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Thread: Economy on death spiral

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    Default Economy on death spiral

    Economy on 'death spiral' due to exchange rate
    11:09AM Thursday July 19, 2007

    The New Zealand economy is on a death spiral by having a free, floating exchange rate combined with inflation targeting, according to a leading US economist.

    Steve Hanke, fellow of the Cato Institute and professor at Baltimore's Johns Hopkins University, said New Zealand should abandon its free-floating exchange rate and peg it to a key larger currency such as the US dollar, or a basket of currencies.

    His comments come as the New Zealand dollar continues to soar towards US80c, a record since it was floated 22 years ago. It has risen 27 per cent this year alone, crippling many exporters.

    The kiwi peaked around 4am at US79.45c but later slipped back and was at US79.26c at 11.57am.

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    Up, up, up - why Alan Bollard has to raise interest rates
    Page 1 of 3 5:00AM Saturday July 21, 2007
    By Brian Fallow

    We are staring down the barrel of another interest rate rise next week.

    The Reserve Bank could raise the official cash rate from a Ukraine-matching 8 per cent to an Indonesian 8.25 per cent. The average among the major developed econ-omies is 4 per cent.

    And yet the dollar is at an eye-watering US79c and another interest rate increase could send it higher still.

    It is not as if the economy has been powering away like a runaway locomotive.
    In the past two years it has expanded by an average 0.5 per cent a quarter, not much more than half its average rate over the past 10 years.

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    Mother Bear

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