Quantitive Easing, Is Auckland already doing it by default?

[McDuck]

The rest of the world is printing money.
That reduced value money is then lent to us to buy houses.
Are we paying interest to overseas banks for worthless paper?
Is the exchange rate really working cleanly… or is there some technical fudge whereby funny money can be traded as if it were the good stuff?
Just toying with the idea.….

Because you only need to fudge the exchange rate a bit in order to swap all the future effort and growth of all New Zealanders for what is in reality worthless paper.

[lawt]

Sure other countries are printing money, but as a result their dollars (or whatever) devalue in comparrison to ours - as one would expect as there are now more (of their dollars) so supply has increased and consequently value has gone down.
So the intirinsic value remains the same.

Seems to me that the exchange rate system works just fine in this case.

[Davo36]

Well they can use their inflated money to come and buy property here... causing inflation here.

[SleepyTiger]

Sorry can I ask a what maybe a stupid question here......but it’s been bugging me…

What Japan was recently doing is going around the world, buy lots of assets/investments with their newly printed money. Recently US also have done the same to China.

So does this artificially push up local economy (at the countries they are buying in)? i.e. more money in the society (even though it's artificially injected).

Also what is the effect on the exchange rate (at the country they are buying in)? I presume it's pushing it higher as it creates more demand on the local currency..... China's RMB has been going up against greenback like crazy in the past weeks.

Although recent China's economy data hasn't been as good. But the exchange rate effect is definitely there.

The other thought is NZ exchange rate is high and economy growth is said to be "well".....is it really though? I really have my doubts...

[lawt]

What Japan was recently doing is going around the world, buy lots of assets/investments with their newly printed money. Recently US also have done the same to China.

So does this artificially push up local economy (at the countries they are buying in)? i.e. more money in the society (even though it's artificially injected).

Also what is the effect on the exchange rate (at the country they are buying in)? I presume it's pushing it higher as it creates more demand on the local currency..... China's RMB has been going up against greenback like crazy in the past weeks.


The other thought is NZ exchange rate is high and economy growth is said to be "well".....is it really though? I really have my doubts...

Really is America buying up Chinese assets? Not saying they aren't, but that one strikes me as strange on so many levels.

But when a country prints money there is more of it so the value of their dollar goes down. Basically it is supply and demand. You increase supply the value goes down.
You will note the exchange rate between NZ and America for instance. Our dollar has increased markedly - which is another way of saying theirs has gone the other way.
For Americans to buy assets in NZ now costs them a lot more of their dollars as a result.

The hope for them is that because their dollar is now cheaper we can afford to and thus will buy more of their products helping their employment situation.
There are other benefits - and drawbacks for them too. They can't keep doing it forever or it will end in a big pile of poo poo for them.

But here's one that I haven't resolved yet. Populations tend to increase. If they didn't print some money it would be in short supply and could lead to deflation and choke the economy (as I see it) so what is the "right" amount. I guess what I am saying is that printing some money for a while and when you absolutely need to, as I see it shouldn't be too harmful and could well be seen as an adjustment. But what is the right amount? That's the big question.

Any time there is increased demand for a currency it is going to go up - so yes if America for example is buying assets in NZ that will push up our dollar. The big shake in Chch, all the insurance money coming in for overseas insurers paying for the rebuild in NZ dollars - this must impact our exchange rate too.

Re our economy - I would have said it's in a fairly robust state. We didn't do stupid stuff (borrow and spend like crazy or print money) to try and kick start it during the GFC. Half of NZ are getting "richer" by the day thanks to a property boom so are starting to spend again (see new car sales for example) and thanks to Chch many tradies are getting pay rises and making money again and the country didn't even have to earn that money to pay the contractors.
Check out the share market +24% last year, + 10% this year (so far) and most listed companies are turning in results to match indicating that we are recovering.
Not saying that we are humming along with no problems, but we aren't doing too bad.

[McDuck]

But here's one that I haven't resolved yet. Populations tend to increase. If they didn't print some money it would be in short supply and could lead to deflation and choke the economy (as I see it) so what is the "right" amount? That's the big question.

When price inflation equals zero.

That’s what many great economic minds say anyway.
Some argue that slight deflation perfectly counteracts typical human short term thinking.



Inflation is the one form of tax that can be imposed without legislation. Milton Friedman.

By a continuing process of inflation, government can confiscate, secretly and unobserved,
an important part of the wealth of their citizens. John Maynard Keynes

[lawt]

Inflation is the one form of tax that can be imposed without legislation. Milton Friedman.

By a continuing process of inflation, government can confiscate, secretly and unobserved,
an important part of the wealth of their citizens. John Maynard Keynes

This is why we should all thank Rodger Douglas for the reserve bank act - amongst many other great deeds.

