The Dover Test

Posted on 10/19/10 in General, No Comments

I found myself in an interesting conversation today, trying to figure out what the reserve bank will do with interest rates in the new year.

All the normal push – pull and supply/demand effects are present in the money market at the moment, as well as some interesting international financial effects with the New Zealand dollar looking so good against the US dollar.

This is inflated as an influence I think because of the attention the Aussie dollar is getting with it achieving parity with the green back.

This led me to realize that in some respects any raising of the official cash rate is still going to be connected to all the usual test’s the main one being inflationary pressure, but a new influence that I can see creeping into the decision process has to be the Dover Test.

This should explain the Dover test as it’s intended to be used.

The Dover test is an informal test and a journalistic phrase to describe whether the general population of the United States is supporting the participation of the United States in a war or other military action by the public reaction to returning war casualties. The test is usually used to support a partisan position concerning the United States government’s actions than to actually determine the level of public support for the war.”

Thanks Wikipedia for explaining that better than I could.

US casualties returning to Dover AFB from Iraq 2004. Photo by US Air Force.

So basically what they are saying is that the population of a country will support a war for as long as the media support it.

The “Dover” reference is in regards to (would you believe), the press having access and the ability to report on the number of coffins arriving at Dover Air force base in Dover, Delaware.

Mention of a Dover Test has become more common and is used the same way “Gate” is used when referring to a “Watergate” type incident.

The effect I can see this having on the reserve banks next move is this.

The New Zealand media are very active in publishing stories of doom and gloom at the moment, they do seem to sell a lot of newspapers that way after all.

Add to that the fact that their are a lot of great Doom and Gloom stories to pick from at the moment, you can choose from stories about:

  • South Canterbury Finance
  • Asset sales to foreign investors
  • Bankruptcy levels at record high
  • Financial irregularities found in failed house builder
  • Reuters rocked by scandal over staff share trading
  • Charlie’s shares in trading halt
  • Dirty tricks alleged in $8.9b EMI sale

And that’s just a small selection from the Business section.

So at some point the reserve bank in their efforts to jump start our economic recovery must start to eye the rate of inflation and the Reserve bank official cash rate being their primary tool, and start to wonder if they can get away with a raise maybe before Christmas and maybe after.

This is where I’d imagine a version of The Dover Test might come in.

What will be the feeling of the nation be if interests rates are increased soon?

And therefore…

Will the Reserve bank raising the rate be at all effected by press coverage of investors losing homes and business failure rates?

Maybe I’m being overly dramatic in my analysis and maybe the preasure just does not exist in this way.

But having said that, the Vietnam war was the real measure of the Dover test, meaning the US Government was in a huge rush to leave that war once it stopped being supported by the media and general public.

I’m interested to hear your thoughts.

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