Forum Archive Index - December 2000

["hugh webber" <hugh.webber@clear.net.nz>]

Ok, I won't bore people with economics if they want to 
talk about specific shares.

I think the pricing effect of a devaluation has been ignored.
Forget the floating dollar and assume the NZ $ goes from
being worth 50 US cents to being 40 US cents and that we
have an exporter selling a million widgets at $US1 each
and an importer buying a million thingummies at $US1 each.

Pre devaluation the exporter is getting $NZ 2,000,000 and
the importer is paying $NZ 2,000,000.

Post devaluation the exporter is getting $NZ 2,500,000 
and the importer is paying $NZ 2,500,000.

Hence the exporter is really pleased and tries to lift his production 
and sales volume while the importer's customers are hacked
off and reduce their purchases of thingummies.
There are obviously very powerful incentive effects which serve 
to improve the balance of payments after a lag. The fact that
inflationary pressures are greater is the minor evil constrained
by the Reserve Bank interest threat and attempts by importers
and their customers to economise, to become more efficient,
to cut margins.

International economic doctors like the World Bank try to get
countries with balance of payments problems to devalue while
holding inflation. I've never yet heard of a country with a balance
of payments problem being advised to revalue their currency
upwards.

Lets leave it there.

cheers,
Hugh


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