Currency too high, recovery could falter – Fed Farmers

Written By: - Date published: 10:39 am, September 10th, 2009 - 12 comments
Categories: economy - Tags:

“I’d really like to know what Treasury is on for it to be so bullish about the economy, as it must be
good stuff.”

– Federated Farmers press release, 09, Sep. 2009

The day after Herald and TV headlined a Treasury report announcing a recovery, the right wing business pressure group Federated Farmers has released a press statement rubbishing these tales of a pending recovery.

Facing a massive drop in export receipts, due to the recession, the Feds are calling for a devaluation of the NZ dollar, in the hope of lifting flagging exports. As a by product this will raise internal prices, loading the cost of the recession onto those least able to afford it by fuelling massive internal price inflation.

Conversely artificially regulating the exchange rate could also begin a race to the bottom from our foreign competitors, (Australia is mentioned), and lead to the much feared international deflationary price spiral, which could cause protectionism and even trade wars to break out.

some other quotes from the Feds news release:

“While we have major reservations about inflation, Federated Farmers economists believe the supposed green shoots of recovery are weeds and not clover. New Zealand could easily dip back into a sharp recession unless there is a sustained export led recovery.”

“We believe it’s way too early to be calling this recession’s end. The expression ‘dead cat bounce’
comes to mind as this recession starts to resemble a ‘W’ shape rather than the ‘L’ we previously called.”

Like their rivals the Feds are hoping to flood a falling market with their products in an effort to drive their competitors out.

[I’m a bit more sympathetic to the exporters’ plight. Our dollar is getting too high but should we look at fixing and devaluing it? Could such a ‘beggar thy neighbour’ strategy spark trade wars as mentioned? – Marty][Bollard has chosen not to change the OCR]

12 comments on “Currency too high, recovery could falter – Fed Farmers ”

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  1. vto 1
    10 September 2009 at 10:50 am

    I wouldn’t trust the federated farmers as far as I could throw them. And they always crying about something – usually about how the non-farmers accuse them of stinking up and drying out the rivers and waterways (which they do), or accusing them of trying to take for their sole use whatever the next available useful resource is (you know, like kauri forests and rivers, etc) (which they do), and how non-farmers should be so grateful for their hard-earned bounty (which they aint nor should be). They live on a different planet. No sympathy.

  2. cocamc 2
    10 September 2009 at 10:58 am

    Isn’t it the problem with the US Dollar being weak? Our rate against Australia is reasonably stable at 79/80c. There is not much the Reserve Bank can do to effect the USD worldwide

  3. Mark M 3
    10 September 2009 at 12:21 pm

    attack the farmers and the farmers union all you like .
    Would be nice for you to do a balancing attack on say the EPMU or other unions who rely on the income from jobs provided by the farmers efforts.
    The EPMU argue for the interests of their members , why shouldnt the Farmers .

    The reality is if farmers arent successful the recession will go on for a long time and many more jobs will go.
    Im not a farmer but spent a day on a dairy farm this week discussing the farm business.

    This was one of the better farms but he will have a massive cash shortfall which will need to be met by the bank.
    If this farmer is making a loss then I suspect most others will be as well.

    These guys have stopped spending on any thing but the basics.

    This mornings paper carries an article on the countries largest farmers selling up.
    That is driven by the massive drop in farm values / income and pressure (demands ?) from the bank.

  4. Hieronymous 4
    10 September 2009 at 12:59 pm

    Yeah, but they could be right about premature celebration of “green shoots” (which PR firm thought that one up ?).

    The Great Depression included two 40% Dow Jones bounces .. after
    which most punters lost their money.

  5. gomango 5
    10 September 2009 at 2:35 pm

    Our dollar is getting too high but should we look at fixing and devaluing it? Could such a ‘beggar thy neighbour’ strategy spark trade wars as mentioned?

    Yes, after all competitive devaluation has been such a success in the past….. (for instance early 1970s thru to 1984). Then we had competitive devaluation, high inflation, falling living standards, falling productivity, increasing government debt. In short every bad thing you can think of.

    The problem is not the currency per se, but the policy settings, current account deficits and structural issues that cause us to have an (arguably) overvalued dollar. Fixing the currency would be akin to treating the symptoms of an illness rather than worrying about the causes of the sickness.

  6. Broken back 6
    10 September 2009 at 2:58 pm

    Feds , though not always correct, have got this one right.
    Solutions:
    Capital gains tax on housing speculation – family home exempt after 5 years, multiple housing ownership subject to provisional on an annual basis. Non residents X2 .
    Repatriation tax on profit “exports” offset by world comparable R&D rates.
    And heaven forbid “Tobin Tax”

  7. gomango 7
    11 September 2009 at 12:34 am

    Forget a Tobin tax – thats a really silly idea. There is absolutely no way to enforce unless every jurisdiction in the world introduces it at the same time. How can you possibly collect a tax on a NZD transaction done by (say) a US domiciled bank, transacting with (say) a Caymans Island domiciled hedge fund, settling the transactions with (say) a European bank domiciled in Singapore? Or any other permutation of tax jurisdictions that don’t involve NZ. And a punitive tax on profit repatriation – first it will be seen as a huge disincentive to investment here (which is what we need) but secondly, it actually wouldn’t be hard for any large corporate to legally avoid. Simple thinly capitalised structures where the NZ company borrows from an offshore lender would do the trick of reducing profits to a minimal amount.

    Running an economy without a structural current account deficit would go a long way to lowering our interest rate term structure and hence the desirability of our currency. But rest assured – at some point in the next 5 years the NZDUSD will trade below 0.6000

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