Saturday, 7 October 2017

Adults In The Room?

Meet The Old New Boss: Sir Michael Cullen's snow-white head of hair is clearly visible as Labour's negotiating team prepare to meet waiting journalists after their preliminary meeting with the negotiators for NZ First. The presence of so many former members of and advisers to the government of Helen Clark in Jacinda's entourage raises some troubling questions. When Labour's new leader talked about ushering in “generational change”, most New Zealanders fondly assumed that she was committed to taking their country forward – not back.

WHAT’S GOING ON, JACINDA? Why has the former Labour Finance Minister, Sir Michael Cullen, and Helen Clark’s former Press Secretary, Mike Munro, been invited on to your team of negotiators with NZ First? And, while we’re on the subject of Labour’s Rogernomics Generation, why was Annette King sent to ride shotgun alongside you for the duration of the election campaign?

These are important questions, because when Jacinda talked about ushering in “generational change”, most New Zealanders fondly assumed that she was committed to taking their country forward – not back.

The other assumption New Zealand made, as the baton of leadership passed from Andrew to Jacinda, was that she was completely up to the job of carrying it without assistance. We made precisely the same assumption about her senior team’s readiness to govern the country without “adult supervision”.

The September newsletter from “Positive Money” (a group dedicated to creating “a money and banking system that serves a fair, democratic, and sustainable economy”) may, however, give many Labour supporters cause to wonder whether any of those assumptions were justified.

In the newsletter, two of Positive Money’s stalwarts, Don Richards and Sue Hamill, describe a “surprising and somewhat disappointing” exchange of views with Sir Michael Cullen at an election meeting in Whakatane on Friday, 15 September:

“Sir Michael, the former Labour Finance Minister during the Helen Clark-led government was with Grant Robertson, the Labour Party’s current Finance spokesperson and Kiri Allan, our local Labour Party candidate.

I asked Grant Robertson if he was aware of what was happening in Japan with the Central Bank buying up a significant portion of their national debt. Inflation in Japan was close to zero and the real economy was thriving. Had he considered instructing the Reserve Bank to do the same, thereby saving taxpayers money for social and infrastructure projects?

Grant asked Sir Michael to answer the question and he said that Japan had been experiencing negative growth for some time and so the two economies were not similar. I reminded Sir Michael that the Japanese economy was now thriving and the Central Bank was still buying up their national debt. I was told that a Labour government would not be doing that.

Sue then asked Grant Robertson if he had thought about doing what the first Labour Government did in the 1930s, using the Reserve Bank’s balance sheet to fund the building of housing and infrastructure? The question received a few claps from the audience.

Sir Michael once again fielded the question. He said that we had to be fiscally responsible otherwise we could end up with an economy like Germany after World War One, Venezuela or Zimbabwe. Sue carried on with a second question stating that as private banks create most of the money in the economy, why not let the Reserve Bank do it as well. Sir Michael responded by saying the banks do not create money.

The meeting finished with an invitation to meet at a local café for a chat. We went home and printed off the Bank of England’s article and the IMF’s discussion paper that stated categorically that banks create money in the act of lending. Sue went back to the café and had a further conversation with Sir Michael. He dismissed the Bank of England paper as not relevant and that it did not mean that banks created money. He also dismissed the IMF paper saying that banks lend out people’s savings.

It was a frustrating experience and if Sir Michael has the ear of Grant Robertson, as he appears to have, then no difference will be made to the way our money is created, should the Labour Party come to power.”

When Richard’s and Sue’s report of this encounter was drawn to my attention, I responded with the following comment:

“That is the most alarming piece of intelligence I have received in the entire course of the 2017 election campaign. It is hard to distinguish which is the most dispiriting aspect of [the] report: that Grant Robertson cannot answer basic questions on political economy without reference to his mentor, Sir Michael Cullen; or, that Sir Michael’s grasp of these issues is as woeful as Don Brash’s (who also refuses to accept that banks create money). If this truly is the level of understanding in Labour's senior ranks, then we are all - to use a technical political science term - fucked.”


This essay was originally posted on The Daily Blog of Saturday, 7 October 2017.

23 comments:

Jens Meder said...

Hmmm Chris - as the ultimate intimacy is a sweet experience and culmination of love and joy, we can indeed be happy in Sir Michael's and Grant Robertson's realistic common sense and hope it will prevail.

Otherwise a possible Labour govt. will share the fate of New Labour and the Alliance.

A credit economy without debt repayment leads to money losing exchange value and becoming increasingly useless, with the economy moving towards bartering in more stable values.

Perhaps an elaborate discussion and debate on this particular subject matter is due again, before "debt free" credit is attempted again.

Kat said...

What was that song again Chris, ah yes...... https://www.youtube.com/watch?v=BGLGzRXY5Bw&list=RDBGLGzRXY5Bw&t=55



Anonymous said...

