Stagflation is a situation where the economy is stagnant, inflation is out of bounds, and unemployment is high. That sums up the reality of New Zealand.
This reality runs well ahead of the statistics. For example, as I write this on 18 April, the latest quarterly data for GDP (gross domestic product) relates to quarter four (Q4) of 2025. It will be 18 June before we receive data for Q1 of 2026.
I do not criticise this apparent tardiness. It is simply the way things are. Even then, the Q1 numbers will be provisional.
The effect of the Iran-war
The Iran war will only have a modest effect on official GDP for Q1 2026. This is because of the way GDP is measured. Official GDP for Q1 measures the level of activity in the economy over the whole period of January, February and March, and only one month of those three was a ‘war month’.
This means that what we are experiencing right now, in the second half of April, will not be evident in quarterly GDP data until the second half of September when Q2 data becomes available. Note that GDP is always expressed after adjustment for inflation.
The simplest way to know what is happening to the economy right now is to ask people who work at the coal face. That includes tradespeople and those in service industries
Where I live in Christchurch, the house construction industry, unlike most other parts of New Zealand, remains buoyant. But tradespeople tell me that householders are not moving ahead with repairs and renovations. There is no doubt that restaurants and cafes are doing it tough. The real estate market has also gone quiet.
All of this tells us that one does not need to be an economist to know that, right now, the economy is going backwards!
Unemployment
The latest quarterly data for unemployment is for Q4 of 2025. Unemployment at that time was 5.4%. This is the highest figure for unemployment since September 2015.
The lowest unemployment level in recent years was 3.2% in December 2021.
Part of the unemployment problem is a mismatch between the skillsets of unemployed people compared to the skillsets demanded by the market. But some of the unemployment is not so easily explained.
For example, many nursing graduates in 2025 could not get employment in New Zealand, and of those who did get nursing jobs, many were only for part time positions, typically 0.6. I can only shake my head in wonder at the steady flow of nurses across the waters to Australia.
Another metric of slackness in the employment market is the national statistics for underutilisation. This metric takes into account the effect of people who have only part-time work, but would like additional hours.
The current underutilisation rate is 13%, marginally below the 13.1% reached in December 2020 during the global Covid epidemic. Prior to that, in December 2019, the underutilisation rate was only 10.1%.
Accordingly, the big message in relation to unemployment is that we do indeed have slack resources. The challenge to using these resources is how to do so without creating inflation.
Inflation
The latest official rate for the CPI (consumer price index) inflation is 3.1% for calendar 2025. The updated rate through to and including Q1 of 2026 will be available on 21 April, which is before some of my readers will have read this article.
This quarterly inflation for Q1 of 2026 may even create a reduction in annual inflation compared to the much quoted 3.1% for calendar 2025. But if so, it will be a short-term mirage.
There is general agreement that inflation is currently increasing in New Zealand. We all see it every time we stock up on groceries and fuel. The big question is how high will it go and for how long.
What we can be sure of is that most of the Iran-war inflation effects will not be picked up in the official inflation statistics until the Q2 data is released in July. Even then, the data will largely be confined to first-order effects.
Let there be no doubt: in regard to inflation we are in trouble. If inflation leads to compensating wage and salary increases then we will look back to the current inflation rate with fondness and longing.
Fighting stagflation
All of the above should be enough to convince readers that we already have stagflation baked in, with stagnant growth, high unemployment and exponentiating inflation.
How do we find a solution that takes us back to per capita growth, low unemployment and stable prices?
The answer is that there is no simple path.
The only tools that are available are monetary and fiscal (tax) policy.
Monetary tools lie in the realm of the Reserve Bank. Fiscal policy lies in the hands of Government through the Minister of Finance.
The only tool currently in the tool-bag for inflation is to raise the OCR (official cash rate). Essentially, this is the rate that the Reserve Bank charges commercial banks for loans, and also what it pays commercial banks for their deposits. From there, this rate works its way through the economy with commercial bank cash margins of another 2% or more added in.
This OCR is currently at 2.5% which is very low compared to historical rates over the last 26 years.
In other words, the OCR is currently set at a level which is typically regarded as stimulatory, both for inflation and economic growth. However, in our current case, we have the inflation but not the growth.
If the Reserve Bank wants to control inflation and hold it at less than 3% then there is no alternative but to raise the OCR.
This will increase interest rates across the economy and have a negative effect on GDP in the short to medium term. It will almost certainly reduce inflation, but this will come with considerable pain to the general population.
However, allowing inflation to exponentiate further will be highly destructive for the longer-term situation. We must not go there.
This is where the Government must step in with fiscal policy. The pain from controlling inflation must be balanced by reducing tax rates for those on modest incomes. Monetary and fiscal policy must work together.
