Three Distinct Crises now Point to the Urgent Need for a New Economic System


The current economic system, where money is created as interest bearing debt by banks, is coming to the end of its useful life. Three distinct movements all tell us this – those concerned about climate change, those concerned about global declining economic growth (the ones who understand its connection with peak oil), and those who know that rising private debt is dangerous and sure to end in tears.

1. The Demand for Economic Growth means Climate Change is not tackled properly.

In 1972 the world’s first whole-country environmental party, the New Zealand Values Party, questioned whether economic growth was making us better and happier. Economist Richard Douthwaite in his book The Growth Illusion wrote about the need for economic growth to be at least as high as the interest rate banks charged on money. Charles Eisenstein eloquently outlined the way the growth imperative financialises and thus depletes both our natural and our social capital. “The financial crisis we are facing today arises from the fact that there is almost no more social, cultural, natural, and spiritual capital left to convert into money.” 

The politics of climate change has highlighted the unfortunate situation where, given the choice between doing something meaningful about climate change and championing economic growth, governments will always opt for the latter and claim it is a matter of “balance”. The need for economic growth always trumps the need for climate action. As a result, according to the former United Nations climate chief Christiana Figueres we now only have three more years to turn around emissions or we will not reach the targets of the Paris Climate Accord. Carbon dioxide levels are flat at the moment, but an unprecedented effort is needed from all parties in the next three years.

Naomi Klein in her ground breaking book This Changes Everything says:

“Our economic system and our planetary system are now at war. Or, more accurately, our economy is at war with many forms of life on earth, including human life. What the climate needs to avoid collapse is a contraction in humanity’s use of resources; what our economic model demands to avoid collapse is unfettered expansion. Only one of these sets of rules can be changed, and it’s not the laws of nature.” 

2. We have reached peak efficiency in getting energy from using energy

We seem to have forgotten peak oil issues. Globally conventional oil production peaked in 2005 and unconventional oil peaked in 2015. But peak oil didn’t play out as we expected. We had omitted to factor in debt; because they had to spend more energy to get energy, fossil fuel firms had to go into debt and this kept growing. Two authors worth reading on this topic are Nafeez Ahmed and actuary Gail Tverberg. The former writes articles like this. It says we need a new economic system because we can no longer get the required economic growth. This is because the energy return on energy invested (EROI) has been on the decline since the 1940s. We used to get 50 times the amount of energy out of using 1 barrel full of oil to extract it. We now get only about 15 times that amount. This number will continue to decline. And it’s the same for gas and for coal. The decline is irreversible. The consequences for the global economy are profound and widespread.

Because we need more and more energy to keep the system going, less is left for the real economy. Tverberg carefully concludes that declining productivity growth is a result and also stagnant wages. Ahmed says James D Ward of South Australia argues that, although it was widely believed we could, GDP growth cannot really be decoupled from environmental impacts. Ward says what has happened is that we have financialised the GDP through the creation of new debt without increasing material or energy throughput. (That was done by Quantitative Easing. CNBC said it was a total of $12 trillion, and you can expect that to have a huge effect on the global economy. It did.) He also notes growing inequality of income and wealth. He demonstrates that GDP cannot be sustained indefinitely.

As far as growing inequality of wealth is concerned, Ward hasn’t yet spelt out that this is caused when we have a huge blowout of credit from QE at the same time as we fail to collect the land rent on rising land prices. The huge asset bubble created by QE has blown up house prices and the sharemarket. With a tax system that fails to tax assets (or at least land and natural resources) the wealth gap continues to rise.

Those without access to land and natural resources and natural monopolies fall into poverty and homelessness. Add the fact that wages remain low, jobs precarious and a punitive benefit system, many are in abject poverty.

All these factors combine for political instability resulting in the election of Trump and in Brexit. The growing section of population with casual work or precarious work are called the Precariat. Those with low wages with house buying beyond their wildest dreams are desperate. During elections they will now be clutching at straws, as there seems no hope for progress.

So we are now getting scholars who understand the fossil fuel energy issue and its effect on global growth saying we need a new economic model. This is new.

3. The third movement is those who know about the consequences of creating money as interest bearing debt. It produces instability as outlined by economists who follow the late Hyman Minsky.  The Minsky moment is the point at which excess private debt sparks a financial crisis. Minsky said that such moments arise naturally when a long period of stability and complacency eventually leads to the build up of excess private debt and overleveraging. At some point the system collapses and it can happen quickly.

Followers of the new economics movement are generally aware that there has to be a big system change and have been saying this for decades now. However with the demand coming from three different directions, it is  just a guess as to which will prevail. Maybe with the rise of the basic income movement something may change. Those who recognise the irony of politicians who turn a blind eye to $12 trillion dollars appearing from nowhere to rescue banks yet say we can’t afford a basic income will push this thing forward. Maybe environmentalists will stick to their environmentalism and monetary reformers will continue on recommending the same thing decade after decade while the planet burns and fascism threatens. . 


The New Economics Movement people who met between 2011 and 2015 to discuss a new economic system have produced ideas. These are crystallised to the best of my ability in my book The Big Shift: Rethinking Money, Tax, Welfare and Governance for the Next Economic System whose website is It can be bought here

PPP Infrastructure Finance – A Case of Public Pain for Private Profit..?

The following is an article written by kiwi Joel Benjamin who is in the country for three months. Formerly from Hawkes Bay, he is currently a researcher for Goldsmith University in London and was formerly a campaigner for public finance.

oblique-view-img4It’s time for a serious public debate on infrastructure future.

This week at the Auckland transport summit 2014, experts from around New

Zealand will gather in Auckland to discuss transport infrastructure planning

solutions to address Auckland’s growing urban transport problems.

Entirely missing from the debate however, will be an open public discussion of

how such infrastructure will be paid for by all New Zealanders, and paid to


Having recently returned to New Zealand after several years in financial

campaigning in London, I was interested to see what was being proposed in New

Zealand across the infrastructure planning and finance space. The answer is PPP.

Upon leaving a planning role with Napier City Council in 2006, I spent 3 years in

Melbourne with State transport authority VicRoads, before briefly entering the

consultancy game.

Through the experience of working on projects including the Calder Corridor and

Geelong bypass in Melbourne and Sydney West Metro underground rail, I have

seen the best and worst of what the private and public sector have to say and do

on infrastructure development.

Compared with Melbourne, Sydney is a transport infrastructure basket-case,

suffering from 20 years of State Government decision making paralysis.

While the construction companies hate the constant transport planning u-turns,

for the planning and engineering consultants, it’s a fee earning gold mine, with

taxpayer funded “team-building” gigs sailing on Sydney harbour all the rage.

Ideologically I am not wedded to either public or private sector approach to

infrastructure delivery. I am however extremely concerned about who pays for

infrastructure, and that what is designed and built is fit for purpose and meets

demonstrable public needs.

In the mid 1990’s Australia and the UK embarked on a infrastructure financing

model called the Private Finance Initiative (PFI/PPP) to fund public

infrastructure including schools, roads and hospitals “off balance sheet” using

more expensive bank finance, instead of Government borrowing.

Whilst PFI has proved a gold mine for private financiers and construction firms,

it’s been a disaster for the UK taxpayer.

To pay back £55 billion of PFI/PPP infrastructure will cost UK taxpayers £301

billion over the next 30 years.

Interest charges on PFI bank finance are at least double the cost of Government

borrowing. In the NHS, academic Allyson Pollock has stated PFI has frequently

meant “one hospital for the price of two.”

Our Prime Minister John Key spent his working life in London within a banking

environment where such profits at taxpayers expense were considered not only

desirable, but entirely normal.

With the recent creation of the Auckland “super city” and talk of local

government mergers in Hawkes Bay where I grew up, I see plenty of warning

signs that PFI/PPP super profits are occupying the thinking of politicians here,

and taxpayers have every right to be concerned.

