There isn’t much I agree with Gareth Morgan on. But the other day on his blog he smashed out his Green bedfellows on their loopy idea to print money:
So letâ€™s come to a small and pretty irrelevant economy like ours. Say we unilaterally decide that economic growth just isnâ€™t strong enough so we enter into the race to the bottom by printing NZD and lowering our exchange rate. Foreign creditors and potential investors look at our external debt ratios and simply see theyâ€™re of similar proportion to those of Spain, Ireland and Italy. Why would they line up for more? The only reason would be if they thought that by extending our debt we would enhance our ability to service it and pay it back.
Now look at what we did with the last dollop of external debt raising. Into property it went in the main, lifting NZ property prices to some of the highest in the world compared to income. And what are we all aware of again right now in our economy? Isnâ€™t it that the property market is champing at that bit to get going again, the only thing holding it back is our banks canâ€™t get access to easy offshore loans like they once could. Their masters require higher collateral on mortgages.
For us there is little to no credibility in a policy to achieve growth from printing money. It will simply lower our credit rating and raise our interest rates as creditors extract the required reward for largesse.
No, if we want more economic growth of a permanent kind we need to have products and services to sell that the world wants. Only that way will investment or loans from abroad be more forthcoming. Every time this comes back to policies (tax and financial) that donâ€™t discriminate in favour of housing speculation, and that do encourage capital inflows because we have rising sales of products to the world. Remember the commodity boom we had recently?
After 30 years of economic growth fixes being gerrymandered by politicians ordering up the printing presses, global investors with governments around the world owing them trillions, now recognise a sham, a scam, and an also-ran. Economies with intelligent policy settings targeted to deliver better deals for the global customers of their firms will reap the most rewards over the next decade.