David Skilling, director at economic advisory firm Landfall Strategy Group, says NZ policy makers will need to start moving from fire fighting to an intelligent and thoughtful longer-term economic focus

David Skilling, director at economic advisory firm Landfall Strategy Group, says NZ policy makers will need to start moving from fire fighting to an intelligent and thoughtful longer-term economic focus

A lack of global co-ordination, moving in the direction of what was regarded as a fringe economic policy only a few months ago, stagflation and a challenging outlook for New Zealand, are all key issues David Skilling sees emerging from the COVID-19 pandemic.

Skilling, director at economic advisory firm Landfall Strategy Group and former chief executive of public policy think tank the New Zealand Institute, now lives in the Netherlands having moved from Singapore late last year.

Speaking to interest.co.nz, Skilling says whilst most governments are responding reasonably well to the economic fallout so far, notably through wage subsidy schemes and getting money into the real economy through small and medium sized businesses, there's a long, hard road ahead and a lack of international coordination is not helping.

"This is not something that is a V-shape, goes down sharply and then bounces back. In some countries there might be an element of this, but I think for the most part this is a very long protracted way back. And so the challenge from a government policy perspective is for governments, like New Zealand and others, that have been very aggressive in the early days in terms of fiscal stimulus, that's kind of manageable if this is a short, sharp scenario and you want to stabilise the ship for a discrete period of time. But if we are talking nine, 12, 18, 24 months before we return to economic normality, with the potential for [COVID-19] flare-ups, that's a much more challenging scenario. Particularly for an economy like New Zealand," says Skilling.

"It's very hard for the government to stimulate an economy that's in cold storage for that length of time. So this is going to be deeply, deeply challenging. Much more so than the Global Financial Crisis."

And a lack of global coordination, potentially including when countries start reopening their borders, won't help.

"Obviously these things, both from a public health perspective and also from an economic perspective, are much better if they are done in a coordinated way."

"The US and China are at loggerheads, the US and Europe are at loggerheads, President Trump has absolutely no interest in doing anything multilateral, and even within Europe they are arguing about how to allocate risks and allocate debt guarantees across the region. So the reality is to an extent it's every country for themselves. And yes there are measures or attempts being made to ensure that supply chains keep moving and medical supplies can move across borders and that's good to see. But I think the reality is that in the current geopolitical environment we're not going to see anything coordinated," Skilling says.

The return of international people movements, such as tourism and migration which have been key drivers of the NZ economy during recent years, is going to be very, very patchwork, Skilling adds.

"Normal has shifted on us. There's no return to the status quo. We're not going back to life in December 2019 where things looked like they were on the up, global trade was increasing, GDP looked like it was on the up. That world is far in the rearview mirror."

He sees trade and investment evolving to more of a regional than global bias, with a small economy like NZ's facing challenges.

"We [NZ] need to think about how we position ourselves to make sure that we are able to compete in this new world. Tourism is not going to be the growth engine that it has been, migration is going to be restrained which is another dimension of globalisation. And migration has again been a very important driver of New Zealand's labour force growth and our GDP growth over the last decade," says Skilling.

"Other things like agriculture demand so far looks like it's holding up, it's not part of complex supply chains. But at the same time we have pressures on the technology front with people moving away from red meat and dairy to other substitutes. So this is challenging. Coronavirus, I think, just amplifies or reinforces those pressures that many New Zealand exporters were already under."

"It is a challenging outlook, I think, for New Zealand," says Skilling.

Meanwhile Skilling says Modern Monetary Theory (MMT)  is gaining traction. This is the idea that governments do not need taxes or borrowing for spending since they can print as much of their own currencies as they need as monopoly issuers of the currency.

"I think what we are likely to see, and there was some movement in this direction prior to coronavirus, you're going to see monetary policy and fiscal policy increasingly fused and integrated. Where basically the central bank is printing money, it's buying up government debt, we see that in Europe already, the Fed is obviously moving in that direction also. And so what seemed like fringe economic policy even a year ago - Modern Monetary Theory and the like, and basically saying there are no budget constraints and central banks can just buy up government paper, I think we are de facto moving in that direction anyway," says Skilling.

