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A non political design for our economic future

6 December 2005

ADVANCE New Zealand

A non political design for our economic future

Politicians need note business calls for Reserve Bank interest rate policy to be questioned.

Since the Labour Government in the 1980s responded to the now largely discredited far right, market led economic theory by removing the RB from direct political influence both inflation and regular rises in interest rates (and taxes/charges) have become the norm in the NZ economy.

It has taken a long time for the business community to recognise the single lever approach of respective Reserve Bank Governors has, rather than reduce inflationary expectations, simply driven up the price all New Zealanders pay for participating in economic activity. In simple terms any increase in the cost of money is inflationary. Even more so when 'money' has been virtually supplanted by 'credit' or to call it by its real name, interest bearing debt.

The NZ economy will continue to see the same sort of fiddling with the effects that has been a feature of economic management when what is needed is some resolution to the question of why we have the most volatile currency in the developed world.

We are in a game of tail chasing because when the RB bumps the rate speculators climb into our dollar and create further demand for it. Any economist will tell that such a demand simply drives up the price. The resultant inflationary pressure then sees the RB bump up interest rates to 'dampen down' inflationary expectations. It needs to be recognised that the end result of persisting with the interest rate policies of the past 20 years will merely result in a continuation of the adverse outcomes of that period.

What sort of a stupid and self-defeating merry-go-round are we being forced to travel on? There has to be a better way!


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