It turns out that the modern infrastructure industry is not especially concerned

with financing development, its objective is developing finance.

The aim is to get as much private bank debt out the door as humanly possible

with unsuspecting taxpayers on the hook to pay for it.

The public utility of any planned infrastructure (if it is even needed) is of

secondary concern to authorities, whose job is to maximise private profits.

Planned Public-Private (PPP) infrastructure projects including the Ruataniwha

Dam in Hawkes Bay, and Transmission Gully in Wellington should be considered

and scrutinised in this light. Coincidentally, both PPP projects which are financed

by BNZ.

The “vertical integration” or alignment of commercial interest between the

infrastructure developers and the bank is so complete that Andrew Pearce, the

Chairman of HBRICL who are developing the Ruataniwha Dam project also sits

on the BNZ board.

There is no accusation of impropriety involved, but taxpayers should certainly

question whose interests are being advanced through development of the

Ruataniwha Dam – local rate payers, or BNZ shareholders? to whom Pearce has a

“fiduciary duty” to maximise BNZ profits.

PPP projects are typically designed to benefit from economies of scale and suck

up thousands of hours of expensive private sector engineering and

environmental consultants time.

However spend a few hours reading through a typical economic business case

used to justify a PPP project and you’ll quickly discover more clouds of doubt

than your average long range mountain forecast.

Economic forecasting is frequently full of grandiose predictions, models and

assumptions. Build it and they will come, as opposed to projects servicing

demonstrable existing needs.

PPP projects are fantastic business for the private sector, as lending to central

government involves zero risk of default. Profits for private sector firms

engaging in UK PFI/PPP projects reach 60-70% returns, as compared with 3%

returns on standard construction projects.

Tangible benefits for taxpayers however are much more elusive to pin down,

with many PPP projects owned, controlled and run via offshore shell companies

paying negligible taxes. PFI/ PPP contracts are deemed “commercially sensitive”

and are not made available for scrutiny in the public realm.

Despite the criticisms, let’s be clear about one thing. We need good public

infrastructure. That much is obvious.

Road and rail networks connect trade and commerce, ports connect us to global

markets and modern schools and universities ensure a skilled and innovative


We must however question an “infrastructure at any costs” philosophy, designed

to indebt future generations for decisions made today in the interests of private

sector profiteers, not the taxpaying public.

There are other means of funding infrastructure which much be explored before

committing future generations of taxpayers to the folly of PPP.

A 2011 UK Treasury Select Committee Report on PFI/ PPP found the cost of bank

borrowing to be at least twice as expensive as Government finance.

Questions must be asked why direct Government financing of projects like

Transmission Gully, Auckland rail development and Ruataniwha Dam is not on

the table alongside PPP. Where is the alternative?

We also have the option of public banks, like the Bank of North Dakota in the

USA. The Bank of North Dakota has a mandate to support the local economy,

support other local banks and fund rural businesses, infrastructure and

irrigation projects of a type identical to Hawkes Bays Ruataniwha Dam.

The difference however, is that interest payments and profits at public banks

(being State owned) are reinvested in the state, not siphoned off by private

profiteers such as Australian owned BNZ – who finance both Transmission Gully

and Ruataniwha Dam PPP projects.

When a public bank like the Bank of North Dakota makes lending decisions, we

can be reasonably assured both the infrastructure project itself, and the profits

that derive from it are aligned with, and ensure benefits for, local citizens.

When private banks like BNZ are involved in infrastructure planning and finance

on a strictly for-profit basis, we have no such assurances, and should remain

vigilant to the corrupting effects that for-profit private infrastructure finance

can, and demonstrably have had on democracy in the UK.

Why our are farmers farming for capital gain?

Andrew Gawith, Director of Gareth Morgan Investments, described the economics of farming in New Zealand as “speculative” as the financial benefits are almost entirely dependent on capital gains. Other than dairy, income is puny and unreliable, he said.”Farm finances don’t add up.” (NZ Herald, Nov 30, 2010)

Alvin and Judy ReidWhereas UK and US price of rural land doubled in a decade, the value of farmland in New Zealand has risen at 10.7% a year over the past 20 years. (That is the value of farmland doubles in less than seven years). “That’s a real after tax return of something in the order of 7 percent to 8 percent a year.” He points out this is double the return of sharemarkets.

He says, “Farming is the most popular business for banks to lend to. While other areas of economic endeavour are starved of capital, banks have very nearly drowned farming with debt. The ease with which farmers can get capital has helped push up the price of land.”

If farmers are drowning in debt, they will not be able to withstand a rise in interest rates. An article in NZ Farmer warns that with the drop in the price of milk, a quarter of farmers are heading for loss unless prices rise. So as China’s economy slows the high debt farmers are most vulnerable. Winston is watching.

gw-speech-the-significance-of-dairy-to-the-new-zealand-economy-7-may-201400This is our dairy debt from 1990-2014. It has multiplied by eight over those 24 years. Gareth Vaughan reminds us that nearly 70% of this dairy debt is on floating mortgages. Dairy debt was around $32 b in 2013, up from $8 b in 2003, which makes a quadrupling in a decade!

Farming is very capital intensive, with only mining and utilities more so. According to a NZIER study “Around three quarters of value added in agriculture is from capital (land, plant and machinery). This is higher than the economy wide average of around 50%.”

If dairy farming turns out to be the cause of our country’s Minsky moment, can we avert a crisis by taking control of our currency creation and land tenure system at Community Board level? Not only is this our only hope, but it will lead eventually to greater productivity and equality – as well as getting good young farmers on the land at an affordable entry level.

Our submission supporting our petition to Parliament on bank stability

I have been following the twitter discussion of Jesse Colombo’s Forbes article on why the New Zealand economy will crash. I realised I hadn’t ever posted our submission made in November last year to the Finance and Expenditure Committee. The petition has never been heard. Must be gathering dust on some shelf somewhere. They have more important things to do no doubt than worry about the banks increasing exposure to derivatives and the increasing globalisation of the investment banks. Looks as though the big four Australian banks these days have directors from HSBC, JP Morgan, Citibank and so on. To say they are Australian banks is no longer accurate.

But back to our submission. Here it is. You will see the graphs of the rise of derivative exposures of Australian banks.
To The Chairperson and members of Finance and Expenditure Committee

Re Petition 2011/78 of Deirdre Kent and 877 others

Thank you for the opportunity to present my submission.
I wish to appear before your committee in a session open to the public.

Submission on the Petition of Deirdre Kent and 877 others, which asked:

We respectfully request that the House initiate a Parliamentary Enquiry into the best options for securing the ongoing stability of NZ registered banks to ensure they never need to be bailed out by their customers or NZ taxpayers. We also request this enquiry should include:-
1. An examination of The Chicago Plan Revisited by Jaromir Benes and Michael Kumhof on the IMF’s website.
2. The ways New Zealand can initiate or support this important reform.

Who I am
My name is Deirdre Kent, from Otaki. I have a BSc in mathematics and have been a secondary school teacher and full time campaigner for tobacco control. I have been a Tauranga city councillor and for many years a community activist for a strong, resilient economy. I am the co-founder and co-leader of the New Economics Party of New Zealand. I am the author of the 2005 book Healthy Money Healthy Planet –Developing Sustainability through New Money Systems. I was a co-founder in an organisation called NZ Banking Reform which operated in Wellington around 2000 to 2002. I was a founding trustee of Living Economies Educational Trust.

I represent 190 people from the New Economics Party, together with a further 200 on our Facebook page and a further 107 on our Facebook petition page.