"We are moving into uncharted territory. Where are the binding budget constraints on governments, how much debt can you issue, can central banks keep on buying this government paper with no adverse consequences in terms of inflation? Obviously the immediate issue is a huge deflationary shock. But can you keep doing this without any of the risks and negative consequences that people are concerned about?"

"Will there be austerity? I think the reality is the productive potential of all economies has reduced significantly and will remain lower than where it was in December for quite some time. So people's incomes are going down, governments even if they put the foot on the accelerator in terms of fiscal stimulus, that's only a partial offset. And I think over the next period of time constraints on their ability to do that will emerge," Skilling says.

"The reality is living standards in an economic perspective have taken a hit. People's incomes are going to be lower, unemployment is going to be double digits, in some cases 20% plus for some time. So household balance sheets are going to be stretched. We are moving into a much tougher financial situation."

Skilling sees a 1970s type scenario, possibly with stagflation.

"One analogy I think about quite a lot is the 1970s where again there were a series of very significant supply and demand side shocks from the oil price shocks, the US moving off the Bretton Woods exchange rate system and all the volatility of moving to floating exchange rates. [There were] very significant macro imbalances, huge deficits in the US, and that ended up shortly thereafter in periods of stagflation [with] very high inflation, high unemployment, [and] pretty ordinary rates of GDP growth."

"And governments, because they had put too much weight on fiscal stimulus, there were supply side constraints everywhere because of import substitution and tariffs and protectionism. [It] ended up being a real mess," he says.

"So I think the challenge for governments is how do you manage through the current situation which is unprecedented, it is global, it is not manmade if you like, it's an exogenous shock. How do you manage through that in a way that doesn't create a mess like it did in the 1970s?"

"And I think the message for New Zealand, when perhaps the 1970s weren't our finest moment in terms of import substitution, losses of taxpayer money on what turned out to be white elephants, I think the issue for New Zealand is let's be thoughtful about the way we marry the short-term imperative about keeping the economy afloat, getting money into people's pockets, in some cases I'm sure basically renationalising things like Air New Zealand. But how do we do that in a way that avoids some of the bad experiences of the 1970s? And with luck begins to think about investing in infrastructure and other things that actually positions us for recapturing some economic value down the track," Skilling says.

"Some time in the next couple of months we have to look at how do we move from a fire fighting, short-term stimulus, and actually think about how do we structure this in an intelligent, thoughtful way that avoids some of these risks and actually positions our economy for strength down the track."

*This is the second interview in a series looking at reactions to and potential policy responses to the coronavirus pandemic and evolving economic downturn.  The first interview, with staunch critic of the economic mainstream Steve Keen,  is here.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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80 Comments

15
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A good read; thoughtfully done; summed up by:
"There's no return to the status quo. We're not going back to life in December 2019"

I'll just suggest that the day New Zealand goes MMT is the day our exchange rate goes to 'zero'.
Who will want to sell goods to New Zealand at receive NZ$ in return if they can be printed at will? I wouldn't. I'd want, say, US$, and that will involve selling NZ$ to provide them to me before I shipped the goods. Also, any exporter will hold the proceeds of their sales ( say dairy) off-shore in US$. Why would they bring them back onshore to buy 'worthless' NZ$?
Given we run all sorts of deficits, I don't see a way around that other than a twin currency system. Commercial (onshore) NZ$ and Financial (offshore) NZ$, and that will bring on all sorts of other problems.

MMT is being floated as a possible future path in many economies though, so what would it look like for trade between countries using MMT?

Precisely!
Maybe The Big economies could get away with it ( they have?) but smaller ones? I just don't see it a viable. Mine above is why.

MMT or wild money printing by-another-name is no solution.

We know this from history , the Weimar Republic and Zimbabwe are good examples

Read up on those hyperinflations. Nothing to do with mmt. Japan is a better case example.

Read up on those hyperinflations. Nothing to do with mmt. Japan is a better case example.