There have been significant comments by knowledgeable people out there that Grant's understanding of the finance portfolio is woeful. The fact that he did not answer the questions indicate there is a lot of truth to these assertions.
What it really means is that if he becomes Minister of Finance, he will be a captive of Treasury. That can only ever end in tears.

Sion said...

When a house is bought banks create 90% of the money as a number in a ledger.
There is no reason why the government shouldnt lend itself money where there are worthwhile investments to be made.
It becomes a question then of judgement.
Im not of the opinion that governments are incapable of perseving worthwhile investments. Many of them are obvious.

RichardJ said...

Turning from the political reference describing Labour at the end of this post re Cullen and Robertson, the problem is much wider and concerning if that is the Labour polity's stance.

To apply a well known epithet used in Australia to this situation, this"plastic" Labour Party are"fucked and far from home and it is getting dark."

Anonymous said...

That's what I was worried about, vote Jacinda, get Helen.
Go Bill, save us from the three-headed hydra, with Cullen and Clark in the shadows.
That's the grim fate NZ voted out years ago!! And Jacinda doesn't need a nanny...

pat said...

“That is the most alarming piece of intelligence I have received in the entire course of the 2017 election campaign. It is hard to distinguish which is the most dispiriting aspect of [the] report: that Grant Robertson cannot answer basic questions on political economy without reference to his mentor, Sir Michael Cullen; or, that Sir Michael’s grasp of these issues is as woeful as Don Brash’s (who also refuses to accept that banks create money). If this truly is the level of understanding in Labour's senior ranks, then we are all - to use a technical political science term - fucked.”

when Cullen or Brash make that statement it is a political statement not a lack of understanding....it is a recognition of the designe to remove the inevitable public pressure on politicians to meet all societies desires . This could be said to be disingenuous however we unfortunately do not operate in a closed economy and by attempting to operate outside the devils pact we have only one of two futures.....being forced to become a truly closed economy with all that would entail or being whipped back into line through financial instruments (a la Greece)...neither option i suspect would be knowingly voted for.....there is truth and then there is reality.

greywarbler said...

That's bad news Chris. Where did NZ lose its mojo back in 1984? Can we get back and find it, or even part of it. How amazing that the Finance Minister of a little commodity-dependent country smaller than your average world city, can be so up himself (themselves) that they can face off questions with this reported response.

And the question is - if banks don't create money, and don't lend people's money, where in hell do they get the stuff issued to property speculators etc? If it can't be borrowed from the government, who else is the source and who the intermediary?

Are banks lending some other entities money and they just get a rake-off?
Finance 101 for the bewildered and confused. Can Dr Cullen answer this?

jh said...

These are important questions, because when Jacinda talked about ushering in “generational change”, most New Zealanders fondly assumed that she was committed to taking their country forward – not back.
…....
Except that there is perhaps no way easy way forward. For example she wants to build more houses but Pacific people have three children (and have them young) while the average in the rest of the population is two. Is she going to be PC and soft?

And from where has wealth been generated over the last thirty years: realestate? [over] tourism – low paid service jobs??? Are we going to have to live in a world the media describes for us as “moving forward” or bustling with “diversity”?

These aren't leaders, the leaders are in media purgatory - Kerry mcDonald [media jail] -Arise Chloe Swarbrick (23 year old Blank Slate).

Simon Cohen said...

Vern Cracknell is alive and well.

Guerilla Surgeon said...
This comment has been removed by the author.
Charles E said...

So Go WinFirst. Go with Cinderella and the wicked witch (HC) and her wizard (MC)!
Please Bill. Tell him to get lost.

Charles E said...

Comparing us to Japan is just silly.
Japan has the 2nd most indebted government in the world. BUT and this is a big but, it's debt is almost all to its own people, as in China, the most indebted country.
So NZ is almost unrelated to them fiscally, don't you see? No I expect you do not.
Your ideas would lead to big inflation, very low currency and the poor & the elderly would suffer most. As in Venezuela. Go for it Labour!
Expect they will not so thank heaven for Cullen.

Patricia said...

3% of all money in circulation is created by Government. 97% is created by the Commercial Banks. When there is talk of a cashless society with all its wonderful reasons(!!) it is the Banks wanting to completely control the money supply. That is they want money privatised. When the Banks create money it is just a book entry. They get you to pay interest to them on that book entry. Some of that interest gets paid back to the savers but most, after paying wages (but that won’t be for long once everything is digitalised), goes into making money for its shareholders. It has been like that for nearly 200 years. Your deposits in the Bank are merely there for so called safe keeping. It is all an illusion especially after our Reserve Bank has said that there will be no Bank here that is too big to fail. Unlike most countries New Zealand does not have a guarantee for any Bank deposits when a Bank fails. So that is goodbye to all your savings in the Bank. After reading your article Chris I now think Winston should form a minority Government. Neither Labour or National are fit to govern

Guerilla Surgeon said...