Still, you need to sell the message to a lot of other people - including the greens.

[McDuck]

This is why we should all thank Rodger Douglas ....

I’m not sure what you mean.
What’s the connection between Rodger Douglas, and Auckland house price inflation possibly being a result of foreign Quantitative Easing?

[muppet]

Comment from Tony Alexander....
NZ Housing Market
http://tonyalexander.co.nz/regular-publications/bnz-weekly-overview/housing-market/pollution-in-china-will-push-nz-house-prices-higher/
The more polluted China gets the more upward pressure there will be on Auckland house prices.

[Perry]

But here's one that I haven't resolved yet. Populations tend to increase. If they
didn't print some money it would be in short supply and could lead to deflation and
choke the economy (as I see it) so what is the "right" amount. . . . But what is the
right amount? That's the big question.

The amount that matches an increase in GDP?

[McDuck]

But when a country prints money there is more of it so the value of their dollar goes down. Basically it is supply and demand. You increase supply the value goes down.

Sort of like a free market idea?
The old supply and demand theory?
Not so sure. First thing to remember is that (once you introduce the Federal Reserve money control system into the equation) this “free” idea of yours goes out the window.

The money market is about as free as a puppet on a string.

Also another thing I just thought of is: What happens to international currency exchange rates when you include the money multiplier effect?
A funny money US dollar is feed it into China then feed it into NZ , and back into the US back to China, back to NZ….
Each time it passes through any bank it spawns (virus like) ten time the amount of funny money clone loans.

Are Auckland houses being bought with funny money clone loans?

[Perry]

Always use Zimbabwe or the Weimar era in Germany, to
get a perspective on mass money printing consequences.



Might work in 2013, too, eh?

[skid]

The big exception to the rule is the USA because they are the International currency.In many cases $US have to be used [oil for instance]Their dollar has gone down,but most agree that they probibly will avoid hyperinflation [in the short term at least]because of this.
This gives them a cushy deal and they will use military force to keep it.[see what happens when a country like Lebanon or Venezuela or iraq tries to nationalize their oil and sell in some other currency .
This IMO is the only reason they have been able to live so far beyond their means for so long.
japan will pay a higher price for creating money,but they obviously feel the inflation is worth it, to get their exports going again.
They have had deflation for the past decade[property values losing 70%]They want Inflation.
They say the money supply is created by credit rather than money printing[buying Bonds]
The bank lends out 10x their amount of deposits and presto..more money in the system.
If ,however things go to far and the bubble breaks,then those loans have to be written off and that takes money back out of the system.
If,they say, it happens on to grand a scale, then we get the ugly word... Deflation..ie cash is king--assets plunge[not good for us property owners]
Its easy to forget that nothing is worth more than what people are willing to pay for it--Even a property shortage is not a very strong hand against an economic collapse or big correction.
Its a juggling act between keeping enough equity to be relatively safe, and actually making a profit .
And here we are in little ole NZ where for the most part all we can do in terms of the world economy is sit and watch [and try to keep our powder dry]

[lawt]

Sort of like a free market idea?
The old supply and demand theory?
Not so sure. First thing to remember is that (once you introduce the Federal Reserve money control system into the equation) this “free” idea of yours goes out the window.

Why not so sure?
How has our exchange rate tracked to the US for example
The US started QE in December 2008 the exchange rate then stood at around 57c it's now around 85c.

Ok, doesn't prove cause and effect, however regardless of the reason,it has happened and it is the expected and anticipated result - leading to the same outcome as I described anyway. So why worry because their extra money is being soaked up in the exchange rate anyway as it turns out?

[McDuck]

Why not so sure?...

Ok, doesn't prove cause and effect, however regardless of the reason,it has happened and it is the expected and anticipated result.....

Lol,
Well I’ll have to admit, I do like your good old Kiwi “She’ll be right” string and gum approach to economics.

For some strange reason I’m reminded of the ancient Aztec kings, getting up each morning, dusted in gold powder, sacrificing a few slaves, in order to make the flaming orb of sun come up.
I suppose to them it was cause and effect.
Like you say, as long as it worked, why worry about the details.

Sadly, I’m struck with reason and science, and I’m looking for the mechanism - the individuals and institutions who are playing with numbers in order to inflate Auckland house prices while the CPI stays flat.

Why? Because I want exporters to enjoy lower exchange rates and young people to enjoy lives unburdened by debt.

The whole point of money is as a medium of exchange, you know, is an aid to individual commerce. It seems it’s been hijacked from that core role. Be nice to figure out how and by who. (whom?)