Structure and contents of this submission
I outline why some of the public is losing faith in economists. I explain how the way the global monetary system including New Zealand as now structured is inherently unstable, (that is not reaching the desired state of a dynamic equilibrium). I describe how our petition arose from Open Bank Resolution. I explain why we decided to ask for a Parliamentary Enquiry. I look at who the enquiry might attract. I discuss what the enquiry could include. Finally what an enquiry might turn up.There are links to graphs, articles and a slideshow. (For those with minimum time may I suggest you peruse the headlines plus the charts of Jesse Colombo in 2.9 and read the short transcript of IMF economist Michael Kumhof at the end of 7.5 and anything here on the Rentenmark.)

1.0 Summary of this submission
We are asking for a Parliamentary Enquiry on the best way to make banks stable because it appears we have to choose between a government bailout and depositor bailout and neither is acceptable. If banks are so unstable as to have the Reserve Bank set up a system where depositors bail out the banks, then it is high time for a concerted effort to make banks more stable in the first place.

A full enquiry is the way to draw out all the relevant information on banking stability in New Zealand.

New Zealand has watched a series of distressing economic crises in the Eurozone and USA and witnessed a range of fraudulent behaviour from banks. It appears that the central bankers of the world are themselves gravely concerned about the stability of the current financial system.

We know we live in a hyperconnected world but are collectively unable to do anything about the lack of effective regulation of the big four US investment banks. We know that there are three bank lobbyists for every elected member in the US Congress and the banks’ campaign contributions are very high. Hence the plea to do what we can in New Zealand in the time available. It is time to take stock and better insulate our economy from the shocks in the global financial system.

Given the risk of another major financial crisis when the triple threat of worldwide housing bubbles, commodity bubbles and derivatives bubbles eventually burst, we believe it urgent to set aside Parliamentary time and resources and engage the public in an exploration of how we can make New Zealand banks safer.

In the Global Financial Crisis of 2008 our government had to act very quickly to guarantee our bank deposits, but the scheme has now finished. The last thing New Zealand needs is for chaos to break out when depositors discover they are having their money confiscated.

I also point out that housing bubbles are all occurring within the context of a tax system that taxes income but not land. So there is a connection to the tax system.

2.0 Many have lost a great deal of faith in the economics profession after the Global Financial Crisis.
2.1 As lay people, we have been told that our banks are safe yet we have observed a massive Global Financial Crisis which mainstream economists had not predicted. We saw the too-big-to-fail banks getting even bigger and nobody go to jail for fraud. With all these adverse financial events happening we have lost faith in economists. While we appreciate the work of the Reserve Bank of New Zealand to keep our banks safe, we believe they have underestimated the public outcry and the potential of the public to make a contribution. We have all witnessed the invention of a wide range of new financial products and a blow out of credit the world has never seen before. We can all see that the ‘shadow economy’ is $700 trillion while the global economy is $70 trillion and we are worried.

2.2 We don’t want either the taxpayers or the individual depositors to bail out the banks. We know banking crises are very serious and something must be done very quickly to avert social unrest and keep the economy going. According to a book by his spin doctor Damian McBride, UK Prime MInister Gordon Brown said, “If the banks are shutting their doors, and the cash points aren’t working, and people go to Tesco [a grocery chain] and their cards aren’t being accepted, the whole thing will just explode. If you can’t buy food or petrol or medicine for your kids, people will just start breaking the windows and helping themselves.”

2.3 It is clear it is not financially viable for the taxpayers to bail out the banks ever again. Also according to President Obama in his remarks on the Dodd-Frank Act on July 15, 2010, “Because of this reform, . . . there will be no more taxpayer funded bailouts – period.” But the arrival of a bail-in proposal, where depositors have their deposits confiscated to help the failing bank, brings with it serious consequences. Financial crises are socially and politically dangerous events and can happen within a very short timespan. We now know that martial law was being considered in UK during 2008. But perhaps bail-ins and martial law should really be seen as the last desperate thrashings of a dinosaur. It is time to get banks less vulnerable in the first place.

2.4. One cannot help come to the conclusion that the financial system, especially after the spawning of a range of exotic innovative financial “products”, is inherently unstable. It was derivatives after all that were at the heart of the Global Financial Crisis of 2008 and, despite some regulation, yet the same financial asset bubbles are redeveloping as a symptom of growing private debt as before the crisis. As long as excess money is going into real estate or other bubbles, it will not be going into productive enterprises.

2.5 Most people are completely surprised by financial crises. People in Iceland, Cyprus or Thailand can wake up and find the banks closed, ATM machines not working and their relations stuck overseas unable to get home. Investors suddenly find they are worth less. Shortly after the Global Financial Crisis, the Queen of England asked bankers why nobody saw it coming.

2.6 Since only a handful of economists actually predicted the Global Financial Crisis it is not surprising that the public is losing faith in economists. Dutch economist Dr Dirk Bezemer researched those who did and found Dean Baker, Wynne Godley, Fred Harrison (UK), Michael Hudson, Eric Janszen, Steve Keen (Australia), Jakob Madsen & Jens Kjaer Sørensen (Denmark), Kurt Richebächer, Nouriel Roubini, Peter Schiff and Robert Shiller. Subsequently Bezemer had the list at three dozen, but out of a total profession of at least 20,000 it is a very poor record. If any other profession (e.g medicine) was so wrong in something that affected millions they would be sued. The universities who train economists should be ashamed of themselves to have such a poor record.

Economists in the Real World Economics Review 2010, voted for Australian Professor Steve Keen first, ahead of Professor Nouriel Roubini by a 2 to 1 margin for their Revere Award. This is for the economist who best foresaw the crisis and warned and gave a full explanation. So it is not surprising that Steve Keen’s analysis, based on the work of Hyman Minsky and including the use of dynamic modelling to prove how growth in debt drives instability in economic cycles, is gradually becoming more mainstream.

Minsky claimed that in prosperous times, when corporate cash flow rises beyond what is needed to pay off debt, a speculative euphoria develops, and soon thereafter debts exceed what borrowers can pay off from their incoming revenues, which in turn produces a financial crisis. He said we moved from a hedging stage where risk is low to a speculative stage and finally to a Ponzi stage. Minsky said a key indicator was the growth of private debt as a fraction of GDP, but when I ask I can’t find this graph on the Reserve Bank site. The “Bezemer 11” quoted above had in common that they were concerned with the distinction between the financial economy (making money from money) and the real economy. Keen wrote in 2009 “Unfortunately after the crisis everything is being done by policy makers around the world is instead trying to restart private borrowing.” Wikipedia notes that Minsky’s theories have enjoyed some popularity, but have had little influence in mainstream economics or in central bank policy.

Regulators like Brooksley Born (head of US Commodity Futures Trading Commission) warned that derivatives trading needs stronger regulation and when her concerns were dismissed she resigned. In his book Bailout, Neil Barosky, regulator of TARP warned that the big banks must be broken up.

2.8. The failure to constrain the derivatives market has made the public mistrust big banks and those who regulate them. Derivatives can be useful tools for managing risk, but they’ve often had hugely negative, albeit unintended, consequences. All the big four American banks of the world are knee deep in derivatives, because like banks everywhere they found they could make huge profits from tiny margins. As a Forbes Magazine contributor wrote in March 2013, “The derivative bubble is a gigantic financial accident waiting to happen; it’s the “mother of all bubbles”.”

Although the official figure for notional derivatives contracts from the Bank of International Settlements was $633 trillion as at December 2012, it may be larger still. According to one of the world’s leading derivatives experts, Paul Wilmott, who holds a doctorate in applied mathematics from Oxford University, $1.2 quadrillion is the so-called notional value of the worldwide derivatives market. In contrast the World’s Gross Domestic Product was $71.8 trillion in 2012. Whatever the actual figure, it is clear it has got out of control and that the financial economy is overwhelming the real economy. Moreover the growth of OTC (Over the Counter) derivatives continues unabated.

