This entry was posted on Thursday, October 30th, 2008 at 10:08 am and is filed under New Zealand.
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Wow thats certainly an impressive display from our Dollar, it must be those 9 years of economic and social growth that has seen us enter a golden age of enlightenment not experienced since a caveman realized rocks could be used to make fire as well as weapons.
My biggest concern right now how do we get out of this, we have had 9 years of opportunity pissed into the wind and i can’t see how the farmers will benefit since every country is tightening their belts and no longer splurging on luxury’s.
I suppose we could always fall back on Mineral excavation and extra – oh wait never mind Greens have banned it. Maybe drill more oil we … oh wait, nope that is banned too. What about our manufacturing indus … nope they have all packed up and left.
I can’t see NZ being able to continue with it’s own currency, it’s to small & the fluctuations are only going to get worse.
I just can’t see how we can sustain such a critical part of our economy having it’s value modified not by our economic fundamentals but by Hedge Funds, Mutual Funds & investors seeking interest rate arbitrage or just plain currency trading.
The hard part is if you don’t have your own currency what do you peg to, my gut feel is it’s the Euro, certainly even a NZ/Oz dollar is to small & the US economy looks vulnerable.
Although, If you look over at a similar chart for the Ozzy, you will see the they have gone from almost Par (.98) to .66, a drop of about 33% in the same time, and infact they have fallen faster, hence why the NZ dollar has actually risen against the AUD.
I heard a lovely catch phrase yesterday about the state of the international markets,
” It used to be about the return on your capital, now it is about the return of your capital”
Nigel, my thoughts have always been that we peg to a basket of currencies which are related to our major exporting partners. I have no idea if this has some really great weaknesses related to it but I’m interested to know arguments against it. What we need is a stable currency that is free to move in relation with our major trading partners. What we’ve had is a miniscule currency which is easily distorted by significant cash movement and all of this movement has been as a result of the Reserve Bank Act.
Dime the advantage I know of for us to peg our currency is that our dollar value is not distorted by currency traders looking for carry trades. We are just too small to have our own currency, can you imagine Sydney having their own currency? The disadvantage is that the market doesn’t get to decide the true value of our dollar and won’t reflect changes in our efficiency without government interference.
(NB: I’m not an economist!)
Labrator, That’s a nice idea regarding a basket, though going one step further I personally think currency fluctuations is one of the really major issues facing a global free market economy & as such it could well be the answer is a more global solution.
Wearing my economist’s hat for a second, the problem is that a stabilised currency ‘costs’. You need your Central Bank to ‘manage’ the currency to maintain the peg, and anytime there’s a disagreement with the fundamentals, the country takes a hit. The UK and Swedish experience with pegs in the early 90s ended up being very expensive.
In short, the challenge with a peg is trying to decide what’s going to be worse- the cost of the volatility or the cost of management. NZ survived the currency speculation of the early 90s and in the 97 Asian crisis largely because we didn’t have a peg. It floated and the only way for speculators to make money is off other speculators. Introduce a peg and then speculators can make a lot of money at the expense of taxpayers. A peg is gambling that the exchange rate will never drift too far from the fundamentals. When it does, you create a money-pump from taxpayers via the Central Bank into the pockets of speculators. How much do you trust Cullen?
Volatility is understandable at the moment, because no-one knows how much capital we’ll be able to keep getting from overseas to fund our current account (which has worsened again). If it dries up, then NZ has to get a turn around of 10bn on our net exports. We didn’t manage that when the currency was 39-40c per US. So potentially the dollar could fall a lot further than that. So, as soon as we know how much of the 10bn a year we currently borrow, can be borrowed in the future, we won’t know where the NZD is going to settle.
I never cease to be amazed at the reckless stupidity of politicans and civil servants when it comes to running the countrys finances
Now I know Im one of many many citizens who have managed their finances in a responsible manner over many many years. I borrowed to buy long term capital assets always ensuring I had the income to pay both the interest and principal in full and on time.
I have followed the Mr MaCawber formula as regards income and expenditure and always been able to pay my debts when they fall due
As I say I am not alone In fact all the citizens I know act in the same manner.
So WTF do pollies and civil servants who I pay large sums of money to run the economy like Mannys Music Parlour.
What are they so incompetent reckless and stupid that they cant run a booze up in a brewery.
If they cant/wont piss then get off the can and FOXTROT OSCAR
So Hels thinks Bush is tops now? I thought she always did! Or do her friends shave?
Maybe we should think about tying our currency to something stable. Like, erm, a gold standard maybe? Or perhaps ‘we guarantee to pay the bearer one litre of pure spring water in exchange for this coin when presented in undefaced condition” should be etched on our dollar!
I guess here in NZ we can still afford to be philosophical about this situation. It’s the first time in a long time I’ve felt very fortunate to be living in NZ.
I don’t share the confidence of some for the future predictions. The middle class is still there. Workers are feeling the pinch very realistically, losing their jobs and very close to Christmas (as usual). There wre probably some who thought they were going to make it to retirement, only to have their jobs snatched from their very grasps.
I could analyse further, but I feel to wait for further developments. No point commentating until the situation develops more.
Lets just let me repeat my prediction from my kiwi saver post that this Christmas is not going to see any spending records broken…. not even anywhere near.
But on a more positive note, I do feel an anticipation about Christmas this year. seems to be at the forefront of everyones minds. perhaps a change of govt will give us all a fresh start to the new year 😉
Im not really a capitalist swine. Just a normal common or garden swine.
It was only a Mitsi not a Ferrari and then they shut the branch.
Still shows you how the place is sinking under our wise Liarbour leadership