Bollard’s new policy (announced June) is the major reform of monetary policy (and under current policy settings) which Goff is seeking. He seems to have not noticed its arrival.

It’s called the “core funding ratio’ it diminishes the amount of offshore money financing bank lending and allows a looser “local” monetary policy (lower OCR).

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10 609289

Sure more could be done – if government gave the RB more tools.

Such could be a surcharge on mortgages (which could go on as an alternative to raising the OCR). Perhaps at .5% or up further to 1% of the mortgage.

Otherwise government itself could

1. Apply GST to loans on property and use the revenue to reduce tax on interest income (to a flat rate 20% – the most reasonable thing is to allow deduction of the CPI rate off the interest level before tax is assessed but some find complications to this process, a low flat rate achieves the same result for most of those able to save and is simple to apply and with PIE about now is not going to lose much income to government).
2. Apply a form of CGT on rental property (paid as an annual land tax, rather than on the sale of the property – this so the income to government is consistent and is not avoidable).
3. Apply a Tobin tax on New Zealand currency trades – and tell the IMF this is to help reduce the government’s budget deficit. And assist in an export led recovery – reduce the BOP deficit.

Ah, but alot of them weren’t created using capital from NZ.

Actually, almost all foreign investment is in already existing and profitable businesses. The foreign capital did nothing for it and has often been used to close the local business down and shift it’s work overseas.

Foreign ownership really is bad for the economy.

Goff and labour are a frigg’n joke and this desperation for attention is just laughable.

The reason that bottled water – which let’s face it, falls from the sky for free – is more expensive than petrol is that markets are not rational. Basic Econ 101 theory (complete with Wikipedia-level supply and demand curves) assumes everyone is a rational actor who will always act to maximise their personal welfare. This is such transparent bullshit that it’s a wonder it is still taught by reputable universtities.

People tend to make decisions for emotional reasons and then rationalise them logically afterwards, and this has a much greater effect on markets than any amount of post-hoc rationalisation about supply vs demand curves.

Either way, artificially generated demands interplaying with arbitrary controls of supply, all in the interests of profit, would appear to be a recipe for deliberate mis-pricing of certain commodities…. which comes back to the whole demand supply argument being a con…ie not some impartial relationship being a constituent part of a deterministic price setting mechanism.

What I am saying is that by removing those blocks that you indicate in you post and leaving interest rates low you can control house prices and inflation via supply rather than demand. Rather than removing peoples ability to borrow money and hence remove them from the market you provide more houses that they can get cheaper. This keeps the price down whilst keeping interest rates down so that you don’t have the same cap in hand issues.

It is a graph. The demand for bottled fresh water versus the demand for that product are major contributing factors to its cost. If demand drops the producers lower price in an attempt to increase demand so that stock is not wasted. If demand goes up then producers increase their prices to match or increase their production. If demand lowers to the point where cost can’t cover production then production ceases.

As for petrol. OPEC supply the majority of the worlds crude oil. In this case demand is relatively constant(in that it grows at a somewhat constant rate). It’s cost is effected by dollar value shifts to a larger extent than most products due to it high turnover, however OPEC constantly shift the price of oil by either increasing or decreasing supply. This is an excellent example of changes in supply relative to demand have a direct impact on price.

Comparing the two is irrelevant. The demand for petrol has no effect on the demand for water and vice versa the demand for water has no effect on petrol. The supplier puts a product on the market at a price he chooses. If the demand at that price level exceeds his ability to supply then he has two choices. He can raise the price and reduce demand so that he can now meet it, or he can increase supply. Likewise if the price he chooses to initially set is too high and demand is low he is then forced to lower the price to try and increase demand.

The same can be used in housing. When demand for houses is high (as it was during the bubble due to easily available creadit and limited supply) there are a number of ways to reduce it. You can go with current monetary policy which is to increase interest rates thereby reducing the availability of credit and hence reducing demand. This leads to cap and hand trading which is what Labour is trying to reduce. What you could also do is increase the supply of housing. This is what I am referring to by allowing for increased density.

So… are you actually saying that foreign investors don’t deserve a return? If so, then where is the cash going to come from to build anything?

Cost of water in NZ is $3+ per litre from retail outlets.

Cost of petrol in NZ is $1.60 odd per litre from retail outlets.

This simply doesn’t fit with your assertion about the relationship between supply and demand determining price does it?

Or am I still being really dumb? If so, please indulge me to the extent of offering a simple explanation pointing to the error of my ways in the above example. Much appreciated.