Russel Norman
Private money ‘printing’ takes off again

In the debate around monetary policy, it is often forgotten that the default position is that the private banks create most of the money and lead the increase in the monetary supply. They then charge interest to the users of the money that they have created.

The public authorities create very little money. The notes and coins created by the Reserve Bank are only a small fraction of the ‘money’. See this interesting Seven Sharp story if you want to see a MSM story about how this works – essentially banks can lend out far more money than they have as deposits.

So quantitative easing, or as John Key likes to call it “money printing”, is simply government extending to itself the right that it has given to the private banks to increase the money supply – except doing it for public purposes rather than simply private gain.

So what is happening with money supply in NZ?

We can measure the increase in the money supply by looking at two indices produced by the Reserve Bank – M3 and M1. M3 is the broad definition of money and M1 is the narrow definition (official definitons at the end of the post). They are graphed here (also CPI):

M1 M3 CPI 1988 2013

 

 

The first point to note is that all of this huge increase in the money supply, what Key would call ‘money printing’, happened without the government engaging in any kind of government led increase in the money supply. It was private led increase in money supply.

Secondly, as you can see there was a huge increase in money supply through the early 2000s – it peaked at an annual 17% increase in the 2006 year alone! Presumably the big increase in bank lending into the housing market (partly funded offshore) through the early 2000s let to this surge in money supply  This lending was grossly irresponsible by the banks and led to a doubling of house prices in 5 years.

Thirdly, this growth in M3 dropped off as the GFC hit and it shrank through 2009.

And fourthly it has now taken off again and has been increasing at an annualised rate of around 7%, linked to the new housing bubble as the banks create money to expand the bubble.

So the debate shouldn’t be whether NZ should be ‘printing’ money, in fact the private banks are increasing the money supply dramatically (partly funded offshore) – our money supply (M3) has increased by $28.5 billion in the 2 years to March 2013.

The debate should be: what constraints should apply to the private creation of money given the banks’ irresponsible behaviour in the past; and should the public institutions be expanding money supply as a policy tool, to what extent, and to what purpose? Should the state be allowed to also increase the money supply for public purposes such as refilling the Natural Disaster Fund and to see what effect it can have on reducing the very damaging high NZ dollar?

The answers to these questions aren’t black and white but for my pick I think we need to restrain the banks lending into the housing bubble and use a trial public creation of money to restock the Natural Disaster Fund – both to be prepared for future disasters and to see what impact it would have on the dollar.

It is of course difficult to have a rational conversation around these issues in the current political context (ie Key’s scaremongering) but it is an important conversation for rational adults to have. We do have an out of control current account deficit and if we want to be masters of our own destiny we need to change policy settings as under Key’s plan our deficit and debt increase dramatically.

Notes

M1 – Includes notes and coin held by the public plus chequeable deposits, minus inter-institutional chequeable deposits, and minus central government deposits.

M3 -The broadest monetary aggregate. It represents all New Zealand dollar funding of M3 institutions and any Reserve Bank repos with non-M3 institutions. M3 consists of notes & coin held by the public plus NZ dollar funding minus inter-M3 institutional claims and minus central government deposits.

170 thoughts on “Private money ‘printing’ takes off again

  1. We should print money because there are a lot of things we need.

    We can have a clean, green Aoteroa if we create lots of wind farms and invest in sea generation. We should close all polluting industries and pay the workers to transition to good, clean kiwi industries, like organic farming and being artists. If we need more money to fund it – simple – we print it.

    Why can’t John Key see it?

    Like or Dislike: Thumb up 15 Thumb down 14 (+1)

  2. Theres a few things in this story that mke for more confusion rather than less.

    The first is the question of “what is money”?

    Today, money is numbers in computers, nothing more. “The notes and coins created by the Reserve Bank are only a small fraction of the ‘money’” noted by Russel are just that, notes and coins, and they represent the numbers that ultimately are held in computers. Thus the actions of minting and printing coins and notes doesn’t actually create money, just tokens that represent money; the real money is in computers.

    Yes, the world is on its head from some centuries ago.

    Now on to what is the central thesis; why is QE and “printing money” not a good thing?

    Because it is money that comes from nowhere.

    But wait a dog-gone minute. Isn’t that exactly what the commercial banks do?

    No. Well, not quite. The difference is time.

    The banks are lending you money that you haven’t given them back yet. The money is real, it represents work done, but from a time in the future. When governments print money it comes out of thin air.

    And that is the essential difference that most protagonists fail (or wilfully avoid) to understand.

    Now if fractional reserve banking didn’t exist, then yes, things would be very different…

    Like or Dislike: Thumb up 12 Thumb down 4 (+8)

  3. Looks like the CPI has a very weak relationship to M3. CPI has been increasing more or less in a straight line while M3 varies significantly.

    Is CPI a useful measure of inflation?

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  4. Bjchip has been telling us about the problems with fractional reserve banking for years – if you lend more than you have or ever have a hope of getting back then you go bankrupt.

    Money represents work done – hmmm, John Key’s money represents gambling on the relative value of currencies.(Some 98% of global trading is in currency.) Not exactly work in the sense that something useful was created or a service was done. And some work is frankly bad for people and planet – plenty of examples of that.

    Since money is mostly notional anyway, creating money and investing as a society in education, health, welfare, rebuilding, clean energy etc is no more fanciful than banks creating money to make obscenely rich corporations even more obscenely rich.

    Like or Dislike: Thumb up 8 Thumb down 3 (+5)

  5. D-Buckley. The difference is the banks charge us for “printing money”.

    It still represents work done, either now or in the future who ever “prints” it.

    It seems to have been rather buried inn history that, printing money for public works and employment schemes, work done, now! was how New Zealand got itself out of the 30′s depression. Before the countries that did not, by the way! They required a war.

    Much of the infrastructure the idiots are selling off now, was built with “printed money”.

    The USA did the same. It laid the infrastructure foundations for their continued prosperity after WW2.

    It was also “printed” US dollars backing the Deutschmark, also “printed” which enabled Germany to become the economic powerhouse it is now.

    The problem with “printing money” is that, in New Zealand at present, it is unlikely to cause enough inflation to restore the balance of trade and the overvalued dollar. We have too many underutilized resources, especially workers.

    It puzzles me that some people are so opposed to the State “printing money” but are happy to live with the effects of banks unbalanced “printing money” into house and land price inflation, and our dollar inflation against trade competitors currencies..
    Well, I suppose it is not a puzzle really. they are happy to take wealth off the rest of us, in interest.

    Objections to “printing money” show either a fundamental misunderstanding of the economic role of money, or a cynical desire to foster public ignorance to keep the banks gravy train in operation.

    Like or Dislike: Thumb up 13 Thumb down 3 (+10)

  6. Kerry:

    Objections to “printing money” show either a fundamental misunderstanding of the economic role of money…

    I’d argue exactly the same, in reverse :)

    Heres the thing. If it’s OK to just “print money”, then I’d like some of that printed money please. Just give it to me (and everyone else), no questions asked. Job done. I’m not greedy, say $100 a week would be fine. $100 a week x population is about $400m a week, an additional $20b a year circulating in the economy, a few percent of GDP. Good news all round.

    It puzzles me that some people … are happy to live with the effects of banks unbalanced “printing money” into house and land price inflation

    it is absolutely true that “something need to be done about house prices”. But that “something” has little to do with “printing money”, and certainly should not act as a trigger to say lets print money for everything. Stacking wrongs does not make a right.

    (And the what that should be done about house prices is a limit on lending based on a multiple of salary, thus fixing house prices to salaries, thus again making housing “affordable”.)

    Like or Dislike: Thumb up 9 Thumb down 3 (+6)

  7. Secondly, as you can see there was a huge increase in money supply through the early 2000s … Presumably the big increase in bank lending into the housing market … through the early 2000s … was grossly irresponsible by the banks and led to a doubling of house prices in 5 years.

    Absolutely.

    Had this not happened, then housing would still be almost affordable. In very short supply, yes, but affordable.

    Like or Dislike: Thumb up 1 Thumb down 0 (+1)

  8. How do you think we have money in the first place?

    Depends on what you mean by “in the first place”, ie how far back in history you want to go, as its changed several times over the years.

    People still get shocked when I point them to the debt is money video.

    Like or Dislike: Thumb up 1 Thumb down 0 (+1)

  9. Thank you Russell for explaining this in detail for us, I understand your position more clearly now.

    Like or Dislike: Thumb up 3 Thumb down 2 (+1)

  10. How do you think we have money in the first place?

    Government “printing money” enough, to allow the economy to function is not the problem. That is part of a governments role.

    Neither is banks doing what used to be their function, and what many people think still is, allowing people to forgo some of the present value of their work by saving to invest capital in increased productivity for the future. Which is the same thing as Governments “printing” money for capital works and/or investments with future returns, such as education.

    Banks ‘printing money” ad infinitum pushing up prices in only part of the economy is bound to end in tears.
    What is good about an “investment” in financial gambling in the USA or in NZ pushing up a land price bubble. This simply relies on the “bigger fool ” principle, like all ponzi schemes. I don’t think a small country like NZ, or small pension funds are going to be left on a chair when the game stops.
    Boomers will find that out as they try to spend money back ,into an economy which has less capability than it has at present, because of lack of productive investment.

    We have Mighty River power because a past Government “printed” money to build it.

    If Government printing money causes excessive inflation they have the option of taxation to withdraw it.

    How are we doing with banks pushing up house prices?

    Muldoon got us in the pooh because instead of borrowing from our own future directly we used an intermediary.

    Like or Dislike: Thumb up 4 Thumb down 2 (+2)

  11. House prices. Some options.

    Limit the money that banks get from a mortgagee sale to the proportion of the original valuation they have lent.

    Tax on new lending on land when prices get overheated.

    CGT. A real one. I can see the political value in exempting the family home and agree with exempting family homes under a certain value, but it makes it much more difficult to administer. Gareth Morgans imputed wealth tax is easier.

    Nationalise banking. Social credit. Much cheaper and easier to regulate.
    If the private banks really think they are more efficient than the public sector then they will not object to State competition. Ha Ha.

    Like or Dislike: Thumb up 6 Thumb down 2 (+4)

  12. How are we doing with banks pushing up house prices?

    That can be fixed. But does anyone have the will to do so? I honestly think not, and even Andrew Aitken has indirectly expressed doubts on this issue.

    So if the question is “are we fucked”, then yes, we are. I think it is BJ who notes most often that you can’t have infinite growth in a finite world, which I think agrees with you comment that some “are going to be left on a chair when the game stops.” Though I think you are referring to musical chairs and that they’ll be left without a chair and thus out of the game, but close enough.

    Like or Dislike: Thumb up 2 Thumb down 1 (+1)

  13. We are getting new 20 billion in the economy from the insurance payouts from the Christchurch earthquake.
    It is stimulating economic activity and GDP. One of the things National are trying to take credit for.

    Do you think that is “real” money? Any different from the Government putting 20 billion in for repairs to Christchurch?

    Like or Dislike: Thumb up 2 Thumb down 2 (0)

  14. To Rimu’s question above: The CPI is an appallingly bad measure of inflation because it leaves out the biggest item that most households (and many businesses) pay for on an everyday basis: land. If you put the price of land, which is at the root of housing affordability, back into the calculation, then you would see an entirely different picture.

    Like or Dislike: Thumb up 3 Thumb down 1 (+2)

  15. Whenever er anyone talks about the “magic of compound interest” I want to choke them.

    It is just that, “magic”.

    Infinitely expanding compound interest pre-supposes an infinitely expanding money supply.
    Only possible, in a world with finite resources, if, inflation keeps pace with the expansion in money supply.

    In a steady state economy money making money is impossible.
    You can only make money by adding value. Work!

    It becomes what it was in the first place. A token representation of work.

