Articles by Bryan Gould
Bryan was born in New Zealand and is a Rhodes Scholar. He joined the British Diplomatic Service in 1964. In 1974, he was elected to the House of Commons as a Labour MP. He served in the Shadow Cabinet as Chief Secretary, Secretary for Trade and Industry, Secretary for Environment, and Heritage Secretary. He contested the Labour Party leadership in 1992 but was defeated by John Smith. He returned to New Zealand in 1994 as Vice-Chancellor of the University of Waikato. He was made a Companion of the New Zealand Order of Merit.
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Where did the billions come from?
February 5th, 2020
In the midst of the blanket news coverage of
the coronavirus outbreak, how many people registered the news report that the
Chinese government had taken action to counteract the adverse effects of the
outbreak on the Chinese economy?
The report was to the effect that the
Chinese government was to inject around $170 billion of new money into the
economy, so as to provide a stimulus that would help to offset the slump in
economic activity brought about by the virus outbreak.
And how many people would have wondered, on
hearing this news, how the Chinese government could find such a large volume of
new money. Was it, up to that point, just lying around doing nothing? Or did
they borrow it from somewhere? Or did they sell off assets in order to produce
the cash?
The answer is that they did none of those
things. The Chinese understand very well that, as a sovereign country with
their own currency, their government is able to produce money at any time in whatever
quantity and for whatever purpose they like. They understand that the one thing
that a modern country should never be short of is money. They understand that,
as a modern western economist has recently said, “we can afford whatever we can
do”. They realised that money is their servant, not their master.
This, after all, is how the Chinese are able
so often to buy up foreign assets, including New Zealand New Zealand
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Finding
The Money
July 4th, 2018
So, the chickens are
coming home to roost – and with a vengeance. The tragedy for the new
government is that the chickens were bred and raised by the previous
government, and are only now flying in, in large numbers and with hefty price
tags.
Through
no fault of its own, the new government is having to pay up for the mess made
by its predecessor, and that costs money that cannot, it seems, be easily
found. Every dollar paid to clean up the mess is said to be a dollar less
for the government’s real aims – to improve our public services, to rescue our
environment, to save families from poverty, to provide recent housing for
everyone.
But is
that really the case? There may be other shortages – labour or land, or
skills or technology, or materials – but a shortage of money should not be one
of them. How do we know that? Because, as an increasing number of
experts recognise, and as our own experience teaches us, the government of a
sovereign country need never be short of money.
Most of the money in our economy sits in bank
accounts, and a large proportion of that money is created by the banks when
they makes loans, usually on mortgage. The fact that the commercial banks
create over 90% of the money in circulation out of nothing is still disputed by
some (including by those who should know better) but is now attested to by the
world’s central banks, by top monetary economists (such as Lord Adair Turner,
former Chair of the UK’s Financial Services Authority.
This
raises the question – if the banks are allowed to create money out of nothing
(and then to charge interest on it), why should governments be inhibited about
doing so? And indeed, they are not so inhibited – governments all around
the world have over recent years pursued policies of “quantitative easing”, and
on a very large scale – and “quantitative easing” is just another way of
describing the creation of new money........
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A New Monetary Policy Needed
September 19th, 2018
Positive Money New Zealand is a voluntary organisation that campaigns for monetary reform. It is affiliated to other similar organisations across the globe and in particular to Positive Money in the UK
It has started a petition, (which can be found at www.positivemoney.org.nz), which calls for a review of our current monetary system to be considered by a Select Committee in the hope that the resultant publicity (and the education of Select Committee members) might then stimulate the necessary pressure for change.
The body of the petition sets out the case for change. It takes as its starting point the almost incredible fact – one still contested by many supposed experts, although confirmed by detailed studies produced by the Bank of England and other central banks – that around 97% of our money has been created, not by the government, but by the commercial banks, which create the money by simply making a bank entry in the accounts of those to whom they lend money, usually on mortgage.
The banks, of course, charge interest on the money they thereby create ex nihilo (or out of nothing) and it is the interest they charge that produces their huge profits of billions of dollars which they then send back, in most cases, to Australia.
What is really astonishing about this state of affairs is that the money supply – one of the key elements in determining our economic success or otherwise – is almost entirely controlled, not by our government or the Reserve Bank, but by foreign-owned commercial banks which operate entirely for profit and are in no way accountable to the New Zealand
This approach to monetary policy is not only endorsed by leading monetary policy experts, such as Lord Adair Turner, and applied by governments in overseas countries, such as Shinzo Abe’s Japan, but has a gold-plated pedigree right here in New Zealand, where Michael Joseph Savage’s Labour government in the 1930s authorised the Reserve Bank to issue interest-free credit in order to build thousand of state houses and thereby helped to bring the Great Depression to an end. Let us hope that the Select Committee will take note........
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Banking should be under closer Government control
April 13th, 2017
It's not every day that monetary policy dominates the news.
But, in the past week, no fewer than three people have made the headlines by virtue of their views on monetary policy.
First, Steven Joyce, the Minister of Finance, has recommended the formal establishment of a committee to help the Governor decide on where to take interest rates.
Secondly, Grant Robertson, Labour's shadow Finance Minister, has made a similar recommendation concerning a Monetary Policy Committee to help the Governor, but has also followed another overseas example by supporting an extension of the Governor's remit, so that he would, in addition to restraining inflation, be required to take account of the desirability of full employment.
So far so good.
The proposed changes are small steps in a sensible direction but are not going to set the world alight.
Rather less expected, however, was the issue highlighted by Sonny Bill Williams' decision to tape over the Bank of New Zealand logo on his Blues jersey.
We are led to believe that this decision was taken as an expression of the Islamist opposition to anything to do with usury, that is, the lending of money and the charging of interest on the loan.
