While the rest of the world is moving away from the ‘hands off’ monetary policy that became fashionable in the 80s, our government insists on playing by the outmoded neoliberal ‘rules’ of a clean float. Well, what happens when everyone else ‘cheats’ by printing free money to drive their currencies lower and we sit on our hands? We lose our assets and our exporters.
Bernard Hickey starts by explaining how Europe and the US are continuing to print money while Japan and China offer zero percent interest to their corporates –
This Northern Hemisphere strategy of print and hope is fine and understandable for them.
Their export sectors become more competitive and they can preserve or create jobs in exporting and import substitution. But it is in effect a beggar-thy-neighbour strategy in which investors can borrow at near zero per cent interest then buy assets in higher interest rate currencies to make an easy profit. It is fuelling a surge in cash around the globe on a hunt for hard assets such as farmland, mines and oilfields.
It creates an enormous game of musical chairs in the currency markets. It means that the last one to print and devalue is the loser.
New Zealand, with Australia and some other commodity-driven nations such as Brazil and South Africa, should now be increasingly nervous about being the last one left standing.
Yet Prime Minister John Key and Finance Minister Bill English seem remarkably relaxed. Key and English said this week there was little they could do about what they see as an inevitable surge higher in the currency. Key even said exporters should get used to a currency over US80c and said a high currency was great news for consumers. Again, consumers and voters are getting priority over exporters.
He even said one of the reasons for the rise was that investors in China were attracted to the higher interest rates on the assets in our currency. He could have been talking about the sale of New Zealand land to those able to borrow money overseas at near-zero interest rates.
[Funny, I recall Key continually claiming credit for low interest rates during the campaign, now we have high interest rates and that’s a good thing too?]
New Zealand’s manufacturing exporters , should now be very worried. The print-and-hope strategies look set to leave anyone who doesn’t follow suit sprawling in the dust.
We saw the inevitable results of that with yet another collapse of a manufacturing exporter this week. Auckland’s Criterion Furniture called in the receivers after a decline in exports into these markets. There are now 180 workers wondering if they will keep their jobs.
They are the ones left standing. How long before New Zealand has to join the game? And can we afford to stand by and just let it happen to us? Our Government seems comfortable as a spectator. At some point it may have to become a player.
How many more exporting jobs can we afford to lose while Key and English insist that there is no need for monetary policy reform? Will cheaper TVs – causing by a yawning current account deficit, ultimately funded through more debt/asset sales – be a substitute for jobs?
Perhaps we should be looking for parties* that are actually offering real policies to reform the currency and keep us competitive in a world where only losers play by the ‘rules’.
*(Labour’s 2011 policy documents don’t appear to be online anymore, but the ideas Cunliffe outlines in the link were a full policy by the time of the election)