Don't compare countries like NZ or Australia to Japan and think that we automatically will share the same experience under "MMT conditions". Big differences:

- Japan is a creditor nation with massive industrial capacity. Its public debt is largely internal.

- Because of its population, suppy chain and manufacturing efficiencies, Japan has been able to produce a low-cost consumer economy that NZ or Australia could never replicate.

- Because of the scale of its economy, Japan is a price setter, not a price taker in commodity and goods / services markets.

Not all nations can run external surpluses. Some are creditors accommodated by countries like nz.

Japan has advantages of scale and strategic economic decisions past to be sure. Not the least amazing public infrastructure.

However, if mmt were entirely wrong you'd think you'd see just a wee bit of inflation and a wee bit of a currency crisis given the huge amount of public debt as a result of years of fiscal deficits....held mainly by boj, purchased from primary dealers obligated to bid for it. Effectively omf.

Whenever japan tries to reduce its deficits, the economy stalls. The ongoing deficits are used functionally in japan. We can too. The external situation may or may not be impacted and that needs awareness and involves trade offs i agree.

Wiemar Republic and Zimbabwe share a commonality, a sharp contraction in productive output. In Germany the French had invaded the Ruhr valley to confiscate wealth for war reparations, and in Zimbabwe the white farmers were displaced resulting in a collapse of agricultural output.

Nz exporters need nz dollars to pay taxes and consume locally. So no, demand will not be zero. Foreigners are unlikely to ditch our currency if the fiscal stimulus is generating growth and investment opportunities with atable inflation. And at the end of the day a depreciation has many benefits. Japan has massive deficits and qe and no currency crisis or inflation. If new money spending merely offsets contraction in spending there is no hyperinflation. If we have productive capacity we can spend safely.

Agreed with all of that.
I'd just ask "Do we need MMT then?" My answer would be "No".
It's all about "productive capacity ". Contraction in spending is a 'given' if you ask me, and a lower exchange rate to accomodate all of your points. At some point above 'zero' the exchange rate stabilises and we move on with import substitution and responsible spending as the Trade Account balances.

Mmt cares that a sensible deficit spend to offset private contravtion occurs. Whether that spend is offset by bond issuance or bond issuance plus qe or is just done by overt monetary finance doesn't matter. The spending is what matters. Net financial asset increases for private sector are the same. Bonds provide a bit of a return thats all and help with interest rate management.The government can never default on its bonds in financial terms. It owns the magic money tree. But the build up of debt scares governments into unnecssary austerity too early as they believe they are like a household. Hence the preference for overt monetary finance with no fictious debt burden accruing. If inflation finally hits raise gst or income taxes.

By 'sensible' I guess you mean 'the targeted application of Public Debt. Again - no problem with that in theory. But who decides on the target? And, yes, an increase in Public Debt should offset a reduction in Private Debt. But that is going to be met with all sorts of opposition.
I'll say, it's a 'must' but my concern is that 'give the wrong entity the blessing to use the Magic Money Tree' and it's going to be bad.
There are no guarantees in any strategy to fix this mess. But fix it we must. I just hope we have the courage and foresight to do what needs to be done; however it's done.

Yes, too much spending by any sector government private or export can cause inflation. Voters don't like high inflation. Governments who create it get turfed out. Voters also don't like deflationary spirals and mass unemployment. We need to use our collective intelligence and strike a balance. Good autostabilisers are key, like a job guarantee. Monetary policy will not save us. It never could either.

Yes, too much spending by any sector government private or export can cause inflation.

Could you give some examples?

Ummm....private credit creation fuelled booms in construction inflating new residential construction prices in sector with supply and labour bottlenecks. Too much money spending chading too few goods. Governments can bid up prices if there is no real resource slack. So can private sector.

One final thing...you don't "go mmt". Mmt just describes how the monetary system works in fiat countries. Mmt just says bond issuance and deficits are the same as money creation deficits in that private sector wealth increases by the same amount and that the bond issuance is corporate welfare. Right now the government is issung bonds that the central bank is buying up with keystrokes. Which is equivalent to money creation.Yes the nz dollar has gone down. But nothing like its lowest point. The whole world is doing the same. The us, the uk, Australia....where are the holders of our currency going to find their mythical sound non mmt money???

