He Who Laughs Last, Laughs Loudest: Russel Norman Abandons Quantitative Easing

By   /   June 20, 2013  /   73 Comments

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“By abandoning QE, Russel Norman has also deprived himself, the Greens, and any sort of useful ‘Centre-Left’ coalition government, of one of the very few means of mobilising the indigenous capital resources necessary to fund the job-rich, socially-just and “green” economic development New Zealand needs.   “

Russel-Norman-QETHE NZX FELL by one-and-a-half percentage points on the news that the US Federal Reserve might ease-up on Quantitative Easing (QE).  

This bald fact tells us a number of things. For a start, it tells us that those who speculate on the New Zealand stock exchange have a much firmer grasp on global economic reality than most New Zealand politicians and journalists.  

Secondly, it tells us that QE is not the “wacky” policy the Prime Minister says it is. (Unless, of course, John Key regards US Federal Reserve Chairman, Ben Bernanke, as a wacko!)  

Most importantly, it demonstrates how vital to the stability of the entire global economy the stimulatory effect of American, Japanese and British QE has become. The mere suggestion that the ‘Fed’ might be on the verge of winding-back its use of QE was enough to send not only the NZX, but just about every other bourse in the OECD, plummeting.  

Which raises an equally important question: “Why has Russel Norman abandoned the Greens attempt to legitimate QE as a sensible means of stimulating the New Zealand economy?”  

With this thoroughly retrograde decision, Russel has brought to a needless and sudden halt his near faultless eighteen month performance as the Opposition’s most astute economic critic of the National Government.  

By abandoning QE, Russel has also deprived himself, the Greens, and any sort of useful ‘Centre-Left’ coalition government, of one of the very few means of mobilising the indigenous capital resources necessary to fund the job-rich, socially-just and “green” economic development New Zealand needs.  

Both the Greens’ and Labour’s promises: to put New Zealanders back to work; on a living wage; in clean, green and innovative export industries; while guaranteeing them and their families an affordable home; effective health services; and a progressive, child-centred education system; can only be achieved at the cost of billions of NZ dollars-worth of new state spending.  

Russel’s QE proposal: Requiring the Reserve Bank to purchase government issued Earthquake Recovery Bonds to a sum equivalent to 1 percent of GDP (approximately $NZ2 billion) to both assist the Canterbury rebuild and bring down the value of the punishingly over-valued NZ Dollar; was one of the very few practical and non-inflationary funding options available to an incoming progressive government. By taking it off the table, what Russel is really telling us is that the Greens’ and Labour’s promises can no longer be paid for.  

When Key challenges Russel in 2014 – as he challenged Phil Goff in 2011 – to “Show me the money!” What will Russel say? Where, apart from the same “Reserve Bank Credit” to which the First Labour Government turned to fund its state house-building programme, will the Greens now turn for the capital resources fundamental to meaningful change?  

The Greens have always made it a point of political honour to be absolutely straight with the New Zealand electorate. If they intend to keep faith with that tradition, then their co-leader and chief economic policy spokesperson needs to step forward now and admit that, with QE off the agenda, the Greens’ promise to give New Zealand a clean, green and innovative economy can no longer by paid for and, therefore, will no longer be included in the Greens’ 2014 Manifesto. And, while he’s at it, Russel should also foreswear any ambition to be Minister of Finance in a Labour-Green government.  

His claim to that post had real merit while he continued to speak economic truth to power. New Zealand desperately needs a Finance Minister with the courage of his convictions. Someone willing to undertake the slow and painful process of educating the political class out of its neoliberal prejudices. A person with both the patience and the intellectual grunt to out-argue the slavering ignorance of the media’s parliamentary attack dogs. A politician who not only refuses to abandon controversial policies, but who, by calmly explaining them over and over again, finally convinces the voting public of their worth.  

Until his decision to abandon QE, Russel came very close to filling that job description. It is, therefore, nothing less than a tragedy that he has either voluntarily, or under pressure from his caucus colleagues, repudiated Green political praxis. Because, with every passing month, the number of New Zealanders who heard Russel speaking about the New Zealand economy and what needs to be done to improve it, and surprised themselves by quietly nodding in agreement, was growing.  

The rising shrillness of the Prime Minister’s attacks on the Greens: his palpable lack of logic; and his utter disregard for what is actually happening beyond New Zealand’s shores; was conclusive evidence of how effective Russel’s advocacy for green economic policies had become.  

Compared to the almost pathologically cautious (and ideologically suspect) economic policies of the Labour Party’s rather grey finance spokesperson, David Parker, the Greens economic policies came across as radical (in the literal sense of ‘getting to the root’ of a problem) new and exciting. Russel’s crucial insight: that Green policies could only be marketed to “Middle New Zealand” effectively by someone who had mastered the logic and the language of economics; had inspired his masterful reinvention as the Green co-leader who could foot it with the best neoliberal economists the Right could throw at him.  

