Q+A: Shane Taurima interviews Russel Norman
Q+A: Shane Taurima interviews Russel
Norman
Greens unveil plan for quantitative
easing – wants Reserve Bank to print billions of dollars
to buy earthquake bonds from government.
Norman
says creating credit to buy bonds would devalue the dollar,
reduce overseas borrowing, fund Christchurch rebuild and
re-stock Natural Disaster Fund (NDF).
Would start
with around $2 billion in first round, then leave it to
Reserve Bank Governor to gauge need for further
QE.
Norman says “we don’t know” how much the
dollar would drop after QE, but reckons a 15% drop in dollar
value would be significant help to
manufacturers.
Despite claims QE would raise
prices, Norman says plan won’t be inflationary, as much of
the Christchurch rebuilding is already happening and the NDF
would buy assets offshore.
Most trading partners
are using QE without creating inflation
“If we
protect that [export] sector and enable those people to make
money for New Zealand, then we keep the jobs in New Zealand
and we stop building overseas debt.”
“Currency
traders… assume that New Zealand is a one-way bet at the
moment, because we are the last country standing operating
orthodox monetary policy.”
Greens Co-leader: I
have confidence in Mr Shearer.
Labour’s “got
some work to do”, but “they’re aware of that
themselves”.
On Dotcom: “Seems very strange”
Prime Minister doesn’t remember the February briefing and
says he needs to look at GCSB operations, as there’s
no-one else to.
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Q
+ A – October 7, 2012
RUSSEL
NORMAN
Greens
Co-Leader
Interviewed by SHANE
TAURIMA
SHANE
Thank you, Dr Norman, for joining us.
DR
NORMAN Good morning,
Shane.
SHANE
Before we
talk about your answer, I just want to pick up on point that
John Tamihere made, and I think— Let me quote him: “The
front bench isn’t firing.” Do you agree with John
Tamihere? Is Labour that bad?
DR NORMAN
I don’t think they’re that bad.
Obviously, you know, they’re only one year into the term.
They’ve got some work to do. I think that’s pretty
clear, but I think they’re aware of that themselves, and I
think they are doing policy work in the
background.
SHANE
Do you think, though, it’s harming the chances of getting
into government together? Because, let’s face it, Labour
– you’re relying on them to get into
government.
DR NORMAN
Well, it’s early days. We’ve still got another couple of
years till the election. The polls have actually turned
around quite a long way, and I think this last couple of
weeks have shown that the government isn’t
invincible.
SHANE
You have confidence in Mr Shearer?
DR
NORMAN Yeah, I have confidence in
Mr
Shearer.
SHANE
John Tamihere also made another point. He said we need to
take a different approach, a new approach to help address
some of these quite terrible economic woes we’re facing at
the moment, and you have an answer to that. You have a plan.
Tell us about that.
DR
NORMAN Well, today the Green
Party’s releasing a proposal around the exchange rate. As
the introduction said, the exchange rate is overvalued. The
International Monetary Fund says it’s probably about 15%
overvalued. That’s having a very detrimental impact.
There's three parts to our proposal. The first is, as was
talked about in the introduction, around using the—
broadening the Reserve Bank mandate so it doesn’t just
look at inflation but also looks at the exchange rate. And
that would mean that we could have lower interest rates,
which would mean that we would have a lower New Zealand
dollar. One of the reasons the dollar’s high is because
there's a lot of money coming in from overseas in order to
take advantage of our relatively high interest
rates.
SHANE
And the other two parts?
DR
NORMAN And the second part is
around looking at some of the housing-asset bubble. So
capital gains tax, looking at supply side, making sure that
we’re not getting a housing asset bubble which is sucking
in funds from overseas, putting upward pressure on the
dollar. And the third part is around adopting some of the
measures which have been used overseas in the form of
quantitative easing and applying it to the specific New
Zealand circumstances. So we’ve developed a proposal which
looks at using the central bank, the Reserve Bank,
essentially creating credit and using that credit to
purchase earthquake bonds from the government and hence
reducing the amount of borrowing that the government needs
to do, which also reduces some of the pressure on the
dollar, because a lot of that borrowing is from overseas.
And also using that Reserve Bank credit to invest in the
Natural Disaster Fund, which is the fund we have to prepare
ourselves for big earthquake
events.
SHANE
So you want the Reserve Bank to go out and print some more
money?
DR NORMAN
Essentially it’s around the creation of credit. It’s
called quantitative easing. The idea is if part of the
reason—part of the determinant of the value of the dollar
is supply and demand, you increase the supply of your
currency and then you use that to deal with some specific
economic problems that you have. The United States has used
it very extensively. Britain has used it. The Bank of Japan,
the European central banks. All our trading partners are
engaged in this kind of a currency
convention.
