28 February 2012

Our bank - Our money

Bernard Hickey’s heretical call for the Reserve Bank to ‘print money’ (NZ Herald, Feb 26) doesn’t go far enough. Yes, the Reserve Bank should create credit (the vast majority of our money supply is electronic) to fill the gap between incomes and prices, and to build and repair vital infrastructure – not just in a crisis, but as a sovereign duty, permanently.

New Zealand, although rich in resources, has a growing underclass and a widening gap between rich and poor. This lack of equality comes with huge costs in health, crime, and the sheer waste of human potential, a burden that we all bear. We will never return to any kind of general prosperity until this is addressed.

Further, the income gap will continue to widen as long as current economic orthodoxy reigns supreme. Speculators will get richer, huge corporations will gobble up small and medium businesses, and publicly owned assets will fall into private hands. Third World diseases and social problems will be commonplace. It is happening already.

‘Inflation’ is a bogey-man sent to frighten us if we dare to suggest creating our own money supply. The fact is, we have had inflation on a rampant scale ever since neo-liberal policies were forcibly adopted in the 1980s. What you could purchase for $50 in 1965 will cost you over $800 today – cost inflation created by banks out of thin air.

The low inflation percentages bandied about today are carefully selected ‘baskets’ that exclude items that are the target of speculators (e.g. housing during the bubble) and include imported goods that flood the country on the ‘free market’ ride. We have inflation right now – just ask anyone with children to feed how much food has gone up in the last two years.

‘Eroding savings’ is another bug-bear that doesn’t stand the light of day. Money was created to exchange, not save. Saved money is not working for anyone except speculators and banks. Money should be creating assets, purchasing goods and services, feeding families. People who want to hoard their money should pay for someone to look after it.

A vital element of creating our own money supply, rather than borrowing from overseas, is that the Reserve Bank can lend to the government interest-free. Thus, when a loan is paid down, the money is removed from the system – deflation. Meanwhile the money used to build assets and repair infrastructure also creates more jobs, putting money into more hands, which goes to local businesses, who pay wages and replenish stock. Suppliers are paid, producers are paid, and everyone pays a bit of tax. It’s a win-win, and what is not paid is interest to overseas fat-cats.

It’s our bank, and it should create our money supply. It's a no-brainer, really

Hickey and the Big Kahuna

Bernard Hickey should get together with Gareth Morgan; one has the daring, heretical call for the Reserve Bank to ‘print money’ (NZ Herald Feb 26) and the other maintains, shockingly, that we should all be paid a basic income.

And why not? There is no doubt that people on the lowest incomes are struggling to make ends meet. Overcrowding, Third World diseases, crime, domestic violence – all of these are symptoms of deepening poverty. They are exacerbated by the media: seeing what you don’t have and some else does only makes your situation seem worse. Publishing the Rich List rubs salt in the wounds of poverty.

Gareth Morgan recognises that not only would families benefit from a universal basic income, but their local business communities would too. And the envy of the ‘haves’ that the ‘have-nots’ are getting a handout would disappear, because everyone will get it.

But how to pay for it? Enter the heretical Mr Hickey. He has called for the publicly owned Reserve Bank to do the job it once did and ought to do now: create the money New Zealand needs to function, without resorting to borrowing from overseas banks at interest.

This is where the plan must depart from orthodox economics: no interest should be charged on this created credit being lent to the government. In this way, while enabling all New Zealanders to live in prosperity and dignity, and collecting the resulting taxes as money changes hands and strengthens communities, an eye could be kept on inflation as loans are paid down.

Democrats for social credit call for an independent Monetary Authority to manage this exchange, and keep control of the money supply, increasing or decreasing it as needed. It is generally accepted that such responsibility is too dangerous to leave in the hands of politicians.

So, Mr. Morgan, may I introduce Mr. Hickey? I think you have a lot to discuss.