KEY POINTS:
Here is an earlier selection of Your Views:
Karl Rohde
The government should not do anything. There are exporters doing fine in the current market, and companies that require equipment from overseas are finding it less strenuous on their bottom line. It's called balance. The exporters struggling in the current market are a minority, they need to look at their business, and identify where they can streamline. Cutting jobs is not the answer, that just reduces capacity, there are many other areas to streamline. The biggest is administration costs. Start getting rid of that paper shuffling! Do a Google search on "document scanning services" restricted to NZ sites and I bet most businesses can shave 20-25 per cent off their administration costs from one of those companies. As for the households finding it tough, sell. Rent for a few years until you clear all your other debt, put whatever money you get from the sale of your house into term deposits. Simple solutions are often best. My wife and I pay less than half what we would with a mortgage, and the rest of the money is in savings. If you do what you have always done, you get what you have always got. Cliche I know, but think about it!
James Hamilton
The govt should not step in with regard to interest rates. Housing will continue to rise, which will be worse for NZ. In the long term. housing has to come down, to make NZ. an affordable place for our children to buy a house. If house prices continue upwards, or if they do not drop, it will be more viable to work overseas for better pay, and alot of those people will not come back. sooner or later we have to pay for the last five or so years of boom, the sooner the better.
Phil Hirst
Thank heavens for Michael Barnett. Finally someone in a high enough position to be listened too, saying what the rest of us mere mortals have been saying for months. Mr Bollard, surely this make sense to you? Please take note, think about it, digest it - do whatever you have to - and then act fast. Your 'increase policy' hasn't worked so far.
Bells
There is only one way to solve the current issue and its very simple mathematically. If Bollard raises the OCR then our mortgage interest rates go up and overseas investers buy in then the dollar gets stronger and goes up. All Bollard has to do is lower the OCR to around 6.5 per cent. This has an immediate effect and problem solved. Can I have his job?
Maxine
The Cato Institute is a neo-liberal think tank and is by no means impartial - they have a political ideology to push and an already fixed idea on what they think should happen regardless of the current circumstances. It's a pity the New Zealand Herald didn't seem to think that might be relevant so that readers could weigh this up instead of cutting and pasting verbatim what they had to stay without any background on why they might be saying it.
Jack
Firstly cut Government spending. The amount of money spent by the public service has increased dramatically over the past decade, due to pay increases for public service staff far greater than those gained in the private sector - and the absolutely massive increase in public service employees. Public servants and others dependent on State funding are now so many in number that they alone can almost assure Helen of being re-elected. She knows this and will no doubt use employment fear and intimidation to keep the self-serving public service loyal. Secondly contract out some infrastucture projects, especially roading, to the private sector. The M2 motorway out to the Sydney Olympic Stadium is a good example - funded and built by private contractors. The contractor recovered his costs by the right to toll for a set number of years. It was built on time and the value of the toll in todays terms is small. Bit like the house you should have bought 9 years ago really. Pay attention to these things and the interest rate will look after itself.
Big Mike
Viewed from a distance in the USA I observe the Japanese housewifes are buying kiwi and selling yen, appartently its that easy and profitable. Now its probably not such a good idea for the NZ Government and Reserve Bank to make it so easy. Inflation does need to be kept in check. If the problem is so great why does the Reserve Bank raise rates drip by drip. If the cause is excessive borrowing simply stop it by forceful means such as reserve assets on lenders, surtax of specific offending items etc etc. Don't throw good jobs away and lose export markets because inflation is a tad outside a restrictive margin. And then I read Mr Cullen and Mr Bollard saying that the NZ$ is overvalued and at unsustainable levels. Action required now if thats the case.
Colin (Melbourne)
It is not often I agree with Winston Peters but it would seem an obvious answer would be to amend the inflation targets that the RB strive to achieve with their interest rate levers. Now that the low inflation period (enjoyed for the last 15 years) is over, it is no-longer appropriate to have a 1-3 per cent inflation target which chokes the country's economic growth everytime. How about 2-4 per cent target for starters? We are well within that band and the so-called "non-tradeable" inflation would be close to this as well. There would be no need for further interest rate rises this year and would take the speculative "cream" off the top of the Kiwi dollar. Unfortunately I can't see this affecting the NZ/US cross too much, but it might scare off those Belgian dentists and Japanese housewives.
Russell Smart
He should instead raise GST to take the exhuberance out of the domestic economy. This would then line govt coffers rather than the banks with their crippling interest rates and with time allow him to lower personal tax rates (also crippling).
