News

May 2017 Positive Money New Zealand issued a press release seeking clarity from the Reserve Bank on how our money is created.  They still refer to intermediation by the banks, which is not how our banking system works.

5th November 2016 An article in The Guardian newspaper in England argued that abolishing debt-based currency holds the secret to getting our system off its addiction to growth.

5th September 2016 KPMG released a report, commissioned by the Prime Minister of Iceland, titled "Money Issuance" The report looked at money created by the Government.

28 March 2016 Bryan Gould has agreed to be the Patron for Positive Money New Zealand.

Bryan is a respected commentator on economic matters, an author, academic and Companion of the New Zealand Order of Merit.

31 October 2015 A monetary reform group in Switzerland has enough signatures for a referendum on who creates their money supply.

14 October 2015 The Finance Commission of the Dutch parliament discussed monetary reform.

31 March 2015. The Telegraph in London reports on the Icelandic governments plan to have their central bank issue their money supply and calls it a radical plan.

22 November. The British parliament debated money creation last week, for the first time in 170 years. There was cross-party support for a proposal to set up a monetary commission

23 September. A new generation of young people, dubbed ''property orphans'' may be destined to be renters for life.

17 September. The Bank of International Settlements (BIS), the bank used by central banks, confirmed New Zealand houses are among the most "unaffordable" in the world compared to people's incomes.

6 September. Bruce Bisset of Hawkes Bay today reveals the true story behind the so called Rock Star economy.

25th April 2014 "Strip private banks of their power to create money”: says the Financial Times’ chief economics commentator Martin Wolf, who endorses Positive Money’s proposals for reform

15th March 2014 - In a historic move The Bank of England quarterly bulletin explains how money is created. Whenever a bank makes a loan, it creates a deposit in the borrower’s bank account, thereby creating new money. The bank says that this differs from the story found in some economics textbooks.

16th August 2013. The retiring head of the Financial Markets Authority apologised for the mistakes made saying “You were let down”.

 

John Kenneth Galbraith“The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it. The process by which banks create money is so simple the mind is repelled. With something so important, a deeper mystery seems only decent.”

John Kenneth Galbraith (1908-2006 ), former professor of economics at Harvard, writing in ‘Money: Whence it came, where it went’ (1975).

Household debt and housing costs

When people go into debt it increases the total amount of money in the economy, because banks create money by making loans. When they pay off their debts it decreases the money supply, via the reverse process. A falling money supply usually triggers a severe recession (imagine draining all the oil out of your car engine and then seeing how well it runs).

This means that we have an economy where, if we want to avoid a recession, it is essential that the public take on new debt at a faster rate than they pay off old debt. Is ever-increasing debt a sustainable basis for a healthy economy?

The Reserve Bank makes no effort to restrain or limit privatised money creation by the banks - they don't try to limit how much debt the banks can create. If anything, the vast majority of their activities are designed to enable the banking sector to create as much money and debt as it can, subject to some (inadequate) provisions for the liquidity and accounting solvency of the banks.

The money supply - and therefore the levels of debt - will always, in normal circumstances, keep rising until a sizeable number of borrowers start to default. The economy will then go through a period of recession or stay stagnant, until people adjust to the higher levels of debt, start to think it is normal to pay $350,000 for a house that recently cost $200,000, and then start borrowing from the banks again.

Following is the Household debt as a percentage of disposable income – over the last twenty two years – from the Reserve Banks statistics: It has risen from 60% to 144%.

The Government is encouraging us to save more but its own Savings Working Group released its report to the Minister of Finance in January 2011, section 4.2.1 pg 43, stating that:

"the rise in borrowing was accompanied by a rise in total interest payments, and these payments have over the years risen as a proportion of total household income. They have therefore had a downward impact on disposable income, which in turn has reduced the household sector's ability to save."

How can we save, when our debt burden is so high? The next generation is facing an even bleaker future as they are saddled with student loan debt, must save for their retirement, pay for aspects of their children’s education and save for a house.

Even if we could save and reduce our debt, we are trapped - because debt cannot fall by any significant amount, as any attempt to repay loans en masse reduces the money supply and therefore tends to trigger a recession.

In a recession people tend to borrow in order to stay solvent, so they increase their level of debt once again.

Housing affordability

In 1970 a single-income family could capitalise their Family Benefit for the deposit on their house, and pay off their mortgage within 10 years to 15 years.

In 1990 it took two incomes to pay off the mortgage.

In 2010 two incomes is often insufficient to pay the mortgage within twenty years.

We have been “adjusted” to the new reality of house prices – or said in another way – the frog is being boiled gently!

By 2020 the dream of home ownership may have become just that – a dream.

 

 

 

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