The damaging dollar ? how to ease exporters and save jobs

by frog

As you might be aware Russel floated a proposal in the weekend to address our high dollar which is damaging our exporters and manufacturers and costing kiwi?s jobs. We pulled together a brief Q&A to help explain the proposal.

Why does getting the dollar down matter?
Our dollar is over-valued because all our trading partners are artificially lowering theirs. That means that when our exporters sell their goods they get less money in New Zealand Dollars. It means importers can undercut our local businesses. And it means that tourists get less money when they change their travel money into New Zealand Dollars to spend here. That?s hurting our economy and destroying jobs. In the past four years, our income from manufactured exports has fallen by 12.4% and our income from internal tourism is down 18.1%. 40,000 manufacturing jobs have been lost.

With less income and cheap imports, we end up living beyond our means and borrowing from overseas or selling our assets to foreign buyers to make up the difference. Our international debt is increasing by $10 billion a year. That can?t go on forever. It will end in a Greece-style collapse. We need to act now.

What is quantitative easing (QE)?
It?s when the central bank creates money. The Greens would use the money to fund the rebuild of Christchurch and to restock the Natural Disaster Fund, which pays for EQC pay-outs in a disaster and is currently empty. By creating more money and using it to reduce the need for the government to borrow overseas and to buy overseas assets, the exchange rate would be lowered and our businesses would be better able to make a living. The countries we trade with are already using QE and other measures to lower their currencies, which is why our exporters and manufacturers are having such a hard time of it, and why so many manufacturing jobs have been lost. If everyone else is doing it and we don?t, then they win at our expense.

Why the Christchurch rebuild?
We chose the idea of putting money into the earthquake rebuild and into restocking the Natural Disaster Fund for two reasons. First, it is really important that the rebuild happens and that the Natural Disaster Fund, which is like our national safety net in the event of disaster, is refilled. These are big costs that have to otherwise be paid for with government borrowing. Second, carefully using QE for these purposes would reduce the inflationary effect. The Christchurch rebuild is going to happen anyway, with money borrowed from overseas. Using QE instead doesn?t change the amount of inflation. Because the Natural Disaster Fund buys mainly overseas it wouldn?t push up the price of assets in New Zealand.

But what about inflation?
If you printed huge amounts of money and handed it out willy-nilly that would be inflationary. That?s what happened in the old days when governments ?printed money?. But that?s not what QE is. QE is about creating relatively small amounts of extra money, a few percent of the money supply, and carefully targeting its use to lower the exchange rate without simply pumping more money into the economy. The overseas experience has been that there is little inflation because the extra money in the system is matched by extra output from the jobs created by the lower currency.

Why doesn?t National want to do anything?
National are failures as economic managers. They have stood by while 40,000 manufacturing jobs have been lost. While unemployment has fallen on average across developed countries since the end of the recession, it has kept on rising here. Yet, National refuses to act because they still believe in a failed ideology that says the market always knows best on the currency. They ignore the fact that other countries are already intervening in the market for their own advantage and that not acting costs Kiwi jobs. The only way we?re going to get a new approach that puts Kiwi jobs ahead first is to get a new government.

Source: http://blog.greens.org.nz/2012/10/08/the-damaging-dollar-how-to-ease-exporters-and-save-jobs/

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