How they plan to pay for their promises

March 14th, 2013 at 4:00 pm by David Farrar

printmoney

 

This is the alternative. They honestly seem to believe that you can enrich a country by just printing more money. I thought this lunacy died out with Social Credit.

The only Western countries doing QE are those which have the official cash rate near zero and have run out of other options. No sensible country is advocating printing money in the circumstances NZ is in.

There is a difference between a last resort and a preferred option. As an analogy if someone is dying from blood loss through a severed limb then a tourniquet is your last resort to stop them dying. But if they have just cut their leg open a bit, you don’t apply a tourniquet as your first response because the impact of doing so is very nasty.

In monetary terms, the nasty impact is prices go up and up.

You can see the Twitter debate here.

Be scared, be very scared. Most Green policies will just be inefficient and waste money but not necessarily be hugely harmful. This one is different.

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122 Responses to “How they plan to pay for their promises”

  1. Tristan (63 comments) says:

    Hidden due to low comment rating. Click here to see.

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  2. Rick Rowling (813 comments) says:

    If it’s good for the state to enrich itself by printing more money, it should be okay for the public to do so, too.

    That way we can all be rich!

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  3. Manolo (13,828 comments) says:

    Criminal, utterly criminal!

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  4. hmmokrightitis (1,590 comments) says:

    Norman is so like the C level idiots I used to consult – the ones who would find a management text book in the odds and ends bin at Whitcoulls on a Saturday morning, and turn up to work on the Monday armed and ready to deliver the latest fad. Fucking morons should be taken out and shot. Told them to stop reading and start listening as a start.

    Its funny though, as an economist, the intellectual side of it appeals to me – but not to the pragmatist who would see the value of everything diminish. It would be fascinating watching norman and his idiotic mates start printing, and watch it all collapse around them whilst he squeaked for his flag back.

    The aussies must laugh at us for the donkeys we send over there to drive trucks in the mines. Can they take this one back?

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  5. All_on_Red (1,584 comments) says:

    FFS, just look at the MPs The Greens have. Its ridiculous to think they have any ability to manage anything, let alone govern NZ.
    The irony is their policies are going to hurt the poor and the elderly severely. Let us hope that NZ follows the trend around the world as the Green parties get thrown out of office, Western Australia being the latest.

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  6. bhudson (4,740 comments) says:

    The leaders of the Weimar Republic refused to accept a link between their printing money and the deterioration of the economy. At its height (worst) a wheelbarrow was worth more than the total German banknotes it could hold.

    Russel Norman is preaching wheelbarrow economics

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  7. alwyn (427 comments) says:

    I think you are just making this up David.
    It’s just like Russel registering for the Mighty River Power share offer. It was someone, probably in Key’s office, putting his name in. At least Russel doesn’t remember having registered, so it must have been someone else.
    Russel didn’t really write this. It is just someone in the PMs office pretending to be the Green Party co-leader.
    Unfortunately it isn’t true and he really is this stupid. Who ever allowed Political Science to be recognised as an academic subject?

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  8. davidp (3,581 comments) says:

    Norman believes in cutting real NZ wages and salaries. He should be honest with the public and say that is what he is doing. If the difference between NZ and Australian wages is currently 20%, then Norman needs to tell people what his target difference is. 50%? Higher?

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  9. alex Masterley (1,517 comments) says:

    Whenever I hear Mr Norman talking about green economic policies for some reason an image of the Monty Python skit “bring out your dead” pops into my head. Maybe it is because the social and living conditions portrayed in that skit are the direct consequence of the policies the Greens wouldimpose on us.

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  10. Cunningham (844 comments) says:

    Stick to tree hugging and snail preservation comrades.

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  11. Carlos (683 comments) says:

    The question shouldn’t be, “Why aren’t we printing money?” but rather “Why are we borrowing money?” Because we have a bloated government and welfare system and an inefficient tax system.

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  12. queenstfarmer (782 comments) says:

    Why just print “some” more money, Russell? Why not cease all borrowing and just print all the money we need! In fact, why not print a trillion dollar note, then all problems would be solved instantly.

    Green economics – so brilliant that no-one has thought of it before.

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  13. Cunningham (844 comments) says:

    Carlos (593) don’t worry though because the Greens will be able to pay for that with printing money. You see how genius this idea is? It goes something like this:

    Print money
    increase welfare
    increase size of govt sector
    increae tax
    Print more money
    increase welfare
    increase size of govt sector
    increase tax
    etc

    eventually we will all be either beenficiaries or work for the government. See no need for the private sector at all (and those greedy employers). Hurray for the Green machine and their great ideas!

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  14. Yoza (1,879 comments) says:

    We should skip printing NZ$ and go straight to printing US$, trillions of those things can get printed and they still maintain their value.

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  15. All_on_Red (1,584 comments) says:

    Hmmokrightitis
    What do you think about the resurgence of interest in Says Law? It seems that stimulating production rather than demand is the way to go.

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  16. Komata (1,191 comments) says:

    davidp

    The problem is that he very deliberatly won’t – it doesn’t suit the carefully-cultivated and maintained public persona/image of the gweens ‘being only interested in the environment’. The ‘persona/image’ worked successfully for them so far and all the little old ladies who feel sympathy for the poor endangered wildlife, and the oh so knowledgable and caring, fresh-out of high school university students (also frequently of female persuasion), think that the gweens are soooo wonderful.

    The problem is tht the MSM, because they are involved in the whole socialist ideal themelves anyway, never intend to even tell people that such is not the case; that the gweens are as power-hungry as any other group, and doubly-dangerous because of their hidden communist agenda.

    Sadly, I can’t see the situation changing anytime soon. And as for Wussell telling people the truth? Tui moment!

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  17. alex Masterley (1,517 comments) says:

    The USD has value?
    What you want to buy is the Chinese currency mate. It will take over from the USD in the next 2-3 years.

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  18. Paulus (2,631 comments) says:

    Bloody frightening,
    BUT, a number of the female kind think he is a lovely fella (with a partner and a baby) , irrespective of his total lack of economic views.
    Sure he has never had a real job, but what does that matter to the masses.
    The media love him too.

