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Not more of the same

Written By: - Date published: 2:00 pm, October 4th, 2012 - 79 comments
Categories: Economy - Tags:

Some thoughts on how to get the economy moving again while also shifting us away from the failed banking system that we’ve been using for the last few centuries.

What could the government do for the economy if?

  1. The government makes fractional reserve banking illegal preventing the private banks from creating money
  2. The government prints money at 0% interest that it spends into the economy. It neither borrows money nor sells bonds

Ok, we all know that there’s a housing shortage and that the government needs to build more state housing. My suggestion has always been that the state builds this housing and rents it out at 25% of household income but, as the people aren’t actually buying the house, it really shouldn’t be that high. All we really need would be about 10% adjusted on if it’s an apartment for a single/couple or a three bedroom residence to cover maintenance (normal wear and tear, anything above that gets charged to the people living there at extortionate rates). Unfortunately such low rents are likely to encourage resentment from some people and bring about another round of beneficiary bashing neither of which we want.

We also have a problem of a high dollar which is being pushed up because seemingly we’re the only country in the world that isn’t engaging in Beggar Thy Neighbour quantitative easing (otherwise known as printing money). Don Brash, of course, thinks nothing can be done about this and that doing so “which of course really means cutting the real wages of New Zealand workers”. The point that Mr Brash seems to miss is the fact that we can’t actually afford such a high dollar as all our money goes outwards and, due to exports being constrained by the high dollar, very little is coming back in. This trade imbalance is also exacerbated by foreign ownership which channels profits offshore.

So the suggestion is that the government goes out and builds houses and apartment buildings with printed money and rents them out at low rates. On top of that it also offers to buy peoples houses and rent them back to the ex-owner for the same low rentals. I figure this will have numerous effects:

  1. It’s going to cancel a huge amount of debt, especial foreign debt, without actually trashing the economy as it won’t be removing money from the system as paying down debt does with our present debt based money
  2. It’s going to drive the exchange rate down as NZ will no longer be a high interest haven for foreign funds
  3. With the exchange rate down there’s going to be a boost to exports – especially in the manufacturing sector. Agriculture is already at or, more likely, past maximum (See my definition of the Renewable Resource Base) although I’m sure the farmers will be looking to pollute our waterways even more
  4. The boost in demand for exports will drive unemployment down
  5. It will help prevent the resentment of beneficiaries and the low paid due to it being available to everyone

Further to that, once the government owns these houses it then behoves the government to get them up to standard so that means installation of insulation and, at a later date, solar panels (both electrical and water) as well. This will create more work and save the country in terms of power along with the house building that the government will be engaging in will give a huge boost to our construction industry – possibly to the point that proper fully automated factories will need to be built to support it which opens up more export potential.

This isn’t a full list of what the government could do if it was serious about creating jobs and eliminating poverty. There is a hell of a lot more it could, and should, do to boost NZ’s flagging economy and society. We know, after three decades of experimenting, that leaving it to a few rich people doesn’t bring about the dynamism that is needed to maintain a just and equitable society.

Draco T Bastard

79 comments on “Not more of the same ”

  1. Poission 1

    Getting the exchange rate down – which of course really means cutting the real wages of New Zealand workers

    That is a gross fallacy,and he invoked the fuel price as an example recently.We are presently paying around the same as at the peak cost 4 yrs ago when oil prices were 30% greater and the NZ dollar 7% less.

    Demand consumption is off around 10000 bbl per day, and price gouging is clearly evident.Similarly the asset revaluation role ( increasing the value of the asset) and its expected return on valuation in oligarchs such as energy distribution, energy production,airports,port companies etc.

    Similarly the price revaluations by property investors and the ratchet rent systems need to be addressed,by either loosing the interest writeoff (which would provide and incentive to reduce debt rather then leveraging to buy another property) or an asset tax.

    • Lanthanide 1.1

      Several taxes have been imposed on petrol since the oil price peaked 4 years ago.

      • Poission 1.1.1

        Even allowing for gst the RT,acc changes and an inflation component we are still being overcharged by around 12-15c litre.

        What cost does this have on the cleaner say from Porirua who works three jobs at different locations in the middle of the night on a minimum wage, and as our pension fund is one of the main leaders here (albeit in a JV with a company that specializes in monopolies) gouging is gouging no matter who the owner is.

        • Colonial Viper 1.1.1.1

          Petrol needs to, and will go higher.

          Get used to it everyone, and start making plans to get off the roads.

        • Lanthanide 1.1.1.2

          Also consider that the price we pay is based more on the final refined price, not the price of crude oil, so there are other factors at play like refinery capacity etc. Furthermore the oil that is used for this refined product is not the same as Brent or WTI but trades at a premium on both of those (tapis light IIRC).

          • Poission 1.1.1.2.1

            the pricing differential WTI- brent is the refinery margin usuallly around 15$,these is major pricing instability at present eg brent where spot and futures were inverse a contango problem.

