Category Archives: The economy

Trade with other countries, exports, imports, manufacturing, agriculture, forestry, building. How do we make ourselves a living. The economy’s purpose is not “to grow” but to provide every citizen with the basics of life and do this in an efficient way. Every section of New Zealand must be just as well served as every person deserves the basics of life.

George Monbiot advocates land tax in Guardian article

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George Monbiot argues for land tax

It came as a bolt from the blue. Monbiot wrote an article for the Guardian in which he explains why land tax must be implemented. http://www.monbiot.com/2013/01/21/a-telling-silence/.

But for those UK Georgists who have been trying to persuade Monbiot for years it is due reward, since high profile advocacy moves debate along.

Monbiot says the loudest silence is about property taxes, that the Sultan of Brunei pays only £32 a month more for his pleasure dome in Kensington Palace Gardens than some of the poorest people in the same borough. He also quotes from Winston Churchill  “Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains – and all the while the landlord sits still. Every one of those improvements is effected by the labor and cost of other people and the taxpayers. To not one of those improvements does the land monopolist, as a land monopolist, contribute, and yet by every one of them the value of his land is enhanced. He renders no service to the community, he contributes nothing to the general welfare, he contributes nothing to the process from which his own enrichment is derived. … the unearned increment on the land is reaped by the land monopolist in exact proportion, not to the service, but to the disservice done.”

Michael Lewis on Iceland, Ireland and Greece is worth reading

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Review of Boomerang, the Biggest Bust by Michael Lewis. Penguin Books 2011

I didn’t read Michael Lewis’s The Big Short, or Liar’s Poker about the dark art of investment banking, but this one is surely immensely readable. Lewis is a ‘financial catastrophe tourist’, travelling to Iceland, Greece and Germany interviewing key people in each country’s unique version of the Global Financial Crisis. He obtains interviews with significant players – Prime Ministers, ministers of finance, officials in treasury, hedge fund managers, traders, economists. In Greece he interviewed the head monks of an ancient monastery which had played a such key role in the indebting of Greece.

If you can ignore the fact that the writer is an economist who is still believes that banks just lend depositors’ money rather than create the credit (understandable when you realise how hopelessly captured universities are these days by the banks), you will enjoy this romp through the financial stupidity outlining how Greece, Ireland and Iceland got into such trouble.

I read the chapter on Iceland twice because there is a move to bring the leader of the protestors Hordur Torfason to New Zealand. Torfason will explain how in 2011 Iceland arrested nine bankers together with the Prime Minister who allowed the madness to take place on his watch by privatising the banks, freeing up trade and lowering taxes. Lewis says “From 2003 to 2007, while the value of the U.S. Stockmarket was doubling, the value of the Icelandic stock market multiplied nine times. Reykjavik real estate prices tripled.” When the bubble burst, Iceland’s 300,000 citizens found they bore some kind of responsibility for the $100 billion in banking losses. The debt was 850% of their GDP.

Lewis has a nice way of writing mixing the factual stuff with well painted personal profiles and vivid stories. Warning: If you want to read this book in a public place, people will think you are reading porn. The sensual cover features wine glasses and a prostrate woman in a tight gold dress.

 

 

 

Neil Barofsky’s Bailout shows why banks have become bigger, now too big to jail

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Happy festive season to all! I have had the privilege of reading Bailout by Neil Barofsky over the holiday and of course didn’t we all hang on to the news over the New Year period when the fiscal cliff was the big topic?  The next one will be the big one, the debt ceiling. Surely this will be when the IMF intervenes and brings in the Chicago Plan Revisited? These policies would stop banks creating money, avoid public and private debt and solve the debt problem forever. What a major leap forward that would be! The next few months will be huge.

Back to Neil Barofsky. The subtitle of his book tells heaps – An Inside Account of how Washington Abandoned Main Street while rescuing Wall Street. Barofsky was a young lawyer from New York appointed to be Special Inspector General of TARP, the fund that bailed out troubled banks, AIG (“We found the placement of the interests of the too-big-to-fail financial institution and their executives above those of the taxpayers funding their bailouts”) and auto manufacturing companies. It was supposed to help troubled home owners with underwater loans too. His job was to prevent fraud and protect the taxpayer.