SHANE
So just so we’ve got it clear – you want the Reserve
Bank to go out and print some new money to buy some
earthquake bonds off the government. The government then
would use that money to help with the Christchurch rebuild
– help build the sewers and the streets and that type of
thing – and also to go towards saving for our next
disaster.
DR NORMAN
That’s
right.
SHANE
In a nutshell.
DR NORMAN
In a nutshell, and those earthquake— Because the
government wouldn’t be borrowing for those earthquake
bonds from overseas, that reduces the pressure on the New
Zealand
dollar.
SHANE
So what will this do? Because any economist will tell you if
you go out there and create massive amounts of money, it’s
going to affect inflation. Prices go up, don’t
they?
DR NORMAN Well, I
mean, there's three responses to that. I mean, first, if you
look at the last monetary policy statement from the Reserve
Bank, it was right at the bottom of the band. There's not
strong inflationary expectations going forward. Secondly,
when you look overseas at the use of quantitative easing –
because all of our major— most of our major trading
partners are using it – it hasn’t produced major
inflationary problems there. And then thirdly, the way
we’ve designed QE or the proposal that we’re releasing
today is specifically designed to reduce the inflationary
effects. So if you look at the earthquake bonds, the
earthquake building is happening already, so we’re not
increasing construction activity. We’re actually just
making sure that we’ve got the money to do it. And the
Natural Disaster Fund, which is currently empty, we would be
restocking the fund with foreign-denominated assets, which
is— And it’s important to understand this – the
Natural Disaster Fund is stocked with foreign-denominated
assets, because in the event of a big disaster in New
Zealand, you want access to those overseas assets. So once
you start purchasing overseas assets with New Zealand
dollars, you don’t add to inflationary effects inside the
New Zealand
economy.
SHANE
How much money are we talking about?
DR
NORMAN Well, if you look overseas,
the amount proportionally is somewhere between 10% and 24%
of GDP. That’s what our trading partners have done, and
obviously that’s why the New Zealand dollar has risen is
because our trading partners are involved in quantitative
easing.
SHANE
So how much is that?
DR
NORMAN Well, if you did it in New
Zealand, you’d do it in rounds. So it’s, if you like, an
adaptive management approach. You would do, say, 1% of GDP,
which is a $2 billion
QE—
SHANE
So start off with $2 billion?
DR
NORMAN Well, you’d start there,
and then you’d look at the effect. And so, you know, where
that takes you is up to your Reserve Bank governor to look
at the impacts of that kind of QE and make some kind of
judgement about whether that’s sufficient in and of
itself. Because it’s all in an international environment.
Of course, the exchange rate is always relative to what our
trading partners are
doing.
SHANE
And you said from the outset that you hope that this will
bring down the dollar. By how much?
DR
NORMAN Well, we don’t know is
the short answer. We know overseas it’s had a significant
downward effect, particularly on the US currency, and
that’s resulted in a significant increase in exports out
of the United
States.
SHANE
Because you said before that the IMF – the International
Monetary Fund – said it’s overvalued by about
15%.
DR NORMAN That’s
right.
SHANE
It’s about 82c at the moment. 15% off that – that takes
us to about 70c. Is that what you’re looking
at?
DR NORMAN Well, you
need to look at the trade-weighted index, not just versus
the US dollar. Because what's important is looking at all of
our exporting industries into all the different countries
into which we export. So you need to look at the lot. So you
can’t just compare it to the US. But if it came down by
15%, that would make a significant difference to our
manufacturers. I mean, I think we need to look at the
real-world economics of this. We can’t kind of— The
government is trapped into an abstract theory about
economics, which says, oh, you know, you mustn’t touch it,
which was the idea from 20 years ago. If you look at the
real-world
economics—
SHANE
But that’s the point, though, isn’t it? The government
will say, well, you can’t really control it. It’s voodoo
economics.
DR NORMAN
Well, if it’s voodoo economics, then you need to say that
to the governor of the Federal United States Reserve. You
need to say it to the governor of the Bank of
England—
SHANE
But on that point, they’re at that point because their
interest rates are almost at zero.
DR
NORMAN And so that’s why part of
our three-point plan is about bringing down interest rates
as well. You need to have a coherent approach which
addresses all the levers which you have
available.
SHANE
Let me quote you something—
DR
NORMAN Looking at the
international—
SHANE
...that Mr English says in response. Quote: “If you reduce
the exchange rate, you reduce the standard of living for all
New Zealanders.” End of quote. And what we’re talking
about there, of course, is that a lower dollar means a
higher cost of living for households, because going to buy
petrol, used cars, TVs and about anything you get from The
Warehouse, it all goes up in price.
DR
NORMAN So if we follow Mr
English’s logic, then we want a higher and higher dollar
so that imports are cheaper and cheaper, lots of people get
laid off because all the export sector gets destroyed, and
we borrow lots of money to cover the difference. That is not
a sustainable long-term strategy for New
Zealand.
SHANE
But the point is even if you do get the dollar down, you
can’t keep it there.
