The damaging dollar – how to ease exporters and save jobs

As you might be aware, Russel floated a proposal in the weekend to address our high dollar which is damaging our exporters and manufacturers and costing kiwi’s jobs. We pulled together a brief Q&A to help explain the proposal.

Why does getting the dollar down matter?
Our dollar is over-valued because all our trading partners are artificially lowering theirs. That means that when our exporters sell their goods they get less money in New Zealand Dollars. It means importers can undercut our local businesses. And it means that tourists get less money when they change their travel money into New Zealand Dollars to spend here. That’s hurting our economy and destroying jobs. In the past four years, our income from manufactured exports has fallen by 12.4% and our income from internal tourism is down 18.1%. 40,000 manufacturing jobs have been lost.

With less income and cheap imports, we end up living beyond our means and borrowing from overseas or selling our assets to foreign buyers to make up the difference. Our international debt is increasing by $10 billion a year. That can’t go on forever. It will end in a Greece-style collapse. We need to act now.

What is quantitative easing (QE)?
It’s when the central bank creates money. The Greens would use the money to fund the rebuild of Christchurch and to restock the Natural Disaster Fund, which pays for EQC pay-outs in a disaster and is currently empty. By creating more money and using it to reduce the need for the government to borrow overseas and to buy overseas assets, the exchange rate would be lowered and our businesses would be better able to make a living. The countries we trade with are already using QE and other measures to lower their currencies, which is why our exporters and manufacturers are having such a hard time of it, and why so many manufacturing jobs have been lost. If everyone else is doing it and we don’t, then they win at our expense.

Why the Christchurch rebuild?
We chose the idea of putting money into the earthquake rebuild and into restocking the Natural Disaster Fund for two reasons. First, it is really important that the rebuild happens and that the Natural Disaster Fund, which is like our national safety net in the event of disaster, is refilled. These are big costs that have to otherwise be paid for with government borrowing. Second, carefully using QE for these purposes would reduce the inflationary effect. The Christchurch rebuild is going to happen anyway, with money borrowed from overseas. Using QE instead doesn’t change the amount of inflation. Because the Natural Disaster Fund buys mainly overseas it wouldn’t push up the price of assets in New Zealand.

But what about inflation?
If you printed huge amounts of money and handed it out willy-nilly that would be inflationary. That’s what happened in the old days when governments ‘printed money’. But that’s not what QE is. QE is about creating relatively small amounts of extra money, a few percent of the money supply, and carefully targeting its use to lower the exchange rate without simply pumping more money into the economy. The overseas experience has been that there is little inflation because the extra money in the system is matched by extra output from the jobs created by the lower currency.

Why doesn’t National want to do anything?
National are failures as economic managers. They have stood by while 40,000 manufacturing jobs have been lost. While unemployment has fallen on average across developed countries since the end of the recession, it has kept on rising here. Yet, National refuses to act because they still believe in a failed ideology that says the market always knows best on the currency. They ignore the fact that other countries are already intervening in the market for their own advantage and that not acting costs Kiwi jobs. The only way we’re going to get a new approach that puts Kiwi jobs ahead first is to get a new government.

180 thoughts on “The damaging dollar – how to ease exporters and save jobs

  1. Russell Norman,

    Apols this off-topic [frog: Have moved it to a recent thread which is more appropriate, tom.] I just saw a pr about a “suite” of measures which the reputed minister of everything with a gal’s name termed “half-baked on rnz today. I’d wanted write you (but couldn’t quickly find how) to ask a question and make pertinent additional comment, other, that is, than wishing you luck in your endeavors.

    So, if I may, the question is as to whether the WTO and related trade dealings eliminate the obvious execeutive action of government in devaluing the currency. For some reason I can’t recall this ever having been done since Lange’s/Muldoon’s time, the reason perhaps being trade developments since.

    My comment would be to take heed of Mill’s “tyranny” of the quick fix, for once done it cannot be undone, both complexity and interconnectedness on the global scale shifting one’s (nation’s) self-determinationations.

    hoping this reaches you… with regards

  2. So.. the money that IS being borrowed from overseas would cost more, as would the interest payments to service that debt. How do you propose to deal with that?

    I am trying to save for my retirement, and your plan will effectively devalue those savings. How are you going to convince those with savings that devaluing their savings is such a good idea?

  3. I support any initiatives to reinvigorate the economy. This Key-Banks-Dunne Govt. is obviously stuck in the ideology that if you look after the wealthiest, it will somehow ‘trickle down’ to the rest.. “what a load of B-S” that’s called ‘self-interest’ & I’m sure a majority of kiwis don’t support widening the gap between rich & poor as a solution to our economic woes..
    Good onya Russel for at least having an alternative to ‘sell it off & support their rich mates only’ plan of this Govt.

  4. Frog – you might want to transplant that subthread of the general thread over here. ? If possible ?

    BJ

  5. “100,000 Green Jobs” was a policy I felt passionate about promoting in 2011. Printing money (with nothing tangible to back the extra supply) is just plain absurd.

  6. And there is something tangible to back borrowing from a bank. The only thing tangible backing it in both cases is our future labour production.

    All we are doing when we borrow from a bank is pay them for a service we could do much more cheaply, without adding to overseas debt and interest to pay, for the components, such as labour, sourced within NZ.

    Why are you fine with banks printing money, but not us?

  7. Just as long as we don’t start printing money like the federal reserve. Last thing we need is to be involved with the illuminati new world order. Become independent from the U.S and self sustaining New Zealand! Don’t let our government sell out to foreign interests

  8. Our “businessmen” insist we have to be “competitive” – not supporting businesses with no comparative advantage, not supporting anything not in a niche where nobody else competes with us.

    There aren’t any such niches that can be relied on, we have no “moat” except for our cost of renewable energy and our generally cheaper production of farm produce because it is so easy to grow things here (as opposed to elsewhere, farmers please note I am NOT claiming that farming is easy).

    Neither of these are particularly wide or deep.

    So we have a problem, because there is ALSO no such thing as a “post industrial economy” that is a consumer of industrial goods.

    As I showed in several threads now… we must HAVE manufacturing here if we are to balance our trade and provide for employment in any manner satisfactory to the society.

    This is not going to happen if the current crop of economic “experts” is allowed to continue to screw things up.

    The only way it CAN happen is with NZ investment in NZ. Which in turn means we must control our own currency and not make the Muldoon mistake of leaving our money under the control of and ourselves at the mercy of foreign bankers when we decide to borrow from ourselves.

  9. Spam. i think we have answered that already.

    I would hope there would be a better response than: “I think most young people are more worried about having jobs in the first place. Not savings.

    Savings are going to take a dive anyway.”

  10. QE is just a fancy way of saying “money printing”, and the ends don’t justify the means. It’s a race to the bottom (like everything we do to “stay competitive” with our trading partners by playing their games). Before the whole game collapses, our “trading partners” can print a lot more dollars than we can. Remember that scene from War Games? “The only winning move is not to play.”

    Long term, the only way out of this mess is to drop our fiat currency system and move to a commodity based currency, such as gold or silver. Instead of “dollars” we would conduct transactions in “ounces” (or for convenience, certificates of deposit, redeemable for ounces of metal). It may sound crazy, but the QE being exercised by our trading partners will ultimately result in a global episode of Weimar/Nigerian inflation and currency devaluation. Instead of trying to solve the problem of too many dollars by printing more dollars, let’s start working on a real solution. The sooner we switch to a commodity based currency, the better off we’ll be.

    The global devaluation of fiat currencies is not a problem that NZ can compete in. We have to exit the game to survive. Commodity based currencies can provide a safe exit.

    Also, “inflation” is actually defined as “expansion of the money supply”. Rising prices are a *symptom* of inflation (not the same as inflation, as suggested), and often a convenient measure of inflation; QE/money-printing is, by definition, inflationary, even if prices don’t rise (at first). Inflation is a tax on savings, and a theft from everyone who has money in the bank.

  11. Apparently the economic “experts’ say its better to sell assets, or borrow $6B from offshore, than to print $1B over 6 years.

    Yet borrowing money to spend is no less inflationary and the increase in debt undermines our credit rating as well.

    And selling the assets to spend the money means a loss of equity to existing debt levels – also undermining our credit rating (and thus higher debt servicing cost).

    The critics of the move have no leg to stand on.

    Maybe theY just prefer indebted government forced to cut spending and sell assets – because this increases the size of the private sector where they can make a profit or untaxed CG?

  12. Matt Nolan isn’t all THAT right Alwyn.

    Maybe you should analyze his analysis in terms of what we’ve already pointed out, before referring it here.

    He says : “by getting the RBNZ to go and fund the rebuild by printing money, we are in essence transferring resources for the rebuild. They don’t appear from nowhere.”

    However, he completely omits the reality that we WILL get those resources from “nowhere” when the money do do the rebuild is borrowed from foreign banking buddies of the current PM at interest rates that we really do NOT have to pay. This is a point that has been made for the past 70 years by various notable fools like Henry Ford and Thomas Edison.

    So his second point is a waste of space.

    He also says:
    “QE was put in place to fight the fact that policy was too tight overseas, and they were trying to fight deflation”

    — which is about the most charitable possible way to describe this misbegotten b@stard child of TBTF banking and the Fed (or the corresponding illegitimate offspring of the corresponding Japanese entities). Wrong on so many levels, but it IS the consensus of the modern economists WHO CREATED THE ENTIRE FRACKING MESS IN THE FIRST PLACE. Listening to them is useful only as a negative indicator.

    Listen to Steve Keen instead.

    they have been trying to increase the amount of high powered money in the general economy

    Matt has really drunk the kool-aid, as that was NEVER the reason for QE in the States… but then we only have to look at where he hails from to understand that error.

    Sorry Alwyn… I am not only not impressed, I am not even curious about the opinions of such an “economist”.

  13. At least we have one party putting forward sensible economic proposals in a time of recession. This would certainly be a start to fixing some of the problems faced by NZ.

  14. If we do not do some QE then we face a flat line economy (government constrained by debt and budget pressure, and exporters facing marginal futures) – where new activity is based around the Christchurch rebuild. Many jobs could be lost in the meantime – with more workers moving to Oz.

    And we face an overvalued dollar for years, before it is then corrected down in value when their QE ends. We are therefore faced with a future inflationary impact (rising cost of imports) by inaction now. That will mean a higher OCR then than optimum for growth in the future.

    It’s better to go with the world flow and thus keep the dollar more stable over the longer term. This makes economic planning for business way easier – our yo yo dollar has been a major obstacle to investment.

  15. Jeez, growth is pretty much over. Jeanette Fitzsimons introduced Richard Heinberg, just over a week ago, in Auckland. He’s argued pretty well that economic growth is just about at its end, in real terms, even if there are ups and downs in the future. It’s just common sense, really, on a finite planet. One would have thought Russel Norman would realise this but he’s playing the usual political games instead of trying to prepare us for a very different future. His ideas on this have nothing to do with green issues. This is why I often can’t take the Green Party seriously as a green party.

  16. QE in the rest of the world will NOT end, it is going to go on until the monetary system actually collapses entirely. Having our own currency and independence of some degree from that monetary mistake will be critical to our economic health when the larger economies crater.

  17. Talk about misdiagnosing the problem, and then applying the worst possible solution? Nats are crony tools, but not a dangerous as you lot. Dear o dear.

  18. The certainties of the apologists for private contol of debt/capital/money are similar to that for flat earth science.

    Despite the evidence before our/their own eyes (Japan, USA and Europe) that QE can occur without inflationary impact (as a substitute for more public debt), they say if we do it, it will mean higher inflation or debt cost. When it is the higher borrowing/debt – that is being and can be replaced by QE – that leads to higher debt cost.

  19. The utopian side of me says I hope they do this. The quicker the masses realise that money (as we know it today) is nothing more then a confidence trick, the better. The realist side of me says this idea is insane and will achieve nothing else in the current economic climate then fuel inflation. Either way it won’t achieve what Russell and co wants.

  20. “Our dollar is over-valued because all our trading partners are artificially lowering theirs.”

    Is Australia doing this? Because Australia is New Zealand’s biggest trading partner.

  21. The realist side of me says this idea is insane and will achieve nothing else in the current economic climate then fuel inflation.

    It depends, as always, on how this tool is used by government.

    To be sure, I would not trust John Key or Bill English to do it right. They haven’t a clew.

  22. A doom and gloom scenario here

    Apparently the leading practioners of QE over the past 4 years are the Bank of England and the Swiss National Bank (followed by the Fed, the ECB then the Bank of Japan).

    http://goldswitzerland.com/concerted-qe-the-beginning-of-hyperinflation/

    In August the Swiss National Bank did some QE to reduce the value of the franc against the Euro after problems faced by Swiss exporters.

    http://globaleconomicanalysis.blogspot.co.nz/2011/08/quantitative-easing-begins-in.html

    One wonders about locals who argue that we should maintain a pure monetary policy and avoid a CGT – when our economic performance in terms of wages and productivity remains so much lower.

  23. Stimulating the economy is inflationary, but there is a difference between inflationary stimulous and inflation (as a measured outcome). Some people conflate the two.

    Japan has practiced QE for 20 years – what inflation?

  24. All the howls about Zimbabwe and the Weimer republic forget that their productive sectors were first destroyed, before they started printing money, When there was nothing to buy with it.

    Not a lot different from Nationals present efforts!

    A lot different from lending to ourselves to invest in paying our under-utilised and capable construction industry to rebuild Christchurch. Vital infrastructure which will return the investment many times in future.

    Also we did exactly the same thing from 1935 until the 60’s. Called the Development finance corporation for a long time. Worked well for us.

    Got us out of the depression before the US and UK for a start.

    We are still using a lot of those assets. Apart from the ones our idiot Governments sold, so someone else could profit from them.

  25. Frogs arguement that a lower dollar will help manufacturers, but NOT make prices go up, is loopy.

    A lower dollar means higher fuel prices, higher car prices, higher prices on EVERYTHING that is transported including NZ goods, and EVERYTHING that is imported.

    After complaining about the wage gap with Austalia, the Greens are now proposing to make it bigger by lowering the dollar.