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  19. RightNow (6,994 comments) says:

    I bet he used to cheat at monopoly by sneaking 500’s when nobody was looking.
    In the real world this will drive up house prices, devalue Kiwisaver /superannuation funds, and make it harder for minimum wage earners and beneficiaries to make ends meet.

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  20. hmmokrightitis (1,590 comments) says:

    AoRed, where to start really.

    The Say concept of money, hoarding irrationality for example, tends, for me, to undermine his theory around product driving the market. IIRC, and I could be wrong, he stated there was no reason to hoard money for eg. There is an implicit contradiction that he never really resolved in that.

    But then its economics. Its full of contradictions :)

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  21. labrator (1,850 comments) says:

    Apparently all you need to do is read a speech by “Lord Adair Turner” and you will be enlightened. That’s the fundamental problem with the Greens, they think they’re smarter than everyone and can control everything. Exchange rate too high? Print money and then if something bad happens, they’ll work out what to do with that then cos they’re that smart.

    In fact, the only speech I could find that Dr Norman seems to reference, was summarised here and says

    Quantitative easing, he noted, has pushed up growth and inflation only “slightly higher than would otherwise have occurred”. A pretty damning verdict for the policy that is the cornerstone of the Bank’s approach to generating growth.

    Not sure how that’s a glowing endorsement of the Green’s “print money” policy.

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  22. All_on_Red (1,584 comments) says:

    Hmm etc
    Yes, the hoarding part had me scratching my head but it does seem Keynes is wrong and we should change. Stimulating demand doesnt appear to work.

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  23. Oskar (34 comments) says:

    My financial advisor has suggested I look carefully at how much I hold in term deposits and the term that it is in for.
    His reasoning was that should a Labor/Greens coalition come in late next year and start “quantitative easing” then the resulting inflation will over time destroy the value of such savings. The issue then is where to put savings where they are inflation protected.
    His comment was the current crop of younger politicians (and business people) – ie in their 40’s and below – have not lived through a period of high inflation such as we had in the 1970’s and 1980’s when it reached 20% so they have not lived through its effects.

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  24. wrightingright (143 comments) says:

    good grief! Do we have a more dangerous politician in NZ?? Maybe Winston tops him.

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  25. hmmokrightitis (1,590 comments) says:

    AORed

    Im not a pump primer by any stretch – I think its safe to say my economics are Adam Smith like, tending towards the invisble hand and less government than more. But then reconciling that with the complexity of a modern global economy is fun if youre a nerd like me :)

    TBH, I think the approach that the Nats have taken during a contraction / recession, whatever you want to call it is almost right. Gentle hand on the tiller, provides certainty, and let the basics drag us slowly out. When you compare us with the likes us Greece, Spain and Portugal, weve faired very well indeed, given we are a tiny little country at the bottom of the world.

    But then the baying left would have us think otherwise :)

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  26. hmmokrightitis (1,590 comments) says:

    “Maybe Winston tops him”

    Oh god, I’d pay good money to watch that :)

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  27. RightNow (6,994 comments) says:

    Oskar – “The issue then is where to put savings where they are inflation protected.”

    I’d suggest property as QE will push prices up, but then there is always the chance a Greens led coalition will re-distribute it somehow.
    Might be better to buy yuan.

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  28. All_on_Red (1,584 comments) says:

    McVickar writing in 1825
    “It is a fallacy and an absurdity to suppose that production can ever be encouraged by a wasteful consumption of the products of industry. A man is stimulated to produce when he finds a ready market for the produce of his labour, that is, when he can readily exchange them for other products. And hence the true and only encouragement of industry consists, not in the increase of wasteful and improvident consumption, but in the increase in [value adding] production.”

    Money printing stimulates consumption but not production. Production leads to prosperity.

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  29. Ryan Sproull (7,195 comments) says:

    You lost me at “Twitter debate”.

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  30. Warren Murray (311 comments) says:

    Where to begin?

    Well dealing with the issue of our borrowing from overseas and paying interest. At the moment i see it as a win-win. Our credit worthiness must be good. The interest being paid is low, yet to the lender whose domestic interest rates are near zero, it is a good yield. But imagine what happens under QE, the lenders will quickly want to get their money back. If the loan is in foreign currency, the amount to be repaid will balloon. NZ credit worthiness will be buggered as financial markets recalibrate our ability to service and repay the debt. If the loan is in nz$, it will be less of a problem, but i expect the lenders will have protected themselves.

    DF, you seem to start frothing at the mouth every time Russell tweets, perhaps with good cause. But i think the Greens enjoy baiting you. As this seems to be Green policy, can you set out how it would be implemented? I honestly don’t know; would Russell as Min of Finance direct the Reserve Bank to print money? Would he direct the Treasury to issue bonds? would legislation need to be passed by Parliament? I suspect (hope) it wouldn’t be that easy for the Greens to wreck the NZ economy.

    It will be interesting to monitor the polls and the exchange rate and money markets in the run up to the election. If the markets anticipate Russell becoming minister of finance, the exchange rate will dive and interest rates will go in the opposite direction.

    Like others, i would not want want to have much cash in a NZ bank. Good time to buy another house….

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  31. Elaycee (4,393 comments) says:

    Wussel Norman….. Bringing Zimbabwe monetary policy to a country near you. :(

    I shudder at the mere thought of this moron ever being in charge of our country’s fiscal policies….. 8O

    What the hell have we done to deserve it?

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  32. Keeping Stock (10,342 comments) says:

    In between Winston Peters wanting to steal from the NZ Super Fund to re-nationalise SOE shares, Russel Norman wanting to fire up the printing presses and David Shearer leading the Labour Party seemingly by remote control, the thought of a change of government in 2014 fills me with absolute dread.

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  33. Kea (12,841 comments) says:

    Norman can get into government the same way Clark did. By promising unaffordable hand outs to people with kids they can not afford and beneficiaries. Destroying our capitalist economy would be an added bonus in the eyes of the greens. Kiwis have already shown they are dumb enough to fall for it.

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  34. UglyTruth (4,551 comments) says:

    So NZ is borrowing other countries freshly printed money and paying them interest for the privilege. So why don’t we print some of our own?

