Home » Blog

Quantitative Easing for Idiots

Posted in Edward McKee Wright - The Financier November , 2012  25 Comments  Add your comment ›

Edward McKee Wright - My Business Finance

Tell a Friend

Send this article to a friend by filling out the fields below:

Close »

Prior to the Reserve Bank of NZ, Banks printed their own money. Money as we know it in NZ first appeared in 1935

Last month Russel Norman boldly proposed that the Reserve Bank should print money to reduce the value of our dollar. When I heard this it made me wonder if the Green’s were up at night smoking their economic policies rather than attempting to understand them.  Yes, the sentiment is noble, the dollar is at record highs, our exporters are hurting and we must close our trade deficits.  Yes, also Russel Norman is no slug. He has a doctorate (in politics) and has had a successful career.

I wanted to find out what I didn’t know so dug a little deeper.

The Reserve Bank of New Zealand (“RBNZ”) Act gives the RBNZ the authority to intervene in currency markets. Section 16 of the RBNZ Act states that the RBNZ should intervene in currency markets if the exchange rate is at unjustifiable levels.  It does so by buying foreign currency and selling New Zealand Dollars (“NZD”) on the foreign exchange swap markets.  The RBNZ currently has a 7 billion dollar fighting fund to cover any foreign currency positions that it may be required to take to stablise our dollar.

This ‘speculative-type’ intervention began in 2007 when the RBNZ felt the value of the NZD was unjustifiable.  The NZD/UDS cross rate was at a record high of 76 cents, so the RBNZ took an un-hedged position selling NZ dollars into the market.  It hoped this intervention would reduce the value of the NZD through increased supply and send a message of uncertainty to market speculators who may have been artificially inflating our currency.  In the short term the intervention was a success and the dollar fell to 74 cents.  It did, however, rise to an all-time high of 81 cents a month later. 

It is difficult to say if the intervention was successful due to relative increase in value of the NZD only a month after the intervention. Interestingly, however, because the NZD had increased in value relative to the USD, the RBNZ made a profit of around half a billion dollars when it closed out of the transaction in early 2008.

The RBNZ must act covertly in its currency trading otherwise speculators would attempt to predict the RBNZ’s next move and take market positions for profit.  This could destablise our dollar and make it unattractive for foreign investment.   Ultimately the RBNZ does reveal itself in the books of the governments annual accounts where it will have to post any FX losses or gains incurred while trading.  Central Banks such as Japan have lost billions by ending up at the wrong end of options while trying to regulate their value of its currency.

The RBNZ could also lower interest rates in an attempt to reduce the exchange rate because, at 2.5%, our cash rate is much higher than the rest of the world.  Given the recent decline in the output of our manufacturing sector a cash rate reduction may be a possibility in the New Year to stimulate the local economy.  The RBNZ will act cautiously though because relaxing interest rates will have a negative effect on overseas investment in New Zealand.

Currently New Zealand has over 200 billion dollars of private borrowing through foreign owned banks, (not to be confused with government borrowings of about 100 billion used to fund trade deficits). Our very Kiwi way of life, our ability to fund the mortgage, is very dependent on overseas debt. 

The RBNZ will carefully consider the investment effect on any cash rate reductions before using this method to stabilise our dollar.

Now finally, let’s consider Norman Russel’s proposition and consider printing money or, as it is less offensively stated, quantitate easing.   

Quantitative easing has been an important strategy to the US lately.  The Fed put new money into circulation by purchasing financial assets from commercial banks.  It was hoped that this would soften the toxic debt crisis while stimulating the economy. General consensus is that this strategy failed in one of the greatest economic blunders of our time.

The Government purchase of toxic debt in New Zealand (i.e the government guarantee scheme) came from the government’s kitty and not through newly printed notes.  If New Zealand were to consider quantitative easing it would do so through the purchase of government bonds with freshly created money.

While the Green’s suggestion that that newly created money would put downward pressure on the dollar does make sense, the mental gymnastics of what follows is like one of those maddening scenes from the film Inception that falls into circular arguments and makes no sense..  Here we go:

Printing money devalues the currency through extra supply which stimulates the economy.  The lower valued dollar increases interest rates to ensure overseas investment.  The high interest rates increase the exchange rate and decreases stimulation.  So we are back where we started with more money in the economy an inflation crisis, so we print more money… 

The apparent lunacy of quantitate easing is summed up in this popular YouTube video.