  26. Judging from the frantic reactions to Russel´s proposals across the blue blogosphere today, you think the Greens were the Government!
    Won´t be long now…:-)

  27. Judging from the frantic reactions to Russel´s proposals across the blue blogosphere today, you think the Greens were the Government!
    Won´t be long now…:-)

    well, were that to happen, then if Russel got his mits anywhere near the finance portfolio, then I’m pretty sure that the dollar would drop… primarily due to capital flight.

  28. Photo shows he has not taken any notice of anything we have said. Again!

    Quote. “lot different from lending to ourselves to invest in paying our under-utilised and capable construction industry to rebuild Christchurch. Vital infrastructure which will return the investment many times in future.

    Also we did exactly the same thing from 1935 until the 60′s. Called the Development finance corporation for a long time. Worked well for us.

    Got us out of the depression before the US and UK for a start.””.

    Hasn’t Photo noticed that QE in Switzerland, Japan and elsewhere, has not resulted in all the evil punishments those who use money not printed by private banks are threatened with.

    It didn’t when we used it in the 30’s either.

  29. I can’t believe the economic illiteracy in this country. People can’t see beyond the “if the dollar goes down, the price of imported goods will go up!”. Absolutely everyone who has their head screwed on right acknowledges the NZD is overvalued. This includes the government. This means we are in for a currency correction at some stage. So we might as well engineer it now while we can save jobs, otherwise if it happens after our export sector has been gutted, we are truly stuffed.

  30. Russel was right to call ‘chicken’ in the House.

    Chicken!

    CHICKEN!!

    (SPAM – don’t take flight, I’m only joshin’)

  31. Why is President Obama already getting ready for QE3? Didn’t QE1 and QE2 work very well? If that is so, why is it going to work here when it doesn’t seem to be working there? Because we are going to spend it in Christchurch? The problem is, a lot of what Christchurch needs will be coming from overseas, so, if there is a drop in exchange rate, we will have to spend more rubber money to pay for it anyway.

    President Obama may have tanked his economy, but do we have to follow him over the edge like good little lemmings?

  32. greenly – “Chicken” – And very statesman-like I’m sure. And why do the public have a low opinion of polititians? Beats me.

  33. Judging from the bee sting, ad hominim, reactions from the RWNJ’s to this, today.
    It is obvious they are scared this will work.
    And call time on their daylight robbery from the rest of us.

    No intelligent comments, just “QE causes inflation.

    Well, only if their is no spare capacity in the economy.

  34. Hola bjchip

    “However, he completely omits the reality that we WILL get those resources from “nowhere” when the money do do the rebuild is borrowed from foreign banking buddies of the current PM at interest rates that we really do NOT have to pay. This is a point that has been made for the past 70 years by various notable fools like Henry Ford and Thomas Edison.”

    It is best to think of these things in terms of resources directly – we can get what we need by using resources at home or importing them. They still need to exist, so it will either “achieve” this by leading to the same borrowing indirectly or by implicitly taxing New Zealanders to do so.

    We can’t, as a nation, consume things without paying for them.

    Currently, monetary policy is set such that inflation is bobbling around our target band. Having the RBNZ buy up a bunch of government bonds used to fund the rebuild is an unsterilised asset purchase and will lead to inflation (that is the domestic tax component). And the exchange rate will adjust – in order to correct for the fact that the value of the dollar has been devalued by domestic inflation. We don’t get a free lunch out of this – we just adjust who is bearing the burden of the cost of the rebuild.

    “Matt has really drunk the kool-aid, as that was NEVER the reason for QE in the States… but then we only have to look at where he hails from to understand that error.”

    I was trying to put down what their goal was in the simplest manner possible. Essentially, they aim to use QE to lower effective interest rates across a set of assets so that people “move consumption and investment” forward – helping to smooth out economic activity and meet their inflation mandate. They focus on long-dated Treasury bonds (which exist due to a separate choice of fiscal authorities to borrow), and mortgage debt which they have been given a mandate to purchase.

    Every central bank in the world is incredibly careful about what assets they purchase because they want to keep independence – if there is going to be a large spend up on assets, central banks would prefer fiscal authorities to do it … because it is a fiscal policy issue.

    And this is the crux, if the Greens want to pay for the earthquake through domestic funding then stick to the tax idea you raised (although, I’d still suggest viewing it in terms of an investment, and so avoid trying to raise all the revenue at once).

    Getting the RBNZ to purchases bonds to fund this investment is a roundabout way of doing this – and is likely to be more regressive than the tax plan you could implement. That was the point I made on the blog – and no amount of attacking economists for the crisis changes this point ;)

  35. It’s almost incredible the naivete and the misunderstanding of the nature of money. A misinterpretation of events overseas combined with a touch of conspiracy theory seems to be a replacement for some hard analysis.

    “Our dollar is over-valued because all our trading partners are artificially lowering theirs”

    No they are not, there is no stated policy of any major reserve bank to deflate their currency. The definition of “over-valued” is always relative. Over-valued according to exporters with minimal imported factors of production. Under-valued for anyone wanting to purchase overseas assets, or import or go on an overseas holiday.

    By deliberately siding with some exporters, Russel is turning his back on NZers who have savings, NZers who aspire to go on an overseas holiday, NZers who want to invest overseas and indeed anyone unable to hedge against inflation (most wage and salary earners). He is supporting anyone seeking to buy NZ assets, anyone wanting to visit NZ, besides exporters.

    It is an obvious zero-sum game to decide that the market price for NZ$ (for what it is worth, given the currency is a creation of state out of nothing) is wrong and to pick a side.

    Funny how his supporters think higher cost imports, higher cost overseas holidays and making it cheaper for foreigners to buy NZ assets is a great think.

    Beyond that there are some core points:
    – To blame the dollar for a fall in inbound tourism and manufacturing sales when, with the exception of Australia, most of NZ’s biggest markets are stagnant, is just lazy. The NZ$ doesn’t help, but there are wider reasons.
    – The balance of payments type analysis is overly simplistic, especially when devaluing the NZ$ makes it easier (and more lucrative) to sell NZ assets to foreigners. Debasing the ability for NZers to buy capital goods would be somewhat counterproductive
    – “The overseas experience has been that there is little inflation because the extra money in the system is matched by extra output from the jobs created by the lower currency” The overseas experience has been that those who introduced QE faced deflationary contraction, and funnily enough extra output and demand means inflation.

    Increasing the money supply, debases the value of the money already in supply. The press release accompanying this talks of artificially lowering interest rates, so there would be a new credit expansion at the same time. A country in BoP deficit and with artificially low interest rates will face increased inflation.

    The people hurt the most are those on fixed incomes and those with NZ$ savings either in cash or in the bank.

    This idea decides to sacrifice them in order to benefit a few exporters, and of course wealthy expat NZers who when they fly home for Xmas will have a lot more spending power.

    Shame there is no honesty about this.

  36. And in the same report

    In a move clearly aimed at pushing down the value of the yen and lifting Japanese exports, the BoJ decided to add $128 billion to its program of asset purchases.

    Greens NZ$2 billion is not a pimple on the backside when compared with the big boys. The NZ$2 billion will not even register.

  37. Kerry.

    If you think printing money won’t lower the dollar, then makes Russel’s reason for doing it pointless.

    If you think that lowering the dollar won’t increase the price of fuel, transport etc, vehicles, imports etc, then you’ve lost touch with reality.

  38. The point is increasing the prices of imports. So the price matches the real costs. Including those of borrowing.
    The reason I advocate borrowing from ourselves, as we did successfully in the 30’s, So did the USA by the way, is to avoid the even more chilling effect, on our balance of payments and exchange rate, of continued borrowing offshore. Especially when the consequent high exchange rate is killing local workers and business.

    Increasing import prices is not a bad thing. it makes it possible to produce locally, so we actually have jobs to buy food. Increasing the price of fuel makes alternative energy more attractive and local firms can compete on more equal terms with those offshore without hitting wages..

    i know in RWNJ world the price of new cars and flat screen TV’s is important. In the real world most people do not buy either. The real world is more concerned with the 20% rise in grocery prices since October 2011, and the lack of jobs for our kids..

  39. The constant paying of interest on interest and the resultant rise in the dollar from the money we pay to overseas banks, money they get at very low interest rates from the US and Chinese printing money, has to stop.

    This is one way. getting the rich to pay tax is another. One will not work, but altogether may.

    One thing is certain, emulating overseas failures with more of the same is not working.

  40. Kerry – it is so very simple to show the “real world” that you live in, bears not even the slightest resemblance to the “real world” everyone else lives in.

    Kerry says
    “The real world is more concerned with the 20% rise in grocery prices since October 2011″

    Satistics NZ says, quote – “From August 2011 to August 2012: Food prices decreased 0.5 percent.”

    (from the August 2012 NZ food price index)

    You just make up total nonsense any time it suits you.

  41. Really Photo.

    I see a real world grocery bill for a real world basket of groceries every week at work. We have bought almost the same groceries, for the crew, for the last two years. 20% is understating it! It is only a decrease in dairy which has kept it that low.
    Same at home.

  42. Kerry “It is only a decrease in dairy which has kept it that low.”

    Which is more made up nonsense.

    All dairy only makes up 10% of the whole index. In the other 90%, vegetables came down by nearly 5% over the year, lamb down 20%, beef down 4%, fish down 1.3%, bread down 2%, pastries down 3.5%, pasta down 1%, soft drinks down .5%, oils and fats down 13% etc etc.

    The only major group to go up by more than 1% was restaurants and takaways which together went up 1.3%.

    Which all gives an overall drop in prices from the year before of -0.5% (the 4th month is a row with an annual fall).

  43. I wonder where they shop?

    Observed: Cheese went up, not down. Milk likewise. How is this reconcilable?

  44. Tapered off the BIG price increases because the market won’t bear any more?

    Because New Zealanders aren’t making any more MONEY, the median income is falling. They’re just paying more for the food.

    Food prices rose 3.4 percent for the year to August 2006.

    The Food Price Index increased 2.0 percent from August 2004 to August 2005.

    Hmmm…..

    So for the last year basically flat?

    Gawd… how do you manage to see through the pink?

  45. BJ says “Observed: Cheese went up, not down. Milk likewise. How is this reconcilable?”

    We’ll you’re obviously not shopping very wisely at all – when they’ve gone down everywhere else across the country.

    I was paying $10 a kilo for cheese a year ago. Now I pay around $7-$8.

    I was paying $3.30 for milk – now $3.10.

    BJ says “From June 2008 to June 2011, the FPI increased 14.3 percent.”

    Add the drop in food prices June 2011 to June 2012, and we have a 14% increase over 4 years (a 3.3% compound increase) – the SAME as the average increase in take home pay over the same period.

    BJ – you’re never one to miss a chance to be negative and miserable – even when you have to make stuff up to be miserable about.

  46. The constant paying of interest on interest and the resultant rise in the dollar from the money we pay to overseas banks, money they get at very low interest rates from the US and Chinese printing money, has to stop.

    Debt payments and interest are paid in the overseas currency. Your point here is advocating against Russel’s plan. There is no resultant rise in the NZD when we pay interest, as we need to sell NZD to buy the overseas currency.

  47. Photo shops on planet Photo.

    I am not the first person to notice that the official FPI, or Photo stats, does not reflect reality very well.
    Maybe because if Kiwis really did know, how much prices of necessities are outstripping wages, there would be a general strike.

  48. A ship, buying the same basket of, middle of the road, groceries, for the same number of people, recorded every week is an excellent indication of real rises.

  49. Still don’t get it do you.
    We have to get the money in the first place.

    No, I confess, I don’t get your economic illiteracy. There is no “resultant rise in the dollar from the money we pay to overseas banks”.

  50. Kerry says “I am not the first person to notice that the official FPI, or Photo stats, does not reflect reality very well.”

    Kerry thinks the few products he shops for, in the few shops he buys from, are a better representative of prices than a statistically selected and weighted group of foods aimed at what Kiwis actually buy, priced at shops from all regions of the country.

    You expect us to beleive you’ve recorded the exact prices of 200 food items from 1 year ago, 2 years ago, 3 years ago etc?

    Please tell us what those 200 prices are from two years ago.

    And what you bought this week, is exactly the same as you bought last week, last month, last year etc. How tedious.

  51. Spam – If we borrow the money from ourselves we are NOT paying foreign interest on the money in foreign currency. Perhaps you have something else in mind here?

  52. Spam – If we borrow the money from ourselves we are NOT paying foreign interest on the money in foreign currency. Perhaps you have something else in mind here?

    Well, firstly Russel is not planning on “borrowing money from ourselves”. He is planning on printing money, and then dressing it up as borrowing by selling bonds paid for with printed money. There is a difference.

    Secondly, I am thinking of interest payments on existing borrowing. Debt servicing cost will escalate as the dollar falls.

  53. Photo. I have access to the “rate” how much it cost per-head to feed a ships crew, dating back 28 years.
    Including every week for the last two and a half years.
    A pretty representative basket of groceries.

    Diary has taken a dive very recently due to the ending of the boom in overseas sales, but as you say it is less than 10% of groceries.

    Unlike some, we also keep household accounts. That goes back to the 80’s.

    Because of the circles i talk to we also have a very good idea of how much food parcels are costing organizations such as Presbyterian support and the Sallies.

  54. Face it Kerry – you got caught out making up total and utter nonsense – a 20% increase in food since October.

    – at a time when average food prices have come down.

  55. Spam. Where do you think the money we are borrowing from offshore comes from.
    Do you really think that China had two trillion sitting in the bank to loan to the USA.
    Or Japanese housewife’s have 40 billion a year to lend to us.
    Money spent into circulation by a Government is no more “printed” than money borrowed from an offshore bank.
    Where do you think the money came from to fund us out of the depression in the 30’s. And the money invested by the DFC.

    It is not where it comes from it is how wisely it is used that really matters. However it is stupid to pay overseas banks for money to be spent on NZ resources. 3 billion a year to one bank alone.
    Re-building Christchurch, educating our children, investing in infrastructure they will need, and in sustainable energy are all things we need to do which will return the money invested many times.

  56. Real incomes declined IN SPITE of inflation.
    Food Prices went up.
    A reasonable person would say we’re doing worse.

    A reasonable person would regard most of the hysterical ranting of the RWNJ brigade here, as just that too. Economic Darwinism is their product… proudly promoted by them as the solution to all the worlds problems. Just let the poor people die.

    http://www.counterpunch.org/2012/10/08/the-disappearance-of-public-intellectuals/

    New Zealand hasn’t reached that point yet, but Key and English are straining to reach it. Pushing us ever closer.

