We can do better

Written By: - Date published: 2:24 pm, November 23rd, 2009 - 53 comments
Categories: monetary policy - Tags: , , ,

By and large the Right are refusing to defend their neoliberal monetary policy system. The currency is causing chaos, the housing bubble is back, and the Reserve Bank is in a ‘damned if you do, damned if you don’t’ position as it tries to control inflation. But the Right treat the neoliberal doctrine like a sacred religious text, no debate will be tolerated. Only one guy’s given it a go – BK Drinkwater has responded to my post on the need for reform. It’s pretty shallow but since it’s the best the Right can put up for debate, let me respond:

Drinkwater starts off with a lengthy quote from rightwing hero Milton Friedman, who basically invented the kind of monetary policy setup we currently have but he’s fundamentally misunderstood what I’m saying. I’m saying that the Reserve Bank, like nearly every other central bank should have to consider economic factors than just inflation when setting interest rates. Other countries manage it, why can’t we?

Drinkwater says he can’t figure out if I want interest rates higher or lower. I want both. I want lower interest rates for productive investment (ie in business), a lower OCR in line with other countries to kill the carry trade, and higher interest rates on mortgages in relation to the OCR.

Let’s start at the beginning – the point of the OCR is to increase or decrease consumers’ buying power by adjusting how much they have to pay on their mortgages – if inflation is too hot, increase the OCR, that will increase mortgage rates and people will have less money to spend, reducing inflationary pressure. The problem is that our OCR is chronically too high relative to other countries causing the carry trade (=housing bubble, current account deficit, high currency) but if we lower mortgage rates any further it will cause more inflation.

What we need is a way to keep mortgage rates as high as they are (or higher) while letting other interest rates go lower. we could do it with a variable mortgage levy/savings rebate that functions to increase the interest rates on mortgages and savings. The Reserve Bank gets the choice of setting that levy (between say 1% and 3%). The OCR could be lower, letting business borrowing rates fall and killing the carry trade but mortgage rates would effectively be the same as they are, keeping inflation at bay. This levy wouldn’t be a money raiser for the government. The revenue would be used to fund something like a tax rebate on interest income or an inverse payment to savings accounts, encouraging Kiwis to save.

Drinkwater makes some other silly comments – like saying we need the carry trade to create jobs – which fall over on their own without me pushing them. Basically, he seems to think that 40 years ago Friedman created the best of all possible monetary policy setups and we can’t improve on it.

I fundamentally disagree with that. In economics you can never solve all problems at once but we can do better than this. Our current setup is causing the housing bubble, the high currency, and the current account deficit. I’m not saying let’s go back to pre-neoliberal approach, I’m saying let’s go forward to something better. The mortgage levy/savings rebate is one of a number of refinements we could make to do better. I’ll write about others soon.

53 comments on “We can do better”

  1. Tim Ellis 1

    I want lower interest rates for productive investment (ie in business), a lower OCR in line with other countries to kill the carry trade, and higher interest rates on mortgages in relation to the OCR.

    Interesting concept Marty. I can’t think of a regime where a central bank stipulates higher rates of interest on residential property than it does for business.

    The interest rates that banks charge lenders is based on a range of factors, but it is basically a risk versus return profile. Lending to business is almost always more risky than lending on property.

    Already many small and medium business owners put property up as security for business lending and load up the mortgage to fund their business working capital.

    • I do not disagree with Tim and I think this shows how complex the debate is. Focusing on interest rates alone gives a distorted and incomplete picture as does focussing solely on inflation.

      There may need to be some direct control on currency. Singapore has been held up as an example. The currency is pegged so that it does not move too quickly. I am afraid I do not know what mechanism is used but this may be a tool that New Zealand needs to acquire.

      • Tim Ellis 1.1.1

        That’s an interesting perspective Micky. Currency controls are very risky for a heavily exposed economy running large current account deficits. By comparison Singapore has been running huge current account surpluses for years and despite their economy being twice the size of ours, the New Zealand currency is still more heavily traded than Singapore’s.

        Still in NZ bankers’ memories was the run on the NZD in 1984 that the Reserve Bank tried to fight and almost bankrupted the country.

    • Zaphod Beeblebrox 1.2

      I can’t see any benefits of high interest rates, as the main beneficiaries of this are the banks. The enemy of interest rates is inflation, since money in the bank loses value so investors look for speculative returns such as property, which in turn causes inflation and higher rates
      The trick is to encourage this investment into the tradable and away from the non tradable economy and our course raise productivity.
      I’d do everything I could to keep rates low- even if it means taxing property.