It was Mahatma Ghandi who first identified the behavioural progression of individuals and groups who set their faces against necessary change: “First they ignore you. Then they laugh at you. Then they fight you. Then you win.”  

Under the new, economically articulate Russel Norman, the Greens were steadily progressing through the stages of resistance. Indeed, they had been moving quickly into the penultimate stage – that of being fought. Sadly, all Russel seems to have noticed was the laughter of his enemies ringing in his ears.  

Russel’s right course of action was to press onwards into the full-scale ideological battle that the Greens must engage in – and win – if they are to ever see their ideas translated into reality. But that was not the course the Green co-leader chose.  

The laughter now ringing in Russel’s ears is no longer the nervous titter of the fearful, but the derisive snorting of political foes who have just witnessed a figure of doom transform himself into a figure of fun.  

Having being bullied into laying down the banner of radical green economic reform, it is now much too late for Russel to cry: “Give me back my flag!”

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73 Comments

  1. millsy says:

    In the face of a hostile establishment totally unwilling to even consider an alternative to the current “way of doing things” this move is totally understandable.

    I wager that NZ Power will be watered down in the next 6 months as well.

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    • Ken says:

      There’s enough political and public support for NZPower that it won’t be watered down.

      And speaking of political support, not enough was a big problem for the QE proposal. If people like Chris who are now so strongly slating Russel had been just as strongly in support when QE was put on the table (not to mention of Russel’s finance credibility in general), perhaps this wouldn’t have happened.

      Will they remember next time that overturning the neoliberal orthodoxy requires all our efforts?

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      • jps says:

        I agree Ken. But also, there is no case for QE when we still have an OCR > 2%. And QE is not the funding panacea Chris Trotter seems to believe. We’d be heaps better off if we just ran standard counter-cyclical fiscal policy and left the RB to get on with its job.

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        • Draco T Bastard says:

          No, we really do need to change our financial system which really means changing the RBNZ and how it operates and dumping free-market capitalism or else everything will continue to get worse.

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          • bonashNZ says:

            The mistake that Russell Norman made was in calling it Quantitative Easing at all. What he was proposing was not the QE that is happening in the US, UK etc which gave the money to the Banks to use to boost their reserves so they could lend again.
            This didn’t work because no one wanted to borrow in the real economy and the banks were happy to use this almost interest-free money for other speculation. What he intended was for the Reserve Bank-created money to by-pass the banks and be spent directly into rebuilding e.g. Christchurch. This is effectively the remedy proposed by Social Credit and more recently by PositiveMoneyNZ. It worked in 1935 and would work now.

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            • Very Well said . We need both Labour and Greens on course with the very brave and pioneering 1935 Gov , that had many Social Crediters in it . They used state control and financing of the economy , with an integrated Reserve/Treasury .

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  2. peterlepaysan says:

    Normans U turn may have rather more to do with courting business interests rather than the electorate at large. The U turn came shortly after the findings of an inquiry into NZ manufacturing. Your post on Lippman springs to mind.

    A shame, even the IMF and World Bank are having second thoughts on austerity measures.

    The Greens are going to have a problem creating a viable and votable point of difference between the Nats and Labour.

    Sigh.

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  3. James says:

    Have they explained why it was abandoned? I don’t recall having read a reason for it yet.

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  4. Richard Christie says:

    one of the very few practical and non-inflationary funding options available to an incoming progressive government. By taking it off the table, what Russel is really telling us is that the Greens’ and Labour’s promises can no longer be paid for.

    One of few, but not the only means.
    Other means include CGT, financial transaction tax, the re-nationalisation of dividend-producing industries-including Telecom and all utilities (my personal favourite). I find your post over-pessimistic.

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    • fatty says:

      Do you mean Mana’s policies Richard?
      I figured out Norman was a sham when he dissed Mana for no reason at all…this was around the time that Hone threw his vote in with the Greens because of similar policies.
      I’ll think about voting Green again when they get rid of that douche in a suit.
      Socially, economically and culturally Mana have the answers, its time we on the left stopped listening to the idiots (like Norman has done with Key) and vote with our brain

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    • Kingi says:

      I emailed Russel Norman and asked him what the Greens’ position on a Financial transactions tax, which I support. Here is his fairly non-committal reply:
      “We support a Tobin Tax, which is a tax on international currency movements, implemented by a group of countries.

      We don’t have a position on a domestic FTT but are looking at it as part of our policy review for next year.”

      “over-pessimistic”? Probably, but perhaps Chris is just trying to goad them into being bold.

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  5. Tom says:

    Meh.

    The “opposition” are a broken record. They suggest or do something vaguely progressive, it starts to get traction, and then someone has a quiet word and they back off red-faced. Again and again and again.

