I argued in this column last week that New Zealand should look at printing money again to build houses and infrastructure in Auckland and Christchurch.
We did it in 1936, and we could again as long as it didn't create inflation.
It sparked a firestorm of commentary and criticism, which is fair enough, given money printing sounds like an appallingly irresponsible and dangerous thing to do.
It's true there are plenty of good reasons not to print money, but they can be addressed. Money printing or quantitative easing would have to happen in association with a range of responses.
Inflation ?
Firstly, there is a risk it will generate inflation, but only if resources are fully employed. Building houses and infrastructure such as houses, bridges, motorways, broadband, water treatment and electricity networks takes all sorts of resources, some of which are imported and some of which are available locally.
One claim is that a burst of extra spending would simply boost wages and construction material prices. That is true if there are shortages of skilled tradespeople and a lack of production capacity for the likes of timber, insulation, concrete and roofing tiles.
Skill shortages have to be addressed anyway, but there is something wrong with the powers-that-be if New Zealand cannot train the tens of thousands of unemployed youth. Any surge in spending would have to be linked to a major skills training programme. Another response is an increase in immigration, which would also boost the economy.
Construction materials inflation is another issue. The Productivity Commission said in its report on housing affordability in December that the concentration of ownership of construction material companies (in the hands of Carter Holt and Fletcher Building) may be a factor in materials costing more in New Zealand than Australia. But it said it unclear extra competition would cut costs, noting a lack of scale. The report shows materials inflation has been marginally ahead of consumer price inflation in the last 15 years, but not massively so. There is plenty of capacity around the moment, with Fletcher Building even talking about layoffs across its Laminex and Pink Batts businesses.
The real problem with house building costs in New Zealand has been an esclation of building consent costs, driven largely by councils, not by a lack of competition or the market. Therefore, any move to print and build would require central government to more closely monitor and reform the way local government charges for its consents.
Wage inflation is also a risk, but again there are few signs in recent years that wage inflation is out of control. New Zealand has something of safety inlet and outlet valve in the form of migration to -- and from -- Australia. Perhaps a building boom here at the same time as a slump in Australia would tempt home thousands of the tradespeople who have migrated in recent years.
Seduction ?
Secondly, there is a risk money printing empowers politicians to go on a giant lolly scramble, or even worse, funnel money to 'friends' in the large companies that dominate our construction and infratstructure industries. This is a very valid criticism and would have to be addressed with some sort of independent fiscal responsibility commission. This has already been mooted as a way to ensure the Reserve Bank's monetary policy has 'mates' in the government's fiscal policy.
This would mean any surge in spending with printed money was directed to useful infrastructure that generated economic returns over the long run, rather than casual spending on consumption or tax cuts.
Kill savings ?
The final criticism is that a surge of money printing would cause a balance of payments crisis as imports jumped, just as happened in 1938 after New Zealand's first round of money printing in 1936.
However, this time it's different.
We have a floating currency.
A bout of money printing would drive the New Zealand dollar lower, making imports more expensive and generating extra export revenues. Some say it would also drive up interest rates. That hasn't happened in America, Japan and Europe.
132 Comments
Hugh - as you mention Robert Mugabe, have a look at this to see why what is being proposed, especially given the context, is quite different from the problems suffered by Zim (and the Wiemar Republic.):
http://www.johnwalley.co.nz/90-hyperinflation_more_to_do_with.aspx
Can you see the differences? In fact, can you see that in one sense the proposal being made has the effect of actually working to neutralise one of the prime causative factors of inflation, reduction in purchasing power, that is, improving productive capacity?
Indeed with improved housing supply and better capability to construct, what would that do for housing affordability, house price inflation?
Cheers, Les.
Why muck around with houses? Why not give GDP a real boost and build the Imperial Deathstar?
http://www.zerohedge.com/news/modest-proposal-boost-us-gdp-852-quadrillion-build-imperial-death-star
Now naturally since this entire amount would have to be debt funded, and since MMT tells us that America can issue any amount of debt without a hitch, it would only make sense that the US Treasury should sell $852 quadrillion in bonds at a few basis points in interest (negative rates if possible) post haste, and use the proceeds to construct said engineering marvel. Since modern economic theory tells us that every dollar in incremental debt is roughly equivalent to a dollar in GDP (as idiotic as that sounds), this would result in what can only be called the greatest golden age in the history of America, whose GDP would rise by over 56,000 times overnight to a little over $852,000,000,000,000,000, and all American citizens would be the richest (nominally of course, after all that is all that matters) not only in the world, but potentially in the known galaxy, overnight.
http://www.zerohedge.com/news/sean-corrigan-crucifies-mmt
Among the latest vogues is the so-called ‘Modern Monetary Theory’ - a truly laughable epithet, given that Mises was deriding its Chartalist-founding father Knapp’s vainglorious use of exactly the same term almost exactly a century ago.
On this reckoning, the Greeks, far from being the most fiscally benighted and sorely afflicted of peoples, should rejoice in the effulgence of their status as beacons of true MMT enlightenment and prosperity!
I'm with you Skudiv, and they could print another quadtrillion tons of $100 notes and use them for insulation..that would boost the GDP by another 500% and we would all be earning a billion an hour...MMT sure has all the answers when you hear it from total idiots.
Zimbabwe for hyperventilators 101
Zimbabwe is the new Weimar Republic. Not! Zimbabwe is the front-line evidence that shows that government deficits will generate hyper-inflation. Not! Zimbabwe is the demonstration of the folly of a fiat monetary system. Not! Zimbabwe is an African country with a dysfunctional government. Yes!
Hyperventilate as you like but Zimbabwe does not make a case against the use of continuous budget deficits in defence of full employment.
Bad Governments will wreck any economy if they want to.
A wise government using the fiscal capacity provided to it by a fiat monetary system can engender full employment and equity yet also sustain price stability.
"A wise government" well thats an oxy-moron...
I can agree on Zimbabwe, it is indeed a unique case, in terms of trying to use it to justify buying gold, its not terribly relevent the hyper-inflationistas cant see that of course.
"Full employment" etc, again I see no evidence this is possible, in fact the opposite. It was tried in the UK in the 60s and 70s and just buggered it....in those days the UK Labour party/govn took Keynes work and buggered it into a mess......been there done that, didnt work.
I dont see how you can get full employment ever, 3% is probably about the minimum practical and thats probably with an inflation rate of 4%+...I dont see how deficits come into it....sooner or later you have to pay if back and that will cause significant hardship....
regards
I have concluded that Bernard cannot see the forest for the trees. Having finally itemised most of the reasons why printing to boost demand is madness, he carries on with his pipedream...
Bad enough we have Bollard slashing the ocr to pork activity...but to have him running off billions of NZ dollars so the beehive lot can "pay for" stuff. Utterly insane.
item one: inflation, according to BH it demands 100% resource capacity be reached...rubbish.
item two: the construction duopoly manifested in bloated prices....dismissed by BH on one slack report
item three: wage inflation...BH thinks being near aus will solve this...bollocks
item four: politicians buying votes....BH thinks "some sort of independent fiscal responsibility commission" would solve it.....more rubbish.
item five: Collapsing Kiwi$...BH refuses to think this could happen....how about the guaranteed hike in the cost of credit for the banks and the mortgage rates going up from 6% to 16% overnight...the cost of fuel doubling overnight...BH simply leaves that out of the equation...if at first it does not fit in the hole, find another peg!....brilliant economics.
Hi Wolly, I'll explain for you "some sort of independent fiscal responsibility commission" for you. I imagine something equally like 'the higher salaries commission' that sets MPs salaries, for example cough cough... 'independent'... until you look at their actual track record that is...
Well done Bernard, keep up the good work.
(I know I still owe you a reply on the Weds 10at10 thread Wolly - am struggling with trying to simplify the language suffciently and account for the fact that you don't like addressing third party information and references that undermine and oppose your views - but I will keep trying.)