    Like or Dislike: Thumb up 4 Thumb down 3 (+1)

  16. This is why I vote for the Green party. A realistic look at the economic situation is often missing from the larger parties. I definitely agree that public institutions should be expanding the money supply as it is needed. There are many proposals for how to go about this, but leaving it up to private institutions who expand and contract the money supply as they see opportunities to extract a profit has to be one of the worst.

    Private banks lend out money and collect it back in. Publicly owned banks could do exactly the same thing but with more emphasis on minimising the harm caused by a fluctuating money supply. They would probably be less profitable than private banks, but that wouldn’t be the point. The point is that money is a necessary addition to keep the productive factors of the economy growing. Financial institutions can justify some profit for themselves if they help the productive elements of the economy grow, but if they fail to do that part of their job then there is no need for them and their excessive profits.

    Governments also collect taxes. So a government could increase the money supply by giving everyone $1000. Watch it flow through the economy and then collect it back as taxes when/if the money supply ever needed to shrink. Another option is just to make the money expire after a certain amount of time. It’s easy for a public money creation system to introduce a time aspect and not to rely on creating it out of ‘thin air’.

    CPI is a decent measure of inflation but tends to be on the low side. I like RPI better as it starts to take into account cost of accommodation which is a big part of the average consumers yearly spend but is left out of the CPI calculation.

    Like or Dislike: Thumb up 4 Thumb down 8 (-4)

  17. “Looks like the CPI has a very weak relationship to M3.”
    Does that mean there are really two currencies, the everyday one and a housing capital (or more generally futures commodities) one? In housing capital the exchange rate between them has got worse, so that it used to take 2 years of income in everyday $$s to buy a house but now takes 6. That has pushed CPI inflation a bit, but housing is only one component of CPI.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  18. Russel says “So quantitative easing, or as John Key likes to call it “money printing”, is simply government extending to itself the right that it has given to the private banks to increase the money supply – except doing it for public purposes rather than simply private gain.”

    Wrong – they are completely different.

    When a government prints money, there is no extra work done, no extra value. Nothing of value has been created.

    All it is doing is cutting the pie into more pieces. Effectively it’s stealing a little bit off everyone else, because governments printing money is highly inflationary.

    If it was that easy Mr Mugabe would be a genius and Zimbabwe would be the richest country on the planet.

    The difference when banks loan money, it that the money has a value (and the value of the whole pie is increased) because of all the future work required to pay the loan back.

    Anybody formulating monetary policy should be well aware of such fundamental differences.

    Like or Dislike: Thumb up 9 Thumb down 7 (+2)

  19. In the 30′s we “printed money” to pay people to build dams and plant forests.

    We have been getting it back in power supplies and timber ever since.

    Or we did, until some Phot-wits sold them.

    Now, we let the banks “print” money to push up the price of existing assets, and charge us interest for it, which we will have to pay back by extra work/exports in future.

    See the difference!

    Like or Dislike: Thumb up 7 Thumb down 6 (+1)

  20. Kerry says “See the difference!”

    You obviously don’t. When a govt prints money, it has created nothing, zero, nada, zilch.

    What it does is create inflation, devaluing what everybody owns, by the same amount of money that it prints.

    Effectively it’s theft.

    Like or Dislike: Thumb up 7 Thumb down 5 (+2)

  21. See the difference!

    You obviously don’t. When a govt borrows money, it has created nothing, zero, nada, zilch, except an obligation to repay it all, with interest added. Who, in their Right mind, would do that? Oh yes – THIS government. How much, photonz1-figures-at-her-fingertips, is THIS government borrowing, week in, week out. I don’t believe I’ve heard you howling about that, have I?

    Like or Dislike: Thumb up 2 Thumb down 2 (0)

  22. If a government prints money and builds a power station it has in fact created nothing, zero, nada, zilch. Quack.

    Like or Dislike: Thumb up 4 Thumb down 2 (+2)

  23. Print $100, the recipients will spend it here, contributing to the economy.
    Borrow $100, the recipients will spend it here, contributing to the economy, but then there’s the interest to pay, isn’t there.
    Russel’s plan is a very good one. It’s not the blunt process photonz1 describes and clings-to for the sake of his wafer-thin argument. Russel’s plan is nuanced, subtle and has depth. Naturally, photonz1 can’t grasp it at all.

    Like or Dislike: Thumb up 2 Thumb down 6 (-4)

  24. solkta says “If a government prints money and builds a power station it has in fact created nothing, zero, nada, zilch. Quack.”

    Solkta joins the queue of greens who don’t comprehend the fundamental difference.

    Whoever builds a power station, it is CREATED from the labour of those who build it.

    If I take a loan to build the power station, my asset is paid for with the work I do to pay back the loan.

    If the govt prints money to build a power station, the asset is never paid for. Printing money is merely stealing from everyone else through inflation.

    If printing money really worked, then Zimbabwe would be rich, and no government anywhere would ever have to tax anyone.

    I see greenfly also puts his hand up to be on the list of the financially ignorant.

    Like or Dislike: Thumb up 10 Thumb down 4 (+6)

  25. The dams that were built here in the ’30s were never paid for!!!
    OMG
    O
    M
    G
    !!!!

    Call out the Fraud Squad!
    Release the ducks!
    QUACKKKKKKKKKKK!

    Like or Dislike: Thumb up 6 Thumb down 3 (+3)

  26. Greenfly says “Russel’s plan is nuanced, subtle and has depth”

    Hillarious – printing money is “nuanced, subtle and has depth”

    You’ll find your utopia in Zimbabwe – have you applied for your residency yet?

    Like or Dislike: Thumb up 6 Thumb down 6 (0)

  27. You clipped the end off my statement, photonz1,
    ” Naturally, photonz1 can’t grasp it at all.”
    and elegantly proved me correct.
    I’m not looking for Utopia, but Russel’s proposals to ease quantitatively, are sensible and (we know now that you can’t see this), subtle, nuanced and deep and mean we could have a rational, fair and successful system here in New Zealand, something we all want. Call that Utopia if you will. I have to ask, your Zimbabwe obsession – were you badly let down by a girl from that county when you were young? Perhaps you fell for a ‘wonderful financial opportunity’ offered by an on-line Zimbabwean man? There’s some thing you’re not telling us! Out with it, photo!

    Like or Dislike: Thumb up 3 Thumb down 4 (-1)

  28. Heck greenfly, have you no memory at all? Photo went to Zimbabwe and brought back a banknote to the value of (if my memory is working, and it helps if adopt the Dr Evil pose and voice for this) 100 trillion dollars.

    Thats what happens when you print money.

    Like or Dislike: Thumb up 5 Thumb down 2 (+3)

  29. Did NZ print money in the 1930s? It certainly devalued sometime round then.

    The increase in generating capcacity in the 1930s was about the same as the decade either side. No blip on the graph.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  30. dbuckley – your memory is correct – $100 trillion dollar notes.

    It’s unbelievable that people can’t see that if printing money was a good idea, governments everywhere would be doing it all the time.

    Instead tehy only do it as a last resort when they are totally desperate because everything else has failed.

    Like or Dislike: Thumb up 7 Thumb down 4 (+3)

  31. It’s pretty sad that a serious leader of our third largest political party actually subscribes to such dribble.

    Banks don’t just print money.

    It’s called the fractional reserve system and any econ 101 student could tell you banks can’t just print their own profits.

    Like or Dislike: Thumb up 5 Thumb down 3 (+2)

  32. Zimbabwe is what happens when you close down all the productive industry, scare away all the workers, and THEN “print money”.

    NZ and USA in the 30′s, like now, and Germany after WW2, on the other hand, had an excess of underemployed resources, especially workers.

    Zimbabwe has Absolutely no relevance to NZ.

    Unless we stay under National, and the remainder of the skilled workforce heads for Australia, leaving only the bean counters.
    Then we will be like Zimbabwe!

    Like or Dislike: Thumb up 6 Thumb down 5 (+1)

  33. Did NZ print money in the 30′s?

    Yes and for a long time afterwards. Remember the DFC.

    And in the USA it was the Tennessee Valley Authority among other infrastructure projects.

    Like or Dislike: Thumb up 1 Thumb down 1 (0)

  34. Photo, Even RWNJ economists know that what is valid for a household is not necessarily valid for a lot of households, or a country!

    Like or Dislike: Thumb up 1 Thumb down 1 (0)

  35. Printing money is highly inflationary. The results are –

    - higher petrol prices
    - higher car prices
    - higher prices for anything that it transported i.e. everything
    - higher interest rates so..
    - higher mortgages
    - higher rents

    - loss of value of savings
    - loss of value of kiwisaver
    - loss of value of govt bonds
    - govt having trouble borrowing cause no one wants their debt bonds
    - govt has to pay much higher interest rates to attract money
    - businesses unsure so don’t invest
    - money shifted away from NZ investments

    And after all the higher costs, the vast majority of people don’t get a pay rise to compensate.

    Like or Dislike: Thumb up 6 Thumb down 3 (+3)

  36. “Printing money is highly inflationary”.

    Sometimes. depends on the relative balance of money and what it can buy.

    Banks “printing money” are pushing up house, and farm, prices because land is limited and they refuse to lend for anything else.

    With more than 12% unemployment, from the numbers in work and available for work, not the somewhat dubious WINZ stats, there is plenty of excess workers to mop up first.

    Lots of possible construction to be done, especially in Christchurch before we start adding inflation.

    Incidentally, borrowing, or insurance payments, from offshore adds the same amount of money and will fuel any inflation equally. Is that stealing too, Photo?

    And, unlike banks, Governments always have the option of cooling inflation with taxation and regulation.

    Wasn’t it you Photo that was claiming a while back that Russel’s QE would not drop the value of the dollar enough? I.E. Would not cause enough inflation.

    Like or Dislike: Thumb up 4 Thumb down 2 (+2)

  37. Kerry ask “Photo. How is your no tax and no Government spending society going?”

    That’s a pretty stupid question considering neither aspect is anything I’ve advocated for….ever…..anywhere.

    Like or Dislike: Thumb up 3 Thumb down 2 (+1)

  38. Kerry, interesting you support monetary policy that screws anybody who saves and strongly rewards anyone who goes massively into debt – when the country needs to do the very opposite.

    Like or Dislike: Thumb up 5 Thumb down 2 (+3)

  39. Photonz1 – quick question. How much money has to be ‘printed’ (proportion of new) before it’s categorically inflationary and under what macroeconomic conditions?

    Like or Dislike: Thumb up 1 Thumb down 0 (+1)

  40. So far, billions poured into Christchurch has not noticeably affected inflation.

    It has, however, increased total economic activity.

    In any case, as far as inflation is concerned, 20 billion poured into Christchurch is going to have exactly the same effect on inflation regardless of the source.

    Like or Dislike: Thumb up 3 Thumb down 2 (+1)

  41. Borrowing represents work done, but in the future? What? That’s not “real” money, it represents a hope that the debt can be paid back, with interest. Sometimes that works out, sometimes it doesn’t. Debt has to be paid back, with interest, which means that the economy has to grow. It grows by banks loaning even more money, which has to be paid back with interest. It’s a positive feedback loop, ending in disaster.

    Like or Dislike: Thumb up 5 Thumb down 0 (+5)

  42. You make an interesting comment that the increase in money supply is driven privately. It bugs me that any “new” money gives power to the first recipient of that money.

    If your bank gives you a mortgage of $500,000 it means that they have nominated you as a member of the “nouveau riche” – your house/property gives you a status you did not have before that purchase. The course of your whole life will likely be improved

    Those who are not nominated by their banks as recipients of such monetary injections are pushed so much further down the social order than is justified. Sometimes the difference between joining the “nouveau riche” and missing out is only a few thousand dollars of annual income – or maybe just that your personality did not impress the mortgage broker.

    And this magnified social differential is all based on the artificial value of land stolen from Maori – even when the mortgage money is controlled by immigrants. (seen any white ASB tellers lately????)

    Like or Dislike: Thumb up 3 Thumb down 5 (-2)

  43. “anything I’ve advocated for….ever…..anywhere.”

    And we have never advocated “printing money” to the extent Zimbabwe has, while destroying the productive sector. Either!