Specific Monetary Policy
If I were the Governor of the Reserve Bank, I would raise the OCR forthwith to 3%, and state that the Reserve Bank hopes to maintain this rate without further increases being necessary at least for 2026.
This would be consistent with the Reserve Bank Governor’s statement on taking up her current role some five months ago, that she was going to be “laser focused” on inflation. The Governor has already stated that she expects inflation to reach 4.2% inflation in the June quarter. This not the time for pussy-footing around!
Specific fiscal policy
Now is the time to raise the band limits for income tax.
- I would raise the upper income limit for the 10.5% rate from $15,600 to $25,600.
- I would raise the upper limit for the 17.5% tax rate from $53,600 to $63,600
- I would also raise the income tax levied on incomes in excess of $250,000 from the current 39% to 45%
I would make these adjustments to come into effect as from 1 July 2026.
This would provide an extra $700 per annum in tax paid earnings for those on limited part time work and an extra $1500 of tax-paid earnings for almost all other taxpayers.
Of course nothing comes free of downsides. I estimate that this modification of tax rates would increase the Government’s operating deficit by approximately $4 billon and this would have to be covered by additional Government bonds.
In general, I am very negatively disposed to even the current level of Government deficit. But these are special times and special action is required.
I would also make the comment that these are not the time for ‘catch-up’ wage increases based on inflation. Any wage increases must be underpinned by increased productivity and increased skills.
Nor are they the time for ‘catch-up’ increases in prices by those in retail businesses.
And to those who don’t like what I have written here, what is your suggestion?
*Keith Woodford was Professor of Farm Management and Agribusiness at Lincoln University for 15 years through to 2015. He is now Principal Consultant at AgriFood Systems Ltd. You can contact him directly here.
53 Comments
Yes agree.
With an emergency OCR rise to 3% with a WARNING of higher OCR at each meeting, if pricing expectations and settings are not contained.
If they decide to "head in sand" and do nothing at the next two meetings, we could see OCR settings required to be high singles to low double digits in 2027, as inflation flares like wildfire and the 1970s gives us a call.
The 1970's are already back with NZ housing prices in serious, unabated crash mode, in nominal and more so in the most important inflation adjusted REAL terms.
Next inline with fuel shocks, could very well be, ballooning cost of funds.
Our ARM NZ mortgage market, is looking like a financial WMD.
Yip I’m with you and Keith - I also would be raising rates.
They used large emergency interest rate cuts during COVID when they feared deflation so why not be consistent their approach as we now fear inflation?
Why such an imbalanced and inconsistent view on monetary policy? Ie we will happily do 75bps cuts when we ‘think’ we might experience future deflation (even if it isn’t measured yet - eg 2020) but when we are 99% certain out of band inflation/stagflation is ahead of us, the RBNZ fears even raising rates 25bps..let alone considering an emergency 75bps raise in OCR? The 1-2 year swaps would justify it - that is how far detached the OCR now is from shorter term wholesale rates.
Why the bias always favouring OCR cuts over raises? Even after the new RBNZ leader said she would be laser focused on inflation but has allowed inflation to already drift outside the mandated band before this oil crisis emerged? Talk the talk but refuse to walk the walk. I guess time will tell. She may yet have her hand forced by wholesale markets and be a follower not a leader.
It sheets back to Covid. The impact and aftermath. The whole nation has been staggering along ever since. When you count the negative factors in the economy as the author identifies, it reveals none of it has really got going again. There has not been a meaningful recovery and the people are still feeling the pinch. Stress withdrawal levels from Kiwi Saver illustrates that and another recession looms.
Too truncated a window - and a tad of bias in there too, perhaps.
This can be traced back 50+ years, not just a handful
Well still seems a bit early to jump from “inflation risk is back” straight to “emergency OCR rise now”.
If demand was humming and the labour market was tight, yeh fair enough, different story.
But with growth soft, unemployment at 5.4%, and a lot of the latest pressure coming in via fuel/oil, I reckon hold with a hawkish tone still seems the more likely path unless it starts spreading more broadly through wages\services
I agree that the Governor of the Reserve Bank is likely to move more slowly than what I am proposing. But raising the OCR to 3% is still only lifting it to what can be considered a neutral level. Note that I am proposing action moves within both monetary and fiscal policy. Fiscal adjustment will provide stimulation.
KeithW
Having a look here i'd argue that pre-2008 and QE, 5% would be the neutral rate or just above. The issue isn't the OCR level necessarily, but the level of debt carried now vs say 2007.
Like the USA, people will continue to cry that the debt needs to be increased and can keep doing so in every crisis as the get more frequent from weather, geopolitics and energy shocks. We are going to be in for another interesting few years.
