A dual currency for New Zealand (Starve the Banks and Pay the Government)

Posted on August 5, 2012 by Deirdre

We are in a depression. Yes the first stages of one and of course politicians will not name it as that until we are well into it.

Good thinking emerges from depressions. In the 1870s depression Henry George figured out that since we can’t all occupy the same land, those who have monopoly use of the best land should compensate the rest of us for the privilege. The way to do that was not for government to own the title to the land, but for land occupiers to pay a tax or rental to government instead of income tax. He wrote Land and Poverty.

In the 1880s depression Silvio Gesell, a German businessman working in Argentina, noticed that those with goods were at a disadvantage compared with those with money. Since money gained in value from being withheld, it stopped money circulating. He therefore advocated that money should decay like goods and be as disagreeable as goods. He wrote The Natural Economic Order and sparked a movement which lasted.

In the 1930s John Maynard Keynes worked out that governments should spend money into existence to stimulate an economy, including on infrastructure.

During the last two decades Bernard Lietaer has observed that situation where governments issue one monopoly currency can’t help but lead to sovereign debt crises, monetary crises and inflation crises. Like the late Richard Douthwaite, he advocates an ecology of currencies for resilience. Search on youtube for his presentations.

In the proposal presented in the following slide show, with inspiration from Adrian Wrigley of UK, I have put together all these ideas. http://www.slideshare.net/deirdrekent/starve-the-banks-and-pay-the-government-13876092. I recommend you take the time to look at it. This idea continues to develop as I run it past our supporters and others. I expect it will develop and clarify further yet. Please respond!

And the actual paper is now at https://neweconomics.net.nz/index.php/2012/08/proposal-for-a-dual-currency-for-new-zealand-one-for-domestic-use-only/

Christchurch CBD rebuild will allow private property owners to gain from public spending

Posted on July 31, 2012 by Deirdre

Never has it been clearer for everyone to see, bold and plain, in central Christchurch that land is given its value by the activities of the community, not by those who own a site. And those who get the right to occupy the best land should compensate the public for this special privilege. That means they should pay regularly. Not just at the time of buying, but all the time.

The newly revealed central city plan is indeed bold and brave, and it is great to see that there is hope after those earthquakes. But hope should not include hope of private land “owners” to gain private profit from their land. Land should be part of the commons, and as such the public, through either the council or the government has the right to charge the occupiers of that land for the privilege. This charge is either called a land rental or a land tax. I prefer the former because it gives us the idea of renting it from the public commons.

Let’s see. In the new CBD plan for Christchurch they have a green belt. Nice. And those who are lucky enough to occupy the residential land surrounding the ‘green frame’ will have lovely views and a recreational area right on their doorstep. Location, location, location, as they say in real estate. It would be ideal land for renting from the public, but a good price should be paid.

Those who own land not needed for public purposes or who buy land right near the shopping precinct will of course have the special advantage of being able to walk out to do their shopping. Those in the distant suburbs of course have to drive or catch a bus and so they should pay a lower rental on their land.

Land is also given value by nature. Hagley Park and the Avon River both give value to land. We will also have the sporting facilities, a covered stadium, a library, a convention centre, and public transport. All of these community created facilities give value to land. And the commercial hub operated by business people also gives value to land.

Here is what the Earthquake Recovery Minister Gerry Brownlee said this morning on radio: “Most of the land in the affected area has very low value and it won’t have any value until there is a plan to put things back into that part of Christchurch that creates that value. “So it’s a bit of ‘chicken and egg situation’”.

Yes, Gerry it has low value now when there isn’t much happening. But when there is a dense and vibrant core, smaller than the previous CBD so more precious and highly sought after, it will end up having huge value. Even the existence of the plan has put up its value.

So who is going to make all the profit from all this? The Government and Christchurch City Council who put billions into the rebuild and into the stormwater and sewage and community facilities? Not on you nelly. No it is the private “investors” who have the money and the property knowledge to “invest” in inner city land. It is inner city land which in fact is the most valuable in a country. Land is the top class of assets in any country and after that comes buildings.

We await with interest to find out what prices the 840 landowners will get for their inner city land required for public purposes. No doubt the Council, will like Auckland, charge them much the same for the privilege of occupying their land as it does to those in the outer suburbs. The philosophy of ‘user pays’ seems to prevail these days and we are all taken in by the argument that anyone who has sewage and water and stormwater should all pay the same. What incredible nonsense that philosophy is. It reduces the council to a service provider and completely ignores the value of location that a property has.

If the Council isn’t going to charge a proper land rental then the government must do it.

What I learnt on twitter and in a websearch today

Posted on July 16, 2012 by Deirdre

China’s catastrophic deleveraging has begun. Jesse Colombo is a wonderful researcher of housing bubbles which always precede recessions, and his piece on housing in a range of countries is outstanding. Beijing housing prices are up 800% since 2003. There are bubbles in Hong Kong, Australia, South Korea, Finland etc etc. China. After Spain’s housing bubble collapse their cement use dropped 60%. China’s cement increase in one year was 25 times what America uses. This site is always being updated. Steve Keen is following the Canadian housing bubble and is closely watching house prices and unemployment in Australia. Also go to http://thebubblebubble.com. One quarter of homes built in US last month were bigger than 3000 sq feet.

Annette Sykes thinks John Key should either get a law degree or stay quiet about Maori water rights.

