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Opinion: Try taking back the power to issue money

Try taking back the government’s power to issue money, Jim
Column by Deidre Kent

Jim Anderton, Minister of Economic Development doesn’t want Don Brash, Governor of the Reserve Bank, to raise interest rates to ‘slow down’ the economy. Anderton says high interest rates attract money away from investment and jobs.

We are getting used to this absurd scenario. When ‘the economy’ grows, inflation looms, and the Reserve Bank raises interest rates. Just when everything seems to be going fine, Dr Brash has to make the absurd choice between favouring the investors who want higher interest rates or favouring businesses and home owners who want the opposite.

Most people turn off economics at this point, perhaps secretly suspecting such a system must have been invented by fools. Why, they think, can’t there be a win-win situation for young and old, for investors and home owners, importers and exporters? Why do we trust these conventional economists? If we are an intelligent species, surely we can design an inflation free economic system, one which doesn’t go on roller coaster ‘business cycle’, first favouring one side then the other, but never both sides together?

An examination of the way our country’s money is created and issued will show we haven’t yet got our fundamentals right.

Few realise that 97.9% of New Zealand’s money supply is now created as debt by the private banks and only 2.1% is issued by the government as notes and coins. Every time a bank issues a mortgage or a business loan, they create the country’s money supply. Banks can literally loan money into existence! All they need is a deposit and, on the basis of this, as long as they keep some in reserve, they issue a loan to someone else. But the depositor never receives a letter to say his or her money is no longer available. Both depositor and borrower now have money. And when the borrower spends the money and this is placed in a second bank, more money can be created. So the spiral continues, until, for example, a cash injection of $100 results in $900 of credit .

It is a nifty arrangement which economist JK Galbraith has described as ‘a method so simple the mind is repelled’. If anyone else did this they would be facing fraud charges. Most worrying is that economists seldom question its legality or ethics, and explain it away as a service to borrowers.

Since the interest payable on a loan has not been created by the banks, there is never enough money in the total system to pay off the loans. Everyone competes for the limited money supply to pay off their debts. So what happens? People and firms go further into debt. There is currently about 15 times more debt on the planet than there is money to repay it! Modern economies become dominated by debt and a chronic lack of purchasing power.

What’s more inflation is built in to the debt-based money system, since the cost of servicing loans or paying dividends on shares has to be added to the price of goods and services. It is a lie to say you are against something you are actually doing.

It doesn’t have to be this way. Julius Caesar issued his own debt-free money, and US presidents Jefferson, Madison and Jackson struggled bitterly for decades with the private banks for the right to issue the country’s money supply. When Abraham Lincoln, faced with funding the Civil War, was told by the commercial banks that money could be borrowed at 24% interest or more, he decided to print his own money, greenbacks. With these he paid his soldiers and bought supplies.
Nearer to hand we have trade dollars and green dollar schemes where the amount of goods and services exactly equals the money supply and there is neither interest nor inflation.

US President Thomas Jefferson said:

‘If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks...will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs. ‘

Trusting conventional economics has brought us absurd boom and bust cycles, unemployment, instability, escalating debt, and environmental disaster. While Labour, Alliance and Greens have vehemently opposed privatisation, they are still silent on the ultimate privatisation – that of money creation. Taking on the private banks would be far better than taking on our Reserve Bank, which after all we own. To get an inflation free and sustainable economic system, the issuing power should be taken from the banks and restored to Parliament, to whom it properly belongs.


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