“Part of the reason the dollar is high is that the Reserve Bank has been increasing the OCR,”
Exactly my point. Speculators love the predictablity of Central Banks. So much less risk involved.
“I think the RBNZ would be happy if NZers invested overseas, it would improve our current account deficit.”
Yep whilst making it more expensive to borrow.
“Nothing has been successful, growth has sucked. The problem is that price pressures have been high, and the only way to drain them out is to use the OCR.”
Growth has sucked, because every OCR increases lures in more speculative capital, which drives up the dollar cancelling out any gains made by the exporters. As well as overtaxing and unproductive spending by the government.
“Now if you are criticizing the fact that the RBNZ aims to keep prices stable, I very much disagree. Uncertainty in prices negatively affects everyone in the economy.”
Thats what the futures and commodities markets are for. A free-market will deal with any price uncertainty far more effectively than any central planning regulatory authority will ever be able to. The Reserve Bank has been doing a great job recently hasn’t it?
Perhaps if there were no Central Banks the capital markets would shift away from unproductive speculation on the currency makets encouraged by predictable Fed/Reserve Banks responses, onto emphasis on productive investment in the futures and commodities markets.
I’m sure there would be less capital in the market place as risk is the most constraining factor when it comes to financial transaction particularly when its speculative, but having a central body thats willing to bail you out removes a great degree of risk. The Savings and Loans Crisis and the collapse of Long Term Capital Management in the States and the collapse of the BNZ over here are good examples of that. Funny how people have such short memories. Bob Jones had it right where he described capital investors as fish, moving as one from one market to another as whim dictates. More like goldfish with its short memory and attention span.
The reason why private banks love Central Banks is interest rates increase their profit margins so they have every incentive to loan out as much money as they can during a boom cycle in the full knowledge that Central Banks will hike interest rates in order to suppress inflation. Either way they win. They know that they’re in no danger as Central Banks were designed to prevent bank runs. What do they care if people lose their businesses or jobs as a result of the deflatinary spikes resulting from investors panicking?
Take a look at this site http://tacticalinvestor.com/contrarian6.html
“It hurts those that save and invest to the benefit of those who borrow and consume now.”
So? If borrowers are aware that their ability to borrow is dependant on the interests of those that save there shouldn’t be a problem. Why should people be rewarded for saving merely, because they have excess capital? If anything would stimulate people to save, it would be the prospect of high inflation. Thats what happened during the depression isn’t it? Most authoritave economist hold the Federal Reserve Bank responsible for exaberating and prolonging the effects of the Great Depression. Both Kenysians and monetarists hold this view.
“This is also the current conventional wisdom on the matter, as both Ben Bernanke and other economists such as the late John Kenneth Galbraith–the latter being an ardent Keynesian–have upheld this reasoning. Friedman also said that ideally he would “prefer to abolish the federal reserve system altogether” rather than try to reform it, because it was a flawed system in the first place. He later said he would like to “abolish the Federal Reserve and replace it with a computer.””
I believe a Central Bank allows a country to hide its economic structural definciencies and companies to hide their inefficiencies. Its easily possible for business and governments to consume 75-90 percent less resources, but theres currently no incentive for them to do so.