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Greens: print money to drive down dollar

The Greens have unveiled a new plan for "quantitative easing" that would see the Reserve Bank to print billions of dollars to buy earthquake bonds from the government.

Party co-leader Russel Norman says creating credit to buy bonds would devalue the dollar, reduce overseas borrowing, fund Christchurch rebuild and restock the Natural Disaster Fund.

The party would have $2 billion printed in a first round, then leave it to the Reserve Bank governor to gauge need for further quantitative easing, he told yesterday's Q + A programme on TV One.

Mr Norman says “we don’t know” how much the dollar would drop after QE, but reckons a 15% drop in dollar value would be significant help to manufacturers.

But the government says printing money would lift the cost of living.

“All that would do is make the international market look at New Zealand and say ‘no, you're losing the plot’, and we need to continue to work hard to grow the New Zealand economy,” Economic Minister Steven Joyce said.

Prime Minister John Key said the idea was "Wacky."

If printing money worked, Zimbabwe would be the richest country on the planet, Mr Key said. Printing money would push up interest rates.

Mr Norman said the US, UK and Japan had embraced quantitative easing.


RAW DATA: Q+A Transcript

RUSSEL NORMAN
Greens Co-Leader

Interviewed by SHANE TAURIMA

SHANE                         Thank you, Dr Norman, for joining us.

DR NORMAN              Good morning, Shane.

SHANE                         Before we talk about your answer, I just want to pick up on point that John Tamihere made, and I think— Let me quote him: “The front bench isn’t firing.” Do you agree with John Tamihere? Is Labour that bad?

DR NORMAN              I don’t think they’re that bad. Obviously, you know, they’re only one year into the term. They’ve got some work to do. I think that’s pretty clear, but I think they’re aware of that themselves, and I think they are doing policy work in the background.

SHANE                         Do you think, though, it’s harming the chances of getting into government together? Because, let’s face it, Labour – you’re relying on them to get into government.

DR NORMAN              Well, it’s early days. We’ve still got another couple of years till the election. The polls have actually turned around quite a long way, and I think this last couple of weeks have shown that the government isn’t invincible.

SHANE                         You have confidence in Mr Shearer?

DR NORMAN              Yeah, I have confidence in Mr Shearer.

SHANE                         John Tamihere also made another point. He said we need to take a different approach, a new approach to help address some of these quite terrible economic woes we’re facing at the moment, and you have an answer to that. You have a plan. Tell us about that.

DR NORMAN              Well, today the Green Party’s releasing a proposal around the exchange rate. As the introduction said, the exchange rate is overvalued. The International Monetary Fund says it’s probably about 15% overvalued. That’s having a very detrimental impact. There's three parts to our proposal. The first is, as was talked about in the introduction, around using the— broadening the Reserve Bank mandate so it doesn’t just look at inflation but also looks at the exchange rate. And that would mean that we could have lower interest rates, which would mean that we would have a lower New Zealand dollar. One of the reasons the dollar’s high is because there's a lot of money coming in from overseas in order to take advantage of our relatively high interest rates.

SHANE                         And the other two parts?

DR NORMAN              And the second part is around looking at some of the housing-asset bubble. So capital gains tax, looking at supply side, making sure that we’re not getting a housing asset bubble which is sucking in funds from overseas, putting upward pressure on the dollar. And the third part is around adopting some of the measures which have been used overseas in the form of quantitative easing and applying it to the specific New Zealand circumstances. So we’ve developed a proposal which looks at using the central bank, the Reserve Bank, essentially creating credit and using that credit to purchase earthquake bonds from the government and hence reducing the amount of borrowing that the government needs to do, which also reduces some of the pressure on the dollar, because a lot of that borrowing is from overseas. And also using that Reserve Bank credit to invest in the Natural Disaster Fund, which is the fund we have to prepare ourselves for big earthquake events.

SHANE                         So you want the Reserve Bank to go out and print some more money?