    For the same reason that the Federal Reserve is a private institution.

    Give me control over a nation’s currency, and I care not who makes its laws. (Mayer Amschel Rothschild, 1743-1812)

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  35. Pete George (23,591 comments) says:

    “In between Winston Peters wanting to steal from the NZ Super Fund…”
    And from Kiwisaver, but he didn’t explain how he proposed to do that.

    Mr Peters said he would be happy for a Government of which he was a part to borrow or to use the superannuation fund to buy back shares at no more than cost.

    Mr Peters said his NZ First party was renowned for going into negotiations “knowing what we want and getting what we want”.

    “Borrowing money would make economic sense because the returns would make that totally feasible, but there are other resources,” he said.

    “You’ve got the superannuation fund, KiwiSaver or a number of avenues or options you could exercise.”

    Just imagine the top three running the country, Shearer, Norman and Peters.

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  36. bchapman (649 comments) says:

    Maybe NZ could revert back to the gold standard, NZ government could sell all its assets and stop borrowing hand over fist like it has been. No more PPP deals paid for on the never never either. That would solve any inflation problem.

    Kea by unaffordable handouts are you referring to the $14B roads program or just the Christchurch rugby stadium proposed?

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  37. thedavincimode (6,777 comments) says:

    chapman

    Maybe you could clarify what you mean by PPP deals being paid for on the never never. The conventional PPP deals mean that the gummint winds up holding the baby at the conclusion of the private equity phase and the users have paid for the asset. In some instances, the user will be government, but in others, for example the holiday highway that will allow Northland to connect with the rest of the country, the users do. There is no never never in the conventional PPP model.

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  38. thedavincimode (6,777 comments) says:

    … and BTW, I would be interested to know why you (appear to) believe that there is no long term benefit in gummint investing in long term infastructural assets (like roads) that promote economic growth and a consequential annuity revenue stream in the form of taxation. And I include a rugby test & Super [whatever the fuck the number has got up to now] venue in that mix.

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  39. bchapman (649 comments) says:

    tdcm,

    Surey the idea of a PPP is for taxpayers to pay the PPP operator later on. Thats unless you can use the asset to raise income. Given the costs and likely traffic counts for some of these roads that highly unlikely. Tell how that is different to borrowing the money, raising bonds or deferring debts payments or any otehr way of expnading the money supply? Only difefrence with a PPP is that a profit margin gets shipped off overseas.

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  40. ross69 (3,652 comments) says:

    This is the alternative. They honestly seem to believe that you can enrich a country by just printing more money. I thought this lunacy died out with Social Credit.

    Funnily enough, I haven’t seen you criticise David Cameron for printing money. When the Tories print money, it’s a good thing.

    What’s lunacy is selling strategic assets.

    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10869145

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  41. Warren Murray (311 comments) says:

    Tristan has a point. If the greens get in power, they can say they have a mandate to debase the currency and can ignore any referendum that might be sought to challenge them.

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  42. ross69 (3,652 comments) says:

    “Every major economy has been printing money to help offset the liquidity crunch caused by the global financial crisis of 2008.”

    http://goldsea.com/Text/index.php?id=14160

    Sounds like every major economy needs to consult our resident expert, David Farrar, who will be only too happy to share his expertise on economic matters. :)

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  43. hmmokrightitis (1,590 comments) says:

    Oh dear ross, is it hard dragging yourself up for the fight some days?

    Firstly, your grip of economic fundamentals is dire. The huge differences between the UK and NZ economies for a start, even if both were scalable to compare, means that whats appropriate in one simply isn’t in another. As a financial centre, the UK has utterly different fundamentals than NZ. Easing in a tiny commodity export market vs. huge financial and diversified trading market? Please. Your status as cock remains intact.

    And second, your above quote, how selective. China has been printing faster to keep pace with its economy, but not so much that it over heats. In fact, the Chinese model has also been textbook in how to slow a domestic economy gracefully. Of course major economies print money you monkey, they have to. QE isnt just printing money. Sigh.

    Cock 2 Sane 0

    Dearie me, back to bed dear boy.

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  44. libertyscott (359 comments) says:

    A little knowledge is a very dangerous thing in the hands of a politician.

    The problem is he has listened to Lord Turner – the politically appointed outgoing Chairman of the UK FSA, the Chairman who led the FSA before and during the banking crisis. You can judge whether having presided over that crisis and bubble, partly generated by the money printing bubble of fiat currencies, makes him fit to comment on macro economic policy. He did once strongly advocate the UK joining the Euro, but has since admitted he was wrong. He wanted to be Governor of the Bank of England, but had little chance at the job. His outbursts on monetising public debt are one key reason.

    Russel has not an iota of a clue about how QE was implemented, and why, what the result of it has been in the UK and USA (which is recapitalised banks and created a new stockmarket bubble), and the state of the debate over this. Lord Turner is considered a radical by wanting to monetise public debt. This is not mainstream in monetary policy (even for QE advocates), and the widening view in the UK is that QE has failed to do anything more than recapitalise failed banks, at the expense of pensioners and other savers, and now businesses dependent on imports, and consumers buying imports or taking overseas holidays.

    UK inflation has been higher than NZ’s for the past few years, with a stagnant economy – QE created the former and has done little for the latter.

    The market reaction to a NZ government even looking like it will seriously monetise public debt, would be to send NZ interest rates sky high, and to cause a significant drop in the NZ$ (Russel gets quite excited about that), and risk the country’s credit rating, because it would show it is not serious about paying back debt, but rather inflating it away. It is almost always the resort of tin pot dictatorships. Lord Turner has called for it as a way of getting out of exceptional circumstances, but he is wrong – it is a very high risk strategy.

    It is exactly parallel to the “mint a 1 trillion coin” idea floated recently for the United States.

    Few take it seriously, but if Labour doesn’t make it clear that the Greens will be nowhere near monetary policy, it risks being an electoral liability – followed by an economic one.

    I wouldn’t want to have a NZ$ bank account with much in it if it looked like a Labour-Green victory with Russel perhaps being Minister of Finance or even Associate with responsibility for monetary policy.

    He means well, but him expressing opinions on this is like having him go to a lecture about medicine and then deciding he can diagnose ailments and prescribe remedies or surgical procedures.