    The only reasonable attitudes to hold towards today’s politics are contempt and indifference. Voting just legitimises this crap.

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    • Richard says:

      Voting just legitimises this crap.

      Actually, no. Not voting legitimises this crap.

      If you don’t vote, you get the government you deserve; not the one that you need.

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      • Rory says:

        “If you don’t vote, you get the government you deserve; not the one that you need”.
        Statements like this are intellectually dishonest, because it assumes that by participation you are going to get the government that you desire – which is simply not true. An easy example would be: you voted for party X but party Y gets elected.
        I think Tom expresses the dissatisfaction that many of the 1 million non voters (myself included) feel at the current political system: it’s disconnect with voters, lack of public consultation, lack of representation for minority groups, double standards, the fact that many people vote in their own self interest not on policy and the philosophical/ethical implications of Statism itself.
        However, people who didn’t vote were labelled as lazy or uneducated by many media commentators which is also not true. We are simply exercising our right to not vote and give no confidence to the current system (which I think was Tom’s original point).
        I would gladly attend to my voting day ballot if it had the option for a “no confidence vote”, but I doubt that ego-maniacal politicians would like dissatisfaction registered that questioned their very existence.

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        • fatty says:

          I would gladly attend to my voting day ballot if it had the option for a “no confidence vote”

          I’m not sure how you think that would make your vote any more effective than it is under the current system?
          Are you waiting for a political party who has everyone of your policies neatly lined up?
          I can understand if you have no faith in our current system, you’d have to be delusional to think that a capitalist democracy (both mythical) can solve our problems.
          Voting within a system does not in anyway mean that you support the system. Perhaps you should look through all of the parties and choose the best one.
          Pragmatism is our problem, but unfortunately at the moment, it is our best solution. Not voting is what National want…just like in 2002, not voting was what Labour wanted.
          What do you think is a possible solution?

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          • Rory says:

            Thank you for your reply Fatty.

            “I’m not sure how you think that would make your vote any more effective than it is under the current system?”
            It’s not a vote, it would be worded like a referendum question that we often get on a voting ballot such as “Should a smack as part of good parental correction be a criminal offence in New Zealand?”…nowhere did I say it was a vote.

            “Voting within a system does not in anyway mean that you support the system”.
            I’m sorry it does. It gives legitimacy to the whole charade in the same way if I watched regularly and voted for a contestant on the X-Factor finals. It would give T.V producers the belief that their show was successful or good (which it’s not).
            Non-participation is a great way to register your discontent. The same way Gandhi encouraged workers into non-cooperation which resulted in India becoming a republic.

            “Are you waiting for a political party who has everyone of your policies neatly lined up?”
            No. I’m a philosophical anarchist. I don’t believe that the state and the people who run them (political parties) should have the legal monopoly of violence over a group of people. It is not a moral or ethical way to organise a society. If this idea interests you I suggest you read some Bakunin, Kropotkin or Chomsky (amongst others).

            Just for the record I’m intensely anti-capitalist :)

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            • Draco T Bastard says:

              It gives legitimacy to the whole charade…

              Yep, it does but it is that legitimacy that allows the voters to change it.

              I don’t believe that the state and the people who run them (political parties) should have the legal monopoly of violence over a group of people.

              I suggest you reconsider just what the state is because, from your words, I’d say that it’s not what you think it is. The state is not what is colloquially called the government but is the people that exist within a set geographical area. What we call the government should actually be called the administration.

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              • Rory says:

                “I suggest you reconsider just what the state is because, from your words, I’d say that it’s not what you think it is. The state is not what is colloquially called the government but is the people that exist within a set geographical area. What we call the government should actually be called the administration”.
                Yep fair call, but isn’t the government comprised of people who also live within a set geographical area too? Or are they outside of this area?

                “Yep, it does but it is that legitimacy that allows the voters to change it.”
                No it doesn’t give the voters anything….it gives a small minority a mandate to make decisions that many people will disagree with.

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                • Draco T Bastard says:

                  but isn’t the government comprised of people who also live within a set geographical area too?

                  They’re only a small minority and don’t fully represent the entire populace.

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

                  Which is why we need to change the system.

                  No it doesn’t give the voters anything…

                  Yes it does but the people still need to actually use it and that means getting together with others and discussing what’s happening, reading what the research says, putting forward ideas and then voting for the needed changes.

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            • fatty says:

              No. I’m a philosophical anarchist…Just for the record I’m intensely anti-capitalist

              Me too, very similar!
              I agree with how you want things, but I think we differ on how to get there – is there a way to get there?

