Saturday, October 13, 2012

Gerry Eckhoff: Quantitative Easing - prison, Mugabe, and the Greens!


It is rather rare for dastardly criminals planning to commit a crime to publicly disclose their forward thinking to the appropriate authorities. I do so today in order to ensure they have plenty of time to prepare a really nice suite at the Milton Hilton (our local jail) is available for me after sentencing. I hear that room service is available along with free dental and health checks and the gym is well stocked.

I hope that by admitting my guilt before the crime is actually committed, the judge will reduce the sentence he would normally impose on someone who pleads guilty after committing the crime. Most criminals apparently regret the crime after being caught or just regret being caught after the crime. Take your pick.

And the reason for my enforced stay as a guest at Her Majesty’s institution?

I intend to follow the current fashion and print money. Some of you will say that is a heinous crime deserving of the most severe punishment. Counterfeiting after all destroys our monetary system. Society cannot allow the private printing of money just because there is a need for more cash. Society’s politicians however now promote printing our own money to solve the world’s financial problems so I figured “sauce for the goose...” If our politicians believe that printing a couple of billion dollars annually to pay for their pet projects is such a good idea then surely my idea of printing a paltry few dollars more for my projects can’t do any harm.

As I have no wish to be found guilty of plagiarism as well as counterfeiting, I must now acknowledge that the idea to print money as and when needed is not new. Many years ago a Major CH Douglas thought it was such a good idea that he called it “social credit” to legitimise the printing of money if and when needed. Social Credit sounded so much better than Money Printing. Expanding the money supply as a need develops in New Zealand sounds like a really wonderful idea and we patriotic people should answer the country’s call and not just leave it all up to the Government.

The good Major Douglas failed to notice that if you increase the supply of a product its value trends downwards. That applies to milk, lamb, beef, timber as well as the actual money you are printing so you have to keep printing and producing just to retain the status quo.

One well known advocate of this approach is one Robert Mugabe from Zimbabwe where his printing presses simply couldn’t keep up with the daily devaluation of their currency - but would have been great for the local paper mill, if only they could have printed enough money to build one.

Despite such obvious examples, this unorthodox approach to monetary policy has caught on world wide by all manner of people including those who are kept in something called a Federal Reserve in the USA. One assumes this Reserve is an institution for the criminally insane who have an uncontrollable urge to print money. Insanity is defined as doing the same thing over and over again and expecting a different result.

Rather surprisingly the idea of the good Major Douglas and the not so good Robert Mugabe, is now fast becoming orthodox monetary policy endorsed by no lesser political and economic thinkers as our very own Green Party. This print and distribute policy has the full backing of their MPs who have obviously studied President Mugabe’s model and his commitment to printing money as the simply way to pay off debt.

The sheer brilliance of the Green’s scheme is that interest rates for borrowers will be zero and severely punish those responsible for the Global Financial Crisis - the world’s savers. Those rapacious retired folk who had scraped together a nest egg - deposited in the local bank to assist in their retirement will get no return on their deposit.  I do struggle to understand how this policy offers an incentive to people to save. One assumes this is all about the word sustainability - with an emphasis on sustaining (the Greens) and less about ability.   Meanwhile, it’s business and bonuses as usual for Goldman Sachs and JP Morgan et al. 

The printing presses are rolling as the international banking industry and politicians now speak - not of Printing Money nor of Social Credit but of - “Quantitative Easing.” This phrase sounds more like a description given to an old ewe about to give birth to triplets rather than a monetary expression but there you have it. All of which gave me the idea to print my own money as if the Feds can do it – if the Euro Zone can do it why not me – or you. We just have to call it “personal quantitative easing.”

Meanwhile I intend to call Russell Norman – co leader of the Greens as an expert witness for the defence in my trial. His knowledge of finance should ensure I get a minimum sentence of twenty years to life at a taxpayer-funded institution where I pay neither rates nor tax and where healthy food is free. I will no longer have to work for a living and underfloor heating ensures a comfortable life even in winter. 

And all this because counterfeiting or increasing the money supply for a private benefit is illegal but increasing the money supply by Government for public benefit and electoral advantage is not. Both however have exactly the same effect on savings and the purchasing power of our dollar and both should be illegal. It is for me but not for him.

I go to jail and Mr Norman goes to Parliament. So how does that work?

5 comments:

Anonymous said...

Nice satire, Gerry.

Steve Baron said...