      • Bright Red 1.2.1

        ZB. the point of the mortgage levy isn’t to make mortgages higher in absolute terms, it’s about making borrowing for business cheaper without lwoering mortgage rates, which causes inflation.

        The banks wouldn’t be getting the money. The levy would be kept by the government or, as Marty suggests, paid to encourage saving.

        Treasury and the Reserve Bank had a look at the idea a few years ago, but the notion was shouted down by Granny Herald.

        “The scheme was conceived as a way of reducing any adverse impact on the tradables sector that might otherwise arise from the monetary policy measures needed to keep overall inflation pressures in check.” http://www.treasury.govt.nz/publications/informationreleases/monetarypolicy/mil/mil-do-feb07.pdf

        In other words, you could lower the OCR so you’re not causing the carry trade, pushing up the exchange rate and hurting exporters but you can keep mortgage rates at the same level to avoid cuasing inflation.

  2. Rex Widerstrom 2

    …the Reserve Bank, like nearly every other central bank should have to consider economic factors than just inflation when setting interest rates

    Whilst in total agreement with that statement, it presupposes that the MPA should remain in place and that an unelected (and mostly unknown) group of people — some with potential conflicts of interest (the AFP has just raided the homes of several RBA directors as a result of their private business activity) — should have control of policy lever which affects the futures of every New Zealander.

    We don’t elect them, we can’t sack them. I’ve always felt that that was somehow inappropriate in a democracy and my inclination has always been to return control of the entire economy to our elected representatives (advised, of course, by the RBNZ, Treasury et al). This would also end — hopefully — the ridiculous situation of monetary and fiscal policy sometimes pulling in opposite directions.

    But that doesn’t seem a popular view on either side of the political spectrum, with everyone having accepted the status quo (albeit some with amendments) as the best framework, so I’ve been doing a bit of reading on alternatives that encompass the existing settings but expand upon them (as you seem to have been, Marty).

    On I’m particularly impressed with was presented to the recent NZ Association of Economists conference by David A Preston: “Putting Credit Back into Monetary Policy: Reconstructing the New Zealand Monetary Policy Framework.

    He points out that one negative effect of the current policy is:

    …the massive inflow of overseas capital into New Zealand during the period of exchange rate appreciation, a high proportion of it flowing directly into the banking system.

    One irony in the period is that to the extent that OCR increases had their intended effect of pushing up domestic interest rates, including bank deposit rates, the motivation for additional capital to flow into New Zealand to feed the consumption and asset price boom if anything increased

    and he concludes that:

    the OCR, while a key economic tool, is on its own an insufficient tool of monetary control if a wider definition of monetary policy objectives is to be used… viewed from the perspective of a wider set of monetary policy objectives involving an adequate contribution to maintaining macro-economic stability and international competitiveness New Zealand monetary policy has been significantly inadequate.

    He proposes an alternative monetary policy framework encompassing:

    • A wider range of variables as part of monetary policy consideration.

    • The selection of an appropriate quantitative target or targets for measuring the extent to which policy objectives are being achieved.

    • Additional policy instruments to supplement the role of the Official Cash Rate.

    I’d be interested in the opinions of anyone who knows more than do I on the topic (i.e. just about anyone) as to the viability of what’s proposed by Preston, which seems to be an expansion of what Marty’s proposing (I hope I’m not misreading you, Marty — apologies if I am).

  3. vto 3

    I suspect the problem lies more in manwomankinds fundamental settings, not the settings of some monetary policy. Those settings of over-exuberance, fear, memory ignorance, greed. They rise to the surface no matter the levies or taxes or controls or regulations or ocr’s or whatever recent fashionable phenomona has been dreamed up to arrest whatever recent activity has been deemed now unfit.

    Your levy will do nothing to control those human traits mr marty. But good luck trying.

  4. Hi Marty: thanks for the graceful response.

    I’m a little pressed for time this afternoon, so I won’t be able to reply in full until a bit later; suffice to say there are a couple of quibbles, and a couple of points I’ll be conceding to you as well.

    Just for now, two hit-and-run points.

