NZ must protect its economic recovery options

NZ must protect its economic recovery options

It's pure lunacy to allow FX traders to determine our exchange rate and remove New Zealand's ability for a export-led recovery, says Selwyn Pellett spokesperson for the Productive Economy Council.

How can New Zealand exporters burrow their way through increasingly nationalistic barricades to return valuable export dollars when FX traders are shunting our dollar ever skyward?

"With the dollar at 50 cents to the $USD we were well positioned for a recovery," says Pellett.

"But at 65 cents to the $USD we are now drastically reducing the possibility of an export-led recovery. The short term gains will be insignificant compared to another round of asset inflation, fuelled by constantly moving international capital looking to find unproductive but high yielding homes. In New Zealand's case that's exactly what it finds: more home lending."

In the last ten years farm debt increased $31 billion, says Pellett. What did we get for that increased National Debt? More farms, cows or unit production? It's the same issue with our domestic housing market. All we've got is the same asset at three times the price, which mortgages our future through the burden we take on as National Debt, all without creating a single job. It's economic insanity.

"Yes, the US economy has issues," says Pellett, "but those headline issues simply act as the catalysts to trigger the lemming-like behaviour from investors, with the FX traders directing traffic to the cliff face. In 2007 our dollar was traded at 118 times our GDP and was the second highest traded currency we measured. Australia was just 65 times and Korea 12. We are heading down this path again, and it's detrimental to our national interest," says Pellett.

Next week we will all be herded in the opposite direction when the headlines scream "Milk Payout Predictions Slump Further" and "Unemployment expected to hit 9%". The FX traders know how to play the markets, based on the panic such headlines create and make money both ways, says Pellett. It is clear to most economists that New Zealand is strategically challenged in this economic environment and yet we have gone from 49 cents to $USD to 65 cents in the last four months. That's a lift of 33% with zero good news to justify it.

"Let the market decide is not working well for small economies right now," says Pellett.

"I suggest everyone has a good look at profit numbers of the top four banks and takes stock of where their profits are derived. It includes a good measure of FX trading and even more on margin lifts on business lending."

"The government has done well to explain the cost of a credit down grade to the public but it's about time someone explained the cost of getting our exchange rate wrong and what it costs every citizen. At 65 cents the many farmers who where marginal at 55 cents are now sitting on toxic assets, businesses that were thinking of bringing jobs and manufacturing back to New Zealand are suddenly remembering why they left in the first place, and exporters that have delayed putting staff off in the hope that global markets would recover are now facing the inevitability of having to take some draconian action," says Pellett.

"People need to stop kidding themselves that a high exchange rate is somehow a good thing. Yes, you pay less for the books you order from Amazon, but the overall cost to the country is high, it's real and it damages everyone's future," he says.
Getting control of our exchange rate and establishing an appropriate Monetary Policy for New Zealand are both precursors to regaining our Economic Sovereignty says Pellett.

"It's time we got on with it. Mark Weldon was right to say "never waste a good recession" and frankly we have wasted this one so far. Failure to put in place the right economic framework will mean that we will have decreasing options in the months ahead. "

The Productive Economy Council

The Productive Economy Council represents a growing community of people that wish to see New Zealand return to the upper end of the OECD in terms of GDP per capitaIt was founded by four of the former Trustees of the Hi Growth Project including: current President of the Hi Tech Association Wayne Norrie; former executive of the Hi Growth Project, Garth Biggs; Former Chairman of the Hi Tech Association and entrepreneur Selwyn Pellett; and APEC Business Advisory Council, Co-chair Technology & Information Working Group, John Blackham.

ENDS

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