    Like or Dislike: Thumb up 5 Thumb down 2 (+3)

  44. Kerry – you repeatedly show you fail to understand the difference.

    Insurance money represents actual work done in the past, debt represents actual work done in the future, printing money represents nothing.

    That’s why printing money has a a very high inflationary effect and debt and insurance payments have a much lower impact on inflation.

    Effectively by printing money you’re just cutting the pie into smaller pieces. But with debt or insurance payments, you’re actually increasing the size of the pie.

    If you REALLY believe what you are saying, why not just get the government to print money anytime it needs funds for anything?

    Like or Dislike: Thumb up 4 Thumb down 6 (-2)

  45. Sorry Photonz, your understanding is more flawed than Kerry’s. Debt does not represent “actual work”. It inherently contains counterparty risk and issues of trust. You can’t even START to put it where you just put it.

    Moreover, any government “printing” of money is exactly the same in terms of debt as the printing done by the banks EXCEPT THAT THERE IS NO INTEREST PAID TO THE BANKS.

    If there were anyone here I would reckon completely gormless with respect to the reasons and rights of a sovereign state to control its own currency you’d be my first choice.

    Like or Dislike: Thumb up 3 Thumb down 2 (+1)

  46. Solka says: that if a government prints money and builds a power station it has created nothing, zilch, zero.
    Absolutely correct, but the power station is creating plenty of money and that of course goes back to the government via tax.

    Some would call that theft? Or is this a circular argument?

    Like or Dislike: Thumb up 2 Thumb down 1 (+1)

  47. bj says “Sorry Photonz, your understanding is more flawed than Kerry’s. Debt does not represent “actual work”.”

    I presume you deliberately missed off the end of the quote to misrepresent what I said.

    If I build a dam with debt, my asset is paid for by the work I do to pay back the loan.

    If the govt prints money to build a dam, the asset has never been paid for with anything of real value.

    Like or Dislike: Thumb up 2 Thumb down 2 (0)

  48. That can be fixed. But does anyone have the will to do so?

    I don’t think such optimism is justifiable. The nature of the Fractional Reserve system puts the control of GOVERNMENT in the hands of the bankers/lenders who create the money. This isn’t a primary function in terms of the money creation, but it is certainly primary in the minds of the bankers. The result is that the government CANNOT force the issue. It will be hamstrung, hogtied and gagged.

    Like or Dislike: Thumb up 4 Thumb down 2 (+2)

  49. BJ – fractional reserve banking has been around for centuries and full reserve banking would never work, for several reasons.

    1/ There’s nowhere near enough savings for the amount of money businesses and people want to borrow (so any economic growth would be strangled)

    2/ Interest rates, for the elite few who could afford to get loans, would astronomical compared to the rates we’re used to.

    3/ A bank could not give me a 20 year mortgage unless it had the same amount of deposits guaranteed for a 20 year term.

    4/ No on-call money could even be used for loans.

    5/ If you had on call or short term money in the bank (i.e. they couldn’t use for mortgages) depositors would have to pay the bank interest for looking after their money – instead of receiving interest.

    6/ No bank in the world uses full reserve banking – the last one to try it went bust in 1790.

    Like or Dislike: Thumb up 5 Thumb down 1 (+4)

  50. “The debate should be: what constraints should apply to the private creation of money given the banks’ irresponsible behaviour in the past; and should the public institutions be expanding money supply as a policy tool, to what extent, and to what purpose?”

    When a private institution creates new money they enrich the specific recipient they choose to offer that money to.

    Since there are few controls on how much bank money is created and who it is given to then it is necessary for the government to balance the ledger by creating money (or other “free” resources) to give to those who are disenfranchised from the banks.

    None of this would be necessary if our monetary values were separated from land values. (ie: if private property rights ended and land was returned to Maori the banks ability to enrich specific borrowers would evaporate)

    Like or Dislike: Thumb up 3 Thumb down 3 (0)

  51. Photonz – Understanding the nature of money is important. Your failure is the same as that of thousands of other “professional” economists and I will not hold it against you.

    Real money ALWAYS represents work done. Work done ALREADY, not work promised. It has zero counterparty risk.

    Full Reserve banking with the money supply limited to the amount of work the society controls may indeed “limit growth” to the natural “organic” growth rate (referring to growth coming from the society itself doing more work) of the society. That is not a bad thing, except to economists and bankers. It IS slower than you are used to.

    You postulate a scenario in which Fractional Reserve is abandoned as the method by which money is created and distributed but NOTHING ELSE IS CHANGED? What sort of nonsense are you peddling?

    Well no… if the banks do not “create money” then the government MUST, and does, and the supply is properly limited to the net work available/controlled by the society.

    Moreover, there is no “interest” involved in its distribution. Instead we’d reintroduce the principle of “demurrage”. IF you borrow you “use it or lose it”.

    Finally, you are wrong about the Fractional-Reserve vs Full Reserve arrangements. Fractional-Reserve HAS been around a long time but it did not completely drive out full-reserve banking until the early 1900′s.

    “Bad money forcing out good”

    The full-reserve banking system had several resurgences.

    If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks…will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs. – Thomas Jefferson in the debate over the Re-charter of the Bank Bill (1809)

    “I believe that banking institutions are more dangerous to our liberties than standing armies.” – Thomas Jefferson

    History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and its issuance. -James Madison

    If congress has the right under the Constitution to issue paper money, it was given them to use themselves, not to be delegated to individuals or corporations. -Andrew Jackson

    “Let me issue and control a nation’s money and I care not who writes the laws.” Mayer Amschel Rothschild (1744-1812), founder of the House of Rothschild.

    “The few who understand the system will either be so interested in its profits or be so dependent upon its favours that there will be no opposition from that class, while on the other hand, the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests.” The Rothschild brothers of London writing to associates in New York, 1863.

    “Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I intend to rout you out, and by the Eternal God, I will rout you out.”
    - Andrew Jackson (1767-1845)

    So… as you can see Photonz, your very popular perversion, and I do grant that it IS very popular as a means to secure growth so rapid that it beggars the PLANET, and concentrate wealth and power in the hands of undeserving parasites in the bargain… was never quite as popular as you imagine.

    In particular it turned out to be anathema to the people who thought most deeply about government and liberty and the continued freedom of a Republic. Such deep thinkers appear to have disappeared from the landscape, but I think only that their musings go unreported in the popular press… (which is of course, beholden to the moneyed interests).

    However, the main point I would make here is that your litany of troubles are predicated on an invalid assumption, that nothing ELSE would change, and that sir, is quite impossible.

    Like or Dislike: Thumb up 4 Thumb down 2 (+2)

  52. Greengeek

    Print money and give it away. Ever considered what this will do to your KiwiSaver funds?. Not to mention ACC savings, SuperFund savings, etc.

    Obviously you dont have any term deposits as the value of those would drop to zero pretty quickly.

    As for returning land to Maori. Yep, all that printed money will be used for is to buy weapons and munitions to fight the civil war that will ensue.

    You can get the bit of pavlova paradise with my name on the title, from my cold dead hands.

    Like or Dislike: Thumb up 3 Thumb down 0 (+3)

  53. “Real money ALWAYS represents work done”

    BJ – When you mention “Real” money are you including newly printed money?

    Like or Dislike: Thumb up 1 Thumb down 1 (0)

  54. “Ever considered what this will do to your KiwiSaver funds?”

    Gerrit – yes, printing money destroys the value of savings (which is why the next 20 years will be a bad time to count on accumulated savings rather than assets. It’s also why no-one should believe in the false Kiwisaver promises).

    However, if the private institutions dilute the value of savings by “printing” money shouldn’t the government also feel free to maintain the parity of non-savers and non-landowners by printing money of it’s own?

    Like or Dislike: Thumb up 2 Thumb down 2 (0)

  55. greengeek,

    Yep print money to your hearts content and give it out to all and sundry. I will take my share as well, cheers.

    After all why save for ones future, why develop land, why own a business that employs people, why bake a loaf of bread for resale, why do anything as the government will print your money.

    Your money will not be able to buy anything as no one will do anything.

    No need to do anything to “earn” money, as we have all the money you can ever need (though you cant spend it as there is nothing to buy!!).

    Hence BJ reference that money represents “work done”.

    Printing money means that NO work is done and hence, the ultimate outcome, nothing to spend your printed money on.

    Simple really.

    Like or Dislike: Thumb up 4 Thumb down 2 (+2)

  56. In fact money does not equate with “work done”. That is the whole point here. Money is simply a token that is unfairly manipulated by the clever and the unscrupulous.

    The new token (instead of money or stolen real estate) needs to be the hourly unit of labour. Then we will see who REALLY deserves to be called wealthy.

    Do you seriously think you could accumulate all your assets and savings if “financial leverage” was outlawed and you had to build those things by the sweat of your own brow? Whenever I see a wealthy person I amuse myself by trying to calculate how many other people have had to sweat unfairly to build that wealth.

    The government could print masses of money and give it to the poor to buy tractors and gas with so they can all become rich farmers. I’ll join the queue.

    Like or Dislike: Thumb up 1 Thumb down 3 (-2)

  57. greengeek

    The government could print masses of money and give it to the poor to buy tractors and gas with so they can all become rich farmers. I’ll join the queue.

    Problem one is that the land you returned to maori is no longer available to the government to hand out to you to farm.

    Problem two is the tractors you want to buy may not be sold to you as the money offered to the manufacturer of the tractor will be of such low value to the manufacturer that you cannot afford the tractor.

    Remebering that the tractor manufacturer has to use your worthless money to purchase raw materials, fabricate, assemble and distribute the tractor you want. Even a barrow load of your trillion dollar notes may not be enough to conclude a deal.

    He may well sell the tractor to someone whose currency he can TRANSACT with to run his business and pay his staff.

    Like or Dislike: Thumb up 5 Thumb down 0 (+5)

  58. “If the govt prints money to build a dam, the asset has never been paid for with anything of real value.”

    Even the “conventional” economists disagree with you on that one.

    The dam, like any sensible capital investment, is paid for with the value it adds to the future economy.

    It enables more “work” in future.

    Actually BJ, having taken economics 101 and a few other papers as well conventional economists are in agreement with the pair of us on the nature of money.
    Gerrit and Photo both show a fundamental misunderstanding of the nature of money.

    Gerrit. Nationals lack of investment in sustainable future productivity, overseas borrowing with nothing to show for it, except for cheaper Hawaii holidays, and selling all the income producing assets, are going to devalue your Kiwi saver funds far more certainly than anything the Greens intend. Why are you not complaining about, their, stealing.

    Like or Dislike: Thumb up 1 Thumb down 2 (-1)

  59. Kerry,

    I’m not a National supporter so why do I need to comment on their errant policies?

    Note I was commenting on greengeeks policy of handing out printed money to anyone. That is a mistake.

    Now the state “printing” money to invest into infastructure has merit as the payback is as you say in future benefits to society.

    I think it is how it is spent and reabsorbed in the future is the key to printing money. Would prefer it called “state asset investment”.

    So again my argument is with greengeek re printed money distribution. Lets call it “state asset investment” instead of printed money.

    The notion that one can distribute printed money for “no work done” is stupid.

    Money is a means of transaction and yes we (as a society) have given away much control of the power to control the transactional aspect.

    All for taking it back by limiting fiat banking.