"I reckon hold with a hawkish tone still seems the more likely path unless it starts spreading more broadly through wages\services"
The 'I reckon' points of view are always the best. By the time they have the data that this has occurred, the horse will have bolted and the RBNZ will spend the next 18 months raising rates to catch up to get on top of it causing the period of stagflation to last longer and be more severe than otherwise necessary.
My tongue-in-cheek suggestion is that you are thinking in terms of yesterday but need to address tomorrow.
Wages are spent on real stuff - processed parts of the planet.
Investments expect to be spent on real stuff - processed parts of the planet.
Savings " " " " " " " - processed parts of the planet.
Debt and bonds ditto.
Etc., etc., etc.,...
But there is ever-less planet remaining (in useful extraction/depletion terms) - and a never-more collection of demands-in-waiting, on same.
So my real suggestion is that we need a new way of accounting; one indexed to the (real) planet. To replace the one we have, which is past is fit-for-purpose date.
I don't suggest we will do so willingly; I suggest that in the medium terms we will be forced to go there anyway.
The fundamental flaw here is the confidence that a higher OCR will 'tame inflation'.
Let's look at both sides of the battle here - assuming that OCR increase to 3%.
On the side of inflation you have:
- A starting position of a major spike in prices for fuel and oil-related products that absolutely will propagate through our economy into consumer prices (that's a done deal as you recognise)
- Higher business debt-servicing costs in a low-competition economy will mean higher prices for consumers - we saw this through 2022 and 2023 when the profit margin of our biggest sectors (wholesale and construction) barely moved - higher debt costs were just passed through to prices
- Increased mortgage costs will put upward pressure on wages - and the last 30 years of data shows that NZ wages are incredibly resilient and responsive to increased costs (real wage growth has been about 1% the whole time)
- Our consumer economy is basically a 'buy stuff from abroad and sell it on with a margin' kind of economy. So, when demand drops, prices don't, wholesalers just buy less stuff to sell. There are some exceptions of course (e.g. rent).
On the side of inflation taming you have:
- Higher unemployment will reduce workers' wage bargaining power. But, how much less than now? Is 7% unemployment really going to put more downward pressure on wage growth than 5.3%?
- The inflation expectations fairy - the magical 'patch' to the theory that kept monetarism going for all those years.
As I've said on other stories, the idea that NZ will be able to opt out of the global shift in the price level that is coming is crazy - better to manage the change than resist it. We are already destroying our productive capacity.
I agree that raising the OCR to 3% is not by itself going to tame inflation. But it will start the process of getting inflation under control. It will probably lead to a small rise in the exchange rate which will help manage tradable inflation. For comparison, Australia has an OCR of 4.1%, England has a base rate of 3.6%, and the US Fed rate is in a range from 3.5% to 3.75 %. For us to be at 2.25% is distortionary.
KeithW
Yes, you're right, I should have put the potential for a NZD increase on the inflation-taming side.
I still don't see how an OCR increase, which directly adds costs to businesses and puts pressure on wages, will result in downward pressure on prices.
Id suggest that monetary policy can only have an impact if we need to attract FDI...remove that need and it is of little use. Comparative CB rates are then irrelevant.
"The fundamental flaw here is the confidence that a higher OCR will 'tame inflation' "
And I laugh in bewilderment as we just spend 3 decades lowering the OCR with confidence in order to 'tame deflation' (from cheap labour in SE Asia that was measured in our CPI basket of goods).
So which one is it - that the OCR is a good way to keep CPI stable (by raising/lowering aggregate demand), or it isn't a good way to keep it stable? You can't have it both ways - unless you are the type of person who like to have their cake and eat it too. Ie next time around when we have deflation are we going to say - 'hey lowering the OCR is not going to change the fact that the reason it is going lower is because the poor workers in SE Asia can create stuff cheaper than we can - but we will do it (lower the OCR) anyway'.
Monetarism should have died decades ago. The OCR is a medieval tool - blunt, terribly slow, and mostly ineffective. Just leave the OCR at 2% (the inflation target) and be done with it - the stability will bring stability. Honestly, 50 years of this nonsense is enough.
We can use taxes to change or reduce consumption, and replace ineffective monetary tools with fiscal stabilisers like youth employment / training / study guarantees (Govt spending increases into downturns and reduces as the economy picks up).
Very good article by Keith, as we've become accustomed to. I agree with most of it, except that I'm still not convinced that inflation cause by a spike in supply price (higher oil prices), can be cured by reducing demand via higher interest rates, without really killing the NZ economy.