  57. Kerry claims food prices have risen 20%, then shoots that down with a new claim they’ve risen 0.1%.

    I think you yourself have done a great job is proving your ealier claim was total nonsense.

    (by the way, you might want learn the difference between a 0.1% rise between quarters, and a 0.5% drop compared to the pcp)

  58. The rise of 20% was from direct observation. From the ships accounts.

    Though even the FPI shows a rise over the last quarter which shoots down in flames any claims of a drop. I challenge anyone to prove that their overall grocery bill has decreased in the last year.

  59. Photo is partly right about banking.
    Banking like this is useful. http://opinionator.blogs.nytimes.com/2012/08/22/an-attack-on-grameen-bank-and-the-cause-of-women/ Though note how it is being attacked. We had a similar benefit from the DFC. Banking like this is not. http://www.democracynow.org/2010/7/16/the_food_bubble_how_wall_street

    Or how poor people in Greece are supposed to pay for the tax dodging and borrowing of the rich and to prop up dysfunctional banks.

    Though how Photo justifies banking earning more than farming, for those services, from our economy, is puzzling.

  60. Can anyone quantify how much inflation would result from any devaluation in the currency value? I ask because

    1. the RB Governor could increase in the OCR or tighter control of bank lending to mitigate.
    2. the dollar will fall sooner or later, whether we attempt it now or not. The longer till this happens the greater adverse impact to our export sector in loss of earnings (and through lack of money for investment, loss of future earnings) and or simply surviving.

    I also ask whether there is any evidence that a $2B put into the Christchurch rebuild each year would cause a fall in the value of the dollar.

    To those who say, why then do it, well the alternative is borrowing the $2B to pay for it (no less inflationary) or selling assets of this value (when this is not necessary). This is more attractive.

    In the end, this is a good policy and critics have made no sustainable case. All they do is focus on simple and singular sound-bites, like first year students, in their apology for continuing with standard operating practice – in a world where the Bank of England, Swiss National Bank, ECB, Fed Reserve and Bank of Japan act otherwise. Once again those, who have had their way here over the past 28 years, know best – and yet it is we who have the worst performance in the OECD over that time. No need for a CGT, no need to take necessities out of GST (leaving child poverty can be resolved in other ways – and thus not resolved in any way), and no need to tamper with monetary policy focused on inflation. And the only reason our unemployment is low is because we export people to Oz to work in well paid jobs.

    And all this government has is awaiting an economic recovery based on public debt growth in assisting insurers to fund the Christchurch rebuild.

  61. Liberty Scott should take note of what is really going on in the world before he claims that no foreign central bank has deliberately sought to devalue their currency.

    The Bank of Japan and the Swiss National Bank have deliberately intervened to do this. The Swiss have done more QE than anyone else, without having any apparent need to, – they chose to keep down the value of the franc down by buying Euros (and yes it took a lot of it). The British cite the prime reason for remaining outside the Euro is the the ability of the pound to fall in value relative to it, as it has. The Bank of England is alongside the Swiss National Bank in “inflating the value of their assets” – ahead of the ECB and Federal Reserve.

  62. @SPC at 3.52pm
    If, as you claim, the prime reason for remaining outside the Euro was to be able to let the pound FALL in value they have made a woeful job of it.
    As an indication the exchange rate for the GBP/EUR in Jan 2010 was about 1.11. It is now about 1.236. Thus the pound has appreciated against the Euro by about 11%.
    Incidentally I have never seen the claim you make before. Can you cite a reference?
    A good comment on the silliness of Russel’s proposals can be found at
    http://www.interest.co.nz/currencies/61477/nziers-eaqub-greens-quake-bond-buying-policy-not-qe-its-sort-debt-monetisation-prac

  63. Liberty Scott, a country with a balance of payments deficit that controls inflation, as a monetary policy priority, will continue to have a balance of payments deficit.

    Sustaining such an economy requires downward pressure on wages (the export of native born workers to be replaced by lower wage accepting immigrants), and shrinking funding to and ownership of the assets of the central and local government – and this will cause the loss of first world status (we have only been overtaken by developing countries to this point, not quite the same thing). This will include adopting the developing world’s acceptance of loss of environment standards – mine, fish, drill and over stock. This is already promoted by this government as they have chosen to accept this decline and work only to maintain the place and status, as well to do, of a certain number of us.

    We are in greater economic difficulty than the EU or the USA, yet we have a government and monetary policy clinging to orthodoxy, whereas they do not.

    It’s time to question the separation of monetary policy from fiscal policy – we cannot continue as we are. Funding the Christchurch rebuild with more public debt and selling the power companies to build roads is the last thing we need.

    If things continue as they are, we face electing a socialist (Chavez type) or American preference into government scenario within a few decades.

  64. I also ask whether there is any evidence that a $2B put into the Christchurch rebuild each year would cause a fall in the value of the dollar.

    It really depends on how that money is introduced.
    Matt Nolan covers it pretty well in his piece.

    What he skips over (sort of) is that if the RBNZ is holding bonds on the expectation of repayment with interest, then any deficit could reasonably be repaid at a low yield – possibly fixed – potentially over decades which should significantly mitigate any inflationary impact.

    The logic being it should be more desirable for the Govt . to pay the RBNZ interest in our own currency using our own tax revenues over a timescale of our own choosing, rather that going offshore to get the same money.

    He’s right though in saying there is no ‘free lunch’ – it’s just the terms of payment for that lunch might be better if it’s managed locally.

  65. The Labour party is like a drunk with a new credit card. The National party is the same drunk after the spending spree who goes back to their bank manager and asks for a credit limit increase (after getting hooked on meth as well). The Green party is to Labour what ACT is to National, and will go the same way if not very careful….

  66. alwyn, the British government’s reason for not joining the Euro – allowing the pound to move relative to the Euro, as is best for the UK economy, is well known. The same reason is cited for why our dollar should remain separate from the Australian.

    The Bank of England has grown its assets (inflated) more than the ECB (so far). There are some graphs at the bottom of this link setting this out.

    http://goldswitzerland.com/concerted-qe-the-beginning-of-hyperinflation/

    In August the Swiss National Bank did some QE to reduce the value of the franc against the Euro after problems faced by Swiss exporters.

    http://globaleconomicanalysis.blogspot.co.nz/2011/08/quantitative-easing-begins-in.html

    The Bank of Japan does QE and gets asked to do more when the yen rises against the dollar.

    Sure market uncertainty about the Euro zone future means the pound has risen by 10% against it, but the pound has fallen against other currencies.

  67. “The Green Party is to Labour what ACT is to National…”

    A weeping sore-come-weighty-millstone?

    Hardly.

    The Greens are being described now as the ‘major Opposition party’. Perhaps Labour will be to the Greens the moon is to planet Earth :-)

  68. There was a guest on National Radio espousing the printing of money/borrow from ourselves some months back. Does anyone remember who it was?

  69. Gregor W, well the route via bonds, is how it would be done within prevailing orthodoxy. However operating within the confines of orthodoxy, leaves untouched the high value of local property relative to wage and income levels and the high economic cost (impact on the dollar and OCR) of borrowing mortgage finance from offshore.

    In the past we managed our way out of housing asset bubbles via inflation (1976-1981 for example), if we focus on containing inflation how do we absorb the 2002-2007 asset bubble? The QE in Europe and the USA is about inflating their way out of public and bank debt (and meeting the new Basel standard capital requirements for banks).

  70. Kerry says “Though even the FPI shows a rise over the last quarter which shoots down in flames any claims of a drop. ”

    Surely you can’t be that stupid – that you can’t understand the monthly or quarterly rise, is less than the annual drop.

    “Food prices fell 1.8 percent in the year to July 2012, despite a small monthly increase for July (up 0.2 percent), Statistics New Zealand said today.”

    http://www.scoop.co.nz/stories/BU1208/S00420/food-prices-down-for-year-despite-small-increase-in-july.htm

  71. Oddly enough, I have two grocery bills, for fruit and veg, almost a year apart (17 Oct 2011 and 08 Oct 2012). There were 8 items that were identical and so could be compared directly, and they were from the same shop. The cost of those 8 items went up 24%. Only one went down and one stayed the same.

  72. Tony – not surprisingly, your 8 random items from just one food group, bought from one place, in one region, does not compare with over 150 items, scientifically weighted to represent what people actually buy, across all food sectors, with prices taken regularly, from regions all over the country.

  73. Photonz1,

    You’re quite right but my experience is no doubt repeated by others here and yet you think our experiences are of no significance. It is absolutely pointless your parroting official figures showing a decline in prices when my experience (and that of others here) is overwhelmingly opposite to that. I suppose I could just say, “oh, you’re right, prices have come down slightly, overall, so I should ignore the 24% increase” but, somehow, I still need to spend 24% more, don’t I?

    How gullible are you?

  74. So at the same time Photo you ignore a representative sample every week when we buy a normal basket of groceries for 15 people, not 8 random items (at discount rates as well) but you say your wife’s random sampling of a few beneficiaries is typical.

    I also have our grocery accounts at home. More than 20% rise since the same time last year.

    I challenge anyone who keeps grocery accounts to say any different.

  75. 1. the RB Governor could increase in the OCR or tighter control of bank lending to mitigate

    Thus making our currency even more attractive to foreign investors than it already is, thereby pushing up the value of the dollar against other currencies again and putting us right back in the position we are in today.

    Great economics? Yeah Right!

  76. As Bollard puts it, we now have more tools than he had when he increased the OCR so aggressively that we went into a recession before the GFC. Such as measures for tighter control of bank lending.

    He did ask for a mortgage surcharge, as an alternative to increasing the OCR, but neither Cullen or English were keen on it.

  77. I notice that Photonz has effectively sidetracked the thread.

    There are a number of problems with the way we handle our money and the creation of money. Currently it remains entirely in the hands of the banks, and interest is charged on every cent, and there is no way to pay back currently existing money plus interest, with the currently existing money… hence ever growing debt as a function of the debt based currency.

    Most of the argument here is made from the classical and neo-classical economics viewpoint which assumes that our money is a FIAT currency created by government… but the actual operation of the monetary system has money created by banks appearing first, and the reserves appearing afterwards… in an inversion that tells us the truth. The money is backed by debt, not by the good faith and credit of the government itself.

    Which is why the economic system is in such shit, and why none of the economists or bankers can or are willing to try to fix it… and Key IS a banker. First, last and always. Steve Keen explained this. Explained many things… and there is no excuse for what is being done at the behest of the banks.

    New Zealand needs to take control of the issuance of its currency, cause it to be backed by (redeemable in) work and make it clear that it represents work done. That that is the coin that we accept in return for it and that is what it represents when we pay it out.

    New Zealand needs to put in place a real CO2 tax and charge 8 to 10 times what National is proposing, without allowing the people who insist on burning our children’s future to extract the cost from our tax revenues.

    New Zealand needs tariffs on imports based on CO2 produced in their manufacture… and it needs to build things here as a result.

    Just about everything that should be done violates the ideological prejudices of National AND the aversion of New Zealanders to taking
    control of their own financial destiny. So we get the usual suspects proclaiming the superiority of a market that is stripping the flesh from our bones and encouraging us to submit to its tender ministrations.

    ppffft….

    I have to work, I can’t even go through all the responses here. Just skimming. But Photonz has worked hard to distract us from the main point here. Which is that monetary policy here in NZ really MUST be changed if we are to survive as a free nation… because if it is not we are going to be owned forever.

  78. Tony – Do you really expect anyone to beleive your only ever buy eight items of food?

    Kerry says “More than 20% rise since the same time last year”

    Kerry – your obviously forgot – YOU have already shot your OWN rediculous claim down in flames.

    Making it again is really dumb.

    Especially since of nearly 30 categories of food, not a single one has gone up by even 10%. Only two have gone above 5%.

    You got caught out making up complete nonsense, and now you’re telling more lies to cover it up up.

    And remember next time – YOU have already blown your arguement to bits by claiming there was a 0.1 % rise.

  79. BJ – oh the misery.

    Your solution to the high prices you complain about is to tax everything even more and make it more expensive.

    Yeah right – that will work really well.

  80. SPC @ 4.41pm
    You originally claimed that the reason was so that the pound could FALL relative to the Euro. Now you say that it was so that it could MOVE relative to the Euro.
    Fine but not being in the Eorozone always implies that and it is a quite different thing to your original premise.
    If as you propose, that Great Britain has inflated more than the Eurozone but that the pound has gone up relative to the Euro it implies that the approach doesn’t work, does it not. I can’t be bothered checking on whether this claim is true or not. You have clearly decided that your original argument is not defensible.
    Incidentally, if printing money to pay for the Christchurch earthquake doesn’t have a downside, why do we need to print money to recreate the recovery fund? Logically we could simply go into money printing if another disaster, such as an earthquake in Wellington, were to happen. We wouldn’t need any disaster fund to draw on.

  81. alwyn, re read my 3.52pm post, you are making up false claims about what it said.

    If you do not want to even look at a link showing a graph setting out the monetary expansion rates around the world, so be it.

    The reason, why the Bank of England can expand monetary policy more than the ECB and yet have it appreciate against the Euro is because this is not the only factor influencing relative value, currency is a bit like a share market valuation – it’s not current profit to share value alone that determines value but sentiment as to future earnings. The Euro has an uncertain future.

  82. SPC: None of NZ’s major trading partners has engaged in QE for the purpose of devaluing the currency to boost exports. Japan did it for domestic stimulus purposes and it has been an abject failure. Switzerland is not a major trading partner to NZ, although it did engage in QE because the SFr had been treated as a safe haven by savers wanting to flee the likely demise of the Euro (The NKr has also experienced appreciation in value for similar reasons, but Norway doesn’t care as it has no problem exporting gas and oil).

    The idea that a balance of payments deficit, largely driven by the private sector, is a core economic problem is rather fanciful (likewise that a surplus is always good). After all, NZ always had a big increase in BoP deficit every year Air NZ acquired a new Boeing. BoP figures also have major gaps. They do not measure tourism revenue, as every dollar spent in NZ is treated as internal, not an export. They do not reliably measure services revenue, because unlike goods, these are traded independent of customs and for tax purposes may be treated as domestic revenue.