Comparing NZ to Japan, US, or Europe is not accurate. These places have had Massive deflation, Housing and stocks in Japan, fell by 80-90%. Housing and stocks fell in the US by 50%. Bonds in the EU have fallen by up to 83%, and the LTRO is not even close to what you are suggesting.
Giving unemployed people a job, by definition increases average incomes per capita. When you increase average incomes per capita you have some good old fashioned price push inflation.
If you are going to do this without creating inflation, you need to have some offsetting deflation, otherwise increasing the amount of money per capita creates inflation.
Baisically there are many assumptions, which are offset by equally valid assumptions. If you could prove it, in a verifiable way, that was testable, and repeatable, then we could have every confidence. As it stands, printing could have intended, and unintended consequences, which is the most likely scenario as I see it.
Creating money from thin air, has always been, and always will be inflationary. It has a negative impact on savers, past current and future. It has a positive impact on borrowers, past current and future. Skewing social bias toward borrowing, away from savings, creating inflation in things that can be purchased with borrowed money, most notably housing and land.
The mainstream model is incapable of explaining why Japan has run continuing and increasing budget deficits, as the largest public debt ratio, yet has maintained almost zero interest rates for two decades, as low inflation if not deflation, and the bond markets queue up for every public bond tender with relish.
Once you accept this evidence you realise that: (a) applying our common sense to Japan and other advanced nations is fraught; and (b) the mainstream macroeconomic narrative that attempts to reinforce this common sense is a blatant misrepresentation, if not, a lie.
Thats not true at all. Japanese govt, has borrowed money directly from its savers, who made money by producing goods and services, which they then sold overseas. They made a profit, which was then used by the govt to build bridges to nowhere. Well done to them, the private sector has enough savings to fund govt debts of 220% of GDP.
Only very very recently has Japan had to create money from thin air.
John Maynard Keynes noted that Lenin was "said to have declared that the best way to destroy the Capitalist System was to debauch its currency." Keynes added that "Lenin was surely right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."
....the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation...
Bernanke would like to point out that "printing" is inflationary.
Or another way of saying it Kanuck, 'the whole point of public spending in this context is to stimulate demand by driving the taxpayer forceabily further into debt when the taxpayers themselves have lost the appetite for more it.'
Thus the bubble must be kept going....
What happens though when the private sector doesn't want to borrow because the government keeps up demand, thus keeping prices artificially high and lowering the returns of private investment - which remains sitting on the sidelines?
Printing "money" with no increase in economic activity/exchange is simply confiscation.
Printing "money" won't create inflation?? It is inflation.......
I really don't believe we are having this conversation. Goes to show how successful the propoganda has been in confusing and twisting things around, down is up and up is down.
Unbelievable.
There is just one problem with this critique, it relies on time running in reverse. In reality all ventures are capitalised before any production begins.
Is this really the standard of all arguments against NZs economy being self funded rather than overseas funded?
One more point I forgot to make.
We are not short of money. There is plenty hoarded around the globe in gold, inflated stocks, inflated property etc. The problem is a lack of faith in the economic model/system. Fiddling around with the rules just reinforces peoples decision to sit this one out.
Money will come out of hiding when people make their own decision to do so based on the playing field so to speak. If we just print it Gresham's law will work it's magic.....
Ah the siren song is getting louder.
Iain I can post some of this guy, the link should be at the bottom.
A glimpse of secret world you all can't see...Of course the below is thebest estimation...To obtain the official figures would require access...Which is kept as limited as possible.
But once you know how a credit system operates you can imagine what is going on well enough to be certain that you are close enough.
Like firing a gun and hitting a target...sure you don't hit the bulls eye...but close enough.
The total debt of the USA is $53,800,000,000,000 or 53.8 Trillion
People that don't have an income can't service the continued existence of the debt...
The debt per employed worker in the USA is...$381,560
The cost to service this per year at the average yield of growth rate per worker is...$12,209
How about Spain?
The total debt is $4,611,000,000,000 or 4.611 Trillion dollars
Per worker $251,967
Cost to service per worker $20,913
How about Greece?
Total debt is $936,000,000,000 or 936 Billion Dollars.
Per worker $234,000
Service cost $18,720
Unfortunately because their economy has reached it's maximum potential to supply the yield those above demand...basically Germany...their economy is imploding and they are unable to continue servicing the existance of their standard of living...both their standard and quality of life have been annhilaited attempting to supply the demands of those above in the EU hierarchy.
How about Germany.
Total debt 10,887,000,000,000 or 10.887 Trillion Dollars
Per worker $265,536
Service cost $22,305
It's only Germany's massive trade surplus at the expense of all around Germany that allows Germany to sustain the high debt service costs.
How about France the largest consumer of Germany's exports.
Total debt 8,424,000,000,000 or 8.424 Trillion Dollars
Per worker $312,000
Service cost $11,232.
The US and France have very low yield rates currently...allowing them to enjoy very low debt service costs...In the end French consumers are getting into debt to sustain their trade deficit with Germany to support Germany's trade surplus...
In order for Germany to service their total debt...the French consumers have to be able to get deeper into debt in order to sustain the trade...so their debt service costs have to be kept low enough to encourage massive deficit spending.
How about jolly old England.
Total debt 9,836,000,000,000 or 9.836 Trillion Dollars
Per worker $339,172
Service cost $13,566
How about the EU zone total?
Total debt 53,160,000,000,000 or 53.16 Trillion Dollars.
Per worker $258,058
Service cost $15,225
The EU has a trade surplus with the USA...meaning the US consumer must deficit spend to support the EU...Which is why US service costs are so low
Japan
Total debt $17,565,000,000,000 or 17.565 Trillion Dollars
Per worker $292,750
Service cost $4,098
Basically because the US Dollar is the global trade medium of exchange and Japan was set up as a producer of cheap exports to the USA following the 1933-1945 bankruptcy reorganization liquidation climax...Japan has become virtually a defacto state of the USA...Japan has basically been able to print Yen to keep it weak in relation to the US Dollar to flood the USA with cheap luxury exports...It allows Japan to have very high debt per worker at very low rates...without this subsidization arrangement...Japanese exports to the USA would be too expensive.
How about China
Total debt $20,967,000,000,000
Per worker $27,300
Service cost $1,801
China has 2 problems...one is that the vast majority of it's workforce has an income so low that it can't request much or any significant debt creation and the portion of the population that does...depends upon the rest of the consumers of the world deficit spending to support their incomes. It's why China has built empty cities...because the consumers required to occupy them are in Europe and the USA.
At the highest levels the owners of the global trade system set the policies that the puppet Governments they have installed implement.
regime change is what happens when a puppet stops operating as it should or is no longer required...World war is what happens when the global trade system reaches maximum potential and collapses...War is nothing more than a liquidation climax of a bankruptcy reorganization process.
If there were such things as independent nation states like you all have been socially engineered to believe exist and are part of...the system would destabilize and collapse into anarchy and chaos.
The global trade system or enterprise is centrally managed...and all below are employees of the global enterprise.
The Globalist owners use nationalism to divide and rule the world...
The top is able to control all below because the top know how the global system actually operates and has access to all the real data in real time...not minutes, hours, days, weeks, months, and years later or outright lies marketed as Truth...All below can only speculate as to what is going on...Or follow along and do as those above command in order to obtain what you all need and want to sustain your existence.
http://forums.wallstreetexaminer.com/topic/1038286-come-on-back-to-me-2…
That's only half the balance sheet Andrew. USA, Germany, China have the odd dollar or two of assets as well. Sure the USA may have 53 trillion in total debt. But take the value of just the 30 DJIA companies, the 500 S&P companies, housing stock, infrastructure, unexploited oil and minerals, forests, farmland, military hardware and this would come to thousands of trillions of dollars. Doing a "shock, horror omygod" highlighting just the gross debt is pointless and meaningless.
Hey Berno, I stumbled upon this piece from the learned scholar, Mr S. McDuck.
Valuable.
Bernard, your causing much confusion by the continual association of what was the "issuance" of sovereign dollars spent directly into circulation free of interest by sovereign monetary authority in 1936 to start state house building project with terms of "printing" and "quantitative easing" which are associated with slight of hand private institution primary bond exchange process...