DR NORMAN              Essentially it’s around the creation of credit. It’s called quantitative easing. The idea is if part of the reason—part of the determinant of the value of the dollar is supply and demand, you increase the supply of your currency and then you use that to deal with some specific economic problems that you have. The United States has used it very extensively. Britain has used it. The Bank of Japan, the European central banks. All our trading partners are engaged in this kind of a currency convention.

SHANE                         So just so we’ve got it clear – you want the Reserve Bank to go out and print some new money to buy some earthquake bonds off the government. The government then would use that money to help with the Christchurch rebuild – help build the sewers and the streets and that type of thing – and also to go towards saving for our next disaster.

DR NORMAN              That’s right.

SHANE                         In a nutshell.

DR NORMAN              In a nutshell, and those earthquake— Because the government wouldn’t be borrowing for those earthquake bonds from overseas, that reduces the pressure on the New Zealand dollar.

SHANE                         So what will this do? Because any economist will tell you if you go out there and create massive amounts of money, it’s going to affect inflation. Prices go up, don’t they?

DR NORMAN              Well, I mean, there's three responses to that. I mean, first, if you look at the last monetary policy statement from the Reserve Bank, it was right at the bottom of the band. There's not strong inflationary expectations going forward. Secondly, when you look overseas at the use of quantitative easing – because all of our major— most of our major trading partners are using it – it hasn’t produced major inflationary problems there. And then thirdly, the way we’ve designed QE or the proposal that we’re releasing today is specifically designed to reduce the inflationary effects. So if you look at the earthquake bonds, the earthquake building is happening already, so we’re not increasing construction activity. We’re actually just making sure that we’ve got the money to do it. And the Natural Disaster Fund, which is currently empty, we would be restocking the fund with foreign-denominated assets, which is— And it’s important to understand this – the Natural Disaster Fund is stocked with foreign-denominated assets, because in the event of a big disaster in New Zealand, you want access to those overseas assets. So once you start purchasing overseas assets with New Zealand dollars, you don’t add to inflationary effects inside the New Zealand economy.

SHANE                         How much money are we talking about?

DR NORMAN              Well, if you look overseas, the amount proportionally is somewhere between 10% and 24% of GDP. That’s what our trading partners have done, and obviously that’s why the New Zealand dollar has risen is because our trading partners are involved in quantitative easing.

SHANE                         So how much is that?

DR NORMAN              Well, if you did it in New Zealand, you’d do it in rounds. So it’s, if you like, an adaptive management approach. You would do, say, 1% of GDP, which is a $2 billion QE—

SHANE                         So start off with $2 billion?

DR NORMAN              Well, you’d start there, and then you’d look at the effect. And so, you know, where that takes you is up to your Reserve Bank governor to look at the impacts of that kind of QE and make some kind of judgement about whether that’s sufficient in and of itself. Because it’s all in an international environment. Of course, the exchange rate is always relative to what our trading partners are doing.

SHANE                         And you said from the outset that you hope that this will bring down the dollar. By how much?

DR NORMAN              Well, we don’t know is the short answer. We know overseas it’s had a significant downward effect, particularly on the US currency, and that’s resulted in a significant increase in exports out of the United States.

SHANE                         Because you said before that the IMF – the International Monetary Fund – said it’s overvalued by about 15%.

DR NORMAN              That’s right.

SHANE                         It’s about 82c at the moment. 15% off that – that takes us to about 70c. Is that what you’re looking at?

DR NORMAN              Well, you need to look at the trade-weighted index, not just versus the US dollar. Because what's important is looking at all of our exporting industries into all the different countries into which we export. So you need to look at the lot. So you can’t just compare it to the US. But if it came down by 15%, that would make a significant difference to our manufacturers. I mean, I think we need to look at the real-world economics of this. We can’t kind of— The government is trapped into an abstract theory about economics, which says, oh, you know, you mustn’t touch it, which was the idea from 20 years ago. If you look at the real-world economics—

SHANE                         But that’s the point, though, isn’t it? The government will say, well, you can’t really control it. It’s voodoo economics.

