New Zealand Reserve Bank attacks Labour and labour

Opec’s restriction of oil production will raise the price of oil; to maximise their profits and further their political goals. This restriction of oil production is a major risk for inflation in New Zealand because we import and use so many things that use or rely on oil.

Our Reserve Bank wants to restrict our consumption of goods and services to limit inflation; as if the rising prices of goods won’t do that by itself.  Their raising interest rates is designed to increase costs in the economy, loans in particular, leaving people with less money to spend. It encourages inflation as businesses will try to pass on as much of their costs as possible to customers to maximise their profits. Smaller business find this harder to do because many of the goods and services they supply are discretionary so demand is elastic. 

But also other countries only have this ‘tool’ to control inflation.  If countries like the United States have high interest rates (they have raised them) then entrepreneurs will send their investment capital to the US for the easy investment returns in a safe currency that is good at holding its value.

So this could take investment out of New Zealand and that means less demand for the NZ$. A lower value NZ$ dollar means our imports would cost more thus we would import more inflation.  But supposedly good for our exporters.

But higher interest rates also means more investment capital going out of our economy to overseas investors in our higher interest rates. 

Our Reserve Bank thinks by raising interest they are doing the right thing to protect …what? Protect the value of the existing wealth in the New Zealand economy and the few people holding most of that wealth.  

I agree everyone’s life would be severely impacted if we did not try and control inflation.  But everyone’s life is going to be severely impacted anyway by raising interest rates, especially the poorer, the workers, and the middle class who are the main holders of debt. This will put serious strain on the quality of lives of families, impacting the life experience of children, putting at risk relationships, health, and other social impacts. And ruin many small to medium businesses.

And why do people have so much debt? Because it allows higher priced sales, as debt financing sales techniques allow cars and household goods to be paid for only $X a day or week, masking the true cost. So our banks and wealthier businesses have promoted debt, for profit maximisation. But the businesses won’t be punished for it.  

Adrian the Lionheart of the Reserve Bank on his crusade to fight inflation, like his name sake Richard the Lionheart did at Ayyadieh to approx. 3,000 people; is all prepared to metaphorically slaughter (captive soldiers), innocent men, women, and children all in the name of his religious cause, neo-liberalism. 

Don’t give me the garbage about following the traditions of New Keynesian and Neo-Keynesian etc. They are just shades of lipstick on the pig of neo-liberal economics that controls our economy today. Keynes has been seriously misrepresented since WW2.

As sure as the sun rises and sets the future will look back with disgust and incredulity that serious economists thought that the only way to control inflation was raising interest rates. A tool designed to focus on and crush the demand side of the economy (the people side of the economy). Note, this is the side of the economy about suppling basic human rights to food, shelter, clothing, and higher needs: jobs, culture. Ordinary people are being punished, instead of protected from the actions of Opec dictators; and done to primarily preserve the wealth of the wealthy.

Interest rate rises are a tool deliberately designed to not directly hold to account the supply side of the economy who are the main drivers of price setting. Who raise prices off expectations of inflation rather than costs, which is at the heart of inflation. 

But anyway how can we control inflation quickly? Our main areas of inflation risk are: housing, transport, energy and groceries. We have to reduce large private businesses involvement in these areas (unless as investment partners) because they are the ones helping drive up costs; maximise profit. e.g. the price of energy has skyrocketed with a profit maximisation focus without massive investment in new capacity, but they made massive profits. Small businesses can’t do this. 

Transport – put a 90% subsidy on public transport. Hard to ignore with rising fuel prices and we have to get people out of cars. Start reintroducing the petrol taxes that are currently halved e.g. a cent a day(?). If enough people in the cities use public transport rural areas should see lower fuel prices.

Energy – state owned enterprises should not pay dividends for the next five years. All profits should be reinvested in the creation of renewable energy to get NZ off oil. Private companies like Contact should be required to make sizeable investments. [Submissions should be made on renewable energy projects to a commission and the most viable selected and fast tracked (with environmental impact assessments). National’s policy of simple de-regulation is lazy, open to environmental risks, and doesn’t deal with the need for investment capital].

Housing – get hold of existing houses and get people into them at reasonable rental rates based on a person’s income; or sell them at low prices to first home buyers with caveats preventing quick sales for quick profit, e.g. must resell to government if sold within 7 years. Purchases of houses can be made by a fund that slowly pays out capital and a high rate of interest rather than paying that interest rate to overseas investors. Investors want security, a good return, and low effort; the Reserve Bank could provide that.

Groceries – government must support a new player in the market. i.e. selling at cost or factionally above. This is the way to bring down costs in our duopoly. Beneficiaries could have their groceries bills paid in the government supermarket. Partnering with the Warehouse is one way. 

There are thousands of other ideas. But one thing is certain Labour can’t win an election with a collapsing economy and the Reserve Bank is doing just that. Labour appear to be just reacting and cutting back; that is not a winning strategy.

The Reserve Bank will say this is not us (some isn’t), interest rates is what we do. But Japan is an example. There the government has taken debt from private lenders/banks to protect their domestic banks and companies from collapse. (A rather corrupt practise to protect their existing wealthy people). Government debt is approx. 250% of GDP. But because the debt is not held in overseas banks they are just owing the debt to themselves. So there is no chance of lower exchange rates suddenly turning that into a massive liability that could tank their economy. 

Learning from Japan, New Zealand could protect our ordinary people (rather than primarily the wealthy) by the Reserve Bank taking on administering domestic mortgages in homes that people live in. Provision of core interest rates could then be kept low; but interest rates to the banks raised. This would still discourage new taking on of debt for cars and household goods. 

To prevent the money from the Reserve Bank when buying domestic mortgages; and the risk that money just floods back to Australia we could require the money to be held in an investment fund for climate change. They could take money out of NZ at a slow rate. 

There are so many things the Reserve Bank could do if they unbuckled their chastity belt and freed themselves from neo-liberal orthodoxy. 

p.s. Conflict of Interest – I have a mortgage