            The large scale exiting of the money market managers from commodities was part of the reason for the 4.2% WTI overnight,correction still overdue in the currencies A/NZ and US consumption (and imports) are back to 1996 levels.

    • One of the major points you are missing is while fuel prices were 30% higher four years ago, Brent prices sat at over $100 per barrel for just 6 months, a relatively short period. Since Feb 2011 Brent has sustained average monthly prices over $100 per barrel every single month except June this year. That is sixteen straight months up until June 2013 and so far another three straight months since June 2012.

      This is one of the major reasons the world economy has barely been moving the last 18 months. It’s not the highest price that matters but what the sustained price is that really effects how the economy runs.

  2. karol 2

    The post seems to be making some very good suggestions, to this not-an-economist.  I definitely agree that the government needs to build more state housing and rent them for an affordable amount.

    • Poission 2.1

      If we use CHCH as an example ,where some innovative thinking could have been applied there was an still is an ample opportunity.

      In NZ history we have provided housing for large construction projects such as Twizel, Otemetata, Turangi etc.here using the Japanese example of transportable housing (they provided over 30000 units of both temporary and social housing already) we can use a greenfields location,as a mixed model State owned and a mix of rentals to construction companies for a transient workforce and social.The former subsidizing the latter and providing an additional pool of social housing for after completion ( all paid for)

      The ongoing work for the sites such as landscaping, drives and fencing to be undertaken by workskill employment providing a semi skilled workforce pool for the rebuild.

      This would also reduce rental pressure on the city,

      • Rusty Shackleford 2.1.1

        “The post seems to be making some very good suggestions, to this not-an-economist.”

        Change the noun “Economist” to “Physicist” and go make it on a flat earther blog. Would you be comfortable with that?

  3. tinfoilhat 3

    This is an economic plan that makes sense to me.

  4. Good on ya Draco, keep bugging them M8!

  5. Jen 5

    You are in planet la-la if you think that the government could build houses and let me them out for about 10%. It’s every land lords wet dream and in the last few years really only achievable in places like Invercargill.

    • Draco T Bastard 5.1

      Why do you say that?

      • Jen 5.1.1

        What does a cheap house and land package cost in any of the main centres. Let’s say $300K for arguments sake. 10% rent on that is $577 per week. That is not cheap rent!

        • Draco T Bastard 5.1.1.1

          Good job I didn’t suggest that then isn’t it? I said 10% of household income.

          • Jen 5.1.1.1.1

            Christ on a bike – it goes from bad to worse. Apologies for misinterpreting. However in clarifying you have only cemented my view. In fact la-la becomes la-la-la!!!

            So now I am a $15 employee I so pay $60 per week for the house I live in. That doesn’t even cover rates and insurance ffs not to mention all of the other many factors you have omitted that will come in to play in the printing money scenario.

            I know you mean well and this issue needs serious thought but it needs to come from a realistic and not ideological perspective. I would love it if someone would create a board or online game where all of the factors were accounted for and one could play and see the results. I don’t like things as they are any more than you do but wishing things different doesn’t make it so.

            Argue with reality and you will lose 100% of the time.

            • Poission 5.1.1.1.1.1

              I would love it if someone would create a board or online game where all of the factors were accounted for and one could play and see the results.

              Done
              https://notes.utk.edu/bio/greenberg.nsf/0/f2d03252295e0d0585256e120009adab?OpenDocument

            • Colonial Viper 5.1.1.1.1.2

              Sorry Jen, but the current “reality” is killing people. Slowly I give you, but surely.

              I know you mean well and this issue needs serious thought but it needs to come from a realistic and not ideological perspective.

              It needs to be grounded on an ideological (values based) perspective to begin with. What values do you think we should begin this discussion on affordable housing with?

              So now I am a $15 employee I so pay $60 per week for the house I live in.

              Sure, you could implement a minimum rent of $100 pw., if that makes you happier. People in those houses will have significant responsibilities in maintaining the property of course, and having such a property would be a privilege contingent on that, not a right.

            • Draco T Bastard 5.1.1.1.1.3

              So now I am a $15 employee I so pay $60 per week for the house I live in.

              That’s per person with an income. Then there’s the fact that the people on higher incomes would be paying more. That’s just how taxes work.

              That doesn’t even cover rates and insurance ffs not to mention all of the other many factors you have omitted that will come in to play in the printing money scenario.

              Well, I don’t think government should pay taxes and rates are taxes and so I’ve been thinking (yes, this was after I posted this) that the rates would be covered by the people living in the house directly.

              Insurance isn’t needed under the printing money scenario simply because all the government has to do is print money to repair the house. As long as the required resources exists, which they will do, then house can easily be repaired.

              Argue with reality and you will lose 100% of the time.

              All you arguments against this are based in the current paradigm was isn’t related to reality in any way, shape or form. That’s why it keeps failing.

              • Gosman

                Pray tell how will the rates be calculated? On the value of the property of some other measure?