AV (Hamilton)
It is high time that the Government resorted to some extraordinary measures to control the interest rate which has been subject to much speculation by speculators. With the Japanese Central Bank keeping interest rates at such low levels an unprecedented amount of money is coming from Japan into the Kiwi thereby driving the interest rates skyhigh and inflicting undue hardship of the residents of New Zealand. If the government resorts to extraordinary measures in such a situation it will only be cruised by the speculators and not other people. Other governments have resorted to extraordinary measures in such situations and have been successful, It is high time that the present government here does the same to reign in the high interest rates.
Jack (Cooks Beach)
The best way to control interest rates would be for the Govt to restrict banks as to what percentage they can lend on residential mortgages[60 per cent-70 per cent for example] like it was in the 70s thus slowing down the demand for housing as they would have to save for a deposit and allow govt to keep interest rates at a level that wouldn't distort our exchange rate or destroy our export industry.It is just ridiculous considering how intelligent mankind think they are that we rely on one weapon to control inflation. High interest rates destroy the country's export capability and peoples affordability! Using interest rates to control demand is one thing but when you have a floating exchange it ends up destroying what we rely on- exports.
Simba (Auckland)
In today's world, the biggest game on the stage is the money market. Trade/speculation in currencies is the greatest, far exceeding trade in goods and services. Unfortunately, New Zealand has set the rules for our economy on a tablet of clay, there for all to see, and it has been a simple matter for speculators to predict what action will next have to be taken by the Reserve Governor, and to play the game to their advantage. Everybody knows that according to the rules, interest rates will again 'have' to go up next week, so they buy more NZ dollars this week, knowing the dollar will again rise next week. This cycle must be broken somehow. Our economy is being knee-capped, and something major needs to be done. We need a practical solution, not simply some easy-to-read formula based on free-market theory, where the winner takes all, and we are left in the dust.
Fred
Allan, when you intervened to bring the kiwi dollar down, the foreign investors took you head on and aggressively purchased kiwi dollar to keep it soaring. We are small economy and no match to these foreign investors. You are the Boss, stir the economy by cutting the interest rates by 25 points; this will launch appropriate signals to greedy foreign investors, however interest rates 7.75 per cent will still be high and enough to achieve your goal. Nonetheless businesses are already suffering due to high interests rates, they will get some respite. Regarding bloated property markets work out a solution separately.
Jilly (Albany)
As much as I don't usually support Labour policies I think maybe its time Mr Cullen did do something to intervene in raising interest rates. We have felt for some time it's about time Mr Bollard had some of his authority revoked and was 'on his bike'. For us 4th generation New Zealanders who are desperately trying to get ahead and retain ownership of our little white picket fences and working long hours to do so, things do not look anymore attractive with the prospects of another interest rate rise even though we have a much smaller mortgage than a lot of people do today. Something you fat cats may like to consider.
Ian
It is a rather simple problem to solve. As well as the cash rate lever for the reserve bank to control local economic activity the reserve bank needs another lever to control overseas lenders sending too much money here. How about a variable levy on overseas funds invested in any NZ interest bearing deposits and the proceeds to go into the super fund.
Richard
Peg it to the Euro, the USD is a dead duck now that China holds so much USD and could dump it at any time they like.
John (Auckland)
I agree entirely with Jan, the NZ banking system should never have been allowed to provide 100 per cent funding for a mortgage. When we were buying we had to find 10 per cent on the day which meant sacrificing other assets. The current situation has done little but allow property speculators to borrow and write off the interest expense against their incomes whilst gaining all of the capital growth benefits that are tax free. This situation amounts to free money and more of the same. It is not the people with multiple investments who are affected by increases in interest rates as they can opt to sell and transfer their capital somewhere else. It is the normal mum and dad families who will suffer when they have to adjust their lifestyle to reflect a 25 per cent increase in their mortgages (7.5 per cent-10 per cent ouch). The current policy or economic system does not work for the benefit of most New Zealanders.
Greg (Auckland)
The government has the power to do absolutely whatever it wants. At the moment it's just pussyfooting around because Helen and Cullen are to scared to make any changes to the economy which will stop manufacturing businesses from fleeing the country. They should remember where the real wealth is created by the manufacture worker, they've had it good in their administration now let's see them making some hard decisions.
Duncan
Unfortunately solving NZ's death spiral will mean Cullen admitting he has been wrong. And when was the last time you heard a Labour politician admit that?
Salty
Yes of course they should, and a higher inflation range target for the reserve bank would help plus a more realistic way of calculating inflation. The current method is flawed as it takes into account second hand house prices but ignores our second biggest purchase item the second hand car. If both were taken into account one rise would be tempered by the others fall. Bollard and Cullen need to stop obsessing about house prices, which if you have built a house lately is only a reflection of high replacement costs. I'm in China buying boats which is a major turn around from a lifetime selling NZ made but with the dollar so high and NZ manufacturing costs very dear, it's just far too attractive to resist.