Yes, Bernard - and you well understand the difference - so why are you using the terms "QE" and "printing"?
Bernard is the biggest Troll on interest.co.nz.
http://policelink.monster.com/products/products/1697-troll-spray
Has it changed from a year or three ago when it was the issue of credit by the RBNZ managed by a committee of upstanding citizens who are without political clothing..credit that cost nothing...credit that would compete for resources on the open NZ market and drive up the prices...making it more difficult for Kiwi who saved to afford a box...credit that would cause overseas lenders to demand a higher rate for their dosh...driving up the mortgage rates for all and therefore smashing the retail sector again and slicing hundreds of millions off the govt tax revenue grab...leading to them wanting the RBNZ to print more dosh to buy govt bonds at zero rate...oh what a scheme....fabulous farce.
Meanwhile in no time at all the grand Committee would be dishing it out to mates and friends who need to win electorate seats...the very same friends who appoint members to the grand Committee...oh yeah what a joke.
Start with an abstract definition of money, then add in an abstract definition of inflation. Then try and understand how the system works.
However you define money, it is what you get paid with for doing work. So the work you have done is worth money. Does that work that you have done, really have the same value as freshly printed money?
Work done is more valuable then "a promise to work sometime in the future" yet creating money from thin air gives the same value for work not yet done, as it does to work already done. That is currency debasement. Where you debase the work done, and give it the same value as a promise.
No, all the money in the world does not enable work to be done. The human mind needs a reason to work, be it survival, or satisfaction. You may say money is a reason for work, but when you create the money from thin air why work for it?
Interest is a deflationary factor, in that it is constantly reducing the money supply.
You sound like a very modern manager - no need to pay you guys, here is a bucket of sunshine ....
Why work for it - because it pays for rent, bread and taxes - same as privately created money, from thin air.
Can you elaborate on why interest is a deflationary factor and constantly reducing the money supply? Is it that you believe cost of credit has an effective restraining effect on credit demand? If you do, you need to talk with Wolly, because one of his minds has recognised the need for money supply volume controls because cost of credit (interest) is not as effective in deflating the money supply as many would love to believe, especially those living off interest.
Les Rudd..what's a good socialist like you doing out of bed before 12 noon?
You've been a bit sneaky Les...putting a coat of poo on my points....let's correct it shall we...the cost of credit if not manipulated by Reserve Banks either through the ocr fiddle or through printing dosh...would act as a control over demand for credit. OK
But since our RBNZ is doing what the banks demand...running a cheaper for longer farce...a deliberate manipulation of the rates...the credit cost controls do not apply...
Hence my point that LVR barriers would be needed...but we both know that there will be no barriers...
In short the NZ economy is utterly dependent on the cheap endless flow of credit and the normal market forces have been burned. The banks own the economy and the banks manage the govt.
To make matters worse, the govt revenue harvest is now also dependent on the credit flow...and the demand for credit is dependent on the media lying to the peasants..hence the endless garbage about recovery growth and how wonderful the parasites are for the economy.
And do you think resources were fully employed in the weimar days or Zimbabwe, or Argintina, Russia, or even here in the 70's and early 80's when inflation was a problem?
It is sort of like a publican who debases his spirits by watering them down, it will not be a problem until it is. Sooner or later a shift will happen in their behaviour, patrions will drink more perhaps, and if they work out what the publican is up to they lose confidence in the spirit then all hell might break out!
Its all about the confidence people have in their currency.
The increase in the money supply from act of printing money is inflation, it is inflating the money supply. The ineviatable consiquence, all other things being equal is price inflation, sooner or later. Now days rising prices is incorrectly termed as inflation.
With you all the way with not allowing banks to "extend interest bearing credit" into circulation, and to stop the practice of allowing the central bank loaning money into existence. No problems there.
However I see a disconect in the logic it the public credit theory, perhaps you may clarify something for me.
Surely when more money enters circulation it adds price inflationary preasures right?
If you accept this then in a public credit system; the designers have accepted a small amount of price inflation to be acceptable (perhaps 1-3%, in the same way the RBNZ target sets the price inflation rate currently), as a means to fund crown spending, is this right? I am assuming that the managers of this system can accurately predict how much new money is the right amount and that they can exercise inpecable self control (this is another issue altogether)
However if you are thinking that the government can carry on issuing more and more debt free money into circulation every year without expecting any change in prices, then I think this arguement is flawed. To say this is in effect saying that issuing new money will make us all wealthier as a country. It wont.
To expect wealth to be created in excess of the proportion of new money issued relative to its loss in value overall from rising prices is flawed I recon.
How say you white man?
Understand your privatisation views, and understand that you think the issuing if new money would have to be strictly controled.
I was just wondering in your public credit model, wereby the govt will be issuing debt free money into the economy every year, wether price inflation would be kept at 0%, or would it be tollerated just as long as the above necessities of life are assured?
In talking to some public credit people, they think the money supply can be expanded through govt debt free spending without there being higher prices as a consiquence of doing this.
BB - "It might inflate the money supply, but does that mean purchasing power is reduced?" However, can I mediate a little betwixt Iain and yourself, in all humility too, as I reckon you guys, Iain in particular, know heaps more than me on this topic. That is, referring to your, "resources fully employed" way-back-when, comment BB, don't we need to move away from the equilibrium thinking and start to consider time, that is, rate of changes effects, the influences of inertias and issue rates?
I do not believe there is a way of modeling to predict the timeframe or in what areas prices will rise.
There are infinate ways in which humans act based on an infinate number of stimuli to make those decisions.
Also when money enters circulation and dilutes the purchasing power of all those other dollars prices do not rise immediatly of in a liner fasion, it could go anywhere, under a bed, into the stock market, into housing, to pay down debt, business, public infrastructure who knows.
And of course all the other factors, population changes, speed of exchange, recourse utilisation.
So handing over the running of the economy to a handfull if wizards is fraught with unintended consiquences I recon.
I do not think it is ever possible to predict when and where prices will rise.
I think it's a speed and matching issue. Speed of injection needs to ne no more than it would be under present system, so eg. ChCh infrastructure repair, it's been scoped based on repair and replacement of damage and funding only needs to be supply according to the same demand schedule. Matching, well I'd have it pointed at infrastructure and that's about it, because that can define itself more definitely against demand, under a set of quidelines, and for me, most certainly natural disaster damages public infrasctructure seems reasonsbaly easy to define.
Wizards - so your'e happy with the goblins we have running the show now then? (The just need rules and transparency; so couldn't care less if they were orks.)
Just printing money is at least honest. Running deficits without ever paying back is exactly the same thing.
Printing/borrowing for nonproductive "investment" is inflationary, maybe after the fact but anyway. So yes you scrw the savers pensioners whathave you apart from ponzi "investors".
Devaluation will increase prices, nice for exporters (who owns those?), not so nice for the rest but NZdollar too high anyway thanks to carry traders.
Increase in interest rate would be a pro argument in my book.
Central planning is so seductive. It all sounds so reasonable. Laudable aims, efficient use of resources.
Bernard, take a look at the Eurozone and explain how well central planning is going for them. Sure they had a few good years but now the piper wants his payment from the children of Greece, Ireland, Portugal, Spain and Italy. It all started with apparently laudable aims.
The appeal of the Central Planning Committee is a delusion. People need more choices not fewer.
The Productivity Commission identified daft planning controls (central planning) as creating a building land shortage. I would add that without this we would have had a building boom and bust due to the excessive credit (debt) available due to weak central bank policy (central planning) and a policy of bank favouritism. The fiscal bank favouritism policy included the deductibility of interest as a business operating expense (when it is more accurately a capital expense and so not deductible against earnings) and the preferential treatment of interest as a service free of Goods and Services Tax. Thus the finance sector and the real estate, legal and insurance sectors that go with it were treated much more favourably than manufacturing. Thus finance grew and manufacturing withered. House building is a form of manufacturing.
