Monday's Top 10 with NZ Mint: Swiss and Japanese fire broadsides in Currency wars; Tom Friedman's theory of everything; Why money printing enriches the rich; Dilbert

Monday's Top 10 with NZ Mint: Swiss and Japanese fire broadsides in Currency wars; Tom Friedman's theory of everything; Why money printing enriches the rich; Dilbert

Here's my Top 10 links from around the Internet at 10 am in association with NZ Mint.

I welcome your additions in the comments below or via email to

I'll pop the extras into the comment stream. See all previous Top 10s here.

The currency wars are back...

1. Currency wars - Ambrose at The Torygraph has a excellent roundup of the desperation in Switzerland to stop their export sector being murdered by American and European money printing.

The Swiss solution?

Firstly, their own money printing.

Then, negative interest rates.

Then, a currency peg.

We'll see whether it works.

But at least the Swiss are doing something.

In a world where it's every central banker for themselves, it's good to see a large central bank actually try to defend their national interests.  The Bank of Japan is about to intervene again too.

What is ours doing about New Zealand's national interests? Nothing.

Here's Ambrose:

Kurt Schiltknecht, the SNB's former chief economist, said every measure used to curb inflows in a similar crisis in 1978 proved a "failure", including negative rates.

Eventually the bank set a target against the Deutschmark (10pc above market levels) and pledged to buy foreign currency with printed francs for as long as it took. "It worked well. After some hesitation, the market became convinced," said Mr Schiltknecht. A euro peg would be similar.

2. 'Unlimited ECB refinancing' - Daniel Gros writes at VoxEu that Greece was the canary in the mine and now all the European miners are in trouble. He suggests the ECB become the buyer of last resort.

It's a nice summary of the European problem.

Canaries were kept in coal mines because they die faster than humans when exposed to dangerous gases. When the birds stopped singing, wise miners knew that it was time to gear up the emergency procedures.

Greece, as it turns out, was the Eurozone’s canary. The canary was resuscitated and a small rescue mechanism was set up to revive a further canary or two – but beyond this the warning was ignored. The miners kept on working. They convinced themselves that this was the canary’s problem.

3. NZ company registry Whack-a-mole Part II - Richard Smith writes again at Naked Captalism about how easy it is for dodgy people globally to use and abuse New Zealand's way-to-easy to use/abuse company registration system to launder money.

Here's Smith:

Until they get the authentication of their registrants sorted, and better legal protections for the register, it’s just a game of whack-a-mole, after all, though with several hundred billion dollars worth of international relations at stake.

You see, I wouldn’t like to be in Prime Minister John Key’s shoes when he explains, to US President Barack Obama, how the NZ government’s inept custody of New Zealand’s Company Register continues to facilitate money laundering, just after the biggest moneylaundering ring in world history was shown to depend on shoddy New Zealand registration, and four and a half years after Obama’s first warning.

Nor, come to that, would I particularly relish the prospect of explaining to Prime MinisterMedvedev Putin whoever of Russia how a key component of the biggest tax fraud in Russian history was facilitated by other shoddily registered New Zealand companies.

Oh Mr Key, if you don’t want New Zealand to be either an international pariah, or a laughing stock, I’d take a look at the New Zealand Company Registry and its protections right now. Perhaps there will be another 200+ parliamentary questions, about this new batch of companies, in another couple of weeks. Would that get your attention?

4. Cyprus on death watch negative - FTAlphaville points out that S&P put Cyprus on negative credit watch on Friday night. The language is damning.

We believe the fiscal position of the Cypriot government is no longer sustainable. Due to the departure of the junior coalition party, DIKO, the Cypriot government is, in our opinion, in a weaker position to pass emergency budgetary measures through parliament.

In particular we question whether, without more extensive expenditure cuts including to public sector payrolls, the government can meet next year’s ambitious 2.5% of GDP general government deficit target. In our opinion, the Cypriot banking system’s capacity to absorb shocks emanating from a further deterioration in Greece’s public and private creditworthiness is not unlimited. Based on official comments, we believe that uncertainties remain over the timing and participation rate of the private sector in the planned bond exchange of Greek sovereign debt.

5. The  drive for Eurobonds - It seems one the latest tactics in the endless attempt for solutions in the European crisis is to create a Eurobond.

Here's Reuters

Italian Economy Minister Giulio Tremonti stepped up calls for a more coordinated response to the euro zone debt crisis, including the creation of euro bonds, ahead of a crucial Franco-German summit next week.

