Thursday, September 11, 2008
While it might be good news that interest rates were cut by 0.5% today, I just wonder if it will have the political dividend the government hopes.
I suspect it confirms the seriousness of the economic crisis we are in and face and that whoever wins the election, faces tough times ahead.
Lower mortgage rates may put more in people's pockets, but since many banks receive their funding from overseas, the effects will be limited.
The credit crunch means interest rates will stay high for some time and global credit hard to find. Some big banks in the USA are in deep trouble and this comes after the US government bailing out Fanny and Freddie.
Here finance houses continue their troubles with another closing this week.
Bernard Hickey warns of a urodashi tsunami as Japanese housewives seek higher returns, so the dollar will slump significantly. The 2002-2007 economic growth was built on the back of cheap foreign money, he says.
And Fran O'Sullivan warns however that the kiwi faces the risk of collapse, should interest rates fall too rapidly.
Already, there are fears that the rate cut will be inflationary and today's cut has shattered Bollard's credibility.
Yes, the falling dollar will mean many price rises, with rising inflation set to wipe out many of the gains from lower interest rates, especially on the price of imports. ,
Already, inflation is taking off thanks to wet weather being blamed for the rising price of food.
And this on top of higher prices caused by dearer fuel and the biofuels impact on global food prices.
House sales are already at a 26-year low so today's cut was too late to save the housing market.
Dr Bollard warns of further house price reductions as the country suffers a short, sharp recession.
Indeed, manufacturng contracted for the 4th successive month. Small businesses fear continued downturn.
However, the worst maybe over, confidence is growing says Brian Fallow at the NZ Herald.
Either way, the future looks tough. This month, recession is set to be confirmed with another shrinking quarter of growth, just what Uncle Helen needs in her election campaign.
Cullen has repeatedly stressed he has spent all the cash. Bill English will have trouble finding all the money he needs, should he become Finance Minister.
And while Liarbour's taxcuts will come into effect, just what will their effect be?
I don't think it will be much. There is enough economic turmoil in the country and indeed the world. Taxcuts and interest rates cuts will be gobbled up by higher prices. People will see a headline inflation rate of 5% or more. Will wages be going up enough to compensate, I doubt it.
Thus, the economic suffring we have seen under Helengrad will continue.
People will increasingly see that all Clark and Cullen have delivered is nine wasted years and lost opportunities as New Zealand continue its slide down the economic league tables. Despite today's interest rate cut, it will have no positive effect for Liarbour politically. It won't reverse our economic weakness, but rather just confirm it.
Posted by FAIRFACTS MEDIA at 8:40 PM