Some balance is needed....

Many in the world don't like inflationary pressures and devaluing currencies ....OK...let the US Treasury stop printing ...increase their US$ value and let the biggest economy in the world go in reverse and have deflation instead......The deflation scenario of a major economy back in 1930's didn't work out too well globally did it?

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Originally Posted by Hoop

Hmmm
Some balance is needed....

Many in the world don't like inflationary pressures and devaluing currencies ....OK...let the US Treasury stop printing ...increase their US$ value and let the biggest economy in the world go in reverse and have deflation instead......The deflation scenario of a major economy back in 1930's didn't work out too well globally did it?

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...exactly Hoop, the problem is not QE to avoid deflation -its fine- the problem however will be the never ending increases in debt loads as money ONLY flows as debt into economies. A bankers wet dream for sure as interest loads rise but purchasing power is syphoned off the consumer/companies/governments with devastating effects on economies -but bankers rule the show and they are absolutely happy-

Kind Regards

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Originally Posted by ananda77

...JBmurc, you also get it wrong - NO increase in net financial assets- since the start of the US QE program - QE is NOT printing Money - its a swap of reserves for bonds to increase reserves in the banking system
...the Greens plan however involves straight forward targeted money printing to lower the exchange rate as a result to help the NZ economy. The plan also involves targeted use to rebuilt CHCH and the Earthquake fund. Anyway, with a Reserve rate of 2.5%, this plan is plain nonsense

Kind Regards

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-And what does the bank do with the extra billion's in reserves ?? currently FED wants to buy 40 billion per month of the bonds where is all that money going ???

.I understood the greens wanted lower loan rates plus to swap NZ central bank reserves for Chch re-build bonds..which in turn would put pressure on the dollar in turn saving many NZ exporters from losing sales to overseas competition ..??

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Originally Posted by JBmurc

-And what does the bank do with the extra billion's in reserves ?? currently FED wants to buy 40 billion per month of the bonds where is all that money going ???

I understood the greens wanted lower loan rates plus to swap NZ central bank reserves for Chch re-build bonds..which in turn would put pressure on the dollar in turn saving many NZ exporters from losing sales to overseas competition ..??

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-1- ...well, with the 40 billion/mth, the Fed is now starting to buy up junk MBS -real ****- because they can absorb the inevitable losses down the track

The Cash (reserves) flowing into the banking system are used mainly for speculation -foreign currency transactions and foreign interest rate arbitrage and currently, the banks are the only ones together with global hedgefunds to buy up US properties at large. So on the back of everyone else, the US banks are able to repair their underwater balance sheets while everyone else is bleeding -officialy its called 'creating asset inflation'- with the purpose to entice consumers/companies/governments to start taking on even more debt

-2- first of all, unless we have a zero% interest environment, the best thing for the NZ Reserve Bank is to lower interest rates to put down pressure on the NZD -unbelievable they have kept rates steady high for such a long time while inflation is very low in New Zealand

Well if it is the intention of the Greens that the NZ RB swaps reserves for bonds, well they should not call it 'money printing' and they should not expect the strategy will put down pressure on the NZD in the longer term - of course because eveybody is thinking the QE strategy is 'money printing' initially, speculation based on inflation/hyperinflation expectation drives the currency down - and the Greens need to careful to use the word QE because of its potential negative connotations surrounding the US and Euro QE strategy

...its abundantly clear that QE made in US or Euro does nothing fundamentally for the economies !!!

Kind Regards

Belgarion the interest rates are indeed the problem they are actually to low Double them & see the spending by those holding bank deposits flow into the economy. Also you will cut out the stupid spending on poor investments by those trying to make a decent income from their savings. Also it will stop others spending more than they can afford in repayments if Interest rates go up. Just like the housing loans in the USA that started this crisis

Well said Possum The Cat - moving on anyone???
...anyway SPX 500 testing *1440 support with a good chance of a nice rebound here - look at crude overnight and the ASX 200 hanging on

Kind Regards

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Originally Posted by belgarion

I couldn't agree more!