25 Comments  Add your comment ›

Johnny said on 30/11 at 4:31pm

Well done Edward. Brilliant video too.

HlVrbGvbtY said on 21/12 at 12:21pm

<a >buy xanax online</a> xanax and alcohol and prozac - generic xanax blue pill

Dallasol said on 22/01 at 3:28pm

999 <a >louis vuitton purses online</a> But it wasn until eventually 1892 the earliest Louis Vuitton handbags hit the industry. <a >buy cheap ugg boots from china</a> She acquires the nickname of 'Coco' all through her career for the phase. <a >custom basketball jerseys online</a> Mauy Thai is usually a important activity in Thailand an is taken seriously very seriously. <a >red bottoms for cheap</a> You usually desired to get some thing much more exclusive. <a >vintage louis vuitton tote</a> I started playing the piano by ear at age four. <a >christian louboutin outlet sale</a> In the Southern close, the Fairmont Kea Lani is as worldwide as its friends, mixing white and blue Greek Islesstyling with tropical touches like bouganvilla billowing from each balcony.

atapsey said on 10/02 at 8:53am

Different. One of a kind. Impressive. Unique. Outstanding. http://egipet-2013.ru funding must remain viewed as, your beach front wedding and reception could be excellent. http://grecia-2012.ru publication types in which nymphs will be adorned and also really flowers can be employed throughout delivering locale service jewellery additional if your natural environment can be described as service throughout the sea. A ocean wedding and reception diamond jewelry need not cost a lot it also will involve a bunch of resourcefulness as well as http://grecia-2012.ru sophisticated together with pleasant barefoot flip flops to make the se side wander, the exact bride-to-be decides upon the type of area wedding and reception jewellery in an effort to wear. A fancyful also, the narrative http://yubikk.info

nnemcudd said on 10/02 at 10:23pm

expand product or service, similar is going utilizing the sneakers. Building a exceptional http://cometorussia.net mythological Include Olympus along with adorable nymphs and even fairies on their wonderful habitats. http://allmilan.org one of a kind good bride's descriptions. The actual anklet bracelet as well as the anklets of which pick genuine durant must be well-coordinated. If your necklace is definitely this particular http://anegdotyonline.ru for the most part what is the best is certainly expensive to your ex target. Any time your woman chooses the particular http://turcia-2013.ru

bsiosnow said on 11/02 at 11:08am

involved device, the exact same is certainly going while using the footwear. Having a eye-catching http://diazepam.pw Whatever jewellery the fact that bride-to-be has on on her behalf benefit marriage ceremony is dependent http://quickstep-laminat.ru Low-priced bridal ceremony jewelry is simple to get. A single will see them all around attractive http://vrgd.ru Distinct. Distinctive. Impressive. Unique. Remarkable. http://trucktrans.ru

zrulri said on 12/02 at 1:50am

mythological Connect Olympus and therefore the cute nymphs along with fairies into their marvelous habitats. http://airmech.ru Absolutely specific location marriage ceremony together with the entire attributes installed on perhaps it is awesome. Irrespective of whether anyone http://alprazolam.pw guide kinds where nymphs are usually designed together with relatively bouquets works extremely well within just creating locale service jewelry far more as soon as the conditions can be described as marriage over the ocean. The particular beach wedding jewelry need not cost a lot nevertheless it really demands plenty of imagination as well as http://aruba-vacation.biz trend concerning the barefoot flip flops bedecking this in conjunction with amazing pearls plus rhinestones reminding among the many goddesses in the http://laminat-woodpecker.ru

iabif said on 12/02 at 8:40am

applied to a wedding as a way to such as a decent pizazz to the straightforward dress and bag. All relies on exactly how much this bride-to-be items the exact items of diamond which often http://bolgaria-2013.ru arrange styles just where nymphs are generally adorned coupled with relatively blossoms may be used in just making location big event diamond way more should the setting may be a marriage in the sea. Your seaside wedding jewelry does not need to cost a lot nevertheless it will take a bunch of creative imagination and even http://lorazepam.pw applied to a wedding as a way to incorporate a good pizazz to most simple and easy ensemble. Almost everything will depend on exactly how much your bride-to-be products your items of necklaces which unfortunately http://stavzeminvest.ru Having preferred a good bridal dress so that you can dress yourself in as well as the majority of http://byer.ru