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  45. Longknives (4,763 comments) says:

    Greens are bonkers.
    (Keep smoking that ‘magic’ herb Wussel!)

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  46. Nick K (1,244 comments) says:

    I learned in 5th form economics (28 years ago!) that inflation’s main cause is increase in the money supply (M3). Then I learned, in the same year, that inflation devalues incomes and wealth. It is not called the enemy of the poor for nothing.

    Russell Norman: The real enemy of the poor.

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  47. Longknives (4,763 comments) says:

    Nick K- I remember in 4th form Economics (Almost 25 years ago) someone putting up their hand and asking “Why don’t we just print more money and give everyone a Million dollars?”
    The teacher and the whole class laughed. The teacher then politely again explained basic economics to the class..

    How much weed are the fucking Greens smoking???

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  48. bhudson (4,740 comments) says:

    @Nick K,

    I think you might have noticed how he never talks about the increase in the cost of living when he talks about printing money. He talks about dearer big screen TV’s, but doesn’t mention more expensive food, clothing, petrol and finance (long term mortgage debt.)

    He talks about exporters being more competitive, but doesn’t mention how any of them that have imported components in their supply chain (components or plant) will be paying much more. Hell, even farmers have to deal with imported petrol on top of their debt.

    He doesn’t talk about what workers faced with higher costs of living will demand from employers. And what that will mean when combined with higher input costs… Either increased prices (which undermines the improved competitiveness he claims from the lower dollar) or lower employment. Which in his new world order means fewer people earning wages that buy less.

    He calls that success!!

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  49. UglyTruth (4,551 comments) says:

    inflation’s main cause is increase in the money supply (M3)

    Doesn’t borrowing money from offshore also increase the money supply?

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  50. Longknives (4,763 comments) says:

    God fucking help me…

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  51. UglyTruth (4,551 comments) says:

    God fucking help me…

    I expect he’s got better things to do.

    If creating your own money leads to financial ruin then why did Australia do it to finance its war industry?

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  52. bchapman (649 comments) says:

    inflation’s main cause is increase in the money supply (M3)

    So we shouldn’t decrease interest rates, issue bonds, realise our EQC insurance policies, sell assets off shore or do anything that might bring money back to NZ???

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  53. Yoza (1,879 comments) says:

    I love the way some people attempt to adopt a posture of patient superiority to appear to make a point, but don’t actually say anything at all. For example: “Of course major economies print money you monkey, they have to. QE isnt just printing money. Sigh.”

    Silly ‘Hmm o.k. right it is’, all economies that use money have to print it – or more appropriately create it digitally in cyberspace. The problem the global economy has been landed with is the process of creating money out of nothing has largely been usurped by private interests in the service of private interests. The US and UK are creating money to try to cover holes in the creative accounting which brought the global system to the brink of collapse – this is, of course, an ‘acceptable’ form of money ‘printing’. The general public of those countries have effectively been rendered collateral in an attempt to cover the gambling losses of the planets largest private financial institutions. Privatise the profits, socialise the losses.

    What is not allowed, however, is ‘printing’ money to maintain an economically competitive currency. This is why the US, after ‘creating $16 trillion dollars to pay off the debts of major financial institutions (see page 131 of the pdf file – courtesy of the US Government Accountability Office – for a run down of which bank got what ), got all uppity about China and Japan’s efforts to protect their manufacturing exports by devaluing their currencies.

    The real problem with Russell Norman’s suggestion is the New Zealand government is not allowed to unilaterally manipulate our currency, we are are prohibited from expressing our ‘sovereignty’ in the manner Japan and China express theirs. The New Zealand currency is a commodity that is predominantly owned by private foreign interests, if Russel Norman attempts to get his way the façade of independence will be quickly stripped away and we will bear witness to the true nature of our ‘sovereign independence’.

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  54. SPC (5,636 comments) says:

    Ugly Truth

    Borrowing offshore to finance home/farm purchases increases asset values – not measured in the inflation figure.

    Borrowing from offshore to finance the public debt rather than local savings, leaves local savings to buy the 49% of power companies and other stocks – the local stockmarket gains of the last year or two.

    The stock market boom on Wall Street is in part a result of QE floating asset values upward.

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  55. SPC (5,636 comments) says:

    The Swiss exercised QE simply for currency reasons – to lower the currency value against the Euro (they bought lots of Euros).

    Their economy is not in anything like the condition of the US or UK etc – it would be like us doing it for currency management/economic advantage reasons.

    The Swiss example disproves the argument that countries only do this when they have no other tools left – countries do this because the IMF accepts countries using QE to create economic growth (open competitive devaluation is frowned upon – it’s like when people buy rentals to invest in the rent return not for the CG, so long as they say that they might avoid CGT). The Japanese and the Swiss did it to support export competitiveness. The UK and USA have better excuses but a devalued currency aids their economic recovery.

    We don’t need it for economic recovery – but only because we have the rebuild, otherwise the government would probably be the ones considering it. Combined with the rebuild it would be inflationary unless moderated to a limited amount (thus little impact on currency, apart from psychological ) – and ironically for all the scaremongering on this blog, the Green proposal was for a limited amount of it (to rebuild the EQC by investing the “money” offshore and as a way to part finance the rebuild without OE borrowing).

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  56. UglyTruth (4,551 comments) says:

    Borrowing offshore to finance home/farm purchases increases asset values

    Why didn’t you answer the question, SPC?

    Again, doesn’t borrowing money from offshore also increase the money supply?

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  57. expat (4,050 comments) says:

    No, because NZD from offshore is part of the existing money supply http://en.m.wikipedia.org/wiki/Money_supply
    While printing is creating new money.

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  58. Keeping Stock (10,342 comments) says:

    During the 1978 election campaign there was a bumper sticker that read

    If Social Credit is the answer, it must have been a stupid question

    Fast forward to 2013, and substitute “Russel Norman” for “Social Credit”…

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  59. ross69 (3,652 comments) says:

    I learned in 5th form economics (28 years ago!) that inflation’s main cause is increase in the money supply (M3).

