Dom Post on Greens plan to print money

October 9th, 2012 at 3:00 pm by David Farrar

The Dom Post editorial:

New Zealand should have learned from bitter experience that it cannot shield itself from the vagaries of the international market. and National tried that in the 1970s and early 1980s and ran up debts that took a generation to repay.

New Zealand is a small trading nation a long way from its markets. The only way for it to survive and prosper is to be flexible, adaptable and resilient. If the balance of economic power in the world is shifting, there is no use pretending it is not.

The decline in the value of the US dollar and the euro is a reflection of the decline in the relative worth of the American and European economies.

The attempts by American and some European policy-makers to reboot their economies by printing money are acts of political desperation.

It makes no sense for a country which has weathered the global financial crisis better than most of its Western counterparts to emulate their risky tactics. Printing money – or quantitative easing as it is technically known – fuels , devalues assets and reduces purchasing power. Once started it is difficult to stop, as Germans discovered in the 1920s when wheelbarrows replaced wallets as the most efficient means of carting cash.

The plan will see shares in Mitre 10 and Xerox increase!

It is interesting that Labour has not ruled out printing money also – just that they don’t want their fingerprints on it. The summary is:

  • Greens will force the Reserve Bank to print more money, driving up prices for all NZers
  • Labour will amend the RBA, to encourage the Reserve Bank to print more money, driving up prices for all NZers
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36 Responses to “Dom Post on Greens plan to print money”

  1. davidp (3,558 comments) says:

    >Greens will force the Reserve Bank to print more money, driving up prices for all NZers

    Essentially the Greens want to make us more competitive by reducing our real incomes. In which case, rather than dicking around with the money supply they should just legislate a reduction. Drop the minimum wage and reduce everyone’s incomes by 10%, 20%, or however much they need to help the exporters and the finance industry they’re championing.

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  2. BeaB (2,084 comments) says:

    Why are the media going so easy on this? The Greens have shown themselves to be as mad as Social Credit. And Labour is going along with it.

    Funny money was also a bright idea of Pauline Hanson. Is that where Russel learned it?

    This should be electoral death for the Loony Left but the PM has been told off by the media for dismissing it! God help us.

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  3. Manolo (13,517 comments) says:

    Today’s featured letter to the editor also nails the chief comrade Luddite:
    http://www.stuff.co.nz/dominion-post/comment/letters-to-the-editor/7786465/Letter-The-man-with-an-opinion-on-everything

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  4. backster (2,123 comments) says:

    Russell has clearly been coached by this economist. http://www.garynorth.com/public/9263.cfm

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  5. Sam Buchanan (502 comments) says:

    Actually the debts ran up in the late 1970s and early 1980s were during the period when we began dismantling our shield against the international economy. Before that our government debt was pretty consistently low.

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  6. Pete George (23,345 comments) says:

    Farmers oppose printing money:

    The country’s biggest export sector is strongly opposed to the Green Party’s suggestion that the Government should print money to bring down the value of the dollar.

    The agricultural sector sells most of its products overseas and Federated Farmers says printing money would be “incredibly bad” for New Zealand.

    Federated Farmers president Bruce Wills says it would “set off an inflationary bomb that risks returning New Zealand to the dark days of double-digit interest rates”.

    Mr Wills says quantitative easing should be a “break glass in case of fire” policy option.

    “New Zealand is nowhere near such desperate measures because our official cash rate is 2.5 percent versus 0.5 percent in the United Kingdom, 0.25 percent in the United States and 0.10 percent in Japan.”

    http://www.3news.co.nz/Farmers-oppose-printing-money/tabid/1607/articleID/272070/Default.aspx

    Wills can see the pain past the short term (possible) gain.

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  7. Kevin (1,122 comments) says:

    Ever head of the oil shocks sam at 3.14?

    We have always been an export dependent nation. What really happened was that we were a first world economy, where government was about 25% of GDP. Then labour got in in 1972 and brought in a raft of generous benefits. When the oil shock hit in 1973, they spent everything paying for their policies. Then Muldoon got in in 1975 and borrowed senselessly to keep the benefits. New Zealand failed to diversify when our European markets dried up because it was easier to borrow.

