The 12 Feb Focus on Politics was interesting:
http://www.radionz.co.nz/national/programmes/focusonpolitics

Mr Key used the words ‘personal tax’ to refer to income tax and specifically not GST. I think those words are doing a lot of work, and deserve to be challenged. I would like to hear (him pinned down to give) an explanation of the conditions that make a ‘tax’ be other than a ‘personal tax’, in the context where I do things that cause payment of income tax, and I do things that cause payment of GST, and I’m the same person during both acts, and have no plans to stop doing either.

Like or Dislike: 0  0 (0)

We know where balanced budget thinking led to after 1929 – an economy that reduced in size, I prefer the growth option (which is one reason I prefer fiat).

The issue with fiat is sharing in the profits and focus on ensuring that credit is utilised productively (inputs into sustainable economic energy-environment rather than asset bubbles). Fiat alows the financing of a “new” economy while the old is declining. This and use of technology development and focus on resource efficiency can and should result in continued growth.

Like or Dislike: 0  0 (0)

SPC,

And I will restate my opinion about borrowing to pay for spending – it’s not about any one year, it’s about a balance across the economic cycle.

Sounds good in theory, In practise we will not be “credit” again for roughly 10-20 years. Did you read the herald link I provided reporting treasury forecasts?

So while you are happy to “borrow” against your childrens income in that extended time frame, Im not. Because the shear volume of the borrowing plus the 5.5% interest will take over 20 years to pay back even if we “balance” the books in the future.

You are also banking (pun intended) on the economy picking up to pay the loans back.

Something the Greens are not entirely convinced is going to happen.

And something absolutely will not happen under this National or any future Labour government.

Until we ,as a nation, get spending under control, New Zealand will never have a viable economy.

Like or Dislike: 0  0 (0)

My first move in the banking area would be to place GST on property mortgages – one reason our GST tax take did not increase much in recent years was because everyone was paying their “spending” money to the bank to pay off the mortgage and this attracted no GST.

This higher borrowing cost would return revenue to government and allow a lower OCR – which will advantage small businesss borrowing (corporates are moving into issuing bonds).

PS the alternative is to place a flexible (variable rate) surcharge on mortgages adjustable across the economic cycle (an idea I proposed to Cullen years ago c2002 era).

Like or Dislike: 0  0 (0)

Myself, I favour the greater growth possible by fiat and the flexibility in managing the economic cycle.

As I mentioned before, the issue is getting a share of the windfall profit made by banks via fiat (not all of it as this allows banks to cover the bad debts that occur in any economic downturn).

Like or Dislike: 0  0 (0)

gerrit

And I will restate my opinion about borrowing to pay for spending – it’s not about any one year, it’s about a balance across the economic cycle.

So when unemployment rises we would be in deficit and borrowing to pay for it and when unemployment falls we would be in surplus and paying back debt.

Spending allocations are not so flexible as to be adjusted to the years revenue (as p-er the economic cycle).

We possibly do have an across the cycle deficit at present – we therefore do need to keep spending increases within GDP growth so over the long term the deficit diminishes back towards balance.

Like or Dislike: 0  0 (0)

Sorry, when I said ‘government’ in relation to the standardised currency I should have said “any random, trusted, body which creates its own backed currency which is somehow auto-magically accepted by the state in payment of taxes and thus becomes a preferred trading option”

Like or Dislike: 0  0 (0)

Turnip,
I am well acquanted with the history of the monetry system.
I have deliberately chosen fiat currency as it has many advantages over non-fiat currency in that it is NOT limited by the scarcity of the metalic (or shell, etc.) standard and because of this allows for the ready manipulation of value through the induction of inflationary or deflationary pressures. This does not violate the physical laws of the universe simply because, despite some lag, the printing of more money decreases the value of each individual unit while maintaining the overall value. A standardised currency does not allow for such ready manipulation, instead the value of the the chosen standard/s will tend to increase over time because of that valued high scarcity and as a result of the exponential style growth. It will not stop exponential growth, it will just result in those with money becoming more rich because of deflationary pressures. It would be no different than giving them free, state sponsered, interest: it is incompatable with an equitable society. BJ’s energy based currency does seem to avoid this problem and does have massive appeal to me but the dynamics are far too complicated to be able to work out even the partial effects; this option would be my third favored but, it should be noted, both of my approaches would take the system far closer to BJ’s approach than at present and may even be a needed intermediatary.

