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.

ANZ records $1billion dollar profit from New Zealand

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ANZ Auckland. None of the directors lives in New Zealand

Not a single director of ANZ is a New Zealander. Today it was announced that ANZ made  $1 billion profit and of course it was sent to Australia.

So looking at their website we find their board comprises seven men and one woman. Two live in Sydney, four in Melbourne, one has homes in both Sydney and New York and one lives in Singapore. They have backgrounds in law, accountancy and one was an ex Reserve Bank of Australia Governor. No surprises there. And of course they are on the boards of other companies like CocaCola and one was an advisor to Goldmann Sachs.

Bernard Hickey was on Closeup TVNZ tonight explaining how their margins have widened. People are paying higher mortgages and investors are getting lower returns. But this isn’t all. A look at their website shows they are dealing in derivatives like spots, options and forwards. Then there are spot minors, forward majors etc. All sorts of “financial instruments”  that not even bankers understand themselves sometimes. This calls for a financial transaction tax.

And of course there is the small matter of fractional reserve banking and the fact that private banks create and control the money supply. No wonder their buildings are the biggest in each city. No wonder they make record profits when the country is in a recession.

Our policy is that “We would require corporations that choose to operate in more than one country to charter an independent local subsidiary in our country with majority ownership here.”

The TV item said that 95% of profits from our banks now go overseas. How can we maintain any national integrity when we are controlled by overseas owned banks? This issue must be a priority of any self respecting government.

A main assumption of Prefu just fell over!

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The supremely optimistic Polyanna style Pre-election Fiscal Update released by Treasury had three assumptions. One was that there was an “orderly resolution of the Greek debt crisis”.

But with the Greek Prime Minister just announcing that there would be a referendum on the bailout package and the markets responding by panicking, it is abundantly clear that Treasury’s assumption just flew out the window (to change the metaphor).

So the major political parties will go on debating the finer details of their different policies while Rome burns (well Athens actually) and France and US and New Zealand and all those who trade in our connected world.

When we have a financial system based on issuing money supply as interest bearing debt why are we surprised when the debt compounds? Why are we surprised when everyone is in debt? It is time to understand that we have come to the end of economic growth on this planet and we need a new economic system which works for everyone.

 

Deirdre

Petroleum imports now $7.7 billion a year

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The NZ Herald on Thursday Oct 27, 2011 reported that our imports of petroleum (read crude oil) climbed 22% to $7.7 billion in the year.

Not an election issue of course. After all the National government, and presumable Labour if they miraculously were elected, thinks it is business as usual. Import oil and one day maybe the price will go down?? What are they really thinking and what do they really know about the global oil situation?

I had some difficulty finding an annual figure for crude oil imports because a search revealed monthly imports and sudden rises like 53% rise in Aug 11 was explained away by saying we have large, irregular shipments of crude oil arriving at Marsden Point and some months the imports are low. However I finally found a figure for the whole year, authoritative and three days old only.

$7.7 billion is more than twice what we spend each year on law and order, it is nearly half the health budget. If the cost of importing oil goes on increasing at the same rate the price would equal the health budget in three years’ time.

In fact if it keeps rising by 22% a year, by 2016 the cost of crude oil imports will be $20.81billion which will be approaching what we spend on social security and welfare.

I guess the theory is that if we assume all is going to be business as usual, then we will all benefit from more transport. Somehow all this expensive oil will bring jobs and prosperity…. dreams are free I guess.

Regulating the Banks

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During the 1980s and after the banks were successively deregulated. According to David Korten who saw the same thing happening in the US: “This deregulation shifted the focus of the money/banking/finance system from investment in real wealth creation to a focus on using money to make money through unproductive speculation, arbitrage, usury, deception and market manipulation.”  Financial institutions which were not subject to banking rules, such as hedge funds and private equity funds started to make huge returns.

Roger Douglas deregulated our banks as one of the first acts of the Lange Douglas Labour Government in 1984. The system’s priorities shifted from funding productive investment to financing speculation.

According to a 1996 speech by the Governor of the Reserve Bank: “All controls on  credit, foreign exchange and out-bound overseas investment were lifted in 1984, and the New Zealand dollar was floated early in 1985. Banks were freed from any quantitative limits on their lending growth. The requirement for banks to hold deposits with the central bank, or to hold specified investments in government securities, was abolished. Banking, previously the exclusive preserve of one government-owned institution and three foreign-owned banks, was opened up to full competition. The licensing of those authorised to deal in foreign exchange was discontinued. Competition between currencies was given some scope in that contracts could be denominated in any currency (though taxes must still be paid in New Zealand dollars, and the Customs Act prohibits the importation of other currencies intended for circulation).

In January 1996, the banking system was further liberalised when the Reserve Bank commenced a rather different way of conducting prudential supervision. Instead of reporting on a confidential basis to the central bank, banks were required to issue detailed quarterly public disclosure statements, which must be audited twice-yearly by external auditors. Instead of limiting their exposure to individual counter-parties to some central-bank-specified percentage of capital, banks must simply disclose how much risk concentration they have in their portfolio at end of quarter, and at peak intra-quarter. Instead of complying with detailed guidelines on internal controls, directors must simply attest, in the quarterly disclosure statements, that the internal controls are appropriate to the nature of the banking business being undertaken.”

Interest-rate and other controls have been removed and regulatory and legislative distinctions between different institutional groups have been reduced.

Deregulation contributed to rapid growth in money market activity, the development of a sizeable secondary market in government securities, the introduction of a wider range of financial instruments, including forward contracts, options and interest and exchange-rate futures, and the growing use of such devices to hedge interest-rate and exchange-rate risk.