    1) The lengthy quote is not from right-wing hero Friedman, but from Paul Krugman; the quote is extracted from a fairly famous hit-piece on Friedman. I chose it to illustrate that even if one detests Friedman, it’s probably wise to accept he had a point about the inflation/unemployment correlation (the Philips Curve) breaking down in the long run. This has implications inflation-doves need to consider very carefully before denouncing strict inflation-targeting as a strategy.

    2) How do you reconcile your wish for higher mortgage rates w.r.t. the OCR with Labour’s shellacking of the banks over the last six months, wherein Cunliffe especially has been criticizing the banks for “not passing on” OCR cuts to homeowners? (This isn’t a knockdown argument: the point is that I’m not certain that monetary policy is the villain here: fiscal policy may have a larger effect here than you credit, and the correct prescription may be a CGT or a land tax.)

    • dred 4.1

      I don’t think marty’s proposing higher mortgage rates, he’s proposing a way to keep mortgage rates where they are while bringing down the OCR to kill the carry trade.

      All this stuff makes my head wizz a bit but as far as i can see you’re not really offering a rebuttal of his argument, you’re just constructing a strawman.

  5. vto 5

    One other minor matter mr marty – the post is based on housing being bubbled-up and too expensive. I would be interested to know why you think this the case. Most property at the moment is valued at below what it costs to build. How will you bring down the cost of building mr marty? The cost of timber? the cost of concrete? the cost of the italian tiles? The cost of the local plumber and electrician? The cost of the land? How?

  6. Ag 6

    So the Keynesian solution doesn’t work for ever, but it works for a while. The neoliberal solution doesn’t work for ever, but it works for a while.

    Economics is not a science. Economists are little better than witch doctors when it comes to the long run.

    • Pascal's bookie 6.1

      Yep, they got physics envy real bad. Thing is, the things physics boffins study don’t change their behaviour to account for what the physicists tell the engineers to do. (quantum shmontum notwithstanding)

  7. Draco T Bastard 7

    if inflation is too hot, increase the OCR, that will increase mortgage rates and people will have less money to spend,

    Actually, it increases all borrowing rates.

    What we need is a way to keep mortgage rates as high as they are (or higher) while letting other interest rates go lower. we could do it with a variable mortgage levy/savings rebate that functions to increase the interest rates on mortgages and savings.

    And then the carry trade will be dominated by mortgages…, oh, wait…

    There’s an easier way to kill the carry trade – a Tobin Tax. Set correctly (as a %age of the OCR) the carry trade will always run at a loss rather than a profit and we wouldn’t have the complexity and extra costs of multiple OCRs.

    • Rex Widerstrom 7.1

      Which was Alliance policy and which I think is still Progressive policy? It’s probably the only thing about which I have ever found myself in complete agreement with Jim Anderton.

    • snoozer 7.2

      “And then the carry trade will be dominated by mortgages”

      nah, because people lending on mortgages wouldn’t be getting all the interest that the mortgage borrower is paying eg:

      current OCR is 2.5%, mortgage rates are about 6%.

      Because the OCR is 2.5% and the Japanese one is 0%, there’s a carry trade.

      Lower the OCR to 0% and slap a 2.5% mortgage levy on mortgages (assume for the sake of simplicity that 100% of OCR cuts are passed through to mortgage rates). The mortgage rate is still going to be 6% for the borrower, serving the point of keeping inflation down. But with the OCR down at Japan’s level there’s not going to be a carry trade and that will lower the exchange rate.

      • Draco T Bastard 7.2.1

        6% – 2.5% = 3.5%
        Are Japanese loans higher or lower than the 3.5% return from NZ mortgages?

        • snoozer 7.2.1.1

          I don’t know but if there’s a difference it’s likely to be trifling (google says mortgages in Japan at 2.4%, other loans will be a bit higher).

          The carry trade relies on differences in central bank interest rates. There has to be enough of a difference to make it worthwhile.

          • IrishBill 7.2.1.1.1

            A mortgage levy is pretty difficult politically. Which doesn’t mean it shouldn’t be done and I suspect it would be better to in terms of avoiding leakage than a Tobin tax but I still think the latter is a more politically achievable goal.

  8. John A 8

    @ Tim Ellis

    Singapore has a large current account surplus because it controls the exchange rate rather than trying to use it to control inflation as New Zealand has done. Our tradables inflation is low and used to counter non-tradables at the expense of exporters.

    As for the 1984 devaluation; it was a disaster for New Zealand because Roger Douglas leaked it was going to happen during the election campaign, and the insiders ran for the door with their hot money. At that stage the Reserve Bank was supporting Douglas rather than the dollar.

