Thursday, June 7, 2007

ZenTiger Kiwi Battlers attacked by Bollard

Dr Bollard has again raised interest rates. For some reason, he has decided all good Kiwis with mortgages should be sending as much money as possible to overseas Banks. By reducing our disposable income by giving it half of it to the bank in the form of interest and half of it to the government in the form of tax, we save the economy.

Cullen's sitting on a surplus, the Banks are creaming it on mortgages and there's not enough money left over to pay the electricity bill, let alone fill the pot with instant noodles for dinner.

Related Link: Kiwi Battlers attacked by the Reserve Bank

11 comment(s):

I.M Fletcher said...

It was interesting to hear comments by Sir Roger Douglas on NewsTalk ZB this morning -

--snip--
"I think this is the worst government we have had for 50 years. I Know Muldoon went mad in the last couple of years of his period, but this Government is doing things which are equally as bad if not worse."
--snip--

Now, that's really saying something when a former Labour Finance Minister makes statements like that.

fugley said...

I'd like to see Bollard try something truly radical, and I believe it will work better than his current policy.

They say high consumption and high houses prices pushes up inflation, and that's naughty (it isn't, but I'll leave why for another day). So they push up interest rates to reduce consumption and home buying, yet all that does is bring in MORE $$ for banks to lend to push up consumtion and hosue prices.

So, why not CUT interest rates, say by half? The flood of foreign money will dry up, banks will have less to elnd and be much more prudent in their lending, thus slowing growth in house prices AND a drop in the xchange rate leading to higher prices for imports and a drop in consumption, as well as a rise in exports.

How come none of the right wing smartareses can see that?

fugley said...

I'd like to see Bollard try something truly radical, and I believe it will work better than his current policy.

They say high consumption and high houses prices pushes up inflation, and that's naughty (it isn't, but I'll leave why for another day). So they push up interest rates to reduce consumption and home buying, yet all that does is bring in MORE $$ for banks to lend to push up consumtion and hosue prices.

So, why not CUT interest rates, say by half? The flood of foreign money will dry up, banks will have less to elnd and be much more prudent in their lending, thus slowing growth in house prices AND a drop in the xchange rate leading to higher prices for imports and a drop in consumption, as well as a rise in exports.

How come none of the right wing smartareses can see that?

Anonymous said...

Either way is screwy. If rates were cut in half, you'd have more demand for borrowing (though as you suggest less supply for overseas). You'd also get inflation from imported goods, especially oil.

The real issue, is that the borrowing the country has done in the last ten years, has gone into relatively unproductive industries - to be specific, residential housing. Yes, it keeps builders and labourers, and many others employed, but it is fundamentally unproductive, especially so, for an export dependent economy.

The concept of productivity and investment being related seems to allude most of middle class New Zealand.

Oh well, you reap what you sow.

Anonymous said...

I have a possible solution (from Left field it is granted).

Ban abortion for one year - just one year. ~$50M saved in consultant and surgical fees.

18,000 more mouths to feed - jobs as a result.

Parents get previously unrealised tax credits and WFF.

Money goes into children instead of houses.

Worth a thought?
(No, I'm not any good at economics...)

ZenTiger said...

The Labour Government has sat by for the last eight years slowly screwing the economy (and expecting the Reserve Bank to manage the fallout with the sole ability to raise or lower the rates.

This problem is bigger than the Reserve Bank, and Dr Cullen has neither the ability nor inclination to fix it, other than politely force businesses and workers to support his long term savings plan to divert more of the money away from the housing market.

Meanwhile he has done nothing to address the impact of foreigners driving the housing market using offshore money, and failed to open up more suburban land to reduce the pressure on the scarcity in housing supply. The RMA is the final nail in the coffin that encourages purchasing bigger houses than go through the bureaucratic hassles of renovations and DIY improvements.

Lucia Maria said...

Fugley, I've often wondered why interest rates couldn't be dramatically cut as well. But, what they'd probably have to do as well is open up a lot more land for redevelopment, axe the RMA and free up constraints on people building their own homes at the same time.

fugley said...

I've often wondered why those who spend so much tiem demanding "free markets" and less (or no) government intervention are so aghast at rising inflation.

Why should the reserve bank set the price of money if it doesn't also set the price of a sausage roll?

Anonymous said...

High inflation is bad. Ask anyone who lived through the 80s, when interest rates were over 20%. Anyway, if prices rise, logically wages will rise, which means prices rise, which means wages rise - which means no one knows jack shit about whats happening tommorow, aka. Zimbabwe.

Unknown said...

Totally agree with the first anonymous post of reaping what you sow.

The NZ economy was extremely healthy under National. From 1990 to 1999 it grew on average by 2.4%. In 1999 it grew 3%, we had a 1.5Bil surplus, our productivity was 1.9 (twice what it is today) and we had gained 3Bil of new export business. This was a very healthy, robust economy that Labour took over.

They were further benefited by extraordinarily high farm produce returns, the highest in nearly 50 years. More recently, the growth has been on the back of rising house prices forcing many people out of the market.

So Labour went on a wild tax and spend frenzy and somehow convinced themselves that their clever stewardship had rescued us.

Now very big birds are coming home to roost and they don't know what to do.

I have said for quite some time that this is THE worst government we have ever had. I think by next year things will be so bad that even the journalists will start to realise that Cullens snake oil is sowing seeds of destruction.

Greg said...

What can Bollard do? He only has one lever to tweak whereas Cullen has access to an entire palette of possible policies.

It must be great to be Cullen to have a public servant like Bollard to catch his hospital passes.
----------------------
Even if the rates were LOWERED that would not stem inflow of foreign money. Why?

Well, I think as long as yields on property exceed the cost of credit then money will be attracted here.

Yield is influenced by the price you can get the land and that price is influenced by supply. Supply is controlled by council policies and the RMA.

Secondly, we NEED foreign money from "evil" banks becasue we are too profligate to save our own money! We rely on the savings cultures of Japan and Europe!

...and why are we living off credit cards? Becasue we think we're a weathly as Australians anddeserve their lifestyle whereas in fact we are equivalent to Eastern Euopeans such as Poland.

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