I am not advocating no government involvement - their job is to establish a sound set of rules that encourage a civilised society. I'm certainly not saying that private industry is more efficient than government, often it is far less so, but that choice is the essential difference.
Don't expect an invite to the Beehive temple of banking worship Roger...your name will be mud after that blast...fancy expecting the govt to slap gst on credit as though it were a "good"...dear oh dear...you really would put a spanner in the parasite plans to own and dominate the economy.
Yet they wonder why we owe so much to foreigners. They really do not have a clue about why manufacturing has declined so very much and why we owe so much to overseas lenders and must sell our assets to satisfy our debts. Duh.
I think they have woken up to the fact that the productive sector is the engine of the economy, but I don't think they realise how oversized the finance, real estate, legal and insurance sector has become.
The usually bullish T Alexander is quite bearish these days. Here's his latest on retail / employment:
Are businesses hiring more people?
No.
I have stressed the disconnect which has opened up between how businesses say they are feeling in
sentiment surveys and what they are actually doing about it. This disconnect reveals itself in the labour
market. Jobs growth in the last three quarters of 2011 was a miserable 0.5%. Now, according to the National
Employment Indicator compiled using IRD wage and salary return data, jobs growth has ceased.
In seasonally adjusted terms job numbers rose 0.2% in the month of December, fell 0.1% in December, and
for the entire December quarter were unchanged from the September quarter. What the survey gives us on
top of the already released official data for the December quarter is news that the month of December did
not produce a lift in employment. There is no acceleration in jobs growth underway. This has a number of
implications. First it seriously calls into question the ability of retail spending to keep growing – let alone
repeating the almost surrealistic rugby-inspired growth rates of 2.9% and 2.6% achieved in the December
and September quarters respectively.
Second it implies lower PAYE receipts than Treasury will have budgeted for therefore a worse fiscal deficit
outlook. Third it will make the Reserve Bank more cautious regarding monetary policy and decreases the
probability of a cash rate rise this year.
Basically bad news all around and something which leaves myself still feeling downbeat on very short term
growth prospects for the NZ economy.
Let's go direct to the heart of the Democrats for Social Credit and see what ticks...
finance policy!
Make the Reserve Bank the sole provider of new money.
• Abolish GST and replace it with a Financial Transactions Tax which would mean the currency speculating “financial sharks” would pay their fair share of tax.
• Make the Reserve Bank responsible for seeing that foreign debt is repaid, and overseas transactions are in balance.
• Establish a social credit economy where people will be able to use the country’s resources without mortgaging their own or their children’s future.
• Replace local body and DHB debt with interest-free community credit.
• Recover effective control of New Zealand’s economic affairs and establish greater political independence.
• Ensure a property-owning democracy, in which the ownership of assets is spread as widely as possible amongst individuals.
Anyone see any problems here?
Wolly - a couple of questions:
1) Have you advocated RBNZ use credit controls such as LVRs? If so, why? If so, can you tell me how you might expect RBNZ to set such controls?
2) How much do you trust government:
A lot.
A bit.
Not really sure.
Not remotely.
Your'e kidding Les, I can't stand the b*sta#ds, they are all lying toe-rags.
Or somewhere inbetween?
Keen to hear from you.
Cheers, Les.
Yes Les I have. It stands to reason LVR control would derail bankers pushing credit and blowing bubbles...it would encourage people to save a larger % of price and it would reduce demand for credit and drag prices down to where they would be affordable to low income families without the need to become serfs to a bank for life.
I would not trust the word of any politician. I judge them by their actions or lack thereof. They are not the only ones at the bottom of trust heap.
I thought so. So you believe in money supply volume control other than by price of credit - the references I made to you last week on Weds 10at10, but you poo-hoo'ed them. However, you've not told me how you would envisage RB setting LVRs - can you tell me what you envisage please?
If you would not trust the word of any politician then little wonder you should rail against this kind of proposal. In some ways I have some sympathy with your view, but rather than reject the idea out of hand I prefer to work toward helping such folk better perform by debate about how they should,that is, my what's in and what's out line of thought = some form of control, you know, other than by "price of credit".
So tell me, how do you envisage RB (whoever) might set LVRs?
Good for you Les...money...credit and cash...you want to use my cash that I saved...then you pay me ok...that's my fee and rightly so. The dirt begins when the banks get the freedom to create credit....that right should be controlled...today it is not...the RBNZ gets told what the rules will be...that is the consequence of several decades of idiot govt that lacked the guts to control the credit factories.
We will never see the RBNZ impose LVR limits...sad but true...so just sit back and watch the banks cement in place their command of the economy.
I point out the need for the LVR limit because it is an easy way for others to see how the banks have been able to play on the greed of Kiwi to gain the upper hand.
By the same token, because the parasites run the show, the property game will remain the foundation of this economy...into the mix throw the ocr drug and unlimited immigration by all political parties...a dose of real estate lying and let's not forget the greedy media.
The simple fact is...NZ is stuffed....it is a bunch of islands owned by the banks by and large and they suck billions from the nation every year with the full support of the fools in the Beehive and in the RBNZ on the Terrace.
Iain's concept demands control over credit be managed by some magical people capable of prudent decisions not twisted by politics..they don't exist. Any move to head in the printing direction will bring instant punnishment from the banks...they too can phone overseas union mates. As I said, they are in control.
Oh and let's not forget the role played by Parliament and the legal system. The mortgage laws exist to protect the banks. The laws are written by the pollies. They take direction from the banks.
Wolly,
Given NZ is stuffed to use your words I assume you are packing your bags to find your paradise somewhere?
When you find it please send us a postcard.
P S I agree to some estend on LVR controls as I see this loans are not being priced correctly for Risk as Low Equity Fees and and Insrest rate discounts can still be negotiated on these deals.
Remember 90% LVR loans are not new. Countrywide Bank was doing them in early 1990 albeit with Mortgage Indemnity Insurance to underright potential losses.
I do not see the RBNZ ever being allowed to apply any LVR controls whatsoever Les....I point out the need for them just to highlight the damage caused by the idiotic creditfest going on that Bollard refuses to control even though he know jolly well the end game will smash many more Kiwi families when the rates go up.
It would be better to have kept the ocr at a point that encouraged saving. Unfortunately that did not sit well with the banks. Saving would lead to the capital being available from within NZ. That does not fit the banking greed rule either. The message screamed into the earhole of Bill English and John Key by the bankers was "property property property"
This current farce being perpetrated by the reserve banks around the world cannot end on a happy note. The game will sooner or later turn to custard.
Wolly - good comment, we don't disagree in this area. However, the reason I pursued this line of discussion is because you seem able to accept some official/committee setting an LVR, say, in other words attempting to contol money supply more directly with a credit control = more disconnected from market forces than the OCR, yet you rail against a similar kind of mechanism (all knowing, wise, wonderful "official/committee") authorising issuance of RB credit to fund stuff that can be quite clearly defined with less, little tendency for scope-drift, ie public infrascturure than is damaged by natuarl disaster. Undoubtedly because like many you have a keen distrust of government, and who can blame you there, but that doesn't mean we should not progress the debate simply because we've also not worked out a way to trust what we don't, eg. with some process and transparency - which unfortunately menas some slog into the detail of how.
Again Wolly you want to blaim Dr Bollard for something he has literally no culpability for. As you know there is no mechanism in place for Bollard to control LVRs so how is he to prevent credit expansion and expansion of the money supply? Is he going to tell the banks to stop lending? I doubt he could or that it would be responsible to do so if he did. It would probably trigger a bubble deflation when he did (given it was appropriate). So that leaves the OCR and capital controls. Remember when the OCR was over 15%, did that stop credit expansion. I don't remember it actually but I know it didn't stop people borrowing. Its pretty clear he would need to see the future, probably many years in advance in order to set the OCR correctly.
What you actually want Bollard to do isn't allowed under the Reserve Bank Charter, or isn't humanly possible. What you are actually calling for is for the governor of the reserve bank to go off piste. He shouldn't and wouldn't anyway, there is no sense in it. Sorry, give him the tools or stop blaming him for the results.
