Russel Norman wants to make bankers richer, and wage-earners poorer [updated]
If the Reserve Bank were to go out and print $2 billion of new money, as Russel Norman wants them to, are we all better off?
That is, two billion dollars of new paper money on the back of the current base of nearly four billion.
Imagine, as David Hume did years ago, that we all woke up in the morning to find an act of magic had somehow increased the quantity the number of notes and coins in our pockets, in our wage packets, in our piggy banks, and under the couch and chairs. Everyone of us now goes about our business feeling richer. And so does everybody else—and we all of us would know it.
But have we all become richer? Has anyone? Because as even a moron would know (from which classification Norman is clearly excluded) since we all have the same increase and everyone knows about it—including salesmen—in this fantastical scenario all that increased money is just going to increase all our prices. And nothing will have changed fundamentally*.
And no-one will be better off.
This magic injection of new money [explains Detlev Schlicter in his book Paper Money Collapse] has no impact on the production of goods and services, on resource allocation, or on income distribution…
But that is only true in this magical, unrealistic situation.
Because of course, money never comes into existence in this way.
In reality, it’s very different. In our modern floating-currency paper-money economies, money is borrowed into existence on the back of “securities” like government bonds and assets like the contents of the housing bubble. Which means when new money comes into existence, the first users of those dollars are borrowers and governments. So what happens to prices? Well, they still go up, but since these folk get first use they get to spend the new money before prices rise.
But can you see who misses out? Can you see who’s paying for these new riches? No new paper notes have been put into your pocket, or into your savings accounts. The pool of real savings has not increased one iota. And no new resources have been brought into existence by the creation of this counterfeit capital. Which means the new assets now enjoyed by borrowers and the resources distributed on the back of government bonds are simply transferred from savers and non-borrowers to governments and other big borrowers.
Oh, and also transferred to the pockets of those bankers who clip the ticket all along the way.
This is what Russel Norman wants more of.
This is what Russel Norman dreams about today.
Issuing $2 billion of “Earthquake Bonds” to be bought with printed money which will then bid up the prices of building materials and supplies, raid the pool of real savings, and make instantly poorer every wage-earner and every holder of existing dollars (which is almost all of us), making it instantly more impossible for anyone struggling to afford our already unaffordable houses (which is many of us), and transferring to Christchurch resources created by savers and non-borrowers—by means of what can only be called a stealth tax.
At least his idea of an Earthquake Levy was up front—and would not have helped to wreck the whole price and structure and make you and I and every wage earner so much poorer (and every banker involved so much richer).
Oh, but he says this will help bring the exchange rate down! Which as I pointed out last week, will simply make fuel food and imports more expensive and all wage earners even poorer!
But, says Norman: “They’re doing it everywhere else.”
Yes, and everywhere they’re doing it, it isn’t working. It was used by Japan for the last two decades—the two decades they call Lost. It was used by Weimar Germany and Zimbabwe. I trust even Russel knows what happened there.
Oh yes, and it’s been used over the last six years in the US, UK and Europe to produce figures showing economic growth when there’s been none. I trust you’ve noticed with what (lack of) success. And you should perhaps have noticed it has reached a dead end.
It is not a crime not to know anything about economics. But it is to talk as if you do.
Frankly, this is the sort of fantastical pie-in-the-sky kind of monetary quackery that used to be the province of Social Credit.
Perhaps Russel should go out today and join them.
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* Except of course for the overnight damage to the price structure and the longer run damage to the structure of bond prices and interest rates. But that’s a longer story not fully relevant to this one.
UPDATE: Liberty Scott: “It is a fundamental attack on the poor, and on those with savings on average incomes.”