Winston Peters' Reserve Bank Bill is a snake oil solution – Joyce

Winston Peters

Economic Development Minister Steven Joyce says the closure of one paper machine at the Kawerau mill was a consequence of the fact that newsprint making was a “declining industry”.

Speaking this weekend on TV3’s The Nation programme at the weekend, he rejected claims from the mill owners, Norske Skog, that the high New Zealand dollar was a factor in the closure.

Asked then if he agreed with Prime Minister John Key earlier in the year that above 73 cents to the American dollar it was “very difficult” for New Zealand manufacturers, Mr Joyce said it was challenging.

“There's no doubt about that, and there's never been an exporter who doesn’t want to lower exchange rate, no matter what level.” 

Mr Joyce said the dollar “may” hit parity with the US dollar.

“But that'll be because the US is completely in the toilet. Ultimately, it's market fundamentals.

“And so, ultimately, nobody's going to bid the New Zealand dollar beyond what they consider it should be at. 

“Now even if it bounced through say, for example, the quantitative easing that's coming through at the moment, it will come back again.  

“Because fundamentally the value of the New Zealand dollar is determined by what the world believes is the future of the New Zealand economy, and if they bid it up too high, then they will look at it and say well actually we've bid it up too high and we'll bid it down again.”

Mr Joyce said the private members bill being introduced by Winston Peters to alter the Reserve Bank’s objectives was a “snake oil solution that would achieve nothing”.

The bill is backed by Labour.

"With the greatest respect to Winston, he's been around for 27 or 30 years. If there's a problem in this country he's part of it, because he's been around for such a long time. 

"He had a time as Treasurer and never promoted these views as Treasurer, so now because he's worried, and because he's rightly worried about you know the big commodity manufacturers, and I am too," Mr Joyce said.

Mr Peters wants the primary function of the Reserve Bank to be broadened to include other critical macro-economic factors such as the rate of growth and export growth.

"It's truly ludicrous, and [Labour finance spokesman David] Parker was called on the left this week by his own supporters on the left, who said what he's arguing for, is he's sitting in front of exporters and saying I want to make life easier for you, and then he's turning around to New Zealanders and saying it will have no impact on you. 

"And, fundamentally, that is not the case, it's dishonest and you can't say it." 

Despite the Kawerau closure, there were opportunities in other areas, Mr Joyce said.

"We have opportunities in the resources area, and I think it is important that we actually take the challenge of adjusting the Resource Management Act to provide those opportunities.

"What I would like to see from the unions, for example, who are supporting these workers [at Kawerau and Spring Creek], is that they turn around and say to their friends in the Labour Party, 'stop opposing RMA changes because RMA changes are very important to give these extractive industries the opportunity to succeed'."

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23 Comments & Questions

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No wonder he is rubbishing Peters' ideas.
His govt and the reserve bank have been pursuing damaging policies for many years,policies that have restricted growth in our economy.The reserve bank interest rate policies have been a key factor in restraining our growth and Key and Joyce do not want to admit that;better to keep heads in the sand and keep on "smiling and waving"
Peters at least has some ideas which is more than can be said for our govt.
It is true that the current interest rate policies were set up in a time when inflation was a threat;this is no longer the case.
What we need now is growth but out politicians don't seem to recognise this.
A great pity that the best economic mind currently, Don Brash, was sidelined; he understands these things.
liberte

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So we put Winston in charge of the exchange rate instead of allowing markets to determine its value? The government's involvement in foreign exchange dealing creates a one way bet for exchange speculators. They cannot lose. Winston would be the first person to complain if $ billions are required to make up the losses - mind you he learned his trade from Sir Robert Muldoon and that is exactly what he did: subsidies to spectulators - and everyone else.

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Interesting that the "snake oil solution" as Joyce calls it, only works when he uses it.

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The fundamental problem is politics here and in every country. The investors, here and in every country, have to factor in their politicians behaviour, the consequences are all sorts of distortions. Unfortunately for the private individual this is never going to change.
I would love to see "lobbying politicians" seen legally as an attempt to bribe/blackmail and prosecuted as such. But, sadly, that's never going to happen, so it will be the same old same old for ever and ever:(

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Trouble with the market being in total control is it always goes to the bust end of the scale before change comes causing untold collateral damage, we are actually a community of people in case you purists have forgotten, Mr Joyce has never made a cent of foreign exchange beyond selling his radio stations to Canwest so what does he know? Note the USA is injecting 40 bill per month open ended to lower it's exchange rate and preserve employment... time to lower the dollar by whatever means (QE most probably), lower our interest rate to stop hot money, put a transaction tax on overseas deposits that aren't export earnings and lower tax on export earnings.

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The fundamental problem is politics here and in every country. The investors, here and in every country, have to factor in their politicians behaviour, the consequences are all sorts of distortions. Unfortunately for the private individual this is never going to change.
I would love to see "lobbying politicians" seen legally as an attempt to bribe/blackmail and prosecuted as such. But, sadly, that's never going to happen, so it will be the same old same old for ever and ever:(

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J Morrison... sorry your point is?

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John Morrison point is that polititians make decisions based entirely on their political future, not the future of NZ.

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hold on. is not australia our largest export market????? NZ?AUS exchange is????? People are talking far too generalised. What happens to fuel prices if US$ at 73. going up at the pump perhaps. And then perhaps people say...I need more money from my employer to pay for that increase. And then perhaps the employer/govt (teachers/police/nureses) pays that increase.... then what sets in. The largest problem this country now has is the over investment in housing to make a buck. Nothing wrong with housing to live in, but it is the "will make money out of this if I buy it" mentality that is hurting. And that is where courage needs to be shown by our elected representatives and quickly!!!!!

