Greece under the pump, Germany strengthens, US economy rebound stutters, ANZ advice shocker; NZ$1 = 76.9 US¢, TWI = 81.5

Exactly, the buy our assets with money they create for free and we sit back on take this. Our commentators should be saying more as this is a leading issue. Anyone permitting this is quite frankly a traitor to New Zealand.

But the only answer I can see is to print our own money in whatever form is possible and use it similarly to how Duncan recommends. We should wean outselves off oil by investing in renewable energy. While we still need oil, which is half our energy needs and all our transport needs, then we still need US Dollars with which to buy it.

If you play with capital controls then you draw attention to yourself and only capture a portion of the fraudulent money moving through. Build a sustainable future and it might go under the radar.

No interest rates won't rise, they can't. Well they can but only for short periods. They are locked into a 30 year downward trend that they can't get out of. Run some numbers though this, my rework of the  quantity theory of money by adding in interest. (M.V)+i=P.Q.

Mike remember I am an INTP so am not inclined to absolute detail. I can see the big picture sure but when it comes to the minutae you want an INTJ like Steven, Stephen, Iconoclast or even PDK, plus more. Cowboy could probably give it a good crack.

But I will have a go.

Remember in all this that there are underlying assets. In terms of a sovereign nation it is the productive power of their workforce and the productive capacity of their land and infrustructure. Resources also, although they are a consumable one off. The lender in theory is betting on the future output. What happens when the loop described by Duncan is cancelling the debt, ask yourself what exactly was the lender lending against? Total distortion in my view.

I think what you may be missing is that the CB's are not buying all the debt. But yes the government costs money to run and what they don't take in via taxes can be borrowed from the perverse borrow from yourself loop.

No, when you borrow money then eventually the loan gets retired, however you need to print the interest. I have warned my MP that everytime a cashed up non resident offshore buyer purchases residential property here it contracts the money supply. However our money supply isn't shrinking, so in reality the money supply in this loan retirement has to be made up elsewhere. This thing can't go backwards in my view.

I think the above answers your alternative, government does spend it but unfortunately unproductively. Yes it will ultimately weaken a currency but we are all linked via the CB's so really it is a merry go round.

The allegation of currency wars are quite likely correct. But I prefer to see this game a little differently. I see that there is a tremendous battle at play for both unearned income and assets in amongst a world swimming with unfulfillable promises (debt). Watch all the various plays around the world and see them in that context. I mean both local, national and international. 

Remember in all this Mike that there is the Shadow Banking system creating money via a different mechanism.

I'm ISFP so let me give you some detail.



The Central bank doesn't create money, they just like to claim they do.  They charge banks penalty interest if the banks lending vs assets+liquidity isn't at the correct rate. they do this by making the banks borrow from their Central Bank account, like a homemaker does with an overdraft facility.



The Central Bank covers it's accounts by borrowing from government bonds.  Bonds being fixed term deposits.  The Bonds clip rate/discount is the the extra the CB must pay, from their "profit" from interest.   But they don't actually make a profit, so like an interest junkie they must raise more funds via long term debt (more Bonds) to keep the numbers liquid.   Becuase of this the government bonds are have to be pretty low yielding over the large numbers involved, as the extra income is only generated when banks step too far over the mark.  If the CB constantly runs low (eg run on Wholesale bank lending) then the CB has to work out where it's going to get funds from....if the CB needs short term funds then it must borrow (at much higher rate)...or if they think the funding is long term, then through another long-term debt acquistion (more bonds).  Because the CB is so central and critical the the government bonds are a pretty safe place to store money, so they low yield isn't too much of an issue.



When the old bonds are almost ready to mature, then the CB will just look at their funding requirements looking forward and get new bonds + expansion to pay the previous ones.  Generally they can do this because they're reliable and established.  You'll notice bumps in the market when various banks and governments are nearing re-financing time.



The government has an account with a wholesale bank (Westpac, was BNZ).  It gets special interest rates but otherwise is just like any other large departmental company.