Even if he does have the tools, it would be pretty ridiculus to blame him anyway, considering the many actions of other individuals involved.
The following link shows pretty clearly how the OCR is set, its basically following the 90-day bill rate. Why don't you explain how that fits with the reserve bank deciding on any kind of fest.
http://www.rbnz.govt.nz/keygraphs/Fig7.html
I don't think you have a single sensible argument for how Dr Bollard is suppost to be piloting the ship.
In trying to understand the 'interest rates' there are actually two rates to consider. One of them is historically low (the OCR) the others are historically high (bank loan margins). Basically the reserve bank doesn't have any reason to care about how much money costs (they literally can create as much of it as they need) what they care about is monetary policy and financial system stability. So in terms of setting the 'price of money' I ignore their opinion.
To me this indicates that money is a scarce resource at present and getting harder to find.
LVRs might be a good way to try to achieve macro stability, but I expect that the regulations would come under attack and may be weakened until they stopped functioning. I doubt that humans can learn to function better in the money system we have today.
Seriously if you actually want to have a prosperous country, printing money will never work. Prosperity from increased production per capita is actually a tried and true method, no need for debate, because it's so obvious, and easily provable. Science and technology have been the driver of increased productivity for all of history, that should be where we are looking.
The Romans sought to increase prosperity by re-minting silver coins with a lower silver content. It failed miserably.
If history has taught us anything it is this: We Never Learn, Nothing Changes
Hi BH, I'm interested to know what you think of the American Institute for Economic Research - comments that everyday inflation is running at 8% in the US?
http://www.cbsnews.com/8301-505144_162-57387655/inflation-not-as-low-as-you-think
The AIER is quite old...and not obviously politically biased so they are worth reading...
However their numbers ignores the part(s) of the economy that is struggling...so yes sure 8% when you select monopolies as part of the mix but ignore others .....for instance private healthcare is rocketing....ditto petrol, in effect increases in petrol is like raising the ocr, moeny is taken out of the economy for no more good.
If Americans have no more money and cant spend elsewhere that impacts other Americans jobs say retail....and if those are un-employed thats a deflationary impact....hence why "core" is used for an overall figure. Again we also have to have some inflation as a protection against deflation, severe deflation in one sector is going to feed through......so we need a true reading...
regards
Hi steven,
I hope you had a good weekend.
My point is that for most Americans - they only see inflation multiple times what the FED is admitting to. AIER numbers ignore things people aren't actually buying - those items that have come down in price (because people aren't buying them as in many cases they can't or don't want to borrow) - mainly due to the need to increase personal debt to buy them.
Money isn't taken out of the economy buying healthcare, petrol, etc - it's only just put in someone elses bank account - like oil companies, healthcare insurance companies etc... its effect is nil overall. A rising price doesn't take money out of the economy, just redistributes it.
If American don't have anymore money their government can always be relied upon to borrow some more on their behalf - not from any actual savers (who would lend to them at below inflation rates?) but from the FED and its agents who will be only too happy to print up some more...
We have to have inflation so that people are forced to put their money into the banking system to try and earn a return to keep their savings from being eaten away...
Yes we do need a true figure... and that true figure is much higher for the poor or average American (soon to be the same thing I will add) than it is for the rich... That's because most of the things deflating the poor can't take advantage of...
No, its different measures, we have core, CPI and AIER.....core is policy, CPI is how the ppl see the impact, AIER is I suppose CPI on steroids...
"effect is nil overall" I really differ on this....the healthcosts are in effect a tax and if the system is any indication highly in-efficient......however the effect overall is why we see so little inflation and almost deflation.....some areas have to suffer deflation, eg in order to have core at only 2 % and others at say 5%, some have to be -ve and if those are the productive sector(s) then thats going to be bad for an economy.
Petrol, for one sure it is a tax....that cost goes abroad to pay for crude.....
and you talk of overall....the poor cant buy the discounted things, sure, but ppl on a more reasonable wage can and do....like I mentioned earlier I bought a new fridge, got $500+ odd off it...
Also those poor if they work in the deflating sectors have no jobs......that means far less spending that is hugely deflationary....
Debt, well that alone will force a payback time....if for say the last 20 years we have seen debt growing at 3%....and we need that to stay out of recession then when its paid back thats a 6% impact....double whammy.....not good.........
regards
Hi steven,
Yes we have different measures for inflation. EPI are what most people face...
CPI is a manipulated government statistic (like many others - GDP, unemployment, etc..). Its manipulated by changing the method of calculation over the years to make the rate of inflation seem much lower than it really is. These days using substition and hedonics accounting greatly understates real inflation... One good statistian who has done a lot of work on this manipulation is John Williams of shaddowstats.com. Both he and I would disagree about seeing 'so little inflation'. Did you know, for example, that if you own your own home in the USA the government will add in market rent 'paid to yourself' on top of your income? That way they can add a trillion dollars onto their GDP which doesn't actually exist....
As healthcare costs rise and other prices fall then this just reallocates spending, yes this isn't necessarily price inflation overall. Deflation in one sector isn't necessarily bad for the economy as a whole. Deflation in computers for example has added productive capacity to the economy...
Petrol is a commodity (not a tax - although you pay a tax on it)... the cost may go abroad but comes back into the country as money loans (if not paid by exports) as our current account deficit must be financed somehow... effect on money system basically still nil overall.
I hate to be the one to point this out to you steven, but much of the debt in the world will never be repaid.....(also not good)... I mean they will probably print and print and create more and more debt to pay the old debt but in the end it will collapse - then you'll get your real deflation... at that point though - I wouldn't have 'money' anywhere near the banking system like most deflationists would argue for... until then inflation will return and they will keep printing for as long as they can get away with it...
I agree we need a reliable method of inflation calculation....however it needs to reflect a true value and not something that suits the gold bugs...
You know the inflationistas have ben yelling inflation for 4 years now but using stats that are 10 years old (at least) that isnt the case...so now lets pick methods/figures we like.....
Deflation is pretty much always bad in all sectors....computers get cheaper and better is dependant on that not causing un-emplyment and businesses going bust. For instance DSE is struggling at the moment, is up for sale and will close some sites...
John Williams of shaddowstats.com, yes one I pay attention to, however I am wary of political bias in there....
Debt and never be repaid, slow mate, PDK and I have been saying this for years...the debt is under-written by energy.....to pay off debt we have to grow at 4 to 5% per annum and that means using 2.5~3% more energy per annum when in fact we are faced with -4% per annum
yes thats -ve....therefore it wont ever be repaid.
Who said deflationists want money in the banking system? stop making things up....every deflationist Ive read says hold cash....(when the time comes) ie I think we will have some weeks / months notice before the bank runs start....hence I watch here so closely...
Inflation simply wont exist, its printing into a far bigger hole....deflation will hit us first and that means huge un-emplyment and hardship....I think that will be really ugly as there will be a lot of desperate ppl with debt that cant handle....
regards
Hi Steven, in all seriousness I would like to try and understand why you think deflation is such a dead cert.
I get that the great majority of money we use originates from credit extended into exestince by banks and should that get paid down and there is a drop in the issuence of new credit there would be a huge contraction in money supply which has major deflationary implications.
What I do not understand is why it seems to me you wont accept that this is largly being offset by the huge amount of money printing that is going on around the world.
Surely centeral banks around the world have demonstrated they are have the will and the means to meet any signs of deflation with a flood of new money.
Deflation can ultimatly only fall so far however far that may be (30%, 60% 80%!?) However QE has no ceiling, they could increase the money supply by a factor of 500x in an afternoon should they decide to do so, its just an entry into a computer!
I am courious why you seem not to concider why any deflation just cant be met with the corisponding amount of QE and then some?
-regards bb
Pretty much been writing why for the last few years.
I see a credit event coming based on the fact that we have such overwelming debt.....the Great Depression was such an event. What makes it a dead cert is the credit / debt is a future call on work/energy. So to get out of this credit event the EU, USA and Japan needs to grow at 4 to 5% per annum. That means we use 2.5 to 3% more energy per annum to do it....BUT energy supply/output is going into decline, so it cant support the growth...