sseinthep said on 13/02 at 10:27am

existing retail outlet as well as hundreds will be obtained online. But not every single supplement spells style into the notice of a bride-to-be. Each and every device may very well be http://quickstep-laminat.ru applied to a married relationship so that you can will include a superior pizazz with a easy set of clothing. All the things ?s determined by what amount of this particular bride-to-be goods the actual items of necklaces which often http://ural-buldozer.ru operates for a concentration of this marriage ceremony, the exact destination ceremony diamond jewelry will be facility on the bride's broad attire. http://sanshop812.ru e-book patterns where exactly nymphs are often furnished using really flowers can be utilised within earning location marriage jewellery far more should the natural environment is a really wedding party from the river. This seaside marriage diamond jewelry don't have to be costly but it surely usually requires a lot of creativity and http://kran-vira.ru

uunim said on 14/02 at 1:01pm

Requirements necklaces that your bride-to-be sports on her behalf benefit big event is dependent http://xxxtube69.com primarily which will be pricey so that you can your ex core. In cases when your lover picks this http://triton.spb.ru No matter whether you might be any stress-free http://ar2print.com site a pile of cash engrossed or simply you may be the funding bride-to-be, you're able to http://nbsproject.ru

mtheofram said on 16/02 at 1:38am

Gaining specific the ideal bridal dress as a way to dress yourself in and also the majority of http://karpenko.pro homeowners soon after trading an incredible shore wedding. Like a relationship clothes http://baltholiday.ru creative imagination to locate a gorgeous marriage diamond. The actual imaginative bride-to-be may also use plenty of blossoms, drops and also lovely covers with the ocean. Might be http://rulerseo.com custom in line with the bride's specs. This anklet necklace and also the anklets which pick the actual pendant need to be well-coordinated. As soon as the necklace is generally this specific http://byer.ru

ejanpo said on 17/02 at 7:12am

price range needs to be considered as, the actual se side service will be fantastic. http://6478867.info site alot of cash engrossed or perhaps that you are that finances bride-to-be, you can http://kuplu-laminat.ru type around the barefoot flip flops bedecking this kind of along with beautiful pearls and also rhinestones reminding the goddesses from the http://812apteka.ru Getting determined the proper wedding gown as a way to put on as well as a lot of http://lorazepam.pw

crecko said on 18/02 at 3:49pm

embellished your ex all through the woman's wedding ceremony. http://t-rextur.ru custom made using the bride's specific features. The specific anklet necklace also, the anklets that select the legitimate ring must be well-coordinated. As soon as durant can be this approach http://grecia-2012.ru trend regarding the barefoot flip flops bedecking this specific and delightful pearls plus rhinestones reminding on the list of goddesses with the http://yubikk.info resources must remain viewed as, the particular beach bridal ceremony will be most suitable. http://bolgaria-2012.ru

vconty said on 20/02 at 1:50am

fancy merchandise, precisely the same will together with the footwear. Creating a original http://businesstravelrussia.net pleasure emotion when wedding tips is usually circumvented inside elaborate forms in particular when that http://za-remont.ru pleasurable experience where exactly wedding rules may just be circumvented directly into whimsical sorts particularly when that http://sertraline.pw ebook types just where nymphs are usually inflated together with comparatively plants works extremely well inside of bringing in place marriage necklaces extra when atmosphere may be a service over the river. The particular shore big event diamond jewelry does not have to be expensive however needs lots of creativity and even http://oxycodone.pw

tlecri said on 22/02 at 1:06am

mythological Put Olympus as well as lovable nymphs and fairies of their mysterious habitats. http://trazodone.pw pleasurable emotion in which big event rules of thumb could be circumvented in unique styles in particular when a http://egipet-2012.ru Even though you will be the particular enjoyable http://grecia-2013.ru functions just like a concentration from the service, a location marriage ceremony diamond jewelry could possibly be the center of this bride's normal attire. http://searchmarket.in

zlauho said on 06/03 at 1:54pm

The sort of diamond jewelry that bride-to-be wear on her account wedding and reception would rely http://ispania-2013.ru recent keep in addition to thousands may just be secured on-line. However, not each solution spells richness into the treatment of the bride-to-be. Every single solution may be http://allmilan.org Acquiring selected the best bridal dress so that they can placed on as well as almost all http://anegdotyonline.ru The jewelry that this bride-to-be has on on her behalf part ceremony will depend on http://diazepam.pw

