News

16th May The Pope calls for ethical financial reforms saying "Money has to serve, not to rule,".

8th May.  Dom Post article titled "Credit Unions a viable alternative"

9th April Positive Money NZ provides a submission on the Treasury's macroprudential plans

8th April A government-funded retirement researcher predicts, in a draft policy report, that more of today's young New Zealanders will be trapped in rental accommodation all their lives.

26th March There was a very good interview with Rod Oram on National Radio. The conversation focussed on the Open Bank Resolution. We recommend that you start listening at the 5 minute mark. It goes on for a further 15 minutes and keep listening right to end - as there are good points made

17th March The euro zone struck a deal with Cyprus for a bailout worth 10 billion euros (NZ$15.8 billion), but demanded depositors in its banks forfeit up to 10 percent of their savings to stave off bankruptcy despite the risks of a wider run on savings.
This is theft, pure and simple said a pensioner.

1st March Standard and Poors says there is a significant risk of a property crash in New Zealand.  Such an event would have a flow on effect on New Zealand banks.  This follows on from the January IMF paper that warned that our banks were vulnerable - given their high exposure to overpriced real estate.

7th February An article in the US edition of Reuters comments on Adair Turners speech, calling it a breakthrough speech on monetary policy.  This commentary is an easier read than the 46 page speech by Turner.

6th February A truly historic speech on monetary policy is delivered by Adair Turner, head of the UK Financial Services Authority, and one of the most influential policy makers in the world.  Turner speaks in favour on newly created money being handed out to citizens or Governments of countries that are mired in stagnation. 

7th February TV One's 7 Sharp programme features co-founders of Positive Money New Zealand, Don Richards and Sue Hamill.

25th January IMF Working Paper titled “New Zealand Banks’ Vulnerabilities and Capital Adequacy” issued January 2013 raises concerns about NZ banks.

23 January Dom Post article titled "Making money dance to a new tune can work" looks at the Chicago plan and the IMF paper.

3 December The new Governor of the Reserve Bank, in his first appearance at the Finance and Expenditure Select Committee, misled Parliament on bank profitability.

6th November Bill English writes to Positive Money NZ saying he is “in no doubt that our monetary and financial system is sound, well designed and well regulated and is playing an appropriate role in promoting New Zealand’s economic growth."

8th October 2012 Dom Post article.  Russel Norman Co Leader of the Greens recomends the Government print money to bring down the value of the New Zealand dollar and stimulate the economy.

20th July 2012 A IMF Working Paper The Chicago Plan Revisited (PDF 1mb) endorses the idea of 100% reserve backing for deposits and a separation of the monetary and credit functions of the banking system.

23rd June 2012 Raf Manji's article in the July issue of NZ Investor (PDF 1.7mb) on direct government injection of debt free money into the economy - bypassing the banks.

21st June 2012 Interest on Wellington City Council (PDF 1.26mb) debt tops $420,000 a week.

5th June 2012 Chris Trotter in The Christchurch Press writes Creating money out of thin air

 

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Napoleon"When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes… Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.”

Napoleon Bonaparte, Emperor of France, 1815

Guarding against inflation

How well has the current system prevented inflation?

Over the last 20 years, the banks have been inflating the money supply by an average of 9% per year, through creating endless amounts of new debt. This has led to inflation over that time of hundreds of percent, especially in the housing market.

In fact, between 1980 and 2010, total general inflation (the increase in the Consumer Price Index) was 429%, while house price inflation has been much higher at 1,310%!

From this we know that an annual increase in the money supply of 7-10% will cause inflation, so we already know our upper-limit on how much new money should be created. As long as the MPC keeps the annual increase under 9% per annum (the average growth rate since 1990) then inflation should be less than it has been under the old system.

In other words, inflation is significantly less likely under the reformed system than under the existing system.

Further safeguards against inflation

If further safeguards are needed to reassure people that hyper-inflation is not a risk, the following safeguards could be put in place (but note that they are not included in the reform proposal at this stage):

  • The absolute amount of the increase in any one month must be no more than x% greater than the previous month. This prevents any wild fluctuations in the amount of money created from month to month, and depending on the level of ‘x’, ensures that it would take decades before they could create sufficient levels of money to cause hyperinflation.
  • The total annual increase in the money supply should not exceed x% of the current total money supply. If you doubled the money supply in the space of one year, you would cause asset bubbles and very high inflation. If you cut the money supply by 50%, in one year, you would cause an economic collapse. Common sense suggests that the ‘safe’ rate of growth in the money supply should closely match the rate of growth of the economy in order to keep inflation as close as possible to zero.

The difference between bank created debt money and State created Positive Money

A 10% rate of growth in money supply is a very different thing when that additional money comes from the state, rather than from commercial banks.

When commercial banks increase the money supply, they do so by creating an equivalent amount of debt. The new money acts as a stimulus to the economy, but the new debt acts as an immediate drag on the economy. (If you accept and spend a personal loan in August, you will start repayments in September.

In September you are immediately poorer than you were before you took the loan (even though you may have more 'stuff') as your disposable income is reduced by the amount of the repayments. You spend less in the shops and the real economy loses your regular spending).

Allowing banks to create money is therefore akin to pressing both the accelerator and the brake at the same time – and the results are equally painful to watch!

In contrast, the debt-free injection of money from the Reserve Bank is free from the immediate sedative of an equivalent amount of debt. This is akin to pressing the accelerator with your foot clear off the brake. Which system would you expect to have the greatest stimulating effect on the economy?

For that reason, we can assume that a 10% increase in the money supply, when created as debt-free money by the Reserve Bank, would be far more of a stimulus to the economy than the same rate of increase when caused by commercial banks issuing debt. Whether we should therefore aim for 5% instead (to avoid any risk of inflation) or stay at 10% (to pull ourselves out of this recession with a quick stimulus) needs further analysis.

In short, however, inflation is much less of a threat under the reformed system, whereby the state creates all new money, than under the existing system (whereby new money is created as debt by private commercial banks).

 

 

 

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