    By the early 80s the country was virtually bankrupt but the inflation caused by these policies meant that enormous amounts of money were flowing into the government tax coffers – so much so that government became more than 50% of GDP and remains so to this day, strangling investment in vital industry so beneficiaries can have HD TV and RUVs.

    Labour in the 80s and National in the 90s paid back the debt by having a fire sale with our national assets.

    Then the baby boomers in national came up with the idea of turning our last remaining asset – land – into an export commodity. 90s national and naughties labour then dined out on this, then the crunch came.

    The damage was done but despite hardship in the 80s that many of us lived through, New Zealanders still think *to this day* that the world owes them a living!

    Hence the greens can suck in a lot of people with their Muldoonist policies and DPF is advertising it for them, thinking “all I need to do is show everyone how stupid this is and they’ll never vote for it”….. OMFG

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  8. Sam Buchanan (502 comments) says:

    “Ever head of the oil shocks sam at 3.14?”

    Yup – I even remember the ‘carless days’ of my childhood!

    “We have always been an export dependent nation.”

    Yeah, but we used to do such basic things as keeping our imports more or less balanced with our export earnings – that went out the window when Muldoon began the liberalisation of the economy.

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  9. Bevan (3,965 comments) says:

    Why are the media going so easy on this?

    It does make you wonder considering the shear hypocrisy of their statements.

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  10. Bevan (3,965 comments) says:

    Yeah, but we used to do such basic things as keeping our imports more or less balanced with our export earnings – that went out the window when Muldoon began the liberalisation of the economy.

    Yeah, that’s what I remember too – it was Muldoon who liberalised the NZ economy. Muldoon was the fat Labour right? You know pompous git who thought he could smell Uranium on everyone’s breath?



    PS: Nice attempt at history revision there buddy.

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  11. greenjacket (437 comments) says:

    Sam Buchanan: “Actually the debts ran up in the late 1970s and early 1980s were during the period when we began dismantling our shield against the international economy. Before that our government debt was pretty consistently low.”

    History lesson Sam. The debt started to run up in the early 1970s when Britain joined the EEC and the oil shock hit. Rowling and Muldoon borrowed like crazy, dished out benefits and subsidies to everyone, and created a fortress economy. The time you allege was when we began to dismantle our shield was in reality the golden age of the Economic Stablisation Act – we were the most heavily protected and regulated economy outside the Warsaw Pact.

    I suspect Russel Norman is influenced by 1970s nostalgia for the socialist command economies of that time.

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  12. Kevin (1,122 comments) says:

    I think Muldoon only liberalised borrowing. It was the 80s labour government, to their credit, that liberalised trade – it was inevitible though, but new zealand was behind our trading partners.

    The idea was good, liberalise trade, bring in user pays and consumption tax, and lower income tax.

    They did bring in user pays and consumption tax, but when they tried to lower income tax they got shafted.

    So were were left with the worst of both worlds – high user pays and high taxes.

    Enter 90s “what tax cuts?” national.

    Enter naughties Klark – mmmmm tax mmmmm

    Enter 10s national ..|..

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  13. Manolo (13,517 comments) says:

    Yeah, but we used to do such basic things as keeping our imports more or less balanced with our export earnings – that went out the window when Muldoon began the liberalisation of the economy.

    Stupidity square.
    Yes, Sam. North Korea is still doing that.

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  14. Kevin (1,122 comments) says:

    No Lange was the fat Labour. Muldoon fat national although you couldnt really tell the difference.

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  15. The Scorned (719 comments) says:

    Sam….lol…….clueless.

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  16. greenjacket (437 comments) says:

    Sam Buchanan wrote: “Yeah, but we used to do such basic things as keeping our imports more or less balanced with our export earnings – that went out the window when Muldoon began the liberalisation of the economy.”