So what about the Australian banks exposure to derivatives? The graph above shows the growth of derivatives since 1998. The graph below shows how large the notional value of derivatives is in relation to assets or deposits. The third graph shows how the Global Financial Crisis scarcely made any difference to the vertical trend.

2.9 In addition to a rapid rise in derivatives, the worldwide housing bubbles have continued, mostly in the big cities, even though there was a dip in some countries during the Global Financial Crisis. The housing bubble is no different. The series of charts by Jesse Colombo showing the housing bubbles continue unabated in a wide range of countries. We now have worldwide asset bubbles in derivatives, housing and commodities happening at the same time.

The French bank Societe Generale’s Albert Edwards, seeing housing bubbles especially in London and China wrote to his clients (Oct 24, 2013, Business Insider Australia) “I keep reading that, despite central banks spewing money into our financial system, there isn’t a bubble in asset prices. And in any case if one appeared central banks, having learnt the lessons of 2008, will head it off with macro-prudent policy measures. Are you kidding me? Exactly the same bozos who missed the last bubble deny there is one now.”

1.10 We now have a growing segment of educated, informed and networked public.
Given the importance of economics and the devastating effect it can have on the lives of millions when it goes wrong, it is natural that many concerned individuals are becoming informed, largely through the internet. Economics is about “household management”. Multiple tools are needed to ensure flows of resources and services within the household of the biosphere and within human communities, and money is a symbol of value. So economics is too important to be left to economists. When high status economists like Ben Bernanke did not forecast it, and after the event said that the basic theory was correct, it is clear they high priests of economists have a way to go. Bernanke even said “Do these failures of standard macroeconomic models mean that they are irrelevant or at least significantly flawed? I think the answer is a qualified no. Economic models are useful only in the context for which they are designed. Most of the time, including during recessions, serious financial instability is not an issue”

The public knows there is huge risk. The World Economic Forum now has regular conferences to address global risks, and produces a report each year. One risk was “systemic financial failure” and one of the graphs on their site showed that of all their listed risks, systemic financial failure has the biggest impact if it were to occur. It was connected on their charts with items like global governance failure and food shortage crises.

3.0 The way the money system as structured now is inherently unstable.

3.1 The very money system we all use insists that total debt increase. When money is created as interest bearing debt as it is, the total supply has to keep on increasing and that inevitably means more loans. The amount of money in the system is never at any time sufficient to pay off all the debt owing along with interest. Even though money circulates many times, at any one point there is only so much in the total system. There is always someone who can’t pay their interest so they have to go back to the bank for another loan, so the money supply has to keep increasing. In this system, which we have come to accept as normal, the alternative to economic growth is unfortunately collapse, not stability.

If the banks stopped making loans tomorrow, there wouldn’t be enough money in the system for all existing debts and the interest to be paid. Our money supply would virtually disappear if all debt were paid off. When the power to create credit is given to private banks, they control the amount of credit in the system and central banks have difficulty regulating their excesses. The current Greece debt crisis after two bailouts and austerity programmes illustrates you can never solve debt with more debt. As Professor Michael Hudson has noted, “it is simply a mathematical fact that the debt that can’t be repaid, won’t be.”

3.2 While we appreciate the Reserve Bank has been bold in their experiment of limiting loans by imposing new Loan to Value Ratios in response to the Auckland housing boom, it doesn’t address the fundamental problem that the government allows private banks to create 98% of the country’s money supply as interest bearing debt, and this means that total money supply will have to go on increasing. It is a fundamentally unstable system made worse by derivatives. The unwanted side effects of restrictions on loan to value ratios (LVR) are minor in comparison with the bigger problem.

4.0 This petition originated when we heard about Open Bank Resolution
4.1 In early February this year I received a letter from the Hon Bill English, Minister of Finance in reply to my letter asking him if they would consider implementing the Chicago Plan Revisited, published by two IMF economists on their site in 2012. This plan would eliminate the risk of bank runs and monetary crisis.

Mr English’s letter assured me it wouldn’t be necessary as the Reserve Bank was putting in place a new scheme for dealing with banks in trouble. It was the Open Bank Resolution scheme. But when we examined this on the website of the Reserve Bank of New Zealand, we found it rather alarming.

4.2 We had never heard of Open Bank Resolution in the media and it seemed to us to be rather important. Nobody wants to wake up in the morning to find their bank had failed overnight and find their account had been reduced (or a certain unknown fraction of it frozen). Admittedly it is one step better than having banks close for 12 days but it shouldn’t be necessary.

4.3. In the light of their inadequacy at telling the public that their bank accounts were at risk and the money in the bank actually legally belongs to the bank, it does call into doubt the willingness and/or ability of the Reserve Bank of New Zealand to keep the public properly informed.

4.4. When we enquired of the Reserve Bank why we weren’t told, we were informed there had been publicity – they had put it on their website. We consider this to be either a fundamental mistake made by their communications department or a deliberate error in order to keep people in the dark. It doesn’t look good either way. Putting something on a website does not alert the ordinary people. We consider they need to ‘up their game’ if they were genuinely trying to inform the public.

4.5. Because the Open Bank Resolution didn’t get passed in Parliament, there has been no opportunity for scrutiny of the details. Little is known by the ordinary depositor of what risks their banks take or whether or not their banks sell covered bonds. The level of public knowledge is too low, but is increasing.

4.6 Unfortunately, according to the Reserve Bank of New Zealand, Open Bank Resolution did not require a new law, so the public has never been given an opportunity to examine it. Here is one thing that could have been pointed out if a bill had gone to a Select Committee: Open Bank Resolution has a design flaw. Depositors in a failed bank, once it has been through its process in the crisis, will have their deposits guaranteed by the government. This will cause customers of other banks to move their accounts to that bank.

5.0 Why we decided to launch a petition asking for a Parliamentary Enquiry
5.1 Because of a fundamental fault in the design of money, financial crises have been happening for decades. According to IMF data, there were 145 banking crises, 208 monetary crashes and 72 sovereign-debt crises between 1970 and 2010. This represents a total of 425 systemic crises, an average of more than 10 countries getting into trouble each year. So financial crises are not new and they demonstrate that there is a fundamental structural error in the money system.

5.2 After consideration we decided to run a petition and decided that the matter of bank stability was so important that the public should know. A Parliamentary Enquiry would flush out all the facts, draw out all the experts and pool a great deal of knowledge held in many sectors of the community.

5.3. We believe that the public should be informed and a Parliamentary Enquiry would help. The publicity which resulted after the Cyprus events was actually largely due to us alerting journalists and organising a key letter to the Dominion Post at a critical time. The fact that this letter featured at exactly the time of the Cyprus bank closures stimulated thorough coverage in the print media and public radio at the time. Then the politicians publicised it still further with announcements about policy. However we believe only a tiny fraction of the public still knows that their bank account is at risk.

5.4. It has been argued that the big four Australian banks are safe. But business is now hyperconnected. An analysis of the relationships between 43,000 transnational corporations of the world has identified a relatively small group of companies, mainly banks, with disproportionate power over the global economy. When the team further untangled the web of ownership, it found much of it tracked back to a “super-entity” of 147 even more tightly knit companies – all of their ownership was held by other members of the super-entity – that controlled 40 per cent of the total wealth in the network. So is New Zealand not part of a global system or did a little country in the South Pacific somehow get left out of this network? We have been told that the big four banks are relatively safe, but taking just ANZ alone, we find that HSBC Custody Nominees owns 17%, JP Morgan Nominees owns 14.15% and Citicorp Nominees has 3.8%. The other three Australian banks have similar shareholder structures.