              Just to clarify my poorly worded sentence from before – Pragmatism is our problem, but unfortunately at the moment, it is our best solution

              Our current form of pragmatism is situated within capitalism, which is our biggest problem and gives us a sense (and reality) of voicelessness. What I mean by pragmatism as currently our best solution…I mean that in order to move society to the ideal, we have to take a number of steps, and that means voting for people and parties that move us towards that. For me, that is the parties who reduce the purity of capitalism and empower the excluded.
              So I pretty much agree with DTB (5.46pm).
              I’ve given up on our current system too, but I think participating by voting is required. Yes, it is pathetic, and will change things far too slowly – if at all. But capitalism is a truly sadistic system that is able to easily dismiss any sort of emancipatory revolution.
              I share your disillusionment wholeheartedly.

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              • Rory says:

                Ha ha….it’s quite surprising how many people actually hold our ideals…it’s catching on! :)
                For me I’ve just drawn my moral line in the sand, I believe that all violence is bad, and I find it very hard to just say that some type of violence or a little violence is permissible (state/government/administration). I may be deluding myself but I don’t care.
                However, Draco mentioned somewhere else in this thread about a participatory democracy (which I could bend my moral line for !). This would be very hard to implement as we have a class of individuals, that are mostly pakeha (and wealthy because of their position) who would find it very hard to let go of their power in society. I think it wouldn’t be unfair to say that they have a vested interest in keeping their position.
                I know for a fact that computer programmes like the Values Exchange have been mooted at local government level but have been rejected. Implementation of this programme would have resulted in more people being empowered to make decisions in their own communities.

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    • Draco T Bastard says:

      Agree with your first paragraph but not your second. In a democracy we need to vote so that the politicians know that they don’t get to have things their own way.

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      • Tom says:

        Given that voting does nothing to stop politicians having things their own way, your point is moot.

        Democracy doesn’t work as promised. Get over it.

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        • da rage says:

          Democracy only ever promised you would have your say, and that if enough people agree with you, then something might happen. If you want people to agree then get out there and convince them.
          Draco has it right – if no one says anything – or votes differently – no one will ever know.

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        • Draco T Bastard says:

          Representative democracy doesn’t which is why we need to change it to participatory democracy but the best way to do that is through the present legitimate channels. It’s going to get real messy if we have to go to full bloody revolution.

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          • Rory says:

            Participatory democracy will be the first important step towards a better society! :) Anyone who is interested in this topic should watch a fantastic documentary called “Us Now” or visit a site called the Values Exchange.

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            • Draco T Bastard says:

              I like Loomio where a group can discuss things such as policies and then vote for them. Will have to look further into that Values Exchange.

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  6. Robert Atack says:

    The only difference I can see between printing our own money and borrowing the money someone else has just printed, is we have to pay interest.
    It is all bullshit

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    • Gosman says:

      If that is the only difference you can see you might want to get your vision checked out. The government of Zimbabwe thought the same in the early 2000’s.

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      • Well, as the article above (and numerous MSM articles) pointed out,
        “The NZX fell by one-and-a-half percentage points on the news that the US Federal Reserve might ease-up on Quantitative Easing (QE).

        This bald fact tells us a number of things. For a start, it tells us that those who speculate on the New Zealand stock exchange have a much firmer grasp on global economic reality than most New Zealand politicians and journalists.

        Secondly, it tells us that QE is not the “wacky” policy the Prime Minister says it is. (Unless, of course, John Key regards US Federal Reserve Chairman, Ben Bernanke, as a wacko!)”

        Keep quoting the irrelevant comparison of Zimbabwe using money printing to fund a kleptocracy whose agriculture and commodity exports collapsed with “Requiring the Reserve Bank to purchase government issued Earthquake Recovery Bonds to a sum equivalent to 1 percent of GDP (approximately $NZ2 billion) to both assist the Canterbury rebuild and bring down the value of the punishingly over-valued NZ Dollar”, and we’ll keep laughing at your inability to frame an argument with even a shred of competence.

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        • Gosman says:

          The Zimbabwe Reserve bank also thought it was printing money to fund productive investment.

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          • Weak.

            Again referring to the article, the idea of discussing limited QE was floated by Norman in the form of a targeted $2Bn bond spend with the specific aim of limited devaluation to counter speculators to support our exporters, and to assist the Canterbury rebuild.

            Comparing that to Zimbabwe, where QE was used on a massive scale in the hope that it would offset the after effects of a failed land reform programme which collapsed several vital exports which were key to their economy, is fraudulent.

            It is both a fraudulent representation of Norman’s intentions, and a fraudulent framing of the likely effect.

            Once again, Gosman, you emerge bedevilled by the details.

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          • The Zimbabwe Reserve Bank was run by a moron – Gideon Gono – who thought that as long as Bernanke could increase the US money supply largely, then so could he ( not appreciating differences in how , how much , etc.