    Like or Dislike: Thumb up 2 Thumb down 0 (+2)

  60. I think all this debate reflects the mess we have got (or allowed) society into by focusing on money as the key to an economy when land/resources and the effort required to make them useful to us are really the key. Climate change events are going to tip the money system over as the only way to pay for the floods, tornadoes, and droughts will be to create more money. The production is being flattened.
    The inflation will be massive or hidden in mass unemployment which will bring mass dissatisfaction and disruption as people try and get a share for their families. Look around the world now? The money system cannot frunction under this weight so those with investments loose anyway. Even land holdings loose value as they are less productive.
    Surely an enlightened elite, rich or academic would make the sacrifices and effort to ensure our resource use and distribution adapts to the need to keep social order. Only those who are meglamaniacs or so insecure in there real ability to produce results would want to continue the status quo.
    New money needs to be pegged back to the ability of the resources and workforce to provide what is needed, and this hinges also on the value we place on the collective holding as well. A lot of money and asset devaluation is purely as a result of producing new money, private or public, that is based on a theoretical value of the present holdings. Totally destabilised by the environmental damage that is effecting our ability to produce – health or ecosystem.
    We need a new calculation of what the productive resources really are, and much of this is still in the common, eg. natural ecosystems that create our food, energy, or shelter,so all need to be recognised in the distribution of the money, probably more in the way we tax the system, but certainly in the way we constrain the creation of money. Private monopolisation is antisocial and in the model I make it is destructive.

    Like or Dislike: Thumb up 2 Thumb down 1 (+1)

  61. What do you think is going to happen to Kiwi saver, the NZ super fund and other monetary investments, which are currently propped up by the USA “printing” money when the fact that none of the US printed money has been invested in infrastructure or anything concrete which adds to future productivity/work, hits home.

    Just like borrowing, the future effects of QE are dependent on what it is spent on.

    “BJ – When you mention “Real” money are you including newly printed money?”
    If it is “spent” to buy work which contributes to the economy, grows capability now or in future, yes.

    Adding to the money supply does not always cause inflation. It depends on the spare capacity. The USA has so much unemployed workers at the moment that even adding trillions has not caused inflation.

    What will definitely cause inflation, devaluation of savings, in future, is the boomers trying to spend all their savings back at once into an economy whose capability has remained static.

    If it is spent on something that adds to real capability, not necessarily money income, in future, then it can be paid back.

    In that there is no difference between QE and borrowing, except with borrowing you have the added expense, of interest.

    We must, stop borrowing and spending ever increasing amounts on simply changing the owners of existing assets, invest in capability building, especially sustainable energy and import substitution, stop trying to keep unneeded trinkets from overseas cheap and work towards a steady state economy.

    Because ponzi schemes which rely on exponentially rising interest cannot continue in a world of finite resources.

    Like or Dislike: Thumb up 2 Thumb down 1 (+1)

  62. Kerry says “The dam, like any sensible capital investment, is paid for with the value it adds to the future economy. It enables more “work” in future.”

    This is where you are continually confusing the benefit the dam provides, with how it is paid for

    The dam provides this benefit whether the dam is paid for with cash, loans or printed money.

    How it is paid for is by work done previously (cash), work done in the future (loans), or no work done at all (printing money).

    Printing money is effectively stealing a small inflationary slice off everyone else’s pie.

    Like or Dislike: Thumb up 3 Thumb down 1 (+2)

  63. Gerrit.

    Agree.

    You are getting to understand what we are banging on about.

    State asset investment is a good term.

    You and Photo are correct in simply giving away money, to the banks, for nothing, as the US have done, is simply pushing up market bubbles. Shortly there will be a big correction. Which is unfortunately going to hit the NZ super fund and Kiwi saver, hard.

    Giving it to workers in return for building dams, or Christchurch houses, is a different matter.

    State asset investment, in fact, describes what we want to see, rather well.
    “Printing money” used to build future capability, is not giving it away for nothing, it is giving people money in return for their work building dams etc, and is paid back in the increase in our future capability.

    Like or Dislike: Thumb up 1 Thumb down 1 (0)

  64. Photo. If it builds up what the country can earn in the future, or cuts down what we have to pay for imports. It ADDS to everyone’s pie!

    Like or Dislike: Thumb up 1 Thumb down 1 (0)

  65. Currently. All the accumulating interest paid on loans, for swapping existing assets around, and tax cuts we couldn’t afford, are removing the whole pie.

    Like or Dislike: Thumb up 2 Thumb down 2 (0)

  66. BJ – if you go to full reserve banking you can forget about 95% of the population ever owning houses.

    They’d need to save pretty much 100% of their house price while renting.

    There would be very few people with money in 20 year term deposits, and full reserve banking cannot lend out money deposited for less than the term of the mortgage (otherwise it’s fractional banking again – not full reserve banking).

    Only the super rich would benefit.

    Like or Dislike: Thumb up 3 Thumb down 3 (0)

  67. exactly, money only being a tool for sharing the pie, so as long as the creating of unfair shares is avoided, it doesn’t matter how it is circulated. I see private creation of debt being abused as most of the value of the investment is in inflated value, and probably being paid for by the renting of a resource that is increaing in value simply because it is finite. I feel this process is as socially wrong as giving money away.
    The effect of these processes on the sharing of the following years pie is distorting. When new reesources were plentiful it didn’t create such a distortion but now things are getting scarce the pie is becoming crumbs to those who can’t corner the resources.
    I have never liked Retirement funds for this reason. It seems to me a tax based system allows better for fluctuations in the resaource base, including population trends.

    Like or Dislike: Thumb up 1 Thumb down 0 (+1)

  68. Kerry says “Photo. If it builds up what the country can earn in the future, or cuts down what we have to pay for imports. It ADDS to everyone’s pie!”

    Bank of England says nearly half of the massive shift of capital because of quantitative easing went to just 5% of the richest families in the UK.

    And as the programme finishes the government is about to see 80 billion pounds wiped off the value of bonds it now owns.

    There are huge negative ramifications with printing money – you stick your head in the sand and pretend none of them exist.

    Like or Dislike: Thumb up 3 Thumb down 2 (+1)

  69. there are huge negative ramifications for allowing our pie sharing to be manipulated by foreign investments that have a history of inflating the value of the resources of the locals, to the point where it supresses local production.
    All systems have strengths and weaknesses, thats why we need leadership that is not idealogically blinkered, and can see the way forward in differing circumstances.
    An understanding of money is a small proportion of the skills needed to manage a system of production that has finite ecological and resource aspects. The market can only be a part of the management, and unlike the financial marketeers, a government can’t just dump or sell the elements that effect the profit for the investors. Cleaning up the consequences of bad previous choices becomes the reponsibility of a good government, and if this can be placed at the feet of those responsible, then all the better. Those investing in bad money management should not benefit over those who also share the pie.

    Like or Dislike: Thumb up 2 Thumb down 1 (+1)

  70. Clutching at straws now, Photo.

    Already said that the massive gifting of money to bankers, to gamble with, and push up asset bubbles, is not what Russel intends with QE.

    Like or Dislike: Thumb up 1 Thumb down 1 (0)

  71. “Now the state “printing” money to invest into infastructure has merit as the payback is as you say in future benefits to society.”

    Gerrit – this is exactly what I am referring to by my suggestion of having the government hand cash to the poor to buy tractors.

    You may not consider humans as infrastructure but I do. Why invest in a new motorway overbridge when you could spend that money on making a poor family productive by offering an opportunity to get into agriculture. Or even fisheries.

    As they say: teach a man to fish and things get better for everyone.

    Like or Dislike: Thumb up 3 Thumb down 4 (-1)

  72. Kerry says “Clutching at straws now, Photo. Already said that the massive gifting of money to bankers, to gamble with, and push up asset bubbles, is not what Russel intends with QE.”

    Wrong.

    Green Party policy actually says that quantitative easing means more money will go into banks enabling them to substantially increase lending.

    Like or Dislike: Thumb up 2 Thumb down 3 (-1)

  73. Kerry says “Photo. If it builds up what the country can earn in the future, or cuts down what we have to pay for imports”

    It won’t. The whole point behind the Greens QE is that it will lower the exchange rate, meaning we pay MORE for imports – not less.

    Like or Dislike: Thumb up 2 Thumb down 2 (0)

  74. Isn’t that the point. making our exports more competitive, encouraging local production and paying nearer the true costs of imports.

    However as you claimed some time ago, it probably will not be enough to make a difference.

    A bit contrary to your current claims that it will cause Zimbabwe type inflation.

    It could, however, make a difference in reducing the compounding interest rates our children will have to pay if we borrowed for Christchurch and other infrastructure.

    Like or Dislike: Thumb up 2 Thumb down 2 (0)

  75. if you go to full reserve banking you can forget about 95% of the population ever owning houses.

    They’d need to save pretty much 100% of their house price while renting.

    You are STILL imagining that this has to be done the way it historically HAS been done, with the bankers getting their cut. You really are quite off base with this argument but let us consider an alternatives.

    The government loans, with NO interest attached to the loan, the money to construct a house. That money loaned has demurrage associated, it is used to purchase the house, it circulates at a very high velocity to boost economic activity, some of it returns to the government in even less time than the repayment takes as it is re-deposited in someone’s account, and it has repayment terms associated. Without the interest on the loan the repayment is prompt and less onerous for a typical income.

    In the meantime a house is built and a family, and subsequent families, have a place to live. Buying a house is similar, but arrangements for housing are such that the use of a house to attract untaxed and massive Capital Gains no longer are possible.

    Fundamentally Photonz, your assumptions are not valid. One does not do just one thing, indeed one cannot do “just one thing”. Full-Reserve banking is scarcely the end of the changes, it is merely one of several that all work together to correct the imbalances in this country.

    Like or Dislike: Thumb up 3 Thumb down 1 (+2)

  76. In fact money does not equate with “work done”. That is the whole point here. Money is simply a token that is unfairly manipulated by the clever and the unscrupulous.

    Greengeek – I usually say this as “real money represents work done” – and it does. The current debt-instruments that are exchanged in place of real money and we carry about in our pockets and deposit as electrons in banks, are not “real money”. They represent debt and have issues of both trust and counterparty risk.

    However, if you consider a transaction involving barter, the things exchanged are the products of work done. There is no counterparty risk nor trust involved. For money to be a viable substitute for barter, which is its primary and most important use, one has to keep the “work done” relationship real. For that reason I reckon that backing the dollar with renewable electrical power generation, payable in KWH delivered at standard points of access in NZ (preferably directly next to large publicly owned hydro dams), is a good idea.

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

    Like or Dislike: Thumb up 2 Thumb down 0 (+2)

  77. Actually I err in the house building example, as the house BUILDING has the government actually “printing” new money for the new house. The house buyer borrows to buy the house, but not for the construction of the infrastructure or the house. The terms of ownership are somewhat altered.

    Like or Dislike: Thumb up 2 Thumb down 0 (+2)

  78. If ChinaQE prints enough money to purchase a billion NZdollars, and gives that money to a China national to come to Auckland and buy clusters of Auckland homes (which is what’s happening…), could we use NZQE to print off some NZdollars to make it easier for my step-son to get into his first house?

    If our “free trade” partners are printing cash (enabling them to directly and immediately purchase international assets) then we have to have some sort of response. NZQE would probably be too little, too late. So maybe direct action to collapse the “free trade” idea is what is actually required instead.

    International QE effectively rapes and pillages NZ, even when expressed via “legitimate” vehicles like energy company floats. We have to find some suitably effective response to dampen this effect.

    Like or Dislike: Thumb up 2 Thumb down 2 (0)

  79. By the way BJ – that “cavaliers of credit” link you provided is a very informative read. Most interesting.

    Like or Dislike: Thumb up 2 Thumb down 0 (+2)

  80. “If I build a dam with debt, my asset is paid for by the work I do to pay back the loan.If the govt prints money to build a dam, the asset has never been paid for with anything of real value.”

    Photonz

    The loan is never paid back because nobody actually owns the dam. In fact it is owned by the community as whole. The money paid out can be recovered from taxation, but this is only necessary if the expenditure is considered to be inflationary.

    Money created and loaned by the banks however is always inflationary since it will need to be recovered from the prices which the borrowers charge for their product.

    Like or Dislike: Thumb up 6 Thumb down 2 (+4)

  81. Sorry. In the above post I should have said that the interest will need to be recovered as part of the borrower’s selling price.

    Like or Dislike: Thumb up 1 Thumb down 0 (+1)

  82. Try to remember that those notable socialists Henry Ford and Thomas Edison espoused OUR side of this debate back before you were born. There is NO excuse for the banker’s power over us.

