Even the experts don't have a clue!!!!!
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Even the experts don't have a clue!!!!! |
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The following was taken from the New Zealand
Reserve Bank bulletin Dec 2003. Quote...
"The second article examines the
relationship between surveyed inflation expectations and inflation in New
Zealand since inflation stabilized in the early 1990’s. It turns out that
while survey data may be inaccurate predictors of the level of inflation, they
can still provide useful directional information regarding near-term
inflationary pressures."
These are the people who control the future of
this nation, they are the people who have
control of M1, M2 and M3 and they are
looking elsewhere to see if there is inflation in this country. Common usage
of the word inflation has twisted and distorted the true meaning of the word to
such an extent that our top economists have forgotten what it is. Bear with me
while I repeat the meaning correctly. Inflation is an increase in monetary aggregates. Deflation is a decrease in those same aggregates. Inflation is caused by Central Banks PRINTING money in the first
instance. The policy target agreement that the Reserve Bank Governor has with
the Minister of Finance is 3%. So simplistically the value of M3 at 31 March
2003 is allowed to be M3 multiplied by 103% at the 31st March 2004. The Minister
of Finance has legally stolen 3 cents out of every mans dollar over the space of
a year. It will be interesting to see what the actual multiplier is at the end
of March.
I do admit that the speed of money circulating
also contributes to inflationary pressures, but first the money needs to be in
circulation to circulate at speed.
Now here's a paradox. We are a commodity nation.
We are attracting foreign capital in increasing volumes. That foreign money
needs to be converted into New Zealand dollars to effect the trade. If the
number of dollars in circulation was fixed there would be a bidding war to buy
the NZ dollar, and our dollar would go up but there would be no more dollars in
circulation causing inflation. BUT under the present system in order to convert
the currency the Reserve Bank is obliged
to print dollars. The printing of those dollars directly causes inflation in
the true sense of the word. M3 expands. That money has to go somewhere, and
where there is a finite number of items to be purchased the price of
those items goes up. In this case it has found it's way into property. Boom boom
boom. Bubbles pop, but this is a lead zeppelin, it will explode, crash and burn.
The maladjustments
are at the heart of the current
currency war between consuming and producing countries.
In both scenarios the currency goes up in
relation to other currencies, but is it not better to have a fixed number of
dollars in circulation, eliminating inflationary pressures and causing a more
orderly adjustment to the costs that society faces?
The printing of money has put excess liquidity
into the market, on top of an already increased spending power for the working
person via currency appreciation. The producer is worse off because of
proportionately higher costs and lower returns. Increased spending power equates
to debt serviceability, and in comes the leverage equation. Up goes debt. After
all is said and done, a better house is a better house.
One last thought, I always look at things in
terms of a drum. Is the drum full or is it empty. In this case M3 was a full
drum, the only way to put more M3's into the drum is to shrink the size of the old M3's. The drum is still full, it is still
the same size, who is better off?
Allie Oop
Jan 7th 2004