            They were also in a bad position from big foreign debt , and the farming/exports collapsing…..after driving the efficient white farmers off their farms , and killing many .

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  7. AceMcWicked says:

    The other issue might be that quantitative easing is only ever supposed to be a short term measure employed in very specific conditions. It might be the Greens decided based on economic advice that those conditions were no longer present.

    Not every thing the Greens do has to be ‘big picture’ or even particularly ideologically driven. We seem to accept that the right will act with cold calculation and that Labour will act pragmatically/unscrupulously/in a manner identical to the right when it suits them, yet people seem to always afford the Greens some sort of higher more pure vision and purpose. Maybe they don’t and maybe they make economic decisions the same way any other mainstream political party does – either pragmatically or shortsightedly, depending which way you look at it.

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  8. Nitrium Nitrium says:

    “Why has Russel Norman abandoned the Greens attempt to legitimate QE as a sensible means of stimulating the New Zealand economy?”

    Because QE is NOT sensible, that’s why, and I’m VERY pleased to see Russell has finally woken up to that simple fact.

    What matters to the intermediate and long-run economic prosperity of a nation as a whole is the ability of its people to produce economic surplus which they can either choose to spend on things or invest in new businesses, providing new jobs and improving the economy.
    QE does exactly the opposite. Instead, it stimulates economic profligacy by the Government by making Government deficits appear “sustainable” when they are not while simultaneously destroying both purchasing power and returns on savings. This forces saved funds into the economy to cover the rising costs. Consequently, we get a shift of personal economic surplus to economic deficit and dependency, while at the same time destroying the very tax base that makes paying those handouts possible.

    Interest rates are supposed to be determined by a combination of time value, the risk you will not get paid and inflation. No one intentionally lends out money at a loss.
    So when QE generates positive inflation (which it must since it LITERALLY dilutes the currency), the cost of living is inherently increased for EVERYONE (including the poor). Since there is a reduction of the purchasing power of a unit of currency in relationship to goods and services the interest rates MUST rise (or you will be lending money out at a loss). That is why ultimately QE RAISES interest rates as opposed to lowering them. Indeed, historically this has been the case. If you think higher interest rates are good for an economy that has become reliant on high house prices, well, you can see where I’m going with this.
    Mathematics is a cold soulless beast, and it doesn’t care what political party you might follow. QE is not even a zero-sum game, it’s a NEGATIVE sum game.

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    • Draco T Bastard says:

      Instead, it stimulates economic profligacy by the Government by making Government deficits appear “sustainable” when they are not while simultaneously destroying both purchasing power and returns on savings.

      And that’s different to the private banks creating money without limit how?

      Oh, that’s right, Russel Norman suggested limits. Our economy is unsustainable due to the profligacy of the private sector. Limits need to be applied and the best way to do that is to have the government creating the money and not leaving it to the private banks who know no limits.

      BTW, in an economy based around our real resources there would be no surplus as we wouldn’t need one and we would have much greater amounts of R&D and arts and craft.

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      • Nitrium Nitrium says:

        “And that’s different to the private banks creating money without limit how?”

        I think you’ve raised this before. The answer is: “it isn’t”. I’m still not entirely sure why you raise this point however. Unless you are suggesting that Russel Norman’s QE policy was going to be off-set by it being accompanied with stricter banking controls (i.e. tighter regulation on bank credit emission). In that case I agree his QE program wouldn’t necessarily be more detrimental to the economy than what we are doing now, although trust in the NZ capital markets might take a blow.

        Incidentally, there ARE limits to banking credit creation. Naturally, neo-liberalism would like to see those further softened to “create growth and jobs”, since credit spends EXACTLY the same as actual money (i.e. they are “fungible”). The Ponzi economy we live in now is fully reliant on credit growth (indeed credit growth has been at a much higher rate than GDP, implying that sans credit the Western world has actually been in recession for the last THIRTY odd years!). When this starts to unwind, and mathematically it must, the global market dislocation across all sectors will be truly epic.

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        • Draco T Bastard says:

          Unless you are suggesting that Russel Norman’s QE policy was going to be off-set by it being accompanied with stricter banking controls (i.e. tighter regulation on bank credit emission).

          Russel’s idea could have been done better (as I say, I don’t like his idea) but if it had been done without interest then we would actually have been better off.

          Incidentally, there ARE limits to banking credit creation.

          Banking 101 (Video Course)
          In context, you want part four but the whole lot is worth watching.

          The Ponzi economy we live in now is fully reliant on credit growth (indeed credit growth has been at a much higher rate than GDP, implying that sans credit the Western world has actually been in recession for the last THIRTY odd years!).

          Yep.

          When this starts to unwind, and mathematically it must, the global market dislocation across all sectors will be truly epic.

          And that is when the government printing money (within strict limits that keeps the economy going at a sustainable level) will save the day (so to speak).

