Thursday, 16 April 2020, 6:45 am
Opinion: Deidre Kent
The Government should avoid borrowing from overseas banks and should simply create its own money to navigate the economic turbulence caused by coronavirus, says the Chair of an educational trust promoting economic resilience.
“If the Government borrows on the international market our children, as well as their children, are going to be paying back that money for decades,” said Phil Stevens, Chair of the Living Economies Educational Trust. The money borrowed simply fills the gap left by the contraction of the national money supply caused by Covid-19.
Stevens said the alternative was to do something quite simple – the Reserve Bank should create the credit to buy Government Bonds at 0% from the Treasury.
“This debt is not repayable and will not be a liability on New Zealand taxpayers,” he said.
“More debt is not the way to solve problems. The conventional economic thinking that has guided public spending for the last 35 years has landed us in a real mess, and advice from conventional economists is the wrong sort to be guiding us out of this crisis.”
Stevens said it was time for the Finance Minister to heed the calls of a new breed of economist.
“Universities teach economics, but omit the functions of banks, credit and private debt from the curriculum. An entire field of ‘experts’ now fundamentally misunderstands the role of debt and how it has supercharged globalised finance, driven massive bubbles and set economies up for potential collapse,” he said.
“Their prescriptions have included misguided calls for austerity, dismantling and privatising public institutions and leaving societies hollowed out and vulnerable. All this has worked to enforce a fictitious narrative that the Government’s books were akin to a household account, and that spending beyond one’s means requires either borrowing, raising income (taxes), or cutting services.”
In fact the Government has an obligation to society to provide the liquidity necessary to sustain the exchanges necessary for a healthy economy. This does not require going through a private banking sector or an international institution. There are plenty of obvious precedents for this.
The Government is currently issuing Bonds to fund the bailouts necessitated by the coronavirus response.
“While this is a roundabout method of funding the necessary spending in this time of economic hibernation, it will suffice for the urgent needs of the short term,” said Stevens.
“Our recommendation for the long haul will be for the Government to charter a public bank like the Bank of North Dakota which funds the state government directly, without involving any bond creation and sales. Since commercial banks already do this and create 98 percent of our money supply, it’s hardly an unconventional or radical proposition. We simply want the Crown to own the financial asset, not the private sector.”
“We are in unprecedented times and it is now time to listen to those who for decades have been trying to get through the heads of economists that governments simply don’t need to borrow at interest, even though the interest rate is low right now. We are about to borrow $33 billion and to be beholden to overseas creditors, including the Bank of America, Goldman Sachs or JP Morgan Chase. This is nonsense.”
He said the Living Economies Educational Trust joins Social Credit, Raf Manji, Bryan Gould, Bernard Hickey, Shamubeel Eaqub and Dr Geoff Bertram in calling for this course of action to be taken.
The Living Economies Educational Trust has been in operation for nearly 20 years and has been promoting and supporting grass-roots efforts such as complementary currencies and savings pools to help people and communities build economic resilience. This includes the Lyttelton Timebank, launched by former LE Chair Margaret Jefferies, which was such a powerful force during the Christchurch earthquakes.
For further reading supporting the nationalisation of money creation see Prof Steve Keen, Michael Hudson, Bill Mitchell.
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