              • Herodotus

                From my knowledge rates are not payable by state houses, this transferring the burden to privately owned property. Already we have in Auckland 10% increase on rates year on year for 3 years and for many over 30% increase on water rates, equating to an additional $500 p.a.
                So for Auckland where does the land to be built come from? Govt had an opportunity when they had major land holdings, perhaps we could close some schools down (as in Chch) and develope those areas?
                Your solution does not address our current account issues and the exportation of profits
                For me all we have to do is limit capital inflows by limiting the amounts that bank scan loan as a function of govt stk and cash reserves held by any lending agency

                • Draco T Bastard

                  From my knowledge rates are not payable by state houses, this transferring the burden to privately owned property.

                  So the local councils should do without any income? Seems a bit extreme.

                  I rent a room in a 3 bedroom house in Auckland and the rates are about half of what I pay in rent so I don’t that they’ll be that much of a burden.

                  So for Auckland where does the land to be built come from?

                  There’s still land available in Auckland and my biggest suggestion there would be increased density of housing.

                  Your solution does not address our current account issues and the exportation of profits

                  Actually, it does. Dropping the exchange rate, which this will do, will decrease importation and increase exports. The exportation of profits will decrease as interest bearing debt is retired.

                  • Herodotus

                    Councils do get central govt assistance by receiving funding for the likes of roading.
                    many who are pushing for a lower $ are not bring open to what that will do to households and govt spending, especially given our reluctance to make any adjustments to our lifestyles.

  6. lefty 6

    So sensible!

  7. Draco in a nutshell:

    1) Print money and ditch fractional reserve
    2)..?
    3) Utopia!

    • Draco T Bastard 7.1

      I’ve explained a small part on how I think it would work before – most notably the use of taxes to balance the printing of the money. And I’ve never promised utopia – just something better than the present failed system.

      The only thing you’ve done with that comment is prove just how simple minded you are.

      • “The only thing you’ve done with that comment is prove just how simple minded you are.”

        If it is easier for you to assume I am simple minded because I disagree with your Jacque Fresco Resource based futurism while believing you to be an ideologue of the highest order lacking any ability to actually appreciate your own hypocrisy and totally lacking any sort of considered approach to evaluating others people opinions outside your own narrow boarders then go for it.

        You’re not simple-minded Draco, you are quite smart even. I would never level such a comment at you. However you are extremely deluded and somewhat narrow-minded. I am sure you’ll dismiss this once more, maybe not even reply – who knows. However one thing is for sure, there is a reason your ideas haven’t taken flight…and it isn’t the ‘capitalists’……the ‘capitalists’ being whomever it is you believe them to be.

        Anyways, I got the flu so we’ll delve back into this tomorrow

        • Colonial Viper 7.1.1.1

          lol mate, not only do you have no solutions (except sticking with the current shit which got us into this mess) you simply have no idea who the idealogues in politics really are.

          Is that because, as DTB suggests, you are simple minded? Or just two dimensional in thinking?

          The isealogues are the ones saying “drive faster” even as it has become clear that they have already taken us right to the cliff edge.

          • TheContrarian 7.1.1.1.1

            Ummm I actually did lay out some of my ideas once – in a brief fashion – not too long ago in fact and you (if I recall correctly), CV declared “I can’t find anything I disagree with that” or words to that effect.

            Do you not recall? Or shall I hunt out some links for you?

            “not only do you have no solutions (except sticking with the current shit which got us into this mess) ”
            I don’t believe the current path is sustainable. You are making a false dichotomy (or False dilemma) which is a type of logical fallacy. Not believing in Draco’s ideology doesn’t mean I agree with the status quo and I never suggested that.

            Try again.

            • Colonial Viper 7.1.1.1.1.1

              Try again? To convince you? How much is that worth to me?

              • “Try again? To convince you? How much is that worth to me?”

                Ummm what?
                You made a logical fallacy and accused me of having no ideas outside of “except sticking with the current shit which got us into this mess” despite you agreeing with some things I had suggested some weeks back and me never suggesting I wanted to “stick with the same shit.”

                Try again as in:
                “Don’t make so many fucking errors next time”

        • Draco T Bastard 7.1.1.2

          All of that and you still managed to say nothing.

          I’m quite happy for constructive criticism – in fact that’s why I post these on here. You just don’t make any.

  8. MrSmith 8

    It seems the continual shortage of money due to the interest charged and that interest then having to come from somewhere is the never ending problem (Yes I have watched zeitgeist 10 times at-least, impartially after the 5th time tho), but the real problem is the people that fully understand the Fractional Reserve Banking System, (I don’t claim to be an expert but my understanding has served me well).

    I liken it to having a money tree in the back yard, you wake up early every morning, then go out and pluck the money off, you try and tell people about it but who ever takes good advice, “the only thing to do with that is pass it on right” “it’s never much good to one’s self.”

