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The Reserve Bank Governor, Dr. Alan Bollard should not be so predictable

The Reserve Bank Governor, Dr. Alan Bollard should not be so predictable.

Every orthodox economist and their unthinking hangers-on, the media, had the one percent OCR drop sussed weeks ago.

When it is obvious to thinking New Zealanders that the current financial meltdown has been caused by economic orthodoxy, then it should have been obvious to Bollard that orthodox solutions are bound to fail – at best a one percent drop is but another stop-gap measure.

Bollard should have announced:

‘The Reserve Bank has established a credit facility for the Finance Minister to use on behalf of the Crown. This facility is of a similar nature to that recently established to assist Trading Bank liquidity but will be accessible at the cost of administration only - less than 1% interest.

‘The Government would be able to borrow from this facility to fund or refinance any of its current borrowing requirements. Funds would also be available for any of the Government’s proposed infrastructural development projects. It is also envisaged that the Government would share this facility to satisfy Local Government infrastructural development.

‘All principal, interest, and other money that is payable in relation to money borrowed by the Crown or Local Authority is a charge on, and is payable out of, the revenues of the Crown or Local Authority.

‘In addition the Reserve Bank has decided to extend its liquidity facility to the trading banks. This increase will cover all the advances trading banks currently make available to their customers. It will be made available at the cost of administration only – less than 1% - and trading banks are able to add their margin (approx. 2.50%) on top when it is on-lent. The trading banks will be given formal directions to cease advancing any monies to their customers unless it is sourced from their Reserve Bank facility.’

The above announcement would not have been predictable. The Governor would have seen immediate evidence of a reduction in domestic cost pressures, and New Zealand’s economic activity would not be further constrained.

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