Monthly Archives: June 2012

Import substitution will only happen with currency reform

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Last Friday I went shopping in our local village, Otaki. First I went to the chemist to order a prescription for aspirin. Probably this is an import.

Then I was keen to suss out black coats as mine had been going for over twenty years and was faded. Our wonderful department store had a good selection and as I tried them on I looked at the labels. They said they were Cashmere and of course the inevitable “Made in China” label was on them.  Goodness knows how many middle men were involved or how much transport was involved. Did we send the wool to China and then ship it back as clothing? Probably. The clothing manufacturers in nearby Levin have nearly all closed down these days and factories lie empty.  Jobs have gone to China.

Then I went to the local butcher to buy some cat’s meat and a lamb shank. (Oh I know I should be a complete vegetarian but I like lamb shanks and anyway when we move towards permaculture and mixed farming, it won’t be so energy and water intensive in its production and I am anticipating this day). The butcher wrapped both in plastic bags, sealed with more plastic and then put them together in a third plastic bag.

So how do we move our economy to a new economy? By currency and tax reform, that’s how. All this talk about sustainable development for the last thirty years has been only so much rhetoric. It can’t happen without dual currencies and without being able to design the second currency ourselves and issue it backed by land.  All this talk about ‘Green growth’ is just an oxymoron when we insist on using a single monopoly currency, bank issued as interest bearing debt. All this talk about smart growth is just talk. They can go on doing it for another century and wishing won’t work without getting the underlying structure right.

What we want is to move to a truly sustainable economy. We can’t wave a magic wand or lecture people or choose winners to change that butcher from wrapping the meat in three plastic bags. We do it by designing our money system and our tax system in a smarter way.  If we add in another currency, based on land, and have it only for trade within our country, then we are cooking with gas. We can grow our own trees and turn them into brown paper and wrap our meat in that. There is no need to spend our precious New Zealand dollars buying plastic to make into bags  or importing them. Given the right currency signals, a paper making factory could come to Otaki, Levin or a small town near you.

And the empty factories can get going again using our own wool and our own labour and our own skill to make the coat I want to buy.

As for the aspirin, maybe kawakawa might be processed. I don’t know if it is the right plant or if it is possible, but I suspect all the older people like me who need to take a regular blood thinner to prevent heart attacks could well be serviced by a New Zealand product made with some natural product grown in New Zealand .

I guess the lesson is this. If you get the structure right that is all you have to do. We have seen this in abundance in recently revealed ACC’s structure. If case managers are given financial incentives to get long term claimants off ACC and the incentive is high enough, it will work. Leaving aside the totally immoral action in doing this, the policy was implemented and was successful in that the financial situation had a dramatic turn around.

NZ borrowing to lend to IMF, the latest absurdity

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It’s a strange world this world of money.

In the melee of the Greek elections and the frantic ramming through of the asset sales legislation came a strange announcement, but it was lost. It wasn’t even reported in the Dominion Post. The Government would be lending $1.26 billion to the IMF’s new bailout fund for the debt-wrecked Eurozone, but it would have to borrow this first. In addition to earlier billions for the stabiility fund, the total cost to NZ would now be over $4 billion, according to Bill English.

Ponder on that one! We borrow in order to lend in order to save Europe. Whew. The child in us will ask how money is created in the first place. Can only banks create money? Of course not. We the people can create our own money without the burden of interest. But we stupidly use banks. These days we don’t even use our own banks. So to add insult to injury, when we want to borrow, we go to overseas banks for loans because their rates are cheaper.

So let’s get this again. We borrow $1.26 billion at interest and then lend it to the IMF. What? At interest? They don’t say. And they will give it back, the part they don’t use apparently. The Minister of Finance says it is our insurance policy. And it is the banks who are in trouble.  So we pay interest to the overseas banks so we can protect them from future bad debts. This is Alice in Blunderland stuff.  Where is the cartoonist?

Reuters has just reported “Ireland’s High Court began hearing a challenge to the European Union’s new bailout fund on Tuesday, launched by a politician who said the European Stability Mechanism (ESM) was not compatible with the Irish constitution.”

The Guardian reports: “This, for certain, is a high stakes game. Part of Europe’s fighting fund has already been spent on bailing out Greece, Portugal and Ireland. Spain has also pledged funds to the EFSF and ESM, and these clearly cannot be spent buying up the country’s own debt…. If the gamble fails, Spain will still need a bailout and Europe will have nothing left in the kitty for Italy.”

So let’s go back to the Pre-election Fiscal Update and see what it assumed about Europe. I seem to remember …yes here it is: The PREFU’s main forecasts critically assume the reasonably orderly resolution of sovereign debt problems in the euro area. Wow they were so wrong. And these our best economists and financial experts? An ordinary person listening to the news can do better. They could see that if you are solving debt by lending ever more money to a country, the problem won’t be solved.

