Allowing commercial banks to create the nation’s money supply has led to incredible inflation. Since 1980 the CPI has risen by 425% but that does not reveal the real extent of inflation.
According to VNZ (Valuation New Zealand) figures house prices have risen by 1,394% in the same period (between 1980 and 2012).
Housing is just one example the how the flow of unearned deposit interest income into the investment sector produces price bubbles- as equities have shown similar increases.
This inflation is not a ‘fact of life’ - it is a result of allowing banks to create all money as debt.
Firstly, there is a ‘cost-push’ effect on inflation: since all money is created as debt, then in order to have a money supply in the economy, individuals and companies must share the debt. In order to get out of debt or even just to pay the interest on ever-expanding debt, workers will always need to demand higher salaries, and companies will always try to increase prices by a little each year.
Secondly, there is the ‘demand-pull’ effect: as banks create as much money as they can in order to maximise their profits, this creates a debt-fuelled spending boom where businesses take advantage of the buoyant economy to raise their prices to recover from the previous downturn. In the case of housing, lax lending policies by the banks meant that people could borrow more and therefore ended up paying more. Uncontrolled creation of money by profit-seeking banks is the main cause of inflation.
While our figures for house prices start in 1980 inflation has been along for a long time. According to Reserve bank figures, what cost the equivilent of 2 cents in 1920 now costs over a dollar!