Forum Home
PC World Chat
Thread ID: 81215	2007-07-20 20:50:00	The current NZ dollar inflation debate	Digby (677)	PC World Chat

Post ID	Timestamp	Content	User
570620	2007-07-20 20:50:00	In view of all the debate on the news, in the press, and talk back I am surprised there has not been a thread on this forum on this important subject . As a person who is worried about our very high dollar (for our productive/export sector) and our balance of payments I have one question which I would like someone to answer . Firstly the Reserve Bank is charged with keeping inflation in check . The only tool they have is to raise local interest rates which is supposed to dampen demand and therefore inflation . Everyone accept this is true . But what I would like to know is "Why is inflation only ever caused by increased demand ie house buying, consumer growth, government spending ?" The other day Don Brash was on the radio saying this was the case (and I suppose he should know) . Can inflation also be caused by rising salaries ? Eg we have great pressure on our health system due to a lack of doctors and nurses and also police and teachers . The only way to rapidly increase all of these numbers is to increase their wages . And if their wages went up by say 10%, then the government would have to tax us more or cut down on its surplus or cut spending elsewhere . Then the rest of us would all want wage rises to be able to pay the increased taxes and to keep up with their wages if they get a pay rise so will cleaners, bus drivers, shop assistants etc . Surely if all of this happened (and I am sure it must do soon) then inflation will jump by quite a few percent - blowing the Reserve Bank's target out of the water . And the only thing that has been keeping inflation down is the constantly reducing price of imported goods tv's, cars etc . These cannot keep dropping . We can't keep having a rising dollar or we will have no more exporters still in business so we will not be able to buy(import) any cars, tv's computers etc . Anyone know the answer to this ? regards Digby	Digby (677)
570621	2007-07-20 21:17:00	Well, I tend to be quite apathetic to the rising dollar these days. Two reasons for this: a) I don't have a mortgage or own a company that exports and b) when the dollar hit 67 cents US, I (and over 100 others at that plant, not to mention Waipa) lost our jobs (our timber processing plant at the Mt exported 99% of product to the states) The Reserve Bank has tried to curb spending, but its problem is overseas money which continues to pour into the country via (for example) the main banks (who are owned by foreign countries). As for wages of health workers etc, it is known that the Finance Minister (Cullen) is sitting on a huge surplus. It is also known that if pay increases to these people were to happen, or if Cullen give all of us tax cuts, we would all go out and spend the money, and buy houses with mortgages, and loan more money (generally from the overseas owned banks) thus pushing inflation up and bringing more foreign money into the country. Right now, the Reserve Bank is in the situation where the other banks in this country have more control over the $ than it does This is my understanding of it anyway, I may be wrong	Myth (110)
570622	2007-07-20 22:52:00	Hi Digby That is a very interesting (and relevant) question. As you have seen from Myths post, a rising dollar costs people their livelihoods. You also mentioned "We can't keep having a rising dollar or we will have no more exporters still in business so we will not be able to buy(import) any cars, tv's computers etc." My take on that is that the cost of imported goods will continue to be relatively cheaper so we the consumers will borrow more (from the overseas-owned banks) to buy the 100-inch plasma screen or the latest 3 jiga-hertz PC. Not that I'm into the latest techno-electronica but I'm seeing a lot of plasma TV's around and it wasn't that long ago the price of an entry level unit was close to $9000 - nowadays you can get one for what? About $2000 I believe. BUT whilst we have a reserve bank governor who is provided with only one weapon of choice to combat inflation, then what can we expect other than for him to keep pressing that button? Never mind the frivolous spending of the central and local government bodies - as you mentioned they are contributing to the problem. Here we are seeing the patsy government of the day decide how to spend what are our rightful tax cuts. Where the government has a balanced set of books, any surplus indicates the government has over-taxed the taxpayers of the day. As for that idiot Cullens method of accounting - don't get me started! He is a dangerous idealogue. Anyway, back to the OCR. Bollard raises the OCR, which for Japanese investors makes our 8%+ deposit returns appear positively stellar when compared to their 1%. There are billions (trillions anyone?) of Japanese Yen invested in NZ-dollar denominated Iridashi (spelling?) bonds. That is where part of the problem arises - our dollar is being pushed up by demand from overseas speculators. So when Bollard pushes up the OCR he is guaranteeing the overseas currency speculators and fixed interest investors a tidy foreign exchange gain. And then the government sinks how much into a foreign currency gamble? I think it was $1.5 billion. Doesn't the left hand know what the right hand is doing? How many investors have lost their shirt over the years by taking contrary positions in a free market? Plenty. You'd think our government should know better.... So in short, we are kinda screwed either way. So in this situation where we are damned if we do or damned if we don't (raise the OCR) then I think it highlights there is something fundamentally wrong with our economic system. I can't put my finger on what that is - is it the fascination with inflation? {there have been changes to the definition of 'inflation'} Having a floating dollar? The lack of government intervention? The kiwi consumer attitude of "she'll be right!"? But when the average home-owner with a mortgage gets screwed because of a high dollar then something is seriously wrong. The only thing I do know is that if you have 10 economists in a room then you will get 10 different answers. Just my 2c Andrew	andrew93 (249)