I agree that inflation caused by supply factors cannot be controlled by interest rates alone and it has minimal influence on first-order supply inflation. Note that I am also advocating for a fiscal policy change which will be stimulatory.
KeithW
Yvill is right, except who said it's a 'spike'?
The reduction of supply cannot be 'controlled' by anything fiscal, except out-bidding others. Complete cessation not even that.
And no fiscal policy can 'stimulate' a supply; that is perhaps dated thinking - from the surplus years.
Surplus Energy Economics | The home of the SEEDS economic model – Tim Morgan
(the first 3 posts)
Raising rates moderately to mildly restrictive now (3 to 4% OCR) -yes it will no doubt knife the legs of our economy - it will be staggering. It won't be a heart hit.
To not raise rates, will be just to protect the richest of us via asset price protection. To not raise rates soon, will destroy the basic purchasing power of the poorest 35% of NZ, who own nothing, live hand to mouth and cannot afford runaway inflation, making bread, milk and eggs unaffordable.
Raise next week RBNZ - or be sorry, when action is needed more urgently, in May 2026.
Your goal - not to shaft the poor, relatively - is laudable.
But by the time this all shakes out, the system you are measuring within and suggesting actions ditto, will be long gone.
Local food, local services would help them and greater society, more.
The outlawing of usury is the only financial measure I can think of which would help. Inflation is an inevitable runaway train from here on.
Raising the OCR probably won’t fix fuel prices, but it can reduce the spiralling effects, particularly businesses raising prices not because they have to because everyone else is.
A better argument to not raise the OCR is that the economy is already so broken you can’t really reduce demand much !
I’m not convinced tax cuts will achieve anything other than loads more debt. The last round of tax cuts didn’t exactly revive the economy.
Id prefer to see infrastructure build. There’s probably plenty of projects ready to roll if money was available. I’d just write a big cheque to each local council, provided it is used for infrastructure only. The extra jobs would reap a lot of that money back in tax.
Tax operates in both directions...it can be reduced and it can be increased. Most importantly you can determine where it needs to be applied.
not under a labour gummint
I think Keith wants to fix both the stag and the flation at once. I’m not convinced that’s really possible, you can’t cool the economy by OCR then heat it via tax cuts, you just end up in the same place (but with more debt).
The first step needs to be to fix the inflation. Or just look through it and hope it really is transitory this time.
I agree that inflation has to be at the forefront. But focusing on inflation by itself would be disastrous for employment. Fiscal policy has to be part of the toolkit.
KeithW
Normally you want fiscal policy to work with monetary policy. But in your case aren’t they fighting each other?
It’s a pretty crappy situation in NZ where the economy never really got back on track since the last rate hikes. Many of us said at that time that they hiked too high and for too long. The RBNZ never got the economy back to a state where we could handle another round.
The hard facts are that getting the economy back on track is going to be painful. There is no escaping that. The Iran War is the latest 'black swan'. One way or another there was always going to be another black swan. Part of New Zealand's problem is that we did not prepare for that future black swan once we came out of COVID.
And now we are caught in a muddle. The suggested tax changes I am advocating are to ensure that it is not the poor people who bear all of the cost.
KeithW
That is the reality check and its implications and prospects are certainly sobering. NZ by its position, history and resources is a mercantile nation. It must import raw material to service its industry, commerce and civil necessities.It must produce and export to pay for said imports. That is not oversimplification, it is the basic fact. What NZ can offer the world is reliable, safe and quality primary production. Yes, yes that is old hat thinking amongst many of the younger and academic circles, but presently there is hardly any alternative on the ready to use shelf is there.
Keith, I've always maintained that NZ will be hit by a very significant event, Black Swan or otherwise, probably at least 2 times every 5 years in this increasingly volatile (climate, economy, social, political, natural hazards etc) world. This has profound implications for all manner of policy, including economic.
I have problems with this article.
Things might be quite swell in the Garden City, but it's one of few *relatively* good performers.
Construction costs are going to zoom up as a result of this diabolical war, in Christchurch and everywhere else. As the excellent Professor Tookey from AUT says, construction is going to get 'tanked':
Raising the OCR will make diddly squat impact on inflation, yet it will pull a sickly economy even further down.
Of course, we could raise the OCR to 3.5-4%. That wouldn't kill inflation but it might bring it to say circa 2.5-3.0%. But we'll have 10% + unemployment (minimum) in the process.
In short - demand is getting sucked out of the economy due to the impacts of the war, that will limit how high inflation goes. The OCR should stay exactly where it is. Moving it up or down won't make any difference, for growth OR inflation (unless you go much higher or lower, but then you get a big negative whack on the reverse). And then what? We need very targeted fiscal stimulus. Of course, this government is allergic to that...
things are going to be ugly regardless, but hiking the OCR will result in 'ultimate ugliness'
Brace
BTW I think with very few good 'solutions', I think the income tax one is quite a good idea.
