Green's QE call a sign of panic - Joyce

DANYA LEVY AND KATE CHAPMAN
Last updated 09:34 08/10/2012
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Prime Minister John Key has dismissed a call by the Greens to print money to lower the exchange rate as "wacky".

But the issue is likely to remain in the spotlight ahead of a "job crisis summit" to be held this week.

The summit is being hosted by New Zealand's largest private sector union, the Engineering, Printing and Manufacturing Union, on Friday. It will be attended by economists, academics, unions, exporters and political leaders and aims to find a consensus on how to stem redundancies in the manufacturing sector.

Manufacturing has been hit hard by the global economic downturn and there are estimates more than 20,000 jobs have been lost in the sector since 2008, with hundreds of redundancies announced in the past six weeks.

The EPMU says many of those job losses are a direct result of New Zealand's high dollar. This morning, the kiwi was trading at US81.60 cents.

Greens co-leader Russel Norman yesterday proposed printing new money to invest in government earthquake bonds to fund the rebuild of Christchurch and refill the Natural Disaster Fund.

The Greens also want the Reserve Bank to have a broader mandate for lowering the official cash rate and new tools for managing asset bubbles.

Norman said many other counties including the United States were taking such measures, known as quantitative easing.

However, Key today said the Reserve Bank could only have one primary objective and keeping inflation low was appropriately its focus.

"If you look at the data around manufacturing jobs, they have been going up slightly," he told TVNZ's Breakfast programme.

"The latest idea of the Greens to print money, that's a pretty wacky idea. If printing money made you rich, Zimbabwe would be the richest country on the planet and it's not."

Printing money may bring down the exchange rate but it would increase inflation, Key told TVNZ.

"So your interest rates would go up, so your mortgage costs and your business costs would go up. It means the cost of everything you buy would go up."

The New Zealand economy was not in bad shape, he said. "We grew at one of the fastest rates in the OECD, we created 57,000 jobs in the last few years. We don't have a crisis."

Norman questioned Key calling the idea 'wacky".

"The Prime Minister is calling the US Federal Reserve, the Bank of England, the Bank of Japan and the European Central Bank all wacky, but he apparently knows the real truth."

Inflation was very low with the consumer price index at about 1 per cent, he said. "So we don't have an inflation problem, we have an exchange rate problem, a current account deficit and an overseas debt problem."

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Norman said a mature debate around the exchange rate was needed. "The failure of the Government to provide any leadership on jobs, means it is left up to others to lead the debate."

Economic Development Minister Steven Joyce said the Green Party's call for the Reserve Bank to start printing money is a sign of panic when a steady hand on the tiller is really needed.

"The Greens are panicking, they're showing once again they are prepared to panic on the New Zealand economy," Joyce said during an interview on Radio New Zealand this morning. "What we actually have to do is stay the course, and improve the competitiveness of the New Zealand economy."

Joyce also dismissed the jobs crisis summit as a "political stunt" but said the Government would look at any ideas to help firms become more flexible and competitive.

QE involves central banks printing additional money and using it to buy its own bonds. This lowers borrowing costs and encourages business and consumers to take on debt, which is then spent in the economy, boosting activity.

The additional supply of money means the value of the currency fall versus it peers, making exports such as dairy and manufactured goods cheaper, but imported goods such as fuel, electronics and motor vehicles more expensive, pushing inflation higher.

Quantitative easing has been a popular policy tool among central banks since the global financial crisis, with Japan, the UK and US all implementing numerous asset buying programmes to varying degrees of success.

- © Fairfax NZ News

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