One of the stories from John Key’s days as a currency trader is that he was always more of a salesman than an analyst. He wasn’t good at picking markets and investments; he was good at getting people to trust him with their money. He got New Zealanders to put their trust in him too but he’s still no good at understanding the economy.
December 6: Key: “the NZD will print with a four in front of it at some point against the U.S. dollar’ ie. the currency will drop below 50 cents US. To be fair, it did dip just below 50, for four days but Key got the trend of the exchange rate exactly backwards. Now it’s getting up to 65 cents US.
April 16: “[Key] is betting that a falling Kiwi dollar will naturally allow the current account deficit to correct itself over the next one to two years’ This statement shows a fundamental misunderstanding of currency markets. Commodity currencies like the Kiwi were always going to start rising as soon as recovery was on the horizon. When investors are nervous about the world economy, they get out of out of the NZD, causing the price to drop. When recovery is coming, the appetite for risk starts to return, and up goes the price of the NZD.
1 July: Key: “[the] budget delivered a credit upgrade, not a downgrade”. He doesn’t understand (or pretends not to understand) the difference between a change in credit outlook and a change in credit grade. Remember, Key told us the Cullen Fund had to be slashed, Kiwisaver had to be cut, R&D spending had to go to avoid the negative judgement of the ratings agencies. Now Fitch has put us on negative credit watch saying ‘government debt isn’t a problem, the problem is you’re not saving enough, you’re not investing enough in R&D so your exports aren’t competitive enough and you have to import all your high-tech, and you can’t just keep on borrowing to speculate on housing’. Key cut exactly the government investment we need to correct those problems. Now he’s trying to weasel out of his cock-up by announcing that Fitch doesn’t matter.. hmm, tell that to the markets.
July 17: This last one’s slightly facetious but I think it illustrates that this guy isn’t the economic heavyweight we were sold. “[Key] met three Havelock North High School pupils selling.. socks for $9.99 a pair for charity. [Key said] this could be the way to fix the deficit “7.7 billion pairs”. Umm, 7.7 billion times $9.99 is $77 billion. The deficit is $7.7 billion.
With over 2000 Kiwis a week losing their jobs, we’re still waiting for the Key government to do anything to ‘take the sharpest edges off the recession’ as promised. We’ll have to keep waiting. The fact is, Key doesn’t have any answers and he doesn’t really care.