Gordon Campbell | Parliament TV | Parliament Today | News Video | Crime | Employers | Housing | Immigration | Legal | Local Govt. | Maori | Welfare | Unions | Youth | Search

 


Dr. Cullen wants reform - OCR Debt Reduction


Dr. Cullen wants financial reform - The OCR and Government Debt Reduction.

By Lowell Manning

One of the main problems with interest rates is that the impact of interest-bearing debt on inflation isn't directly measured.

All we get are changes to the Consumer Price Index. If the CPI goes up we get another dose of toxic interestherapy that kills the economic body to reduce the debt cancer load.

Interest rate rises reduce the demand for new debt, slowing the economy as the extra debt system costs eat into whatever "growth" there was. Prices then have to be flattened to clear the market leaving both producers and consumers with declining real incomes.

The cancer symptoms are briefly masked. However, they promptly reappear when interest rates are reduced to pull the economy out of recession. Each relapse and interestherapy forms a business cycle, and with each business cycle the patient economy becomes sicker.

We are quickly heading towards the terminal buiness cycle where the economy becomes unresponsive to further treatment and dies from the abuse it has received.

This will happen when interestherapy, the use of interest rates to manage inflation, fails around the world, as it has in Japan. Think of Mitsubishi Motors as a flagbearer. Until now, countries like NZ the US have survived in part by deflationary borrowing on the current account, mainly from Japan and China.

In NZ, on my projections, total debt measured as domestic credit + accumulated current account deficit will double from $252b (March 2003) to roughly $500b in 2015 while nominal GDP will only rise from $129b (March 2003) to roughly $190b. Average interest rates will have to drop by about one third to keep the system afloat. In about 20 years the Official Cash Rate (OCR) in NZ will have to be near zero. We are unlikely to get get that far because the US will probably have gone under by then, dragging most of the world with it.

Against this scene we have the pathetic notion of NZ Minister of Finance Dr Cullen (National Radio 17th June 2004) trying to part the walls of the debt sea by continuing to reduce government debt.

In the debt system the deposits created through interest bearing debt ARE the money supply. And under the debt system the Government can borrow more cheaply than anyone else. In fact it could borrow from the NZ Reserve Bank for nothing. Government debt is far more efficient than private debt because it is cheaper. Any interest on it has less impact on the economy.

Thus, reducing Government debt in the present system is the worst of both worlds. At best it condemns the economy to greater inflation and more interestherapy. The cancelled Government debt has to be replaced by dearer private sector debt to keep the economy going. At worst it is outright deflation, reducing the money supply, driving the economy into the ground. People become less able to service their existing debt load with their more expensive deflated dollars. Hence the horror expressed at the deflation "D" word by people like Allan Greenspan who heads the US Federal Reserve.

NZ Government policy shows itself to be100% ideology and 0% common sense. Dr Cullen specifically wants to reduce government debt servicing and government debt as % of GDP despite those objectives contradicting the present debt system.

On the other hand, Dr Cullen, NZ and the world CAN easily achieve his stated goals. Debt servicing costs can be reduced by using low interest debt from the Reserve Bank. Government debt can be reduced as % of GDP by responsible Government use of debt-free issue. But, of course, those simple, common sense solutions, the ones Dr Cullen says he wants, fly in the face of the prevailing ideology!

Lowell Manning

© Scoop Media

 
 
 
 
 
Parliament Headlines | Politics Headlines | Regional Headlines

 

Ruataniwha: DOC, Hawke's Bay Council Developer Take Supreme Court Appeal

The Department of Conservation and Hawke's Bay Regional Investment Company (HBRIC) are appealing to the Supreme Court over a conservation land swap which the Court of Appeal halted. More>>

ALSO:

With NZ's Marama Davidson: Women’s Flotilla Leaves Sicily – Heading For Gaza

Women representing 13 countries spanning five continents began their journey yesterday on Zaytouna-Oliva to the shores of Gaza, which has been under blockade since 2007. On board are a Nobel Peace Laureate, three parliamentarians, a decorated US diplomat, journalists, an Olympic athlete, and a physician. A list of the women with their background can be found here. More>>

Gordon Campbell: On The Key Style Of Crisis Management

At Monday’s post Cabinet press conference Key was in his finest wide- eyed “Problem? What problem?” mode. No, there wasn’t really a problem that top MPI officials had been at odds with each other over the meaning of the fisheries policy and how that policy should be pursued... More>>

ALSO:

Mt Roskill: Greens Will Not Stand In Likely Post-Goff By-Election

“The Green Party’s priority is changing the Government in 2017, and as part of that we’ve decided that we won’t stand a candidate in the probable Mt Roskill by-election... This decision shows the Memorandum of Understanding between Labour and the Green Party is working." More>>

ALSO:

Wellington: Predator Free Capital Plan

Wellington City Council (WCC), the Greater Wellington Regional Council (GWRC) and NEXT Foundation, today announced a joint collaboration to make Wellington the first Predator Free capital city in the world. More>>

ALSO:

Gordon Campbell: On Judith Collins’ Efforts At Self Correction

Thousands of prisoners currently in prison may be entitled to an earlier release than expected – and compensation – because Corrections has incorrectly calculated their term of imprisonment. Unless of course, the government buries its mistakes by changing the law and retro-actively getting itself off the hook… More>>

ALSO:

More Justice & Corrections

Sector Opposes Bill: Local Government Bill Timeframe Extended

The Minister of Local Government Peseta Sam Lotu-Iiga has asked the Select Committee to extend the report back date for the Local Government Act 2002 Amendment Bill (No 2). More>>

ALSO:

Get More From Scoop

 

LATEST HEADLINES

 
 
 
 
 
 
 
 
 
Politics
Search Scoop  
 
 
Powered by Vodafone
NZ independent news