I cannot believe it. I cannot seriously believe that a professional columnist would write something so obviously and blatantly wrong. But by gum, Will Hutton has done it.
Keynes has been completely discredited by anybody with half a brain, and yet here is Will Hutton in the Grauniad saying that "...it was Keynes who pointed the way; without public intervention, financial markets go badly wrong." F*ck off! Yes I know that's not an intelligent response, but seriously! How can you say that with a straight face?!
Will wants to blame the banks and the free market for the economic downturn, but completely ignores the elephant of fiat money still stomping about the room. He also fails to see that the cure may be worse than the disease:
"So what public intervention is needed? The US provides the answer. In
these conditions, central banks slash interest rates despite what is
happening to oil prices; the risk of a credit implosion is vastly
higher than an upward wage and price spiral. Also, the US has only been
able to avert disaster in its mortgage market via the guarantees
offered by two huge public mortgage banks - Fannie Mae and Freddie Mac
- which directly or indirectly have provided 80 per cent of all new US
mortgages over the last six months. Together, they guarantee more than
half of the US's £5 trillion of mortgage debt."
Again, how he can say this with a straight face I have no idea. I can think of no quicker path to disaster than to follow America into economic oblivion in this way. The lower you keep interest rates in a country, the more money you print. Printing money does not make money. The more money you print, the higher inflation gets, and the more capital goes offshore. At this rate the US dollar will continue to fall, all because the Government and the Federal Reserve is artificially propping the economy up. Eventually something will have to give, and when it does, we won't just be talking about a recession, it will be a second Great Depression. Which of course Will Hutton will blame on the free market.
We have been lucky in New Zealand so far. We have some of the highest interest rates in the OECD, and therefore the RBNZ is printing less money than other countries, making our dollar more valuable. You can thank Ruth Richardson's strict legislative genius for that. Bollard has to keep putting rates up by law. Even then he has kept them too low. We will survive the worst of the economic weather because of it. As other economies continue to tank, investment money will continue to flow into the country and hold us above the ferment.
So why are we still in trouble, especially with record Fonterra payouts? Three reasons - first there is the oil supply - the result of a combination of a foolhardy war and a reluctance to drill anywhere new. Then there is the food prices - the result of American and European agricultural subsidies. Those chickens are coming home to roost, and sadly, apart from inventing a nuclear powered car or something, there's little New Zealand can do about it. What we can do something about is the third problem - the housing bubble. Planning laws and the RMA create a low supply environment. That means the government is distorting the housing market to make it the most attractive investment. So when all this lovely capital flows in like refugees from more Keynsian climes, guess where it ends up?
What is now happening is that the bubble is starting to burst. People have stopped buying - either they have given up on the idea of owning a house, or they are continuing to rent, because in most cases the interest and rates you pay on your own home will be higher than the rent you'd pay on the same property owned by someone else. Something must give - either rent will go up, or house prices will come down, but either way it won't be pretty. And since Nick Smith and Bill English are still on National's front bench it will continue - unless ACT are part of the next government.
Yes, our ideas are twenty years old. That's because they worked twenty years ago. They will still work. I don't see your ideas working, Dr Cullen. Or Will Hutton for that matter.
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