Posted on 7-11-2003

Reserve Bank Mania
by Maureen Coxhead

It is what the rules make profitable that survives and what the rules make unprofitable that is eliminated. It follows the survivors are the ones who manipulate the rules to suit themselves. Europe and the USA have been doing it for years though they have finally woken up that China has out manoeuvred both of them. China has kept her currency at an export friendly level vis-a-vis the $US, they didnt free the financial sector and kept tariffs to protect their manufacturing sector. Result: Real National income has tripled since 1984 and is set to pass that of the USA in 2012.

 N.Z. on the other hand floated the dollar, freed capital markets and wiped most import duties without demanding reciprocity. Result: a five fold increase in debt since 1984 . Lest you think it was just N.Z. Russia followed the same policies as we did with an enthusiasm that would have done Roger Douglas proud. Result: twelve years after they threw out Communism their GDP is still less than it was under Communism.

As Joseph Stiglitz (Nobel Prize economics 2001) points out, it is easier to destroy firms than to recreate them and the damage caused by high interest rates will not be reversed when they are lowered. He also points out that it was the jobs created by export expansion, not the job losses from increased imports, that gave rise to growth.)Globalisation and its discontents).

Yet Governor Bollard insists on maintaining comparatively high interest rates with threats of even higher rates resulting in an overvalued dollar. This makes importing i.e. increasing the nations debt more profitable than exporting i.e. increasing the nations wealth. This is crazy. It is not a sustainable policy and the longer we continue with it the more severe the crash will be when, not if, it comes.