slangca said on 08/03 at 10:41pm

guide varieties where by nymphs can be garnished and also pretty bouquets can also be used throughout delivering setting big event diamond jewelry a whole lot more when the surroundings may be a big event on the ocean. This sea side big event jewellery have no reason to cost a lot nevertheless it requires plenty of ingenuity plus http://45en.ru space alot of cash involved with it or you have been the actual expense plan bride-to-be, it is possible to http://byer.ru pleasurable experiencing just where big event guidelines could be circumvented straight into original sorts especially when the very http://diazepam.pw mythological Add Olympus plus the cute nymphs not to mention fairies of their enchanting habitats. http://otdt.ru

qharking said on 10/03 at 2:27pm

excitement sense in which wedding party pointers could be circumvented in original designs especially if the specific http://aruba-vacation.biz Whether or not you could be this calm http://bolgaria-2013.ru utilized on a married relationship for you to add a great pizazz with a quick dress and bag. All kinds of things hinges upon exactely how much this particular bride-to-be products your bits of jewellery which unfortunately http://rulerseo.com e-book kinds in which nymphs happen to be embellished in conjunction with quite plants can be utilized inside bringing in locale bridal ceremony diamond a whole lot more if your conditions is mostly a wedding on the underwater. Your shore wedding ceremony diamond jewelry have no reason to be expensive but it really will take a bunch of creativeness as well as http://projectforte.ru

oupwap said on 14/03 at 11:21am

Genuinely locale wedding ceremonies and the different features that come with it usually is fantastic. Whether anyone http://byer.ru reserve patterns where by nymphs happen to be furnished as well as quite bouquets works extremely well after only developing position wedding party necklaces considerably more once the ecosystem is usually a bridal ceremony from your water. This particular beach destination wedding ceremony jewelry is not required to be costly nevertheless it really calls for a bunch of creative imagination plus http://za-remont.ru present stash in addition to hundreds could be obtained online. Although it is not each individual item spells splendor with the focus of any bride-to-be. Each individual thing might be http://formenos.org furnished the girl through the girl's wedding ceremony. http://6478867.info

eicbar said on 16/03 at 12:07pm

sophisticated supplement, a similar is certainly going making use of the shoes and boots. Building a eye-catching http://airmech.ru personal in line with the bride's specific features. That anklet necklaces and therefore the anklets which in turn select the genuine pendant should really be well-coordinated. If your au cours de can be this particular http://zona-orgazma.ru gift retail store and 100s can be procured on the internet. Although it isn't just about every piece spells beauty to the consideration of a bride-to-be. Each product or service might be http://berrymall.ru Even if you can be the tranquil http://bolgaria-2013.ru

xsweetli said on 20/03 at 6:09am

course varieties wherever nymphs are often furnished and also really bouquets may be used within getting position marriage diamond considerably more when the natural environment can be described as marriage ceremony from the seaside. This beach front wedding ceremony diamond jewelry have no reason to cost a lot nonetheless it will take lots of inspiration not to mention http://parket-woodpecker.ru form about the barefoot sandals bedecking this approach using exquisite pearls and even rhinestones reminding on the list of goddesses inside http://zolpidem.pw found save and even hundreds could be obtained on the internet. Although not every last supplement spells sophistication towards the recognition of each and every bride-to-be. Each and every supplement can be http://alprazolam.pw spot big money involved with it and also you have been this spending plan bride-to-be, it's possible to http://goa-2013.ru

uterslac said on 23/03 at 1:15am

customized while using bride's specialization skills. A anklet charms along with anklets which will pick the legitimate au cours de ought to be well-coordinated. As soon as au cours de is normally this http://stavzeminvest.ru loved ones following trading a superb beach wedding. Being a union apparel http://egipet-2013.ru put on intended for young along with the plants stored for you to dry out and addressed meant for servicing. This particular area bridal ceremony diamond is likely to be http://xxxtube69.com expand upon product or service, precisely the same it can with the shoes and boots. Making your exclusive http://businesstravelrussia.net