    Nick, your talents are wasted. You should be consulting the governments of the US, UK, China, Japan, India and the EU. They’re all printing money – but they’re wrong and you’re right. You could make a fortune! LMAO

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  60. ross69 (3,652 comments) says:

    ironically for all the scaremongering on this blog, the Green proposal was for a limited amount of it (to rebuild the EQC by investing the “money” offshore and as a way to part finance the rebuild without OE borrowing).

    Quite right. But the Right would rather sell strategic assets and borrow, ensuring NZ’s indebtedness for many years to come.

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  61. UglyTruth (4,551 comments) says:

    NZD from offshore is part of the existing money supply

    In economics, money creation is the process by which the money supply of a country or a monetary region (such as the Eurozone) is increased. A central bank may introduce new money into the economy (termed ‘expansionary monetary policy’) by purchasing financial assets or lending money to financial institutions.

    http://en.wikipedia.org/wiki/Money_creation

    Seems that you are lying again, expat.

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  62. ross69 (3,652 comments) says:

    I learned in 5th form economics (28 years ago!) that inflation’s main cause is increase in the money supply (M3).

    So the rapid rise in house prices in Auckland isn’t caused by demand exceeding supply, it’s caused by an increase in M3…strange then that the rest of the country isn’t experiencing the same rise. Obviously the increase in M3 is confined to Auckland! :)

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  63. UglyTruth (4,551 comments) says:

    So the rapid rise in house prices in Auckland isn’t caused by demand exceeding supply, it’s caused by an increase in M3

    Nick wasn’t talking about Auckland, which has an under-supply of houses relative to demand.

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  64. Lipo (229 comments) says:

    Sorry I seem to have missed the point
    Russell is correct – why do we borrow other peoples printed money and pay them interest on it?
    No a lot of discussion here on that.
    My quick thoughts is there is not much difference to printing it ourselves except the interest payments and eventually the principle will eventually be taken back out of our economy. With printing money ourselves I would imagine it would always stay in the economy and be inflationary.

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  65. UglyTruth (4,551 comments) says:

    why do we borrow other peoples printed money and pay them interest on it?

    Lipo, that question leads to the conspiracy heartland.

    As soon as you start printing money you devalue the money that is already in circulation. This effectively takes wealth away from those who have money and puts that it into the hands of those who printed it. This is true both at a national level and at a global level.

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  66. thedavincimode (6,777 comments) says:

    chapman

    I doubt all these PPP deals will be structured the same, but the broad general principle is that the PE players are not in it for the long haul and the revenue streams during the PE phase pay them out (in say 20 or 30 years or whatever). So, in the case of a toll road, there is a revenue stream to wholly/partially fund the returns to PE investors, including their return of capital. In the case of a prison, the revenue stream will be reflected in charges to gummint for operating it or leasing the facilities. If the PE is paid out, gummint winds up owning the asset.

    A gummint would enter into such arangements for essentially the same reasons that a commercial organisation might decide to enter into sale and lease back arrangements of its assets – buildings are a classic example. You might at first sight think that this is silly if the lease charges exceed cost of funds, but in fact there are other relevant factors such as the opportunity cost of capital tied up in the assets. A business would do this because it can achieve a better return on the amount invested in buildings by investing it elsewhere in the business. It can also improve the balance sheet and affect the cost of borrowings. That paradigm is just as valid for gummint, but with at leasdt two significant differences. First, gummints get something in the nature of notional social returns on investment eg committing less capital investment in a prison might enable more capital expenditure on a hospital or school, or it might enable the capital to go further , eg the purchase of a prison, a hospital and a school without blowing out the balance sheet and putting pressure on borrowing costs generally. Second, in the case of infrastructural assets that directly impact economic growth, there is an added return in the form of annuity increases in tax revenue.

    There is of course the red russell alternative which is to print money and drag our economy down to the level of the economies that are so fucked that they can’t lower interest rates any further and are desparately printing money to stimulate demand.

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  67. nzd.gbp (130 comments) says:

    Before Russell Norman advocates printing money he needs to explain what the problem is he wants to solve and why printing will fix it. Let’s see if he can write a compelling argument rather than just tweet about it.

    Such an explanation would need to acknowledge the costs and the benefits, especially since a drop in purchasing power is borne more heavily by the poor. Is he denying that printing money is inflationary? It seems he must be. Alright let him explain why he thinks so.

    He’s the one advocating taking action to deviate from the status quo so the burden of proof surely falls on him to justify taking such action?

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  68. Fairfacts Media (372 comments) says:

    QE has been a disaster in the UK.
    Coupled with Cameron’s green taxes, it has only fuelled inflation in the UK and lowered living standards.
    The UK stands on the verge of a triple dip recession.
    QE hasn’t worked in the US either.
    Economists need honest money, a tight control on inflation and paying savers a decent return.
    QE is wrecking the savings of the elderly everywhere.

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  69. nzd.gbp (130 comments) says:

    Also, to answer his question: Why do we borrow other peoples (countries) freshly printed money and pay them interest for the privilege?

    That’s a good question Mr Norman, but why will printing NZ dollars help those kiwi borrowers if the debt is not denominated in NZD?

    If we borrow USD for example, we need to pay them back USD. If we earn NZD and then dilute it’s strength by printing more of it, we need to earn more before we can have enough to exchange for the USD to pay our debt back. Printing NZD will do the opposite of helping those borrowers.

    What borrowers is he talking about?

    He is talking about NZD denominated debt so when we pay them back we just have to print it. What will this do to the rates we have to pay on the debt do you think Mr Norman? If our creditors know that the money they get at maturity will be diluted NZD’s? Worth less than it is at the start of the debt? Do you think they’ll want compensation for this loss of value?

    He needs to explain. I’m not satisfied with his greenie monkeys above.

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  70. thedavincimode (6,777 comments) says:

    nzd.gbp

    I don’t know what the currency mix of external government borrowing is, and to what extent it’s hedged, but the first blush inherent contradiction in norman’s comment is that we’d be nuts to print money and pay higher NZD interest rates; that instead we should be borrowing up large in FX because of their negligible interest rates. No doubt that isn’t the answer given the way government FX exposures are managed, but it is the answer at norman’s amoeba level economics.

