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Who is in Control of the Money?
This weeks collapse of the New Zealand dollar should bring the free market experiment of the last fifteen years into
Why is it that commentators, from the all main stream media, talk about the collapse of the dollar as if it were our
fault? The Dominion's graph this morning pointedly shows that every time a Labour government is elected the dollar
falls. Moreover, when Douglas resigned the dollar dropped three cents. The implication is that we should have been more
supportive of Douglas and his free market reforms.
Surely second guessing the sentiments of international investors and their judgement of our little economy do not
constitute a reasonable analysis of the current situation.
Fifteen years ago New Zealand was convinced, with empty rhetoric like "no pain, no gain", and, "the market is always
right", that the New Zealand dollar should be floated on international currency markets.
Roger Douglas, Richard Prebble and other free marketers advocated this policy. Since then the currency has been on a
roller-coaster ride, mercilessly following the whims of currency speculators while lining the pockets of people in the
finance industry. Meanwhile productive industry, and the vast majority of New Zealand people, which it supports, have
been decimated by distinct lack of investment and much increased transaction costs.
Almost all new investment in the New Zealand economy has been speculative. After the black comedy of our stock market in
the late 80's, speculation in property, "financial instruments" and currency have underpinned the weak growth in the mid
nineties. No wonder foreign investors are starting to run.
But who should we point the finger at? Not the public, who have never had any control over their financial destiny. Not
the left-wing of politics, which apart from being hi-jacked by Dougles and his cronies, has not been dictating policy.
The conclusion is self evident.
Roger Douglas, Richard Prebble, Ruth Richardson, Michael Fay, Doug Myers and all the rest of the "new right" oligarchy
have been calling the shots for the last fifteen years.
They were wrong. They have messed up New Zealand’s economy so well one could be excused for thinking it was done on
purpose. At the very least their reign has resulted in the criminal miss-management of New Zealand Inc.
However the main stream media does not challenge the orthodox view that a freely floating currency is the only way to
manage the value of our currency. Instead the media commentators look at the public and our newly elected government. It
is suggested that we do not save sufficiently well. It is suggested that the government has not been business friendly
Murray Sherwin, the Deputy Governor of the Reserve Bank, has confirmed that in the last 10 years commercial banks have
created more than NZ$50 billion, out of thin air.
The supply of New Zealand dollars has more than doubled. This simple fact is usually called "asset sheet expansion" and
is largely accounted for by the spectacular increases in NZ house prices. When the money supply doubles, it is easy to
see how it could be devalued by foreign investors.
Maybe the government should start demanding some answers from the Reserve Bank. Maybe the media should stop blaming the
public. Maybe we should start questioning our free market experiment. Maybe the "free marketers" were wrong.