    The system can not survive without inflation, and that is, I think, why the system just about recently fell apart, deflation is possibly the best way to kill the fractional reserve system, and I hope we kill it before it kills us.

    Of-course the very thought of deflation we will hear will mean the end of the world, and it could be for the banks and those that support them.

    My thoughts anyway.

  9. tinfoilhat 9

    You should run for parliament Draco, these kind of ideas could save NZ.

  10. Georgecom 10

    One of the arguments I have seen against the government printing & spending money is that it will create inflation. One of the corrections ot that argument I have seen is that money spent on infrastructure and investment goods will limited the inflationary effect of printing & spending money.

    If that is so, then, I guess a list of things to spend the money on (which have a present need but also long term benefits) could include:

    Construction of the Auckland rail loop.
    Insulation of state houses
    Building a number of new state houses
    Infrastructure repairs/rebuilds in Christchurch.

    If people do hold concerns about the govt printing & spending money then a prudent amount could be spent on these items:

    Figures plucked from the top of my head, 1/2 the Auckland rail loop funded this way, all state housing insulation, 1/2 of all new state homes, 1/2 of the ChCh build costs

    Do it across a 5 year period and analyse the results across the period. Set the amount of spending at a level that its impact can be clearly identified, but not at a level where any downsides would have a significant impact. After a period of time, maybe the 5 years, a more informed decision can be made.

    • Draco T Bastard 10.1

      One of the arguments I have seen against the government printing & spending money is that it will create inflation.

      That’s always the argument but, amazingly, the people making that argument have no problem with the banks creating 95%+ of the money in circulation with almost no limits. In fact I’ve seen some estimates that say that 50% to 80% of inflation is due to the banks printing money. This is a good video on it.

      The simple counter to that charge is taxes. The government prints the money which is balanced by taxes. Increase the money printed comes with a corresponding increase in taxes. Print none then taxes stay the same or even drop depending upon actual spending.

      One of the corrections ot that argument I have seen is that money spent on infrastructure

      About the only thing that governments spend money on is infrastructure – hospitals, roads, state housing, telecommunications…

      Generally, what we’re really looking at is natural monopolies.

      • karol 10.1.1

        And Stuff has an article today about just how much the Aussie banks are ripping off ordinary Kiwis:
         

        The Greens have today released a comparison of four banks – ANZ, BNZ, Westpac and ASB – prepared by the Parliamentary Library which shows they reaped $14.42 billion profit from 2008-2011, up from $14.08b between 2004-2008. That is an increase in before-tax profits of about $340 million.
        Greens co-leader Russel Norman said a similar analysis for all New Zealand industries found profits had fallen by 15 per cent since the global financial crisis.
        However, three of the four big Australian-owned banks reported record profits in past financial year.

         
         
         

        • Poission 10.1.1.1

          The AUS banks did not pass on the benefits of the RBA ocr cut,and in previous reductions only passed on around 80% of the benefit.

          There are of course a lot of talking heads,discussing this on RNZ this morning whci is why little will happen from above.

          The alternative is that New Zealanders do not like the position and where the cash going offshore increase our deficit,which means we must borrow more to fund the deficit,which causes a higher $ which decrease productive jobs etc.

          We have to want to change,and only can force change by signalling ie moving to a NZ based bank for which there are a number of options not just Kiwi bank (Cooperative bank TSB etc).

          Here the real power is not in politicians, but in the people to take back the market from the few to the many,this is where the new paradigm is,that is the only way to implement fast change.

          • MrSmith 10.1.1.1.1

            When he had them on their knees begging, the Labour Governments minister of finance Michael Cullen sat on his hands and bent over backwards guaranteeing the Australian banks, and what did he ask for in return, Nothing!, also I understand Bill English had to renew the same guarantee and what did he as for in return, Nothing!

            This may have been the moment to step back and let the overseas owned banks fail, then get back control of our banking system, I believe the opportunity will come again as they have learnt nothing from the last 6 years, apart from they still believe they are too big to fail and they can still make record profits whatever the state of the economy.

            • Poission 10.1.1.1.1.1

              The Australian banks pass on an increase in a change in the OCR to customers by 116% they pass on a decrease in the OCR by 84% ticket clippers.

              As politicians will not address the problem,it is the customers who need to change the system.

              2-5 per cent would be significant.

    • kiwi_prometheus 10.2

      “One of the arguments I have seen against the government printing & spending money is that it will create inflation.”

      That can be an argument FOR government printing. Infrastructure project spending gets economic growth going, inflation rises. The growth gets the Government more taxes, presumably less expenditure on Welfare because more people have a job = less public debt. Plus 10% inflation for a while dissolves a lot of that debt too.

      Low inflation has been an obsession of failed neo liberal economics.

      The Yanks have thrown trillions at the problem for 5 years – I don’t see any inflation.

