Friday, April 18, 2008

Can't read a balance sheet to save his life

Dear Russel Norman,

Pardon me, but that profit and loss statement you're reading is upside down. Read carefully, Russel, I will write this only once. Interest and exchange rates go up and down, inflation is permanent. As someone who can remember the 8 cent Popsicle, while you were in nappies in Oz, inflation has a very special place in my memory. Ask any senior citizen. Stuff costs more now. That's inflation.

As Muldoon showed back in '84, you can't peg a currency for political convenience (a bit before your time also). Attempting to do so is akin to pretending to conduct an orchestra containing instruments beyond your control. Similarly, the dark money of the banking system is beyond the control of the government apparatus to a significant degree. Yeah, it'll cost more for offshore financing, but if the price is right and it'll show growth on the bottom line, it's fair game.

Inflation is something within the powers of government. If interest rates go up, it means that we should weigh the odds of borrowing against the benefits it entails. We should aim at getting more bang for our buck. Ensuring inflation stays between a band of 0 - 2 percent per annum provides stability for the greatest possible good.

Thanks to Winston, that band was expanded to three percent. It's currently over four. I've said it to Cullen, I'll say it to you. Leave It the Fuck Alone. Monetary policy is not the issue. Productivity and international competitiveness is. Same as it has always been.