And here is another thought. If Greece is too big to fail, and Spain is too big to fail and Europe is too big to fail, then it is going to apply to UK, US and China too.  Who knows where it will stop? The size of the global economy is about $63 trillion. According to Bernard Lietaer et al in Money and Sustainability, the Missing Link, “one day’s currency speculation represents more than the annual economic output of Germany or China changing hands. The notional amount of currency derivatives are now more than $700 trillion today. Currency derivatives by themselves represent therefore almost nine times the entire global annual GDP”. And that is only one type of derivative.

No, the IMF’s bailout fund is going to fail and it must fail because it can never match the power of the investment banks.

 

 

Low interest rates fuelling another housing boom?

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This morning we heard a commentator on radio expressing his concerns that the continuing low interest rates would fuel another housing boom. A valid concern.

I remember a few years ago when I was arguing that interest rates should be zero, someone pooh poohed my argument and said “If anything interest rates should be higher.”  There is the dilemma that Social Creditors and all monetary reformers need to face. Low interest rates bring on housing booms. Any real estate agent knows this. It is a fact of life under the current regime of holding land.

And housing booms cause inflation which steals from all of us. As one of my colleagues wrote on a skype chat yesterday: “Why should I have to see my purchasing power eroded thanks to speculative property bubbles? Why should I be starved for working capital because the banks are lending into still more housing? Why should I accept official figures for CPI rates that exclude the price of land and therefore mask the real inflation rate? If given the choice between paying a land value tax which would by its design remain in the region (or country) and paying interest on a mortgage which will go to any number of collateralized note holders, I know which I will pick.”

Auckland has over 20,000 homes which are above 1 million. A Campbell Live programme on housing affordability showed the price of home in Auckland so high that the average person on an average wage can’t afford to buy one.  The average price in 2012 is $402,000 there, up from $$193,000 in 2002. During that time the average wage only went up 37%. That housing boom of 2002 to 2007 was the steepest on record.

We are faced with a good sized challenge – to come up with policies which deliver radical monetary reform, (turning money on its head) and puts a big enough price on the holding of land sufficient to stop housing booms. It is a big challenge and discussion will help us develop these policies. We are committed to halting land speculation and committed to doing it in the most effective way.

We believe you should pay for what you hold or take but not for what you earn or make.

Wellington members are organising a meeting on July 1st, a Sunday afternoon to form a Wellington branch. No doubt they will be discussing policy.

ACC’s profit and its purpose

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Last night we were treated to an outstanding Sunday interview on TV3. Top journalist Melanie Reid had finally managed to get complainant Bronwyn Pullar give an interview, and it was revealed what we all in our bones knew. ACC has for years been trying to reduce its claims and it does this by going after and harrassing long term claimants. These people are the most vulnerable. While some accident victims will obviously try and wrought the system, the majority are genuine innocent victims of accidents.

So I looked at their latest financial statements. After making losses of $2.4billion in 2007-8 and $4.8billion in 2008-2009, it reversed its position in 2009-2010 to make a surplus of $2.5 billion.

Now this is up again. Chairman John Judge writes in his 2011 annual report “I can report that we have achieved a net surplus in excess of $3.5 billion as at 30 June 2011”. They appear to have another figure as well called the actuarial release. The Annual reports said “As at 30 June 2011, ACC had achieved an actuarial release of $4.4 billion.” I think that was the one quoted by Bronwyn Pullar, a huge sum indeed.

The purpose of ACC is to compensate for those unfortunate enough to have accidents. Some accidents leave more permanent damage than others. It is clear they have the money to pay Bronwyn Pullar and to stop harrassing her and other genuine claimants.

Looking at the composition of the board of ACC, I would say it appears to lack in victims of accidents and in community representatives. Board members have business experience and may be in danger of looking at ACC as a profit making company.

 

A Knowledge Currency to Save Money in Education

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We have just witnessed a three-week debacle in the politics of education, ending in a back down by Minister Hekia Parata who had been told by her Finance Minister to save money.  Badly advised and supported, she chose the wrong method (increasing class sizes) and had to completely reverse her decision. Teachers and parents throughout the country said with one voice they don’t want class sizes reduced and they triumphed.

Parata still has a problem. She wants to deliver quality learning without increasing the education budget. In these days of austerity, the problems are international.

This made me go back to something I had read about a learning currency proposed in Brazil in a book called Creating Wealth by Bernard Lietaer and Gwendolyn Hallsmith.