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          • DavidJ says:

            I think your pretty much on the money Nitrium, but would like to make some points for your consideration, I think you’ll find them helpful.
            Keynes advocated Q.E in his “general theory” the idea of Q.E was simple by creating inflation and demand “priming the pump” the general price level would not fall, thus capitalists would not drop the prices of their commodities (retaining profitability) and invest sooner than later as they would not delay purchases expecting prices to fall further. What classically happened during crisis falling prices and deflation, thus a counter cyclical policy. I would also like to note further that Keynes didn’t specify what this spending was to be on, to Keynes a bomb or gun were just as much stimulation spending as a hospital. Grim.

            However we can quickly see a few problems.
            1. Inflation drops the real earnings of workers, further without a solid measure of the increasing cost of living (existing scales have serious flaws) workers are hard pressed to make wage demands that protect their current wage, while being constantly “on the back foot” playing catchup. Under Keynesian policy workers “share” of the social product is under constant peril.

            2. The natural tendency for prices under capitalism is to decline. Technological innovation creates more productive forms, reducing the amount of social labour consumed while increasing the potential of that labour still employed. Thus products are produced ever faster, ever cheaper. But inflation and “unnatural” or artificial demand inflate or at least prevent price adjustments towards their true costs of production. Thus with their reduced devalued wages workers must buy commodities of inflated price, even as they produce more commodities than ever before, this hastens the next crisis.

            3. Interest as you noted has a number of “variables” essentially it has no natural rate, but rather represents what the financial capitalist can get away with extorting out of the rest of us. There are limits though. The average rate of interest can never exceed the average rate of profit, if it did either industrial capitalists would go out of business (interest on debt) or covert themselves into financial capitalists, to realise the higher return of interest. Thus profit must have two components; interest+the profit of enterprise, an extra return above interest the industrial capitalist receives for the risk of “production”. Thus if the profit of enterprise is subsumed by interest production can cease, blam, crisis. As we assumed in an earlier point even though more “money” is in circulation prices remain high due to artificial demand and inflation. If the money capitalist is to protect their capital value they must demand a higher rate of interest to make up for the value they are losing through currency debasement. The greater the expansion of the money supply the greater the interest they must demand. However they cannot effectively raise interest rates as long as the money is printed because of the flood of cheap loans, thus they move into speculation explaining our current investment bubbles including the bull share market. However the government cannot print money forever and will eventually curtail Q.E, due to a rising cost of living and falling real wages, which will cause social unrest. Now the financial capitalist can have their revenge, bubbles burst and loans based on “solid assets” suddenly go bad, interest rates soar as the cheap capital dries up, loans and bad debt rolled over on cheap Q.E loans become unsustainable and businesses go bust, unemployment soars, families lose their homes etc. Or in short the rate of interest moves to realign with the real rate of inflation plus a “bit” for good measure and profit. This will further de-industrialise those countries where the profit of enterprise is lowest(the developed world) as the profit of enterprise is wiped out.

            Although this post is already long, apologies, I will make some further observations. Their is a clear difference between fiat money (paper token money) and bank credit. Paper token money is always payment in full, it resolves the debt in question and realises the capitalists profit, profit isn’t realised until its realised in cash. Bank credit is not payment it is the promise of payment in “cash” at a later date. A capitalist who receives payment in credit which is later revealed to be bad (the bank is overwhelmed by it liabilities, a general run etc) will not realise a profit. Marx pointed out that credit creates the false prosperity above that which the capitalist economy can achieve. The crisis destroys credit and “restores” capitalisim, to a cash basis where profit can once again be realised(though not without unemployment, starvation etc.).
            This touches once again on Q.E, as it allows the banks to go on generating credit beyond the point it would usually collapse. This allows the capitalist system to develop new levels of crisis, inflating the credit system, prices and bubbles far beyond what they could achieve “normally”. Of course this will need an even sharper or longer or both(!) crisis to resolve.

            If you read it through congratulations, you have more patience than I ;D

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            • Nitrium says:

              Thanks for that detailed post. What you describe pretty much mirrors my understanding on these matters.
              The biggest travesty of our education system is that financial literacy is not part of the compulsory school syllabus. IMO it should be taught from primary school up. Especially the effect of exponential growth/interest is very poorly understood by most people.
              http://www.youtube.com/watch?v=F-QA2rkpBSY
              It may well be deliberate: “It is well enough that people of the nation do not understand our banking and money system, for if they did, I believe there would be a revolution before tomorrow morning.” Henry Ford, founder of the Ford Motor Company.

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              • Draco T Bastard says:

                The biggest travesty of our education system is that financial literacy is not part of the compulsory school syllabus.

                And what happens if the financial literacy taught is wrong?