    NZ is not in greater economic difficulty than the EU, which faces six sovereign states effectively unable to borrow on international markets and reliant on others for bailouts and loans that will never be paid off. Meanwhile, the queue of others with serious public debt issues continues, with Germany facing a medium term debt problem.

    The fundamental problem is that the shift from commodity based currencies (gold standard) to fiat currencies, has been an abject failure. It now means the banking sector has its losses socialised and has its foundations reliance on continued slow printing of money to generate credit. The issue is where to go forward and opinion amongst commodity money supporters is split between reintroducing a gold standard, allowing free banking and banning further fractional reserve banking (where banks issue more credit than they have available from deposits). That’s a debate that will become mainstream in a few years’ time.

    QE everywhere has been about extending the credit loaned to banks by central banks at near zero interest rates. QE proposed by Russel Norman is to monetise debt by printing money to do so. It is, literally, the approach now underway in Argentina (which cannot borrow internationally) with 25% inflation, and follows in the footsteps of many. It will see the currency drop in value, it will save foreign borrowing, but at the dramatic cost of hurting everyone on fixed incomes and anyone with NZ$ savings.

    It’s a recipe for economic disaster, and even those who do not believe in commodity money will tell you that printing money to cover debts is seductive, but destructive. It’s not the wealthiest who are hurt the most, because they can see it coming and can bail out (which helps lower the dollar too).

  83. BJ,

    What “should be done” will not be done by National OR Labour OR the Greens. You’re whistling in the wind. The economy is everything to all politicians and almost everyone believes that an unsustainable way of life can continue for ever. Russel is getting into these games because that’s what politicians do.

    You don’t seriously believe that this mess (this whole mess) will be cleared up, do you?

    Photonz1,

    Go back to sleep.

  84. Photo is still trying to deny reality. the reality that for those who buy groceries the price has gone up. Not theoretically as in the Photo-stats, but in the real world for those that have to live in it.

    And he also trying to deny the reality of how well “printing money” for infrastructure has worked in the past.

    Lots of inhabitants on “planet Key”.

  85. alwyn, who is proposing to print money to place it in the Earthquake reserve fund? A good idea for a debate by the way.

    The proposal was to fund the government costs of the rebuild – the government
    having rejected the option of a tax surcharge to do this. The government proposes to increase premiums to rebuild the Earthquake reserve fund.

    It could be argued that we do not rebuild the Earthquake Fund as we could simply print the required money to cover any future earthquake cost, however it could also be argued that the saving involved in rebuilding this fund counters any down the line inflationary impact of printing money for the Christchurch rebuild. Thus a measured course to do one and not both. Also there is already some uncertainty in the rating of risk in this market at the moment (in terms of private home owners and commercial property owners having insurance).

  86. Keep making a fool of yourself Kerry. You’ve said prices have gone up 20% in under a year, then just 0.1%, now it’s big price rises again.

    It shows you’ll make up any old nonsense.

    SPC asks “alwyn, who is proposing to print money to place it in the Earthquake reserve fund? ”

    The Greens are.

    Frog at top “We chose the idea of putting money into the earthquake rebuild and into restocking the Natural Disaster Fund for two reasons…. “

  87. SPC – I agree that any bond policy does not resolve the issue of non-govt borrowing from offsore, but I wasn’t trying to address that question.

    That’s not to suggest that a similar bond issue to Kiwibank or TSB for example (I can hear the cry of ‘picking winners!’ already) by the RBNZ and mandating a leverage limit on mortgages might slow the housing market.

    Gradual deleveraging via static houses prices and long run managed inflation would be ideal IMO as opposed to mortgage holders taking a bath on a situation not of their own making.

  88. I can see why it was proposed – using money printed here to buy assets offshore for the Earthquake reserve fund would not cause inflationary demand locally. And doing so now, when the dollar was strong, would be the best time to do it. Bollard did something similar buying up foreign currency the last time our dollar was strong like this.

    If it’s still only $2B a year (c1% of GDP) with half going offshore and half for the rebuild (in place of debt financed by public debt), then it’s still a moderate move.

    Spending financed by printing instead of offshore borrowing is no more inflationary and $1B each year will not move the dollar down either.

    Why not? It just means instead of reducing public debt by $6B over 3 years it will only be $3B, and the Earthquake fund can be rebuilt faster than by premium increases alone.

  89. SPC says “Spending financed by printing instead of offshore borrowing is no more inflationary and $1B each year will not move the dollar down either.”

    So are you argueing Russels reason for doing it (bringing the dollar down) would fail?

  90. Are there any economists (real, not arm chair) in the Green party? I think this policy platform would be far more credible if there were.

    The “What about inflation section?” of this post betrays are fair amount of ignorance on the subject of inflation. (The “carefully targeting its use” is particularly amusing; I have visions of policy wonks in lab coats carefully turning the dials of the economy in a lab.) But I understand that a policy platform is not the place to be giving a fair and balanced appraisal of the inflationary threats of QE.

  91. Fair question. Yes and no.

    I’d put it that it, that while it would help to prevent further upward movement of the dollar (as their QE is continuing this is likely if we do nothing), I don’t see it taking the dollar down.

    There could however be a slight downgrading because of the unpredictability factor of us adopting an unorthodox policy. But affording an earthquake of this size to our economy is a pretty good rationale.

  92. Uh guys?

    There is at least ONE point our visitors have made that is quite real.

    We can’t have it both ways. While doing it as stated by Dr Norman gives us good control of inflation it remains that getting the dollar down means that there HAS to be inflation… and those effects have to be balanced and controlled. Arguing that there will not be any inflation doesn’t do the job. The inflation has to happen and it has to be controlled.

    The major DIFFERENCE here is that the inflation in this case isn’t caused by borrowing money into existence, but by printing it, and the INTEREST IS NOT paid to banks but back to ourselves.

    This is what REALLY infuriates Key, who remains a banker.

    The interest payment isn’t really required at all, no longer goes to the banks.

    … and National already declined to do the smart thing and use taxes to pay the bills.

    Yet I take Tony’s point… fixing this and the other things still worse, won’t happen until the conventional economists and PTB completely crater the economy of the planet and are lynched by mobs of ordinary citizens.

    … and they STILL won’t believe, even then, that their notion of money is just another failed attempt to build a perpetual motion machine of the first kind. Even as the mob applies the feathers to the tar.

    Which means that it will likely be too late to actually do any real good.

    It HAS to raise our prices for externally sourced goods. It HAS to lower prices (relatively) for our internally produced goods… and the effect on petrol and diesel costs is an incentive to actually move to more efficient and effective transport than calling for another truck.

    If there is no inflation there is no effect on the high dollar. If there is there is. THIS problem is that we have to push the dollar to a lower level in order to have employment IN THE CURRENT ENVIRONMENT.

    The important difference between what we describe and National’s own plans is the lack of payment of interest to bankers…

    Something Henry Ford and Thomas Edison pointed out.

    But no… we can’t have anything that resembles intelligence applied to our financial system as it might cut into our profiteering. We have to call anything the Greens come up with “wacky” and keep painting them as economically illiterate because otherwise the mob might catch on that WE are.

    This from Dr Norman, is a partial solution, the best we can do with the situation we have at present.

    Real solutions are more strenuous, and will take more planning.

    It would have to be more than this to take the dollar down effectively.,

  93. Here we go again. This time the comment is:

    an incentive to actually move to more efficient and effective transport than calling for another truck.
    Would you care to tell us what this type of transport is called? AND PLEASE don’t say trains! The cost of putting rail tracks to/through every non-road vehicle goods distribution centre would exceed that of rebuilding by a factor rather than a fraction.

  94. The NZ dollar is currently at about the right value. About ten bob, for those old enough to remember dumping the quid.

    The problem isn’t the value of the NZD, the problem is with New Zealand’s businesses, which folks will try and obfuscate (and thus shift the blame) by using the term “economy”, to make it the country and the government’s problem.

    For over fifty years, the value of what New Zealand’s businesses do, and thus our nation’s productivity, has slipped in comparison to our OECD peers.

    This is why we have to have a minimum wage, and that it is pathetically low. If all our salaries were double (in today’s dollar terms) what they are, then we wouldn’t be having this discussion. And that (and more) is where our wage levels should be, and would be, had we not spent half a century watching them fall relative to our OECD peers.

  95. an incentive to actually move to more efficient and effective transport than calling for another truck.

    Horse and Cart, Ox Team Dray, Coolie drawn rickshaw, ;-)

    Would fix unemployement, provide endless manure for the home garden, reinvigarate local industries as the carts, drays and rickshaws can be manufactured locally from local materials (trees and iron sand sourced steel).

    Might not be efficient in what we currently do but it would be effective! :-)

    Think Green :-)

  96. On Tobin taxes, BJC notes:

    One wonders when the “financiers” are going to be forced to actually pay their share of the damages.

    That’s an interesting perspective, as Tobin never intended for his tax anemd after him to be used as a punitive mechanism, or indeed country-specific revenue collecting mechanism, but rather as a way of limiting foreign exchange volatility.

  97. Dave

    Sorry…Rail… one of the answers is to complete the electrification of the main trunk – between Auckland and Wellington and other candidates for this work already exist. Use some main centers to aggregate and distribute. There is rail to Tauranga, rail through to MANY of the larger cities.

    Your notion that it has to go to EVERY “non-road vehicle goods distribution centre” is a red-herring. Not required to do this most efficiently. If it requires us to pay some NEW ZEALANDERS more to transfer that freight that money stays in the New Zealand economy rather than going overseas. It adds nil to our foreign trade problem.

    Getting a significant percentage of the long-haul trucks off the roads makes the roads last longer too. Rail takes less room. Traffic hazards are reduced. Running passengers on those same lines takes schedule work and sidings…

    The comparison in THIS is not to the cost of rebuilding Christchurch.

    This is an inflation effect and its corresponding long term solutions, not the effect of borrowing money from ourselves rather than from the banks.

    One wonders how much the bankers are paying all you folks to come here and honk your horns. Clearly the Greens have struck a nerve.

    :-)

  98. The Tobin tax removes the free-ride that their speed-of-light speculation enjoys presently. It does, in that respect, cause them to pay for it.

  99. Yes, BJC, of course, but its the intention behind the tax that is the difference. Tobin was trying to solve the micro-arbitrage “problem” by making such transactions uneconomic. The current vogue (with which you are in alignment) simply wants to redistribute wealth. That’s a huge difference in the why, though the end result is the same.

  100. Redistribute wealth or end theft?

    The only difference is the spin put on it by the person talking about it.

    :-)

  101. BJ
    here’s the problem with that.
    “move to more efficient and effective transport”
    what you are proposing is less efficient unfortunately as it involves double handling of the goods. If it was more efficient as well as more effective to use rail (yes, by all means electrified rail) companies would be jumping up and down to make it happen. Then we would have a few thousand more unemployed (wouldn’t need the truck drivers) and a bigger budget for rail and rolling stock maintenance and/or purchase.
    So
    When you have a MORE efficient and MORE effective transport method, please come back and tell us what it is.

    ps I like your logic as a rule, but this one doesn’t hold together.

  102. AND

    re: One wonders how much the bankers are paying all you folks to come here and honk your horns. Clearly the Greens have struck a nerve

    sorry, as a retired person, living on what capital I have managed to accumulate when interest rates are so low that the rate of return doesn’t provide a decent living, I “honk my horn” whenever someone wants to dd to my tax burdon without providing a price relief somewhere. IF rail was more efficient and effective I WOULD BE LOBBYING to have it adopted, as it would bring down the cost of things I purchase, but it isn’t, so I don’t.

  103. Frog !! Something in the thread software is stuck again. There is an unmatched bold somewhere up there and it has turned the whole thread bold.

    Dave

    Sorry to disappoint, but inflation has to increase to bring the value of the dollar down… and the measures proposed may not even succeed in inflating, given that every major country on the planet is manipulating the values of THEIR currencies to bring THEIR currency down.

    Answers that preserve your retirement are more intrusive and extensive than what we’ve just proposed. In any change to the actual monetary system retirement and retirement income have to be considered separately and the negative effects compensated. Just remember that using our methods, interest rates on your savings are decoupled from this effort to re-inflate the dollar while using the answers the banks promote, you are indeed locked into a regime that will bleed you dry.

    My arguments have several fronts here. It is probably difficult to follow properly as there are several issues to be considered simultaneously. The first issue is that we cannot lower the dollar without inflating against other currencies. A substantial “negative” consequence (if that works) is that we WILL pay higher prices for things that are sourced outside the country and one of those things is petrol, which affects everything here.

    The issue of changing things so that the petrol “increase” is not sent offshore but instead internalized to a more CO2 efficient transport system, is a resolution of some of the balance of trade effects in general.

    However, we do may not even be enough to bring the dollar down at all. We may simply manage to break even. Yet we still WIN, because we don’t pay interest overseas on the debt we don’t take on.

    Then there is an issue with the types of electrification in the center vs the North and South of the Island. Most is already electrified, but there is substantial work to be done on it. What “rail” company would be jumping up and down to do this? I can’t imagine one as it is a LONG term project that benefits the country as a whole… our privatized rail companies had no interest in that sort of investment (or any other), and neither does anyone else. It is very precisely, an issue that only government can address, and here in New Zealand, mostly does not. Private corporations WILL NOT work to make this change and faith in the free market to resolve it is misplaced.

    Greens tend to connect things and have a longer view. The added cost of imported fuel gets countered by means that reduce CO2 output as well, and a higher cost of CO2 emissions is a desirable thing, even though we have to invest in infrastructure to manage it, because that investment makes us independent of imported resources that may no longer be available at 3x the price in a decade. This is separate but related to the inflate-or-die tactics adopted by the Fed.

    Finally – if there is a net negative impact on our retired population (and I will be joining that group all too soon), from any restructuring of the monetary system, then that has to be addressed. The flexibility to CHANGE what retired folks work at doesn’t exist. It has to be addressed separately… because the economy as it is currently structured, doesn’t consider non-participants very well. It effectively lumps us all together as dole-bludgers who need to wander off somewhere to die.

    Which isn’t something Greens are going to allow to happen in the end.

    Not that we can do anything about the dying part… :-)

    BJ

  104. BJ

    again, I like your logic, though I have some problems with the presumptions it is based on. As for the future, well, I hope you don’t spend more than about $250 per week on the basics of life (rent/mortgage, food, fuels, rates, telecommunications, medical, etc.,) if you do I suggest you both a) find a way to reduce those costs, and b) save everything else you earn right now so you can at least get on a bus or train in the retired-period of your life.

