Opinion & Analysis
OPINION: Opposition MPs, dreaming up various schemes to lower our too-high dollar - including printing money to make our interest rates less appealing to foreigners - are ignoring one of this country's biggest voting blocs, the increasingly hard-pressed savers.
Their suggestions could make matters worse for the thousands of retired folk faced with sharply falling incomes from their bank deposits and many other fixed interest investments. In the past five years returns from bank deposits have fallen from 9 per cent to about 4 per cent.
Harder hit are holders of billions of dollars in bonds whose rates are reset annually. An example: holders of the $900 million Rabobank perpetual issue have had their returns slashed from 9.48 per cent in 2007 to 3.22 per cent.
Adding to their woes - unless they invest in the sharemarket (where dividend yields are falling as share prices rise) - is the rapidly shrinking number of quality higher rated company debentures and much else with a decent return.
Most companies are not offering their investors the chance to reinvest when existing loans mature. Infratil is a rare exception allowing them to reinvest at 6.85 per cent: this offer is being rushed.
Compounding the problem are sharp drops in commercial rates - such as the one-year wholesale swap rate - on which Rabobank and other loans are based. The New Zealand dollar has also eased back from recent highs.
An explanation for these drops is that bankers and smart money investors are betting the Reserve Bank will follow its Australian counterpart and reduce the official cash rate after the latest data that shows inflation remains lower than the bank's own forecasts and below its 1 per cent to 3 per cent inflation target band.
Ironically, low inflation figures are being helped by the strong New Zealand dollar (that Opposition MPs are trying to bring down).
This is helping consumers by holding down petrol and other essential costs, including manufacturers' and farmers' imported components.
A decision to lower the cash rate won't be easy for the bank as it will further fuel the booming Auckland and Christchurch housing markets, routing investment money away from the productive sector.
There seems to be no-one to speak for savers and retired people who are daily finding life tougher as interest rates slide. This is making saving less attractive - a situation at odds with signs that Kiwis are keener to save and constant criticism that New Zealand's debt and other economic problems are in large part due to us not being a nation of savers.
Living with parliamentary salaries and perks most of us can only dream about - and usually with minimal experience of running a business or investment - opposition MPs see votes in backing the powerful, vocal manufacturing and other lobbies arguing for a lower dollar.
That said, a public debate on the issue wouldn't hurt, including the ideas of businessman Hugh Fletcher on tax levies for overseas companies.
The Greens, and to some extent Labour, seem warm to calls that we should follow far bigger economies like the United States and Britain and print money.
That has brought down their currencies but is causing nasty repercussions for those that have not followed this course, including agricultural and mining exporting countries such as New Zealand, Australia and parts of South America.
Supporters of money printing say we should ignore the economic theories of the past 30 years as there is little sign of inflation in the countries that are doing this.
The problem is that they have little alternative because their economies are in far worse shape than ours, their interest rates are lower than here, and inflation is rising in Britain.
In Europe, the Germans who - unlike the Japanese - have not been shielded from studying their history, are deeply opposed to money printing. They remember the 1920s when Germans brought home their wages in wheelbarrows.
Zimbabwe is a modern day example, where its currency became so devalued all trade is now carried out in US dollars.
Most countries "print" money by buying back government bonds, effectively turning them into money by putting more money in circulation . . . and meantime issuing trillions more.
Ultimately these countries face massive headaches when they are compelled to raise interest rates when inflation rockets. How do you get off the bandwagon of easy money?
Imagine the political consequences for the US, for example, were it to lift the 10-year Treasury bond rate from its current 2.3 per cent to, say, 5 per cent.
American voters won't be thrilled when they face higher taxes as their government pays higher interest on its greatly expanded national debt and deficit.
With local savers being forced to accept lower interest rates from banks, some Westpac customers would have been dumbfounded to receive letters putting their Choices floating home loan mortgages up from 5.6 to 5.75 per cent, effective from October 20.
It was odd that the letters arrived the same day The Dominion Post reported a mortgage war was under way between banks hoping to win disgruntled former National Bank customers unhappy at their bank being gobbled up by the ANZ.
- © Fairfax NZ News
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