    Yeah Right. Muldoon was a great liberaliser of the economy. He set interest rates and prices. Wages were set by government negotiated national awards. He set the exchange rate (burning up millions in value to do so). If you wanted to buy another currency you needed to write to the PM asking for it and explaining why. He subsidised preferred businesses (Muldoon’s support for the New Zealand car industry was a good one). Tariffs were absurd, leading to a ridiculous black market in secretly imported goods. He banned people from driving cars on certain days. He championed Think Big. He dished out benefits for just about everyone.
    So when, Sam Buchanan, do you think that Muldoon liberalised the economy?

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  17. tom hunter (4,568 comments) says:

    … that went out the window when Muldoon began the liberalisation of the economy.

    That must have been during the period when The One Ring was lost, before it reappeared on David Lange’s finger?

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  18. queenstfarmer (755 comments) says:

    I can just imagine Russel Norman chairing finance meetings of a Greens-Labour-NZ First government:

    Right team. Treasury has prepared a 58 page options paper for how to raise the next $2bn needed for our spending initiatives. Let’s start with option 1: IRD forecasts that by adjusting the Capital Gains Threshold to exclude deductions of less than $2,000 for depreciation on buildings with a capital value of less than… AH FUCK IT, LET’S JUST DO WHAT WE DID LAST MONTH AND PRINT ANOTHER $2 BILLION.

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  19. Sam Buchanan (502 comments) says:

    Sheesh…. read some history guys. Muldoon did deregulate – cutting import controls in particular. And note I said Muldoon began the liberalisation of the economy. I didn’t claim we had anything like a liberalised economy under Muldoon.

    And Greenjacket – take a look at the stats here: http://www.stats.govt.nz/browse_for_stats/economic_indicators/NationalAccounts/long-term-data-series/government.aspx

    Overseas debt did not start heading up in the early 1970s, but in the late 1970s – unless Treasury is telling porkies.

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  20. trout (921 comments) says:

    Good to see the informed giving Sam a history lesson. ‘Muldoon’ and ‘liberized economy’ don’t match. Those who can remember can tell Sam about currency restrictions, import restrictions. price and wage freeze, crippling sales taxes, wage subsidies (remember the $22 mill. gift to the freezing workers), farming subsidies, capital gains tax, massive borrowing etc etc. Incidentally Argentina is having a go at Muldoonist polices; import restrictions, currency restrictions and new taxes; we watch with interest.

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  21. Rightandleft (656 comments) says:

    It worries me that we now have all three major centre-left parties wanting to let the RB print money and drive down the dollar, even if two of them won’t come right out and say it.

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  22. Sam Buchanan (502 comments) says:

    ‘Muldoon’ and ‘liberized economy’ don’t match.

    I couldn’t agree more. Try reading what I said again.

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  23. tvb (4,255 comments) says:

    Your comments on this issue continue to display your childish ignorance. I suggest you do some reading on this matter not least the economist magazine. No one is running printing machines or anything like it. But where there is a collapse in money supply it is perfectly legitimate policy for the Central Bank to fill the void left by the banks who create most of the money. That is the conclusion of the Econmist. I predict the ignorant response of the Government on this issue will hurt them politically and it serves them right.

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  24. tom hunter (4,568 comments) says:

    But where there is a collapse in money supply it is perfectly legitimate policy for the Central Bank to fill the void left by the banks who create most of the money

    That’s not what’s being argued here. Not even the Greens have claimed that NZ is suffering from a collapse in the money supply and a resulting liquidity freeze along the lines of September 2008 in the USA. As the lender of last resort any central bank would be regarded as having to fill that role in such a situation, although libertarians have made solid arguments that having a central bank actually exacerbates such liquidity crunches and the resulting recessions.

    What is being argued here is that money should be printed for the government to spend as it sees fit – on Chch for example – in times when there is plenty of liquidity in the economy, with the side benefit of devaluing the NZ dollar and boosting our exporters.

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  25. SPC (5,473 comments) says:

    The public sector accounting changes that preceded SOE’s occured under Muldoon (part of a development from the initial simplistic “sinking lid” containment of spending growth) and Templeton negotiated CER.