    Live long and PROSPER

  105. SPC at 9.52pm.
    I really must read all the items in the blog before I jump to the end to reply.
    I had found Russsel’s press release, carefully copied the bits about the Natural Disaster Fund and was about to post it when I spotted photonz1 had already answered your question.
    The answer is in RN’s first press statement on the subject on the Green Party web-site.

  106. Ryan,

    Are there any economists (real, not arm chair) in the Green party? I think this policy platform would be far more credible if there were.

    I think it would make them less credible. Have any economists been right about the local or global economy over the last decade or so? Maybe the odd one, but more by luck than judgement.

  107. Ryan

    The Green party is borrowing somewhat/relying on the work of Steve Keen who in fact HAS been right about the economy for the past decade. He is not however, a “mainstream” economist. I know he has influenced me somewhat and I am quite certain that his viewpoints have been taken on board by others in the party as well.

    Believing somehow that some authoritative truth is available from mainstream economics and financial specialists has been demonstrated quite forcefully to be an error, as demonstrated by the difficulties in every country of the world that has attempted to follow them.

    I have found Professor Keen to be able to turn up the same answers as I get through his analysis though, which is a good argument for correctness as we are using vastly different methods.

    If you are seeking mainstream credibility HERE, you will be a long time looking. We want none as the mainstream has been, and still is, egregiously and even fatally wrong about what is happening and what should be done.

  108. “The Green Party is to Labour what ACT is to National…”

    A weeping sore-come-weighty-millstone?

    Your response is based on the erroneous belief that the ACT sideshow is damaging to National and if not for the desperation of their marginal majority, they would have disowned John Banks by now.

    I put to you this is not the case. National want the sideshow to continue until it’s logical end, hence their continued propping up of their puppet (John Banks), as a ways and means of destroying ACT altogether.

    Anyone who thinks the Labour party does not share the same agenda in respect of the Green party is naive. This is not speculation of my part – I just have a long memory (an inconvenience in politics) and I recall well 2005.

    Like National didn’t change it’s spots in 2008, neither will Labour.

  109. “Your response is based on the erroneous belief that the ACT sideshow is damaging to National”

    You are correct, it is. I do believe Banks and his duplicity have harmed the National Party’s (Key’s) electoral chances. Very much. His sneakiness, overlaid by Key’s own brand of deception, have ruined any advantage that was being enjoyed when the public thought Mr Key was a nice man.
    Your theory about Labour’s intentions toward the Greens might be quite correct and I imagine our MP’s are on alert to such effects.

  110. Some sort of bug in the blog Software load. A problem in one post’s formatting should not carry over to subsequent posts. Seems that this effect is in the first line.

  111. Liberty Scott, we will have to disagree, because concerns about the rising value of the yen (more recently at least) and the rising value of the Swiss franc were what motivated their QE. Countries want their currency value to reflect their trading and wider economic position, not the global interest rate spread or relative domestic public debt problems.

    One of the issues Europe has to deal with is recognising that an area with a common currency has to have a common debt cost. Once they do that – when Germany and France pay a higher debt cost on their 80-90% GDP public debt and others pay a lower cost, their difficulties will ease. Debt at that level is affordable at 2-3% interest, but not at 6-7% interest. If they all paid 4-5%, as we do, there would be equity and the south would find budgets easier to balance.

    As to inflationary stimulous

    1. not all are large enough to have any impact on the dollar value, nor impact on the domestic inflation level. Comparing us to Argentina, while we run a RB that has an anti-inflation brief, is invalid. For example the RB Governor can tighten domestic residential property lending via banks to compensate for any inflationary impact – if the focus was this (reduce upward pressure on house prices), it would be a good thing.

    2. while we have a system that allows central banks offshore to issue free credit to private banks, why should we not use the same means to issue free credit to ourselves (same impact as printing it)? Otherwise we would be buying debt from and paying interest to foreign banks – when they received the money via other central banks QE/printing free credit and issuing it to them. That makes no sense.

    3. there is no worse impact on an economy, and people in it, from using QE to minimise debt accumulation for the state, instead of to provide free credit to banks. In fact, it is demonstrably preferable, especially for those dependent on free public services and income from the state (the poor).

    4. how can anyone who opposes the socialisation of bank losses, not see merit in constraining bank lending and “issuing public credit/monetising public debt” instead. Especially when public debt has become a cause of instability in the global currency valuation system. Such a move is required to ensure public debt does not balloon alongside private (banking debt) debt.

    Here we excluded housing from inflation statistics and enabled values to exceed the ability of wage earners to afford to buy a home – taking some action, that mitigates this, is long overdue.

    5. As for the economy – well I would prefer we were like Norway, and had a trade and balance of payments surplus and thus a sovereign wealth fund. Rather than lived in a country where residential homeowners, farmers, landlords, SOE’s, private companies sought their finance offshore and at a price higher than charged in the rest of the first world.

  112. Ha! I see Matt answered sometime before the dawn of time here :-) So I need to respond. Sorry Matt… did not see earlier. Will do something about it this evening.

    I quickly note however, that our tax idea was shot down by the same wacky Mr Key in much the same manner. We don’t have policy making ability here so we do what we can, and that “printing money for investments” rather than borrowing it from banks, has a long term effect on the net debt of the country.

    Owing money to ourselves rather than to foreign banks is a far less damaging method of borrowing for investment… as observed (again I point out ) by Thomas Edison and Henry Ford back before any of us were born.

    The issue of PRIVATE borrowing is different though, and Steve Keen has a suggestion that really pierces to the heart of the matter… but for now we are not bringing that to the table.

    More later.

    BJ

  113. They still need to exist, so it will either “achieve” this by leading to the same borrowing indirectly or by implicitly taxing New Zealanders to do so.

    We certainly do have to pay for them, as you pointed out… and that is perfectly reasonable. What we do not have to do is pay interest on that borrowing – when it is done from ourselves.

    ++++++++++++++

    Having the RBNZ buy up a bunch of government bonds used to fund the rebuild is an unsterilised asset purchase and will lead to inflation (that is the domestic tax component). And the exchange rate will adjust – in order to correct for the fact that the value of the dollar has been devalued by domestic inflation. We don’t get a free lunch out of this – we just adjust who is bearing the burden of the cost of the rebuild.

    It is ALWAYS we who will bear the cost of the rebuild. Nor is there any expectation of a “free lunch”. That is… insulting, as it is the LAST thing that Greens expect and the first thing that the establishment spin attempts to pin on us. Don’t EVER think that of a Green. The thing is that THIS lunch is going on the tab. We can pay by credit card or we can pay the proprietor of the establishment directly over time. The only difference is the interest rate. Since we are also the proprietor of the establishment I don’t see why we can’t get mate’s rates. :-)

    The money appears in circulation as construction costs expended locally. We produce a new city with them. We pay ourselves back over time. I can scarcely imagine any more benign (in terms of inflationary pressures) operation. The money is going to be borrowed in any case, because the government dismissed the option of paying through taxes.

    Moreover, the point of the exercise IS to inflate. There is some question of whether it will manage to do that given the environment in which it is being done.

    Essentially, they aim to use QE to lower effective interest rates across a set of assets so that people “move consumption and investment” forward – helping to smooth out economic activity and meet their inflation mandate. They focus on long-dated Treasury bonds (which exist due to a separate choice of fiscal authorities to borrow), and mortgage debt which they have been given a mandate to purchase.

    The Fed has been pushing consumption forward to such effect and extent that the US is consuming the resources of the Jetsons. :-) They don’t know how to do anything else as they have never DONE anything else.

    Their situation, as the governors of the “Reserve Currency” of the planet allows them no other choices per Triffin’s observation. I don’t regard the actions/situation/example of the US as being readily applicable to any other nation, as they are the ones with the ability to print money in an “unlimited” manner. Their money is in demand globally, and they are supplying the entire planet with as much inflation as they can manage.

    However, my observations of the Fed and its operations, and its connection to the US Treasury tend to be a bit more cynical. For I note that they are NOT inflating the US dollar in a way that benefits the people of the USA. They are inflating it in a manner that benefits the bankers of the USA. Which is to say, their buddies.

    http://www.golemxiv.co.uk/2012/10/why-are-we-bailing-out-the-banks-part-one-the-simple-answer/

    The ultimate answer is not in their immediate intent but in their extended effect, which is the continued and inexorable redistribution of wealth – to the wealthy from everyone else.

    Short term answers do not satisfy here, but taking the interest payments from the borrowing out of the equation reduces the damage.

    —————–

    Overall we have a bigger problem than can be addressed by just this operation. Money represents work done. Creating this money that DOES represent work done does no net harm and such localized harm as it might do is within our power to neutralize.

    The problem we actually have is the massive amount of borrowing done privately but representing no work whatsoever (housing), and the lack of work for New Zealanders in New Zealand. If it were not for the exodus of our best and brightest for other countries with more opportunity and better pay we’d be buried in unemployed and unemployable (because they are overqualified to be seasonal fruit pickers) graduates.

    This is a result of the laissez-faire attitude to foreign trade and exchange rates and NZ industry that is not the domain of any particular party but instead is a disease afflicting the minds of a whole generation of New Zealanders. Muldoon failed to win NZ economic independence because he failed to secure independence of foreign bankers FIRST.

    NZ went to the brink of bankruptcy because the very mechanism which we are promoting, that we can actually borrow from our future generations directly rather than indirectly ( because whenever we borrow as a nation we DO borrow from ourselves, whether or not we are using a bank as an intermediary ) was not recognized here. The same principle that Edison and Ford recognized before we were born.

    New Zealanders instead have the notion that “think big” was a failure… enjoying the contributions of each of those projects to our industrial output and ignoring that them at the same time. As a result they recoil from the notion of government actually DOING the things that we as people individually cannot do.

    Our economy is therefore bleeding from largely self-inflicted wounds.

    Green policy would start to fix that.

    National’s policies have not done so and cannot do so, and Labour’s before them were… not much more effective.

    Who is wackier. The people pursuing a policies that fail year after year after year or the people who propose doing something that has historically worked for EVERY nation that actually implemented it?

  114. As a new Green I’m disappointed that this proposal has been “floated” so suddenly. Many New Zealanders have a kneejerk reaction to anything that smacks of printing money (I remember Social Credit), and using newspeak like quantitative easing doesn’t help (and doesn’t get far in the media either). It would be better for the Greens to continue their swift and hard-hitting monitoring of the current government’s fiscal policies instead of proposing something that risks losing the party a lot of its hard-won credibility.

  115. Janet

    Among other things, this is not about “printing money”. It is like ALL borrowing, borrowing from the future and is required to be paid back.

    Not the same as “printing money”, where there is no proper obligation to pay it back.

    The kneejerk reaction of New Zealanders is ENTIRELY, not a little bit, mistaken. Though I take your point. We are moving against mainstream New Zealander’s perceptual and habitual limitations. I don’t think we have a choice though. This is VASTLY more important than some of the more social issues we spent credibility on, because this ties back into the environment.

    I’ve called it a lot of things, but in this respect New Zealanders have a serious problem. It boils down to this.

    Where do they think the banks get the money?

    It actually comes from thin air, same as – EXACTLY the same as, if we do it ourselves. The difference is that the banks charge us interest for the privilege of begging to borrow from ourselves.

    So we have money based on debt AND we pay interest on it, and we cede control of our money supply (and eventually government, as always happens) to unelected and unaccountable bankers.

    Worst of all possible worlds really.

    “Give me control of a nation’s money and I care not who makes it’s laws” — Mayer Amschel Bauer Rothschild

    The thesis I start from is that money needs to represent “work done” (and in fact it always does no matter what smoke, mirrors and psychedelig drugs the economists afflict us with). The problem is that in creating their perpetual motion machine of the first kind, the economists have instead created a requirement, provided interest is charged, for perpetual growth.

    Not sustainable or feasible, and it WILL end badly, this QE forever meme that is now promoted by the Fed and EU and Japan… though I note without much amusement that the interest rates are being suppressed brutally and the prudent are being punished for the benefit of the banks.

    My personal view is that not only should we as a nation take the supply of our money from the international bankers and place it in our own hands, but we should in fact make that money redeemable here in NZ, in KWH of work from our renewable generation capacity and force energy equivalents to be exchanged to balance the books between us and everyone else.

    We can STILL borrow, but it is much more explicit that we are borrowing from future generations. Which is in fact ALWAYS the case.

    The transition to that from where we are is difficult. We HAVE to take control of our money supply. What will the overseas value of a NZ dollar be? …and Key will resist this bitterly given his background. However, no really free nation can exist in any other way.

    respectfully
    BJ

  116. “When you or I write a check there must be sufficient funds in out account to cover the check,
    but when the Federal Reserve writes a check there is no bank deposit on which that check is drawn. When the Federal Reserve writes a check, it is creating money.”
    — Putting it simply, Boston Federal Reserve Bank

  117. When the Federal Reserve writes a check, it is creating money

    indeed, very true.
    Now, to make it easier for the average kiwi to understand, change the word “creating” to the word “printing” and you have the point, as opposed to your comment :

    Among other things, this is not about “printing money”. It is like ALL borrowing, borrowing from the future and is required to be paid back.

    The real issue at large in New Zealand, is how much money is too much money, as the only real definition of inflation is “the price increase that results from too much money chasing after too few goods” (webster)

    If we have “just enough money” in the system inflation doesn’t happen and interest rates remain stable, too little and prices go down while interest rates remain stable or fall, too much and inflation and higher interest rates ensue. What would be a disaster would be if we started seeing high (10% plus) real interest rates to people and businesses, our currency would tank (like the Euro,) all our goods and services would cost more (you can’t quickly replace goods and services not made here with ones that are, the capital requirement is unfundable,) and the NZ standard of living would fall.

    I for one don’t want to risk that happening. The difference between borrowing from ourselves and borrowing from overseas is indeed the secret, but it needs to be solved by higher savings and an appetite for “local” debt in the portfolio. The $2 billion being posited here can easily be found in the hands of KiwiSaver managers, providing the return on deposit is inflation plus risk factor (say 6%). Why isn’t that what the Party is recommending?