5.5 Even though we don’t see it practicable or realistic to implement, and we see its limitations and risks, the Chicago Plan Revisited should be examined seriously. This proposal, based on the work of Irving Fisher, Henry Simons, Milton Friedman and others in 1936, was written by two IMF economists Michael Kumhof and Jaromir Benes. Kumhof was a Barclays Bank manager for five years. His most recent slideshow describing the plan is here. The scheme involves the government creating sufficient indestructible reserve money to provide 100% backing for all deposits. There are several further steps which are outlined in this summary, but the consequences are that money creation no longer requires debt creation and the quantity of money is controlled by the central bank, not by private banks. Private banks become true intermediaries. The scheme also reduces or eliminates public debt and dramatically reduces private debt. However here is why we believe it not to be practical. As it just replaces a privately created monopoly currency with a publicly created monopoly currency it is not as resilient as an ecosystem of currencies. Nor does it prevent monetary crashes. It also involves huge risk and is pragmatically impossible to implement, given the relative power of the big banks in the US.
One of the contributions that Michael Kumhof has made to the debate is that as a former bank manager he said he knows that he created the loan and then the deposit – in that order. He also says that the main function of banks is to create money. A transcript of a talk where he said that is here.

6.0 Who the enquiry might attract
This will widen your pool of advisors. Thanks to the benefits of the internet, there are a huge number of people now following the troubled hyperconnected global financial system and there is a great deal of knowledge that you as a Finance and Expenditure Committee probably don’t yet know about. This enquiry would bring out a range of people including financial traders, home based researchers, people who administer public payrolls who are concerned about the implications of Open Bank Resolution. It would bring out brokers, investment advisors, farmers, bankers, fund managers, real estate analysts, academics in fields other than economics, accountants, investors, market analysts and public interest organisations.

7.0 What an enquiry could include

7.1 The whole field of Australian banks’ exposure to derivatives needs to be investigated and understood.

7.2 Why are banks making record profits even though interest rates are so low?

7.3 How many mortgages of New Zealanders have been securitised, and packaged up and sold to pension funds and other investors and what effect this would have on the New Zealand mortgage holder in a banking crisis.

7.4 The upgrading and improving of communications coming out of the Reserve Bank.

7.5 Review the applicability of the observations made in the Chicago Plan Revisited. The scheme involves government creating sufficient indestructible reserve money to provide 100% backing for all deposits. There are several further steps which are outlined but the consequences are that money creation no longer requires debt creation and the quantity of money is controlled by the central bank, not by private banks. This is exactly the outcome required.

7.6 The main issues of course are “Should banks be in charge of how much credit is created? If banks stopped issuing loans tomorrow, would there be enough money in the system for everyone to pay back their debt with interest?”

7.7 Is there a lesson to be learnt from history that tells us we must connect fiscal policy with monetary policy? e.g. the successful Rentenmark currency in Germany in 1923 may have been successful because it was the nearest in history of the ideal of combining a full land rental with money spent into existence by a publicly owned agency.

7.8 Are there any other successful models in history other than creating one national currency by banks as interest bearing debt?

7.9 Has the financialisation of the economy since the delinking from the gold in 1971 had in it the seeds of its own destruction?

7.10 What should the role of banks be – creating the country’s money supply or mediation between depositor and borrower?

7.11 Are there other models for protecting savings? e.g. the reinvention of mutual savings funds.

7.12 Should banks be involved in insurance and investment at all?

7.13 Should the national currency be issued by an arms-length agency of government and backed by land, now that it is no longer possible to back it with gold?

7.14 Are there cases in history like the German Rentenmark which in effect combined a land backed currency with a land tax, resulting in stability?

8.0 What the Enquiry might turn up
8.1. A range of suggestions from those who believe the Reserve Bank should create the country’s money with no interest. This will include the suggestions of the Chicago Plan Revisited, Democrats for Social Credit, Positive Money and other monetary reformers who argue for replacing a bank created money by government created money.

8.2. A range of information about how governments in history dealt with financial crises or when banks tend to have too much power over politicians.

These might include:-
a. When Lloyd George suddenly found he had to go to war in 1914 and within a matter of days the Treasury had created Bradbury Pounds, which were good for payment of tax and could fund the war.

b. When Abraham Lincoln, faced in 1861 with the option of borrowing from banks at usurious interest rates, decided to create Greenbacks without interest to fight the civil war.

c. When President John F Kennedy, five months before he was shot, issued $4,292,893,825 of cash money; free of debt and free of interest. It was a sufficient amount to allow the nation to operate without the private Federal Reserve. On June 4, 1963, Kennedy signed Executive Order 11110, which authorized the US Treasury to issue a new form of silver certificate.

8.3. A range of information about how governments dealt with financial crises eg. From 1999 there was a surge of complementary currencies in Argentina becauses the country was deep in recession and had high inflation. Wikipedia says “While the provinces had always issued complementary currency in the form of bonds and drafts to manage shortages of cash, the scale of such borrowing reached unprecedented levels during this period. This led to their being called “quasi-currencies”. The strongest of them was Buenos Aires’s Patacón. The national government issued its own quasi-currency—the LECOP.” They brought back their own peso.

What happened in 1923 in Germany at the peak of their hyperinflation crisis and how the Rentenmark solved the problem within days. When Germany had no gold to back the currency after the first world war, and inflation had grown till there was massive hyperinflation, poverty and social chaos, they issued a new land backed currency and imposed a twice yearly payment for the use of that land. The nation quickly went from a state of chaos and misery to stability. Descriptions of what happened included the term “the miracle of the Rentenmark”. So this successful system effectively combined a land backed currency with what amounted to a regular land fee. One author said “The Rentenmark experiment marks one of the most extraordinary monetary experiments of all time, yet most historians of the episode seem to have misunderstood the mechanism and its role to the stabilization.” My own account of what happened and how its success could be explained is here. Although they issued the money as mortgages, for the first year of its existence it seemed as though the mortgage payment was a full land rental.

I am of the opinion that it is important to look at bank stability in conjunction with fiscal policy. It is unrealistic, for instance to expect monetary policy to deal to the escalation of Auckland house prices while the tax system favours land owners and there is no charge on the holding of land. Restrictions on LVR can never therefore work by itself, nor can more house building.

8.4. A range of information about how countries in depression or financial crises allow the issuing of local currencies e.g. Greece’s TEM. The Austrian town called Wørgl in 1932 issued work certificates, good for paying local taxes and designed with a circulation incentive. They paid their workers in it. When unemployment dropped dramatically it became known as the miracle of Wørgl and people came from all over Europe to see it.

8.5. The need for Parliament to legislate to support and not stand in the way of new well designed currencies at any level. Complementary currencies have been springing up all over the world. New Zealand’s timebanks now number 27 for instance. Numerous books have been written on the topic, including authors like Bernard Lietaer, Stephen Belgin, Thomas Greco, Margrit Kennedy, and myself. The list of 180 books and DVDs sold by the LIving Economies Educational Trust is comprehensive. An international skype chat group on the topic has been going for seven years and has reached 200 participants and a google search on complementary currencies turns up over 1 million results nowadays. They can be local or national, private or public and have a variety of designs and purposes. An education currency can make the budget go further, a health currency can make the health budget go further. A currency for small businesses can stimulate job growth. A currency can also solve problems as when rubbish piled in narrow streets in Curitiba, Brazil. Tokens were given to those who produced sorted rubbish and were accepted on buses. In Lyttelton during the earthquakes the timebank was there to help before the Civil Defence, Red Cross and other agencies got organised. Other purposes for complementary currencies are helping deal with aged care, encourage customer loyalty e.g. airmiles and flybuys, buiding community, mitigating unemployment and other social problems and encouraging volunteering. On November 3rd 2012 in Christchurch the Volunteer Army Foundation, led by Sam Johnson, Jason Pemberton and Raf Manji , organised a one day Concert, featuring 24 bands, for volunteers only. The only way to get a ticket was to do at least 4 hours of volunteering. Nearly 50,000 hours of time was donated with hundreds of community projects completed. Volunteer hours are now becoming an important part of a student’s transcript, alongside traditional academic information.