Very witty Gerry but as usual, when it comes to discussions on QE or Social Credit, like many others, you run to extremes to argue something you obviously understand little about.

You and others are correct, to a certain extent. As it is operated now, QE does create debt when this new money is introduced into the financial system. That does not mean QE is bad, it just means it has to be performed in the correct manner and by the correct amount, to have the desired, not disastrous effect.

The way around that is to distribute this newly created money directly into society through a national dividend (perhaps Gareth Morgan's Universal Basic Income?). Like most aspects of life,there must always be balance and QE should only be done when it is needed and by the scientifically calculated amount required to produce the desired results. It should also be free from political intervention as we all know how politicians love to spend other peoples money for their own political advantages.

A problem rarely, if ever, considered by Ministers of Finance and Reserve Bank Governors is the cost of creating new money when it enters the financial system (not to be confused with quantitative easing). The money supply of a country usually needs to expand as the amount of goods and services in a country expands, so that there is enough money to purchase these good and services. This is a fine balancing act, too much money in circulation leads to inflation (Nazi Germany; Zimbabwe), but too little also leads to deflation (the world during the Great Depression). However, as this money comes into circulation through government open market operations and consequently the money multiplier effect of the banking system, it enters society as an interest bearing debt. This cost has a compounding effect on debt and must certainly create an unnecessary cost to society.

If more money is required to keep the wheels of our financial system greased, then governments need to find a way to inject this money into society without this cost. Perhaps there is an opportunity here for a small country like New Zealand to lead the way to show the rest of the world how the international monetary system can be improved?

The Labour/Green idea is not a silly idea if it is done with moderation and does not involve creating a government debt alongside of the creation of this new money. New Zealand simply does not need to print money at the same rate as the USA because we are a much smaller country, but expanding our money supply (within reason and by a scientific analysis) will allow our export market to remain competitive. At present the USA and the EU are devaluing their currency to make their exports more competitive, this is little different from the usual beggar they neighbour policies of the past.

Steve Baron said...

Very witty Gerry but as usual, when it comes to discussions on QE or Social Credit, like many others, you run to extremes to argue something you obviously understand little about.

You and others are correct, to a certain extent. As it is operated now, QE does create debt when this new money is introduced into the financial system. That does not mean QE is bad, it just means it has to be performed in the correct manner and by the correct amount, to have the desired, not disastrous effect.

The way around that is to distribute this newly created money directly into society through a national dividend (perhaps Gareth Morgan's Universal Basic Income?). Like most aspects of life,there must always be balance and QE should only be done when it is needed and by the scientifically calculated amount required to produce the desired results. It should also be free from political intervention as we all know how politicians love to spend other peoples money for their own political advantages.

A problem rarely, if ever, considered by Ministers of Finance and Reserve Bank Governors is the cost of creating new money when it enters the financial system (not to be confused with quantitative easing). The money supply of a country usually needs to expand as the amount of goods and services in a country expands, so that there is enough money to purchase these good and services. This is a fine balancing act, too much money in circulation leads to inflation (Nazi Germany; Zimbabwe), but too little also leads to deflation (the world during the Great Depression). However, as this money comes into circulation through government open market operations and consequently the money multiplier effect of the banking system, it enters society as an interest bearing debt. This cost has a compounding effect on debt and must certainly create an unnecessary cost to society.

If more money is required to keep the wheels of our financial system greased, then governments need to find a way to inject this money into society without this cost. Perhaps there is an opportunity here for a small country like New Zealand to lead the way to show the rest of the world how the international monetary system can be improved?

The Labour/Green idea is not a silly idea if it is done with moderation and does not involve creating a government debt alongside of the creation of this new money. New Zealand simply does not need to print money at the same rate as the USA because we are a much smaller country, but expanding our money supply (within reason and by a scientific analysis) will allow our export market to remain competitive. At present the USA and the EU are devaluing their currency to make their exports more competitive, this is little different from the usual beggar they neighbour policies of the past.

Anonymous said...

Steve - did you really need to post your nonsense twice? Increasing the money supply automatically devalues the existing currency in the same proportion, and we have had enough fairly recent experience of runaway inflation to want to avoid that like the plague!

Anonymous said...

Steve I inhabit a different world.'Creating credit with no increase in assets or security backing that credit - has created the GFM. If a Govt/country creates a little bit or a large dollop of money when they need it, the rest of the world naturally devalues their currencyvs their own. What of the purchasing power of a retirees nest egg. Do they not matter?