In February 2009 the Kiwi dollar hovered just below US51c. It seems like another era as it has since marched past 50, jogged through the 60s and did an Usain Bolt on the 70s. The dollar now has an eight implanted on its front and the markets speculate a nine, if not parity with the United States dollar, could be on the cards.
This is, of course, great news for importers and for those hankering after the latest LCD television, an iPhone 5 or a holiday to the United States. As for those selling New Zealand goods, the high Kiwi dollar is hurting. Already we are seeing jobs being lost from the export sector and eventually that will affect everybody.
Indicative of this hurt is an email Federated Farmers received from an exporter. The email said the "NZ dollar [is] being traded like a cheap Vegas casino" and that "there are policy options that can lower the currency, currency should be a policy target".
Politicians are quick to blame government inertia over the dollar for a host of economic bad news. Of course they have "the answer" and that generally involves taking an axe to monetary policy or worse, taking on the world by intervening in the dollar.
Speaking as one exporter to other exporters and to those whose livelihoods depend on exports, there is much more than monetary policy and the Reserve Bank Act involved here.
We know from experience we cannot take on the world and pumping out $5 notes, just like the United States or the Bank of England, is a race to the bottom. If you excuse an uncharacteristic bluntness, people are dreaming if they believe our Reserve Bank can set and defend an exchange rate against all comers.
As a country - and farmers are included in this message - we need to stop living well beyond our income. The main target for this message has to be government, centrally and locally.
Until government finally gets the need to rein in its massive spending and borrowing, any intervention in the dollar would be ineffectual as it would be futile. Instead of monetary policy this means assaulting that holy of holies called fiscal policy; the size and spending choices made by government.
In 2000, core government expenditure was $34 billion, but 11 years on that has grown to $73 billion. Core government spending now makes up more than a third of the New Zealand economy. Once you add in local government, that pushes the government sector to over 38 per cent of gross domestic product.
Here is one test. Are your local services at least twice as good today than they were in 2002? That is because since 2002, local government spending has surged by 119 per cent, the rates take has increased 95 per cent and debt has quadrupled.
Like local government, our politicians in Wellington find it hard to say no to increased spending. It is like each dollar being spent is inviolable and perfect.
So imagine if central government spending by Helen Clark's government and that of John Key had instead grown by the rate of inflation plus population growth?
First, it means Bill English would have announced $56 billion in spending last year instead of $73 billion. Second, it means over the past decade, $100 billion would have been left in the wider economy, creating businesses, jobs and wealth. Who knows, maybe even a Kiwi Google or two. One thing is for certain, it would have created a huge buffer against the kinds of natural shocks we encountered in 2010 and 2011.
National knows it ought to be reining in government spending but frets over the political fallout. Labour ought to be the responsible government in waiting but is backing one spendthrift policy after another. As for NZ First, we hope they will back the Public Finance Fiscal Responsibility Amendment Bill. There is another party missing here, I will allow you to draw your own conclusions as to why.
The Public Finance Fiscal Responsibility Amendment Bill languishes on the order paper for want of a first reading. It carries unglamorous amendments vitally important to improve fiscal policy, including the impact public finances have on monetary policy. It is not as good as Rodney Hide's Spending Cap Bill but is a first step. There is also a desperate need to change the culture of government at all levels. In this regard a Regulatory Standards Bill with real teeth is needed to deliver realism over rose-tinted idealism.
I suggest those clamouring to change monetary policy need to take a deep breath. If you want to blame something start with imprudent spending and poor regulation instead of the Reserve Bank Act. If we do that and still find issues abound, then by all means, get stuck into monetary policy.
Perhaps another answer is to remember Ronald Reagan's advice about the 10 most dangerous words in the English language: "Hi, I'm from the government and I'm here to help."
Bruce Wills is president of Federated Farmers.