Goldman Sachs executives in 2010 took away $15.3 billion in bonuses, enough to feed every hungry person on the planet. They are setting up office in Perth. The film by Renegade Economist’s Ross Ashcroft, The Four Horsemen,won a prize for the best documentary at the Galway Film Festival.

There are freak tornadoes in Poland, droughts in US, floods in the North Island. A record amount of Arctic Sea Ice was melted in June.

There is a website called http://unlearningeonomics.wordpress.com. I guess there is a bit of unlearning to do!

Various people are working out if Australia and NZ are being hit by the LIBOR scandal. Paula Bazarotti writes on the Democrats for Social Credit website that “Vast sums of money – up to $500 trillion are notionally attached to Libor. If the Libor rate is manipulated by just the tiniest amount – 0.0001 per cent – it can create a profit or loss of $50 billion.”

Home affordability the big issue

Posted on July 15, 2012 by Deirdre

Today there was a great programme on Q+A on TVOne. Murray Sherwin from the Productivity Commission spells out the facts. Median house price for the country is $372,000 and for Auckland it is $500,000. The big factor is the price of land in Auckland is 60% of the value of the section. Don Brash, a commentator quoted a 500 sq metre Pukekohe section as costing $230,000. Bernard Hickey says a young couple might have to borrow 7-8 times their income, but if they have a pregnancy, get sick or if interest rates rise from 5% to 8%, they are in big trouble. Moreoever they often have high student debts as well. A generation of New Zealanders won’t be able to own their own homes and this is a cause of social strife. We are 10,000 to 15,000 homes short and the problems are mostly in Auckland and Christchurch.

Bernard Hickey said between 2004 and 2007 when house prices rose so steeply, many had leveraged up their equity in homes, and the total increase in wealth of homeowners was in the region of $300b to $400 billion. All of which was private gain for homeowners and banks. My comment is that this was public money and should have been publicly gathered.

The programme highlighted the fact that most of the homes which have been built have been top end houses from spec builders. We need better economies of scale and only Fletchers can do this. There are too few factory built modules.

Dr Bryce Edwards, a political scientist commentator, said no political party has campaigned on affordable housing. Helen Kelly from the CTU said families are struggling and living in poor quality housing. There are 4000 on the Housing NZ waiting list. Wages are too low and the price of renting is rising.

Whereas once 75% of households were owned their home this has now dropped to 65%.

Hickey said that land taxes and capital gains tax must be discussed but the former is a political hot potato. We need land prices to come down. Brash said Capital Gains Tax was not working in Australia and they had the same problem.

Annette King, spokesperson for Labour has apparently said that the Accommodation Supplement needs to be revisited. Sherwin said that all up it is a $3-4 billion subsidy to landlords.

Building costs and consenting costs are too high. There is a monopoly supply of building materials, which add 20% to the building costs.

The answer is not in extending city boundaries. That raises the burden on supply of infrastructure and make travel distances too far. Our challenge as a party is to find a politically acceptable method of imposing a land tax, while reducing the price of building and using the current housing stock efficiently. We must work towards a future where good, low cost houses are provided without increasing costs to local authority in infrastructure.

Even Don Brash said the price of land was the core issue. Nobody on the programme raised the issue of currency reform. It is time to connect the creation of money with land, but do it at government level.

Nobody owns the water but charge a rental for the privilege of the 49%

Posted on July 10, 2012 by Deirdre

So John Key is right. Nobody owns the water. But that doesn’t mean that any private company or public/private company should be able to use it without a regular rental to the public for the privilege.

Whether this rental should be paid to Government for the commercial use of the water or partly to Tuwharetoa needs of course to be resolved. What did surprise me was that David Clendon the Green Party spokesperson missed the opportunity to apply Green Party policy on a tax on the commercial use of water. Well if he was just the Treaty spokesperson, where were the leaders in the resource rental business? Have they forgotten their policy or are they just focussing on the snub John Key gave to the Waitangi Tribunal by announcing he didn’t have to take any notice of their findings?

It was fine when Mighty River Power was a publicly owned power company (well it still is, let’s keep it that way despite the empowering legislation!). Tuwharetoa was happy for the public to use the water. But sell 49% to private owners and the scene changes. Now 49% of the water is going to be used for a private purpose, so there should be an appropriate rental paid for the privilege. 49% private ownership means those private owners don’t own the water because, as John Key said, nobody owns water. Therefore those who use it in commercial quantities should pay a regular rental to the public.

Does this mean charging half water rental to the company once half is bought by private people? No it doesn’t actually. It means charge a full rate to the shareholders for the water the shareholders have the privilege of using. That is the principle of resource taxes. Private/public partnerships make the whole set up ridiculous. When it is fully publicly owned there doesn’t have to be any rental paid to the public. It is only when a subset of the public owns it or part of it that a rental should be charged.

All this talk of extra shares and so on is wrong. The fact is that there should be an ongoing rental charged, not a one off charge.

Otherwise the whole selling thing should be called off, which is only logical

Import substitution will only happen with currency reform

Posted on June 25, 2012 by Deirdre

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

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

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

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

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

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

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

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

NZ borrowing to lend to IMF, the latest absurdity

Posted on June 20, 2012 by Deirdre

It’s a strange world this world of money.

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

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

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

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

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

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

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

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

The New Economics Party

Let's fix the economic system that is killing our planet!

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