Print all you want, but money is a proxy for energy, less energy means contraction so deflation and depression, 20 or 30 years of it. and finally, the central banks are desperate to stop deflatiuon happening, sure....they are not big enough now to do that indefinately....So I guess QEing can go on for a while in order to prop things up, can kicking....it cant last... and Govn's with austerity packages and consumer being frightened off spending outweigh anything the CBs can do longer term.
So sure there is "cash", but its in the wrong place, what there is is too small and ineffective.....we have done it for 3+ years and core inflation is still 2% and showing an inclination to decline into deflation.....
Anyway some background,
http://www.youtube.com/watch?v=_acwahNKjNU
and,
http://www.debtdeflation.com/blogs/
regards
I think you are connecting dots not there.... 'not something that suits gold bugs'? ... who said anything about inflation figures suiting gold bugs, technically gold does BETTER in deflation than inflation anyway, so why would the gold bugs even care EITHER way?
I've been saying the debt will not be repaid too for years too steven, so I'm not loosing sleep on it... when the default comes (and I don't think it will be this year, as I've previously mentioned before the FED did a currency swap with the ECB for a trillion, just before Christmas, that leveraged up will more than cover ALL new sovereign debt in the world issued this year, so there is no shortage of funds, QE3 has in effect already happened), it will snow ball very quickly as the banking system is all connected now days, and most people will not experience a bank run (just a bank shut) as the funds would have been sucked out electronically before you even drive down to your bank... most deflationists are holding cash in the banking system - which is what I am referring too - they think they will be safe (fat chance)...
Inflation already does exist (even the FED with supressed figures admits to this). When they stop printing we will get deflation, as they continue we will get inflation. As the FED is there, like every central bank, to protect the banks they will act in the banks interests. The Greek bailouts have nothing to do with helping Greece but helping the banks Greece owes money to. I think inflation will be ugly too with large unemployment and hardship...
Absolutely agree skudiv - I just love how people, who so desperately want to solve a problem with no pain, cling to solutions such as these that have been proven over and over again throughout history to be disastrous. And they always cite examples out of context with others as to why it will work this time etc etc - and its so often promoted by seeming "experts"
All you need to do is step back, watch them, and you can see how it has unfolded so easily in the past. Hopefully NZ authorities will have more sense, but eitherway, its full blown overseas now, and we will bear the brunt of their actions through high inflation somewhere in the next 2-5 years - I have been putting in place protection for myself and family from that event over the past 3-4 years and I so hope my fellow Kiwis read and understand the history rather than the local rhetoric and do likewise
Same, the system has reached the point of self organised criticality, and central planners are trying to hold back the avalanche. One day they will blink. Then we can have a reset, and no suprise; do it all over again. Money has been around for a long, long time, and inevitably currencies collapse, rinse and repeat.
We did it in 1936, and we could again as long as it didn't create inflation.
Who cares about inflation anyway? It's govt policy to have inflation. Just admit this inflationary, then have a discussion about whether or not we should borrow direct from the RBNZ or overseas coorporations. Govts deficits are currently a fantastic 10% of GDP, so it's not as if the current system is preventing splurging. Govt deficits are inflationary, far more so then QE (in a price push way) because they pay fresh money straight to the public spender, who spends as fast as he can.
Cut the crap, MMT is not some pristine virgin that can't create inflation, it's just as dirty as all the other soft money philosophies. It has some great points like keeping interest essentially free, focus on those instead of kidding yourself and everyone else that it is not inflationary.
It's a great disservice to the theory, when people claim it wont create inflation.
"It has some great points like keeping interest essentially free"
There is NOTHING good about the long term consequences of "free" money..ie 0%
The revelation for me was reading the writings of Hayek.
Macro economics ..without looking into microeconomic consequences ..is a really,really dismal social science.
In the Capitalistic system interest rates are supposed to play a very ..very important function....
Interest rates are a transmission mechanism... they should convey information on risk, on resourse allocation.... etc... they determine the "Capitalization Rates" of all sorts of asset classes.
0% interest rates would destroy Capitalism ..as we have known it.
Interest rates should balance the supply/demand dynamic between savers and borrowers.
It seems counterintuitive... BUT really low interest rates are BAD for an economy ..long term.
AND..of course it would require much credit creation for interest rates to remain low.
One of the unintended consequences of the USA Fed maintaining record low interest rates ...is that many of the pension funds...public and private.. are now seriously underfunded.. and will NEVER meet future obligations.
http://sprott.com/markets-at-a-glance/unintended-consequences/
Cheers Roelof
Ok I wasn't clear enough, "keeping interest rates essentially free for govts, making splurging cheaper".
Hayek in the tradition of all great economists "I am the only one who is right" makes another ultimatly futile attempt to try and create a viable monetary system. Monetary sytems have been imploding and exploding throughout history, this time is no different, neither will next time be any different. Monetary systems fail. They are unsustainable.
You can't use the same thinking that created the problem, when trying to solve the problem.
Insanity is doing the same thing over, and over, expecting a different result.
Hmmm...Would it be hard to come up with a good monetary system...????
A problem is that there is not even a consensus on what Inflation is.... how it manifests...and how it should be measured.... (The common view is that it is a rise in the CPI.)
This thread is a great example .... it is full of diverging and conflicting views.
Economics seems to be the only "science" that seems to be ok with having such conflicting points of view....and still call itself a science.!!
Is money the right tool, to use for building prosperous, peaceful society? I don't believe it is. What seems more civilised is a scientific approach to society. What do people need, then what do they want, how can we best use scarce resources to meet humane needs, how many wants can we meet using scarce resources? How much resources do we have? Pharmac does this with medicines, but instead of asking how much medicine can we produce they have to ask how much medicine can we buy. A similar approach can be used with all resources. How much can we use, where is the best place to use them, what can we produce with limited resources, that will ensure a sustainable future. Treat scarce resources as a heritage, to be managed, not as plunderable loot, for short term profits.
I don't see anyone thinking about this, solving structural govt financial deficits is about as deep as we can think. Completely ignoring the massive resource deficit we have built into society, and the neccessary inequality that is intrinsic to the monetary system.
To define inflation, you first need to define money, which has not been done. $1 has no defined value, what is it equal to? Any molecule, or element has an absolute defined value in science. The law of gravity can define dropping a weight, and give you a value for any aspect of it, speed, velocity, distance traveled etc. The economic law which states that if you raise the price of ice cream, you will sell less, is completley abstract, and cannot define much. Which is not fault of economists, there are too many unknown variables, and seems more like a generalisation, then the law of gravity.
"Is money the right tool, to use for building prosperous, peaceful society? "
Of course not.... That requires intelligence and an ability to look beyond ones own self interest....
It is easy to define money.:
It is a unit of account...a medium of exchange and a store of value... Anything that fulfils those 3 qualities can be used as money.
When u say that $1 has no defined value... I disagree. ... As a unit of measure we use it the same way as we use the "inch"..or "cm"... to measure something.
As a store of value... we trust that $1 will buy the same tomorrow as it did today.
As a medium of exchange we know that $1 can be exchanged for goods and services.
Why complicate things..???? Intrinsically, Money has got nothing to do with scarcity or humane needs ...in just the same way as a tape measure has nothing to do with a timber shortage.
Inflation has to do with the "store of value" quality of money.
The biggest lie ..or mistruth.. is that the CPI measures the impact that increases in money supply has on the "store of value" aspect of money.
If money supply is compounded by 6% per yr... the impact of that can manifest in different ways....YET... we are hypnotized into thinking that as long as the CPI is within target then all is well.
Skudiv what you advocate is called "central planning". Look to places like Soviet Russia, China and Cambodia to see the inevitable consequences: abject poverty and millions of deaths. Hardly a "civilised" approach.
What do people need, then what do they want, how can we best use scarce resources to meet humane needs, how many wants can we meet using scarce resources?