Tremonti returned to proposals for jointly-issued bonds that would effectively make individual governments' debt a common burden, saying they were the "master solution" to the euro zone debt crisis.

6. Spain can't pay its defence budget - El Pais reports Spain can't pay its military budget. HT Mish.

7. Be consistent -  If John Key is so keen on cracking down on how teenage beneficiaries spend their money, he should extend it to pensioners as well.

I wonder how much pension money is spent on the pokies, on cigarettes and on alchohol.

Would John Key be so keen then?

If he's going to go down this track he should be fair about it.

Here's Will de Cleene making the point well on his blog:

You do not unleash infrastructure of such complexity unless you intend to test it before widening it to others.The Young Ones are guinea pigs for a new regime of Food Stamps for all beneficiaries (excluding the Super voters, no doubt). Alcohol and tobacco for poor people bad! Pies and ice cream good!

National's paternalism is more likely to fuel a backlash than inspire fomenting youth to comply with their minders. Because, no matter how much Key tries to hide it, the jobs just aren't there.

The Young Ones are easy fodder for the blue rinse brigands, in much the same way as farmers are Labour's current scapegoats. Farmers are predictable protesters though, always with a strong "Let the Tractor do the Talking" motif. The Young Ones aren't quite as constricted in their tactics, as the last week in London has shown.

8. Why QE further enriches the rich - The Observer's Heather Stewart makes the good point that money printing or quantitative easing as it is known simply enriches the already rich and does nothing for the middle classes and poor.

 The Bank of England's recession-busting policy of buying up billions of pounds of bonds – may have contributed to social unrest by exacerbating inequality, according to one City economist.
As the Bank of England considers unleashing a fresh round of QE, Dhaval Joshi, of BCA Research, argues the approach of creating electronic money pushes up share prices and profits without feeding through to wages.
"The evidence suggests that QE cash ends up overwhelmingly in profits, thereby exacerbating already extreme income inequality and the consequent social tensions that arise from it," Joshi says in a new report.

We are increasingly taking easy credit, routine work and government jobs and entitlements away from the middle class — at a time when it takes more skill to get and hold a decent job, at a time when citizens have more access to media to organize, protest and challenge authority and at a time when this same merger of globalization and I.T. is creating huge wages for people with global skills (or for those who learn to game the system and get access to money, monopolies or government contracts by being close to those in power) — thus widening income gaps and fueling resentments even more.

Put it all together and you have today’s front-page news.

10. Totally Jon Stewart at The Daily Show on the credit rating downgrade.

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?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.


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About point 8..

Yes... money supply growth does lead to a tranfer and concentration of wealth.

After yrs of reading... I've come to these simple conclusions :

1/ Every new $ created devalues every $ already in existence..  ( in a general philisophical sense )

2/ The immediate  benifits of newly created $ accurs to those who get first use of it....and the benifit slowly ripples outwards ( and quickly dissapates ) and the benefit is less and less.

3/ The impact of more $ in the economy manifests in many different ways... BUT  the end result is rising prices in some assett prices, non tradables and/or even the CPI.

It becomes clear that the biggest losers are the ones who never get a share of the newly created money and also Savers...

The CPI does not measure any of these things..!!!!!!   and yet, that is what the Central Banks use to manage money supply growth.

In NZ , at the moment, we have yoy M3 growth of more than 6%.....   ( far to high in my opinion... unless we want to carry on like we have been for the last 20 yrs )

cheers  Roelof

M3 7.3% YoY June 2011 -

Financial Repression...

Yes, quite a worrying statistic. Woulds I be right in assuming that most of this is caused by the Govt borrowing abroad to fund the deficit?

But credit has not, or hardly, grown since December 2008:


If credit has not grown ...then the only thing to explain the growth in the Monetary aggregates would be that the Reserve Bank has expanded its' balance sheet..????


A clear explanation would certainly be welcome. I am not going to hold my breath. 

Plow thru this... I'm not smart enuf to give a clear simple explanation...  see page 26 chart 4....maybe that explains the changes in the Reserve Bank balance sheet..???

My interest is in broad principles... In that regard there are only 2 ways to expand the money supply... one is for the Central bank to increase the Monetary base ( shows as as expanded Central Bank balance sheet ) and the other is for Banks to lend by creating credit..

Correct me if u think I'm wrong   ....cheers  Roelof

I am going to have to work through that more than once. It is also 12 years old so can't include the example I am particularly interested in being the impact of government front loading debt to pass on to banks via the RBNZ at close to the OCR, and then what happens when the process is reversed.

