NZ Government To Kickstart Economy By Giving Out Loans

NZ Government could and should get us out of this recession.

NZ Herald article today highlighted that

Banks’ reluctance to pass official cash rate cuts on to borrowers is hitting businesses even harder than home buyers.

One key Reserve Bank measure of business borrowing costs has barely budged since the central bank began cutting less than a year ago.

The government commented

“Banks are crying they have to pay more for money they get overseas and that’s why rates have held up, but business rates have held up much higher than those for home owners and I don’t think that’s fair or right.”

On the other side of the equation, we noticed Government’s will to break through this recession, exhibited by recent Job Summit, 9-day fortnight scheme, and plans including Nationwide Cycleway etc.

However, without the businesses restarting and resume normal operation, jobs would keep being cut and we would certainly remain or plunge further into depression? And considering credit is the blood that flows through the business, the oil that lubricates the economic wheel and allow it to turn, is it feasible to hope we would pull through the recession without reasonable credit flowing?

Since we cannot seem rely on the private banking sector, I propose a limited time period in which NZ Government kickstart the economy by offering low rate credit to businesses, accompanied with a prudent requirements to ensure it is fair enough for small-medium businesses but without excessive risk of defaulters.

1. Government through Reserve Bank should think of offering low interest credit line to the private banking sector with the sole purpose of passing them to the businesses (with a small percentage of margin to the private banks for their services), thereby negating the need for the banks to acquire funds overseas which was causing the excessive credit cost. Or,
2. Government should be empowered to use Kiwibank as an ideal vessel to extend such credit line from the Reserve Bank to the businesses. Without such measure, I actually doubt the Kiwibank’s “patriotic ads”. They seem more like a rhetorical hypocrisy. Or,
3. Direct intervention by Reserve Bank to extend low rate credit to the businesses with stringent guidelines for eligibility, mostly concentrated to saving Kiwi jobs and heavily affected businesses with a large potential to recover. Not an easy job assessing this, but surely it is better than sitting on our hands waiting for this ship to sink?

Since this recession is no ordinary situation, surely we should think of out-of-the-square solution.

Would someone tell John Key and Alan Bollard that these options sound better than the Nationwide Cycleway?

FOLLOW UP – 27/05/2009
NZ National Government is opening up some credit flow with Home Insulation loan