    He also offered tax cuts in place of wage increases, thus a move to lower funding for government with lower wage costs to business, consistent with the above.

    His focus on Think Big was to reduce imported energy cost (pre floating of the currency) – to ensure a trade balance (the means foreign borrowing – made debt a contributor to an invisibles deficit).

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  26. wtfunz (133 comments) says:

    For those that have jumped on Wussells mickey mouse economics this makes an interesting read:-

    http://www.telegraph.co.uk/finance/comment/jeremy-warner/9554201/Money-printing-has-only-allowed-governments-to-duck-their-problems.html

    “Central bankers struggle to give convincing answers even on how QE is meant to work, let alone on whether it works. The best that can be said for it is that the spectacle of decisive policy action in itself might have some positive impact on confidence, but this doesn’t seem much of a payback for £375bn of money printing. QE has become a crutch – an ineffectual alternative to a proper, supply-side growth strategy.

    Prolonged monetary accommodation also carries considerable risks and, as noted by the Bank for International Settlements, may even delay the return to self-sustaining recovery. As demonstrated in spades by Japan, one effect is to insulate banks and governments from the need to address their problems. The economy stagnates rather than heals.”

    Perhaps most interesting is his summary of QE as “a crutch” which stops countries looking at the real problems they have with their economies with printing money only making them “stagnate rather than heal”.

    Sadly what is coming home to destroy this countries economy is a welfare system which a small economy cannot afford. Combine this with only a few contributing tax, and a political system (MMP) which dooms the country to middle of the road, try to keep everyone happy, decision making. Add to this the “Grievers” and a group wanting to live in the 18th century and you have todays result. An economy stalling despite the Nation producing goods the world cannot get enough off. If we could only get rid of the Gweens and start mining some of our wealth of mineral resources we would be much better of.

    Funny that a big part of the problem, the gweens, are suggesting a solution that totally fails to attack the real problems – ITS BECAUSE THE REAL PROBLEM IS THEM!!!!

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  27. SPC (5,473 comments) says:

    What a silly editorial.

    Printing $2B each year to fund the rebuild in Christchurch, rather than borrowing it offshore, is no more inflationary.

    And the amount is not sufficient to impact on the dollar.

    Whether the dollar falls in value now by any intervention, or later all on its own due to QE ending offshore, the Reserve Bank adopts monetary policies to prevent significant inflationary impact.

    wtfunz

    The dotcom bubble was replaced by a financial sector/property/public debt bubble, now we have QE bubble to keep the economy afloat. The banks are forced to address their problems – they have to re-capitalise to new Basel standards.

    Dare I ask how supply side policy deals with public debt and budget deficits – given the only proven way to grow GDP relative to debt and end budget deficits is to sustain tax revenues and hold spending across an economic growth cycle.

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  28. Johnboy (15,602 comments) says:

    Sheesh! Can’t see a problem with printing more cash as long as they do it on hemp paper man! :)

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  29. Monique Watson (1,062 comments) says:

    Oh, Sillies. The issues around QE are so simple even a housewife can get to grips with it:
    http://nowoccupy.blogspot.com/2012/10/russell-norman-suggests-currency-war.html

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  30. Left Right and Centre (2,883 comments) says:

    Let’s all vote Green in 2014. Aren’t you even the tiniest bit curious to see what happens when looney-tunes cartoon characters call the shots? We’re not even allowed to beat the snot out of kids anymore thanks to Sue. I can’t wait for my Green Party ‘carbon card’ telling me I can’t drive to the shops because I’ve used up my footprint for the week and didn’t plant any trees.

    Just remember… NZ likes to claim first country status to do XYZ … give women the vote… legalise being gay…. and… voting in a Green Party Govt… huh?…huh? 13%. And climbing… haha… like the temperature people… but 13% definitely *is* proven!!

    To quote a former PM: “I wouldn’t put them in charge of a 50 cent raffle”.

    Shit they are scary.

