The Positive Money team has followed up our parliamentary petition with a submission to Parliament.
Positive Money launched its petition to offer an alternative to the emergency Covid-19 financing mechanism known as quantitative easing (QE) or ‘Large Scale Asset Purchases’. We’ve now had a real-life demonstration of the perverse impact of QE on the housing market and wealth distribution.
Both QE and direct monetisation — the system proposed in our petition — use new electronic money issued by the Reserve Bank. But there is an important difference. QE works through the private financial system, while direct monetisation bypasses it — money for government spending goes directly from the Reserve Bank to the government, and that money reaches the economy entirely from government spending.
Under QE, the money is ‘intermediated’ by the banks and large financial institutions who make massive profits from a quick trade and funnel far too much of it into houses and financial speculation which inflates asset prices.
Our petition puts forward a solution that avoids this. It promotes a funding mechanism that would deliver better infrastructure and public services along with a stronger, more balanced economy that works for all New Zealanders, not just a lucky few. And the icing on the cake? We would not leave a large external debt to burden the next generation.
Of course, no system is a winner for everyone. Banks would not see record profits in the midst of a crisis, and the wealth of those with property and financial assets would not see the super-returns that have split them from economic reality. But we think that’s a fair trade-off.
Direct monetisation (also known as monetary financing) has another benefit: it does not have to be limited to times of crisis. We also argue in our submission that it offers the best way to finance New Zealand’s massive infrastructure deficit, built up from years of neglect.
Here is a link to our petition and related documents on the New Zealand Parliament website.
Here is a link to our full submission to the Finance and Expenditure Committee (PDF 244KB).
Please support our ongoing campaign to reform the monetary system so that it works for all New Zealanders, not just a lucky few.