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I think it is very important to talk about how dangerous some of the ideas in this article by @bernardchickey are.
https://www.stuff.co.nz/business/opinion-analysis/300155251/government-should-use-printed-money-to-increase-benefits-which-will-be-spent-in-the-economy
@damienmgrant @ReserveBankofNZ @NZStuff @libertyscott @Peter_Cresswell @MarkHubbard33
1/10
https://www.stuff.co.nz/business/opinion-analysis/300155251/government-should-use-printed-money-to-increase-benefits-which-will-be-spent-in-the-economy
@damienmgrant @ReserveBankofNZ @NZStuff @libertyscott @Peter_Cresswell @MarkHubbard33
1/10
I'm no fan of the Labour Government, but they aren't "choosing" the current path. In QE the Reserve Banks only have the option of involving the commercial banks. If they choose to directly finance debt it leads to severe inflation due to Gresham's Law.
2/10
2/10
This has happened whenever it has been tried throughout the last few millenia. Thankfully it seems people at Treasury and the Reserve Bank understand this and the Finance Minister @grantrobertson1 is smart enough to listen to them - thus far at least.
3/10
3/10
But this is the only tool in the QE tool box and NZ needs to accept the fact that we are facing large deflationary headwinds globally due to; high levels of government debt, ageing demographics in developed economies (and China) and an extreme overreaction to Sars-Cov-2.
4/10
4/10
It's hard to see how this overreaction will not lead to a global financial crisis starting in the EU banking system. Given the crisis/deflation there will be huge pressure on central banks to directly finance government, as the commercial banks will have no one to lend to.
5/10
5/10
Articles such as this one will be fodder to justify such actions, however if the author is worried about house prices and welfare recipients now, wait until inflation wipes out the middle class and the poor if his suggestions are followed.
6/10
6/10
I think the fact this article doesn't talk about or seem to understand the possible downside risks is a mark against it. I don't think an article such as this would have made it past the financial editor's desk a couple of decades ago without this information being added.
7/10
7/10
Hopefully the above answers Mr. Hickey's question, "So why doesn’t the Government use some of that printed money to increase benefits, which will be spent in the economy?"
Because collapsing the currency is a terrible idea whatever the justification.
8/10
Because collapsing the currency is a terrible idea whatever the justification.
8/10
Ultimately the end game is a likely return to the gold standard, as government will have destroyed confidence before a return to Bretton Woods, et al is still possible. Ultimately this will be positive of the very long run, but catastrophic in the short term.
9/10
9/10
While I believe in a gold standard, I'm not naive to ignore the massive risks if we reach the point where this solution is forced on the likes of Adrian Orr and the Finance Minister. Society can get unstable and revolutionary quickly and this should be avoided vigorously.
10/10
10/10