As long as complementary currencies are not producing inflation, they should be welcomed by the Reserve Bank of New Zealand. During a period of high unemployment the Internal Affairs Department encouraged green dollar exchanges which flourished in the early 90s.

8.6. The need for universities to reintroduce courses on economic history.

Why we need a parliamentary enquiry into the best methods of making banks stable

Submission of Deirdre Kent in support of petition 2011_78 to Parliament

This submission is substantial. It outlines why banks are unstable, includes charts on banks assets compared with their exposure to derivatives and on housing bubbles. In a hyperconnected world New Zealand’s four Australian owned banks are not going to be immune to shocks. Now instead of taxpayer bailouts, it seems depositors will bailout the banks. The Reserve Bank has in place a system called Open Bank Resolution. We would rather the banks were stable in the first place.

Reform of tax and money system essential for narrowing gap and bringing jobs

So we have just seen the Ikaroa Rawhiti by-election win for Labour with Mana coming in second.

The successful candidate Meka Whaitiri has repeatedly said “Our people are hurting. The issues are poor housing, jobs and poverty” Labour has said people are moving from National to Labour because of the rising cost of living.


With currency reform and tax reform money will flow into activities that maintain and upgrade assets like houses

If the money system widens the gap between the rich and the poor then a party which ignores this or even understand this will do little to reduce wealth disparity. Explaining this: If money is created by banks as interest bearing debt, but the banks don’t also create the interest, then there will never be enough money in the system for everyone to pay back debt. So the losers have to go further into debt. This widens the gap.

If in addition the tax system causes wealth to concentrate with property owners and stops money going into investment in the productive sector then a party which ignores this will surely make little progress in alleviating poverty or bringing jobs for the rangatahi of Ikaroa Rawhiti electorate. Explaining this: If we tax labour, sales and enterprise with income taxes, GST and company tax, then the purchasing power of everyone declines. The cost of living rises relative to income. At the same time investment money goes into housing, because there is no tax on land and everyone is betting on rising land prices. A notable example was of an Auckland house which was recently sold by New Zealand Transport Agency for $220,000 above Rateable Value. The housing bubble in Auckland is a serious threat as the Reserve Bank constantly reminds us.

Because our party has looked to the root of the issues, and have proposed a well designed domestic-only currency linked to a completely new tax and welfare system, (see, only our party can offer serious solutions to the growing wealth disparity and bring real jobs to the Ikaroa Rawhiti electorate.


How To Build A Life-Supporting Economic System

How To Build A Life-Supporting Economic System


Earth is a Living System

Earth is a living ecosystem and necessarily the model for the human economic system. The words ecology and economy have the same Greek root ‘ekos’, meaning ‘home’ or ‘earth’, so our economy is a subset of our ecology. All life-based systems are unique home economies – Earth, nations, states, cities, towns, communities, families, and each living being. Each economy can only survive in balance within natural limits.

Every global crisis derives from an unbalanced economy:

  • Financial collapse is caused by an interest-bearing debt-based money system and a grossly overinflated ‘shadow economy’. These cause rising debt as “promises to pay” that cannot be met by the real economy.
  • Energy collapse is caused by our economic dependence on fossil fuels and the new reality of relentlessly declining energy returns, leaving less energy to drive the economy.
  • Biosphere collapse is caused by the real world demands of the growth-based economy, required to service exponentially expanding interest-bearing debt.
  • Societal collapse is the descent into social unrest, the police state and militarism, driven by the above.

We have a Deadly Economy

In an interest-bearing debt system of money creation:

  • Private banks create money as a commodity for private profit, causing cycles of boom and bust as the money supply expands and shrinks. The lack of balance is destabilizing. Scarcity of money during recessions/depressions causes unemployment and turmoil.
  • The interest mechanism automatically transfers wealth upward from those with the least to those with the most, increasing income inequality. This undemocratic money system leads to social polarization and social collapse.
  • Interest-bearing debt expands exponentially, demanding perpetual growth of GDP despite our finite Earth, which exhausts all human and natural ‘capital’.
  • The need for growth is inflationary, promoting unproductive speculation in financial markets and real estate, inflating house prices, and eroding the productive economy.

A tax system which taxes labour, sales or enterprise discourages work discourages trade and discourages enterprise. It also greatly reduces people’s purchasing power (though there are cases for reducing this e.g. tobacco, alcohol, fossil fuel etc.). A tax system like this encourages property speculation, reduces productivity and concentrates wealth with landowners.

When we tax these three but fail to tax land, we invite taxpayers to use tax havens and do under-the-counter trades, resulting in lost government revenue. Land cannot be hidden offshore.

However, though it has been recommended for centuries, a land tax in the 21st century is a politician’s nightmare. Successive tax review by Inland Revenue, Treasury and universities have recommended land tax, but no government has implemented them. In fact there is actually a law prohibiting land tax in New Zealand, probably enacted to please the banks.

People already pay on their property two payments – rates and mortgage – so the possibility of government imposing a third burden is zero. In fact it is political suicide for any politician to recommend land tax, no matter how small. Yes, the banks have claimed land for themselves, as it is their best security on their loans. They vehemently oppose land tax and so governments have to be content with taxing a less secure asset – income taxes.  Banks love lending on property because as the price of land rises, so does the size of their loan portfolio.

A means tested welfare system with an intrusive state and a ‘benefit trap’ is trapping our unemployed and dampening enthusiasm for working. It is also complicated and expensive to run and requires billions being spent on IT systems. The benefit system with its various income support schemes which favour the children of employed over the children of the unemployed like Working for Families is basically unfair. A Universal Basic Income has been recommended for centuries, starting when someone saw thieves hanging in the street and said it would be better to pay them a living wage. However there has been no progress.

All of the above – monetary reform, a Georgist tax reform and a Citizens Dividend – would if introduced suddenly shock the economy. All of the above have attracted loyal movements that have made virtually no progress over the centuries. It is important to reflect on the reasons for inaction. Each major reform would shock the economy.

We Need a Living Economy

A living economy will feature:

  • Publicly created permanent debt-free money as a medium of exchange for public benefit, circulating permanently, its volume regulated by a publicly accountable body. A sufficient, balanced supply of money is stabilizing, promoting business and employment.
  • Reliable public revenue without debt or interest is spent directly into the economy. It is critical to take the power from the banks to create the country’s money and return this to the people.
  • Tax will be removed from ‘good’ activity like work and enterprise and trade, and will be imposed where people take more than their share of the commons or impose a burden on the commons.
  • A Citizen’s Basic Income removes the need for Social Welfare and numerous income support programmes. It avoids the ‘benefit trap’ and allows voluntary work and new businesses to thrive.
  • A stable money supply that is neither inflationary nor deflationary, and flows freely into productive investment in the real economy.

Transition To A Healthy Public Money System and to a Reformed Tax and Welfare system

First we need to explain why we are applying a broad-brush approach to reform, not doing it piece by piece.

When family therapists are presented with the problem of a difficult adolescent, it is important to treat the family as a whole system, rather than just look at the presenting problem, the adolescent. Tweak just one part of the system and the whole becomes healthier. You seem to solve all sorts of problems. But if you just try and fix one problem at a time, it won’t work. The original problem tends to persist. That is because the issues don’t exist in isolation and the relationships continue. You can’t divide up a system because you break the links and destroy the patterns. It is the same for any living system. The challenge is to intervene at the points where it is going to effect the greatest change. This is in the areas of goals of an economy and the fundamental paradigms which are taken as gospel. Those paradigms are the basic beliefs and ‘givens’ of a system.