The value of a standardised currency comes about because others are willing to accept the currency in trade, the government is willing to accept the currency in trade, and the standard into which the currency is redeemable is readily accepted in trade due to its ability to be used for the production of goods by a select few. At every point of trade the currency is essentially redeemed by the holder in trading it with another for they trade the value the currency holds regardless of any actual redeeming of the underlying standard; it is the value that is traded, what it is redeemed into is not relavent to the transaction unless the receiver wishes to redeem it into such.
The value of the fiat currency comes about because the state is willing to accept it in payment of taxes and because others are willing to accept it in trade, in part because of taxes. The only real difference in the value is the lack of assurance that it will keep a guaranteed value and the lack of redeeming into the standard. The lack of assurance is ensured when it is taken out of politicians hands and controlled by strict regulations. The lack of redeeming into the standard is only relivant if you intend to do so. The actual value in trade is unaffected exactly because it is accepted in trade, one use of the currency has been removed, that is all. Assuming strong regulations on the management of the fiat currency (admittedly this tends not to happen, but under my proposals would be central), the fiat currency requires only faith that others will accept it as a means of trade. Assuming that the note is redeemable to the standard (though such has been stopped at many points in history at the will of governments in a way no different to over fiat), the faith required of a standardised currency is that others will accept it in trade.

The problem with a fiat currency is the issue of trusting government, not of the non-redemtion in to the standard. In both my approaches the government is left with no control over the fiat currency and as such this issue is circumvented.

“let it be done”, eh?

Like or Dislike: 0  0 (0)

Sorry Sapient fiat can never work. You really need to read up on your Latin.

By definition a fiat currency is already removed from the physical universe and placed in the land of faith. Your arguments always boil down to us having faith or trust in you. You don’t sound any different than priest trying to convince me to just believe in god.

Before even talking about this Sapient you need to start at the beginning.

Money started out as commodity money, then it moved to representative money and finally arriving at fiat money.

Economists will lie to you and say that each step on that chain was “better” for society.
That is not true each step on that chain removed money from the physical universe and placed it further into a faith based world.

Examples from history of commodity money include Silver and Gold Coins. The money is entirely made up of a certain mass of a particular number of atoms. For a coin to be twice as valuable it must consist of twice as many atoms. That money is firmly established in the physical universe. It is impossible for you to “imagine” that money into existence.

Representative money appeared in the form of Silver and Gold certificates. Instead of carrying around a pouch of gold coins you could now carry a piece of paper that said Sapient has 10 ounce’s of gold stored somewhere. In this example it is entirely possible to disconnect the money from the physical universe lets say there is only 100 ounce’s of gold in the entire world. There is nothing however stopping me from having a piece of paper that states I own 200 ounce’s of gold. The only reason we would trust that paper certificate is that we have “Faith” that the issuer isn’t lying to us. Guess what history is full of examples where that faith was shown to be wrong. In fact the people issuing the gold certificates quickly understood this and they came up with a clever trick called fractional reserve banking. Let us assume there is 100 ounce’s of gold in a bank vault. The cunning banker issues two 100 ounce bank certificates against that gold. He has just increased the money supply independent of the physical universe, he broke the law but not a HUMAN law he has broken a UNIVERSAL law. Good luck arguing to the universe. The first person arrives at the bank and hands over his certificate and takes home 100 ounce’s of gold. On the next day another person arrives at the bank and hands over his certificate and walks home with 0 ounce’s gold, if it was me I’d walk home with the head of the banker. How can we fix the above scenario? Don’t worry the cunning bankers/economists always have a way to screw you.