This man is a very brave individual. Constantly warned by Washington insiders that he must be always thinking about his next job (with the implication he must go easy on the big banks), Barofsky goes right ahead and does his job without fear. Secretary of Treasury under Bush is headed by Hank Paulson, former CEO of Goldman Sachs was obstructive and difficult, but when Obama appointed Tim Geithner, former President of the Reserve Bank of New York, he found himself ignored and was bundled out the door quickly on many occasions. Treasury was obstructive and he found he had to communicate with legislators and use the mediator before they took any notice of him. He said there was little change between the Paulson and Geithner regimes.

At the end of it all the banks are now bigger and more dangerous. Ultimately only a small fraction ($1.4 billion at the time he stepped down) of the $50 billion allocated to help homeowners was spent, while the fund expended to prop up the financial system – as Barofsky discloses – totalled $4.7 trillion.

After his two year grind in Washington Barofsky was offered a post at a university and is now using twitter to teach others online. I am delighted to say I have now made contact this way.

And of course we have had the HBSC being fined $1.9 billion for money laundering but they were too big to jail. As the New York Times editorialised on Dec 11

“It is a dark day for the rule of law. Federal and state authorities have chosen not to indict HSBC, the London-based bank, on charges of vast and prolonged money laundering, for fear that criminal prosecution would topple the bank and, in the process, endanger the financial system. They also have not charged any top HSBC banker in the case, though it boggles the mind that a bank could launder money as HSBC did without anyone in a position of authority making culpable decisions.

Clearly, the government has bought into the notion that too big to fail is too big to jail”

Petrol tax will backfire on Government

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19 December 2012

Petrol tax hike for roads will backfire on government, says party

The announcement that an extra 9 cents excise tax on petrol will be to pay for the government’s Roads of National Significance will badly backfire on them, according to the New Economics Party.

Spokesperson Phil Stevens said that if an excise tax is tagged then it should be tagged for rail rather than roads, because road transport is not the future. He said ‘While it is important to put a correct price on fossil fuels to discourage their use, the public will know in their bones that the future isn’t expressways for more trucks. The future is rail and alternative transport fuels.’

‘When the Minister justified this hike by saying the CPI figure was the lowest for 13 years, noone is going to believe him. In fact our inflation figure is a not valid. It is artificially low because since 1999 the cost of land has been taken out of the CPI. Everyone knows that as land goes up, property prices rise and that means households pay more for their rents and mortgages. They know the real figure for inflation is much higher. Ask anyone with a mortgage where their household money goes,” he said.

For further comment phone Phil Stevens 06 326 9717 or 021 784 718

We write to the Minister of Finance about the IMF paper The Chicago Plan Revisited

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This week we wrote a letter to the Minister of Finance and look forward to the response

Dear Mr English

Re The IMF Paper ‘The Chicago Plan Revisited’

Our attention has been drawn to a working paper published on the website of the International Monetary Fund entitled The Chicago Plan Revisited by Jaromir Benes and Michael Kumhof and dated August 2012.

Its abstract reads as follows:-

At the height of the Great Depression a number of leading U.S. economists advanced a proposal for monetary reform that became known as the Chicago Plan. It envisaged the separation of the monetary and credit functions of the banking system, by requiring 100% reserve banking for deposits. Irving Fisher (1936) claimed the following advantages for this plan:

(1)           Much better control of a major source of business cycle fluctuations, sudden increases and contractions of bank credit and of the supply of bank-created money.

(2)           Complete elimination of bank runs.

(3)           Dramatic reduction of the (net) public debt.

(4)           Dramatic reduction of private debt, as money creation no longer requires simultaneous debt creation.