  118. The real issue at large in New Zealand, is how much money is too much money

    I beg to differ slightly… “who has/where is” the money is also an issue, as you tacitly acknowledge by bringing Kiwisaver funds into the mix.

    So your idea is I think, a good one, but there is more at work here than the question of how to fund Christchurch.

    The point I made above about needing to actually create more “inflation” (prevent more deflation relative to foreign currencies) to bring the dollar off its nosebleed levels, remains valid.

    If ordinary New Zealanders had access to the PRIVATE money that the banks are holding in their name, the need to “inflate” would not be apparent, but the housing market has destroyed the rest of the economy… and for reasons that have nothing much to do with the actual economic system and everything to do with the absurd way New Zealand even now advantages that sector.

    We have always advocated ways to fix that as well, but it doesn’t ever happen. So rather than continuing the economic exsanguination in overpriced dollars we need to force those values down so we can in fact export more and manufacture more here to import less. There are more ways than simple monetary policy to accomplish this, but they are for the most part, also rejected by New Zealanders, who suffer a unique form of short sightedness in this respect.

    Bringing the dollar down in a controlled way is something we need to work at… and it is not simply a matter of us having the right amount of money, it is also a matter of how much of it is in circulation.

    respectfully
    BJ

  119. OK
    so we’re nearly there.
    If we reduce the base interest rate by 75 basis points, we will see the value of th NZ$ go down relative to other currencies, business andindividuals will have more money to spend (as they will be paying less on loans) and the price of imported goods will go up while the value of exports goes down.

    So

    Invest KiwiSaver in long-tern ChristChurch municipal bonds @ 5% and lomg term Government bonds (say $5 billion to pay for infrastucture upgrades (including rail if you must), and lower the base rate.

    Job done with minimal ‘fabricated’ inflation and maximum economic domestic benefit.

    What say you?

  120. Value of exports goes down? There are so MANY ways to parse that :-)

    Volume of exports goes up if our prices drop. The question is what profit margin we can strike with overseas buyers and get reasonable volume. Right now it is quite small. No? Value as I see this is net so we don’t actually know what the result is for the “value of exports” ?

    -moot point

    Anyway…

    Again… I tend to agree that this will work. I think it hammers down interest rates for the general run of savers but it WILL work. I see no real difference between inflation fabricated one way or another otherwise.

    I am not convinced that the way we propose does not largely decouple the effect from the interest on savings in any case. Of course, the savings interest is already somewhat decoupled from reality by the banker’s profit margins, but that is a different thread.

    There are long term advantages (and it is actually something we will eventually HAVE to do if we are to remain a free nation) to pushing towards direct rather than private bank’s control of our money supply.

    respectfully
    BJ

  121. Reading that the NZ Greens are so ignorant saddens me, and what saddens me further is that so many of the replies support the ignorance. There are NO free lunches!
    Ignorance is bliss, knowledge is misery!
    How anyone believes in any of the Central Bank money printing (counterfeiting) is beyond me. Central banks setting interest rates is NOT A FREE MARKET people. The Central Banks of the world set the interest rate (almost ALWAYS) below the market rate by satisfying the heightened demand for their low cost money with newly created money. This newly created money is added to the stock of money available and in addition, the Commercial banks counterfeit their own credit atop that provided by the Central Banks through the [Fractional Reserve Banking System]. For a full explanation, use Google.
    So, getting back to whether the money printing is by having the Central Bank provide credit to banks at the central planners low interest rate or by buying Govt Bonds, these both cause new money to be added to the economy. Unfortunately, the injection of new money does NOT give rise to additional goods and services, so the effect of this inflation is that there is a greater supply of money and the same supply of goods, so the value of money in terms of purchasing power is reduced, thus prices rise.
    Unfortunately, the first receivers of the new money, just like in any counterfeiting scam are the main beneficiaries whilst the Jonny come latelys are the ones who are burdened.
    So in summary, most lose so that a few gain. The trick is, as in all good scams, that there are few winners and many losers. This means that the winners win big while the losers find it hard to discern what has happened to their savings.
    Note that this scam is not only perpetrated with Government protection, but is actually promoted and encouraged by Governments.
    Moral of story, trust neither the Government nor its counterfeiters. If printing ever more paper tickets was a road to riches, Zimbabwe would be the envy of the world!
    The free market is the only fair and equitable mechanism for the allocation of scarce resources, not Governments and their Central Bank Counterfeiters!

  122. Colin

    Why should the currency of a sovereign state should be “free marketed” by foreign banks?

    Nobody here and least of all Greens, have mentioned anything that resembles a “free lunch”. Apart from the fact that the government rather than the banks is creating the money.

    Perhaps you too need to have this cited for your benefit. A lot of electrons have already been waterboarded. The link is repeated here for your convenience.

    http://query.nytimes.com/mem/archive-free/pdf?_r=3&res=9C04E0D7103EEE3ABC4E53DFB467838A639EDE

    We’d LIKE to do away with Fractional Reserve entirely, but that isn’t something that has a chance of happening just yet. This step, putting control of some of our money in our own hands RATHER than in the hands of the private banks, is really just a small nudge in the right direction.

    Unfortunately, the injection of new money does NOT give rise to additional goods and services

    Except in THIS plan the money is put to the Christchurch rebuild. It actually represents work done. We might not achieve inflation at all with it as a result, but controlled inflation is the INTENTION, just a matter of trying to match some of the inflating everyone else is doing. The market is certainly not doing it for us.

    Now… asking the obvious question

    The free market is the only fair and equitable mechanism for the allocation of scarce resources, not Governments and their Central Bank Counterfeiters!

    Where does the money of a sovereign state come from in your world?

  123. Just for gerrit, if he wants to debate QE.

    We were last debating this matter, on a previous general thread.

    Your post.

    BJ, As I said earlier. Distributing “free” money is only going to work if it is matched by an equal value in production and consumption. With the rider that once that production and consumption has returned the distributed “free” money, it is withdrawn from circulation. And therein lies the rub.

    *************************

    My response

    Gerrit, what’s the difference between borrowing money from offshore and printing it? It’s only that debt cost places a cap on how much can be borrowed, why not self regulate and print that amount of money and avoid the debt cost entirely?

    Any inflationary impact of either, is mitigated by a higher OCR or constraint on bank operation – such as increasing the capital requirements of banks and requiring higher levels of local saving to lending. You will note that the QE is occuring at a time when banks are soaking up capital to meet new Basel standards.

  124. I made this post earlier in this thread.

    I can see why it was proposed – using money printed here to buy assets offshore for the Earthquake reserve fund would not cause inflationary demand locally. And doing so now, when the dollar was strong, would be the best time to do it. Bollard did something similar buying up foreign currency the last time our dollar was strong like this.

    If it’s still only $2B a year (c1% of GDP) with half going offshore and half for the rebuild (in place of debt financed by public debt), then it’s still a moderate move.

    Spending financed by printing instead of offshore borrowing is no more inflationary and $1B each year will not move the dollar down either.

    Why not? It just means instead of reducing public debt by $6B over 3 years it will only be $3B, and the Earthquake fund can be rebuilt faster than by premium increases alone.

  125. bjchip,
    I dost fear I am throwing pearls before swine, however I will waste more time in a futile attempt to possibly educate some.
    You say “Why should the currency of a sovereign state should be “free marketed” by foreign banks?
    Nobody here and least of all Greens, have mentioned anything that resembles a “free lunch”. Apart from the fact that the government rather than the banks is creating the money. “
    Do you understand the origins of money? Originally money was NOT a concoction of the state but arose out of the voluntary exchanges of free people. Govt control of money is a relatively modern phenomenon. Govt always wants control of the money so that it can counterfeit, a great alternative to taxation which is visible and causes dissent.
    Fractional Reserve banking is perhaps the most insidious part of our legalised counterfeiting system. One must understand that the Banking system is a cartel, with the govt promoting the magic with their legal protections. Why does the Central bank need to be the lender of last resort in a fractional reserve banking system? Simply because the banks are always INSOLVENT. What other business in our economy stands with such a Govt protection??? NONE!
    You criticise my statement that:
    Unfortunately, the injection of new money does NOT give rise to additional goods and services
    With: Except in THIS plan the money is put to the Christchurch rebuild. It actually represents work done. We might not achieve inflation at all with it as a result, but controlled inflation is the INTENTION, just a matter of trying to match some of the inflating everyone else is doing. The market is certainly not doing it for us.
    The money could be spent on beer, the fact is that the paper tickets added DO NOT give rise to more products. All other participants in the economy MUST produce something to get money (ie exchange), thereby creating an exchange. Why should the allegedly benevolent Govt counterfeit and extract wealth for nothing? The problem is that people have forgotten that money is a medium of exchange, it is NOT destroyed but exchanged.
    Your final point:
    My text: The free market is the only fair and equitable mechanism for the allocation of scarce resources, not Governments and their Central Bank Counterfeiters!
    Your reply: Where does the money of a sovereign state come from in your world?
    My answer to this is simple. In a free society, money is a medium of exchange, If it be GOLD, people exchange their goods and services for GOLD and GOLD for goods & services. The currency of NZ and every other state is protected by legal tender laws to stop competing currencies. Why? Because Govt does not like competition. When a currency breaks down, in the final phases, people exchange for harder currencies, as was the case in Zimbabwe and other states which try the counterfeiting activity without limit. People don’t want to hold a currency which is constantly devaluing through the inflation of the money supply! In Zimbabwe, they now trade in $US, which although not a truly hard currency, is still counterfeited to a lesser extent than is the Zimbabwe$.
    Unfortunately, you CAN’T get past the fact that after counterfeiting, there is only more money and NO more goods and services, therefore the currency is reduced in its value. If you argue with this, then you should join the alchemists, they frequent the halls of Govt and the Banking cartels of the world. The empirical evidence of their fraud is in the news every night!
    Inflation destroys savings. Savings are the building blocks of capital. Capital is what makes an economy more productive (bigger trucks in mines, better machines etc.). Therefore, Inflation destroys capital and thus productivity. This is why the developed countries are in an economic malaise, they are becoming progressively less productive because they are consuming the capital accumulated by previous generations! Meanwhile, the Govts are burdening the future generations with a heavy debt (which will further destroy savings), and regulations, which make production and business less efficient!
    In summary, Govts can do NO good. The best they can do is to shrink and allow the citizens to exchange freely.
    Do NOT be an apologist for the Govt. They already have the media and all of the institutions of Govt, the Banking Cartel and the business lobbyists doing this for them!

  126. Just because I can’t help myself, why do you think that the Govt doesn’t save the effort and unpopularity of collecting taxes and just print the money for all of its expenditure? Yes people would lose confidence in the currency!
    Counterfeiting is a zero sums game, if one group wins, another must lose. The trouble is that most people don’t realise which side they’re on. In a good prestidigitation (sleight of hand) trick, it is important to concentrate the benefits and spread the burdens, that way the winners win big and the losers can’t really work out what is happening!

  127. Colin THe Bear – do you oppose governments being able to borrow money to manage the economic cycle? Or councils borrowing money to finance the cost of a long term asset investment over the time of its use? Or householders doing the same via mortgages? These things require a fractional reserve system.

    Or oppose government or the private sector borrowing money from those offshore printing the money (QE dispersed via their banks lending to us, American loans or European loans or UK loans or Japan loans)? That involves participation in their QE (and a higher value to our dollar from the inflow of borrowed money) and accruing debt to our government at the same time.

    Surely QE locally is preferable? Because QE to finance an increase in economic activity – rebuild of the public assets of Christchurch – is not inflationary in the monetary policy sense (only in the increase in demand for labour and building material). And it has the advantage of lower debt.

    Also QE used to refinance the Earthquake Reserve Fund and invested ofshore is not money available in the economy – except to finance the rebuild in any future earthquake. When the money would be used to finance the rebuild activity (thus would not be inflationary in the monetary policy sense).

    And of course the lower inflow of money from offshore QE and the flow of local QE money offshore would hold down the local curency value and offer some assistance to exporters currently suffering from the consequences of their QE.

  128. Colin

    I am going to try to respond despite whatever happened to your post when you were trying to format it… accidents happen… but ideas need to be discussed anyway.

    What I get as your comment on part of what I said is:

    Do you understand the origins of money? Originally money was NOT a concoction of the state but arose out of the voluntary exchanges of free people. Govt control of money is a relatively modern phenomenon. Govt always wants control of the money so that it can counterfeit, a great alternative to taxation which is visible and causes dissent.

    I probably understand money better than most people who claim to be economists. You have just indicated that you only got part of the story. That’s probably better than what half the population manages.

    Money represents work done. That is something it HAS to do to actually be money. Anything else is a debt instrument, and every dollar in every pocket of every person in every country on the planet is a debt instrument. It is a convenient marker that removes the need for a specific good in a barter transaction and which has an agreed on and trusted value. The goods in a barter transaction however, are work DONE, so that is what money has to be.

    So Debt backed money can become and usually becomes bad news. See this guy (who explains much of it much better than I can).

    http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/

    …and strangely enough we agree that “fractional reserve banking” is a fraud. So you are preaching to the choir with respect to that issue.

    http://blog.greens.org.nz/2011/01/18/whats-the-matter-with-fractional-reserve-banking/

    You may notice that I did a lot of heavy lifting explaining the problems with the fractional reserve. Just so you really really understand that I know that in any future that we Greens actually want, there is no such thing as a fractional reserve banking system.

    The money could be spent on beer, the fact is that the paper tickets added DO NOT give rise to more products. All other participants in the economy MUST produce something to get money (ie exchange), thereby creating an exchange. Why should the allegedly benevolent Govt counterfeit and extract wealth for nothing? The problem is that people have forgotten that money is a medium of exchange, it is NOT destroyed but exchanged.

    Unfortunately for this thesis it is NOT the government that creates the money. Not here. Not in the USA. Go back and examine where the money ACTUALLY comes from.

    http://www.youtube.com/watch?feature=player_embedded&v=oguCNqCE0Kc

    It isn’t coming from the government at all. It is coming from the banks.

    … and AGAIN I refer you to Keen. It is the bankers who are creating money from nothing. Counterfeiting. It is not the government (though a government CAN do that and be just as wrong).

    …and money that is backed by debt IS destroyed when the debt is repaid, yet the money to repay the interest on the debt does not exist and so we get an ever increasing debt spiral as people attempt to keep up with the bankers… and cannot.

