Magic Money Tree
In 2018, nurses went through a prolonged series of strikes in order to get better wages and conditions and an additional 500 nurses employed to reduce the shortage and consequent stress on existing nursing staff. That deal worth an estimated $520 million dollars is not due for completion until August this year.
It took five offers from the government and DHB's before agreement was finally reached. Nurses were repeatedly told there was no more money.
In January 2019, 3300 junior doctors started 5 rounds of strike action to address issues around fatigue, good patient care and training, and under-staffing. That was finally resolved in August.
Now, we're expecting them and the nurses to be on the frontline of dealing with a virus crisis that will get worse before it gets better and where our health services across the board are seriously under-funded.
In July last year after months of stoppages teachers were finally offered a $1.2 billion deal which will not be completed until July next year. Along the way, Education Minister Chris Hipkins told them “These are really good offers, and the government will not be increasing the total amount”.
In December, thousands of workers on the minimum wage where given an increase equivalent in value to half a cup of coffee per hour - due to take effect on April 1st this year.
In all cases “there is no more money” was the mantra rolled out numerous times with each new offer.
The previous National government had clamped a lid firmly on wage increases, which raises the question why anybody in any of those sectors of the economy would ever want to vote National, but the new Labour coalition government became stuck with the problem.
For years there have been hundreds homeless, living in cars sheds and on the streets, and thousands of people on benefits and low-wage workers, struggled from week to week to put food on the table for their families. National again were the culprits, having made savage cuts to benefits under Ruth Richardson, sold off thousands of state houses under John Key, and chose to pretend that such problems didn't exist, but Labour hasn’t significantly addressed those issues.
People in those situations are not much better off nearly three years after the Labour coalition were elected, although it is fair to say that some of the homeless are being put up in motels.
Yet this week, in the face of a virus crisis that will have dramatic effects on business and workers, the government have miraculously come up with about $33 billion dollars overnight (update $52 billion) and there's more to come yet - even though supposedly just a few months ago there 'was no more money'.
Former British Prime Minister Theresa May said 'we have to stop thinking there's a magic money tree'.
Suddenly, not only in New Zealand, but in Australia, in the UK, in the US, and in almost every developed country throughout the world, magic money trees have miraculously appeared. Money has materialised out of thin air, and governments are splashing it about with gay abandon.
It’s come courtesy of those countries Central Banks - something which Social Crediters have long proclaimed was possible, despite years of jibes about funny money and $21 notes.
But where did the central banks get it from?
Creation of money is done every day by commercial banks when they make ‘loans’ – a sleight of hand book-keeping exercise now done on bank computer terminals. Commercial banks don’t lend money people have deposited with them.
As the Bank of England clearly states in its first quarter 2014 Bulletin, “Money creation in practice differs from some popular misconceptions. Banks do not act simply as intermediaries lending out deposits that savers place with them. How bank deposits are created is often misunderstood. The principal way is through commercial banks making loans. Whenever a bank makes a loan it simultaneously creates a matching deposit in the borrower’s bank account thereby creating new money. Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits.”
The Bank of England is not alone. The German Central Bank and our Reserve Bank state it too, as do a plethora of international economists and economics professors. Many local economists, economic writers and commentators do too – although most have been too scared to say so.
Yet former BNZ chief economist Tony Alexander speaking on Newstalk ZB on March 24th talked about banks having more money to ‘push out the door’ as a result of the actions of the Reserve Bank. It’s going to create $30 billion (update - $100 billion) in new digital money to purchase government bonds from banks and financial institutions that currently own them.
Tony Alexander should know that “Money creation in practice differs from some popular misconceptions - banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits” (Quote - Bank of England).
Equally central banks don’t ‘get’ money from anywhere. They don’t need to. Their job ultimately is to create it, in a similar way to the commercial banks, but backed by the wealth of the country rather than by value of the house or other asset you pledge to your bank.
As long as there is unused capacity in the economy the central bank can create money without inflation being a concern – as the actions of the Reserve Bank in the last month has confirmed. It’s creating $33 billion (update $100 billion) in new digital money to purchase government bonds from financial institutions that currently own them.
Raf Manji, former investment banker and Christchurch City Councillor finance chairman, wrote this about Quantitative Easing (Central Bank money creation that has been going on in other countries for years) in an opinion piece on the same day as Tony Alexander’s comment on radio. https://www.interest.co.nz/opinion/104209/raf-manji-urges-rbnz-not-make-mistake-previous-overseas-qe-programmes-focusing
“All the new central bank money that went into the secondary market to buy government bonds and a whole range of other securities, ended up being redirected into financial markets.”
“What NZ’s Reserve Bank needs to do now is to make clear that it can and will purchase government bonds directly from the Treasury at 0%. These funds should be used to fund the current and forthcoming economic support packages.”
Thanks Raf - We agree. That’s the basis of Social Credit.
At no cost to the taxpayer, government could then use that money to provide a long term income for all the people who will be severely affected by the current lockdown. Recovery won’t be swift. As many commentators are coming to realise, it will take months or years.
As Milton Friedman, one of the chief architects of the disastrous neo-liberal economic experiment unleashed on New Zealanders by Labour’s Roger Douglas in 1985, said –
“Only a crisis - actual or perceived - produces real change. When that process occurs the actions that are taken depend on the ideas that are lying around.
That I believe is our basic function - to develop alternatives to existing policies and to keep them alive and available until the politically impossible becomes politically inevitable”.
One of the ideas that has been ’lying around’ is Social Credit. Its adoption has now become possible. Creation of money by the Reserve Bank and the payment of money by the government to support people and the economy is knocking on the door.
But if you think that either National or Labour, the parties that enthusiastically adopted neo-liberal economics and still stick slavishly to it, are going to admit they’ve been wrong and implement a Social Credit based economy long term, forget it.
Social Credit has never advocated the creation of money in an unrestricted fashion. A key policy is setting up a New Zealand Credit Authority with independence similar to the Judiciary, accountable to Parliament as a whole. Its task would be to assess the economy, measure its unused capacity and labour capability, and determine how much new money the Reserve Bank could safely create without generating inflation.
The government should access funds direct from the Reserve Bank – to prioritise people and the environment ahead of the ‘market’. It’s actually ‘efficient’ because it doesn’t allow banks and money market dealers to ‘clip the ticket’ along the way.
So there is, in fact, a magic money tree, provided it’s used carefully.