New Zealand?
As I noted ' the Big Economies' are probably already doing it. I guess it depends on what one sees as MMT ( comment below by skywalker).
What is "QE" after all? Whatever anyone doing says it is or isn't!
Your comment re 'productivity' is the key to any resolution of the problems we face. How we get back to that, I'm easy about. But my fear is that such a noble objective will get lost in the keystrokes, and we'll be worse off that we already are. The whole of the financial industry is dedicated to one thing - finding a loophole. I know. I did it for a living!
Time, as always, will tell. Cheers.

The government is issuing new bonds to pay for covid. Primary dealers will buy them. The rb will print reserves and buy them o the secondary market. Overt monetary finance hiding behind a veil of unnecssary accounting transactions

And like as not the RBNZ will end up with them all! I don't agree with that either. Keep the RBNZ out of the loop at let the commercial market take up the offerings. Yes. Interest rates will rise. But they shouldn't be here in the first place! That's how Private Sector Debt is controlled. But that extends the discussion into a whole other realm.

Even if interest rates rose the government can always pay them. Contractual nominal financial obligations are always payable. But qe shows that bond dealers are vigilantes on shetland ponies. They can never win against a determined central bank. The bond traders can either take the yield on offer or find somewhere else to park their cash risk free.

Yes, and No.
"Argentina heads for ninth sovereign debt default"
Do we think that Argentina can MMT it's way out, again?! Would you buy their next lot of Bonds? Would you take an Argentine Peso in settlement of a trade transaction?
The Central Bank of Argentina will. But where does that lead? Episode 10 in 5 years time. Maybe that's enough. They buy time. But to what avail?

This is what 'getting it wrong' looks like!
"1895 and 1896 Argentina was the richest country in the world, with the world's highest GDP per capita."

Argentina has a history of currency pegs and public borrowing in us dollars. Also indexation which can create inflationary spirals. But yes, you don't want to overspend. Right now the risk is a deflationary spiral where income losses multiply through the economy and result in economic implosion.

@bw, well one thing is for sure QE is NOT money-printing! It is an asset swap and it does not expand the monetary base.

The macro-economic knowledge on a blog like this is appalling. Note that I am not doubting your knowledge at all, I mean in general.

Thank you for your contributions.

Precisely the reason bitcoin was created. Ever decreasing rate of inflation, fixed total supply.

And is useless as store of value, means of exchange or unit of account. It is a digital gambling device as Mark Blyth said. Not money.

As for store of value (and unit of account) it suffers from volatility as a nascent commodity. This will decrease in time. It’s fine as a medium of exchange, costs pennies to send billions worth of fiat around the world, cannot be confiscated and has never been hacked. That’s where the value proposition lay for most long term holders.

My view is that deflation is more likely that stagflation

Agree

Yes.
But key mmters like kelton, mitchell and wray note that supply issues obviously could be inflationary too and the prudent spending on the right things is important along with action to remove or ease supply bottlenecks.

My view is that deflation is more likely that stagflation

Deflation ould be very destructive over time. IMO NZ would have benefited more from a financial crisis in the past 10 years and the bubble economy being smashed to smithereens very quickly. Creative destruction could have taken hold before the bubble became the only pillar of the economy.

Great piece, clever guy.
What he says goes a bit against the NZ narrative that we are going to be better off than most.
As he says, tourism and migration have been big drivers of GDP growth for us, and both will be dead for at least the next two years.
I think, though, there is a good chance both will pick up quite a lot again beyond 2 years. Not back to what they were, but maybe 70%.

MMT describes the already-existing monetary system. Accepting MMT means acknowledging that taxes do not fund expenditure for a currency-issuing government, and recognising we face a resource constraint, not a financing constraint. "Doing MMT" means using that knowledge to do what the country needs - full employment in producing goods and services, investing in infrastructure and public goods that increase our standard of living; and using taxation to reduce excessive purchasing power and accumulated wealth. Such a focus on investing in our economic fundamentals, instead of worrying about an irrelevant fiscal balance, will strengthen our economy.