And on the upside, might support consumption and GST revenue (which will already be soaring from the cost of fuel)
Chance of it happening? Nearly zero.
Mr Woodford, along with everyone who glosses over the fact that the economics we are taught ignores how money is created, and in doing so, he too misses the giant gorilla on the kitchen table that is eating our lunch.
I label this eCONomics - the mythical pioneer pseudo-science that paved the way for other disciplines to follow as a tool of central planning and globalist agendas.
Interest rate hikes are not an effective monetary tool to address inflation – on the contrary, they instantly fuel inflation just as hikes in energy prices do. All they do is stifle the real economy, giving the impression that this is an effective monetary tool.
It is not interest rates, but bank credit that determines economic growth, simply because ~97% of the money supply in our Western fiat currencies is created out of thin air by privately owned commercial cartels.
There is zero basis for the official narrative that higher interest rates lead to lower growth and that low interest rates lead to high growth.
As with most aspects of eCONomics the quickest way to get straight to the truth is to simply assume the 180˚ polar opposite of the official narratives. Interest rates are simply not useful as a monetary policy tool - period.
Until NZ accepts that the fiat experiment is in its final death throes, that a return to sound money principles is long overdue, along with a return to banking and money creation run as a public utility, then NZ will continue its painful journey into this debt death-trap vortex.
https://sovereignista.com/2024/02/29/banking-2-0/
...quoted from Section 7 of the link (written in February 2024)...
"... in so many cases, countries do not even need to borrow from abroad if they effectively deploy the PBS (Public Banking Solution) at the central bank and treasury level. This is another key piece in the global jigsaw puzzle where the global economy could be transformed into a completely new egalitarian paradigm.
The public banking model in itself would become a huge source of liquidity and capital for the entire domestic economy. This would replace the status quo con where nations allow a parasitic global banking cabal to constantly thieve from them like a giant squid, sucking the lifeblood out of the productive economy.
This concept is extremely simple – it means that the public creates its own money and liquidity, so that society can reap the benefits of interest paid domestically as a public utility, rather than third parties creating that money and subsequently allowing them to charge us as a nation for that privilege. In the current broken model, we annually allow billions of dollars to disappear overseas into these parasitic global banking institutions.
The most exciting part of all of this is that incredibly successful public banking utility models have already been tried and proven to work, and to generate huge sustainable wealth for entire national economies.
One of the most stunning examples was the Commonwealth Bank of Australia, which Ellen Brown details in her awesome book ‘The Public Bank Solution‘.
Of course, history informs us of the tragedy that this incredible model didn’t last – it actually became a victim of its own astonishing success, and it was destroyed by the combined might of the parasitic global central banking cartel."
... end quote...
CM - Your banking analysis is spot-on.
It's a pity a conspiracy-theory or two, reduce your cred when you post thus.
Do you mean like this "conspiracy theory", PDK?
https://northwavenews.com/posts/the-bombshell-has-dropped-an-official-l…?
Somewhat extremist Colin. You need to dial the emotive quotient back a little.
Much of what you say has been discussed in the past and largely agreed with, but you're over the top in part I suggest;
You talk about the 'fiat experiment' being in it's 'death throes'. I disagree. You correctly identify "..simply because ~97% of the money supply in our Western fiat currencies is created out of thin air by privately owned commercial cartels." but don't mention that is because governments have abrogated their responsibilities with respect to active management of the money supply. I don't agree the FIAT currency is failed. I suggest it is at risk because of governments succumbing to private interests lobbying and abrogating their responsibilities on oversight.
Then you contradict yourself by advocating for one of Aussie's largest private banks, the CBA.
I'm dubious about the central banking model, but not yet convinced either way, but do believe it is the government's responsibility to actively manage the money supply and it should not ever be delegated to private concerns.
There is no contradiction there, Murray.
In no way was I... quote "advocating for one of Aussie's largest private banks, the CBA."
The CBA began its life as a public utility in 1911. By 1920, the bank began acquiring central bank powers when it took over the responsibility for the issue of Australian banknotes from the Department of the Treasury.
The Commonwealth Bank received almost all central bank powers in emergency legislation passed during WW2 and at the end of the war, it used this power to begin a dramatic expansion of the economy.
I will quote from my original article...
"While the US was setting up its privately owned central bank, for the Federal Reserve, to become a parasite on the productive economy of most of the world, Australia was at the exact same time taking the bold step of establishing a PBS bank that issued credit for the sole benefit of – wait for it – Australians!
