The visible hand in economics

More talking from the PM – why?

Posted on: December 9, 2008

I see that the PM has been talking about financial economic variables again – this time it is the exchange rate.  Now he says it isn’t a big deal as he didn’t say too much – which is true.  But nonetheless, he is PM, he isn’t supposed to say anything about the direction of monetary policy – which includes interest rates.

Take the current example, there are multiple ways it could be taken the wrong way:

  1. Foreign countries see it as “protectionism” as he is trying to talk down the dollar,
  2. Foreign traders begin to place some weight on his comments – thereby reducing the effectiveness of monetary policym
  3. Businesses and households increase their belief that the government will influence monetary variables, reducing the efficiency of monetary policy (especially regarding expectations)

I realise that it seems like a bunch of arbitrary complaining – but there is a fine line between pointless talk on the exchange rate and interest rates and damaging market signals by creating “false information”.   The information signal, and its impact on expectations, is just so so important in the modern economy.

Treasury needs to explain this – they need to say that if he keeps discussing interest rates and the exchange rate he will simply reduce the effectiveness of our credit markets and monetary policy.

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9 Responses to "More talking from the PM – why?"

This is very interesting.
It is my contention that John Key is not here to govern the New Zealanders but rather to serve his money masters.

The international financial elite wants to replace all currencies with one currency, effectively ruling the world and killing off local democracies.

Is John Key setting a destabilisation in motion in order to force New Zealand to follow suit when the bankers make their move?

I wouldn’t take such a conspiracy theorist view of it – instead I would put it down to the PM being new at the job, and needing to get told to avoid this sort of thing.

Helen Clark was the same when she first came in I might add.

However, that does not change the fact that I think the importance of keeping quiet on these things has to be explicitly explained to him by Treasury – his power over expectations now that he is PM is more powerful than he might realise.

“This is very interesting.
It is my contention that John Key is not here to govern the New Zealanders but rather to serve his money masters.
The international financial elite wants to replace all currencies with one currency, effectively ruling the world and killing off local democracies.
Is John Key setting a destabilisation in motion in order to force New Zealand to follow suit when the bankers make their move?”

I lolled.

Oh come on, didn’t Cullen spend most of 2006 trying to talk down the dollar? He and Bollard went cap-in-hand to the Japanese begging them not to buy more Uridashis as I recall. Frequent statements that our dollar was too high and investing in NZ was a risky business were the order of the day as I recall.

Here we go:

http://www.iht.com/articles/ap/2007/07/17/business/AS-GEN-New-Zealand-Currency.php

Cullen said the current New Zealand dollar rate against the U.S. dollar is too high and currency investors need to realize the risk they face.

“Those people pushing money into the New Zealand dollar have to realize the correction will occur at some point and they’re exposed to risk around that,” he told reporters.
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Cullen said when the dollar does fall it will probably fall back to an undervalued position.

“Oh come on, didn’t Cullen spend most of 2006 trying to talk down the dollar? He and Bollard went cap-in-hand to the Japanese begging them not to buy more Uridashis as I recall. Frequent statements that our dollar was too high and investing in NZ was a risky business were the order of the day as I recall.”

Yes – and that annoyed me very much😛

In fact, I think that showing the Dr Cullen did the same thing is more likely to support my point that it is inappropriate than to go against it😉

Given Key’s background he simply can’t help himself. I don’t mind him expressing an opinion as long as he does not give the impression that he is directing the RBNZ, thus I think he has to be especially careful when discussing the OCR.

“thus I think he has to be especially careful when discussing the OCR”

Indeed. However, I don’t think we can let his background be an excuse. Surely the fact that he has knowledge about financial markets will simply give what he says even more weight – hence why off the cuff statements are even more dangerous!

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