Money money money

I see belt-tightening ahead. That, and more imported goods. Oh, and travel to the US, too.

Experts are saying that the governor of the Reserve Bank of New Zealand is about to raise interest rates again. That’ll hit ordinary Kiwis one day without doing anything to achieve the main goal, controlling inflation.

The Reserve Bank is supposed to restrain inflation, and it’s only weapon is the discount rate, which determines the rates that ordinary people pay for their mortgages and businesses pay for their finance. However, most residential mortgages in New Zealand are fixed, so the rates for them won’t rise for up to a couple years.

It does plenty of damage, though.

First, it makes the value of the New Zealand dollar go up. Recently, the Kiwi dollar hit its highest point relative to the US dollar in the couple decades since it was floated. That means that imports become much cheaper, but our exports become much more expensive. That’s inflationary as people buy imported goods that are suddenly cheaper, but our exports are harder to sell, and that only makes matters worse. When the fixed-rate period of their mortgages ends, they’ll pay more each month.

On the bright side, the high Kiwi dollar—which is expected to hit 80-85 US cents—makes travel to the US much cheaper (not counting airfare) because our dollars go farther. And let’s face it: In the short run cheaper imports benefit ordinary people.

Much of the problem exists because New Zealanders invest in property. We’re “obsessed,” to hear the experts tell it. Duh! You’d have to be an idiot not to be. New Zealand has no capital gains tax, and many expenses are deductible from ordinary income. Other investments don’t carry that advantage.

Many of these “experts” lump people’s homes into the same category as rental properties, which they clearly are not. These “experts” try to convince ordinary people to invest in shares rather than property, even saying that people should rent their homes instead. Yeah, right. Most New Zealanders would say, “get stuffed”. Me too.

Oh well, this will probably mean cheaper consumer goods for us. I like that. And, it’ll also eventually mean higher mortgage payments. I don’t like that. Not that there’s anything I can do about either.

Tomorrow is Podcast Day, but in the meantime you can catch me on the latest AcherrRadio group show, AR434, here.