The huge irony is that Denison Miller, the bank’s first Governor, was allowed to try this model only because he was considered by the other existing bankers of the day to be one of their own thieving ilk, and that therefore they would be able to keep this new bank in line.
In essence, Miller understood how the commercial banks thieved from the nation at large, and he set about creating this new model that could very rapidly revive a struggling economy and create long-term wealth for the entire Australian society. The first branch opened in Melbourne in July 1912, and Miller was the only employee.
Somehow, he had persuaded the Treasury to advance him £10,000 as seeding money – the first and last time this version of the CBA was lent any money. Of course, this money didn’t even exist – it was simply created as a ledger entry.
Miller subsequently promised that the CBA would at all times be the people’s bank. It slowly dawned on the private bankers, who were so intent on having to guard against the socialisation of their own banks, that they completely underestimated the power of an orthodox banker who simply mobilised the resources of the entire country to enable the CBA to quickly grow into one of the greatest banking models the world had ever seen.
The bank began advancing massive sums of money simply on the credit of the Australian Nation. An early example was the Melbourne Board of Works, which went to the market for money to redeem existing loans and to raise new capital – normally they relied on loans from the viper’s nest residing in The City of London. Instead, this time they approached Dennison Miller and were loaned £3 million at 4% – this was an enormous sum at that time.
In 1914 during WW1, citizens started rushing into their banks to withdraw their funds – Miller quickly put a stop to these bank runs by simply declaring that the CBA would support any banks in difficulty – that was the end of the panic immediately. It was a dramatic demonstration of the power of the Govt to stabilise the financial system without relying on any other parties.
In just 2 years from the creation of this bank, Miller was basically in control of financing Australia’s war effort and ZERO money was borrowed from overseas. It was the first bank in Australia to receive a Federal Govt guarantee and offered both savings and general transactional services. By 1912 it took over the State Savings Bank of Tasmania, and by the following year, it had branches in all 6 states.
In 1920 it began acquiring central bank powers and took over the responsibility of issuing Australian bank notes from the Dept of the Treasury. In 1924 a board was appointed with 6 members as the new governing body. During WW2 emergency legislation was passed and the CBA was granted almost full central bank powers.
The CBA was a remarkable success, but was subsequently seen to be threatening the hegemony of the City of London thieves. Prior to the establishment of the CBA, London capital had always dominated the Australian financial system.
This was the colonial model of the time – ie financial colonialism, where the colonies were granted the right to “govern” themselves – provided they obeyed the financial rules of the COL (City of London) – shame about this acronym!. As such the Old Lady of Threadneedle Street (The Bank of England) presided over the financial dynasty of the empire.
Australia was a debtor nation until WW1 when it suddenly demonstrated its ability to independently finance its war effort. It also used the CBA to finance its own shipping line which was poised to smash the City’s shipping monopoly – the old bitch from Threadneedle Street was not amused.
Miller calmly told the big bankers at a dinner in London that Australia could meet any demand, simply because it had the capital of the entire country behind it. When he arrived home in Aus he was asked by a deputation of the unemployed for a loan of £350 million for productive purposes – he advanced the money immediately, and news of this caused panic within the COL, as they realised that if other countries adopted this model their entire financial edifice could collapse.
The COL immediately set about devising a plan that would enable overseas national institutions to be drawn into its squid-like network. The plan was to centralise all banking throughout the empire over to the supervision of the Bank of England – it would become the super banker’s bank."
Fascinating reading Colin. I think it's clear you and I feel pretty much the same about the private banks. I know eisenhower tried to dial them in and lost. so the big question is how can that be changed?
Granted the reliance we have developed on the expansion of private credit issued via banks for mortgage lending, and ever-increasing asset prices, we have gotten ourselves hooked on an easy option that will have harsh withdrawal symptoms if weaning off of.
Yes, agreed, Interesting - the "harsh withdrawal symptoms" that you refer to will become a tragic financial reality, but surely staying aboard the trainwreck will only make the mathematically inevitable crash even worse.
"How can this be changed"? - well, that's the multi-trillion dollar question, Murray.
In history, the way it changed, at least in NZ's case, was in the aftermath of the Great Depression, when more than 90% of the population was hurting like hell, and the population voted in a government in 1935, with a public utility central bank being the cornerstone of their financial policy.
Incidentally, this was the First Labour Government, and it was led by Michael Joseph Savage. This, however, should not be framed in terms of left versus right politics. Rather, it is about the public regaining key public utilities from the grasp of private monopolies.
This should be a non-partisan no-brainer. It is a question of retaining hundreds of billions in revenue for the country's current account and for the benefit of society and infrastructural development, rather than simply handing it over, on a plate, to multinational financial institutions.