"Proponents of modern monetary theory, like Bernie Sanders’ chief economic adviser Professor Stephanie Kelton, claim the Australian [and NZ] government need not balance its budget and are instead calling for the government to balance the economy, which they argue is a different thing entirely."
Explainer: what is modern monetary theory?

25
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I see our biggest problem so huge it dwarfs all others, is the cost of housing. Housing costs are ridiculous, rates, insurance, Uni fees are an issue too but at the heart of the problem is housing and the debt associated with it.
It has at its heart a failure of leadership.

Business has issues, one is that no one can compete with low cost quality labour in Asia, that's a problem for the Western world to deal with, in a coordinated effort to return manufacturing. So get ready for $400 toasters.

Does the fact that the national median house price reached new highs in February provide solace and hope or concern and fear as we enter these uncertain times.

depends which side of the fence you are on.

14
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Does the fact that the national median house price reached new highs in February provide solace and hope or concern and fear as we enter these uncertain times

It should have provided concern and fear. Bubbles are ultimately destructive. That lesson is likely to be learnt from now.

10
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All regions with the exception of only the mighty West Coast and Auckland have reached new all time highs just in the past three months. By the time its over New Zealand will have regained control over its banking system. Should the boards and economists of these Australian banks be held accountable for operating and propagating a ponzi scheme. Iceland comes to mind.

Should the boards and economists of these Australian banks be held accountable for operating and propagating a ponzi scheme.

Many people are involved in the promotion of bubbles: central banks, govts, commercial banks, media.

The Aussie banks have done nothing illegal (even though their ethical behavior leaves much to be desired). Most of them, including Cruella and John Key, are simply executing what they've been indoctrinated with. Their vested interest is their own self esteem and egos. They haven't done anything illegal (even Cruella with the Hisco scam).

John Key obviously was able to help blow the bubble from in both government and banking.

15
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Prices were only going up because interest rates were going down. If interest rates had stayed the same prices would have started dropping years ago. Its a crazy coincidence that just as the OCR was just about at a dead end with nowhere to go that this happened. I suppose it gives the RBNZ an excuse now for coming up with some other idiotic way to keep this fake property market going. However, you can only keep the spinning plates going for so long, eventually the problem has to be addressed. Why not let that time be now?

Prices were only going up because interest rates were going down

I say this is nonsense. Interest as a lower cost component cannot be proven as a primary driver of price increases. House price decisions are not made using complex algorithms such as equity markets.

There are other drivers.
Banks, due to central bank RWA regulatory capital bias favouring residential property mortgage assets, starve the community of funding for productive GDP qualifying investment for the majority. Hence sixty percent of bank lending is allocated to the creditworthy one third of households speculating in the housing market.

Agree, I've always pointed to the volume of money that banks load into the housing market as the price driver. That is to state buyers and vendors are not in control of the market price.

I've been thinking post GFC, as rates were dropping, that the amount of debt that could be lent out should drop in relation the fall in the OCR. Every drop in the OCR was just another sign that were heading to exactly what we have now - mass defaults on debt. It was just going to take a trigger.

17
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I think falling interest rates should have been seen as a big red warning light.

I think falling interest rates should have been seen as a big red warning light.

Likewise.

I know I will get everyone saying I am crazy but once loans start defaulting in a big way who will want to lend money at current levels considering the risks going forward.
If i was to ask anyone here for a loan I am sure most logical investors would want 6-8 plus percent to cover risks etc.
I have been thinking this is one big trap to get everyone in debt and then crank it up to a level where they maximize returns and see only say 5 percent default for 1-2 years and then very big profits going forward on remaining loans??
If this plays out banks in 3 years will be very profitable.

Absolutely I agree. Many who have been buy homes/rentals the last few years have only been thinking about servicing debt at current rates. I've always been thinking that if you take debt with a 20-30 year term, then you need to consider that at some point over that period rates could be 8-10%.