                Oh, wait – it is wrong and we keep getting more and more poverty because of those teachings.

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                • Nitrium says:

                  “Literacy” can’t be “wrong”. i.e. It means that you understand how the financial system currently operates. If you don’t understand the basic principles of how something works, you will never be able to fix it. For example, if people grasped how exponents relate to the finance sector, they would instantly realise they are living in a Ponzi economy predicated on the impossible premise of perpetual credit growth.

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            • Draco T Bastard says:

              Keynes advocated Q.E in his “general theory”…

              Keynes was looking to protect capitalism from itself and, for awhile, it worked. The problem that Keynes failed to realise is that capitalism just doesn’t work.

              Under Keynesian policy workers “share” of the social product is under constant peril.

              Actually, under the Keynesian policies after WWII workers share of the social product stayed about the same. It wasn’t until the neo-liberal revolution of the 1980s that it began to decline.

              The average rate of interest can never exceed the average rate of profit,…

              Well, the GFC was brought about because financial speculation on interest made better returns than actually producing stuff.

              Financial theory, otherwise known as economics, is almost invariably wrong.

              Their is a clear difference between fiat money (paper token money) and bank credit.

              Now you’re getting really pedantic.

              If payment is made from bank to bank using electronic funds then the person receiving those funds can be assumed to have been paid. The electronic funds are seen as cash even if it was bank credit. This is the problem – there’s no difference between bank credit and reserve funds at the everyday level.

              Really, the only option is for banks to be stopped from creating money and for the government to create it directly and spending it into the economy and do it at 0% interest. This means that all funds would be cash and there would be no bank credit. This isn’t what the Greens put forward though – they based their QE on the government issuing bonds with interest that the RBNZ bought which is a basically stupid idea.

              This touches once again on Q.E, as it allows the banks to go on generating credit beyond the point it would usually collapse.

              Only because the means of QE in the US/UK have been designed to do that. What the Greens put forward would have given the money to the government which would then have spent it on infrastructure and the like and not given it to the banks so that they could push another housing bubble.

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              • AICB says:

                DTB, if there is no bank credit, how does a bank give me a mortgage?

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                • Draco T Bastard says:

                  By loaning you the reserve currency they have on deposit?

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    • Andrew R says:

      Hi Nitrium. Surely ‘printing money’ is a necessary action by the state when the private sector is not spending/investing/under investing/not at full employment? And it won!’t be inflationary until we are in a full employment state, when it can stop.

      If I recall correctly printing money was a technique by the first Labour government to pay for the succcessful state housing build. Completely different from the give money to the banks approach of the US QE.

      Zimbabwe is irrelevant.

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      • Gosman says:

        Zimbabwe had an unemployment rate of close to 80 percent yet still had hyper inflation. The money that was printed was spent in the productive sector to help the struggling parastatal companies and to fund inputs for farming. By your logic this should have stimulated the economy with no downsides yet it didn’t.

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        • Draco T Bastard says:

          The money that was printed was spent in the productive sector

          [citation needed]

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          • Gosman says:

            http://www.thestandard.co.zw/2006/03/21/gono-justifies-printing-money/

            “RESERVE Bank of Zimbabwe governor Gideon Gono has defended the printing of money by government saying this was necessary to support the productive sector.”

            How is this different to what you are suggesting Draco?

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            • Draco T Bastard says:

              That’s not proof that it was spent into the productive sector. The level of corruption would indicate that it went to lining a few peoples pockets instead.

              How is this different to what you are suggesting Draco?

              I’d say that the difference is that they have no restrictions on the printing of the money and aren’t taxing correctly either.

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              • Gosman says:

                I’m sure there was a certain amount of corruption. That is what you get when you increase the power of the State in the economic sphere. It would happen here too in my view.

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                • Draco T Bastard says:

                  I’m sure there was a certain amount of corruption.

                  No, there was a huge amount of corruption.

                  That is what you get when you increase the power of the State in the economic sphere.

                  And the corruption we see in this government as it sells our laws to multi-national corporations is what happens when the private sector gets too powerful.

                  It would happen here too in my view.

                  Corruption happens everywhere and all the time. What we need to do is watch for it and prosecute when it shows it’s ugly head. IMO, this entire government should be in jail right now for the corruption that it has shown (Changing laws for The Hobbit, the SkyCity deal, etc).

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  9. Draco T Bastard says:

    Russel does need to keep at the idea of government creating money and spending it into the economy. In fact, he needs to say that creation of money will be taken from the private banks and that the only increase in money supply will come from the government with strict controls on it.

    His back down on it would be seen as political necessity if he keeps saying that we need to change the monetary system.

    BTW, I didn’t and still don’t like his means of QE as it buys into the lie that money has to be loaned into existence. It doesn’t, the government can just print it.