The market is the only way to find out the answer. People's needs and wants are expressed through their decisions in the marketplace, and scarce resources are allocated to those who place the most subjective value on them, as expressed by the price they are willing to pay.
We can ignore the comments which refer to Texas, which saves some time/effort. The rest of the thread was a good Sunday evening read.
But, Bernard still doesn't address the question - in fact, either he doesn't read some of the stuff posted here, or..........
Take this "building consent costs, driven largely by councils".
That's a failure, in investigative journalism terms, BH. Rather akin to Jim Mora "keeping an open mind". The follow up question is always "what drove the Councils", and there are many answers. Leaky homes, the complexity of modern dwellings, the demands that the 'asset' be somehow a 'safe investment'.
Nowhere does Bernard mention that there is a difference between inspecting an 1100 sq ft lean-to cottage, with one combined chinmey for a fireplace and coal-range, 3/4 rooms and an outside privy, vs a McMansion. It rather illuminates tha failure of economics - too many unaccounted realities.
Bernard has also been told that the Productivity Commission report is flawed (not all, but what is flawed is fundamental, so fatally). The cost of materials, for instance, is entirely rear-view-mirror, entirely assuming status-quo re supply. How many years have we posted here about that?
Hard to understand, it is being.
PDK lifestyle blocks? LOL now you have really lost the plot....seek medical help.
Texas, you can google earth the empty sections / developments there and all over america where developers have got the local councils to put in roads and services paid for via manicupal bonds that existing rate payers are now liable for that are still unused 20~ even 30 years later.....what a waste...
woodlands is a sick joke...its a sop.......
regards
Got you, Hughey - in writing.
This is the man who quotes Simon, re infinite opportunities, including land. But here, you argue that productive land is finite.
Better choose, because if it is finite, then you have to ascertain how much will be needed to feed the inhabitants of your exponentially-increasing sprawl. (Note; name-calling is the hallmark of a weak case).
If it is finite, better ascertain what else is. Then work out what is sustainable in the long term. I'll tell you what aren't sustainable: close-packed, randomely-facing boxes of ticky-tacky, and oil-driven monoculture BigAg.
I'm all for safeguarding our prime land, by the way, but TNC-controlled, oil-fertilised, oil-mechanised, globally-transported, aquifer depleting, bee-retarding, pesticide-dependent agriculture, is not safeguarding, it's what we need safeguarded from.
One of us looks forward, Hughey, and asks what will be? The other looks backwards, and states that what was, will be. You're the latter to the letter.
This govt has not got the foresight to print for infrastruture, or start a financial transaction tax to pay for it. they are more than happy to bleed our skilled, educated young to Australia than give them jobs here. Resign Key! your financial management is a poor joke
Money printing world-wide is the underlying cause of inflation in the prices of commodities such as oil and food that bring misery to a huge number of people in poor countries, and have in turn also triggered the instability across the Arab speaking world. Sure, a few Kiwi-Dollars more or less would not make a big difference. On the other hand, why get your hands dirty when others are doing it for you? The ECB printing binge alone is probably enough to ensure low funding costs for NZ banks for years to come, as - unlike the Fed - the ECB gave the money to banks, no strings attached and they will "invest" it all over the world.
If on the other hand the NZD would signficantly fall, it would immediately further inflate the prices at the pump, hurting many NZers, while I cannot see which export industry will be boosted by it. Milk powder goes well even with the expensive NZD, and NZ does not have a lot else to export. Education, tourism ... has there really been a big downturn due to a high NZD? Not that we know of. As long as NZ has no export industries to speak of, a high NZD is more of a benefit than a problem.
Incidentally, I cannot even imagine the NZD to fall by a lot, even if NZ would start printing money. It is still the one-eyed currency among the blind, as long as the China story goes on.
Now, let us imagne that money is being printed, and roads are built. Well, sorry, but what for? To have the infrastructure to support what kind of industry? To employ a lot of people who can use the money for more consumption and thereby heighten the inflation problem NZ already experiences?
If money is printed, then use it to establish new industries rather than support non-existing ones. And can you imagine THIS government to have the competency and imagination to set up new industries? All I see happening is the young people who could carry those new industries leaving coz they cannot even buy a shed here any more. And in order to fix that problem, you need LESS money in the system, not more.
Have a think about it.
Oil is going up because its peaked in output ie supply, but demand has not....since we ration based on price, we pay or do without. From what I can read we are drawing down reserves and spare capacity then is probably gone....in which case it suggests price is about to go a whole lot higher shortly...ie this year. Historic trends suggest a 4% shortage leads to a 4 fold increase in cost.....so a 2% shortage will cause the price to rise to the point the world's economy collapses....it was $147USD last time, $159USD in today's prices....but I cant see it going that high myself.
NZ has no inflation problem overall....
regards
Well said.
We only need to reduce the money supply to a point where the economy is in ballance (many other measures also needed) then hold the money supply at that level.
I have no quarrel with BH proposal, but it is , or should be, only a short term measure to fix an immediate problem.
As for house prices and a building boom (with printed money) to bring down prices. It is NOT going to happen, EVER.
Imagine an average house price of $100k and an average mortgage of $80k. The banks would hate that. Much better for banks if house prices climb, and climb, and climb. So mortgages can go up and up and up, and people can borrow more and more and more.
As governments lick the backsides of banks things will never change.
So listen to Olly and buy, buy, buy.
To those who talk about inflation.
I bought a section and built a brand new house on it ALL FOR $10,000.
That was back in 1972 today that house is work $400,000.
I used to raise a family, pay off a mortgage and live comfortably on $60 per week.
That was back in 1972.
Sounds like Zimbabwe in slow motion to me
I agree with BH. Just cut interest rates for the effect of stimulation which would result in inflation and lower currency. What is wrong with that?
Onya BH!If this was the policy then all you need to do is maximise your borrowings and leverage to the max. Asset prices will skyrocket so buy up a storm.Ride the market rally and get out before the balloon bursts.
Fantastic!
No, I dont think we'd see inflation if we cut the OCR not while the world is in this mess.....but the great thing is when inflation comes back the OCR can be quickly raised....but I think that's 5 years off...and probably 10. We'd also can the carry trade...throw in a tobin tax and we'd see a more stable exchange rate as well.....fat chance though too many ppl making money on it.
regards
FYI from a reader via email:
Dear Bernard, Printing money does not create wealth. If any thing it wastes resources and redistribute wealth creating malinvestments. It can not do anything else. Inflation is high worldwide. Like at food prices, oil and building materials. Their price is flying worldwide.FYI from a reader via email:
Hello Bernard
Congratulations for having the intestinal fortitude to write your piece "Power of printing money", It certainly aroused much interest! The comments showed that there are quite a few people who actually understand how the present banking system works, and that there are also quite a few who think they know, but actually don't! You may have heard of the new book "Where Does Money Come From?". It explains it all in great detail and great clarity. I ordered one and it arrived about ten days ago. After reading the book, and then your article, I sent an email to Josh Ryan-Collins, one of the authors, suggesting that it would make good reading for John Key, Bill English and your good self, and sent him the URL for your article. I'm going to hand the other two copies to my local MP and suggest that she has a very quick read of the book before personally handing their copies to her two colleagues. To whet your appetite, here's the URL for an interview with Ben Dyson, founder of Positive Money UK, and Andrew Jackson, another one of the authors of the book. http://www.positivemoney.org.uk/2012/02/interview-renegade-economist/ CheersPeter
FYI from a reader via email:
Hi Bernard
Not sure which school of economic thought you are following but its not rational. Even Mr Bernanke agrees that the cause of the great depression was adding debt to existing debt causing deflation. But he follows your prescription for printing based on what is accepted in economic texts as rational economic decision making, which is simply “we do what we want”. The same thinking that caused the last great depression and the same thinking that will ruin a business or household based on the arrogant assumption that if you simply determine an objective you will achieve it.
That’s what the woman “Arn” prescribed and its why foolish central banks (led by Greenspan etc) and governments have allowed the financial industry to be self regulating. Hence the greed.