      • Mike 10.2.1

        I somewhat agree. Under the current system you can only have economic growth with accompanying inflation. But I think the reason they try and keep inflation low is that too much expansion of the money supply along with large price increases (more money in money supply = more demand for goods and services = price increases) could be disastrous should the money supply suddenly contract (which it does every now and then and which is usually deliberate by the powers that be).

        Regardless, the monetary system is going to collapse, that’s simply a mathematical certainty. As posted elsewhere, there is no such thing as sustainable economic growth under our current economic system which requires exponentially increasing consumption to fuel growth.

    • Mike 10.3

      Inflation is simply expansion of the money supply so yes printing money causes inflation. But put another way, what is the difference in inflationary effect of say the government borrowing 500 million from an overseas source or the government creating the 500 million itself?

      No difference whatsoever inflation wise. The main difference is that if the government creates 500 million rather than borrowing it then taxpayers aren’t lumped with crippling interest payments for the next however many years.

      Our entire monetary system is fucked and needs to change, but the most damaging part of it is interest, especially that which is not recirculated but is horded. As an example of how scary compound interest is, if 5 English pennies had been lent at 5 per cent compound interest from the beginning of the Christian era until the present time, it would now amount in gold of standard fineness to 32,366,648,157 spheres of gold each eight thousand miles in diameter, or as large as the earth. Thirty-two billion earth-sized spheres of solid gold from 5 pennies.

      Obviously we wouldn’t want the government creating too much money and devaluing the currency. That is where tax could come in. Money could be removed from the economy by way of taxation. A special independent tax department could use tax as a method of price stability. There job would be to maintain price stability by ensuring that the amount of money in the money supply is as close as possible to the amount required for the goods and services in the economy.

      The public should enjoy the benefits of money creation, not the private banks. Money should be created to benefit society.

      Speaking of inflation, if we apply the average inflation rate over the last 50 years (although it will probably be higher than this), then within a human lifespan, or when our young kids are in their twilight years,

      A $10,000 car will cost $320,000

      A $4.50 bottle of milk will cost $144

      The minimum wage (if increased by inflation rate) will be $432 p/hour

      The average wage will be $32,000 p/week or $1,664,000.00 per annum

      A ticket to the movies will be $640

      A hamburger will cost $96

      An average priced Auckland house will cost $17,600,000.00

  11. Poission 11

    The deregulated economy seems to have sucked 22 billion out of the productive economy into the sponges.

    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10838486

  12. kiwi_prometheus 12

    Steve Keen dismisses the Fractional Reserve Banking argument.

    Off the top of my head FRB is where a customer drops $100 in a bank account, then the bank lends out $1000 based on that $100 deposit. That $1000 is ‘banked’ by the borrower, and the bank can then lend out even more on that $1000.

    Keen points out the banks don’t worry about any deposit in the first place.. They just create the loan for the client which is then recorded on the debit side of the banks ledger I suppose.

    • Draco T Bastard 12.1

      Yep, but if you don’t stop the banks from engaging in it, even though they aren’t, then they will continue as they are and, IMO, that’s the biggest problem we have today. Private banks creating money and charging interest. The government can stop that by making sure that the only money that comes into existence does so through the government and doing so at 0% interest removes an arbitrary and useless cost that the government shouldn’t be paying.

      • Rusty Shackleford 12.1.1

        That isn’t how it works. They lend out a “fraction” of that $100, let’s say 75%. That $75 is redeposited in the bank when it is spent (there is only one bank in our example). 75% of that $75 is then lent out etc. So yea. Banks can lend out more money than they have in reserve. I wouldn’t have a problem with it if the banks were liable when they go bust, but they aren’t. They can always run to the RB (actually the tax payer) if they go bust. This is morally wrong imo.

        A better way would be to allow true commodity currency and competition in the market money. The market for currency should be demonopolised. It is impossible to argue that NZ is a “Free Market” capitalist country until this happens.

        • Draco T Bastard 12.1.1.1

          They can always run to the RB (actually the tax payer) if they go bust. This is morally wrong imo.

          Try to understand, the bit that is morally wrong is loaning out that which they don’t have.

          A better way would be to allow true commodity currency and competition in the market money.

          There’s nothing wrong with fiat money – just so long as there’s some sort of balance between it’s creation and destruction.

          • Rusty Shackleford 12.1.1.1.1

            “Try to understand, the bit that is morally wrong is loaning out that which they don’t have.”
            I don’t disagree.

            “There’s nothing wrong with fiat money – just so long as there’s some sort of balance
            between it’s creation and destruction.”
            You can have your fiat cash if you want. Just, don’t make it compulsory.

            • Draco T Bastard 12.1.1.1.1.1

              There can only be one monetary unit in a society. More than that causes confusion and inefficiency. In other words, we have no choice but to make it compulsory. Now, another society may try go for a Gold Standard but they’ll end up the same way all other attempts did – failing.

              • Rusty Shackleford

                Who said anything about a gold standard? A compulsory gold standard would be as bad as a compulsory fiat currency. The gold standard emerged voluntarily, though. The gold standard has been the dominant form of currency for 5 millenia. It has never failed as far as I know. It has been debased and abolished, but I’ve never known an instance of it failing.

