Banks, Borrowing, Bonds, and Silly Statements 21.07.20
Former NZ Prime Minister, John Key, while touring an engineering factory shortly after the Christchurch earthquake said ”If printing money is the way to go, and that’s going to bail out our problems in Christchurch, why don’t we just print lots of money and give it to every New Zealander and they’ll have a great Christmas”.
Which proves how little Mr Key, now the chairman of ANZ Bank New Zealand and director of ANZ Bank Australia, actually knows about money - or economics for that matter.
Because despite Mr Key’s silly attempt to ridicule to idea, the Reserve Bank, right now, is printing $100 billion in new electronic money over the next two years.
Reserve Bank Deputy Governor, Christian Hawkesby confirmed the bank is doing this on TVNZ’s Seven Sharp programme on April 30th.
“We’re creating electronic money to buy government bonds”, he said. “Through this process we create money.” “Twenty years ago this would have been considered unconventional monetary policy”. “Now, with Covid-19, effectively every developed country around the world is undertaking this sort of practice”.
This was confirmed by RBNZ chief economist Yuong Ha on August 14th "We create money … which is what central banks do, and have always done, but we then exchange it for assets but those sit on our balance sheet."
But even Mr Hawkesby appears not to know as much as he should.
The European Central Bank announced in March it would be doing 150 billion Euros of QE (money creation) immediately, buying government bonds from banks and pension funds. It had already been doing 35 billion Euros per month for several years prior to this.
Central banks buying government bonds is a common occurrence in Canada, China and Japan, where the Bank of Japan has purchased almost half of Japanese government bonds.
A bond, by the way, is just a fancy name for an IOU and it is the way the government borrows money – by issuing IOU’s to people who lent it money.
So what’s happening with the $60 billion Reserve Bank is currently creating?
It is using it to buy bonds – IOU’s the government had given out in order to borrow money in previous years. In other words it’s buying bonds from banks, pension funds and wealthy investors.
Meanwhile the government needs more money to enable it to give out the wage subsidies and business support as a result of Covid 19 lockdown so it’s issuing new bonds (IOU’s), which are being purchased by banks, pension funds and wealthy investors with the money from the bonds the Reserve Bank has just bought off them. The bond dealers are 'clipping the ticket' at the taxpayers expense and taxpayers will have to pay interest on that borrowing and pay the investors back when the loans need repaying.
Taxpayers already pay around $5 billion dollars every year in interest on existing government debt – money that could be spent on solving the housing crisis by building rent to own homes, providing free dental care, free urban public transport, better health care, or a multitude of other possibilities.
Instead of the government borrowing in that way the Reserve Bank could purchase newly issued IOU’s directly from the government, to provide the government with a source of debt-free, zero-interest money at no cost to taxpayers.
There is no interest and no debt repayment because the Reserve Bank is owned by the government anyway. As leading economist Ganesh Nana said “the government would be literally borrowing from itself.”
Using that method, taxpayers will not have to pick up the long term tab for billions in interest payments and the repayment of the debt.
The first Labour government financed the building of 30,000 state houses with Reserve Bank money.
The Commonwealth Bank (Australia’s central bank at the time) supplied the Australian government with funding for major infrastructure development.
It’s what Social Credit has been saying since before it contested its first election in 1954.
People like John Key have tried to rubbish us for all that time, but it now turns out Social Credit was right all along.