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  71. wat dabney (3,774 comments) says:

    Lipo,

    Borrowing money is simply to defer taxation. Tax payers (i.e. mostly higher-earners) are still on the hook to pay it back.

    Printing money devalues everyone’s money, although the rich are significantly protected by owning assets which simply rise in nominal value. So it is highly regressive. Russel is proposing to piss all over the poor, again.

    Although of course in practise the central bank must and would raise interest rates by precisely the amount to offset the effect of Russel’s stupidity (this is the essential step which he is obviously completely clueless about and which doesn’t take place in economies which are on their knees.) The total amount of money in its various forms in the NZ economy won’t change thanks to Russel’s genius, but interest rates will be higher (and the NZ dollar will be even higher.)

    And just as importantly, the morally bankrupt Russel of course completely fails to consider the morality of printing money and how it punishes the prudent and rewards the feckless.

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  72. hannity (152 comments) says:

    If printing money is insane,
    WTF is borrowing printed money and loading the interest bearing debt onto your grand children?
    Good business according to the usual NJs’
    300 mil a week to go backwards .
    Add NZ to Keys’ long listed of failures Lane Walkers, Elders, Merrill Lynch.
    What A fucking embarrassing legacy.

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  73. thedavincimode (6,777 comments) says:

    hannity

    So, it sounds like you have an alternative policy. Are you advocating increased taxes, spending cuts, or both? What if any tax increases would you propose and what specifically would you advocate by way of spending cuts – how much, in which areas, how quickly and what will be the fiscal and social costs of these measures? Where specifically do you see potential efficiencies in current spending?

    Some insight into the political consequences of this changes would also be helpful also, bearing in mind that that Labour was voted into power by the very people that are holding their hands out for a free ride, including WFF and student loans.

    Or is it that you see no difference at all between the two parties in which case you might like to support that view by pointing to consistency between both parties in tax rates and spending growth, legislating unmandated constitutional and social change, and their respective approaches to infrastructure strategy, employment law, resource management law, securities law?

    Or are you just shouting at your keyboard in order to feel better?

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  74. hannity (152 comments) says:

    tdm .
    How does borrowing someone elses printed money , and booking up the interest bearing debt to my grand children, make sound economic sense?
    Simple question.

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  75. RightNow (6,994 comments) says:

    hannity – all money we borrow is printed money, and the exchange rate reflects how much they printed (i.e how weak their economy is). Printing our own money weakens our exchange rate, meaning we’d have to pay more to repay our existing offshore debt. I don’t think that would help your grandchildren. Nor would the increased inflation that would affect house prices and cost of living, as well as reducing the real value of any savings.

    The best answer is to reduce borrowing, perhaps by selling down some of our SOE’s.

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  76. UglyTruth (4,551 comments) says:

    The best answer is to reduce borrowing, perhaps by selling down some of our SOE’s.

    Deck chairs on the Titanic.

    Australian economist Steve Keen is amongst a growing group of economic renegades who believe things are so far gone with the global economy that a debt jubilee and a total reset of the financial system is required.

    http://www.scoop.co.nz/stories/HL1204/S00101/debt-jubilee-for-new-zealand-the-great-reset.htm

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  77. hinamanu (2,352 comments) says:

    Reserve Banks always help run economies down

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  78. hinamanu (2,352 comments) says:

    “Debt jubilee and a total reset of the financial system is required. ”

    But if you say it you’re a conspiracy theorist much like a German saying Germany had lost the war in January 1945

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  79. RightNow (6,994 comments) says:

    A total reset of the financial system – sounds good in theory (not really) but how would people get their dole payments?

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  80. thedavincimode (6,777 comments) says:

    hannity

    What’s your alternative? Simple question.

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  81. hannity (152 comments) says:

    Right now.
    From memory Russell Norman was proposing issuing Govt bonds to cover the Ch Ch re build and other long term infra structure costs , ie Auckland transport.
    I think that is a sound strategy.
    OTH borrowing 300 mil pw to keep the punters happy, in order to stay in power is not sustainable.

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  82. Pete George (23,591 comments) says:

    RightNow, it wouldn’t just be dole payments involved, it would mean major disruption and undoubtedly would result in significant adverse affects and unintended consequences.

    The idealists don’t seem to understand that systems that have been entrenched and evolved for thousands of years can’t just be “totally reset” overnight without many problems, with a high risk that the cure is worse than the illness.

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  83. alloytoo (544 comments) says:

    Hannity

    What are you spending the money on?

    Simple Question.

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  84. UglyTruth (4,551 comments) says:

    how would people get their dole payments?

    IMO a reset of the financial system would also involve a reset of the political system, as the two are joined at the hip (eg future taxation revenue is used as security for overseas borrowing). A reset is the ideal time to establish a lawful system instead of the current civil one. The wealth used for dole payments has to come from somewhere, what are the lawful options for sourcing this wealth?

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  85. alloytoo (544 comments) says:

    Hannity

    Issuing governement bonds IS borrowing.

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  86. hannity (152 comments) says:

    tdm.
    Govt bonds to pay for long term infra- structure investment , as opposed to borrowing printed money and loading the interest bearing debt onto future generations.
    And your answer ? waiting

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  87. thedavincimode (6,777 comments) says:

    hannity

    OK. As of today, government borrowing limited to funding infrastructure (never mind the future generations who will be saddled with that debt).

    Funding shortfall is now $300m/week, which includes maturing existing debt.

    What are you going to do tomorrow? Waiting.

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  88. hannity (152 comments) says:

    Alloytoo.
    Yes at a cheaper rate , for infra-instructure that will be enjoyed for generations, by the people who paid for it.

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  89. ross69 (3,652 comments) says:

    If printing money is insane, WTF is borrowing printed money and loading the interest bearing debt onto your grand children?

    It’s called National party policy. But John Key et al don’t have to worry. They’ll be long gone when our grandchildren have inherited the huge debts run up by our current brains trust.

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  90. hannity (152 comments) says:

    tdm.
    ‘OK. As of today, government borrowing limited to funding infrastructure’,
    Is that a wish tdm ? cos its not a fact .
    Would you be so kind as to answer my simple question?