                Do you have any examples?

                • Draco T Bastard

                  The gold standard has been the dominant form of currency for 5 millenia.

                  No it hasn’t. Credit money was the dominant form in Sumer – 5000 years ago.

                  It has never failed as far as I know. It has been debased and abolished, but I’ve never known an instance of it failing.

                  Then I suggest you read history and, more importantly, consider the effect of a linearly growing amount of currency on an exponentially growing economy never mind that in that growing economy there was also an increasing number of uses for gold.

                  BTW, debasement is an example of failure.

                  • Rusty Shackleford

                    “No it hasn’t. Credit money was the dominant form in Sumer – 5000 years ago.”
                    Looks interesting, but represents one example. Doesn’t negate my proposition.

                    “BTW, debasement is an example of failure.”
                    No, it isn’t. It is an example of government coercion.

                    • Draco T Bastard

                      Looks interesting, but represents one example. Doesn’t negate my proposition.

                      It does when you consider that most societies didn’t even have a medium of exchange.

                      No, it isn’t. It is an example of government coercion.

                      Ah, no. It’s an example of the medium of exchange being corrupted often, once you read the history, by private interests which inevitably brings about collapse of the economy. This can only be termed a failure.

        • Mike 12.1.1.2

          You’re slightly incorrect on how it works. Banks never “lend” out customer deposits. (They do however often use them to invest for their own gain.)

          They simply create bank credit based upon the amount of “reserves” they have by way of deposits. Under a 10% fractional reserve requirement for example, a bank with a $100 deposit can “lend” out 90% of that deposit keeping 10% as the reserve requirement. When the $90 is banked, 90% of it can be loaned out, and so on and so on until the $100 deposit is turned into $1000 of “loans” which the bank collects interest on.

          But as stated, the banks never actually “loan” out depositors money. They use the banking system to create $90 of bank credit from the initial $100 deposit instead. This $90 never existed before and is created basically out of thin air. The initial $100 deposit is still there and is the 10% fractional reserve of the eventual $1000 in “loans”

          I write “loans” in quotes because they are not loans. You can’t loan something you don’t have in the first place. The public is mislead into thinking they are loans when in fact they are bank credit created by the “borrower’s” signature.

          As economist John Kenneth Galbraith stated in regards to the American fractional reserve system, “The process by which banks create money is so simple that the mind is
          repelled.”

          The mind is repelled because the process is sleight of hand and is completely foreign to what we have been taught. In a phenomenon called “cognitive dissonance,” we can read the words
          and still doubt whether we have read them right.

          • Colonial Viper 12.1.1.2.1

            Yep this is what happens when you buy $10 worth of takeaway with your bank provided credit card.

            Let’s say your credit card has a $1000 credit limit. The bank doesn’t have a “Mastercard” account with your name on it with $1000 saved up in it ready for you to use at a moments notice. You simply have a credit card account which the bank puts a $10 debit line entry against when you buy your takeaways.

            It then enters a $10 credit line entry to the takeaway shop’s bank account.

            At that moment, $10 in out-of-thin-air new cash has been created into the economy by the bank which can then be on-spent by the takeaway shop owner.

            That $10 credit pushed into the economy by the bank is balanced off in the bank’s books by a $10 debt you now owe on the credit card.

  13. kiwi_prometheus 13

    “The boost in demand for exports will drive unemployment down”

    Remember every other country is aiming to do the same thing in that “beggar thy neigbour” tactic you mentioned.

    With a disintegrating Euro zone, China hard landing, mired USA, where is this spectacular “boost” in demand going to be coming from exactly?

    • Draco T Bastard 13.1

      Remember every other country is aiming to do the same thing in that “beggar thy neigbour” tactic you mentioned.

      Yep, which is why we should be as well. Being honourable about it only means that we end up worse off.

      With a disintegrating Euro zone, China hard landing, mired USA, where is this spectacular “boost” in demand going to be coming from exactly?

      Well, that’s the tricky one but I’m pretty sure it’ll be a combination of those and all the rest as well.

  14. Rusty Shackleford 14

    If printing money is so fool proof, why don’t you prove that it can work first? Go to an uninhabited island in the Pacific with a printing press and start churning out Draco dollars. Should be easy to have a functioning economy up in running over a weekend, I reckon.

    • MrSmith 14.1

      “If printing money is so fool proof, why don’t you prove that it can work first?”

      At the moment ‘Printing money’ is exactly what we allow the banks to do and then we let them lend it to us, in return we are required to put up an asset/collateral and jump through endless hoops to get it, all the time paying them interest and they even expect us to pay back the principle amount.