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  31. SPC (5,473 comments) says:

    The other side of the equation is that the proposal is to do two things – fund some of the city rebuild without increasing debt and to rebuild the Earthquake reserve fund – thus using dollars (when it is at a high value) to buy up offshore assets. Bollard did something similar the last time the dollar was strong before it peaked and then declined – he made a bit of money for the RB doing it (not so much chance this time, as who knows when the offshore QE will end).

    The idea, that we do nothing, while others do their QE reminds me of our virtuous trade policy – we abandoned tariffs before our trade partners and then we wondered why they would not end their agricultural subsidies and tarififs and it was so hard to get them to do bi-lateral trade deals. We were in no good position to negotiate.

    It’s as if we expect our free trade and independent monetary policy virtue to be rewarded.

    What virtue and what reward? Because we had no CGT, foolishly excluded housing from the inflation stats and allowed unlimited offshore financed lending to home buyers, we allowed house prices to become unrelated to wage income. And so we now expect the younger generation to use Kiwi Saver savings income to afford paying their rent when they retire. And we are told to adopt a developing countries attitude – mine, fish, drill and over stock – to resource mangement, conservation and environment.

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  32. Anthony (785 comments) says:

    Quite right SPC, and it’s quite obvious that we are relying on foreigners to prop our economy up because we haven’t paid our way in the world since 1973. Yes, we sometimes have a balance of trade surplus but you also have to consider all the invisibles like all the well off superannuitants still working and going on their annual overseas trip to spend their taxpayer funded handout in way that gives no benefit to the country.

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  33. wtfunz (133 comments) says:

    SPC – a very apt name indeed.
    SPC = an Australian canning company, famous for baked beans and fruit. I suspect you are both.

    Printing money and QE are fantasticly successful according to you. Please show me 6 examples of this as a successful economic strategy. You call insightful articles by economics specialists silly so you obviously have some actual facts to the contrary.

    You also didn’t answer the last question – What jobs are you going to create. Try to think of an answer this time.

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  34. Elaycee (4,333 comments) says:

    Anthony:

    …like all the well off superannuitants still working and going on their annual overseas trip to spend their taxpayer funded handout in way that gives no benefit to the country.

    Oh, bollocks. Taxpayer funded handout???

    You have clearly forgotten that the same (working) superannuitants have paid tax all their working lives in order that they can have a retirement fund (pension). And they have the right to decide how to spend it – including overseas trips!

    Now, promise me you’ll think before you burst into print again.

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  35. Kevin (1,122 comments) says:

    Actually SPC has kindly filled in the rest of the hstory of how we came to be in this mess in the first place. The only thing no one can explain is why the hell we are not in the same situation as Greece. I guess the answer is “Milk” and land are still desirable export commodities here, and there are still rich asians and hollywood buyers.

    Elaycee – yes but many of them made their money by house price inflation. Then as SPC explains in the 90s the baby boomers panicked so orchestrated what Bernard Hickey calls the largest intergenerational transfer of assets in history, by pretending that accomodation costs do not contribute to inflation. As a result everyone was able to borrow against house price inflation allowing the governments of the 90s and naughties to pretend we had a pumping economy.

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  36. SPC (5,473 comments) says:

    wtfunz, an expert who thinks “insulating economies and banks” is a bad thing, is no expert.

    Placing the issue in quarantine enables time to resolve underlying problems, citing Japan as evidence that this can lead to failure to deal with underlying problems is insufficient arguement. One could cite an ability to borrow, as leading to the end to a savings ethos and then claim that the ability to borrow undermined the concept of responsibility. Or that fractional reserve contained similar risk and thus call for a return to a gold standard or some other constraint.

    In the case of Japan, no policy would appear to have worked – the country has a declining population (deflation risk) as it is managing economic decline. They could have done better in dealing with the banking/property debt, but the cover of QE was the best insulation available. One imagines they will look at “debt monetisation” if public debt becomes a problem.

    You don’t think that there is an alternative jobs plan to adopting a developing countries attitude – mine, fish, drill and over stock – to resource mangement, conservation and environment? Check out the Green Party web site.

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