But given that risk in the system was rising as debt was rising, I was left wondering why rates weren't rising, but were going down? In theory the risk free rate was dropping, but in the 'real world' any economic shock was going to flat line the system - so risk free rates should have been climbing not falling. Either that or the idea of the risk free rate holds no significance at all in the real world and perhaps shouldn't be used for discounting future cash flows and IRR/NPV modeling.

Many have also been saying 'rates can't go up now' because it would crash the housing market. I would say oh ok. What happens if inflation comes back? Do we leave the OCR at 0?

Something I pickup a lot is to expect the opposite of what the masses expect if everyone says rates will stay down then I now expect the opposite to happen.
I guess the housing market is going to crash so now would be the perfect time for rates to rise and just blame house prices dropping mostly on the virus.
When Sharesies started up that was a warning to me to watch out for bubbles in NZ stockmarket.
I noticed even a month ago people saying AIR was good value at $2 and I was looking forward thinking 50-75cents with what is happening.
Here is a few links i just googled and I guess maybe it will happen but when is the million dollar question
https://www.newshub.co.nz/home/money/2020/03/coronavirus-massive-govt-bo...
https://www.cnbc.com/2020/03/18/interest-rates-are-rising-a-bad-sign-as-...
https://www.dw.com/en/coronavirus-german-interest-rates-on-the-rise-due-...

@becnz 'Something I pickup a lot is to expect the opposite of what the masses expect'

This is how it is done. That is why GOLD will crash and why it is amusing to repeatedly hear about the housing market hallucinations from the likes of Yvil, TTP and The Man 2.

You have me thinking about gold price I am still in 2 minds but if it holds above 1700 for a few days I would feel more confident it will then run higher but as it stands I have a feeling it will drop again on next DOW collapse to approx 1200usd level.
But like you say the FED is now rewriting the book as we speak so we are entering a new phase that will be talked about for many years to come.
In the end I think the markets will crash or drop slowly as zombie companies start to fail.
https://www.ft.com/content/2602d57c-6ad4-11ea-800d-da70cff6e4d3
https://www.worldfinance.com/strategy/the-walking-dead-how-the-rise-of-z...

@IO, Becnz,

It doesn't matter what NZ does with the OCR. Fact is that the FED/US is not scared to jack up interest rates to 20% (twenty percent) if needed. They have done this before in history.

In 1979 Paul Volker raised US interest rates aggressively to counter inflation. The US had endured double digit inflation for over 5 years, and that was only the inflation the government admitted to. I wonder if we're in for something similar? An initial period of coronavirus lockdown mediated deflation say 1 year, followed by a number of years of persistently high inflation / stagflation caused by supply chain disruption, and declining output. Eventually, say in 5 years time interest rates may be forced to rise, and asset prices will be in a precarious place.

It's fine if wages also rise with inflation.

I would err on the side of concern.
As I recently noted in another thread:
"New Zealand official interest rates have been cut in half five times since 2008. Hence securities and asset markets have visibly capitalised the significantly higher present values of discounted future liability and income cashflows.

It's past time for government to take responsibility for it's actions since the majority of citizens have no securities or sufficient assets to offset the rampant cost increases of their future liability payments".

Just shifted back from oz brad new homes hervey bay section brick and tile 3 bedroom ensuite internal garage etc 350 - 370000 . Doing repairs and maintenance here roughly twice oz prices . Hard to get houses built at sensible prices with such uncompetitive rates this underlies nz housing problems cozy pricing arrangements need to be sorted by government before we can start to get back to realistic values

I was over last year and yes houses are such good value compared to NZ.
I stayed a month in Hervey Bay and was tempted to buy at those prices also Perth/WA offers great value.

Meanwhile Skilling says Modern Monetary Theory (MMT) is gaining traction. This is the idea that governments do not need taxes or borrowing for spending since they can print as much of their own currencies as they need as monopoly issuers of the currency. Where basically the central bank is printing money, it's buying up government debt, we see that in Europe already, the Fed is obviously moving in that direction also.