Called the saber, the proposal is that children mentor their juniors and earn a currency called sabers for doing so. Sabers can eventually be cashed in to pay for university education. It works like this: The Education Ministry gives out sabers to 7 year olds who each find themselves a 10 year old who can help them learn something of their choice. They pay the 10 year old in sabers. Then the 10 year old asks a 12 year old who in turn asks a 15 year old, and they ask a 17 year old.  Each hour spent earns a saber.

The dated sabers owned by 17 year olds are now taken to the university, who exchanges them at a 50% discount for national dollars. (The reason is that half the university’s expenses will have to be in national dollars.)  So what has happened in this process? We all know that you learn a little of what you hear in a lecture, more if you both hear the message and see it, but a larger percentage if you see it demonstrated or discussed. And you learn more still if you practise it.

Yes, you learn 90% of what you teach. So it works by getting learners at all levels to mentor their juniors. Hence there is a great deal of extra learning at all levels. First, every saber circulates at least five times through five different pupils so it does five times the good of one transaction. Then the schools saves national dollars by not increasing teacher pupil allocation. Lietaer argues that in some cases there could be as much as a hundred times as much learning for the buck as before. Even if we got it to ten or twenty times the learning, that would  dramatically raise literacy and numeracy in our country.

This currency is cancelled once the sabers are cashed in for university education for a nominated year. This design is to encourage smooth and fast circulation of the currency, and ensure that the number of students arriving in any university doesn’t exceed the capacity to handle them.

New Zealand has succeeded remarkably well with education. We have advanced from chalk and talk to “learning by doing”, to group learning. We have been using multimedia for years. However we have not yet advanced to the stage of every learner becoming a teacher.  So although the above is just the bones of a well designed currency and it needs fleshing out by the experienced educating community, it has great promise.

Another interesting proposal to save money came from the principal of Shirley Boys High on TV3’s “The Nation” June 10. Among his many other suggestions, John Laurenson proposed integrating the whole education sector, which of course would be needed for sabers to work well.

Solve Greece’s problems with more than one currency says Lietaer

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Bernard Lietaer, who has been a very prolific author this year, has always argued for an ecology of currencies. In a very short youtube clip he notes that the chief economist of Deutschebank is advocating Greece keeps the drachma and has the Euro as well. It has always been a case of either in the Euro or out of the Euro. I have always said the either/or solution must be replaced by a both/and solution.

Bernard is also recommending the country gives power to the cities to have their own currencies and this will also solve the tax problem. After all, when you have your own local currency for ordinary transactions, it saves your precious national currency for paying your taxes. His most recent book is the Club of Rome report Money and Sustainability – the Missing Link with authors Christian Arnsperger, Sally Groener and Stefan Brunnhuber.

He is seen here in 2003 in Steyerberg, Germany with Helen Dew of Living Economies.

You can see and read more from Bernard Lietaer on his website.

He also has his TED talks on his site.

 

Government’s huge derivatives exposure needs public scrutiny

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Media statement June 3rd 2012

Government’s huge derivatives exposure needs public scrutiny

The government should come clean on taxpayer’s exposure to credit and market risk from their derivatives positions, according to a New Economics Party spokesperson, Deirdre Kent. The government is putting New Zealanders at risk by increasing its investment in derivatives and not encouraging public scrutiny.

She said that buried in the government accounts is information that $115 billion is at risk through derivatives if the other party to the contract defaults. “On P156 of a 193 page document of government accounts of June 2011 is the statement on derivatives. If there were another global financial crisis our government’s growing exposure to derivatives would put all New Zealanders at risk. If the unthinkable happens and the other party to the derivative contract fails to pay, our government pays $115 billion and receives nothing. This is over half our GDP and ten times our education budget.”

“The problem is that the accounts are written in a way that is difficult for an ordinary person to fathom. Although they are legal, there is no transparency. For me it has taken five emails with a professor of accounting and a lot of research to come near to understanding this problem. The official accounts don’t explain that we have to add two columns together to get the total exposure of $120 billion or that you have to then subtract a certain figure”, she said. ”It seems only a professor of public accounting can work it out.”

“In the financial statement of government there are no fewer than 66 mentions of derivatives, which can become, as once described by investor Warren Buffet, ‘financial weapons of mass destruction,’” she said. “Derivatives are not just bets. They are sometimes bets on bets, she said. Orange County went bankrupt in 1994 after losing $1.8 billion in interest rate derivatives, JP Morgan has recently lost at least $2 billion and Lehman Bros went under very quickly. Despite reassurance from Treasury it can only end in tears if our derivative exposure keeps rising. If you want to make a killing you have got to be prepared to be killed.”

The government is starting to look like a casino government. We need limits, and the accounts need proper scrutiny and regulation. The deregulators have had their way and made a complete mess of things. It is time for the public to examine what is happening.”