In our case, we have an economic system showing a range of Big Problems. First we have the property bubbles in Auckland and Christchurch while the economy in the regions stagnates.  Second we need to sort out the welfare mess by introducing a universal payment, the UBI. Third we need to get a tax system that taxes what we hold or take, not what we do or make. (Taxing labour and enterprise is counterproductive, while it is quite fair to tax those who take or use more than their share of the commons.) Fourthly we need to move from privately created interest-bearing money to publicly created interest-free money.

These big issues are all connected through banks, land and taxes. If there is quite a simple solution where, if you tweak one or two parts of the system and the other problems solve themselves naturally, then we should use it. This is the systems approach. You don’t tackle the intractable problems issue by issue; you look at the whole integrated system and choose your point of intervention that gives the greatest leverage. In that way the fundamental relationship between the elements of an economic system will remain intact.

You will notice we are suggesting the point of intervention that has the most leverage – the currency, tax and land. We have paid attention to what is important. Changing the paradigm from a currency monoculture to a currency ecosystem is going to bring big change. Changing the tax and welfare systems will also have a major effect.

Second we set up a small new system parallel to but very different from the old system.

This proposal will put in place the small beginnings of a new and healthier system to coexist with the earlier deadly system as the old system dies away.

So we are going to start a new currency with new rules. This will be the beginning of the new healthy economy. The old economy will die and a new one will be born. It’s a transformational change. In order to transform the tax system from taxing labour, sale and enterprise to only taxing land and the use of the commons, you need to link that new tax system to a completely new currency.

It can’t be done effectively otherwise. New life is full of health and vitality. Just as new growth in a forest after a fire appears slowly, so will this process be gradual.

Note that by setting up a fledgling parallel system we have not just fiddled round the edges. We have changed the whole paradigm. So we would expect major change.

Step one

Government issues a new currency called Tradeable Tax Credits. These are acceptable by Treasury for tax on a certain date. (The Reserve Bank is left out)

Step Two

Using Tradeable Tax Credits, Treasury gradually buys up the land of homeowners who opt into the system voluntarily. Government doesn’t want to use New Zealand dollars – first because it hasn’t got enough of it and second because Government wants to link the vouchers to a new tax regime. The dated Tax Credits are to ensure that Treasury issues just the right amount so as not to cause inflation. The date by which it must be redeemed also serves as a circulation incentive.

Step Three

Then Government makes the rules for these tradeable tax credits. They say trades in Tax Credits will not incur income tax, GST or company tax. IRD is not involved with them except insofar as it imposes “land rates” and resource taxes.

Step Four

Full land rates would be set if possible by tender or auction and the lessee will pay it in perpetuity to Government, the revenue to be shared in some proportion between central and Local Government.

Step Five

A Land Rates Index would be established for each general area and rates adjusted annually or biennially according to the rates index. Note the rates are not indexed to inflation. Rates vary very little unless there is an earthquake, subsidence or new infrastructure or a significant business arrives in the area or departs from it.

Step Six

There would be no impediment preventing the Tradeable Tax Credits from being freely traded with NZ Dollars. Employers will want the Tax Credits and importers will want the New Zealand Dollars. The Tax Credits would be issued at par and redeemed at par. What happens in between will depend on the sentiment of the market.

Step Seven

From time to time Government will issue all men, women and children with a small Citizens Dividend in Tradeable Tax Credits to share some of the revenue with its citizens. This dividend would gradually grow as the area of land in the scheme grew.

Step Eight

Resource taxes are imposed on anyone with a monopoly on any part of the commons e.g. Oil, Coal, minerals, water, fisheries etc.

Step Nine

The homeowner who has opted into the scheme receives Tradeable Tax Credits to the value of their land and either puts it in the bank or uses it to pay labour for home improvements or for productive investment and always to pay taxes.

Step Ten

The bank lends out the new Tradeable Tax Credits to businesses to pay a portion of their labour and New Zealand materials. New jobs are created. As there will be no need to move to Auckland, labour intensive industries will attract young people back to regions, back to New Zealand. Organic farming and manufacturing will want them. At first some workers are paid only a small proportion of their wages in the new credits.

Step Eleven

No rates will be payable on any property where the land is Government owned and full land rates are paid.


The land to be changed to publicly owned leasehold land would include: –

  1. All land owned by those who do not pay income tax in New Zealand. This would have to be done in steps. It also includes trusts and companies who don’t pay tax in New Zealand.
  2. All land owned by government or local government and intended to be sold off to private buyers would stay with the Government e.g. The “green frame” in central Christchurch.
  3. Any other freehold land through an-opt in scheme. This would not alarm those who are capital rich and income poor like the elderly and would not alarm farmers. It would also take the worry from our would-be subsistence farmers on small holdings.
  4. All land under infrastructure like roads, hydroelectric power stations, airports, sewerage or stormwater or water servicing will be required to be converted to leasehold land. Once again to avoid inflation, this must be only done in stages.

The circulation incentive

Dated Tradeable Tax Credits will circulate relatively fast. They will not pool for long in anyone’s bank account. People don’t want to find themselves in possession of them when the date arrives, so they trade with it, put it in the bank for the bank to lend out or else pay their land rates early. When a tax credit circulates smoothly without pooling anywhere, it nourishes everything in its path. A trade mutually benefits the buyer and the seller. Even if the Tax Credit goes out of the country there is an incentive for the holder to get it back to New Zealand before its maturity date.

The NZ Dollar and the Tradeable Tax Credit

These can be exchanged. A market will develop naturally. There are two opposite forces acting. The NZ dollar will be used for importing goods and for those who are travelling overseas. The Tax Credits will be particularly attractive to those who plan to use it to pay for labour because this currency is completely delinked from all disincentives to show initiative. The labour they buy will not be taxed, their employers business will not be taxed and the goods and services produced will not be taxed. The Tax Credits will always be worth one NZ Dollar when it is paid for taxes before the expiry date. It is rather like the NZ Postage stamps they sold us when the 70c stamp replaced the 40c stamp. One stamp will take the letter anywhere in the country.

The Tradeable Tax Credits would be digital only

Kiwibank has a “Loaded” card. It is a debit card with embedded chips for each currency. It is issued when a customer travels overseas. Perhaps the Tax Credit could be issued this way, with EFTPOS machines dealing with both types of currency. It is possible each new voucher could have a unique identity so that their circulation speed could be tracked.


Transformational reform when carefully and gradually introduced has an exciting range of effects. This policy gives us low cost housing while gradually but fundamentally changing the tax structure. According to the Productivity Commission, the value of land is on average half of the total value of an urban property, but for Auckland it is 60%. Secondly it makes an important but gradual change in the money creation process. Thirdly it starts on an overdue reform of the welfare mess. Fourthly it gradually changes the way we fund local authorities.

While it releases much needed liquidity for new businesses it has to be implemented along with adequate controls on resource use through resource taxes e.g. carbon tax.

Wouldn’t people cheat the system?

History tells us that wherever money is involved people will try and find a way to cheat the system. Some suggest that people will exchange their Tax Credits for NZ dollars and go and buy another property and do it again. But these people haven’t planned to pay their ground rent and this is a large ongoing obligation. In fact wise people will not opt in unless they have a plan to use the new credits productively to create sufficient revenue flow to pay the rent. Most will pay their land rates in advance. Remember the Tax Credits are issued at par and redeemed at par. The sorts of things that happen in between will soon settle down as people learn the rules. The new law will have meaningful penalties for those who default on their obligations to pay land rates.

How much land rates?

A full ground rent  or land rates for an urban or suburban property is ideally set by auction. However, rule of thumb indicates it is around five percent per annum or more depending on the zoning and other restrictions on the land. Location is important. The further away the property is from government services, the lower the rate. Certain land is however, already overvalued e.g. Auckland land and dairy land, so allowances for that would then have to be made. Other restrictions would include land with a  QE2 covenant or land under historic buildings or land otherwise used for the public purpose.

