Government debt? Let’s print money!

I actually cringed when I read a press release from the Democrats for Social Credit this evening. While they are suggesting partial asset sales is the same as the privatisation of the 80s and 90s, they also suggest something more disturbing… That the best way to solve the government debt is effectively to print money.

The press release says:

“As yet, the Reserve Bank of New Zealand is still in public hands. As it shored up the commercial banks during the 2008 credit crunch, the RBNZ has the capability to issue credit lines and even debt-free funding for significant events such as the emergency in Christchurch. In fact, the RBNZ creates and issues money already, in the form of notes and coins. An electronic version of this money creation could be issued, not to on-sell to commercial banks, but to the Treasury.

“The RBNZ is our bank and should be used for our benefit. Government borrowing programmes could be ditched, new public assets such as schools and hospitals could be built, transport infrastructure could be well maintained, and asset sales could be taken off the agenda, for good” said Ms de Ruyter.

Need I remind you of some classic examples of printing money? What happened in Germany post World War One? The world wanted compensating for the war, and the Treaty of Versailles said Germany should pay a whole bunch of money in order to compensate effected nations. So, as Germany couldn’t afford this, they printed money. What happened? Hyperinflation. What was the result? Hitler was able to come into power and lead the Nazi Party to the German Government. We all know what happened next.

What about another? Robert Mugabe has printed money for years in Zimbabwe as a way of making people richer. All it has done is cause hyperinflation. The people are hurting, because they need a wheelbarrow full of money in order to buy a loaf of bread.

Is this what we want in New Zealand? If the only option to save New Zealand, other than asset sales is printing money, when we see what happens when we print money, we surely will decide asset sales are a good idea.

Please note, I’m not saying it’s the only other option. There are many other options. However, the press release I’m commenting on is saying that it is, so that’s the context I’m talking in.

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Posted on June 30, 2011, in New Zealand Politics and tagged , , , , , , , , , , . Bookmark the permalink. 8 Comments.

  1. Same old reply – always mentioning Germany, Mugabe etc etc. With independent oversight and necessary checks and balances it can work. The key here is that the Government should not have to pay for its own currency. Right now the only entities with the power to create money are banks. And then the Government has to borrow from them! It’s absurd.

    • The Government doesn’t own the currency though. No one owns the currency. The idea behind the Reserve Bank arranging the currency is that we have experts who decide when it’s appropriate to print/buy back money, raise/lower the OCR etc. It’s not a good idea to allow politicians, who may or may not have expertise in that field, to make these decisions.

      Thanks for the comment, Max.

      DF

      • I’m not saying the Government would do it! It would be the reserve bank that has the power to credit government accounts according to a framework that ensures the money supply is not over inflated. Note that the Govt owns the RBNZ – that doesn’t mean it controls what it does! Politicians would still have a finite bucket of money to spend, but the Govt treasury would no longer have to pay a massive interest bill. Cheers

      • But the Reserve Bank doesn’t charge the Government interest. It’s the other countries that we have debt with.

      • Actually the RBNZ does have holdings of NZ govt bonds and so they DO charge interest! Predominantly it’s banks, whether domestic or foreign, that own NZ govt debt. The point is that the NZ govt would not have to issue new debt if the RBNZ could credit the govt account with debt free money.

      • Well it’s more the Government paying interest than the RBNZ charging interest, but I guess that’s just technicalities. But it’s pretty difficult to hold bonds and not receive interest on that… A 0% interest rate on bonds simply isn’t going to work.

      • The bond wouldn’t even exist – you wouldn’t need a 0% bond – because there is no debt – the govt doesn’t need to repay anyone! But even if you did, there’s no reason why you can’t have a 0% bond!

      • By the way, there is plenty of support for this type of thing. Check the American Money Institute, The Sustento Institute (based here in NZ). There has been serious modelling done to show how it does work. Remember that there are massive forces at work to maintain the status quo – commercial banks do not want to lose the exclusive power that they currently have to create money out of thin air.

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