Enter Fiat currency -> The Fiat money can look just like the representative money however it is not backed by anything. If you also add in a central bank then a bank run which the above scenario was talking about becomes impossible. Of course that isn’t a good thing. A bank run is a demonstration of the lack of faith in that bank. Fiat along with central banks allow the bankers to hide that lack of faith. The lack of faith is entirely justified remember the bank has committed fraud.

Like or Dislike: 0  0 (0)

SPC

Do you oppose borrowing to finance infrastructure investment, and therefor propose that all spending come out of current income?

If you had been reading and comprehending my earlier posts on this subject plus the ones where we discused the minimum wage you will see I recommend borrowing ONLY for infastructure investment. The infastructure would be used by our childrens children so to borrow againt their future earnings is wise.

Never ever borrow to pay welfare or maintain a lifestyle we cannot afford.

Just like a household should never borrow to pay rent, buy groceries or pay the power bill, it should borrow to buy a house, car, etc. Those assets are tranferable and of use to future generations (car if it is a 1967 Shelby Mustang bought for $4000 new and now worth over $3M).

Typical infastructure borrowing I would like the government to do would be to finance a rail casting line at New Zealand Steel to supply rails for OnTrack and export, facilitate Firth Industries to start making concrete sleepers for the rails and underwrite AG Price in Thames to design and cast connecting clips to join rail to sleeper.

That is an example on how to build an economy through sensible borrowing.

To borrow to pay welfare is dumb.

Like or Dislike: 0  0 (0)

I agree with you BJ the interest is ONE problem. However when ever you go down this path the Social Credit (SC) crowd always leap in and focus only on the interest and then tell us that if the government just prints the money it needs then everything will be fine.

Like or Dislike: 0  0 (0)

Okay, I’ve decided that it would be more fruitful to listen to criticism of those less naive than myself than try to develop it in my head. That and I’ve only given it ten minutes thought.
The first system would involve a reserve ratio only slightly larger than that required for a savings account to generate enough interest so as to nullify the effects of inflation. Slightly larger so that banks may still find it a profitable enterprise but so small that the creation of money from this practice is next to nothing. The currency would be fiat and not the only legal currency, though the only one payable as tax; transactions in other currencies being taxed according to the average transaction rate in that month. The currency would be tied to a small basket of the most basic food goods and, predominantly, the average price of electricity in a the year or the quarter; adjusted di-monthly through the destruction of tax take or the issuance of new currency for government spending. Since the reserve ratio is so high there should be rather minimal amplitude in the boom-bust cycle and, while the bankers can still get a substantial profit, this profit would become cut so substantially that the issue of money leaving the economy essentially becomes nil and thus the loan system becomes sustainable, or at least as sustainable as any economy which allows investment trusts may be; those becoming the main mechanism of profit for banks.
The second system is broadly similar save that there is full reserve banking and the currency is managed in a different manner. Since there is full reserve banking banks would have no profit from holding peoples funds other than the interest charged and thus a persons deposits would be eaten away, so instead the banks become pretty much entirely investment trusts, perhaps predominantly property investment trusts while the state offers a interest free and fee free mechanism of electronic money storage so as to facilitate the safe keeping of wealth and the ready transactability that electronic means offer. The currency is managed not to be inflation proofed against a basket of goods but instead to inflate at a regular rate. This inflation would take wealth from everyone as if a tax and, because there is no frational reserve, would mean that any money not actually invested in a productive fund is loosing value. This would hit the non-bankers slightly harder than the bankers but because the non-bankers are involved in the productive economy and places most likely to receive the funds from the beneficiaries and service providers likely to receive the tax take created trough inducing he inflation ultimately it is the bankers that make the loss, thus further limiting their real profits and allowing for a a loan system which is sustainable.