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  91. ross69 (3,652 comments) says:

    Nick wasn’t talking about Auckland, which has an under-supply of houses relative to demand.

    Nick was talking about inflation. I’m sure you’ll agree there’s a fair bit of house inflation in Auckland…and it isn’t being caused by an increase in M3. You’ve identified why house prices are rising (excess demand). Inflation can be caused by many things…

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  92. thedavincimode (6,777 comments) says:

    So you were just shouting at your keyboard. You don’t actually have a solution. Goodbye.

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  93. alloytoo (544 comments) says:

    OK Hannity

    So saying we shouldn’t borrow, but should rather Issue government bonds is in fact a nul statement.

    So you approve of borrowing per se.

    So you would approve of a government which wishes to curtail it’s borrowing by curtailling consumption expenditure and return to budget surplus.

    You would also approve of government borrowing to rebuild Christchurch.

    So basically you approve of current government policy.

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  94. EAD (1,128 comments) says:

    Printing money is a symptom of the intractable problem for Western economies governed under a fully enfranchised democratic model with Fiat currencies.

    This relatively recent phenomenon has led inexorably to welfarism and party politics predicated on it. It remains to be seen whether such a country can escape from the black hole of its uneducated, welfare dependent electorate and there is no precedent in history to provide a guide as to how one might.

    What will eventually happen is like Voltaire said “Paper money eventually returns to its intrinsic value — zero”. Protect yourself and buy hard money, gold and silver

    https://mises.org/daily/6314/Banking-and-the-State

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  95. hannity (152 comments) says:

    I didn’t think you had a credible answer,
    No need to drop your lip tho.

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  96. hannity (152 comments) says:

    alloytoo.
    If you think I support current govt policy ,you lack basic comprehension skills .

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  97. wat dabney (3,774 comments) says:

    You’ve identified why house prices are rising (excess demand). Inflation can be caused by many things…

    Price rises of particular goods or asset categories because of increased demand (or whatever) is not inflation.

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  98. nzd.gbp (130 comments) says:

    hannity.
    You support the govt issuing bonds for infrastructure? what do you think debt is? Here’s a clue, it’s bonds! It’s you saying lend me this now and`I’ll pay it back plus interest later. You take the market value of the bond (at discount to face value) and then you pay back the face value. That is precisely debt and the difference between the market and face value (talking about sovereigns) is the interest you pay for the privilege. That is the borrowing mechanism.

    I agree, borrowing for infrastructure is ok sometimes. Borrowing for the welfare bill is not ok sometimes. printing money to meet the tax shortfall or simply to monetise your debt because you cant be bothered maintaining your (real) credit rating is not ok sometimes. Please ask Russell Norman what he means before you rush to support him.

    I like the guy but he’s an idiot.

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  99. nzd.gbp (130 comments) says:

    wat dabney – precisely.

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  100. hannity (152 comments) says:

    NZD.gbp.
    Agreed , borrowing for welfare is not ok.but
    that was not what Norman was proposing.
    Yes issuing bonds is borrowing , albeit at a cheaper rate.
    I think that issuing bonds to fund infrastructure that will be enjoyed by future generations, is a legitimate alternative to borrowing other Govts printed money.Thats all
    imo ,Norman ,might think differently from yourself.
    But he’s no idiot.

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  101. UglyTruth (4,551 comments) says:

    I think that issuing bonds to fund infrastructure that will be enjoyed by future generations, is a legitimate alternative to borrowing other Govts printed money.

    Bonds still involve usury, which is a part of the problem with the current system.

    An alternative and lawful form or raising government revenue is through licencing the commercial use of public resources.

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  102. hannity (152 comments) says:

    Uglytruth.
    Unfortunately Successive RW govts have already divvied up most of the Common resources to their fellow wide boys, so licences are no longer required.

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  103. nzd.gbp (130 comments) says:

    hannity – bonds at a cheaper rate? bonds are the mechanism for issuing debt. what is this cheaper rate business? bonds are exactly the same as taking out a loan. the cheaper rate depends on your credit worthiness not the mechanism by which you issue debt.

    ok so issue bonds to pay for infrastructure. who pays it back? i’ll give you a clue, it’s paid back in the future to those who hold the debt.
    secondly, printing money means kiwis all pay for it whether they vote for it or not. it’s a way of stealing from savers. it’s not the rich who save, it’s the young saving for house deposits and the old who need to have some money in cash because they aren’t earning any wages anymore. the rich don’t hold cash. they hold assets. in Russells kind of world they will hedge. the young cant do that. they will suffer more.
    Russell Norman does think differently from me. All I have to go on from him is tweets about printing money without any reasoning. The instability this can cause is real and yet he’s not even bothered to explain himself. Alright, he may not be unintelligent but his behaviour is pretty idiotic.

    I cant spend any more time on this. I worry about the future of NZ I really do. I want to move back and it’ll certainly help me if the NZD is lower than now but printing money is stupid.

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  104. alloytoo (544 comments) says:

    Hannity

    You seem confused.

    You appear to be ok with the idea that governments should borrow for infrastructure, but not for consumption.

    Do you support the current governments objective to getting back into surplus (sooner rather than later) or don’t you?

    You haven’t explained (at all) how your position deviates from this.

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  105. UglyTruth (4,551 comments) says:

    hannity,
    You can’t sell what you don’t own.

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  106. nzd.gbp (130 comments) says:

    UglyTruth – yes you can.

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  107. alloytoo (544 comments) says:

    I’m afraid Russel Norman’s QE policies appear to be a solution looking for a problem.

    Or perhaps Russel thinks a sound (abet small) economy is a problem, because that appears to be the only “problem” he’s likely to fix.

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  108. UglyTruth (4,551 comments) says:

    nzd.gbp,
    It’s called fraud. It is so endemic within the system that people think that it is normal.

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  109. nzd.gbp (130 comments) says:

    UglyTruth – no it’s not fraud. It’s called short selling. There’s nothing wrong with it.