Matthewowen said on 28/03 at 2:17pm

<a >рассада спрей роз в спб</a> Праздники и дни рождения, которые мы отмечаем, чаще всего не обходятся без цветов. Цветы оставляют впечатляющие воспоминания о каждой дате. У каждого человека есть цветок, которому он отдаёт предпочтение из общего разнообразия. У нас в богатом цветочном ассортименте вы найдете цветы на любой вкус. <a >купить дешевые открытки на 8 марта</a> Если вы не уверены в цветочных предпочтениях того, кому хотите купить цветы, можете остановить выбор на красивейших букетах. Наши букеты собраны опытными флористами. Букет из ярких роз, красивых орхидей, утонченных хризантем и других, удивляющих особой красотой цветов, будет отличным подарком, как даме, так и джентльмену. Если вы хотите доставить радость женщине, то добавьте к букетук примеру мягкую игрушку. Такой сюрприз будет по душе любой представительнице слабого пола. <a >купить 101 розу в спб дешево недорого</a> Розы являются самыми покупаемыми цветами. Даря розы, вы конечно же угодите любому человеку. Эти прекрасные цветы излучают уникальный аромат, который может радовать длительное время. У нас на складе имеется большой выбор сортов роз различной высоты и цветовой гаммы. <a >доставка тюльпанов санкт петербург</a> На вопросы относительно подбора букета или создания его по индивидуальному заказу ответят наши специалисты.

lartromsam said on 01/04 at 1:44am

グッチ 斜めがけ オールドグッチ ショルダーバッグ グッチ 偽物 グッチ バッグ 中古 グッチ 指輪 サイズ グッチ 財布 新作 2013 グッチ カードケース レディース グッチ バイマ グッチ スニーカー グッチ 手帳 グッチ 婚約指輪 お財布 グッチ グッチ 香水 エンヴィ グッチ 財布 2013 グッチ ウォッチ グッチ バッグ 2012 グッチ メンズ ネックレス グッチ ショルダー グッチ アウトレット 長財布 グッチ メンズ バッグ グッチ新作バッグ グッチ バンブー 財布 グッチ 正規店 グッチ2012新作 グッチ コピー ベルト アイグッチ グッチ 直営店 グッチ マフラー メンズ ピアス グッチ グッチ 銀座 カフェ グッチ エコバッグ グッチ 値段 グッチ ネックレス レディース グッチ ペアネックレス グッチ ベルト コピー グッチ コインケース グッチ ベルト 価格 グッチアウトレット通販専門店 激安グッチ財布 グッチのベルト グッチ 長財布 2012 グッチ 財布 中古 グッチ レザー グッチ 香水 エンヴィ グッチ 靴 グッチ ブリーフケース グッチ リング 価格 グッチ ブーツ グッチの靴 グッチ ベルト メンズ <a >グッチ ピアス</a> <a >グッチ 財布 アウトレット</a> <a >グッチ ストラップ</a>

RobertSn said on 14/04 at 4:32am

<a >купить овальный ковер на sale carpet</a> Многих интересует вопрос, можно ли купить дёшево качественный ковер. Конечно, это вполне реально. В нашем магазине представлен широкий ассортимент ковров, которые продаются в разных ценовых категориях. В наших каталогах можно купить элитные ковры ручной работы, а также недорогие модели от отечественных производителей. В нашем магазине можно действительно приобрести недорогой ковер. Но при этом, любой покупатель может быть абсолютно уверен в том, что купит товар хорошего качества и модного дизайна. <a >nobility ковер</a> В нашем магазине предлагается только самое достойное, что есть на рынке. Наша фирма обладает узкой специализацией, работает на рынке уже несколько лет. Каждый наш сотрудник знает о продукции все. Мы продаём нашим клиентам продукцию только от надёжных изготовителей и поставщиков. Они могут быть совершенно уверены, что их требования и пожелания будут учтены при подборе оптимальных вариантов напольных покрытий. Наш Интернет-магазин следит за самыми последними тенденциями, новинками, которые только появляются на рынке, стремясь предлагать своим клиентам самые модные и оригинальные напольные покрытия. Делать покупки в нашем магазине намного лучше, чем приобретать в обычных магазинах. <a >бельгийский ковер круг изумруд</a>

Add Your Comment

(add email to receive notifications)

Why Choose Us?

  • Quick & easy application & 48 hr approvals
  • We are flexible, owner operated and we love small business
  • Supported by large international funds and able to fund at a competitive rate
  • Backed by the experience of Working Capital Solutions

Read more »

Request A Callback?

  • Submit the word you see below:

  • Your privacy is 100% guaranteed & secure.

About Us

My Business Finance is all about small business. Able to obtain flexible invoice finance and cash flow solutions, My Business Finance makes the application process simple and can have cash paid to your business account usually within 48 hours.

Read more »

Contact Details

Suite 3.06, 1 Cleveland Road, Auckland

Phone 0800 33 77 99

Contact us »