    Like or Dislike: Thumb up 2 Thumb down 2 (0)

  83. mikesh – you miss the point.

    When a government prints money to pay for something, that money doesn’t represent any work done previously, or in the future.

    Using Zimbabwe as the extreme example, the government often printed money, regularly doubling what was previously available.

    The real value of everything in the country didn’t change, but the inflation went up 100%, so the value of everyone’s money halved.

    That way the government suddenly owns half the currency in the country, effectively by stealing it off the population by way of inflation.

    That’s what printing money is – theft – using inflation to steal from the population.

    Like or Dislike: Thumb up 3 Thumb down 6 (-3)

  84. Funny how you like it when the banks do it, but not when the people as a sovereign state do it. Has it EVER occurred to you just how internally inconsistent your biases make you?

    Like or Dislike: Thumb up 4 Thumb down 2 (+2)

  85. that money doesn’t represent any work done previously, or in the future.

    Hmmm… what was that was built with it? Oh yeah… a dam. Hmmm… Maybe 4 to 6 megatons of concrete and steel, generating electricity for 100 years and there isn’t any work associated with it?

    Wow… You really do have that big blind spot working overtime there.

    Like or Dislike: Thumb up 1 Thumb down 1 (0)

  86. BJ says “Hmmm… what was that was built with it? Oh yeah… a dam. “:

    Duh!!!!

    If I pay for the dam with cash or a loan, the dam is still built and provides exactly the same benefit – that’s blatantly obvious.

    The whole point you continually miss, is whether the money paid to build the dam represents any real value (work done), or if it’s merely pieces of paper the government has printed that has no value previously.

    Like or Dislike: Thumb up 2 Thumb down 3 (-1)

  87. “That’s what printing money is – theft – using inflation to steal from the population.”

    How is it theft when all the population now have an extra asset they did not have before.

    Theft is when you remove an asset from all of us that we already own. Which National is glee fully doing.

    “The whole point you continually miss, is whether the money” borrowed “to build the dam represents any real value (work done), or if it’s merely pieces of paper the” BANK “has printed that has no value previously”.

    Fixed it for you.

    Your point, Photo, gets even more ridiculous when the banks “reserves” are money “printed’ and given to the bank for free, by the US Government.

    Like or Dislike: Thumb up 4 Thumb down 2 (+2)

  88. “If I build a dam with debt, my asset is paid for by the work I do to pay back the loan. If the govt prints money to build a dam, the asset has never been paid for with anything of real value.”

    This is both true and untrue, depending on your focus. Financially speaking – the money printing is not YET backed by anything of value. But look at the outcome: Large numbers of families have food on the table during construction, the country gets an “asset” (if it was properly planned). These outcomes have value.

    Thus, the printed money is backed by the labour efforts of people who might otherwise be sitting in front of the telly. However – if those construction workers were taken off privately backed construction projects or are sourced internationally the printed money can have a destructive effect.

    And always – the printed money eventually flows into the overall money supply and dilutes savings etc. The question is whether getting bums off seats justifies the dilution.

    Like or Dislike: Thumb up 3 Thumb down 1 (+2)

  89. it’s merely pieces of paper the government has printed that has no value previously

    Photonz – WHAT is the functional difference between your money “printed that has no value” whether it is printed by a bank or printed by the government? YOU MUST EXPLAIN THIS BEFORE YOU CONTINUE – YOU MAKE NO SENSE AT ALL!!!!!

    The problems you have are palpably obvious to anyone who has troubled to read through Steve Keen (I linked above)… Hell, the limit on borrowing represented by the reserve requirement is itself corrupted by the way the system currently functions. The banks are able to loan themselves the money to create the reserves. Go ahead and examine the numbers. The money supply rises in advance of the reserves. It is ENTIRELY unlimited fiat, unbacked and at the behest of the profiteers in the banks who control our government as a result. You are so completely misled you’d need a complete reboot just to be merely wrong.

    If you are objecting to anything at all that might make sense to object to, it is to the lack of any relationship to “work done” on the ability of either entity to create that money.

    Except that in the case of the government we’ve already made clear that the money creation IS limited to “work done”, and that the “borrowing from the future” that is done is explicit when it occurs… and far more real than the current illusion… and when the dam IS built the “dilution” and “inflation” is returned to the society… it isn’t even inflationary to do it.

    You persist in parroting wingnut talking points that have no relation to reality.

    Lets go back down to the individual who has NOTHING. Yet he can work, and he does so for nothing and as a result of his work he has something, and can sell it or eat it or whatever… where did the original money come from to pay for his work?

    Does THAT help to clarify things?

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

    The Greens actually have presented a clear program that is still short of the actual reboot needed to fix the money and the economy of this country. You have misunderstood it. You have misunderstood the system you are defending.

    When and if you do figure out what we actually have now, you will know immediately. The clue will be that you become physically ill at the realization that the world economy is so completely controlled and distorted.

    Like or Dislike: Thumb up 6 Thumb down 1 (+5)

  90. It only dilutes savings if it causes inflation.

    If it expands the economic activity it may well grow the whole economy without causing inflation.

    In this case it only causes inflation if there are too few workers. hardly an issue at present.

    There is also the consideration at the moment that we could do with a bit of wage inflation. Wages are too low to stimulate demand. Something the Yanks are finding. Inflation in the USA is stubbornly refusing to occur, despite trillions in “printed” money.

    The inflationary effects are the same whether it is “printed or borrowed. Borrowing is more inflationary because there is always an extra interest component to be found.

    If RWNJ’s were really that concerned about inflation they would be advocating the method of paying for infrastructure, and building capability, which is least likely to cause inflation, more taxes!.

    Like or Dislike: Thumb up 4 Thumb down 0 (+4)

  91. “mikesh – you miss the point.

    When a government prints money to pay for something, that money doesn’t represent any work done previously, or in the future.”

    Photo

    It doesn’t actually matter whether it represents “work done”, or gold, or debt, or nothing at all. Money printed by government will function perfectly well as money as long as people accept it as money. The problem is not whether the money represents anything but whether its issue is likely to be inflationary. (Though in fact such money doesn’t function as money until it is put into circulation; and it is not put into circulation until it is used to pay for something eg the construction of a dam, or civil sevice salaries, or some other form of “work done”.)

    If it looks to be inflationary the government can remove it from circulation through taxation. Of course the government could first of all tax people and use the proceeds to build the dam, but if the former course of action is likely to be inflationary the latter course would be deflationary, which would be even worse since deflation tends to lead to depression.

    We as a people have a certain quantum of resources at our disposal – labour, raw materials etc. We pay for the dam by diverting some of those resources to its construction. Those resources are then no longer available for the production of other things. Unless we have resources that are not being used we will need to give up part of our purchasing power to limit the amount that we can spend on other things otherwise inflation will ensue. We give up purchasing power either by lending to the government or by paying taxes. If the latter course is chosen the government is simply takeng money from us and using it to build a dam. There are two ways it can do this; either tax first and build the dam, or print the money, build the dam, and recover the money by taxing the people after the event.

    However, if there are unused resources available it may not be necessary to tax people (or borrow) as in that case the expenditure on the dam will probably not be inflationary. All that is happening in this case is that we are paying for the dam by diverting resources that were not otherwise being used.

    Is the penny starting to drop?

    Like or Dislike: Thumb up 1 Thumb down 0 (+1)

  92. Ok, riddle me this.

    It is alleged that the government can print money to build things, and this is good because we end up with an asset.

    So, why can’t I print money, and use it to build something of value?

    (I accept there may need to be some controls to manage the practical aspects of this, but am interested in the principle)

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  93. The equivalent for you is that you work for free to build something.

    Like or Dislike: Thumb up 2 Thumb down 0 (+2)

  94. “So, why can’t I print money, and use it to build something of value?”

    No reason at all why not. Though probably no one would accept your “money”. However some communities issue their own local currencies which have limited acceptance. Banks also are private institutions which create and issue money, although they do not issue their own bank notes or coins.

    If you were to discover a vein of gold somewhere you could use that as money, and people would probably accept it because gold has intrinsic value.

    I suspect that people accept Queen Elizabeth authorised money because they have to use something as money, and money issued under her authority is as good an option as any.

    Like or Dislike: Thumb up 1 Thumb down 0 (+1)

  95. Avoiding the question. No, I don’t want to do the work, I want others that I pay to do the work, just the same as the government would. I print the entirely legal money, and give pay several someones for materials and labour.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  96. No… you need to think about it harder. The government is US, not something/someone else. It is us doing together what we cannot do separately and MONEY is a convenient form of work which we exchange among ourselves, but you asked and it was quite clear, why YOU could not “print” money to arrange for work to be done.

    You are a single individual however, and the work available to you is the work you INDIVIDUALLY can do. You control the amount of work you do “the money” and decide when you are too tired to do more.

    The government/our society is us as a group and the work available to our society is what we can collectively do. We collectively decide what we can do, but as a society we use money.

    Money is a function of the society, not the individual. The solitary individual has no need of money whatsoever, does he? Realistically what good does it do unless there is someone else out there to trade with?

    You cannot really mix the two concepts the way you just did. Which is why a government/society can “print money” and an individual cannot.

    Like or Dislike: Thumb up 1 Thumb down 0 (+1)

  97. Ok, taking that as the case, and using the government/society as a descriptor for “us” or “we”.

    If we print some more money, then that dilutes the pool of our money, and as a result every individual dollar is worth as little less.

    So any new asset we may use that money for is just a fractional contribution from us all. There may be a new asset, but there is no new money, just redistribution of the value of our existing money.

    Thus there is no functional difference between reducing the value of my existing money by printing new money (to the same total value), or just keeping the value the same and taking a (bigger) portion of my money away through a mechanism such as taxation. In both cases, I end up with less.

    The difference is, of course, in the perception. Everyone understands “more tax”.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  98. “Thus there is no functional difference between reducing the value of my existing money by printing new money [[(to the same total value)]], or just keeping the value the same and taking a (bigger) portion of my money away through a mechanism such as taxation. In both cases, I end up with less.”

    This is true, though I’m not about the bit I’ve placed in square brackets.

    However, money is worth only what can be bought with it. If the supply of purchasable goods and services increases along with the increase in the money supply money should retain its value.

    The Austrian shool argues that if the money supply remains the same and production increases prices generally should fall and the value of money would therefore increase, and we would all benefit from the increased production by being able to purchase more with the money we have.This certainly is a tenable argument, though deflation does have its disadvantages.

    Like or Dislike: Thumb up 2 Thumb down 0 (+2)

  99. In the end it comes down to what the collective we actually decides to do with its resources: create something that is useful to all (like a hospital) or hand it over to a few people to gamble with (like bailing out finance companies). All money is in a sense imaginary as is the interest that lenders charge.
    By “printing money” for the purpose of collective social good, creating outcomes that otherwise would not happen, you are harnessing the creative energy of society.
    By assuming that only banks have this ability, we are losing sight of the purpose of money as a symbolic means of exchange of labour and goods.

    Like or Dislike: Thumb up 2 Thumb down 1 (+1)

  100. If we print some more money, then that dilutes the pool of our money, and as a result every individual dollar is worth as little less.

    Temporary.

    When the thing we build with that money is completed we have added value to the same extent as we printed the money (approximately). What cannot be done is to print money to fund operational expense. One cannot “print money” simply to pay the continuing wages and other operational expenses and maintenance. THAT has to come from taxes, but there is no impediment to using government “printed money” to build the hospital or dam in the first instance.

    The asset is passed on to the society. This is in a sense, the exact reverse of the current government’s “asset sales” fixation.

    Like or Dislike: Thumb up 4 Thumb down 2 (+2)

  101. bj says “When the thing we build with that money is completed we have added value to the same extent as we printed the money (approximately). ”

    Of course it is inflationary. You have the asset AND all the people and companies who built it ALSO have that amount of money.

    Otherwise building the same dam and paying the same people with money you already have would be deflationary.