    So the bulk of the money out there is pretty much as counterfeit as you claim it is. This money however, is backed by the (re)construction of the second largest city in NZ. Which is a big infrastructure investment and most definitely a SOMETHING.

    The free market is the only fair and equitable mechanism for the allocation of scarce resources, not Governments and their Central Bank Counterfeiters!

    Which gives us a hint. You are imagining that the Central bank is in control of the counterfeit money supply. Keen (link above) puts paid to that notion. The government and its central bank have far less control than the banks themselves.

    We are among other things here, doing something more than indulging in a theoretical exercise. We are trying to wean the country off the banker’s economic form of crack cocaine… credit based bucks. In that context this is little more than a SMALL step in the right direction. But it is NOT theoretical.

    In a free society, money is a medium of exchange, If it be GOLD, people exchange their goods and services for GOLD and GOLD for goods & services. The currency of NZ and every other state is protected by legal tender laws to stop competing currencies. Why? Because Govt does not like competition. When a currency breaks down, in the final phases, people exchange for harder currencies, as was the case in Zimbabwe and other states which try the counterfeiting activity without limit. People don’t want to hold a currency which is constantly devaluing through the inflation of the money supply! In Zimbabwe, they now trade in $US, which although not a truly hard currency, is still counterfeited to a lesser extent than is the Zimbabwe$.

    It is not that the government doesn’t like competition, it is that there is no rational means of conducting trade with many competing currencies. That, not government, was what gave rise to the Euro which has NO government behind it and therein lies its problem.

    Government took over because our government is US, and we have to trust ourselves and use our self-organization to do collectively what we have not the ability to do individually. Government is neither inherently evil nor inherently good. It is a tool to allow us to manage our unmanageable selves in numbers larger than the ? 200 or so that is the maximum that a human organization can properly reach.

    If you delve a bit DEEPER into what we want to do you will find that we want a redeemable currency… but not one that is redeemable in gold. There are two ways of thinking about work done, one is some measure of the collective production of all the people in the country and the other is a narrower measure of the (renewable) energy work available to them. I tend to recommend the latter, as it is more readily “redeemable” and it is very closely linked to the production of the first. The dollar becomes redeemable in KWH, which is to say, work done. It becomes subject to demurrage, which means that it stays in circulation and can’t be hoarded. The redeemability is in NZ, not somewhere else except as transport and conversion fees permit.

    Compared to Gold it has numerous advantages.

    You are raging against a small step for not being a larger one.

    Unfortunately, you CAN’T get past the fact that after counterfeiting, there is only more money and NO more goods and services

    What you are missing here is that the money we are using these days is strictly speaking, debt based. Do it our way or the other way, and the money remains just as fake.

    The only difference in this case is whether we ourselves are creating the money and paying ourselves the interest or whether we are borrowing it from a banker who is creating the money and paying HIM the interest.

    There is one other. The money is being used to create infrastructure. It buys us a city to replace the one Mother Nature wrecked. Not to say whether that is for good or ill, but if we are intent on borrowing money into existence to build a city WHO should we pay interest to?

    Money is the token/medium of exchange, but IT has to be a something, either a piece of paper representing work done, or a protected transaction that moves some electrons about representing work done. It has a couple of characteristics. The entity doing it is a third party to the transaction and is trusted by both principals in the transaction. There’s no way to do that reliably without government having a hand in it.

    Again… look at the link to Keen’s work here. You are very close to us… and you almost got the money thing right… but you blamed government for something that the bankers have been doing for a century now, and which has given them CONTROL of government.

    “Give me control of a nation’s money and I care not who makes it’s laws” — Mayer Amschel Bauer Rothschild

    With which we’ve elected a banker straight from hell to be our Prime Minister.

    Got what they paid for they did.

  129. bjchip,
    This must be my last reply. I have things to do unfortunately. I see that your heart is in the right place but you lack a unified economic understanding. This is why I implore you to see the Mises web site MISES.ORG where there are books such as Murray Rothbards – Man Economy & State, the most readable and understandable Treatise on Economics, not the product of an Alchemist. It’s a big book, but it unifies reality and repudiates the vested interest groups.
    Firstly, money does NOT represent work done! It can be used to remunerate work done but you are under the Marxist delusion that work is the ONLY source of value. See http://mises.org/daily/5333/SubjectiveValue-Theory for the subjective value theory. What you are confusing is money value and labour, but labour is only ONE component of value. Value is attributed to goods and services by the subjective evaluation of the consumers. Money is a medium of exchange, a convenient commodity by which one person can provide any good on the market and then purchase any other good. It is also meant to be a store of value, however this function is devalued by the inflation of our fiat money, which is a combined product of the counterfeiting of the Central Bank and the commercial banks. You say “The goods in a barter transaction however, are work DONE, so that is what money has to be.” And once again I refer you to the reference above. You continue to confuse money with value.
    The reason that we have alleged deflation, is that the economy is currently deleveraging, and deflation is merely throwing off the credit expansion due to the credit created by the fractional reserve banking system. The foolishness of Central Banks, is that the deflation they fight is not consumer price deflation, but the more important to the Central Bankers which is asset price deflation, for that is what THEY and their banking buddies suffer. The problem is that when the central bank adds heaps of new base money, it cannot control the secondary credit expansion, as this requires economic actors who wish to borrow and those willing to lend, hence they are pushing on a string. One day, deleveraging will turn to credit expansion, and the Central Banks will then be responsible for the explosion of credit with the base money created to “FILL” the vacuum left by deleveraging will be expanded upon by the commercial banks and thus they will be responsible for a very inflationary expansion.
    Believe me, I understand all too well that the expansion of credit from fractional reserve banking is the MAJOR source of inflation however it is the Central Banks that are the source of base money upon which the commercial banks expand credit. The important thing to note is that the expansion of BASE money must be stopped to at least limit the credit expansion.
    Money added to the system does NOT add evenly throughout the economy, the new money usually chases assets (since it is injected through the banks), hence the rise in asset prices of shares, land houses etc in the first phase . Note that most people do not borrow to buy food! After time, some of the illusory profits from this expansion make their way into consumer demand which causes prices to rise etc. A really good book (less than 1 hour read) on the BOOM & BUST is able to be downloaded gratis from link: [http://www.mises.org/document/2668/Economic-Depressions-Their-Cause-and-Cure] or audio also free here [http://www.mises.org/media/7654/Economic-Depressions-Their-Cause-and-Cure].
    Summary:
    I understand the fractional reserve banking system VERY well and its inflationary and destabilising effects, however allowing the Govt to add more base money to the system (which is what the Greens propose) is like stacking more cans of petrol next to the fire. What is built is potential inflation through the expansion of the base money. Ideally we should rid the economy of the legalised counterfeiting of the fractional reserve banking system, but I believe that this is a dream only realised in heaven, given the power of the vested interests and the confusion of the populace.

  130. Whatever one thinks of fractional reserve banking, it was useful in managing the supply of loans to meet the demand of baby boomers (to expand housing stock). The “GFC” problem was inevitable as there could be no further increase in demand for (housing) loans unless house prices increased, and if they increased whereas wages did not (subprime loans), there would be a potential foreclosure problem asset bubble collapse (especially in markets where the bank holds the losses or property investors declare bankruptcy) – no wonder they tried to offload the subprime loan portfolios around the world.

  131. “it was useful in managing the supply of loans to meet the demand of baby boomers (to expand housing stock)”.

    Well. Except it wasn’t.
    The land supply was restricted while the banks lent unlimited money to bid up the price of land and thence existing housing. Good for the banks who clipped the ticket and the people who had enough spare cash/equity to leverage some more houses.

    To those of us who just wanted a decent house to live in, we were forced to pay prices that added to banks and speculators profits.

    At the same time, builders were discouraged from adding to housing stock because high land and material prices made it too hard.

  132. To understand what the Greens are advocating more clearly you need to reconsider the mind set that thinks money has intrinsic value.

    Imagine if we said builders are going to rebuild Christchurch and in return the Christchurch businesses and residents, and the rest of us, who will benefit from the rebuild long term, are going to support them in kind, food, accommodation etc, directly.

    Which is what happens anyway, it is just we use money as a means of exchange so we do not have to have each individual builder being fed and housed directly by an individual who can provide these things.

    Both the builder and the person feeding them is adding to economic activity. The money is just a token for what they are doing. At the end of the day money represents work done.

    It matters little to the rebuild if tokens are supplied by the State or a bank.
    It matters to us because the bank demand interest as if the money has intrinsic value, which we eventually have to pay back with more labour. Banks expect the zero’s they add to our bank accounts be paid back, at some stage, with real work.
    In fact the value is in the builders labour and the market gardeners labour.
    Banks do not add anything.
    There is no great pool of savings that banks are lending.
    Savings are less than 2% of the bank “printed”money in circulation.

    The USA now owes so much that it would take more than 100 years of production to repay.

    Infinite compounding interest is incompatible with a finite sustainable society. Which means interest must be zero or inflation has to be high enough so that effective interest is zero or the system must collapse, as it has already, many times.

    We cannot have both a sustainable society and a monetary system which demands infinite growth.

  133. My daughter explained it to me this way, when she was about 8 years old. I had just explained the “time value of money” and she’d already learned that the banks don’t have money until we borrow it.

    Her question was simply

    “If the banks don’t have money until we borrow it, then how can they charge us for the time value of money they don’t have? “

  134. Kerry, land supply being restricted is not caused by fractional reserve banking. It is related to population growth requiring new land for housing. If that is not available the price goes up and people have smaller sections (urban sub-division etc). Another factor is the way land for property development is now supplied – reduced public sector investment in this.

    And while money (loaned) made available for spending is matched by the activity generated (say building houses) – it has to be available before the contract to build or buy can be completed. Without fractional reserve banking would baby boomers have had the money to buy or build homes? And until sufficient new homes are built to meet the increase in inter-generational demand there is upward pressure on existing land/residential property.

    The only way to hold down prices with baby boomers forming families was to suppress access to finance or ensure adequate land availability and housing supply (also to use a CGT and loan finance constraints to restrain property investment for CG). Our problem of late has been population growth via immigration (despite emigration to Oz) continuing upward pressure on land values/new housing supply levels (recent collapse of finance companies providing money for “riskier” new residential property development).

  135. I should have said (in the second paragraph) that while money (loaned) made available for spending can be matched by the activity generated (when say building houses) – it still has to be available before the contract to build or buy can be completed. Of course, if boomers were to afford to buy existing housing rising in value because of land and housing supply constraint, they needed access to the finance – and so without fractional reserve banking would baby boomers have had the money to buy or build homes?

  136. without fractional reserve banking would baby boomers have had the money to buy or build homes?

    Well, I would say that if homes were needed, some way would have been found to provide them. I can’t see how people would have gone homeless without fractional reserve banking.

  137. SPC,
    Without the legalised counterfeiting of the Central Banks and the Fractional Reserve Banking system, economic growth would have been far greater, however the growth would not have been in banking and Govt, but would instead have been in things that people actually wanted!
    As I say, counterfeiting is a ZERO SUMS GAME. For one group to win, another must lose.
    Inflation is a disease, NOT a blessing!

  138. Houses were supplied to most people in the 50’s and 60’s without overseas finance.

    State houses funded by the reserve bank, and the 3% loans from the reserve bank. Which some people much older than me will remember.
    What some people here refer to as “printing” money. Funny it is only “printing” when we do it, not the banks.

    The supply of State housing also kept prices within reason.

  139. Kerry,
    Your statement “What some people here refer to as “printing” money. Funny it is only “printing” when we do it, not the banks.” is NOT true. Whether the counterfeiting is by Central Bank (Govt) or by Fractional Reserve Banks (Commercial Banks), it is all counterfeiting by in essence printing money. No one criticises only the Central bank however the Central Bank is the originator of the money supply expansion. Without the Central Bank, the Fractional reserve banks would be limited in their expansion. ALL counterfeiting is BAD!
    The problem that Central Banks face is that they cannot control the secondary money supply expansion of the commercial banks. It would be best if they didn’t do it in the first place.
    If the banking industry was not a smoke and mirrors enterprise, there would be NO need for such things as the Central Banks function as “the lender of last resort”. If the banks weren’t insolvent, then there would be no need to have functions such as the suspension of specie payment. Banking is a Cartel of Govt, The Central Bank and the commercial banks.

  140. SPC

    The only thing that fractional reserve allowed to happen was debt. Without it, houses would still have been built. The price would have been limited to the amounts we actually have available to us… or we would have had to do something else. Moreover, the loans from overseas banks were an invidious bargain for the people borrowing and for the country as a whole. I don’t agree that we needed it, though we certainly needed something. The thing was that Fractional Reserve is what we had. It was available. It is what we have always had in living memory, but it isn’t ever what we needed. What we needed was a bit of sanity in terms of housing development, taxes, council responsibilitis, and the abolition of “negative gearing”.

    Pretty difficult to make the case that Fractional Reserve made anything easier except getting into too much debt to foreign banks.

    BJ

  141. SPC,
    THe ONLY source of REAL capital from which houses, factories etc are built is REAL savings which requires a group (savers) to forgo REAL consumption.
    ALL forms of counterfeiting add only money. So fractional reserve banking etc cannot add anything to an economy. These sleight of hand mechanisms however do provide a gain to their exponents at the expense of the holders of money. As I say, expansion of the money supply is a zero sums game, every winner must gain from losers. In money expansion, NOTHING REAL is added, only more paper tickets or more true today is electronic ledger entries.

  142. Colin THe Bear, that was my point – there was not enough historic saving to cope with the expansion of housing supply required to accomodate the population growth represented by the baby boomers.

    So either there was RB printing the money here (or via fractional reserve via local banks as there was not enough local saving) or there was offshore borrowing (faciliated all the more after we floated the currency) – offshore borrowing enabled by fractional reserve banking in the international system (there was not enough saving offshore either).

    At the moment, we are borrowing money created offshore via QE – debt creation to finance the Christchurch rebuild.

    It is no more inflationary to finance some of the rebuild cost localy (print the money) or to finance the Earthquake and War Damage Fund buying up offshore assets. This reduces the need for higher premiums into the Fund and the impact of higher insurance premiums charged by international insurers. It also reduces debt build up before there is a scarcity of affordable finance (as could occur when the international economy is weaned off QE and baby boomers withdraw and spend their retirement savings).