Central bank LSAP programmes cannot be equated with printing money because the expected consequences of such actions are not visible, and the authorities wouldn't need to resort to aimlessly repeating these actions over protracted time periods.

Again, go back to Friedman: “low interest rates are a sign that monetary policy has been tight.” The reason interest rates aren’t being pressured higher is that there have been no inflationary pressures because there hasn’t been rising nominal incomes nor capital investment which would’ve been stimulated if money had actually been printed at some point. The great non-inflation fallacy of our time is different than what it had been in Friedman’s; and interest rates are telling us exactly that.

Central bankers today aren’t trying to peg interest rates to a low level, the bond market is doing that for them and they are actually trying to make the case that the resulting low interest rates are somehow good. And because it really isn’t, they keep doing the same things over and over and over. No radical rethinking of the process deep down to the fundamental intellectual level. Link

My website http://professorwerner.org and our sites http://hampshirebank.org & http://local-first.org.uk have all been taken down by hosting company Paragon / Tsohost. Don't use these companies.

Apparently decided on
21 March 2020 - that's 2 days before the UK went into lockdown.

https://www.bbc.com/news/uk-england-hampshire-24400036

The problem is that the big commercial banks don’t want the productive kind of loans that public banking would make. For instance, the reason they didn’t want to extend credit to the Lower East Side or the Hudson Yards west side of New York was they wanted to sort of drive out their residents and gentrify it, by providing the money to the big developers who socially bulldoze these neighborhoods. Their policy is to kick out as many low-income renters or owners as they can, and replace them by raising rents from like $50 a month to $5,000 a month. That’s what’s happened on the Lower East Side from the time I first lived there to what rents are today.

There is a fight of the economy’s unproductive sector against people who want to use credit in a productive way that actually helps the economy. I think it’s a fight between good and evil, at least between the productive and unproductive economy, between economics for the people and economics for the One Percent. Link

“Meanwhile Skilling says Modern Monetary Theory (MMT) is gaining traction. This is the idea that governments do not need taxes or borrowing for spending since they can print as much of their own currencies as they need..”
That’s just amazing. It stands to reason then that the govt should drop all our taxes to zero so that we can recover and simply print up the required difference, and hey, presto, all is fine and dandy! There is never any limit to stupidity from the lunatic lefties. And once this fails they’ll inevitably try and drag us into war to try and get their way. History 101, rinse and repeat...first install fear, then divide, rule and conquer. Only difference today is that the general population is less educated, soft and much easier to manipulate than their ancestors.

Right now if taxes dropped the money left in our accounts would help a bit to sustain spending at current levels. Given the huge fall in income most of us are experiencing. It would not represent new spending. Try not doing it. That will lead to a major political reset. Nothing breeds authoriatrianism like a dispossessed middle class forced into bankruptcy.

You missed out the purpose of taxation under MMT. I refer you to an excerpt from a speech by the chairman of the New York Federal Reserve Bank in 1945:

[For a currency-issuing government], the inevitable social and economic consequences of any and all taxes have now become the prime consideration in the imposition of taxes...
The public purpose which is served should never be obscured in a tax program under the mask of raising revenue.

What Taxes Are Really For
1. As an instrument of fiscal policy to help stabilize the purchasing power of the dollar;
2. To express public policy in the distribution of wealth and of income, as in the case of the progressive income and estate taxes;
3. To express public policy in subsidizing or in penalizing various industries and economic groups;
4. To isolate and assess directly the costs of certain national benefits, such as highways and social security.

In the recent past, we have used our [national] tax program consciously for each of these purposes. In serving these purposes, the tax program is a means to an end. The purposes themselves are matters of basic national policy which should be established, in the first instance, independently of any national tax program.

Among the policy questions with which we have to deal are these:
1. Do we want a dollar with reasonably stable purchasing power over the years?
2. Do we want greater equality of wealth and of income than would result from economic forces working alone?
3. Do we want to subsidise certain industries and certain economic groups?
4. Do we want the beneficiaries of certain [central government] activities to be aware of what they cost?