    Like or Dislike: Thumb up 1 Thumb down 2 (-1)

  102. BJC: “but there is no impediment to using government “printed money” to build the hospital or dam in the first instance

    If China ran the same “print money” policy (which I guess they do..) would it enable them to purchase hospitals, dams, houses or power stations in NZ?

    If NZ ran a “print money” policy, would it enable us to purchase foreign assets in order to offset foreign purchasing of our assets (just to balance the ledger??)

    Like or Dislike: Thumb up 1 Thumb down 0 (+1)

  103. Since when is a THING that has value, counted as money that is inflationary? You have created value and you have the money that represents it. It cancels Photonz, just as there is no goddammed inflation when you do work to create something that you can use youself.

    This is turning out to be one of the more revealing conversations we’ve had. You really cannot see it? It is so obvious I can’t imagine that anyone can miss it. Nor is it because you aren’t smart enough to understand. I think it reflects perhaps this?


    “The process by which banks create money is so simple that the mind is repelled.” Galbraith

    The reality is that as outrageous as it seems, the truth is that the bankers and the economists who are in charge of this mess, are either conspiring actively to defraud the rest of the population or innocently but completely gormless when it comes to knowing what they are actually doing.

    Like or Dislike: Thumb up 1 Thumb down 0 (+1)

  104. BJ says “You have created value and you have the money that represents it. It cancels Photonz, just as there is no goddammed inflation when you do work to create something that you can use youself.”

    Of course it doesn’t cancel.

    The input for a $1b dam is $1b of work and materials from the builders.

    The output is the $1b that they are paid, PLUS the $1b asset of a dam that the govt gets.

    The only reason the $1b of printed money they are paid has any value is because everybody else’s money loses a little bit of value through inflation.

    Like or Dislike: Thumb up 1 Thumb down 1 (0)

  105. A one billion asset is what you got for the one billion. It is “production” , which makes the MONEY not inflationary. Inflation is when the money increases for the SAME production. Are ye’ daft man?

    You CANNOT count the asset as inflationary. CANNOT!!! AIIIEEE !!!

    Leave out the money and look at the simpler example.

    I plant wheat and transform it into bread in my own kitchen. Is the bread counted as inflation? Is my work? You CANNOT COUNT THE DAM ON THE SAME SIDE AS THE MONEY!! Go ask someone else. Find yourself even an ordinary stupid economist and ask if the DAM counts as inflation.

    Great leaping toads !!

    Like or Dislike: Thumb up 2 Thumb down 0 (+2)

  106. GreenGeek – No. Different sovereign state gets the asset, different money. Real world rules vs the Economically Insane world rules. Sovereign State has right to do stuff for itself. Build an asset in ANOTHER country and you don’t really control it (or you are infringing on the sovereignty of that other country and intend to enforce your “ownership” with your military)… and your reason for doing so is all about profit in monetary payback. If it is a GIFT I would think it possible but to authorize it a country would have to have a referendum.

    Like or Dislike: Thumb up 0 Thumb down 1 (-1)

  107. Also, to enforce the difference, I defined the money somewhere in prehistory on this thread, as being backed by energy delivered in THIS country. It isn’t entirely unlimited, it is redeemable and it isn’t simply printed, and the redemption is ONLY possible in this country. That is an intentional limitation, to reflect the actual limitations of the real world on the WORK we control.

    We can do work, for ourselves, for free. We can’t do other people’s work.

    Like or Dislike: Thumb up 1 Thumb down 0 (+1)

  108. BJC -”Build an asset in ANOTHER country and you don’t really control it”

    I am not suggesting BUILDING assets eleswhere. What I’m really getting at is that another country (eg China) is able to BUY ready-made assets in NZ (eg houses in Auckland) and there is no barrier to them doing this using money that is fresh off the printing press.

    Therefore, wouldn’t it be prudent for NZ to be prepared to print money in order to be on the same playing field as the countries we do business with?

    We could print money to purchase land in Fiji or Australia, or even South America. Think about that for a minute. What exactly are the downstream effects of such spending? It is a potential way to offset the unavoidable effects that U.S and Chinese QE has on NZ currency.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  109. Overall I don’t think this makes sense. The playing “field” doesn’t actually exist.

    The rule should be that WE can buy property in our country and nobody else can do so.

    Most countries already have that sort of rule. Want to buy property in China ? You have to be Chinese.

    Playing at QE (China doesn’t need any really, it has trillions of US $$$ to play with) … doesn’t change that. We have to give the monetarist damned lunatics of the “Chicago School” the big boot. I want them to land in the middle of the damned Indian Ocean… by way of Chile and South Africa. I want them OUT of this country, as they are actively destroying it as we speak.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  110. BJC: “The playing “field” doesn’t actually exist”

    Actually it does: When the USA prints money it ends up on the balance sheet of a bank or a corporation. That translates into real purchasing power – either locally in the USA or overseas in a market like NZ.

    NZ companies do business with companies that have their balance sheets inflated by QE. The question is how NZ reacts to the longterm impacts of that.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  111. My point is that the ability to buy property is not freely available and does not mirror the QE participation. Perhaps that is too narrow a focus.

    The aspects relating to business in general are significant problems too though, and on that side there is more of a point.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  112. While agreeing with the thread of government created assets I have reservations about the process in modern terms. What I guess makes it safe is the scale of the asset values and debt already existing. The sort of reaction from Photo is probably the reality that those who are making money out of money believe their view is correct or they wouldn’t be doing it, or they don’t care. I get the suspicion that the ease banks give out money just to buy assets, is to fuel the systemic dependance on the process they are making money from. This way they are more sure the community will not upset the gold cart.
    There is a lot of accumulated money to keep the elite myths in front of people.
    The Green opinion is being labeled far left, when it is in fact centrist. By taking out the extremes of asset value accumulation, a market can work freely and all can get a fair share of the resources. The banking process we are seeing just aids the small minority to accumulate, while giving a small proportion of the urban resource to the masses.
    I feel that the working families in the community give well over and above their share of producing the resources we need. The rural producer probably works hard too, but the methods being adopted increase the resources needed to get that produce on the table. The voluntary and family activity gives a lot to the productive base as does the ecosystem, and the question is how are they being counted in this process, and probably justify a greater common share being taken from the market. The far right try to justify by blaming the families. How can a family teach good resource outcomes(including health) if they haven’t their share of the resource.
    I feel the issues can only be overcome by mass education, aimed at workers and middle income earners, and this requires a good interactive resource that shows the issues about money and economics, in simple terms and every day examples.I have been trying to do this but am failing in health more often now – old age? – and because I am an idealist I haven’t accumulated enough asset to pay others for my basics. It would be good if a think tank was assembled to take on the reeducation of economics.

    Like or Dislike: Thumb up 1 Thumb down 0 (+1)

  113. Despite what happened in 2008 (a few picked up billions of $ while ten of millions were ruined) the present trade in financial derivatives is variously estimated at 8-20 times global GDP. Printing money is a good thing if you’re one of those traders and we don’t hear complaints from trolls about that.

    Like or Dislike: Thumb up 1 Thumb down 0 (+1)

  114. Printing money as I see it is largely to replace borrowings from the bank. It just doesn’t seem sensible to borrow from Westpac, incurring interest and saddling future generations with debt, when the government has the right to create money. The Federal Reserve rebates interest paid by the US government. I bet Westpac doesn’t rebate interest paid by the NZ government.

    Like or Dislike: Thumb up 1 Thumb down 0 (+1)

  115. The problem with the money as it is goes far deeper than the problem of what happens when we “print money” as a country, as opposed to borrowing from banks. The actual definitions used for money by almost everyone, are as faulty as all the deranged attempts to build perpetual motion machines that one sees through history.

    Like or Dislike: Thumb up 1 Thumb down 0 (+1)

  116. We need to get rid of fractional reserve banking and prevent private banks from creating money. Banks would then only be able to lend, and charge interest on, what they had borrowed on term deposit. Government would need to create money to offset the shortfall, but the limiting factor on how much they could create would be the need to control inflation. They would need to borrow at interest only if the taxes necessary to control inflation were considered too onerous.

    I’m not sure that Russel with his quantitive easing ideas really understands or agrees with all this,

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  117. Using pie charts instead of graphs and other comparisons is probably a powerful tool.If you pie chart who got the proportions of the pie in the early 60′s and then now, the lenders and especially foreign outputs would probably be shown as larger. Also the proportion that is released into our local economy on sale of assets paid in foreign money or debt, would effect things.
    Instead we let all our infrastructure, wages and social assistance, get reduced as the culprits for the distorions.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  118. Until people see what money is now and its effect on resource share there vwill be no questioning. I see peoples eyes glaxing over on a fairly regular basis when you talk about the issues. For many it is in the too hard basket and they feel helpless to change it so they stop listening.
    The people like John Key knows this and they get quit arrogant. That is why he tries to shut down debate on economics and money as it doesn’t help to have people thinking about it. I also believe it was why Roger Douglas was helped to do his thing with the CIA quite active here at the time – David Lange shut them down. With the opposition growing in the population it was easy to push change from Labour. The trouble is it has largely stayed the same since.

    Lets educate?

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  119. Dbuckley said above.
    “So, why can’t I print money, and use it to build something of value?”

    Yes you can.

    “(I accept there may need to be some controls to manage the practical aspects of this, but am interested in the principle)”

    A direct real example which is also appropriate to our example of building a dam.

    I have built a yacht in my spare time, spare time which, like unemployment, is otherwise unused economic capability. Other people have also donated spare time to help me build it. In this case because they expect to go sailing with me later. I can issue a promise of a certain amount of sailing time when it is completed. If one or more of them would rather not go sailing but decide to give my promise to a third party who can redeem it by sailing with me. Hey presto. I have printed money! A means of exchange.

    I have not decreased anyone’s savings or taken from anyone else because my “printed” money has increased economic activity by utilisation of otherwise unused work, and I have added a community asset.

    In the same way as using our underemployed work force to build a dam.
    Or to rebuild Christchurch.

    I have increased everyone’s wellbeing. Which should be the aim of an economy. An economy exists for people. Neo-liberals would have you think it exists for money, the bond market, or to balance the books, while, what they really think, it is to make them rich at our expense.

    Like or Dislike: Thumb up 2 Thumb down 0 (+2)

  120. “If one or more of them would rather not go sailing but decide to give my promise to a third party who can redeem it by sailing with me. Hey presto. I have printed money! A means of exchange.”

    Good option. I think it is very important for ordinary citizens to retain exchange mechanisms outside of the monetary system (which has become the wealth-building instrument of those who demand more than an honest hour of their own labour can provide..)

    Like or Dislike: Thumb up 2 Thumb down 0 (+2)

  121. Gerrit says:
    “The notion that one can distribute printed money for “no work done” is stupid”

    Your comment angers me because it is so patently untrue. Exactly WHAT do you think happens to the money currently being printed by the Fed?? It gets distributed, and it makes specific recipients more wealthy.

    They won’t be giving it to anyone but their friends however.

    The idea of NZQE is simply an idea to protect NZ interests and balance the books that are adversely tilted by ForeignQE.

    Simple really.

    Like or Dislike: Thumb up 1 Thumb down 0 (+1)

  122. Not sure Gerrit is so wrong – I suspect that he meant something quite different from the way you took his statement. He was referring I THINK, to the “real” money, the money that represents work done, that I have been arguing for, and in terms of that, he is correct.

    In terms of the QE flood of FAKE dollars, YOU are correct. There is no impediment apart from the imagination.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  123. Fair point. Trouble is that “real money” does not exist in the Western world the way that it did previously. We are now entering the phase that South American countries have already faced over the last 10-15 years. The tie between “real money” and one hour of real labour has been broken. (just as the tie between the value of real money and value of real gold was broken all those years ago)

    Like or Dislike: Thumb up 1 Thumb down 0 (+1)

  124. greengeek,

    Your comment angers me because it is so patently untrue. Exactly WHAT do you think happens to the money currently being printed by the Fed?? It gets distributed, and it makes specific recipients more wealthy.