Govt has 13 billion on deposit with the Reserve bank.  This is growth in the liabilities side .

On the asset side of the balance sheet the Growth is in holdings denominated in foriegn currencies.

A simple conclusion is that the Reserve Bank has been selling $NZs'  , to provide plenty of liquidity for foriegners to purchase Govt debt...????

My understanding is that the main purpose of the OCR is to set the cost  for very short term , overnight lending...  Banks can borrow Unlimited amounts of overnight money..

I don't think the money that the Govt has on deposit with the Reserve Bank would be used for longer term loans to the banks..????

Can u elaborate Colin..??

My thinking is that the Govt was simply building some redundancy into their borrowing...a bit like "rainy day money".

cheers  Roelof

I think I am starting to get my head around what has been going on. A brief summary:

Private sector credit was expanding in at least the two years till late 2008 at about $30 billion per annun, and M3 at about $15 billion per annum.

In the nearly three years since, private sector credit has only grown by about $7 billion in total, or at something less than 10% of the previous rate. M3 has grown about $20 billion over the period - roughly half the previous rate - but for the last 12 months is now back close to its old level and increasing at $15 billion per annum.

The first question to arise is: Where is the growth in money supply coming from if not expansion in private sector credit?

The answer to that appears to be mainly from government issuing NZD bonds via the Debt Management Office/Treasury. The RBNZ has had a role providing a place to park money not immediately spent - and presumably pays the government interest on that money at the OCR. The RBNZ would of course want to lend that money to at a minimum recoup the interest it is paying the government. Any expansion or contraction of the RBNZ's balance sheet is likely irrelevant as a reflection of easing or loosening monetary policy.    

The second question is: Why has the government stepped in to expand money supply now that the private sector has walked away from the role?

That is a big question, and one that I am not even going to try and answer beyond suggesting that if you mandate inflation (currently running at 5+%) an expanding money supply is required.


Thanks Colin, so is it our own little QE experiment? How do they stop?

How do they stop?

Only after the lies.

I reckon its related to the Reserve Bank's swap facility with the Federal Reserve. of the United States that was arranged back in 2008, which I believe is an informal currency pool designed to protect the value of the U.S. Dollar. It serves the dual purpose of holding up the value of the U.S. dollar and relieving the pressures on our economy due to our own high dollar. 

Hi Colin,,

My thinking would suggest that what u say is not entirely correct.

For the Reserve Bank to increase its' balance sheet and for M3 to increase without growth in the credit aggregates...THEN... new, base money has to be created.

Investors exchanging money for Bonds... and the Govt then putting that money on deposit with the Reserve Bank... Does not increase the Money supply....   ( normally soaking up liquidity and parking the cash , would reduce Money supply ) 

I think the Reserve bank has been facilitaing Foriegn investors buying Govt Bonds in $NZ, by providing a supply  of $NZ, on demand (liquidity ), to exchange for foriegn money.

ie. they have created new $NZ to exchange for foriegn curriencies... ( in this way they reduce the impact of demand for Govt bonds, on our exchange rate )


( I'll email the reserve bank and ask.... they have always been very helpful in the past... )

cheers  Roelof



Thanks Roelof.

I am still working this out, but:

I take it you are comfortable with banks creating NZD money supply via credit. Such credit will show up in private sector/domestic credit aggregates. Banks though can now issue covered bonds in NZD. That too will increase NZD money supply (M3), but won't show up in the credit aggregates (those mortgages are already represented there).

Forget the RBNZ - act like you are the Debt Management Office, note how banks have issued covered bonds, then issue some of your own NZD 'government' bonds. NZD money supply (M3) has just gone up, and at the end of the chain the RBNZ will end up with increased foreign currency reserves (offset by other liabilities). 

Hey Iain...

Disagree with u about the people at the reserve bank... I find them helpful.. ( I don't really subscribe to the conspiricy theories  ).. Doesn't mean I agree with their paradigms.

I'll go thru that slide presentation..

You know...  It is actually thanks to you that I finally decided to understand how Monetary systems work... I'm still learning.... ( I think that was over 3 yrs ago )... Some of the things u were saying did not seem correct 

Some of the things u say I still disagree with... but I do agree with the broad principle that Banks should not be able to create money thru credit.

much of my understanding has come communicating with the guy who created this site thks for the link

Cheers  Roelof



Colin... Can u explain how a covered bond expands the money supply ...????  there is no new money created by this transaction...  An investor is simply swapping money for the Bonds.

Likewise, the Govt issuing Bonds should not increase the money supply.