  143. Colin – old egg… I suspected you of being an Austrian from the start. Also libertarian… but that is not the place the error lies.

    Firstly – and a simple thing – the banks are not creating the money after the reserve bank provides the reserve for them. They create money and the money they create becomes the reserve. This is backwards from the way the conventional (and the Austrian) description of the current system conceives it. I am hopeful that you read Keen through, not being put off by Karl’s picture at the top.

    The exchange of goods is indeed based on the subjective perceptions of the participants, of the value of those goods. The value of the money however, cannot be left to be subjective. If it is, it cannot be used as a measurement of the value of the various goods and services. Nor is there any problem with what I said about the exchange. The subjective nature of the exchange has to have NOTHING to do with the actual value of money.

    I also see that you have confused my “work done” with labour and value. My point has always included the truth that a good and poor baker can take the same ingredients and perform the same AMOUNT of work and wind up with pies of exceedingly different “value”. This doesn’t change the value of the money that is to be exchanged for them… but it does change the amount of money that the buyer is willing to part with to partake of the pastry.

    The money in this transaction represents work done on the part of the BUYER. The price commanded by the pie represents the work done by the baker. Work had to be done, but it was wasted by one of them… just as work can be wasted (and often is) in the rest of the universe. The effect on the value of the money needs to be as near to zero as can be arranged.

    It is also meant to be a store of value, however. This is a serious mistake in current economic theory.

    It may manage to be stored over the short term, but over the long term it must lose value or misrepresent its real nature. Consider the things exchanged in a trade. Flour and Fish for example. Do these things retain value over time? The flour may be OK, properly stored for a long time, and so my the fish if frozen, but work has to be done to KEEP the fish frozen, and has to be done to KEEP the flour dry and free of vermin and these objects lose value in a matter of days without that additional work being done.

    Which is how “work” functions. It is a form of energy and it cannot be stored without loss, or produced from nothing, and so if money represents work done, it too cannot be stored without loss. We have both recognized already that it cannot be produced from nothing.

    Even Keynes “sort of” understood this, and interest on debt-based money was supposed to serve to reduce the cost of it. It didn’t work the way he thought it would. One has to model work correctly or the monetary system distorts the economic system.

    The problem is that when the central bank adds heaps of new base money, it cannot control the secondary credit expansion, as this requires economic actors who wish to borrow and those willing to lend, hence they are pushing on a string.

    Actually they cannot control it because the money creation is not dependent on the base money the central banks are creating, and hasn’t been since very nearly the very beginning of the Fractional Reserve banking system… The problem turns into the same thing of course, they cannot push on the string. Another thing we actually agree on.

    however it is the Central Banks that are the source of base money upon which the commercial banks expand credit

    In which case, why is the expansion of the debt money supply always coming BEFORE the expansion of the reserves? Which it does, as Keen shows quite rigorously. The money isn’t being created per the “conventional economist’s” model of fractional-reserve. It is pure debt based money.

    the new money usually chases assets (since it is injected through the banks)

    The point is that THIS new money would NOT be injected through the banks… it would be put directly to use without handing the banks anything.

    Ideally we should rid the economy of the legalised counterfeiting of the fractional reserve banking system, but I believe that this is a dream only realised in heaven, given the power of the vested interests and the confusion of the populace.

    I on the other hand, think fractional-reserve can be ended. The first step in the process however, is to have the government take over the issuance of money again… not through the banks and fractional-reserve, but directly… and define it differently. I do not imagine that this process is simple, but not paying interest to the banks is one of the objectives and denying them additional “base” money which is not actually that important in the current system (again, Keen shows us that it is not).

    You might want to look at this…

    http://globaleconomicanalysis.blogspot.co.nz/2012/07/steve-keen-goes-off-deep-end-with-debt.html

    http://globaleconomicanalysis.blogspot.co.nz/2012/07/notes-from-steve-keen-on-lending.html

    http://www.debtdeflation.com/blogs/2012/07/14/mish-steve-debate-steve-says-i/

    Now unlike either of those two economic rock stars, I am looking at money as work. The engineer’s perspective. Model “work-done” with your money and the rest will organize itself properly. I want the government to produce the money and to back it with “something”, backing the money with something being a very Austrian idea and entirely necessary, and the government doing it is necessary to push the bankers back into their proper market corner.

    So the rest of us can “get on with it”. The differences between the 3 positions are slender, though underlying philosophies are different. This by itself is a powerful argument that between us we DO own the truth and the current system is broken. We differ in subtle ways about what to do… and how to do it. The problem being mostly one of how to UN-break the system without completely collapsing the world economy.

    For us, the Greens, this becomes a serious serious issue as the distortions promoted by the broken economy are breaking our environment, and are entirely unsustainable. We must either fix the economy or have the planet’s climate break beneath it, collapsing all of us into climate hell.

    …and people who think that is not possible make it most likely…. as it is now the MOST likely outcome of what we are doing.

  144. SPC,
    As I said, the only source of REAL savings (resources) is forgone resource consumption, whether this be local or offshore is immaterial.
    As I repeat, counterfeiting gives rise to NO new resources. There is a xenophobic tendency among people to see offshore borrowing as something bad. If you take away the money and look at it as the borrowing of resources, then you see that the locals are borrowing resources from offshore. Money is only a medium of exchange. The fact that money is so corrupted these days, does complicate the whole picture, however in the 50’s, NZ needed to borrow from others to acquire the resources necessary to raise the standard of living. In those days NZ had the capacity to service that debt. The concept of foreigners is a very silly one, for WHERE do you draw the borders? Do you draw them at your national border, state border, provincial border, city border, suburban border, street, household or in the extreme the individual? Trade is always beneficial as it enables the expansion of the division of labour to the greatest extent, which is beneficial to all. A really undistorted view of economics can be had in reading a book written in 1946 by probably the most accessible writer in economics, Henry Hazlitt. He wrote a book “Economics in One Lesson” which can be downloaded free of charge at [http://mises.org/document/6785/Economics-in-One-Lesson]. Personally I hate reading on the computer, but it’s only about $US12 + postage to get the physical book. Download and read, and your confusion will evaporate and your belief in the State and its alleged benefit will also evaporate. There is plenty more good reading at mises.org, but this book is probably the best starting point. When you read it, you will think it was written yesterday as things are little changed in 56 years!

  145. Sorry… was distracted. I said ” interest on debt-based money was supposed to serve to reduce the cost of it.” when I was meaning to say “inflation” and “value of it”.

  146. The concept of foreigners is a very silly one, for WHERE do you draw the borders? Do you draw them at your national border, state border, provincial border, city border, suburban border, street, household or in the extreme the individual? Trade is always beneficial as it enables the expansion of the division of labour to the greatest extent, which is beneficial to all.

    The concept of foreign MONEY however, is not silly at all. It has to be paid back in the resources that the foreigners use to back their money.

    The simplicity of the nation borrowing from itself, which is what we are truly doing because those borrowed resources have to be paid back by us or our children in any case, makes it a far more reasonable process.

    Remember, the money (in current form) still does not exist until it is borrowed into existence. The entity borrowed from ONLY needs to be trusted.

  147. BJCHip,
    If base money is unimportant as you describe, what is the function of the Central Bank? Why do the commercial banks need the Central Bank? Hey, they can simply keep printing more money based on the reserves that they create without limit. Banking is all about smoke and mirrors, but there are some basic rules in the Cartel. I know that the commercial banks have no official reserve ratio, but they are limited for their own survival to a prudent insolvency level. The commercial banks cannot expand infinitely as they have as their money sources only the base money of the central bank and the credit that they expand on it. Once they have expanded to their level of comfort, without Central Bank credit, they can only obtain additional reserves from their commercial bank cohorts, who will likewise have reached their reserve limits. Obviously if they become more reckless, they can reduce their reserve ratio and make further loans, but now they are more vulnerable. The commercial banks extend credit on the base money, not on the credit that they create. There is an end to credit expansion by FRB. If I put an original (new) $1000 in bank-A and bank-A lends $900 to Josephine to buy a fridge and the shop keeper deposits the $900 in his account at bank-B and bank-B lends $810 to Joe for a TV and that shop keeper deposits it in bank-C, then bank-C can lend $729 to another ad infinitum, however, ultimately the regression comes (at 10% reserve) to being a 10 fold expansion from %1,000 to $10,000. Bank-A has taken from the original $1000 a $100 reserve, bank-B a reserve of $90, bank-c a reserve of $81 and so on. There is a limit, and further expansion is only available if either the reserve ratio is reduced OR further money is injected. In the fiat Money system currently throughout the world, new injections are only available from the central bank through their counterfeiting operations.
    Why do you think that the commercial banks all cheer the reduction in the official overnight cash rate? This is the signal that they can demand MORE money from the Central Bank (who creates it out of NOTHING, ie NO exchange) and expand credit on it. It’s a great business for the insiders.
    By the way, the Austrians are the only school of thought that does not utilise smoke and mirrors to delude, they have the definite high moral ground. The smoke and mirrors are exposed if you take a Crusoe economics analysis to things. You can’t deceive in a small economy, the emperor is exposed as unclad very readily. The effects of our current system are evident in the 41 years of statistics. Inflation has skyrocketed since the US left the weak Breton Woods Gold Standard. It is a long time since the US had a moral regime running it.

  148. Why does anyone think inflation will be a problem in the future? The retirement of the baby boomers means that the inflationary pressure of their consumption and their saving (bidding up asset values) is going to come to an end.

    The future problem is public debt and the immediate problem getting banks with better capital reserves after the GFC (possibly made more difficult because of the transition to a future where there is a real decline in asset values).

    This means that monetary growth (till now via fractional reserve) has to transfer to QE for public debt management and to assist banks improving their capital levels. This is already occuring offshore.

  149. SPC – I was under the impression the Greens were only proposing a narrow QE just for the Christchurch rebuild. Have you just given away the secret plan that there is really no intention to limit QE at all?

  150. The central bank Colin, is the magician’s hat. Anything can come out of it, and it focuses the attention of the public so that the fraud is not perceived. The bankers CAN do exactly what you described, because they can always have debt instruments that appear on their balance sheets as money on deposit… assets in reserve.

    Now surely you are not arguing that the TBTF banks have been “prudent”. Though it seems so in reading your response. Yes indeed, there is an end to the expansion but it is NOT a brake applied by the central bank. It is in fact, the willingness of others to borrow and lend with the commercial banks, as you point out… a limited thing. Not limited enough because the disclosures of the banks are so packed with lies and misleading numbers but yes… there is a limit. It simply has nothing to do with the central bank.

    and further expansion is only available if either the reserve ratio is reduced OR further money is injected. —and if the assets the bank holds in reserve are subject to no actual market evaluation, as has been happening for the past 20 years or so? Mark to market? or mark to fairytale? That is the question… and its answer provides for pretty much unlimited expansion whether or not the central bank provides the front money. Which is a risible amount in any case.

    all cheer the reduction in the official overnight cash rate?

    The fact that they can borrow at that rate and buy debt/bonds that pay a higher rate could be a reason… certainly they have done so in the QE cycles overseas.

    Try to understand that

    A. I am not an Austrian, and I am aware of a few problems with their analysis but only a very few.

    B. I am not a post-Keynesian as Steve Keen is… though I understand and believe he has some valid criticisms of the current economic system, which parallel those of the Austrians. I see no “smoke and mirrors” from him either.

    I have my own notion of how this should work.

    We ALL have no use for Fractional Reserve banking and the Green Party here does not have any use for it either. This is not a matter which we are arguing at all… are we. The only thing we appear to be disagreeing about is whether a sovereign state has the right and power to create its own money, borrow from itself and pay itself back, cutting out the banks.

    Again, as I have pointed out now several times…

    http://query.nytimes.com/mem/archive-free/pdf?_r=3&res=9C04E0D7103EEE3ABC4E53DFB467838A639EDE

    This is not exactly a “new” notion.

    Getting from here to where we all want to go will be difficult. First wee have to get used to the idea that we, in the form of our government, can actually do things for ourselves. This is a realization long lost here in NZ.

  151. Flip. All those down ticks shows who has not read Keen, or even Keynes or Smith.

    Rupert. How is my not buying a restaurant meal now to add to my savings going to actually add to the resources available in the future? That food will be well rotted before I go to buy food with my retirement savings. If the inevitable next GFC hasn’t wiped them out anyway.
    Do you really think the trillions China loaned to the USA was sitting in Chinese savings accounts waiting to be lent.

    Not buying a car might. Leaving more hydrocarbons for the next generation.

    SPC. Inflation, lowering of the value of money and other speculative assets, is inevitable when the boomers retire and we all want to buy the services, of the limited number of the young people left, to wipe our bums. Especially when the current economic settings and lack of wages has made them all leave.

    That is the boomers dilemma. Everyone trying to cash in on the same sort of assets at the same time has to make them less valuable. This will be most apparent with money assets that have no value in themselves..
    Any speculative investment which does not add to the future ability of those young people to provide food, housing and health, for themselves and us, is going to be wasted.

  152. One Track, QE offshore is hardly secret, the 21 October Telegraph article bjchip linked to above your post is about government supply of money and mentions an August paper on the topic (IMF).

    The Green proposal is to part fund the Christchurch (public sector cost) rebuild + also some funding for the Earthquake and War Damage Fud as well (so it can buy assets offshore as a resource to finance the cost of any future disaster). I have no idea about anything more than this – bjchip has advocated for monetary policy change within the party, but I am not a member.

    If you read the Telegraph story, you will note that the Green Party is not the source of proposals to reform monetary policy.

    As I see it the Green Party is just saying the earthquake has had such an impact on our public debt levels, that we should look at some QE to mitigate this. Remember they initially proposed we do what Oz did after their floods, some temporary extra tax at the upper levels to cover the cost.

  153. One Track – there is no secret plan I know of. We are very clear about what we want. We want a sustainable economic system to provide for a sustainable society.

    …and we know that the debt based money of Fractional Reserve banking cannot supply that. It is incapable of providing sustainable (low-no-growth) economics and so it does rude things to the environment as a matter of necessity as well.

    How on earth could WE approve of such a system?

    The short term moves we suggest simply adhere to our principles and policies, and as a result are better suited to New Zealand than anything National has proposed to date… as their policies benefit the bankers and the wealthy but not the country as a whole.

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