Friday, 21 September 2012

Points worth remembering

Scoop reports that the the Employers and Manufacturers Association (EMA) chief executive Kim Campbell has said
"While many economists advise us that our dollar is over-valued, some of this is due in no small part to influences outside our control, eg, debt problems in the Euro-zone and economic slowdown in the US."
There is nothing New Zealand can do about the crisis in Europe or the state of the current account deficit in the U.S. But these things will make the New Zealand dollar look relatively good.

But there are still somethings we can do
"The things that are in our control include re-examining how central and local government can avoid adding to inflationary pressures," says Mr Campbell.
Examples are:
* Freeing up the supply of land at local government level to make building a house more affordable.
* Ensuring tax policy takes account of its impact on monetary policy. For example, any new government spending should be assessed for its impact, both short-term and longer term, on inflation.
* Introducing a Regulatory Responsibility Act to improve the quality of regulation.
* Reducing government and private sector debt where appropriate (high debt drives up interest rates as lenders demand a risk premium) - we need to stay the course."
The state of the exchange rate is at best a signal that something is wrong within the economy but it isn't the cause of those problems, it is the result. Tinkering with the exchange rate won't fix whatever is wrong with the economy it would just mask the real problems.

Matt Nolan discusses issues to do with the exchange rate here.

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