Richard Prebble: We need to restore low inflation as the Reserve Bank’s sole remit
My response to this article and with respect, I think there are 3 distinct areas of confusion in his article in terms of:
#1 The understanding of the so-called independence of different Central bank models… this is a c&p [in the red italics] of a piece I wrote this morning by sheer coincidence on this same subject…
I tried to explain this reality to Greg Hunter [USA Watchdog] more than 10 years ago. He responded by unceremoniously throwing me off his site and blathering on about how the NZ central bank is no better than dah FED! Weeeeell, there just happens to be a couple of things here that make a wee difference… at least in my world, they do…
NZ’s central bank model is pretty much like most of the countries of the world… IOW it is entirely state-owned. That said… as stupid as it is for any country to allow 100% private ownership of their CBs [only two countries do… US and Italy] the next dumbest thing they could possibly do is to become paid-up members of the BIS gentleman’s club. Newsflash… NZ is part of this club too… just as all the major central banks of the world are.
I won’t delve too deeply into the dark history of the BIS simply because it an utterly macabre horror story. Basically, during WW2 the German National Bank Reichsbank used the BIS to launder looted gold from other European nations into Swiss Francs.
To cut a very long ugly story short, the BIS’s sole purpose in WW2 was pilfering and profiteering whilst millions of innocent people died. The fact is that people in the dark shadows of ownership of this shocking construct were the very same families and entities who orchestrated the beginning of both the world wars. These were not two separate wars at all… they were the same war, just with a one-generation gap in the middle.
Putting aside the shocking history of this institution, clearly, any notion of a CB being either independent or even sovereign for that matter completely flies out the window with BIS club membership. Clearly, they follow a playbook of cabal directives. Trace back the ownership of the BIS… hullo… its pretty much owned by the very same global private banking cabal.
Of course, all of the Western AAZ alliance belong to this group including little old NZ [also curiously a very junior member of the Five Eyes]. BTW 61 countries belong to the BIS club and as such none of these CBs could in your wildest dreams be described as independent, nor sovereign either for that matter.
The one exception to this would be China… it is a member but nothing they do could ever be remotely construed as following the BIS playbook. Their policy is the polar opposite, especially when you look at their banking models being run on state-owned and coop principles. It’s as if they belong to the club, but only in as much as it allows them to know their enemy.
Getting back to the NZ example, if we were dumb enough to be both a BIS club member and have a 100% Private Bank Cabal owned CB, then it would be about as much consequence to the global economy as a single lice on the backside of an elephant. We rank #50th in the world in GDP… similar to Portugal and Peru. If we make the comparison to US States then we sit at #25… right between Oregon and South Carolina.
Now do these three buildings have certain architectural similarities or is it just my overactive imagination!Interestingly, not to mention alarming of course, although NZ only accounts for 2.1% of the volume of world trade, our NZ dollar is the 10th most traded currency on earth. I will let you guys draw your own conclusions as to how this glaring anomaly can be explained. My guess… this might be just another way that our BIS membership might be setting us up for a little extra extortion, rape and pillaging.
#2 The fact that Keynesian style MMP thinking will often misconstrue the real reason for inflation
The Chinese example is the best one I know of… they increased their GDP 27x and pulled the equivalent of the entire US population out of poverty and into the middle class status without any destructive inflation whatsoever.
DISCLAIMER: I don’t ever want to live in China… but I will use an example of a model that works in practice no matter where it happens to be. Of course, there are many others too… the Bank of North Dakota works on the same principle and has been incredibly successful for over 100 years.
How did they accomplish this?
A. By using state-owned and coop banking models they create money and currency without any private third party getting a cut. Loans are created, not as debt backed funny money, but as capital funding backed by real assets. Also, there is always lots of robust localised oversight in making and administering these loans so that moral hazard becomes a very real discipline… unlike in the U$A where half the time loans made are known to be toxic from the get-go, but are bundled up into dodgy security instruments and sold off as assets to unsuspecting third parties.
B. When money is created in this way infrastructure costs are automatically roughly halved. Look at China’s massive infrastructural projects that have given them a huge wealth of assets for the future… eg their 1000s of kms of high-speed rail. By comparison, it is estimated that in the U$, not only have they not built a damn thing, [pun LOL] of comparative size and long-term significance since the days of the Hoover Dam, the Tennessee river program and the St Lawrence Seaway, but they have a $4 trillion liability looming over them. This is usually referred to as deferred maintenance [AKA as I haven’t f%^$#*g done it yet ave I]…this is the figure needed just to bring existing infrastructure up to basic operational safety standards.
C. When you are building stuff [as opposed to killing brown people in the four corners of the planet] and producing exportable goods like the Chinese, all this currency is being used to add to long term wealth. This is not inflationary because this currency is soaked up and used productively in the M1/M2 money supply. As people reach middle-class living standards and inflation is not running amuck, they don’t add anything like as much to the asset bubbles we see in the west.