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  110. expat (4,050 comments) says:

    To paraphrase UglyTruth and Hannity – “wibble”

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  111. hannity (152 comments) says:

    alloytoo,
    I think Nationals self aggrandizing goal of getting back to surplus, is irrelevant, if they have to borrow $300 mil pw .
    Its like bragging that youve got some change after doing the groceries, while neglecting to mention the grand you just borrowed at the porn shop .
    Unbelievably some are duped by that. not me

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  112. hannity (152 comments) says:

    Edit whoops porn should be Pawn.

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  113. alloytoo (544 comments) says:

    Hannity

    I notice you didn’t actually answer the question. Do you approve of the stated intention.

    Whether you’re you understand the government’s necessity of borrowing to meet the commitments of the previous regime is irrelevant at this point.

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  114. hannity (152 comments) says:

    Alloy
    I can’t be bothered ,you lack the neccessary basic comprehension skills. waste someone elses time

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  115. RightNow (6,994 comments) says:

    quitter

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  116. All_on_Red (1,584 comments) says:

    Hannity
    “goal of getting back to surplus, is irrelevant, if they have to borrow $300 mil pw .”

    err, if they get back into surplus (as in out of negative cash flow) then they will be able to stop borrowing even more money. Sort of like the household being able to pay its bills and service the existing mortgage.

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  117. SPC (5,636 comments) says:

    A government funding its domestic budget deficit with offshore money is nearly as inflationary as printing it locally. This is why it only should occur during recessions.

    A government doing one attacking the idea of the other is just out to con the gullible. Those wedded to the international corporatist banking system pose as superior by their place in that system and perpetuate the propaganda that there is no real alternative.

    Yet what Norman proposed was more moderate than the policy of those major economic nations that practice QE – the Swiss and Japan and China run managed currencies, the EU, UK and USA have debt, budget and recession issues.

    Waiting until one has such high public debt that no one will lend to you to practice QE risks a currency crash crisis occuring then – acting prudently earlier might well prevent one.

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  118. alloytoo (544 comments) says:

    Hannity

    I understand perfectly well that you cannot meaningfully distinguish between government’s stated policy and “What you want them to.”

    Like Young Earth Creationists your objections to pretty much everything appear ideological.

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  119. unitedtribes (30 comments) says:

    So UK inflation is climbing because of QE. There is no actual evidence of this. Inflation in the UK is 2.7% and been the same for the last 4 months. Historically it is not high. I dont agree with RN though

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  120. pq (728 comments) says:

    Winston Peters and the buy back of Mighty River Power, and Russell Norman printing money
    Various sources are repeating that Winston Peters has said he will will push for buy back, some people even mentioning nationalization. The Labour Government surely would not allow Nationalisation, Sherarer is sane, but the very idea pushes Winston right out there, impossible foir NZ Nat to deal with .
    This position of NZ First and the determination to devalue New Zealand’s currency, are contrary to the interests of older New Zealanders, and superannuants.
    I have heard enough now, and the idea that NZ First would align with NZ Nat now seems less likely. Mind you even more absurd is a Labour/ Green / NZ First/ Mana coalition.
    That is the problem , we vote NZ First and for an unknown outcome.
    It is important for older New Zealanders that a Left Wing Government comprising Green proposals to print money will decimate superannuation and older person s savings in favour of the preferred followers and younger New Zealanders.
    I am now old enough to join Grey power and make see for myself the centre right members are fully aware of the implications, I am sure they are, but it will be important to get the facts out to average New Zealanders over 55 with lesser work opportunity and fixed savings .
    We have only a little money in my family , and speculation has harmed me before, but I am preparing for purchase of Canadian currency, or maybe Australian well before the next election. Of course if there is a return to NZ Nat Government the NZ currency will lift again, but the alternative is madness.
    ends Paul Scott

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  121. pq (728 comments) says:

    Some replies above about what the family man can do i9n thge event of a Labour Government print money

    1. Oskar (26) Says: March 14th, 2013 at 5:09 pm
    My financial advisor has suggested I look carefully at how much I hold in term deposits and the term that it is in for.
    His reasoning was that should a Labor/Greens coalition come in late next year and start “quantitative easing” then the resulting inflation will over time destroy the value of such savings. The issue then is where to put savings where they are inflation protected.
    His comment was the current crop of younger politicians (and business people) – ie in their 40′s and below – have not lived through a period of high inflation such as we had in the 1970′s and 1980′s when it reached 20% so they have not lived through its effects.
    1. RightNow (5,080) Says: March 14th, 2013 at 5:26 pm
    Oskar – “The issue then is where to put savings where they are inflation protected.”
    I’d suggest property as QE will push prices up, but then there is always the chance a Greens led coalition will re-distribute it somehow.
    Might be better to buy yuan.
    1. Warren Murray (64) Says: March 14th, 2013 at 6:04 pm
    Where to begin?
    Well dealing with the issue of our borrowing from overseas and paying interest. At the moment i see it as a win-win. Our credit worthiness must be good. The interest being paid is low, yet to the lender whose domestic interest rates are near zero, it is a good yield. But imagine what happens under QE, the lenders will quickly want to get their money back. If the loan is in foreign currency, the amount to be repaid will balloon. NZ credit worthiness will be buggered as financial markets recalibrate our ability to service and repay the debt. If the loan is in nz$, it will be less of a problem, but i expect the lenders will have protected themselves.
    DF, you seem to start frothing at the mouth every time Russell tweets, perhaps with good cause. But i think the Greens enjoy baiting you. As this seems to be Green policy, can you set out how it would be implemented? I honestly don’t know; would Russell as Min of Finance direct the Reserve Bank to print money? Would he direct the Treasury to issue bonds? would legislation need to be passed by Parliament? I suspect (hope) it wouldn’t be that easy for the Greens to wreck the NZ economy.
    It will be interesting to monitor the polls and the exchange rate and money markets in the run up to the election. If the markets anticipate Russell becoming minister of finance, the exchange rate will dive and interest rates will go in the opposite direction.
    Like others, i would not want want to have much cash in a NZ bank. Good time to buy another house….

    ends Paul Scott

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  122. Rodders (1,755 comments) says:

    pq – remember when Winston had a “non-negotiable” policy to buy back the forests? Remember when he said that he wasn’t interested in the baubles of office?

    A vote for NZ First is a vote for broken promises.

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