Kirsten
C'mon Kiwis! When mortgage interest rates reach double figures it isn't just those who over-extend themselves who get hit - it is your average Kiwi family as well. As a Kiwi living in Oz I'm planning on sending my savings back home to take advantage of the high interest rates. Clearly many other international investors are doing the same thing, and it's only going to make the situation worse. The Government should intervene now.
Nick
The current policy and framework works fine. Hanke should spend his time looking at why the US dollar is so poor. I note the NZD has not deviated dramatically away from the Aussie dollar. I would hate to think what the current described imbalances in the economy would like if we were to start pegging. I personally believe that controlled spending on infrastructure (previously deferred) is essential to creating capacity for future population growth. Looking back retrospectively, successive governments seem to have had no foresight (or have ignored) on what is required from an infrastructure point of view to promote sustainable, non inflationary growth. Just look at Auckland!
William
I totally agreed with the author. The government must do something pretty fast before the tipping point is crossed e.g. loss of jobs, exporting companies bought by predators or going bankrupt etc. There should be bipartisan of this matter in the utmost interest of the country.
Steven (Auckland)
I disagree that we are on a death spiral. If the exchange rate gets high enough the economy will slow down, people will lose jobs, companies may even go bust. But this will create less spending by consumers, slow inflation (as it is meant to) and therefore interest rates will drop. This is how it works. And it does work. The RB has been slow in getting there and Alan Bollard got in trouble for not controlling inflation, but now that he is, he is in trouble again. He can't win! Look at it in two maybe three years time, and in hindsight you will say he did the right thing. However we will all realise that the Labour government has pushed NZ into hard fall, by over stimulating the economy. This is not the RB, it is the Labour government and it is about time they take responsibility for the situation we are currently in with high interest rates, and an expensive currency, destroying our export sector.
E G Caldwell
What New Zealand is experiencing is nothing new. Everything being said now has been said before in the late 1980s at the end of the previous cycle. We are nearing the end of the current cycle. This cycle started late 1993, early 1994. So far it has followed, very closely indeed, the pattern outlined by Fred Harrison ("Boom Bust, House Prices, Banking and the Recession of 2010"), an English economic researcher. It will end with a deep slump in 2010, as predicted in the 1870's by Henry George, an American economist. Inflation is out of control. Lifting interest rates to control inflation is like swatting flies with a sledge hammer: the efficiency and effectiveness is low and the collateral damage enormous. Land value taxation is the correct tool. New Zealand has removed almost all its Land Value Taxes. This is what happens when you tax productive effort, instead of inert wealth and unearned gains. Bring back land value taxes in place of income tax, GST, Perks Tax and petrol taxes and New Zealand will flourish. Monetary policy is not working. Just like the unemployment it will bring over 2010.
Johnnymac
MMP - We voted it in and its here to stay we'll all be chasing our tails in 2-3 years time as no hard decisions can be made. I don't care too much who gets in next year as long as they has the guts to get rid of MMP and start making some hard decisions to get this country back on track. We've already taken on 27 per cent of water in the hull its slowly tipping over, soon as anything is more than a third inflated or deflated its a goner. Ships, air balloons and even countries. This country is in for the biggest shake up ever. If you're thinking about going overseas or selling up now is the time to go. Like now! Also would the last person to leave please turn the lights off and leave the bill to one of our lovely privately owned electricity companies to pay for!
Rick
The media needs to grow up and start giving balanced reports. They scream the awful news about how Kiwi exporters (minority) are suffering due to the high dollar while being completely silent on how beneficial a high dollar is to kiwi spenders and importers(majority).I guess it's all about bad news is good news isn't it NZ Herald? ps: That yanks comments were complete drivel. God help us all if the Government listens to that kind of person.
Ian Morine
To simply suggest that govt overspending is the problem is incorrect. We have had double economic growth for the past seven years or so with previous governments spending nothing on infrastructure during the 80's and 90's. If the govt can't spend money on improving infrastructure now, when economic growth has been at it's highest for a very long time, and there is money in the bank, then I ask when can we improve our infrasture ? Because if we don't, there will be absolutely no base for future economic growth for NZ's children (eg NZ's electricity grid, roads, rail, education - the list goes on).The real cause of the high interest rates / high NZD rate spiral is Roger Douglas's Reserve Bank Act, which worked OK as long as NZ's growth was slow around 2 per cent, but has been absolutely useless / harmful to our economy since 2000. We could have reached 8 - 10 per cent growth since 2000 without the Act suppressing growth by raising interest rates, taking money out of the economy and consequently a rising NZD value, hurting the income earners - exporters. It is time we stopped knocking the infrastructure spending and started dealing with the real cause of the problem - our obsession with inflation and the resulting warping of the economy out of balance!
