Issue 69 - They tell us that we are still in a recession… - December 2010
The World, but principally the Western world, has something of a problem. Many nations are stuck in that gap between going forward and going backwards, in terms of economic activity. In other words, economies are stagnating.
Various efforts at ‘pump-priming’ have been attempted by various governments and have ranged from support in various forms for financial institutions (and their depositors), extremely low interest rates for the Central Banks’ equivalent of our Official Cash Rate, increased public works, cash handouts (in Australia and elsewhere) and, in U.S.A. and Britain, possibly the ultimate weapon – the so-called ‘Quantitative Easing’. Having already decreased the O.C.R. to a minimal %age, there is now no scope for further pump-priming there.
Quantitative Easing is, at heart, a new name for pumping money into the financial system, by the purchase of Government bonds or even (as has happened in Britain) bonds issued by Public Companies. The idea is to put more money into the hands of willing sellers as, being willing sellers, there is something else that they want to do with the money other than hold it as a bond.
Whether they deposit it somewhere else (presumably at a higher interest rate); buy shares with the money (thereby giving another shareholder the chance to cash-up) or spend it, the cash re-enters circulation again. This is the whole intention of Quantitative Easing. To get people to spend more.
More spending, no matter by whom, almost invariably means more work available. Whether it is a large construction project employing hundreds or thousands or an individual contracting someone to cut a hedge, lay a path or paint a fence; more work is made available.
It is all very well us wanting ‘them’ to do something. We hear it all the time: ‘They’ should do this, ‘they’ should do something else, to get the economy moving again.
I believe that the power is really with the people to get things moving. While it is, in the medium and longer-term, good to decrease spending and increase saving (or reduce liabilities, which amounts to the same thing), in the short-term it causes some of the problems we are experiencing at present – notably higher unemployment.
To achieve a reduction in unemployment and under-employment, those who can afford to do so need to loosen their purse strings a little and spend a little more. In the same way that governments try to target their spending to achieve particular outcomes, I believe that we, as New Zealanders should target our expenditure.
The areas that Kiwis need to target are those where there is a relatively high N.Z. labour content. Examples that come readily to mind are projects around the home, such as I mentioned earlier. But it need not stop there – buy N.Z. fish rather than fish from Asian sources, buy N.Z. fruit and vegetables rather than imported, buy N.Z. pork rather than imported pork.
If possible spend a little more on N.Z. wine, go to restaurants more frequently, buy some plants for the garden, maybe treat yourself to a few days’ holiday – in New Zealand, of course! I’m sure that everybody can think of examples where their purchases can benefit the New Zealand economy. Not only will this benefit workers and their employers, it will help the government coffers as well, with increased GST and income tax receipts.
As I am sure is obvious to everyone – when others have a little more cash in their pockets, they too may spend a little more as well. Little by little, we can do our bit to get New Zealand on the road to recovery.
I know that this is something everybody would like to see.