      A big Part of the problem is they won’t lend you money unless you can prove your making ‘excess income’, this I believe is no coincidence……… but part of the plan/problem, as if people have excess income, what do they do with it?, a lot of people spend some or all of it on worthless junk they don’t really need, so creating a market where there never was one, and “jobs” I hear you say, no because the system is making us work twice as hard as we need to already. Also all the excess money and spending is creating competition between us to out spend each other, and we do like to compete don’t we.

      Saw if people want to work hard and accumulate money and assets fine, but we shouldn’t be made to, just to please the banks.

      • Rusty Shackleford 14.1.1

        How do the banks print money, Smith?

        “A big Part of the problem is they won’t lend you money unless you can prove your making ‘excess income’, this I believe is no coincidence……… but part of the plan/problem, as if people have excess income, what do they do with it?, a lot of people spend some or all of it on worthless junk they don’t really need, so creating a market where there never was one, and “jobs” I hear you say, no because the system is making us work twice as hard as we need to already. Also all the excess money and spending is creating competition between us to out spend each other, and we do like to compete don’t we.

        Saw if people want to work hard and accumulate money and assets fine, but we shouldn’t be made to, just to please the banks.”
        WTF.

        • MrSmith 14.1.1.1

          I’m assuming you understand how the Fractional reserve system http://en.wikipedia.org/wiki/Fractional_reserve_banking works?

          Simply; the amount of money in circulation has to keep increasing because of inflation (we continually need more money) and all the interest the banks charge (we continually need more money) has to come from somewhere.

          So we let the banks create this extra money out of thin air (banks print money) through the Fractional Reserve System, but the catch is we have to pay them (the banks) interest on the money, and you see the interest has to come from somewhere, as it never existed till they charged it, so around and around we go while the banks sit there Laughing at us.

        • MrSmith 14.1.1.2

          “WTF?”
          I may have got a bit far down the worm hole there.

          Look at it like this then:
          The banks are making us work longer just to meet their loan criteria and what do we work for? thats right Money! and were does the money come from? the banks, and how do they come by it? they create it out of thin air, then charge interest on it and if they lose money what happens, they record it as a loss and what do they lose, the money they created out of thin air in the first place.

    • Draco T Bastard 14.2

      And The Wises Monkey wanders in with an over simplified exaggeration as an argument against failing to realise that it’s not an argument at all.

      The only time printing money works is if you have an already functioning society and money is being used to solve a problem of distribution. Money, as we’ve learned over the last 5000 years, has its own problems the worst of which is the financial institutions which spring up charging interest for money that they create. The solution to this is the society itself creating the money as a monopoly with no interest.

      • Rusty Shackleford 14.2.1

        “The only time printing money works is if you have an already functioning society…”
        Why? And can you give an example?

        • Draco T Bastard 14.2.1.1

          Because we need the social structure there to begin with and pretty much every country that uses a monetary system. England’s Tally Stick is a great example.

          • Rusty Shackleford 14.2.1.1.1

            Why is the functioning society a prerequisite? Couldn’t you induce people to settle on your island by handing out free currency?

            • Draco T Bastard 14.2.1.1.1.1

              Why is the functioning society a prerequisite?

              Because you need the already existing social structure – the farms, courthouses, and administration.

              Couldn’t you induce people to settle on your island by handing out free currency?

              Nope because at that point the currency would be worthless. Or, to be more precise, nothing could actually be bought with the currency.

              • Rusty Shackleford

                “Nope because at that point the currency would be worthless.”
                So, you do agree that printing money debases its value? As the value of the currency you are printing wouldn’t even be worth the paper it was printed on, you couldn’t even give it away for free.

                • Rusty Shackleford

                  “Because you need the already existing social structure – the farms, courthouses, and administration.”

                  How did they get there? When does an economy cross over from one that needs a medium of exchange backed by real things into one that can successfully run on a medium of exchange backed by nothing?

                  • Draco T Bastard

                    So, you do agree that printing money debases its value? As the value of the currency you are printing wouldn’t even be worth the paper it was printed on, you couldn’t even give it away for free.

                    Your question does not have anything to do with your statement and neither applies to what I said.

                    How did they get there?

                    By the usual social integration that is part of humanity.

                    When does an economy cross over from one that needs a medium of exchange backed by real things into one that can successfully run on a medium of exchange backed by nothing?

                    You’re assuming the need for a medium of exchange in the first place. This isn’t actually normal – most societies start off without internal exchange. It is only as they grow beyond a few hundred people that such becomes necessary.

                    • Colonial Viper

                      A medium of exchange is pretty societally useful. Where the problem really starts is when people start believing that the medium of exchange holds intrinsic value of itself, and start hoarding it.

                      Hoarding of the medium of exchange in a society by the few means that everyone else in the society struggles with getting enough of the medium for themselves to successfully complete the economic exchanges they need to live and survive day to day.

                  • Mike

                    As far as I’m aware no economy has been “successfully run on a medium of exchange backed by nothing” as we will soon find out about our own economic system when it collapses.