JT
In response to Bill commenting everyone is a whinger - wake up and smell the coffee Bill. There are businesses and people out there really struggling now, to the point where businesses close down and people lose their homes. Do you think his is satisfactory? I suggest you read the comments from Bruce (Palmerston North) he has hit the nail on the head.
Adam
The solution is simple. Reduce the interest rate.To reduce the housing inflation, the LAQCs should be eliminated from housing. The only reason why this won't be corrected (LAQC) is because all the MPs have more than one house & getting tax breaks setting up LAQCs.
Ted(Howick)
It would be a tragedy for New Zealand if the Minister of Finance intervenes and undermines the independence of the Reserve Bank Governor. The Reserve Bank Act is a pillar of the 1980's economic reforms and has served the country well. I well remember the high inflation and low economic growth rates of the 1970's and 1980's. We must not forget the lessons of the past and should continue to thank those who were wise enough to take the interest rate setting process away from our politicians. Of course no one likes paying high interest rates but when you gorge on debt as New Zealanders have been doing for some time there are consequences. Unfortunately, the Minister of Finance appears to be prepared to take the soft option and forget the lessons of the past.Central and local government must get their expenditure under control and those who have borrowed imprudently must accept the short term consequences. The only people who should be taking comfort from the Minister of Finance's comments are the property speculators. I thought they were supposed to be the bad guys. It sounds as though they may be well rewarded. What sort of economy do we want?
Bruce (Palmerston North)
I totally agree with your headline "Economy on 'death spiral' due to exchange rate" any reduction in the dollar rate will increase inflation through imports / petrol which will cause the Reserve Bank to increase interest rates again causing the Dollar to go up again. The NZ economy is too small and can easily be dictated to by overseas investors. The current system is not working and NZ businesses are hurting.Ordinary kiwi homeowners are hurting just so overseas investors can make a quick buck.
John W (Auckland)
Mr Cullen. Like your Labour colleagues you don't have the foggiest idea what's going on do you? Anyone with half a brain can see that your, or anyone else's ever-upward policies are not sustainable. When you get to the top of the ladder there's only one way down. Wake up Mr Cullen! Putting on "the good face" doesn't solve the problem.
James
Yes. Monetarism is dead. It's time the National Party realised that and did what's in the interests of ordinary Kiwis and the exporters that provide the jobs rather than clinging to a failed ideology and the interests of its property speculator mates.
Bill
What a bunch of whingers we are in NZ. We whinge if the Government doesn't spend enough money on health, education, roads, defence etc. We whinge if we don't get a tax cut. We whinge when ineterest rates go up because the Government has listened to us and spent the money on social services and development. Its pathetic. And this forum has more than it's fair share of whingers which for a country of whingers is sayiny something. Whinge whinge whinge
Richard
We should not peg our dollar to the greenback. The US is financially bankrupt, only staying alive by outside investment. Which many investors think will not last much longer, causing the collapse and bankruptcy of America.
Steve (AKL)
Big ups for Mr. Bollard! Please ignore this useless inflation-loving, vote-buying government and keep doing your job. Why would my family, a money saving one, have to subsidise the ones that chose to overburden themselves with massive mortgages and push the property prices sky high? What about the interest that we, the borrowers in this country, deserve? Doesn't that mean rewarding the less responsible members of the society? New Zealand is losing the last remains of its good old hard working, wealth-building culture, and someone must do something about it. We're in for a rude awakening - instead of thanking the Japanese for their inexpensive credit and cars, we're blaming even them for our own debt! What a seriously ungrateful thing to do. Mr. Bollard, if what it takes to stop this is a body blow to the mad spender economy, then please deliver it. Some of us actually appreciate your position. And please ignore the bunch wanting to peg the dollar again, they mainly failed their high school economics exams and really belong in Russia 1917.
John
I agree with the comments made by Jan. This person has a good understanding of our economy at present. The banks have let us down by making money to easy to obtain. Where is the ethical responsibility from our banks. Sadly they are governed by a certain amount of greed and profit. The Government can do many things to control this situation, what is needed is courage, boldness, and leadership. The government has talked about it but alas, no action, so I can imagine the economy spiraling out of control if more than a few measures are not urgently introduced. It is fixable!
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