The bollocks argument given for not dropping i-rates further is that dumb kiwis will bid up the price of property even further and then get turfed out in mortgagee sales when i-rates rise. Frankly, I think that would be a very good thing as it might teach kiwis once and for all that 1) all asset prices; including property; go up and down and 2) don't take on debt you can't service!

In the meantime however, rising property prices might stimulate the building industry (and private investors) to produce more property thereby increasing supply and reducing our un-emplyment rate.

The RBNZ is being far, far too hawkish on inflation IMNSHO!

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Here you go Belgarion and its high time too!!!!: Greens seek rate cut after low inflation
http://www.3news.co.nz/Greens-seek-r...5/Default.aspx

Kind Regards

The only reason for the interest rate drop by the Greens + (exporters) is self interest in a hope for a lowering of the NZ$.
People + Mr Norman have to realize there are many more factors in play than just interest rates. There's a very real possibility a .25% reduction will have no medium term effect on the NZ$ it may in fact increase it if that reduction is seen as economically beneficial (e.g lack of flow on into property)...The demand is NZ$ is high atm because the perceived stability of the economic situation in NZ is seen by others as favourable.

It wasn't that long ago we had decades of chronic high interest rates, stagnant growth and low currency value which created high retail prices...Hell I can still remember going on a trip to Aussi specifically to buy a microwave oven and a set of golf clubs.

Remember ...A country's currency is a good measure as to how well the economy is fairing compared to the rest of the world......... be thankful for that as it makes all NZers (except people with no assets) globally more wealthy.

Here's an idea for how the RBNZ could maintain the value of our currency in a manageable range and protect us from dramatic appreciation of the currency. I don't agree that we should try to devalue but I do think that if NZD rises 5-10% more within a year it will be devastating. It would be better to allow the NZD to appreciate at a maximum of 1% per year against a trade-weighted basket of currencies and in the meantime use this fancy strategy to hedge NZ against the risk of global trade collapse and foreign fiat devaluation:

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Buy foreign currencies with government bonds that pay out in printed NZD --> Use the foreign currency to buy strategic long-term stable commodities (Lithium, rare earth metals, aluminium, copper, silver) and strategic high-tech equipment from other countries which we cannot produce here in NZ.
Results: NZ currency will slowly drop as more bonds are created, we will be hedged against a collapse of global trade, our companies will have a supplier of last resort in case of such a collapse of global trade that requires NZ to be self-sufficient for a number of years.

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What kind of collateral damage would you expect if NZ implemented this kind of plan?

Keep in mind the USA can only get away with printing money,like they do, for the most part because they are the reserve currency

An interesting article from The Guardian on Britain's QE.

http://www.guardian.co.uk/business/2...nsions-experts

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Originally Posted by turmeric

Im confused Ananda where you get this idea from? Whilst QE is not literaly printing money, it is creating money (electronically) in order to buy the bonds, MBS etc. Hence the inflationary pressures are very real.

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...bonds are a form of Cash + maturity date - if the Fed creates 1 trillion in Cash to buy back 1 trillion worth of bonds, where is the net increase in value? QE changes the composite liquidity in the system not the net amount.

...as for the QE effect on the economy = devastating in the long run because none of the liquid Cash flows through into building industry but into financial speculation (finance capitalism).

...the Fed argument for QE (wealth effect) is fundamentally wrong in the long run

...of course it all depends on what side of the fence one sits (since WW2, the buddies of 'F. I. R. E.' from bankers, to landowners, to politicians have been served extremely well)

Kind Regards

Bank reserves are increasing rapidly causing widespread distortion in financial markets
Lending remains depressed!!!

...if all the newly created bank reserves would end up hit the road via increased debt loads - inflation would be soaring

The Fed can stop that (hopefully) by selling bonds at some stage in the future

Kind Regards