My understanding is that there are only 2 ways to increase money supply....  One is Bank created Credit and the other is the Central Bank increasing Base money (Monetary Base )....which is most clearly shown thru growth in their balance sheet.

thanks for responses... I'm always learning

#8 The Guardian article doesn't explain how Joshi comes to his conclusions. The BoE QE has been done by purchase of UK Govt bonds. Without a very clear explanation, it is a bit of stretch t say it ends up as profits. The Govt could spend the funds on any number of things, or more likey in the current environment , not spend it. So more funds are available for projects in the private sector, largely banks and insurance companies, which one could argue, drives down interest rates and thereby hurts profits.



7. What drivel! Though I agree National Super needs to be looked at, this is no more than linquistic left wing wagon circling, you can't touch these 'beneficiaries' without applying the same rules to all 'beneficiaries' BS! This is part of the 'rights' culture that we need to change



Ah, I see. Pensioners have a vote, and youth beneficiaries don't.

Well said.

#7  Pensionners are not beneficiaries.  They have paid their taxes and have earned the pension they receive. They should be free to spend it as they see fit.


But pensions are paid out of income, like any other benefit. Do pensioners have a greater right to support than young people?

No money has been set aside apart from the paltry sum in NZ Super. It all comes out of the current account. Pensioners haven't "earned" it, it's being paid for by later generations.

Pensioners have earned it but the money has been taken by the Govt as tax during their productive years on the promise you will get a pension when you retire.  It is the Govt that has decided to put into the Consolidated Fund rather than set it aside for the future.  They did this on the premise that current pensioners would be funded by current taxpayers.  The baby boomer demographic is nothing new and it is the poor financial mangement of successive Govts that have stuffed it by not having funds set aside specifically for pensions. 

The Cullen Fund was a start but way too late. We need to accept that the funding can only support so many retirement years and with increased life expectancy the pension age should be raised gradually over the next decade. John Key is failing us on this issue.

It is also not about denying the needs of the young, what they need is work, training and education only delay the timing of their entry to the workforce.  But idle hands are not beneficial to society and so the dole should be earned as well, even if it means Govt work programmes, such as scrub cutting, gorse clearance, graffitti removal etc. As even those jobs would provide a work discipline, some self esteem, learning to be part of a team etc. 




What absolute rot that pensioners tax entitles them to a gold plated super. This makes my blood boil!!

The same pensioners had everything from free milk at kindy through to a free tertiary education, subsidised milk, baby bonus every week, a lifetime of tax free capital gains, etc, etc. No funds were set aside for their old age. What really gets my goat is the number of pensioners who work either full or part time and claim the full pension as well! Hundreds of millions of dollars are paid to those who don't need it! Meanwhile the next generation has to borrow tens of thousands to get a tertiary education and wait for the employed pensioner to finally give up work. 'Just one more overseas holiday before I go.'

Pensions are means tested in most countries, including Australia. Its time politicians took this injustice on. I encourage my kids to vote so the politicians might pander to them as much as they do to the pensioners.



So what's the story about the money washing through the NZ company reg....this has to be the joke of the decade....tell us more....

What is ours doing about New Zealand's national interests? Nothing.

John Key lacks Helen Clark's guts to stand up to Uncle Sam.

 "World markets have entered a "new danger zone", the president of the World Bank has warned.

Robert Zoellick said investors had lost confidence in the economic leadership of several key countries."bbc

Nah surely not...I mean, to have investors lose confidence suggests govts and bankers have made a right bloody pigs arse of the economies...that paper money is soon to be worth less than used toilet paper....I wonder what his KEY countries are.....!


Consider a foreign proprietary bond trader or a hedge fund trader operating under the umbrella of a prime broker, who decides to purchase NZD denominated covered bonds or government stock issuance.

How would they go about this.?

From my experience they would get the institutional prime brokerage credit department to arrange a NZD rolling 3 mth reset interbank credit  line with one of our local banks. 

Next step purchase the note of choice through the local treasury department of the same bank.

Settle the purchase with a draw down on the credit line.

Outcome: new liability/deposit created against the purchased asset.

And in the case of government debt the requisite increase in NZDs to settle  the NZDMO's issuance of freshly minted NZ Taxpayer IOU's.

How could this not be the investment mechanism of choice to affect such trades to foreigners?

No funding exchange rate risk, positive carry trade and a rising NZD as long as things go well with Dr Bernanke's desire to devalue the USD unit. 

Now you know why the RBNZ needs to hold the OCR into negative real interest rate territory - 'foreign investment' demands a strongly positive interest rate carry curve.