570623	2007-07-20 23:41:00	Inflation in its simplest form is this: the supply of money circulating outstrips the supply of goods (and services) . That means stuff cost more of a currency to purchase . This affects investment and savings amongs other things - the money you save/invest today will buy less and less of stuff tomorrow . Have a look at history (Germany, Brazil, Argentina) and currently, Zimbabwe, to see what happens when the supply of money is increased by government printing more and more . Money itself becomes worthless . People get very hungry, lose their cool and attack other people, burn cars and buildings, start wars etc . Not good . . . . As a person who is worried about our very high dollar (for our productive/export sector) and our balance of payments I have one question which I would like someone to answer . Firstly the Reserve Bank is charged with keeping inflation in check . The only tool they have is to raise local interest rates which is supposed to dampen demand and therefore inflation . Everyone accept this is true . True . But a high interest rate attracts foreign investors . NZs interest rates are amongst the highest in the OECD . To invest in NZ, foreigners must do it using $NZ . Hence they buy up the stuff and drive up the exchange rate . But what I would like to know is "Why is inflation only ever caused by increased demand ie house buying, consumer growth, government spending ?" All these people and government trying to buy goods (and services) which are not increasing in volume will cause the prices of these goods to go up . It is only natural - if you own something that people want to buy, you must sell it to the highest bidder . Can inflation also be caused by rising salaries ? Eg we have great pressure on our health system due to a lack of doctors and nurses and also police and teachers . The only way to rapidly increase all of these numbers is to increase their wages . And if their wages went up by say 10%, then the government would have to tax us more or cut down on its surplus or cut spending elsewhere . Then the rest of us would all want wage rises to be able to pay the increased taxes and to keep up with their wages if they get a pay rise so will cleaners, bus drivers, shop assistants etc . Yes . Wage rises are the primary driver of inflation in most places . The RB will respond by trying to dampen consumer spending . If it get bad enough, the government may also cut spending . We can't keep having a rising dollar or we will have no more exporters still in business so we will not be able to buy(import) any cars, tv's computers etc . Anyone know the answer to this ? Digby As inflation goes up, interest rates go up, foreign investment goes up, dollar goes up . In the short term this will hurt, but consumer demand will sooner or later be dampened by high interest rates and low supply, and inflation will come down . Interest rates will then also follow, as well as the exchange rate . Note: The exchange rate is against the $US, which is suffering itself against almost every other currency . NZ remains dependent on oil, with few alternatives in sight . It is used everywhere in the economy . There's going to be some major inflating going on where there is a problem in supply .	vinref (6194)
570624	2007-07-20 23:47:00	NZ remains dependent on oil, with few alternatives in sight. It is used everywhere in the economy. There's going to be some major inflating going on where there is a problem in supply. Plus there is also going to be a major price rise when the currency drops! Andrew	andrew93 (249)
570625	2007-07-21 01:49:00	especially fuel prices - they are screwing us now while the exchange rate is high.	wotz (335)
570626	2007-07-21 01:54:00	especially fuel prices - they are screwing us now while the exchange rate is high. Actually, the high $NZ is keeping the price down. Did anyone hear that the Iranians are now demanding payment for oil in Yen or Euro. Dunno if they are just doing it to spite the Americans, but that keeps the $US down.	vinref (6194)
570627	2007-07-21 02:11:00	Note: The exchange rate is against the $US, which is suffering itself against almost every other currency. yes interestingly if you go read other countries news they are all saying the same thing: Our (currency of choice) is high. Except the US of course whos news is going on about the dire low dollar. So I don't entirely think we do have a high dollar. Against the Euro for instance it isn't. So all the messing about trying to get it down won't work unless the US dollar sorts itself.	pctek (84)
570628	2007-07-21 02:15:00	I wonder if we arn't looking in the wrong place for answers to the current situation. Look at these stats on the American Dollar... xmb.stuffucanuse.com The $US has been dropping through the floor for the last year. The problem might not be us getting stronger, but the $US getting much weaker. More here xmb.stuffucanuse.com What is the relationship between the $NZ and pound or the euro? If there isn't much change, and there doesn't seem to be, then the problem is with the $US. If its the $US causing the trouble, I wonder if we anchor our currency to the euro might help us, There is a world wide run from using the $US to using the euro, especially in the middle east, and with oil sales. A result might be that other countries have less interest in keeping it stable. edit: PCTech beat me to it by minutes!	netchicken (4843)
570629	2007-07-21 03:36:00	The current high NZ dollar is not helping our exporters whose earnings in overseas dollars contribute hugely to the success of our economy by way of employing more people locally to work in the relevant factories and manufacturing plants which all contributes to the economy. The high NZ dollar also hurts people and companies who have overseas investments by reducing the value of the investment as the rising dollar cancels it out.	winmacguy (3367)
1 2 3 4 5 6 7