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Government has heaps of scope to offset fuel prices given over half the price of a litre is tax.

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just one example. There are many others. clothing, equipment (cars, tv's, toothbrushes), food (why stay local if you can export for more), aircraft parts (domestic consumer will pay) etc

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Are you seriously putting toothbrushes, TVs and cars ahead of reviving export competitiveness, maintaining jobs and a cohesive society? and as for aircraft parts, most of the fleet is only a few years old and no doubt spares deals were part of the purchase so no worries there, the domestic consumer might have to forgo some stuff for a while until we are earning properly again.

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Other countries use a competitive exchange rate to boost their productive export sector.

NZ has to follow this path to avoid a Greece situation as NZ's budget and current account deficits, combined with horrendous ever increasing overseas borrowings, are indicative of an overvalued exchange rate.

Mr Steven Joyce and his National Party mates continue to believe in the free market Treasury view of economic life. Free market for the finance companies, anyone?

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I would have thought if the dollar depreciated, that would make overseas borrowing even more expensive, and with our poor savings rates I can't see NZ lenders with the necessary funds to replace offshore borrowing, therefore the current account deficit is only going to get worse??

With Winston's solution, there would be no savings in NZ, as who wants to earn 0.25% on their investments, then we'd only need to borrow even more from offshore.....

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Wrong here...

The government borrows in NZ dollars, so is not as exposed.

While some people may be happy with putting there money in the bank, most wouldnt. After tax, the returns from bank deposits and bonds hardly keep pace with inflation.

It is only when other investments are going backwards, the returns from bank deposits look going. People just dont seem to factor in the tax and inflation into there investment decisions.

People would be wiser to pay down their mortgages with spare market, and if its not your own perhaps it should be your kids..

The increases in the sharemarket presently is only low volume speculation trading. Its certainly not based on improving returns.

If there were any decent investment advisors in this country, theywould have invested in Fisher & Paykel Appliances; to keep this company and its growth prospects in NZ. But no..

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Joyce is right - while the Yanks keep printing money, the value of their dollar keeps reducing. This is not something that we can control - how come so few people do not see this and seem to think the we have a magic button in Wellington that we can push and "devalue the dollar". That was only possible in the Muldoon style controlled economy - which almost broke the country completely. Who wants that?

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Absolutely correct.
When a NZ politician tries to get the public to believe that he, in Wellington little old NZ, can somehow manipulate our dollar to favour our nation, and by definition, penalise other nations, it is time to seriously look at drug testing that "NZ politician". And taking the voting rights off every idiot that believes him.

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Hey Greg P, who owns this country, money traders or New Zealanders? certainly wouldn't be looking to you for any help in the trenches... where do your allegiances lie? and stop quoting Muldoon, (note a previous National Government) that was nearly thirty years ago... some of us are actually living in the here and now.

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To manpulate the Nz dollar would be the start of a slippery slope, and then a long way round to get back up too the top. Nz relatively high borrowings in the private sector is high so then the cost of funding would increase markedly the off set would be minimal advantage to the economy over all. Take note of history be fore the great depression currency manipulation was the straw that broke the camels back. And by the way those who throw stones at Joyce about he hasent been in over seas commerce, give me Joyce over Whinnie the poo any day He is Jeckal and Hide (not Rodney ) Emmm may be they are one off the same.

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Ever seen a wealthy country with a weak currency.

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The truth is Reserve Bank regularly manipulates the value of the dollar; this is precisely what the whole OCR monthly social-conditioning frenzy is about.

Given the extremely centralised and CONfidenced based nature of the dollar it would be a very simple matter to devalue it. Have either the Reserve Bank Governor or the Minister of Finance to exhibit extremely eccentric behaviour in public and the markets would do the rest ... perhaps Bill English and Alan Bollard could go jogging naked (together even) along the Wellington waterfront at lunchtimes or something similar?

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Not true, Anonymous. The RBNZ Governor sets the OCR, which you may note was last changed in March 2011, hardly 'regularly manipulating'. The OCR is set to control inflation, which is the worst enemy in a growing economy, as it adversely affects exporters, people on fixed income, and holders of non-growth assets. The tone of the rest of your post really sets the scene, doesn't it. Run out of ideas already, have we?

The exchange rate is a pricing mechanism that measures demand for and supply of the NZ dollar. Nothing more, nothing less. Don't forget there are two sides to the economy, both the import and export, and you can't 'manipulate' the exchange rate to suit one without affecting the other. Such notions are fanciful.

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Hate Peters all you want but on this occasion he makes sense. Most multi-national companies have a basket of KPI's to manage their performance and while profitability and return to shareholders is usually their main aim they would hinder their performance and their ability to influence strategic direction if they were limited to only one KPI or policy. Giving the Reserve Bank a wider range of policy tools to influence macro-economic direction rather than just having the crude and relatively blunt instrument of setting the OCR can only give the economy more flexibility to adapt to dynamic global economic conditions. Economist Gnash Nana (sorry about spelling) and business commentator Bernard Hickey have been advocating similar measures for quite some time (albeit with some differences to what Peters has in his bill). A bill like this will not allow Peters or any other politician to 'fiddle' around with the economy on day to day basis because it will be enshrined in legislation. It should at least go to select committee to see if there is a better way of managing the macro economy for NZ's benefit. If anyone is spreading snake oil it is Joyce and as he comes from a business background I can't for the life of me figure out why he would be against this. The only thing I can think of is that it would be far harder to hide problems with government strategy with a more open and flexible economy. So perhaps snake oil politics rather than a better economy is what Joyce prefers?

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