Its only basic, and most likely very flawed, but please do provide criticism. Preferably not along the lines of it not being fiat.

Like or Dislike: 0  0 (0)

gerrit

Do you oppose borrowing to finance infrastructure investment, and therefor propose that all spending come out of current income?

Debt financed growth (investment) is the way to wealth for business and debt financed government investment in infrastructure assists growth for the wider economy in which they operate.

Like or Dislike: 0  0 (0)

SPC

….it does not increase the debt level

But you still need to repay debt, so unless you have a provision in the taxation cashflow to repay debt (with or without interest) you are still borrowing from your childrens children.

Or are you envisaging New Zealand having an interest free credit card with the IMF, as long as we pay back something we can keep borrowing?

Like or Dislike: 0  0 (0)

Turnip,
I am attempting to ensure such. At the moment its just in the very early stages, much to consider yet. Many other things to do at the same time; something to brew over rather than meditate on anyhow.
I have, as much as you will not like it, dismissed a entirely non-fiat currency. Im working with two options at the moment, both fiat, though the first is fiat in form but for all intents and purposes acts as if a backed currency; I am favoring the second because of its potential to neutralize the interest problem, an application any non-fiat currency cannot do nearly as well.

BJ,
I find the second movie (8 parts) far better than the first. It also brings up the point of contention that we had in our previous discussion. Apparently, I was theoretically correct and you were technically correct. Apt, since it turns out I was arguing what was possible while you were arguing what was. lol.
My second approach is somewhat similar to the second approach highlighted at the end, though with a number of modifications; I found it amusing to see that mine had come to approximate theirs which approximates the DSC approach.

Like or Dislike: 0  0 (0)

Turnip

How about saying the interest is only ONE of the problems so we can agree on something It IS a problem. It isn’t the only one.

That series of cartoons explaining it isn’t as long as it is because of there being just one problem.

respectfully
BJ

Like or Dislike: 0  0 (0)

Sapient if the expansion mechanism in your monetary system is disconected from the physical universe as is the case in a debt based fractional reserve system and social credit then your system will never work.

There is no difference between a debt based fractional reserve system and social credit the interest isn’t the problem. The problem is the fact that both system can and DO expand independently of the goods in the economy.

Like or Dislike: 0  0 (0)

SPC,
I would favor an end to the fractional reserve system, though how to do it could be a problem. The best approach I can see without doing too much damage is to to just decrease the ratio over a period of a decade or probally more, as any faster would destroy the money to fast and cause massive pain.
I have been thinking about a system that would work for the last hour or so, I think I have pretty much got the basics down. I will give it another day or two to brew before posting it here. It seems to be not dissimilar to the social creditors proposals, though obviously with a totally different understanding underpinning it. The issue of banking system profits should be delt with, I just have to do some more mental acrobatics to work out if my thoughts are correct.

I would like to see a CGT but not in the form you propose. I would like the CGT to be fully on-sale. Though it would be essentially like GST so the question of if we cancel out some of it, or all of it if a profit is not made, would be a question to consider. I would like, in conjunction with the CGT, a land-’tax’; not as a tax as would be the case with CGT but as a rent.

Like or Dislike: 0  0 (0)

Sapient

It was not meant that seriously – but the change in tack of the RB and hopefully a CGT could later lead to other policy developments in this area – I prefer some incremental moves to ending the fractional reserve system.

Just how one would go about retaining the growing economy monetary supply system but allow some public gain (rather than just banking system profit etc) – and why not if there is public guarantee of deposits …

Like or Dislike: 0  0 (0)

gerrit

Obtaining interest free debt in preference to interest bearing debt does not add to debt, it only establishes a share of its existing (and projected) debt level which is free of interest cost.

We know that deficits are projected and if some of the debt taken on as a consequence is interest free, it does not increase the debt level.

Like or Dislike: 0  0 (0)