DR
NORMAN And so, just to answer your
last question, what we’re trying to do is protect the
export sector of the New Zealand economy. If we protect that
sector and enable those people to make money for New
Zealand, then we keep the jobs in New Zealand and we stop
building overseas debt. Our overseas debt, our net overseas
debt is now about 75% of GDP. Our current account deficit is
5% of GDP. These are not sustainable numbers. If the
government thinks doing nothing is sustainable, they’re
wrong.
SHANE
Well, let me put that again to you, because if you get the
dollar down, how do you expect to keep it there? Because you
can’t, can you?
DR NORMAN
Well, part of it— So, if you look
at the impacts, part of it is reduced pressure from
borrowing, so this government is engaged in a massive
borrowing programme. They’re expect to borrow $50 billion,
$60
billion.
SHANE
Which you just told us about, but how do you keep it there,
Mr Norman?
DR NORMAN And
so by reducing the borrowing needs of the New Zealand
government, you reduce that pressure. By restocking the
Natural Disaster Fund, you reduce that pressure. And also
– and I think this is quite important – changing the
expectations of the currency traders is very important. They
assume that New Zealand is a one-way bet at the moment,
because we are the last country standing operating orthodox
monetary policy. All of our trading partners have abandoned
this policy except for us. And so it’s easy to make money
out of New Zealand. So we change the expectations in the
market.
SHANE
Can I ask you will Labour support this policy?
DR
NORMAN We have spoken to Labour
and given them a heads-up about what we’re talking about
today. I’ll be interested to see their response,
but—
SHANE
They haven’t said whether they support it or
not?
DR NORMAN Well, what
they’ve said is that they’ll look at what we’ve
proposed and give some kind of considered feedback. I think
we’re all on the same page, because we all read the
international literature, to realise that monetary policy
settings need to change to protect the real economy and real
jobs, and I think Labour have said that very clearly.
Because we
all—
SHANE
But no guarantee though?
DR
NORMAN There's no guarantee, but
we all read the International Monetary Fund statements. Even
two years ago, the chief economist at the International
Monetary Fund said small open economies can’t just target
inflation. They also need to target the exchange rate with
their monetary policy in order to protect their economy.
That was two years ago. This government has not been
listening to the international best
practice.
SHANE
And finally, I’d like to talk about Dotcom, because we
know you’re a member of Parliament’s Intelligence and
Security Committee, and I want to know what did you find out
on that committee about Dotcom?
DR
NORMAN So, this is one of the
limitations of the oversight is the Intelligence and
Security Committee is not a Parliamentary committee. It’s
a statutory committee established by law. Under that law,
we’re not allowed to talk about what we hear on that
committee. So basically, I can’t tell you. What I can say
is that that committee doesn’t look at operational matters
and isn’t allowed to. And so that puts a real limit on
what we can enquire
into.
SHANE
It sounds like you weren’t told much out of that. I’ll
take that from that. So maybe it’s
believable—
DR NORMAN
(laughs) I couldn’t possibly
comment.
SHANE
Maybe it’s believable, then, that the Prime Minster
wasn’t told much as well.
DR
NORMAN Well, what we know is that
the Prime Minister discussed at some length— After the
Dotcom raid, he discussed Kim Dotcom’s residency, right?
You know, it’s recorded in public. And then about a month
or so later, he was told something about Kim Dotcom, on
February 29th. He says he has no recollection of it, which
seems very strange to me. And then, of course, he told us
all that he wasn’t briefed at all, but it turned out that
he was. What's the important point here is that where is the
oversight over the spy agencies? It’s only the
Inspector-General of Intelligence and Security who missed
this and the Prime Minister. The Prime Minister is the sole
democratic oversight of the GCSB. He has a very special
responsibility. It’s quite different to a normal
ministerial responsibility, which has oversight over a
department. He actually needs to look at their operations,
because there is no one
else.
SHANE
And finally, I want to ask you, because what do you actually
want from this police complaint? We know an organisation
can’t be charged. Is there somebody you want charged? Is
it, for example, the minion who had the brain fade at the
GCSB or the cop who gave the bad immigration advice on
Dotcom that you want charged? Who do you want
charged?
DR NORMAN Well,
so an organisation can’t be charged under the Crimes Act,
but individuals who breach the law if they’re employed by
the government can
be.
SHANE
So which individuals do you want charged?
DR
NORMAN Well, obviously we don’t
exactly know what happened. So the only report we have so
far is the Inspector-General’s report on what the Prime
Minister told
us.
SHANE
But you want somebody charged?
DR
NORMAN Well, what we want the
police to do is to investigate what happened so that we can
find out, because nobody, except perhaps the GCSB and maybe
the police, know what happened. The Prime Minister doesn’t
seem to know what
happened.
SHANE
And we have to leave it there. Thank you very much for your
time.
ENDS