These questions are not tax questions; they are questions as to the kind of country we want and the kind of life we want to lead. The tax program should be a means to an agreed end. The tax program should be devised as an instrument, and it should be judged by how well it serves its purpose.

Source: Ruml, Beardsley. "Taxes for Revenue Are Obsolete." American Affairs. VIII.I (1946): 35-39.

2. Do we want greater equality of wealth and of income than would result from economic forces working alone?

Probably - but the corporate sector is increasingly exempt from it's share of taxation due to the imposition of crony capitalism.

It's a house of cards..one group defaults, the next has to and so on...until the whole system falls down. High debt = instability.

MMT is impossible in the US and EU as it requires a law-change which won't happen. Note that the US$ 1200 stimulus check in the US is a one-off and therefore it is not the same as 'helicopter money'.

However, I wouldn't be surprised if Jacinda & Co implement a form of universal income within NZ as they can do with NZ what they want.

In case this happens, do not expect to be able to travel internationally any longer as the New Zealand Dollar / token won't buy you a leaf of toilet paper overseas.

Choose your leaders wisely.

Your alls homework for today:

The two requirements for (hyper)inflation are an expanding monetary base and an increasing velocity of money. BOTH are not happening. QE does not expand the monetary base as it is an asset swap to increase liquidity which is NOT money-printing.

The one-off stimulus checks in the US are NOT helicopter money.

The velocity of money is on life support and this means Deflation.

There is a worldwide shortage of (euro)Dollars.

Have a good evening.

QE does not expand the monetary base as it is an asset swap to increase liquidity which is NOT money-printing.

Meh. QE is money printing. It is (in)directly responsible for asset inflation. Just because it doesn't register in the CPI is beside the point.

I have to say thumbs up to all the comments made so far. Its been a while since I have seen a more intelligent thread of thinking free of cheap shots and immature bickering. Thanks.

We're not going back to life in December 2019 where things looked like they were on the up, global trade was increasing, GDP looked like it was on the up. That world is far in the rearview mirror."

What he doesn't say, is 'permanently'.

We have to crash-build a local economy, one with capacitance/resilience, one as near self-sufficient as possible.

And we've just squandered a decade.....

Yes, I noticed he stopped short on that. There does seem to be a real reluctance by officials and media commentators to mention, let alone openly discuss, NZ's need for a much greater degree of self-sufficiency. Even Trump is prepared to admit that shortcomings in US local manufacture are real areas of concern for him - and that these issues have been evidenced in terms of the current pandemic response.

Perhaps they should re-brand and re-task NZTE to complete the local inventory exercise and then develop the initiatives needed for a more diverse (i.e., self-sufficient) local economy;

https://www.nzte.govt.nz/

Not only is trump admitting it, he identified it 3 years ago and has been since his election, pulling some very big levers to nationalize a manufacturing base in the US once more. It's amusing to hear that people who once spat at the thought of nationalism now advocate for it. And then go to say they foresaw it coming. Unbelievable!

We are in unknown territory. There is no set playbook. Trial and error, hoping errors are less and not that damaging.

I disagree. We are in totally foreseen territory, and some of us have set ourselves up with the forseeable in mind. Then we went warning, cajoling, explaining.....

It mostly fell on deaf ears, most, I suspect, too self-important to know it was all short-term.

But yes, there is a playbook. No need for trial and error, The future is local, in every sense of the word. And the future is no about growth, except to acknowledge the stupidity of pursuance of same (which is what got us into this mess).

"The future is local". We would only be so lucky. Hope it comes to fruition

Completely agree.

Isolationism is not a practical strategy, with so much inter dependence. No country is fully self reliant. Unless they can live with drastically altered lifestyles and sacrifices in comfort and wealth generation.
And so much investment made in that inter dependent trade is not going to be written off quickly.
Local will grow to Regional quickly and expand. Already there is talk of air travel bubbles. Things will progress from Local to Global again, but this time more cautiously and hopefully more wisely.

Too hard to structurally deconstruct, need massive will power: - closing of this clip link, .. is the reasons.
https://www.youtube.com/watch?v=MGrBCtOt4Qs

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