Thursday, July 24, 2008

A desperate act from a desperate government, showing how desperate things are!!

Today's cut in interest rates- the first in five years- reflects the seriousness of the situation Cullenomics has got us into.
Liarbour's high government spending which Lou mentions below, has given us the highest interest rates in the Western World.
Coupled with the turmoil in the global financial markets, the New Zealand economy is in recession with a shrinking economy, while other counties have a slowdown.
The seriousness of the economy, which has certainly worsened far more than I expected late last year, is leaving a sick legacy of banking failure, a collapse in the property market and struggling families. This is confirmed by Bollard himself.
In a statement, Dr Bollard said the rising threat of recession prompted him to make the move today.
"Economic activity is likely to remain weak over the remainder of 2008," he said.
"The ongoing correction in the housing market, together with the very high oil prices, will limit household spending and constrain the extent of recovery," he said.
Granny Herald's Brian Fallow says of Bollard:
With two monsters on the rampage, recession and inflation, his money is on the former to deal to the latter.
In what other countries can you read in the papers of people turning to op shops, using the bus instead of the car, buying cheaper supermarket own-label itens, etc, etc, suggesting a people whose living standards are falling significantly.
This is Liarbour's legacy after nine long years.
And in its desperation, we now see a reduction in interest rates, the first in five years.
It could well be politically engineered to bring some dividend to the government.
Or, as I also believe, it represents the seriousness of the economic realities out there.
Bollard himself notes the declining inflationary factors. Companies cannot always pass on higher costs. Despite higher prices, wages are unlikely to rise, certainly not sufficiently to match them.
We are getting poorer and poorer and this will continue.
I'm not sure if today's cut will restore busines confidence. It might have the reverse effect of wekening it, as it highlights the seriousness of the mess we are in as now being recognised by the Reserve Bank and ultimately the government.
Here's a round up of the coverage.
1-Economists say financial conditions a key to lower rates.
3-Inflation still a risk.
4- International volatility still out there.
5- And how independent is the bank now?

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