Wednesday, April 30, 2014

Curious words

Some of the conservative reaction to the NZ Labour Party’s monetary policy has been, um, interesting. We’ve the usual unhinged hysterical overreactions, but it's the supposedly “mainstream” conservative reaction that’s so very telling.

The main rightwing reaction has been to claim that the plan would somehow cost hardworking Kiwi families money and make it take longer to pay off their mortgages. But that’s just nonsense, and probably a case of the rightwing trying to scare voters by saying absurd things.

Under the current situation, when inflation rises too much, the Reserve Bank of New Zealand (RBNZ) raises interest rates. This means higher payments for people with mortgages. That money goes to the foreign-owned banks who ship the money overseas. That money is lost to New Zealand and to the family with a mortgage—gone forever, and they have higher payments, possibly taking longer to pay off their mortgage.

Under Labour’s plain, the RBNZ could increase the variable saving rate (VSR) instead. That money would go to Kiwis’ retirement savings, meaning that they get to keep their money. Also, more of it would be available for investment in New Zealand.

The important thing about this is that either way, Kiwis will have less disposable income because THAT’S THE POINT OF THE RBNZ INTERVENING! The reason they raise interest rates, or why they’d raise the VSR, is so that Kiwis spend less money and the economy cools off. The difference is that under Labour’s plan, Kiwis could keep more of their money, rather than giving it away to the foreign-owned banks.

But another important aspect of this is that under the current system, when the RBNZ raises interest rates, it makes the Kiwi dollar stronger, driving up the cost of our exports. If they raise the VSR instead, the dollar won’t rise, and that, in turn, will mean that Kiwi exporters will be more competitive. The net effect is that under Labour’s plan we have a far better chance of exporting more stuff overseas, and that means jobs for Kiwis here in New Zealand.

Add it all up, and what the rightwing is really arguing for is for Kiwis to give their money to bankers, not keep it, and for a high Kiwi dollar that reduces exports and kills jobs. And that’s why the rightwing whingeing is so absurd.

Labour’s plan will help ordinary Kiwis directly by letting them keep more of their money while still allowing the RBNZ to control inflation. Labour’s plan will also help exports, and that means Kiwi jobs. The conservatives are apparently against all that.

And that’s why the Labour plan is so much better than what the conservatives are doing now, and why we need to vote to change the government on September 20.

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