This is a monumental educational task, and it begins with the population needing to understand how this "money" creation takes place. Sadly, it also has to fight the default reaction of Kiwis - they won't even entertain the idea - the common refrain - "oh if it was that simple it would have been done before".
Which is the entire point - it has been done before, and NZ's model was held up as a miracle blueprint on how to recover from a devastating global depression. As hard as it it is though to install the model, the larger battle in being able to sustain it, because of the way politicians can be bought by the multinational corporations.
Sadly, due to our education system's deliberate obfuscation of this deception, there would be less than 5% of Kiwis who understand the mechanics of this massive siphoning off of funds by the global private banking cartel establishment.
What we need is a modern-day inspirational C H Douglas, or Dennison Miller - a figure to inspire the movement, just as Douglas did when he toured New Zealand in the 1930s.
He promoted his ideas, which aimed to address economic issues by advocating for government-issued debt-free money to enhance purchasing power. His visit included testimony before a parliamentary committee, influencing local economic thought and political movements during that time.
My short answer... well, tragically, I feel that the fiat experiment will have to crash and burn before the PBS (Public Banking Solution) becomes an important part of public discourse, let alone be adopted as fundamental financial policy at the central bank level.
You said... "I don't agree the FIAT currency is failed."
What I actually said was... "Until NZ accepts that the fiat experiment is in its final death throes..."
History is not with you on this one, Murray.
The average shelf life for all fiat currencies, throughout history, is a pitiful 35 years.
Given that the US dollar and the remainder of the global currencies became fiat in 1971, they are already 20 years overdue for collapse.
All of them, since their inception as hard-backed currencies, have already lost more than 98% of their purchasing power... there isn't much left to go up in smoke.
Which implies that it has failed...
Having said that, FIAT currencies are backed by all the economic asset of a country and the owner is the Government. Therein I suggests lies the clue to the solution, which i also suggest you allude to in your response to my question - above.
It is to the government to regaining that control and then keep it. I agree with you re the politicians. Another point about the currency; in the 1930s the dollar would have still been tied to the gold standard through the US$ and UK Pound? Once the gold standard got kicked by Nixon in 1971 that whole mess would have just got worse?
I have questioned the built in inflation for quite a while now, that undermines the purchasing power of the currency. But as PDK will indicate that will also be tied to resource contraints.
This is a brilliant discussion Colin, just try to not be too emotive, we're all, or most of us anyway, trying to learn.
Yes, I admit, I am "emotive" when it comes to this subject, Murray.
After all said and done, this grand heist has been going on for at least 113 years. In that time, it has funded 2 world wars (it's currently funding a third), plus the forever wars and the global MIC.
This multi-trillion-dollar heist supports these wars, causing ongoing humanitarian crises, killing and displacing hundreds of millions of people, and now commits blatant mass genocide as well.
By allowing this to continue, humanity facilitates its own victimhood.
It is no coincidence that WW1 began within months of the US Fed being incorporated.
I often daydream about what the world could have been like if the Fed had been formed on a public utility model like the CBA, and instead of spending trillions inventing ever more innovative ways of killing one another, humanity had invested those funds into sustainable societal wealth projects and prosperity for the masses.
How humanity could have thrived in all aspects, including in diplomacy, trade, and cooperative security.
We could have deployed but one simple international commandment, AKA "The Golden Rule"... "Do unto others as you would have them do unto you".
Overall I do agree with you on your sentiments.
But; "It is no coincidence that WW1 began within months of the US Fed being incorporated." Which part is connected; the assassination of ARch Duke Ferdinand in an attempt to liberate Slavs, or the ensuing political mess that drew in most European countries to a war that involved most of the countries on the planet?
Careful with the conspiracy theories. Confirmation bias can undermine an argument that has merit.
https://www.revisionist.net/hysteria/bankers.html
Quoted...
"Sometimes, the bankers financed both sides.
The Rothschilds’ agents, the Warburg banking house, were financing the Kaiser. Paul Warburg, a naturalised citizen from Germany who had been decorated by the Kaiser in 1912, was vice chairman of the Federal Reserve Board. He had also handled large sums furnished by Germany for Lenin and Trotsky while his brother Max (who was Kaiser Wilhelm’s personal banker) was the leader of the German espionage system!
It was this brother, Max, who authorised Lenin’s train to pass through the lines and execute the Bolshevik Revolution in Russia. Jacob Schiff, like the Warburgs, also had two brothers in Germany during the war, Philip and Ludwig, who also were active as bankers to the German Government.
The Rothschilds meanwhile, bought the German news agency, Wolff, to further control the flow of information to the German people and what the rest of the world would hear from inside Germany. One of the leading executives of Wolff was none other than Max Warburg!