The Wholesale banks get told what their lending ratios are allowed to be (debt assets, vs holdings, vs liquid and non-liquid assets, vs liabilties.)  The banks can raise funding through borrowing just like normal businesses, but since their main income is through lending rather than value adding services (c.f. manufacturing), then they must be careful about what they borrow vs the amount of that which can be re-lent. and adjust margins.



Often they will lend to consumers directly in small amounts...and thus large interest rates.  The consumer works gets earnings, and from the income left from earnings, pays the loan and interest.



Businesses are far larger borrowers, with much bigger incomes.  this acts as a bulk discount, as the banks costs & unsold "bonds & borrowings" are better covered from the interest on a 2million business debt, than on a hundred 20k loans, especially as the businesses tend not to default so readily and have better security to reduce costly losses.

 The business makes it's money by selling to consumers, the consumers buy from their earnings that are left over called income.  Note that the _consumer_, aka "customer" MUST be the one to pay the debts of the company otherwise the company will shrivel up and die.  The earnings of the company either go to expenses (other businesses), wages (to consumers for their work), or into tax and interest&principle.

  Other business iterate this same pattern.

  Wages to consumers go either to business purchases (re-iterate the loop), investments including "deposits" at banks and including simple storing for zero interest, or to cover the consumers own borrowing (which is interest, but the consumers interest is banks margin, and serves as the banks earnings, so re-iterate the business loop.)



The government receives taxes which it uses to service it's huge debts (with CB).

The government has no capital or shareholders, nor does it pay dividends or rent to anyone (except possibly to HRH the Queen, but that's usually collect duties and tariffs).

 So to do anything the government cannot rely on capital equity nor is it supposed to collect revenue (for purpose of profit to shareholders).

So any projects require either wholesale bank loans (budgetted to projects over many years) or drawn from department "working accounts" which are basically just overdrafts from which tax and bond money is allocated each month.  As you can imagine there's not much point "The Government" raising a bond then having the money sitting doing nothing around so as to pay contractors each month - nor is it worth bond raising each month to pay everything.



anyway...must go



But the money isn't created by central bank. Nor is it created by government.

It is created by workers taking out loans and agreeing to pay interest - the interest is the injection of funds into todays banking system,  it's value is the future labour of the worker.

 Without interest, the banks would consume themselves.  The government gets it's funds by big borrowing - but the government pays interest - so it's a net payer (consumer), the little money it does have is through balance of payments which it pays in wages or interest (on bonds through its banker).

 The ones storing all the value are the ones lending the governments and banks money, as they aren't consuming the value, only lending.   these are big familes, big corporations with cash holdings, a few banks, and a couple large investors who seem to take pains to hide their name (from press and internet).

I have boiled it down in comments here in the past to GDP being the consumption of resources. All the rest is just different methods of doing so. QE is obviously working for now but I think Duncan is right, the money should have been used to build infrustructure(he ha been saying that for a few years).

What you are seeing as I answer below to MikeB is the battle for unearned income. Governments vs Bankers at the highest level. The Bankers usually win but I am not so sure of the result this time around. My dooster beliefs are that available unearned income is reducing on a per capita basis. While it was going up the system worked fine, but with a situation where less is availble, and compounding going forward, you will see the battles heat up.

What you are seeing is governments starting to target unpaid corporate tax, this is the leading edge. If you have assets or income producing potential then expect to be a target.

The idea that central banks buy Govt bonds is theft and fraud. i.e The Govt is buying goods and services with money created out of thin air. Individuals cannot print their own cash. Take this to another level why not abolish tax and simply print money to pay for Govt services. The whole exercise is BS and will end in tears.

Happy. ye surely have been studying Bruce Beetham?

I know but he said the USD was weakening. It's not. 

Std profile operating proceedure, claim you said something that was proven wrong when you did not.  

The original $150 was 6% or so of US GDP for a pretty healthy economy.  I'd suggest that given the world's economy is now weak and over-indebted that even $120 could be low enough to trigger a recession and a price collapse.  

For the record Matt Simmons predicted such swings some years ago. This one was driven by a glut and not a recession, though I am not so sure on that.