  15. Mike 15

    I drafted a letter to Len Brown when it was announced that the council was going to borrow millions of dollars offshore to fund infrastructure projects. It was something along the lines of what I’ve added below. If it is too much of a leap for those with no imagination for us to be in charge of creating our own money supply then what about real public banking as a start.

    If the system can’t be changed completely as it needs to be why not at least start with something different. For example, Auckland needs infrastructure, housing, etc. Why not have an Auckland bank which can help facilitate these activities.

    But not a bank in the usual context. This bank would exist to benefit the city and its residents and businesses rather than for short term monetary profit which is so attractive for politicians, hence the Kiwibank model which although it provides a monetary dividend for taxpayers, it could have been so much more.

    The profit generated by the new Auckand Bank would be the long term economic benefits to the region of increased regional prosperity, increased business activity, less unemployment and so on. These long term benefits are of much higher monetary value in the end anyway than simple short term yearly dividends.

    Firstly, capital. No problems there, All council financial activity would be done through the Auckland bank. This means that there would be an immediate and stable captive deposit base of billions of dollars thanks to rates, levys, registrations and fines, etc which are collected. With such an initial large and captive deposit base, the bank could then make use of the fractional reserve system to make any loans it wanted to.

    For example, if council wants to fund new required infrastructure they simply borrow from the Auckland bank at zero interest. There would be a set fee, decided up front which would cover the banks costs, possibly allowance for inflation and nothing more. In other words a very low interest loan. Monetary profit is not the banks priority so all that matters is that they cover their costs so that they are not costing ratepayers money. The infrastructure project goes ahead providing jobs and an asset for Auckland, that is the profit in this banking model.

    The long term ‘profit’ for Auckland comes in forms other than immediate cash from interest. It could come from things such as providing 0% interest home loan mortgages to first home buyers. Imagine a young couple who have low monthly mortgage repayments that are the same every month for the duration of the mortgage with no crippling interest attached. So if they buy a $500,000 house, then instead of some foreign bank getting over $500,000 in interest which goes offshore as profit, that’s $500,000 additional money over the loan period that will be spent mostly into the Auckland economy and the young couple have their first home as well. They might decide they can afford to start up a new business they always wanted to or invest in other aspects of Auckland and so on. It may be that a few of these loans are defaulted upon. No problem, Aucklanders still own the house and money paid back so far, so the house can simply be sold to the next young couple.

    Imagine you run a business and you want to expand and hire new staff but you can’t because you don’t want to take a loan out and end up paying so much interest back that it negates the value added by the expansion or you don’t quite have the confidence to take out such a large interest attracting loan. Well, no problem, the Auckland bank can provide 1% interest loans to Auckland businesses. If the company knows what the monthly repayments will be and that they won’t change for the duration of the loan and that the repayments will be low due to no interest they will be much more confident in their decision to expand and create new jobs for the Auckland region. The same if you have a good business idea or want to start up a new business in auckland. If you need a loan to get up and going and your business plan is sound and the business viable then no probs, have a low or no interest loan from the Auckland Bank.

    The benefits are enormous. Any loans made by the bank actually benefit Auckland and Aucklanders in some way. Should the bank make a surplus accidentally then the money belongs to Auckland anyway. Because profit is not a concern, the bank doesn’t need to constantly be cost cutting and trying to get away with providing less service. The business loans enable the Auckland economy to grow and new jobs to be created and auckland businesses to prosper.

    It is time someone was bold enough to stand up and explain the complete rort that our banking system is. As a community and as Aucklanders we should be demmanding an explanation as to why banks exist for profit for their wealthy foreign private shareholders rather than existing to serve us by facilitating the creation and management of our money supply. Banks should be publicly owned and non profit so that they benefit the people and businesses of Auckland. There will be so called ‘economics experts’ and of course bankers and banks who will tell you in very complex language why this can’t work and so on. Bullshit, they are lying. Because it most certainly is that simple, it’s not complex or difficult. By having a bank that exists to benefit the Auckland region and it’s ratepayers rather than simply trying to generate monetary yearly profit, we will reap the huge long term rewards.

    There’s no need to borrow interest bearing money from offshore. The fractional reserve system is one of the ways we have been duped by banks. Well, let’s use it to our advantage. With billions in captive deposits by way of rates and other council revenue, the bank could make loans totalling ten times the amount collected in annual rates, at no interest and at benefit to Auckland and Aucklanders.

    Obviously this is only a general idea so no doubt the detail would be difficult, but anything’s better than the current debt driven banking system which is stealing real wealth from the population without them even realising it.

  16. MrSmith 16

    Very good ideas Mike and staying within the current system so to speck will make it easier for people to understand, as your earlier comment says:

    “The mind is repelled because the process is sleight of hand and is completely foreign to what we have been taught. In a phenomenon called “cognitive dissonance,” we can read the words
    and still doubt whether we have read them right.”

    Most people just can’t believe the system is such a simple scam.

    I like the idea of low interest loans for business as well, as Bob Jones once said “Banks are the condom on the penis of progress”

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