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Saturday, November 19, 2005

Mr Fixit

I was reading a column by James Weir in the DomPost this morning. He quoted largely of BNZ Chief Economist Tony Alexander.

Tony Alexander (perhaps better named Mr Fixit) was talking about the Reserve Bank's efforts to curb spending by raising the interest rates. This has the effect of increasing the mortgages for all those who have the temerity to buy a house and try to pay it off. Loosely speaking, lets call those who proudly own a mortgage the middle class, or at least, those aspiring to be middle class. They would also represent a strong tax-giving constituency for the Government.

So, to slow the economy, we mortgagees need to pay more money to the Bank. This helps the economy. Perhaps not our economy, but the economy. Putting aside the problems with this logic for a moment, lets accept that the Reserve Bank are understandably upset that many people are doing their best to manage their mortgage by fixing interest rates. Are we beating the system?

Enter Mr Fixit. Mr Fixit suggests this could be fixed by the Reserve Bank setting a "fixed rate tax", allowing the central bank to hit all borrowers, not just those on a floating rate.

So what Mr Fixit is saying is tax those fixed rate mortgages. That will fix it. Does Mr Fixit also believe the Reserve Bank ought to have the power to create taxes, in addition to controlling the money flow by playing with interest?

Now, isn't that just one of the most stupid things an economist could say? Think about it. Apart from this insane belief that taxing problems make them go away (every-one gave up smoking and drinking last year, didn't they?), what impacts would such a tax have to the floating rate?

Do you think the floating rate might be "market adjusted" by the Bank to take into account the fixed rate taxation?

Would this would be considered a deductible expense/rebate for investors, thus hitting actual home owners even harder?

What impact to rate adjustments might undermine business loans?

What next Mr Fixit? A law to make fixed rates illegal? Has Dr Cullen offered you a job yet, or is the BNZ looking for some more government (taxpayer) funds to prop it up in a cooling house market?

The more I think about it, the stupider this becomes. And I'd rather not think about it anymore.

Posted by ZenTiger | 11/19/2005 11:15:00 AM

5 Comments:

Blogger Adolf Fiinkensein said...

Well this is the same fellow who a year orso ago predicted a $2.50 per kg payout for milk solids this season. I haven't checked for a few weeks but I think Fonterra is forcasting $4.30. Economists were invented to make weather forecasters look good. Oh yes, and did you see Howard is pushing for Qantas to merge with Singapore Airlines? Bugger it, there go the ribs again. Oh yes, and did you see which airline Dominatrix took for her trip to Dublin?

11/19/2005 11:21:00 AM  
Blogger darren said...

Yes, those same bloody economists (incidentally, i have an economics degree and fat lot of good it did me) who for years have said the housing market would fall.
I took their advice and missed the boat as far as house and garden ownership is concernewd.
Best I can afford is a city shoebox, which at least they are right here, prices are falling.

11/19/2005 01:04:00 PM  
Blogger Antarctic Lemur said...

Zen, this is exactly the same mentality as seen in the "road deaths target" post.

Our politicians, sadly including National Party MP Richard Worth, think of the population of New Zealand as a corporate economic unit rather than a collection of individuals freely interacting for their own individual and family gain.

With that mentality firmly established in their teeny tiny little control-freak minds, any suggestion which involves tweaking regulations currently controlling the Nation Unit to boost the economic output of the Nation Unit (or create some other better outcome, such as less fat people) is acceptable, nay, desirable.

11/19/2005 01:30:00 PM  
Blogger ZenTiger said...

Agreed AL. It all comes back to the base thoughts the end result is derived from. Rather than just going with whatever the "experts" say, we need to point out the premises the opinion is based on.

Perhaps then, people can better understand the proposition and decide if they really support it or not.

The more examples the better, coming from all directions, and then taken back to root causes.

11/19/2005 02:03:00 PM  
Blogger t selwyn said...

That is just astounding! Mr Alexander is quickly losing credibility. Is this the same guy who's been predicting a housing crash for... 2, 3 years now?

11/20/2005 02:15:00 AM  

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