There is a serious flaw in your thinking. Interest rates represent the supply and demand for funds. Our central bank is already being forced to lower our rates because of the actions of the FED etc. So we are in effect printing money as the cheaper funds are made available to a credit hungry society. Our rates pay a premium over other country’s because of our rate of inflation and the additional risk inherent in our little nation.
Please retract your statements for printing or do something rational, based on sound values, because you have seriously lost credibility. I can only assume that you have made these statements to create interest in your business or you have been seriously duped by the likes of Martin Wolf. Or maybe you have bought a house and want the price to rise.
Cheers
Michael
FYI from a reader via email:
Like many of your readers I have been against creating money for reasons mentioned, like fuelling inflation etc. However after reading you article and giving this subject more in depth analysis, I found one obvious answer that you actually missed to emphasize. That is the fact that as the population increases then of course we need more money to go around. For exactly the same reason that we require more food, more clothing and more houses etc. when there are more people to cater for. So why not make more money as well? That would not create rapid inflation as some people seem to be concerned about. Please keep up the good work and make sure that those who call the shots get the right message. We definitely need more money in New Zealand. Kind regards,Bob
FYI from a reader via email:
Hi Bernard,
I can hardly believe my eyes at what you have written!
Congrats, this is very good, also a bit of a history lesson that needs to be told as many will not know about the Reserve Bank's credit creation in the late '30's, sadly never to reach its full potential in the way John A Lee envisioned.
There's so much that can be done, so easily if those in power truly were nationalists and wished to make NZ as strong as it should be. It seems that there is an ongoing agenda that is not in our best interests, which endures as a permanent background no matter what the political party. Surely it can't just be ignorance?
Have you been following Ellen Brown's work in the US? - on state banks and creation of their own credit?
http://www.commondreams.org/view/2011/09/01
http://www.commondreams.org/view/2011/05/17-7
She has done an amazing job in educating people on this issue of creation of credit and ownership thereof.
Regards,
FYI from a reader via email:
A sensible idea that I have heard for while.
In this day and age we need to think outside of the box. We need to unlearn what we have been taught for decades now and re learn new ways of doing things and just do it.
At the end of the day all boils down to managing the cashflow in and out of the country. Economic is about ensuring circulation of wealth in a balanced way and not necessarily accumulation of wealth.
The current global system is designed to rip off the ones who (nations) who work hard and generate wealth and live a reasonable life. Where as the people who print money and dish out a price through the established networks and markets make money for nothing. Our markets, systems, organisations, agreements, partnerships, degrees, Phd’s and the education systems and selection criteria for critical roles all have been geared to ensure the current structure survives. The pattern is pretty simple..
· Create the problem (the current set of administrators and politicians)
· Generate the reaction (from the global community)
· Provide the solution (the current set of administrators and politicians)
Same old same old and no wonder that instead of getting nearer to a solutions the issues are becoming more and more complex and difficult.
In the face of it the ordinary punter is lost and succumb to the rip off day in and day out. It is time to change course I guess. Use a brand new set of people to take a brand new set of approach.
NZ is a classic example. The 4m+ population in this country generates enough wealth for generations to come. But we ship out the profits in two ways one via foreign ownership and the other via interest on overseas borrowing.
Wrong industry sectors are in foreign control. (Energy, Supermarkets, Telecom, Mining, Banks. Shipping etc) These sectors of the economy are so linked or concentrated around our basic needs and the back bone of the NZ export based economy. I hope the Fonterra’s and so on won’t get the NZ shareholders to sell off their productive assets since profits are guaranteed in to the future. I am even concerned for things like water resources etc being privatised. Because I am pretty sure we will never be able to sell a business/ public goods entity that does not give a high return to outsiders.
It is my belief that Economic prosperity can be achieved based on the ideology of a community which must in turn be based on natural forces that is built on natural demand and supply for goods and services within, to and from the country with the rest of the world and the nation using it’s resources in a sustainable manner to benefit the nation first and then the rest of humanity. Every time we give it external shocks or artificial inducements it will be a matter of time before it reaches its use by date.
The faster we realise our current predicament and change to such a value based system the better we will become. NZ is unique and is well placed and will have the courage to bring about such an approach or I would say to change course quickly.
Our products and services are wanted and respected by the world these are mainly food based, our water, land and natural resources coupled with the NZ psyche, research capability are winning ingredients as well. I want to add our balanced social systems, the successful elements of public administration reforms, a non subsidy based industry framework are easy to share and duplicate in other parts of the world.
But we need political leaders, business leaders, community leaders and thinkers who are not hypnotised or addicted to what we have done are doing to date to make this happen.
So well done on your thinking.
The printing and issue of new money should be done within a set of rules. If we do print money and invest in infrastructure and also invest in business sectors we just need to ensure that the cash does not hit the foreign controlled banks or contracts are awarded to big foreign entities. This is when it will adversely affect the currency and the inflation. As long as the money circulates within the NZ borders then we will prosper. Remember economic growth and prosperity will result in increased consumption which in turn will drive inflation. However as long as most of these consumption is based on needs and liked to local industry sectors this will not be a problem. This needs to get into the DNA of New Zealanders first lets help ourselves before we can go helping others. This is applicable at an individual level so why not this is suitable at a community and a national level. Local employees and business getting paid for work carried out in return will spend within NZ. There will be some pilferage but as long as the majority of the money remains within NZ. Kiwibank should be a major partner in the process. It is still a no brainer for me all government bank transactions should be done via Kiwibank. No questions asked this should have been done by now.
People hide behind excuses such as free market principles etc forgetting the notion that Nothing in life is free everything comes at a price. Afterall haven’t we guaranteed the depositors in these banks of their money to stavilise the system. So if the system crashes we will need to either print money or will be governed over like Italy, Greece etc. We also say that government cannot run business. Well we need to create a performance based culture in whatever we do agree and set goals and outcomes that are right for New Zealand not for everyone else and we must not rest or leave no stone unturned until those are achieved.
We should be running some public seminars on this topic Bernard. ( Ex: Alternatives to the current economic systems, Do we need a new Social system based on a new set of ideology etc)
Bernard, please watch this video:
http://www.youtube.com/watch?v=S8WReKlUFP4
And a point of clarification: Increasing the money supply is the very definition of inflation. Price inflation is merely a symptom of that.
FYI from a reader via email:
Dear Bernard,
Bill English wrote to an Auckland businessman recently in response to his suggestion that a Christchurch currency be established to fund the reconstruction of the city. He was clear that such a proposal would result in an additional level of debt on the taxpayer and would be highly inflationary. When a Minister of Finance is locked into the mythology around money that serves as sound economics there is little hope of a way out of the financial quagmire that we are currently in any time soon.
Because some 97 percent of our money supply enters the economy as interest bearing debt those who own and operate the mechanism of debt as money will go to whatever lengths it takes to protect their extremely profitable virtual monopoly. If I had the only goldmine in town I would make damn sure it remained just that. The argument about printing money and inflation is simply part of the process used by the debt as money entities to put the frighteners into people who may be persuaded that a change is long overdue.
The change needed is to look at what money is, what it should be and who should control it.
Primarily the money supply should enter the economy debt and interest free through a properly constituted authority answerable to our elected representatives in Parliament. In simple terms the authority would be charged with ensuring the money in circulation met the needs of the economy and society. The data and criteria used would be open to public scrutiny.
Ideas like Gareth Morgan’s ‘big Kahuna’ would be a means of injecting debt free purchasing power into the system as would providing funding streams (in the form of interest free overdrafts) for specific public good projects such as the Christchurch rebuild. Because the ‘money’ (overdraft) will be cancelled out of existence over the duration of the project then no long term inflationary aspect exists.
As interest bearing debt is gradually squeezed out of the economy the constant drive by government to squeeze more out of less will result in greater employment opportunities in the economy, lower taxes and more wealth for a greater number of people being generated.
Until the debt as money mechanism is addressed the global economy will keep on stumbling from crisis to crisis and our children and their children will continue to pick up the ever increasing cost of trying to provide a debt based solution to what is now being widely recognised as a debt created problem.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.