It is widely expected that the Reserve Bank will cut the OCR again this week, probably by another 25 percentage points. The problem here is that the OCR is now so low that further cuts are mostly pointless. We are rapidly heading towards an OCR of 0%, or possibly even less, so the stimulating effect of interest rate cuts is not being felt. The Reserve Bank has lost its sharpest tool to control the economy, and we are going to have to look elsewhere for some form of economic stimulus.
Heather du Plessis-Allen thinks that the government needs to work out a plan to save us.
Yes, you read that right. The government, led by a #parttimepm, has so far done nothing apart from appoint working groups, read reports, sent those reports to more working groups, had conversations and talked about when they are going to produce the next great plan. I heard Jacinda telling Mike Hosking this week that the government will soon be ready to announce its “Cancer Action Plan”. We don’t need another plan, Jacinda. We need equipment and drugs.
Heather, however, seems to think the government is up to it.
At some point, lowering the OCR stops working. Yes, there’s a fair bit of stimulus in a 25 basis point cut when the OCR is still at two per cent. But the closer it gets to zero, the less impact it has.
Which is when we start looking at the Government.
What’s it going to do? Because it is at some point going to have to step in and help the Reserve Bank out.
The most obvious thing to do is revert to standard Keynesian economics – which is to start spending government money big time, start big projects like road, rail and infrastructure.
It makes sense.These things need to be built anyway, so you may as well build them when you’ve got spare workers and when you’ve got cheap money, and money has never been cheaper.
Yes, but here we have a government that is incapable of actually doing anything. Remember Kiwibuild? What about the City Rail Link? Jacinda was completely vague about any announcements on the progress of the CRL when talking to Mike Hosking this week. She probably didn’t know what is going on, but she is the prime minister. She should know.
All of these are great ideas, but that is all they are. Ideas. This is a government that talks big and does little.
But, and there are two big buts here, to be able to step in the government must do two things.
One: it must start consenting and planning processes for those projects now. Those projects must be ready to go if things go pear shaped. We can’t be waiting five years for permission to build.
Two: It must review its debt targets. It must free up cash for major infrastructure projects.
Things are going pear-shaped now, Heather, and the government is failing on all fronts. I have no problem with the idea of creating infrastructure projects to stimulate the economy, and Lord knows, we badly need the infrastructure, but this government is simply incapable of doing it.
The point of the debt target was to demonstrate fiscal responsibility, but if they are so restrictive that they end up making this economic downturn worse than it needs to be, they’ll demonstrate the opposite of what they’re supposed to, which is that this government can’t manage the economy.
NEWSTALK ZB
This government can’t manage the economy. The Kiwibuild reset hasn’t happened, the Cancer Agency still hasn’t happened, roading projects have been cancelled, and all we seem to get instead is more cycle lanes and bus timetables that flounder badly.
Winston Peters warned us of this on Selection Night. He told us things were going to go sour. He told us not to blame him, implying that the problems will come from overseas and that there will be little his government can do about it. It is true that some of the effects will come from overseas, but there is a lot this government could be doing to bolster the economy. But with this bunch of hapless fools, we really are in trouble. And yes, Winston. You are to blame because you put them there in the first place.