    You are getting closer to understanding what I’m saying. It is not “distributed” to anyone in a retail sense to increase purchasing power of buyers. Instead it ends up here

    So far $2 trillion has been created by the Fed and £375 billion by the Bank of England, but where has all this new money gone? It has certainly not appeared in my wallet or bank account – nor has it fattened yours, unless you happen to be a bond trader or banker. The fact is that all the new money has been spent on buying bonds. QE has thus inflated bond prices and boosted bank profits, but achieved little else.

    http://blogs.reuters.com/anatole-kaletsky/2012/08/01/how-about-quantitative-easing-for-the-people/

    So unless the bonds are cashed in to build say a state owned thermal electricity generating station (ie. reward for work done), we simply have a stupendous volume of imaginary “money” floating in the bond market actually not doing a great deal.

    What it does is

    The one economic benefit of QE has been to help governments finance the huge deficits caused by recession without having to raise taxes, slash public spending or face Greek-style bankruptcy. In this sense, QE has certainly prevented the U.S. and Britain from suffering worse outcomes, but it has failed to stimulate employment or economic growth.

    I have feeling that you are imagining that QE would

    Giving away free money may sound too good to be true or wildly irresponsible, but it is exactly what the Fed and the BoE have been doing for bond traders and bankers since 2009. Directing QE to the general public would not only be much fairer but also more effective.

    Suppose the new money created since 2009, instead of propping up bond prices, had simply been added to the bank accounts of all U.S. and British households. In the U.S., $2 trillion of QE could have financed a cash windfall of $6,500 for every man, woman and child, or $26,000 for a family of four. Britain’s QE of £375 billion is worth £6,000 per head or £24,000 per family. Even if only half the new money created were distributed in this way, these sums would be easily large enough to transform economic conditions, whether the people receiving these windfalls decided to spend them on extra consumption or save them and reduce debts.

    But that is not what is happening, the money funds debt repayment (in the form of bond issue), not state expenditure for constructive “work” that creates jobs and workers income, nor as a freeby for the general population.

    Worth a read that article.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  125. If QE was to only occur once, I’d be happiest for the cash to be given to the man in the street.

    Given that it occurs repeatedly, and the cash goes to people (institutions) that I consider to be money manipulators (to their own advantage), then I am not a supporter of it.

    However, if, as a self-defense mechanism, NZ was to indulge in a bout or two of QE, and give the money to mums and dads, I think I’d have to support it – especially if it was specifically targeted at helping small businesses get off the ground.

    Personally I’d prefer greater protectionism and fewer freetrade agreements as an alternative.

    Like or Dislike: Thumb up 1 Thumb down 0 (+1)

  126. Perhaps I’ve missed your point Gerrit – that article seems to me to be strongly on the side of using QE to enrich the man in the street – which is exactly what I am advocating as a method of minimising the effect of internationalQE which merely enriches the artificial mechanisms of wealth (eg stockmarkets, bank balance sheets, bonds etc).

    If NZQE was to happen, my preferred vehicle would be to invigorate the economy by helping poor/average families purchase the infrastructure (tractors/boats) they needed to earn a living from New Zealands natural resources (land/sea/tourism)

    Like or Dislike: Thumb up 1 Thumb down 0 (+1)

  127. “There is no such thing as unreal money.”

    Tell that to the people who invested in finance companies and thought the balance sheet on their bank accounts was real.

    Like or Dislike: Thumb up 1 Thumb down 0 (+1)

  128. Mikesh –

    Open your wallet.

    If there is a Fiver in there have a good look at it.

    You can use it for trade to the extent that people trust the government that issued it.

    However, its VALUE is entirely mutable and unpredictable.

    Its value changes with the whims of the banks, the trust of the people and the vagaries of the government. Its value could be halved or doubled tomorrow (extreme but possible).

    It is not really money, it is a debt instrument.

    You can use it in place of money and we all do, but it is not real money.

    Like or Dislike: Thumb up 1 Thumb down 1 (0)

  129. If I open someones wallet and take their ANZ “paywave” card and swipe it in front of the paywave machine when I buy a pie at my local dairy – am I using real money??????

    I’m not paying with gold, I’m not paying with an hour of my time, I’m not paying with paper money, I’m not paying with my own EFTPOS, and I’m not using my own credit card.

    Yet I still get the pie.

    The definition of real money is somewhat tricky in the modern age. International QE is like having someone pinch your paywave card. How do we redress the outcome?

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  130. “Mikesh –
    Open your wallet.
    If there is a Fiver in there have a good look at it.
    You can use it for trade to the extent that people trust the government that issued it.
    However, its VALUE is entirely mutable and unpredictable.”

    Its value is immutable and predictable. It will always be worth $5.00

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  131. Mikesh the piece of paper is stuck at $5 but what it can buy is always in a state of flux, so the $5 is only relative.

    Money is only as good as the number of people who trust it. This applies to banks, corporations, governments?

    What has happened to the world of money/investment is people are taking shocks all over the world as different governments adjust to what the easy/create money systems are doing to the stability of resource sharing/production. At the same time resources are getting more scarce by political activity or fact. Suddenly the governments are trying to keep stability when the crunch hits, but people in some countries are fighting for a better deal, and others are allowing the state to prop up giant corporate power houses.

    A lot of what is being done is without thought to how things got there and the poor economic thinking behind the framework we have. This government, and the giant corporations want the people looking after their family stability to pay the price while they keep raping the system.

    Dissent has to be part of the process of change and brains need to engage but those getting the unfair share want things to proceed.

    To go back to basics in economic as a starting point we need to relook at what is economic activity.

    it is simply Land and resources being put into a useful state by human activity – Labour.

    Capital is only achieved when we produce a surplus of what we need and store it for later, or produce some sort of innovation such as a spade that we use time and again.

    Money is only a medium of exchange in this process.

    The value of our production largely comes from the common natural estate that we all must have to survive, and the collective skills and knowledge that society is continually sharing and upskilling. In our modern urban society this is complicated by a myriad of other functions, sustainable and otherwise.

    Cheap energy in terms of fossil fuel has allowed us to build this big bubble of activity, aided by easy private credit. With Peak oil issues and the carbon valuation being added in variuos ways the model isn’t sustainable without changing how we have been producing and distributing, and the energy available needs to be reallocated to sustainable enterprise. This is disruptive, but will be moreso if credit resources aren’t directed toward less sexy long term sustainability. Who makes the decisions here? The market would work eventually but is really risky, new technologies cost the poor more time.Thus democratic government becomes the less risky agent of intervention to change direction without creating undue suffering.

    The trouble with a lot of the private credit is its so called value is based on the unsustainable model of how we can behave without limits to things like fuel and even land itself. It is not reliable as a benchmark of what is available in value in a sustainable economy.

    A government must act to make it reliable, or the trust that makes it work can dissolve. The idea of increasing the reserves that lenders need to hold is worth looking at, the loss of any false value in assets then can be dealt with without tipping over the rest. The problem comes then with limited lending available, the priority of the bamk may become the investment return.

    Maybe reserve bank funding could be given to large infrastructure projects, and to community/co-op banks to help those displaced by the refocus.

    Or is taxing the use of resources instead of income the better way for social redistribution?

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  132. All true, no doubt. But the fiver in my wallet is still worth $5.00 precisely:-)

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  133. mikesh – the nominal face value is still $5.00 precisely, but it’s actual value is NZ$5.00 which is less in US$ than it was worth 2 weeks ago.

    Give it another year and it is likely to be worth even less in $US because of the Feds QE “strengthening” the US economy.

    The more US$ that get printed by the Fed (and other currencies), the less your NZ$5 will be worth. $US and Euros find their way to the NZ market.

    This will impact fuel and lots of other NZ commodities (particularly land) therefore the future purchasing power of your NZ$5 will not match it’s current nominal value.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  134. greengeek says “The more US$ that get printed by the Fed (and other currencies), the less your NZ$5 will be worth. $US and Euros find their way to the NZ market.”

    You got that the wrong way around.

    When the US started printing money a lot of US$ investment money shifted INTO NZ. The NZ$ went up against the greenback. Now that QE is stopping, that investment is flowing back out of NZ, which is why our dollar is now going down.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  135. Its value is immutable and predictable. It will always be worth $5.00

    Unfortunately $5.00 is ONLY worth what you can exchange $5.00 for, of itself it is at best a poor substitute for toilet paper. Worse now as the damned stuff is made of plastic :-)

    Lets be clear about this. Money is worth what you can trade it for, and what you and anyone else is willing to trade it for is the product of someone else’s work – or simple work.

    Money is an intermediate object in a barter trade that enables a plumber to buy something from a baker who doesn’t happen to need any plumbing done. The baker “trusts” that the money can be exchanged for a certain amount of the electricity he DOES need for his ovens (or something else he needs). It is not worth ANYTHING on its own. It is however, in terms of the barter transaction, a substitute form for the work done.

    Real money represents work done.

    Now the arrangement in a BARTER transaction does not involve ANY trust, and that is part of the reason for the “done” part of that definition. In the barter the bread from the baker is tangible and any variation in value is the observed and accepted quality and quantity of bread.

    Real money does NOT represent a debt relationship and as trust does not form part of the barter exchange it should be excluded insofar as possible, from a monetary exchange. That is difficult enough when the money is backed by something (Gold or KWH of Electricity) and the government guarantees it, but at least in that case the amount of work exchanged is held to some constant and defined exchange.

    When it is not, the problems multiply rapidly, the baker doesn’t know if the money is worth the same one day to the next and the ovens may not get enough electricity as a result.

    So don’t try to slip a circular definition in here.

    Photonz, the Fed can’t actually stop. They can talk about it but I really do not think they can do it.

    They are stuck in a tighter crack than that.

    Like or Dislike: Thumb up 1 Thumb down 0 (+1)

  136. Just want to say that that Russel’s initial explanation was as clear and pointed as any I have seen to date. There is NO excuse for the lies being told by the Key government about his proposals, but there is certainly a reason, and that reason is clear if one considers who Key’s friends are and who his employers were (and quite possibly still are).

    I have to agree that he does the numbers game well, so we can assume that the toxic effect on the NZ economy is not an accident. He KNOWS what is happening here and he has the ability to understand why… perhaps. The question is whether it is active treason or simple ideological blindness that procures his obedience to the bankers.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  137. Russel’s chart doesn’t tell us whether inflation is driving the increase in the money supply, or vice versa. It would seem that most of the inflation that we have is occuring in the housing market, but high prices in that market seem to reflect a shortge of housing stock relative to demand, and it may well be that the increase in M3 is simply following the consequential increase in the price of housing. (If it was up to me I think I would ration housing in areas where there were problems)

    The chap in the Seven Sharp clip said that the banks were lending money that didn’t exist. However this is just silly. If the money didn’t exist then the banks would not be able to lend it. Money may be created out of nothing but, once created, it exixts. (Nor is there such a thing as “unreal” money.) The issue is not whether money exists or doesn’t exist, or whether it is real or unreal, but who has the the right to create it, and under what circumstances.

    Realistically there are only two options for the creation of money – banks and government. The trouble with banks is that they create it in pursuit of profit. The government on the other hand would create it (one assumes) in accordance with the needs of the community.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  138. “You got that the wrong way around.
    When the US started printing money a lot of US$ investment money shifted INTO NZ”

    photonz – Aren’t we saying the same thing? My point was that excess money (newly printed in USA or anywhere else) has the ability to be spent in the NZ market. This means that there is more competition for NZ resources (houses, stocks and bonds, leisure boats whatever…) which means that NZers have to fork out more NZ$ to compete against those foreign spenders.

    Effectively devaluing a $5 note.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  139. DBuckley – Real money CANNOT represent “work done” from some time in the future. It is an oxymoron. Done is in the past. Real money is not a credit instrument and is not backed by such.

    You fall into the same trap that the dumb economists did in a way… and the government can do EXACTLY the same thing, but not charge itself interest.