Surprisingly, you may think, it is Sonny Bill who has made by far the most far-reaching statement.
Most people believe, and it is a belief assiduously promoted by the banks themselves, that the banks act as intermediaries between those wishing to save and those wishing to borrow, usually on mortgage.
On this view, the banks are benefactors, bringing together those with money to spare and to deposit with them, and those who wish to borrow, often for house purchase.
The banks make their money, so it is said, by charging a higher rate of interest to the borrowers than they pay to the depositors, the equivalent of a small fee for the administrative costs of bringing the parties together.
But this benign view of their operations is inaccurate and misleading. The banks do not lend you on mortgage money deposited with them by someone else.
They lend you money that they themselves create out of nothing, through the stroke of a pen or, today, a computer entry.
The banks make their money, in other words, by charging interest on money that they themselves create. Not surprisingly, they are keen to lend as much as possible.........
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Why Does the Left So Often Disappoint
October 24th, 2017
The stance usually adopted by left governments is that they accept that they must operate within the framework of policy and principle that they inherit and that no challenge to existing power structures is either possible or desirable. It is believed that any attempt to make such a challenge would be a recipe for disaster and a guarantee of electoral rejection.
The consequence is that the left limit their ambitions to administering essentially the same set of policies, but with – it is hoped – a few tweaks that will show the voters that a left government will be more competent and compassionate. Greater competence and compassion are of course worth having, but the voters quickly recognise that nothing much changes.
One of the central issues – in fact, the central issue – in democratic politics is, who should run the economy and in whose interests?
A country – a sovereign country, at least – need never be short of is money. It is in the end the government of that country, usually through the agency of the central bank, that decides how much money there should be in that economy. There may be all sorts of inhibitions on what a government can do, but we should never – and nor should left ministers – accept the excuse that “there is not enough money”. Governments can always create the money that is needed – that is, indeed, one of their main responsibilities.
The story starts, at least in its most recent form, with the now almost universal recognition that the vast majority of money in circulation is not – as most people once believed – notes and coins issued on behalf of the government by the central bank, but is actually created by the commercial banks through the credit they advance, usually on mortgage, and using bank entries rather than cash.
The truth of this proposition, so long denied, is now explicitly accepted by both the Bank of England and the German central bank, and was – as long ago as 1994 – explained in a letter written by the New Zealand central bank to an enquirer, and stating in terms that 97% of the money included in the usually used definition of money known as M3 is created in this way by the commercial banks.........
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Unlock Your Minds
October 2nd, 2017
New Zealanders like to think that we are, in most respects, up with - if not actually ahead of – the play. Sadly, however, as a new government is about to emerge, there is no sign that our politicians and policymakers are aware of recent developments in a crucial area of policy, and that, as a result, we are in danger of missing out on opportunities that others have been ready to take.
The story starts, at least in its most recent form, with two important developments. First, there is the now almost universal recognition that the vast majority of money in circulation is not – as most people once believed – notes and coins issued on behalf of the government by the Reserve Bank, but is actually created by the commercial banks through the credit they advance, using bank entries rather than cash, and usually on mortgage.
The truth of this proposition, so long denied, is now explicitly accepted by the Bank of England, and was – as long ago as 1994 – explained in a letter written by our own Reserve Bank to an enquirer, and stating in terms that 97% of the money included in the usually used definition of money known as M3 is created by the commercial banks.
The proposition is endorsed by the world’s leading monetary economists – Lord Adair Turner, the former chair of the UK’s Financial Services Authority and Professor Richard Werner of Southampton University, to name but two. These men are not snake-oil salesmen, to be easily dismissed. They have been joined by leading financial journalists, such as Martin Wolf of the Financial Times.
The second development was the use by western governments around the world of “quantitative easing” in the aftermath of the Global Financial Crisis. “Quantitative easing” was a sanitised term to describe what is often pejoratively termed “printing money” – but, whatever it is called, it was new money created at the behest of the government and used to bail out the banks by adding it to their balance sheets.
And if governments were indeed to create new money through “quantitative easing”, why could that new money not be applied to purposes other than shoring up the banks?
The conventional answer to such questions (and the one invariably given in New Zealand by supposed experts in recent times) is that “printing money” will be inflationary – though it is never explained why it is miraculously non-inflationary when the new money is created by bank loans on mortgage or is applied to bail out the banks.........
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Brash doesn't seem to understand banking
April 28th, 2017
It is no surprise a former Governor of the Reserve Bank should seek to defend the banking system from its critics. But in denying the accuracy of points I made in the Herald about how the banks operate, Don Brash accused me of "peddling nonsense".
I made two basic points. First, I asserted the banks do not, as usually believed, simply act as intermediaries, bringing together savers (or depositors) and borrowers to their mutual benefit.
Secondly, I said the vast majority of new money in circulation is created by the banks "by the stroke of a pen", and they then make their profits by charging interest on the money they create.
If this is "nonsense", the "peddlers" include some very distinguished economists. My legal training has taught me the value of being able to turn to reliable authority to support what I say.
In my original piece, I referred to a Bank of England research paper, published in the bank's first Quarterly Bulletin 2014, which describes in detail the process by which banks create money.
First, they say,"One common misconception is that banks act simply as intermediaries, lending out the deposits that savers place with them...[that] ignores the fact that, in reality in the modern economy, commercial banks are the creators of deposit money...Rather than banks lending out deposits that are placed with them, the act of lending creates deposits - the reverse of the sequence typically described in textbooks..
"Bank deposits make up the vast majority - 97 per cent of the amount [of money] currently in circulation. And in the modern economy, those bank deposits are mostly created by commercial banks themselves.".
"Commercial banks create money, in other words, by placing loans [or credits] into the bank accounts of borrowers. They then charge interest on, and demand security for and repayment of, those loans........