And what certainly added very considerable risk to the financial system was the widespread practice of securitising residential and other loans. What was seen by some observers as a powerful innovation enabling credit risk to be diffused across a multitude of financial institutions turned out to be the source of enormous danger. Loan originators had little incentive to ensure borrowers were creditworthy because they had no intention of holding onto the risk. They passed that risk on “down the chain”, with successive financial institutions clipping the ticket as the risk was passed from hand to hand but holding no exposure to the potential default. There was no transparency or accountability in the credit chain, and significant parts of the process were largely unregulated.

So banks are now involved in managed funds, insurance of all types and brokerage functions.

With the global financial crisis it is clear that this whole process must be reversed.We must:

  • Prohibit trading in securities with borrowed money
  • Prohibit financial institutions from trading for their own accounts in securities they sell to the public.

Business encouragement and investment

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Business encouragement

With a transformation of the tax system and banking system entrepreneurialism would flourish

The New Economics Party believes that we must be an enterprising nation and that pragmatic and creative business thinking must be encouraged at every level of our society. Our policies are the most business friendly possible. Little will stand in the way of entrepreneurship for those who create a labour intensive business with fair employment policies, good environmental practices and a low carbon footprint. Clean tech innovation can finally occur at full speed.

Cooperatives will be encouraged, both workers and consumers cooperatives. The NZ Cooperatives Association would be funded adequately for the purpose.

Farming would  thrive

Farming and other export businesses will thrive because the NZ dollar will drop when the interest rates drop.

EECA’s (Energy Efficiency and Conservation Authority) funding will be dramatically increased to assist all businesses to be future proofed against energy shocks.

Because we will be decentralising banks, it will be possible for them to invest in local businesses, just as the Bank of North Dakota has been able to over many years. Nurturing and mentoring of small and medium sized businesses will be encouraged. Thus local investors will be able with confidence to invest in local enterprises just as in the 1940s and 1950s when Christchurch people invested in firms like Lane Walker Rudkin.

Savings, Loans and Insurance entities

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Savings, loans and insurance

Old style Savings Banks work very well

With the disappearance of the privilege of seignorage as a source of income, there will be diversion to investment in green business. The reinvention for the 21st century of safe regional savings and loans banks, savings pools, building societies, mutual insurance societies would be encouraged so that people could borrow money from others at a local level. Without the privilege of being able to create the nation’s money supply at a profit,  banks would then have 100% reserve, thus reverting to Savings and Loans Banks which lend out depositors’ money.

David Korten in his New Economy Working Group Report, How to Liberate American from Wall Street Rule, has  suggested that the system of community banks, mutual savings and loans and credit unions is one with proven capacity to perform the desired functions. It worked throughout the 1940s to the 1960s. It was well regulated and decentralised banking system and provides a model to restore financial and economic integrity.

 

Financial Transaction Tax

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Goldman Sachs is one of the biggest building in many major cities and their CEOs received huge bonuses after being bailed out by the taxpayer

Goldman Sachs rules the world

Financial Transaction Tax.

In line with our policy to tax unearned income not earned income we would impose a Financial Transaction Tax. Money was intended as a method by which goods and services are distributed at an agreed value. Money was never meant to be a commodity in itself.
In 2008, prior to the global financial crisis, world trade in various financial commodities was 74 times higher than global GDP. Daily turnover for global currency trade as of April 2010 was $4 trillion ($1,460 trillion a year). This speculative activity is destabilising the world economy and creating speculative bubbles that ultimately hurt grassroots people.
The world of international finance has become a global casino where investors seeking quick profits bet huge sums of money around the clock.High frequency trading has got out of control and one commentator suggested our financial system “needs some sand in the gears to slow it down.” Wildly fluctuating currency values play havoc with exporters confidence to create jobs.

More than US$4 trillion is traded every day, and 95% of this is from speculators while 5% is to facilitate real trade. An explosion of high speed, high frequency trading carried out by computers is causing an increasing number of ‘flash crashes’ and undermining markets’ role in efficiently allocating resources.
The Kiwi dollar is currently the tenth most traded currencies in the world.
A thousand economists wrote to G20 finance ministers meeting in Washington in April 2011 urging them to tax speculators to help the world’s poor. In a show of unity rare in the economics profession, the experts from 53 countries describe the so-called “Robin Hood tax” or Tobin Tax on transactions in financial markets as “an idea that has come of age”.Supporters range from Bill Gates to the Archbishop of Canterbury.

We support a tax on currency speculation to limit high frequency trading. This was originally called the Tobin Tax but more recently called the Robin Hood Tax or Hone Heke Tax. This places a small tax on all financial trades, raises considerable revenue and is highly effective. It has a negligible effect on real investment but will render most high-speed computerised trading unprofitable.
The current size of the derivatives market is now a mind-blowing $1.4 quadrillion.  which is 23 times the value of the world’s GDP. How big is that? If you started counting at one dollar per second, it would take 32 million years to count to one quadrillion dollars.

FTT is administered by the banks. The tax will be collected through data bank facilities on every bank transaction at point of withdrawal. The percentages rates that are being talked about internationally for Financial Transaction Taxes are very small, ranging from 1% to as low as 0.05%. We suggest putting a .01% FTT on all trades of derivatives and a 0.1% FTT on all trades of stocks and bonds.
The Robin Hood Tax is justice. The banks can afford it. The systems are in place to collect it. It won’t negatively affect ordinary members of the public, their bank accounts or their savings. It’s fair, it’s timely, and it’s possible. The feral banking economy must to be brought under control.
A Financial Transaction Tax (FTT) would be like GST for the financial sector. In NZ financial services do not currently incur GST. FTTs collected via the electronic bank settlement process would be impossible to avoid.