    • IrishBill 8.1

      Singapore also uses compulsory superannuation with an adjustable minimum contribution rate to control inflation.

      • Tim Ellis 8.1.1

        Yes that’s true, IB. SIngapore has very high savings rates, but it is the current account surplus, meaning they’re investing more money off shore (driven by their enormous super schemes) that keeps their currency stable.

        • IrishBill 8.1.1.1

          It also means they’re not stuck with just hiking the OCR to control inflation which helps reduce their risk of becoming a target for debt which in turn limits debt-driven inflation and the current account deficit.

          I can’t think of any reason we shouldn’t have a similar Kiwisaver-based policy here. Can you?

          • Quoth the Raven 8.1.1.1.1

            Do you want forced savings IB?

            • IrishBill 8.1.1.1.1.1

              OMG! “Forced” savings! I must be the enemy of freedom!

              Until we get the anarcho-syndicalist revolution I’ll cope with any measure that makes capitalism more tolerable including the use of universal superannuation to provide economic stability. The alternative is the monetarism that currently aids and abets the transfer of wealth from the many to the elite few.

            • Quoth the Raven 8.1.1.1.1.2

              Persoanlly IB I think I would treat each person as an individual. Different people have different time preferences, priorities in thier own lives, etc and it’s for them to make up their mind what to do with the money they earned through their own labour.

              And yes you are an enemy of freedom.

              Someone below mentioned full-reserve banking – maybe just maybe you could have an open mind and look at some ideas from differing ideas to your own – don’t act like the there’s only monetarism and whatever it is you’re proposing.

    • We should not forget that Muldoon refused to devalue even though he was instructed to and made the damage that much worse. Jim McLay showed some backbone and offered to be sworn in as acting PM just so that the devaluation could occur.

      Muldoon’s actions made things much worse.

  9. ” I want lower interest rates for productive investment (ie in business), a lower OCR in line with other countries to kill the carry trade, and higher interest rates on mortgages in relation to the OCR.”

    It is an interesting concept and, while it could probally be legislated relatively simply despite protest, I can not help but think that pretty much every other discussed option would be far more effective.
    This change also has the potential to, depending on implimentation, impead with individual home ownership and vastly accelerate the rate at which individuals with property companies are able to acquire property. Esspecially because property prices would drop and it is likely that those companies would find a way to receive the lower rate.
    I can see such an approach increasing inequality and the accumulation of wealth by the upper middle class.

  10. Daveski 10

    This is why I’m going a little septic:

    But the Right treat the neoliberal doctrine like a sacred religious text, no debate will be tolerated.

    Reconcile that crappy comment with Labour’s actions in reviewing and sticking with the policy while in government. It’s a sloppy inaccurate comment at best.

    As others have pointed out, the high relative rates in NZ reflect the risk inherent in small isolated economy still largely based on commodity prices.

    Further, where’s any acknowledgement that forcibly lowering interest rates will naturally decrease for investors, not just nasty rich pricks but retired people who supplement super with savings?

    • Mertel 10.1

      Daveski: “where’s any acknowledgement that forcibly lowering interest rates will naturally decrease for investors, not just nasty rich pricks but retired people who supplement super with savings?”

      Marty: “The revenue would be used to fund something like a tax rebate on interest income or an inverse payment to savings accounts, encouraging Kiwis to save.”

      yeah, looks like he thought of that, daveski.

      • Daveski 10.1.1

        { Putting hand up }

        I missed that. So withdraw my comment and apologise accordingly!

        Mind you it does show the difficulty inherent in trying to mitigate the changes to the current system warts and all.

        I promise to read Marty’s posts most closely in the future!

    • Zaphod Beeblebrox 10.2

      Do you think the right will ever break out of the low taxes and wages will save us meme?

      No sign of it yet. It seems that Bill English makes a grudging acknowledgement of the problem but when asked for a solution can only propose cuts in spending and lower wages as a panacea. This is about as sophisticated an argument as its gets for them. Maybe Brash will come up with alternative- but i’m not holding my breath.

  11. Daniel J Miles 11

    The reason we have housing booms is simple. If you put your money in the bank, your interest gets taxed. If you put your money into stocks or bonds, your dividends get taxed. If you buy a rental property and gear it, you pay no tax on your returns.