"Discussing" with people like Cullen, (damn you AutoCorrect.) is rather like arguing with Scientologists. No matter what, how much, or how good your evidence is, it is ignored. And then they just reiterate their tired talking points. It's as if they don't listen to what you say. Gosh I wonder why it seems like that.

mikesh said...

¨And the question is - if banks don't create money, and don't lend people's money, where in hell do they get the stuff issued to property speculators etc? If it can't be borrowed from the government, who else is the source and who the intermediary?¨

I think they actually lend monies deposited by demand depositors. This is equivalent to creating money since two persons, the depositor and the borrower, can then spend that money. It used to be that the so called ¨prudential ratio¨ limited how much the banks could lend but, as the ratio approaches zero, the amount of money that can be lent (created) approaches infinity, so these days the Reserve Bank imposes capital adequacy requirements to control the the banks. However, Don Brash is probably correct when says that, technically speaking, the banks don´t actually create money.

The answer would be to make it illegal for the banks to lend money that in reality belongs to the demand depositors.

greywarbler said...

The song or the moment is Dont Let Me Down.
https://www.youtube.com/watch?v=NCtzkaL2t_Y&list=RDBGLGzRXY5Bw&index=3

Fun to watch as they are on the roof of the Abbey Road studios and all those with some pull are up there including a couple of helmeted bobbies.

greywarbler said...

It's interesting that there is so much discussion about finance and its origins. People have to think and are sure of their answer, which disagrees with what others think. Is this a rational system that we operate under I wonder? I'll have to think about that! Maybe we all should. It is so basic to life as we know it.

I remember Olly Ohlson (Maori Hauora) talking about how the colonials came to his Maori community and offered to buy the pigs that they had previously hunted as required, for food. So they hunted and sold, and bought their meat as required from the butcher with money received from the butcher. Or that was the intention. But also there was a grog shop set up, and so they might go home at the end of the day with no pig, no butcher's cuts and drunk into the bargain to a hungry family. Is this where deprivation of some Maori families, and domestic violence, started?

And does being in a cash society help us all? It helps business which should trickle down to all through wages. But then business may decide not to employ NZs even at low wages, or to buy the items to be sold overseas. It certainly helps the government and its tax gathering, it takes even a cent off interest paid on savings. Tax and bank fees will eat up savings of poor people, add low wages deliberately manipulated by government action from pressure on unions and imported workers from poverty-ridden economies, and the value of a cash society to the people living in it seems riddled with contradictions, and finding that so many in positions of power don't seem to understand it, is well, slightly disappointing!

Is money good for us then - that's the question? Does it have disadvantages equal to being paid in kind for our work? But that implies there will be work. What about if most of work is robotised, like dealing with government, like ACC decision making, like IRD processes? Is there anyone thinking up on Cloud 9, in the rock-star economy?

And latest way of bludgeoning good humans.
The Public Service Association is taking Inland Revenue to the Employment Court for asking its staff take personality tests as they reapply for their jobs. IRD initially told 800 workers they would have to sit the tests. Now it says staff can choose whether to complete the assessments but they say it may affect their chances at getting the job. Erin Polaczuk is the PSA's National Secretary and joins us to discuss the case.
http://www.radionz.co.nz/national/programmes/morningreport/audio/201861658/psa-taking-ird-to-court-over-use-of-personality-tests

Jack Scrivano said...

greywarbler: The concert in question was on the rooftop of the old Apple building in Savile Row, not Abbey Road Studios.

Jens Meder said...

A bank without the authority to print new money does not create any of it when financing the purchase of a house within a certain overdraft credit limit considered to be "safe" in proportion to the bank's capital reserves.

Matter of fact, as all of its credit granted will have to be paid out in cash eventually, the bank must be prepared to come up with the total cash of the credit granted at any time before the credit granted has been repaid, and that's where savers' term deposits are immensely helpful.

The system works wonderfully if all credits granted are repaid according to agreement, it helps the have-nots to benefit from useful assets ownership earlier than if they had to save the whole price of the asset before gaining ownership control over it - and at a cheaper rate of interest at more widespread availability than if fractional reserves based banking was not available.

greywarbler said...

Thanks, Jack the Beatles will still be remembered after the present political mess is fade away.

Julian Ang said...

https://www.youtube.com/watch?v=bE8i-4HpKlM

Julian Ang said...

Watch these series of informative vids by Positive Money - it succinctly explains how money is created and the role commercial banks play in the supply and circulation of money ...
Here you go, prepare to be surprised or horrified : https://www.youtube.com/watch?v=bE8i-4HpKlM