They SAVE!… simply because the real interest rates, as opposed to the bullshit nominal rates we are trained like half-wits to focus on, are not massively negative as they are in the Western economies. These savings then end up in the local coop banking models and are subsequently multiplied out into more liquidity and capital. This is made available to the community for yet more productive enterprises. The asset bubbles are no longer in the housing sector. As a result, houses are much more for people just to live in and the market is nowhere near as speculative. Housing is also dramatically cheaper because the cost of money is so much more affordable.
Also, a lot of this inevitable so-called inflation has zero to do with classic monetary conditions anyway. A lot of this is directly supply chain related. IOW when there are this many shortages, opportunists have a field day charging whatever they think they can get away with. Even getting supply at all is sometimes only achieved with bribery. A drench importer friend of mine told me just yesterday that when shipping from overseas now, don’t even bother to ask for a shipment unless you offer a substantial upfront sweetener.
This is the downfall of the rentier type economy. It is the absolute antithesis of a functioning thriving capitalist system. In essence, a rentier system is nothing more than neofeudalism. The only difference is, instead of Royalty and the Barons owning everything and profiting from our society’s labour, instead, in this modern-day equivalent, it is the tiny percentage of financial fatcat kleptocrats that pocket all the windfall. Kansas economic Prof Michael Hudson is the leading authority that I know of in explaining this phenomenon.
Sadly I know of only a handful of academics on the entire globe that have both the conscience and the courage to publicly challenge these thieving banking models. In NZ there is not a single academic that I can think of that I could go to for sound objective advice on this subject. We often of late talk about regulatory capture by TPTB in our big-pharma crisis. This is equally as bad… this is actually blatant corporate capture of our academic narratives. They go to enormous lengths to maintain the economic status quo. Their very existence depends on keeping us deplorable mushroom-like creatures completely in the dark.
#3 Classic MMP misconceptions:
INCREASE IN MONEY SUPPLY = INFLATION = BULLSHITE…
At least not if the money is introduced in the correct way = In other words IT MUST BE BOTTOM-UP…
…not the normal trickle down to society from the financial elite where the corporate cronies get all the initial handouts… that’s because it never ever trickles down does it,… it just ends up blowing huge bubbles.
QE, money creation, call it what you will, would do far more good being deployed even as helicopter money dropped indiscriminately in the street compared to handing it out to these so-called lending institutions. Most QE is not even lent out anyway… especially not to the real economy. Helicopter money or handouts to society have always proven to cycle through the real economy at least 7x on average.
SUMMARY: Classic QE normally only feeds bubbles, not the real economy. Lower interest rates stimulate the economy…
No!
This doesn’t work any longer in the West because the biggest borrowers are always the Govts… raising interest rates in order to stop inflation is a pipe dream… the Govt sector doesn’t spend less they spend more. They then tax more taking money out of the real economy… its what they do! In this classic western MMP scenario where debt mountains have formed, Central Banks no longer have effective control over the economy.
Also, this type of inflation is fundamentally different to what comes from a normal speculative boom and as such, it can’t be remedied by using the same tools. There are no tools once the debt mountain gets to a critical mass because the fiat fairy tale debt-based money model is so fundamentally flawed.
This is not speculative inflation now because disposable incomes are so low the money is not there to speculate with anyway. People hoard more too, because they know that the next time they go to buy a particular item it will be a darn sight more expensive, or perhaps not even there on the shelf at all.With this sort of inflation running rampant, it basically wipes out all pension funds too. Right at the moment, there is not a pension fund in the whole of Europe that is not technically insolvent. I would hate to even contemplate the global percentage that is already underwater.
Worse still, many of these schemes are invested in high-risk avenues simply in order to try to scrape up enough yield just to cover their day to day running costs. If we had a global systemic meltdown, which is now an imminent mathematical certainty, it will be absolute carnage for the pensioners. Even widespread debt jubilees won’t solve this problem, because every single debt is a corresponding counterparties asset.
With a history of NZ’s Govts never understanding any of these factors… either because they can’t or simply won’t, it makes no odds. It’s little wonder that NZ has mostly remained in the financial doldrums… and yikes, now suddenly it’s a massive cyclone. It doesn’t seem to matter either whether these holders of office, in the financial halls of Govt and central banking, crawl in from the left or the right. They never seem to ask the real questions that so desperately need to be asked.
How about for starters the one like… why the hell is every last one of our Western CB models nothing more than blatant money-grabbing parasites? I would love to ask the smiling assassin that very question and then sit there and watch him squirm like hell… you probably know the one I mean… ex-PM and former Federal Reserve FEC committee member who represented ‘Merrily Lynched’.
Cheers and regards,