The Citizens Dividend

Although this starts out being small, the first payout will attract a great deal of attention. When people realise these Tax Credits will pay for food and other essentials, they will begin to trust them. Their value relative to the standard currency will rise. As time goes by this dividend will be repeated and will increase, perhaps allowing, say working couples to opt to care for their own children rather than drive to jobs they don’t like. It might also enable inventors to spend more time inventing. Because the dividend of a dependent will go to the nominated carer, it will redress the economic balance of power between those who care for dependents and those who don’t. This raises the status of carers – usually women, raises the standard of care for children and reduces the social service burden on the state. Many carers will opt to spend their dividends on further education. There is also a long known fact that as the education of women rises so does the control over fertility.

Shouldn’t relief of mortgages be a first priority?

Yes. However in practicality those who opt in at the start will probably be those who are mortgage free because those with mortgages don’t want the hassle of going to their banks and having the bank refuse the Tax Credits. It would be easier in the case of New Zealand owned banks like Kiwibank, the Cooperative Bank, TSB and the SBS. However over 90% of New Zealanders’ mortgages are with the Australian owned banks and the banks might take the case to the World Trade Organisation or other authority to challenge it. So it is better to do the easy things first until the public is onside.

Is there a precedent for Step One?

Yes. These Tradeable Tax Credits are the same as the Treasury Notes that have been used before in history e.g. China 1912 when there was an uprising.  Abraham Lincoln used the US Treasury to issue Greenbacks in 1865 and The UK Chancellor of the Exchequer Lloyd George, on the advice of John Maynard Keynes, issued Emergency Bradbury Treasury Notes in 1914 to pay for World War I. Lord Bradbury was the Secretary of the Treasury.

Bernard Lietaer and Stephen Belgin in their book New Money for a New World describe three periods of history in which there were dual currencies. First, Dynastic Egypt, where there was gold for long distance trade and also pottery chards that were receipts for corn taken to a store. The built-in circulation incentive was that when, after a year, farmers came back with ten chards, they were only given nine bags of corn. These pottery pieces circulated for sixteen centuries in a period of relative prosperity.

Secondly in the Central Middle Ages in Europe people used gold for long distance trade but silver coins for local trade. The local Lord or Duke, who owned the land and issued the coins, reminted the silver coins at irregular and unpredictable intervals. Though the periods between reminting varied from area to area, a lord might give out, for example, four coins for every five that were brought in. Reminting happened when the Lord died. This practice coincided with a massive period of cathedral building and the authors say the enthusiasm cannot only be explained in terms of religious devotion but in the currency system. Maintenance of water wheels, mills and wine presses was excellent. Ordinary people wore silver buckles. Nutrition was so good that the average height of a woman in London at that time was 1 cm higher than today.

Thirdly in Wørgl Austria in 1933 during the depth of the Depression, ‘work certificates’ were paid to council workers who could in turn have them accepted by the butcher, baker, etc because they were redeemable for tax. But each month the bearer of the note had to place a stamp on the note to validate it. During the 18 month period these work certificates circulated, unemployment declined dramatically, bridges were built, people paid their local tax early and visitors came from far and wide to witness the ‘Miracle of Worgl’.

Lietaer and Belgin claim that in each period there was prosperity across all classes and a huge building programme. They attribute this favourable economic outcome to the dual currency, and in each case the domestic currency had a built-in circulation incentive. The authors did not describe the tax system of each society, but to my knowledge there was no income tax, sales tax or company tax during this period. In the central Middle Ages tax was more likely to be a regular tithe to the lord or duke, possibly paid in produce. This is basically a land tax.

There is also a precedent in New Zealand history for Step Six, a Citizens Dividend. In 1951, after a particularly high wool cheque, the government gave out a five pounds dividend to all families.

Why can we see so many bad symptoms start to reverse?

If we observe the results of these small actions being set in place, it is truly astonishing. It is almost as though a fallen domino set has begun to rise, piece by piece. Some are totally disbelieving, because we are so used to thinking that only one result is possible.

  1. A better, fairer tax system with reliable revenue.
    You can see it works towards a much simplified tax system where tax evasion becomes impossible, because you can’t hide land offshore. Many tax-based subsidies will cease to exist as GST, income and company taxes are gradually phased out. For example, tax exemptions on aviation, fuel, interest on mortgages simply disappear. The black and criminal economies no longer gain an unfair advantage. When you use the new money to employ a tradesman, you won’t have to hand it under the table.
  2. New life in industry, and a sea change in horticulture and agriculture. The new Tax Credits,  with a built-in circulation incentive, give opportunities for labour intensive industries to return. The post fossil fuel age will require a whole new set of businesses and these Tax Credits will provide the lubrication. It will be great for organic farming and pest destruction, both of which require a large labour input. Clean green technology will finally blossom and green jobs will no longer need to be subsidised.
  3. Lower prices and higher wages. The increased purchasing power, which results when Tax Credits are free of all other taxes, cannot be underestimated. The affordability of labour and of New Zealand produced goods increases dramatically. Holders of the credits find they can access the basics of food and clothing. Import substitution starts to happen and clothing factories may re-open. When the Tax Credits circulate unburdened by taxes on labour or trade, prices inevitably drop. When employers pay their employees in Tax Credits, which have no income tax, you get a contented workforce. And when workers discover their Tax Credits can buy necessities without GST they are doubly happy.
  4. Issuing of Tax Credits starts a process of gradual but inexorable reduction of private debt. This can only be good for our population and our businesses as all debt under the current system incurs interest.
  5. Because there will no longer be the necessity to move to Auckland for employment, it will be great for regional development, which will take some pressure off Auckland housing. The new Tradeable Tax Credits will flow to the regions without impediment. The attraction of Auckland where a growing portion of the economy is in the FIRE section – finance, insurance and real estate – will no longer apply. The two speed economy, where Auckland  and Christchurch are going ahead yet the regions are withering and suffering unemployment, will even out.
  6.  It is the origin of a new method of funding local authorities. No longer will all of their revenue come from the regressive policies of universal fixed charges or from rating on capital values that discourages investment.
  7. Maori and Pacific Islanders and low income people will benefit from this policy, as they will all be recipients of the jobs created, and from time to time of a Citizens Dividend.

This is quite a list of achievements.



The policy is powerful, elegant and simple. It creates jobs, provides cheaper housing and transforms interest-bearing money to government interest free money all simultaneously. And it does the whole thing gradually without shock to the economy.


More discussion needed

Among the issues to be fleshed out are: –

  1. Policy as it affects Maori. Because this is a policy dealing with land and its ownership, it is important to take the proposal round the country from iwi to iwi, preferably by group including Te Reo speakers, because in each rohe and iwi there would be a different situation with respect to the various types of Maori land, incorporations and trusts. However, because the system is an opt-in arrangement, nobody is immediately penalised.
  2. A programme to be devised for gradual rollout without causing inflation. There will have to be robust research on the value of foreign owned land, the tax take and the value of land in each category.
  3. We need a plan to handle the possible fear engendered in those who want their land to be made leasehold but have their mortgage with one of the big four Australian banks, which comprise over 90% of all mortgages.
  4. What is the role of Government in encouraging retail business to accept Tradeable Tax Credits, especially in the early days of implementation?
  5. Since the cost of the house and improvements are not included in the proposed mortgage relief, there needs to be other interest-free arrangements similar to the JAK Bank of Sweden6.   The role of banks in making loans to businesses wanting Tradeable Tax Credits to finance wages and materials.  Does this mean the banks finally get to be an intermediary between saver and borrower?


Deirdre Kent 06 364 7779

021 728 852

New Economics Party

With acknowledgement to the late Dr Adrian Wrigley of Cambridge UK