The Rothschilds would later buy an interest in the Havas news agency in France and Reuters in London. The tentacles of the banking families reached deep into the power elites: Dr. von Bethmann Hollweg, was the son of Moritz Bethmann from the Frankfurt banking family of Frankfurt, a cousin of the Rothschilds.
Kuhn, Loeb & Co. represented the Rothschild interests in the US, and along with the Harrimans, the Goulds and the Rockefellers, became the dominant powers in the railroad and American financial world while they war-mongered to fatten themselves even more.
The first available appointment on the Supreme Court of the United States which Woodrow Wilson filled, was given to Kuhn-Loeb lawyer Louis Brandeis who had been selected by Jacob Schiff to carry on war agitation.
Through marriage, the Kuhn Loeb Company managed to entwine itself throughout the U.S. Food Administration, the British Secret Service and the Wilson White House. And on and on and on it went, like a ball of twine, tangling and tying the bankers, their progeny and their friends together for war and profits.
On October 13, 1917, Woodrow Wilson stated: “It is manifestly imperative that there should be a complete mobilization of the banking reserves of the United States. The burden and the privilege (of the Allied loans) must be shared by every banking institution in the country. I believe that cooperation on the part of the banks is a patriotic duty at this time, and that membership in the Federal Reserve System is a distinct and significant evidence of patriotism.”
That “patriotism” served the bankers and their cronies well, although it did little for the people of America who sacrificed their sons, fathers, brothers and husbands to a bloody, needless war."
... end quote...
Which of these points made in this article would you regard as "conspiracy theory', Murray?
Not to mention the fact that Ford, GM, and Standard Oil (AKA ExxonMobil) were part of the US industrial clique. While their home country was at war, they kept or expanded their ties with the fascist regimes of Germany and Italy.
At a time when the Nazi party was little more than a bunch of nutters hanging out on street corners, Ford is known to have financed this fledgling movement, which then went on to develop into WW2, and to claim the lives of some 70 million people.
OK so this is not about the wars beginning being connected to the banks. It's about the banks seeing the opportunity and playing both sides against the middle to make profits.
You stepped too far into conspiracy. It was political alliances that drew all the nations into the war, and cost so many lives. But the banks were the vultures who fed on the carrion, making huge profits.
Try another view Colin; various, but connected banks were financing different governments across Europe (and perhaps the world). Those governments had alliances and/or treaties with others which compelled them to side with their partners in time of conflict. The banks in some respects, would have been forced to accept that or lose their political clout at the time. So they pivoted to a different footing and worked out how to profit from it all. This may even have been the first significant event that taught them how to do that and they have carried it forward, improved on it during WW2, used it to make even more in Viet Nam (after having JFK removed because he had decided to withdraw from there).
The Fed would have been part of that different picture too, but WW1 wasn't started by or for them, but they would have learned and taken advantage of it.
Productivity, that actual, real thing that allows taxes to be levied on improving incomes in the first place, is treated as a footnote to tax and other administrative functions.
Another economic lever might, you know, be incentivising or even forcing per-capita productivity improvement rather than artificially propping up sagging gross GDP with immigration and attempting to ignore the per capita figure.
For example, many nursing graduates in 2025 could not get employment in New Zealand, and of those who did get nursing jobs, many were only for part time positions, typically 0.6. I can only shake my head in wonder at the steady flow of nurses across the waters to Australia.
What happens when Nicola Willis tries to do a Ruth Richardson and thinks it will be popular among the voting public.
Given her track record, I'm not sure her reputation is salvageable. As we already know from history time and again: Politicians and their promises.....
Great read Keith although I strongly disagree that monetary and fiscal policy are the only tools available to fight stagflation/lack of growth.
My question is why would I (anyone) invest in NZ - In a country where identity is now more important than skill, where we have a lack of strategic vision/leadership, or a streamlined civil service, or possibly even the required work ethic to grow. We certainly dont invest enough in R&D to stay ahead. Need to fix some of these as well
I always pay attention to Jonny F and Keith W, so i find this exchange of views fascinating. I am sure they are both better qualified in this area than I am, so I will confine myself to a couple of observations.
Surely we should be able to obtain the relevant figures much faster than at present instead of making important judgements on out of date figures.
The only tool available to the Reserve Bank is the OCR so they will wield it, whether judiciously or not. I feel sure that the Bank will raise the OCR later this year. If we don't have stagflation right now, that would certainly tip the balance.
The prospect of this government increasing the tax bands is I think remote and of increasing the top tax rate, zero.
In regard to your last line I think you are correct. And that is part of the reason why the stagflation is likely to be particularly painful.
KeithW
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