    It’s really pretty much that simple. Buying housing is more profitable because we don’t tax it properly, and as a result the value of that house is greater than it would otherwise be. Which is a problem in and of itself, but doubly so when you then want to go along and buy yourself a house not for profit, but to live in, and have to pay the premium that an investor would be willing to pay for the extra return.

  12. Tim Ellis 12

    It seems a lot of readers are of the view that a capital gains on property is a good idea.

    I’m not opposed to it. I think government should tax things that stay still, and reduce tax on things that move.

    • Zaphod Beeblebrox 12.1

      There’s the big 4. 1.CGT on housing, 2.stamp duty on housing purchases 3.Land Tax(Australia has all of these, we haven’t) and 4.deductibility of interest re-payments on money borrowed for property investment. You could control non-tradeable investment with any mix of the four, if you wanted to.

      • Tim Ellis 12.1.1

        Zaphod local authority rates are a land tax of a kind.

        • Zaphod Beeblebrox 12.1.1.1

          Not only that but you get levied 12.5% GST on them. The NZ govt makes a huge windfall by taxing a tax. If we had a annual 1 or 2% Land Tax it would be simple to collect tax those who could afford it and would suppress property prices.

  13. The Baron 13

    Marty,

    On your last post, I said that I am yet to see you, or anyone in the Labour party for that matter, pose any alternative to monetarism that is:

    – well researched
    – effective
    – achievable
    – or credible

    It is awfully easy to take free hits, and attack the people rather than the ideas (which is what you seem to be doing to BK here, and anyone that has disagreed with your yet to be articulated “alternative”) when you haven’t yet stepped up to the plate with your own solutions.

    So, I am even keener now to hear your ideas for monetary policy that is “everything to everyone”, and that does not sell us even further down the river to currency speculators… or strangle off foreign investment… or lead to crippling inflation… all of which are very real risks from this debate.

    As I have said a number of times, the Monetary Policy debate is well worth having, both here and nationally. But while monetarism is far from perfect, I still heartily believe that this is a horrible, horrible area to go play politics in. We need reasoned analysis and clear agreement on the outcomes we are seeking when setting monetary policy, not more “I hate JK cos he is evil” or “anyone who disagrees with Marty is a dumb rightie”.

    So, enlighten me Marty – what do you think our monetary policy should be achieving? Don’t forget to address:

    – well researched
    – effective
    – achievable
    – or credible

    Which is all the things that monetarism has in its favour.

    5 days now, still waiting.

    IrishBill: Tell us what to do on our own blog like this again and you’ll get a week’s ban.

    • snoozer 13.1

      man. you’re a bit of a dick eh Baron? demanding that someone who provides you with material to read and a forum to discuss in for free does the posts you want on exactly what you want within a timeframe decided by you.

      I’m enjoying commenting on these series of posts, Marty. Keep it up. In your own time.

      • The Baron 13.1.1

        Sorry Snoozer, I guess I objected to Marty having enough time to berate his objectors, but still not pose a reasonable alternative.

        If it makes me a dick for asking for a reasonable debate on this, rather than “my corner your corner” crap, then I apologise – this really isn’t the “discussion” site I thought it was trying to be, and really is the “fan boi” club it has always seemed to be.

        Keep it up snoozer – don’t think about what is at stake here, just stick to your favourite colour. Everyone loves the passionate idiot.

    • Draco T Bastard 13.2

      Monetarism doesn’t have those in its favour at all as it based upon false assumptions.

      • The Baron 13.2.1

        Again, I’ve never said its perfect. But its fighting a phantom at the moment!

        • Zaphod Beeblebrox 13.2.1.1

          I’d stick to playing the ball not the man. If you want phD standard analyses talk to Auckland Uni.

        • Draco T Bastard 13.2.1.2

          It’s far less than perfect – it doesn’t relate to reality at all as it assumes it away. If it was as good as Friedman and the others said it was we wouldn’t have gone through a housing bubble in the first place, have that collapse into a recession and having it replaced by another housing bubble (which is what’s happening ATM BTW). In a few more months I’m expecting another collapse because the underlying BS that is monetarism hasn’t been addressed.

    • Daniel J Miles 13.3

      Well, to be fair, while it wasn’t the politest way of doing it, it is legitimate to say that someone who puts forward the proposition that the system is broken should be able to give some specifics as to a superior alternative…

      You can then, of course, ignore that call, but it doesn’t do your argument any favours.