    As pointed out by those notable economically illiterate knuckleheads Henry Ford and Thomas Edison.

    As has worked for us on numerous occasions in the past but as is horribly feared by the banks because when we know that it works we can in FACT break their control over our government.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  140. “…is horribly feared by the banks because when we know that it works we can in FACT break their control over our government.”

    A worthy goal. Our government has a responsibility to work for the benefit of OUR citizens, and to resist as much as possible fiscal control from external sources.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  141. Most of the posts above deal with the real value of money and the relationships between currencies. In the light of recent events I would like to comment about what seems to be underway in the international monetary markets and how it affects New Zealand.

    John Key recently signed a “historic” currency deal with China, allowing direct trading via the Yuan, effectively downgrading NZs view of the US dollar in terms of it’s previous status as defacto world currency. See here, and here, also see comments here

    Maybe John Key did not realise that the main reason for America attacking Libya was to collapse Quadaffi’s efforts at setting up alternative currency markets (Before his destruction Quadaffi was about to set up a pan-African and pan-Asian currency backed by the 3000 year old Arab dinar coins as a means of paying for oil without going through the US dollar as required by the OPEC rules). Similar efforts are currently undergoing trials in South Asia (Malaysia etc) and will no doubt be opposed by the USA.

    I found it fascinating to see how quickly John Key started to change his mind about having signed the deal. He looked ashen faced and somewhat chastened when stating a couple of days later that NZ can’t afford to do too much trade with China. I wonder who rattled his cage in those couple of days? Someone seems to have made it clear to him how the USA regards efforts to trade in currencies other than it’s own. See here: John Key recants Chinese focus

    NZ has to be ready to protect itself against the current efforts by the USA to restore a stranglehold on global transactions. They seriously need to offset the loss of their petrodollar empire somehow, or else their economy is in serious trouble. We need to be vigilant to ensure our own economic sovereignty is protected..

    Like or Dislike: Thumb up 1 Thumb down 0 (+1)

  142. What if the current global efforts to marginalise the greenback forced the USA to end the greenback as a physical currency? What would that do the U.S and global economies?

    There is a good chance that the U.S may take such a step this year. Hand in your greenbacks people – they may be worth nothing at all in a few weeks time…

    Like or Dislike: Thumb up 1 Thumb down 0 (+1)

  143. I don’t see them being forced to withdraw the Greenback, all that actually has to happen is for the US $ to no longer be needed for international trade, and THAT is happening, as you note. It is resisted by the Fed, but it is happening and has been happening for years.

    In the end there will be a collapse of the debt train, but one has to consider that China holds not only the economic stick of its productive advantages but also the boat anchor of massive holdings of federal debt. They can’t destroy the dollar without it costing them a huge amount of money, so they are being cautious and the dollar remains… sort of… OK.

    In the meantime the Fed is using a mechanism that sequesters the mass of money that it is creating in the hands of the wealthiest, who aren’t spending, so it is creating no apparent inflation. They think this is clever, but it IS creating an ever widening gap between rich and poor. The social damage is large and growing, and trust is disappearing fast. With the debt backed dollar, that trust is an “asset” and losing it is dangerous too.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  144. I suspect the greenback (ie: CASH – the physical currency) may be disabled as ‘legal tender’. If they did this the government would immediately kill the underground economy, boosting taxable revenue by enforcing electronic transactions .

    This would allow an easier mechanism for QE to flow through the economy. Some say that the cash economy could never be limited or controlled in America, but there are already plenty of examples of American companies (and even banks) refusing to accept cash over the counter. I think this will increase over the next few months as people realise that the actual value of paper dollars is being quickly eroded and the ongoing use of the greenback may even be outlawed.

    Those who want to be in the money chain will need the governments permission to do so. The gold standard died, the fiat currencies became unhinged, and now cash will die too – the birth of a new, tightly controlled economy where unapproved transactions become impossible and the government controls capital.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  145. Neat theory but not going to happen Greengeek. They can’t even get rid of pennies… can’t issue dollar coins either.

    Americans won’t stand for such a move and it would get whoever attempted it or suggested it unelected and possibly shot, in a hurry. This is one of those cases where the intolerance of my compatriots is sort of welcome, as what you suggest would be the “police state” that so many fear so much. My advice is to fuggedabowdit, cuz it ain’t happnin (using my New York accent).

    Neat theory, but… this is something I know about, my folks back home can have some really violent reactions certain sorts of provocation and the money they use is one of the flash points. Whatever they do to control the sheeple will have to leave the money itself in place. They’ll have to find other ways to restrict it, cause they can’t do much of what you’re describing at all.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  146. We’ll see.
    I’d give it 3 to 6 months before the rush is on to cash in old notes at the bank and swap them for some form of debit card or a bank balance.

    That is of course – if the banks will allow the deposit/swap to occur.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  147. GreenGeek

    The fall of the US dollar as the reserve currency of the planet is an almost inevitable development in international trade, but that status has an entirely electronic implementation and is not affected by, does not affect, the use of dollar bills. Those two things are very different.

    Moves to suppress the “cash” economy which exists in the US just as it does in NZ and for some of the same reasons, would have as little value there as here, but for the massive use of cash in the handling of the drug trade. However, there are serious limits to how far those moves can go, that have to do with USian attitudes to US currency and US election politics.

    Simply saying that the two things “Reserve Currency Status” and “Legal Tender for all debts public and private” are quite different, and the latter (which is what one discusses when expecting the dollar to be withdrawn, is not likely any time soon. The former may well end in spite of the wishes of the US government, the bankers there and the ignorance of the sheeple.

    ciao
    BJ

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  148. But are the two forms of currency really separate? What if the Treasury (or the Fed) said “bring us your greenbacks and let us trade them in on a 2 to 1 special” – ie: one greenback gets you a debit card balance of two “new” dollars. It’s just another form of QE – but one that allows benefits from the perspective of governmental control of the economy.

    There have been a number of changes to the monetary system of the US over the years and they always result in a massive shift of wealth. The time is ripe for just such a sea-change.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  149. From the perspective of a cash economy, New Zealand is an outlier.

    Cash is a common transaction form almost everywhere, but in New Zealand, EFTPOS is king, and cash is rare. Bars, cabs, plumbers vans all have EFTPOS, as do market stalls and street traders, but those latter cases are unheard of elsewhere. In NZ, one assumes that anyone transacting cash is almost certainly up to something dodgy.

    This may change as the banks are keen to replace EFTPOS with paywave and other card solutions. Paywave attracts costs (ie money to the banks) that EFTPOS doesn’t, so there may be a move away from EFTPOS, and a subsequent but small increase in consumer pricing caused by the change.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  150. dbuckley,

    I don’t know where you live but here in South Auckland, cash is very strong. Just go and stand in a bank on Monday morning and see the wads of cash being deposited by “weekend traders”. Go to any Western Union office and see the cash being transferred overseas.

    Go to any outlet that takes cash (dairy, bakery, etc.) and see the open tills in operation. All cash that does not see the books or the taxman. Cash used to buy stock from local growers and suppliers.

    Remuera may like the flash “wave and go” transaction cards, here in South Auckland it is cash that is preferred.

    You could actually present a very strong argument for distributing printed money to the citizens and bypass the banking system altogether.

    Though how you would collect taxes from this liquid economy would be hard, as no paper trial for goods and services transaction would exist.

    Remember, (as I demonstrated earlier on this thread) all QE money goes into bonds, not to the people to spend and thus stimulate the economy.

    BJ,

    In recent history many nations “replace” old bank notes with new and set a date from when the old notes are no longer legal tender (Russia from memory was the last).

    Has this ever been done by the US treasury? Would certainly give the federal bankers a good indication of how much physical cash there is in the system.

    Just imagine those drug cartels or the Chinese government having to exchange old money for new :-)

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  151. Perhaps it was done once – maybe – 200 years ago Gerrit.

    The only comparable event was the big gold confiscation in 1933. Changes to the dollar? Not in the past 100 years AFAIK… and likely much longer, but you can tell I am no historian. One could almost wish they’d try it. The house of cards would collapse so fast you’d think it was a magician’s trick and people would understand quickly the difference between the proposals for a sustainable currency and the perversion of BAU.

    Which is probably one of the reasons it is not done. I think you’re right about the usefulness of doing it, but likely it is not.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  152. There is a FAQ on the US Fed site about the validity of old bills. In short, unlike many other nations, the Fed have never cancelled a bill.

    However, if you have old bills, many shops will not recognise them, so the advice is to take them into a bank and have them swapped for newer bills.

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  153. Gerrit, I’m in North Canterbury. Our weekend traders have eftpos machines! Our local farmers market had to get eftpos a while back after complaints from customers who wanted to buy but had no cash.

    Perhaps you’ve somewhat proven my assertion that “in NZ, anyone transacting cash is up to something dodgy” :)

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  154. dbuckley,

    A cash transaction can never by “dodgy” as it is legal tender in the transfer of goods and services.

    Dodgy bit only comes in when the transaction is not declared to the state for taxation purposes.

    I think you are confusing the two quite separate issues.

    If you really want to play into the Banks and State hands, outlaw cash and only have electronic transfers.

    Most traders in South Auckland have eftpos but when it comes to price discussion, one always gets it cheaper with the folding stuff. If the traders does not declare the cash transaction, should the purchasers be faulted and have the mechanism of legal tender cash transfers taken away?

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  155. Gerrit:

    If a buyer and a seller agree to a transaction by payment of cash only for a lower price, then the people involved are behaving in a dodgy manner; the buyer will suspect the seller is doing an “off the books” transaction. Given that a legitimate EFTPOS transaction has no cost [footnote 1], why would a seller give a cash buyer a lower price for no financial gain? [footnote 2]

    I refer to my original statement: “In NZ, one assumes that anyone transacting cash is almost certainly up to something dodgy.”

    I’m not conflating anything at all. The accusation is leveled at the people involved, not the cash itself. Cash is just cash. You ask “If the traders does not declare the cash transaction, should the purchasers be faulted” – and the answer to that is yes, they should; they have colluded in a deal which it can be reasonably assumed will be “under the counter”, and they are benefiting from a criminal activity, namely that of depriving we the people of the tax revenue.

    (And I dont disagree with your QE and bonds statement, but that has nothing to do with the matter under discussion between us)

    Footnote 1: There is no “per transaction” cost with EFTPOS; there are fixed costs with having an EFTPOS machine and an account that it is connected to, but the more transactions one puts through the EFTPOS, the better value one achieves for that cost. Credit / Debit / Paywave cards all do attract per transaction costs on top of the fixed costs, so its easy to see why they are less preferred.

    Footnote 2: in fact, cash can be an extra cost; businesses are often charged for depositing cash to the bank!

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  156. dbuckley,

    yes there is a cost factor with eftpos. You need a bank account.

    I guess if you see cash transactions a dodgy, i guess you would freak out over contra deals. No cash, no eftpos, just an agreed value in the exchange of goods or services.

    And you want a purchaser to be persecuted for paying by cash? Jees, better not tell Harvey Norman where I got a good deal for cash on a new dishwasher.

    I’m guilty of offering cash, they are guilty of what? Taking the cost of credit from my cash purchase?

    Well if ALL cash transactions can be “reasonably assumed” to be under the counter. Are you going to persecute kids that spend their pocket money on an apple at the greengrocers?

    Even more interestingly, all kids would need a bank account plus an eftpos card from birth.

    mmmmmmmmmmmmmmmmmmmmmmmmmmm, not so sure you really want that?

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

  157. Greengeek – I’ll say it again.

    If they ever EVER tried to do this seriously there’d be a revolution by morning.

    Some things are “un-american” in ways that generate a visceral reaction among us, and that’d be in the top 10.

    So it is not likely to be happening before the economy melts down completely, which IS likely and IMHO, likely by 2018 and 2020 at the very latest.

    ciao
    BJ

    Like or Dislike: Thumb up 0 Thumb down 0 (0)

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>