We study these claims by embedding a comprehensive and carefully calibrated model of the banking system in a DSGE model of the U.S. economy. We find support for all four of Fisher’s claims. Furthermore, output gains approach 10 percent, and steady state inflation can drop to zero without posing problems for the conduct of monetary policy.

(There has also been a recent paper from the Bank of International Settlements site by the economist Borio http://www.bis.org/publ/work395.pdf, which calls for a rethink of the business cycle model and for significant adjustments to macroeconomic policies, and to an article in the Economist Dec 14, 2012, discussing that paper at http://www.economist.com/blogs/freeexchange/2012/12/reforming-macroeconomics)

We therefore ask you, as Minister of Finance:-

a) Are you aware of the existence of the IMF paper, the Chicago Plan Revisited?

b) Does your government agree that the four results outlined in this paper are desirable?

c) Does your government support the method used to achieve these four goals?

d) If you differ from the method outlined in the paper to achieve these four goals or argue with it in any way, could you outline your disagreement and how would you achieve these goals differently?

Yours sincerely

Deirdre Kent and Phil Stevens

New Economics Party

 

Deirdre’s reply to an article on STUFF-CAN YOU FIX THE ECONOMY

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Lara. What a delight to find your excellent article on Stuff! It is great that you were able to reproduce the graph published by Margrit Kennedy showing the effect of interest on widening the gap between rich and poor. This big study needs to be repeated in many countries.

One correction. Bernard Lietaer contacted the Wōrgl museum and discovered that the work certificates (the local currency issued with demurrage) circulated eight times as fast as the national currency. Whereas the work certificates circulated about once a day, the national schilling circulated about once a week.

Bernard Lietaer has co-authored four books published this year. Anyone who thinks he doesn’t know what he is talking about should answer the question “How come with the monetary system we now have, are there so many banking crises, monetary crashes and sovereign debt crises.” In the period between 1970 and 2010 the IMF has identified 145 banking crises, 208 monetary crises and 72 sovereign debt crises.

And now we have the mother of all crises unfolding before our eyes in US and Europe and the contagion can’t help but come our way. Lietaer and Belgin in their book New Money for a New World advocate a money system balanced between yin currencies (e.g with a demurrage) and yang currencies (with interest). They make the point that each country has a monopoly national currency and this is leading to the structural problems we now face.I think that the study of those economies of Dynastic Egypt, and the Central Middle Ages is showing that when there is a charge on the hoarding of money as in demurrage, a paradox exists. Holders of money spend it on long term investments like cathedrals, solidly built houses, artwork, good maintenance of equipment etc.

The same would happen today. People in their forties and fifties could properly prepare for their retirement, not just rely on financial advisers whose advice has included Ross Investments and finance companies which have gone bust.

Labour affordable housing scheme a ‘patch-on solution’

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Media Statement
November 19, 2012

Labour affordable housing scheme a ‘patch-on solution’

A New Economics Party Spokesperson Deirdre Kent said that although Labour had the right goal, their proposed method of doing it doesn’t get to the bottom of the problem and is an artificial patch-on solution. “While land remains as an asset class to speculate on, property prices will keep rising. It is private landowners and banks who reap the unearned gains from rising land prices, and this widens the gap between rich and poor.”

“Land now comprises an average of 60% of the value of a property in Auckland,” she said. “These 100,000 affordable homes will be bought cheaply and flicked over for a profit, so at least Labour should put a caveat on each title to prevent that.”

“Only by addressing the rising land price problem at its roots can we wrench power from the overseas owned banks, which took $3.5 billion in profits last year out of the country. Other solutions are artificial and only work for a while.

“Until we wake up and see that the property bubble in Auckland concentrates wealth with landowners and banks, we will not make much progress in bridging the wealth gap,” she said. “Land should be treated as quite a different asset class to buildings. We need a method to take land out of the market place,” she said.

She said Labour’s weak Capital Gains Tax won’t touch the affordable housing problem, because it leaves the family home untouched and is set far too low anyway.

For further comment phone Deirdre Kent, 06 364 7779
021 728 852
New Economics Party