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  10. YogiBare says:

    Finally someone has pointed out the absurdity of calling the Greens’ policy “wacko” while nothing is said about Uncle Ben’s euphemistic “Quantitative Easing”.
    Poor old John Maynard Keynes would be rolling in his grave if the Yanks hadn’t already buried him in Bretton Woods!

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    • “Poor old John Maynard Keynes would be rolling in his grave if the Yanks hadn’t already buried him in Bretton Woods!”

      Awesomely quotable.

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  11. Plan B says:

    Randel Wray explains Monetary Policy very well here, from about the 4 minute mark. He is a lecturer at University of Kansas Missouri. And works in the area of Modern Monetary Theory.
    The lecture is brilliant, lots of fun – and there is a test at the start!

    http://michael-hudson.com/2012/09/modern-money-and-public-purpose/

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  12. Don Richards says:

    While it is disappointing to see that the Greens have dropped their policy on the Government creating some of our money supply, we do acknowledge Russel Norman for his courage for raising it in the first place.

    Of all of the politicians Positive Money NZ spoke to on the subject, and there were plenty, He was the only one brave enough to do anything about it.

    Russel knew it would attract adverse comment and he did it anyway.

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  13. marty says:

    Hon Key calls Green QE “wacko”, but has he ever called US QE “wacko”? If anything the US version is wacko because it is simply giving money to the banksters, while the Green QE will be spent on real goods and services like reconstruction.

    I think it’s disappointing. I think it was a good policy and was actually taken seriously by the Nats, as we could tell from the veracity of Hon Key’s response.

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  14. o g p says:

    If I had some words of advice for the greens they would be, “fuck the pollsters” and stand by their convictions. Don’t be goaded or intimidated by the Nats and their cheerleaders in the media.

    The Greens win votes because they are more genuine and principled than the two old red and blue dogs.

    My answer to Key’s dribble about ‘funny money’ would be to point out he knows how to make money by speculating on it but that’s all.

    He came from a corrupt employer in a greedy industry where rampant unproductive speculation drove the world into a financial crisis.

    Key knows how to speculate and suck money out of an economy.

    I only really vote in an effort to keep the Nats out of government because they are the worst by quite a margin. Plain evil sums them up.

    All those non-voters allow the worst to prevail.

    I find the greens the best of a bad bunch, I would vote for Mana but Hone still wants to keep calling me a criminal for being a cannabis user so unfortunately that rules him out for me.

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    • Gosman says:

      “Plain evil sums them up”

      I would suggest you need to get a little perspective.

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      • GR says:

        “Plain evil” sounds like an accurate description of the Tory scum to me. Personally, I’d be very happy to see them all hanging from the various lampposts on Bowen Street.

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        • Gosman says:

          I had a discussion with several people over at The Standard about comments better suited to the sewer. My argument was that left wing blogs were just as filled with these sorts of comments as right wing ones. Thanks for confirming this.

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  15. alan says:

    John Key’s real fear is not that a labour/green government would practice QE in the fashion the US, Japan etc have done. His real fear is that they would pump that money into the “real economy” and therefore create jobs and prosperity for real people. This would show that the “brighter future” (pun intended) that was not even glimpsed during the Nact era, could become a reality. Little more needs to be said………………

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    • Gosman says:

      I don’t think John Key had any real fear of this policy at all. I think he actually enjoyed having a stick to beat the Greens, and by extension Labour with.

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      • Draco T Bastard says:

        Then you’re either an idiot, delusional or both.

        Once people learn how the banking system actually works and how it makes them serfs to the banksters they will demand change and John Key and his owners don’t want that change to come about as they benefit hugely from things the way they are.

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  16. fambo says:

    I think the Green Party introducing the argument for QE was a mistake simply because it was a bad strategic choice, given the present conservative environment. The major engagements are presently being fought elsewhere and that is where the Greens have to put their limited energy. QE, right or wrong, was just playing into the Government’s hand. I think the lesson to be learned is that unless urgent circumstances dictate otherwise, policy should directed by the Green body rather than the Green head. This policy seemed to just pop out of nowhere. The Green Party puts a very strong emphasis on democratic decision making and this policy didn’t really reflect that. However, now it’s just a case of lesson learned, and move on.

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  17. Adam McMahon says:

    The Greens should be drug tested for they want is to print more cash and devalue the whole country. What kind of school did the greens went to. They are acting like they are from a funny farm.

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    • fatty says:

      What kind of school did the greens went to.

      Probably one that taught them how to form sentences properly.
      What school did you go to?

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    • Draco T Bastard says:

      to print more cash and devalue the whole country.

      How Banks Create Money

      It happens all the time you just don’t realise it but the private banks make a killing out of it though.

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  18. […] as Chris Trotter aptly pointed out in a column, abandoning the nascent policy (of what should have been more […]


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