      • Daveo 13.3.1

        To be fair, the guy writes these posts in his spare time and is clearly starting a series on this topic. Coming on like The Baron and throwing a tantrum because Marty hasn’t written about everything you want is just plain rude.

        • The Baron 13.3.1.1

          Good point Daveo,

          I unreservedly apologise to Marty for my impatient and intemperate comment. I will await your alternatives with interest.

          One further comment though – regardless of the pros or cons of monetarism, the one big benefit is that we have been able to have a cross party consensus on our monetary policy for 20 years. This has given our economy stability and a degree of certainty, which I hope you will all agree is desirable.

          I hope that Goff, and all of us really, will be motivated to achieve the same degree of consensus on any alternative. To have monetary policy lurch on 6-9 year cycles could be far worse than any individual policy perscription.

          • Draco T Bastard 13.3.1.1.1

            This has given our economy stability and a degree of certainty, which I hope you will all agree is desirable.

            Not against the suffering that it’s brought with it.

  14. Herodotus 14

    I am fully supportive of a CGT.
    Agree with an earlier post re price of housing re price differential new vs existing. In my experience an existing 4 bm 220m2 house is somewhere $50-$100k cheaper than building (In Jafaland). To limit the housing bubble we have to make the build cost cheaper. There is little scope with this re land prices, regulation and materials, also not to allow prices JUST to esculate as they did 2003-5. Cent Govt has to have an input into town planing, not by default with Transit as the only submitter.
    Where was/is govt re Flatbush, Stonefields,Longbay, Silverdale & others re plan changes?

  15. Rich 15

    I want lower interest rates for productive investment (ie in business), a lower OCR in line with other countries to kill the carry trade, and higher interest rates on mortgages in relation to the OCR.

    That could be achieved with a tax on mortgage interest. If that and other measures were taken to control house price inflation, the Reserve Bank could set the OCR lower.

  16. mikesh 16

    I’ve always believed Milton Friedman advocated a 100% reserve ratio, effectively preventing banks from creating money altogether.

    As far as our situation is concerned I think I would like to interest rates determined by market forces with the money supply controlled. The current setup where banks create money ad infinitum, backed up by overseas currencies seems to me a recipe for inflation and instability.

  17. BLiP 17

    Remind me – what was wrong with the gold standard and, really, has anything improved since money started growing on trees?

    • sk 17.1

      BLiP,

      What was wrong with the Gold Standard was the deep depressions that resulted from it in the 1870’s and 1890’s. In the latter’s case, Australia’s GDP dropped by 30%

  18. sk 18

    Good post Marty, and interesting thread.

    This is a debate that must be joined. Going back to the 1990’s no one imagined the global financial system would evolve in the way it has, with system-wide currency speculation – either by deposit-taking institutions and investment banks / hedge funds in the West, or by Central Banks in the East. This has left NZ, with 100% of GDP in external liabilities and a free floating currency with virtually no foreign exchange reserves to back it, exceedingly vulnerable. The reason neoliberals do not defend it, is at some level they know it is broke. But no one has a clear idea what to do about it.

    Wholesale change is probably beyond us, as you imply Marty. But there is scope for a Baldrick approach, a series of cunning plans. Note how Goff’s speech had an immediate impact on the NZD.

    A number of possible ideas have been mentioned here, but we need a package of measures that address both external and internal speculation.

    On external measures one alternative would be for the Treasury to conduct FX intervention. This is what should have happened when Cullen proposed FX intervention, but the RBNZ under Bollard and Orr fought a brillant rear-guard action, where they kept the powers for themselves, which they have used only sparingly, and with the NZ$ back in the 70’s have now shot their wad.

    One idea I like, which has not been proposed, is for the Minister of Finance to be able to allocate the Super Fund between a NZD hedged fund and a USD unhedged fund. This would effectively allow the super fund to sell NZ$ above 70 cents say, and buy it back lower down. The current fully hedged strategy does not make sense.

    We should also be pressuring the Asian central banks to limit their exposure to the NZ$. It is unfair that countries like China and Singapore resist pressure for their currencies to appreciate by buying US$, and then recycle it into an appreciating NZ$.

    And then there are the internal measures CGT and mortgage levy would add to the armoury, but other measures could include adjusting the loan to value ratio as Singapore and Hong Kong have done.

    As Goff has said, it is time for a new approach. Doing nothing, as Key prefers, is not a good option.

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