The $100 billion dollars the Reserve Bank is currently creating
The Reserve Bank is currently creating $100 billion dollars.
Let me break that very simple statement into several pieces.
What is the Reserve Bank?
It is New Zealand’s central bank and is owned by you and me - not exclusively of course - the other 5 million New Zealanders own it as well. It’s administered on our behalf by the government. It produces the notes and coins that some of you will have in your pockets and purses which amount to just 3% of the money supply, and it roughly controls the financial system.
It acts as the bank for the Government and Treasury’s bulk banking facilities and it acts as the bank for the other banks and financial institutions that operate in this country.
The second part of my statement was “is currently creating” and I went on to say “$100 billion dollars”.
So it's currently creating $100 billion dollars. Did the Reserve Bank get that from somewhere else? Did it get paper and ink and machinery and the authority from somewhere to print $100 billion dollars? Did it borrow it from rich investors or the other banks in New Zealand or from the Chinese or the Federal Reserve in America?
No it didn't. It created it out of thin air on its computers using a computer keyboard, without any raw materials at all.
It's what the commercial banks do every time they agree to give somebody a loan for a house or for a business or a car or holiday or as a personal loan. They create new money out of thin air for the other 97% of the money supply.
But let's get back to the Reserve Bank, which is in the process of doing exactly that.
The last part of my statement was $100 billion dollars.
If you say it at that speed it doesn't sound like very much. Even if I slow it down $100…………billion………… dollars, it still doesn't sound like a great deal. But what if I said one hundred thousand million dollars. That might register. Because that's what $100 billion is - one hundred thousand million dollars. The Reserve Bank is creating that over a period of two years.
To put that into perspective you all know that you pay 15% GST on every item that you purchase. Well the government takes in roughly $18 to $20 billion dollars every year in GST, so that gives you some idea of the size of the money creation the Reserve Bank is doing. $100 billion in two years compared to the government’s GST take of about $40 billion in two years.
So what's it doing with that new money?
Is it giving it to the government to spend on supporting wages, or providing better health care, or education, or paying state sector workers a living wage, or building houses for people who don't have them?
No, it's giving it to rich investors, bond dealers, and banks.
Really? I can hear you saying. Surely not !
Yes that's what it's doing. It is buying from those rich people, government bonds or IOU’s which represent government borrowing from past years.
So the Reserve Bank will end up with a whole lot of bonds (government IOU’s) and the investors will end up with that $100 billion dollars.
For its part, the government is currently spending lots of money to support workers following the Covid lockdown and it’s also supporting businesses and dishing out money for all sorts of projects, community groups, and a whole host of things in the run-up to the election.
So where is the government getting that money from?
Are they getting it from the bank they own - the Reserve Bank that’s creating $100 billion dollars?
Oh no. They're getting it by borrowing it from the rich investors and banks that just had a whole lot of cash turn up in their bank accounts through the process that I described a moment ago, of the Reserve Bank buying their bonds.
So with all this money they’ve got, they are lending it to the government. That’s the money that it's using to dish out to the New Zealand public.
What that means is that by 2024 government borrowing will be around $200 billion dollars. $200 billion dollars on which you and I and the other taxpayers will be paying about $5 billion in interest to these rich investors, banks and bond dealers and at the end of the loan term we’ll be repaying the money to them out of our taxes.
That means every year, $5 billion less tax money for health care, less money for education, less money to pay state sector workers a living wage, less money to build houses for people who don't have them, less money for all sorts of things that our society desperately needs.
If you owned a fish and chip shop and you produced really good fish and hips, would you go to the fish and chip shop down the road and buy your fish and chips for Friday night dinner?
Why would you go and pay a retail price for fish and chips that you can produce just as well from your own fish and chip shop at almost no cost?
But that's what the government is doing because of a self imposed man-made ideological construct which determines that it and its Reserve Bank must operate at arms length rather than work together.
So instead of using the bank it owns to fund its economic recovery package and all the other things that we need to have done in New Zealand, at virtually no cost, it's going down the road to rich investors and privately owned commercial banks and borrowing the money instead.
Does that make any sense to you? Because it doesn't to me.
If it got the money from the Reserve Bank it wouldn’t have to pay any interest or pay the money back. Why would you need repay yourself?
Using our own New Zealand owned, government owned, Reserve Bank to produce the money, or the credit if you like, that we need to do things for society seems absolutely the most sensible thing to do.
Using the country's credit to benefit Kiwis.
In other words using Social Credit.
“The government can borrow from the Reserve Bank. To be technical, it’s literally borrowing from itself. We should not close off any [options] just because somebody told us 30 years ago that it was bad.” Ganesh Nana - Radio NZ Morning Report 16.04.20.
“There’s no reason why you don’t get the Reserve Bank to effectively print the money and lend it to the government, just as [it] did in 1935, when it lent money to the government to build state houses.” Bernard Hickey - Radio NZ National 19.03.20.
“Issuing money in the current circumstances has impeccable support from mainstream economic thinking. In the current context it is the correct, most efficacious way to proceed. [Govt] should not be prisoners of outmoded, arch-conservative political doctrines.” Dr Geoff Bertram - BERL website 06.04.20 & NZ Herald 13.04.20
“What the 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.” Raf Manji - Interest.co.nz 23.03.20
“A sovereign country need never be short of money. We may, in particular instances, be short of the materials, skills, and labour needed for production, but governments can create money whenever we want and wherever it is needed.” Bryan Gould - Blog 21.03.20