DR NORMAN              Well, if it’s voodoo economics, then you need to say that to the governor of the Federal United States Reserve. You need to say it to the governor of the Bank of England—

SHANE                         But on that point, they’re at that point because their interest rates are almost at zero.

DR NORMAN              And so that’s why part of our three-point plan is about bringing down interest rates as well. You need to have a coherent approach which addresses all the levers which you have available.

SHANE                         Let me quote you something—

DR NORMAN              Looking at the international—

SHANE                         ...that Mr English says in response. Quote: “If you reduce the exchange rate, you reduce the standard of living for all New Zealanders.” End of quote. And what we’re talking about there, of course, is that a lower dollar means a higher cost of living for households, because going to buy petrol, used cars, TVs and about anything you get from The Warehouse, it all goes up in price.

DR NORMAN              So if we follow Mr English’s logic, then we want a higher and higher dollar so that imports are cheaper and cheaper, lots of people get laid off because all the export sector gets destroyed, and we borrow lots of money to cover the difference. That is not a sustainable long-term strategy for New Zealand.

SHANE                         But the point is even if you do get the dollar down, you can’t keep it there.

DR NORMAN              And so, just to answer your last question, what we’re trying to do is protect the export sector of the New Zealand economy. If we protect that sector and enable those people to make money for New Zealand, then we keep the jobs in New Zealand and we stop building overseas debt. Our overseas debt, our net overseas debt is now about 75% of GDP. Our current account deficit is 5% of GDP. These are not sustainable numbers. If the government thinks doing nothing is sustainable, they’re wrong.

SHANE                         Well, let me put that again to you, because if you get the dollar down, how do you expect to keep it there? Because you can’t, can you?

DR NORMAN              Well, part of it— So, if you look at the impacts, part of it is reduced pressure from borrowing, so this government is engaged in a massive borrowing programme. They’re expect to borrow $50 billion, $60 billion.

SHANE                         Which you just told us about, but how do you keep it there, Mr Norman?

DR NORMAN              And so by reducing the borrowing needs of the New Zealand government, you reduce that pressure. By restocking the Natural Disaster Fund, you reduce that pressure. And also – and I think this is quite important – changing the expectations of the currency traders is very important. They assume that New Zealand is a one-way bet at the moment, because we are the last country standing operating orthodox monetary policy. All of our trading partners have abandoned this policy except for us. And so it’s easy to make money out of New Zealand. So we change the expectations in the market.

SHANE                         Can I ask you will Labour support this policy?

DR NORMAN              We have spoken to Labour and given them a heads-up about what we’re talking about today. I’ll be interested to see their response, but—

SHANE                         They haven’t said whether they support it or not?

DR NORMAN              Well, what they’ve said is that they’ll look at what we’ve proposed and give some kind of considered feedback. I think we’re all on the same page, because we all read the international literature, to realise that monetary policy settings need to change to protect the real economy and real jobs, and I think Labour have said that very clearly. Because we all—

SHANE                         But no guarantee though?

DR NORMAN              There's no guarantee, but we all read the International Monetary Fund statements. Even two years ago, the chief economist at the International Monetary Fund said small open economies can’t just target inflation. They also need to target the exchange rate with their monetary policy in order to protect their economy. That was two years ago. This government has not been listening to the international best practice.

SHANE                         And finally, I’d like to talk about Dotcom, because we know you’re a member of Parliament’s Intelligence and Security Committee, and I want to know what did you find out on that committee about Dotcom?

DR NORMAN              So, this is one of the limitations of the oversight is the Intelligence and Security Committee is not a Parliamentary committee. It’s a statutory committee established by law. Under that law, we’re not allowed to talk about what we hear on that committee. So basically, I can’t tell you. What I can say is that that committee doesn’t look at operational matters and isn’t allowed to. And so that puts a real limit on what we can enquire into.

SHANE                         It sounds like you weren’t told much out of that. I’ll take that from that. So maybe it’s believable—

DR NORMAN              (laughs) I couldn’t possibly comment.

SHANE                         Maybe it’s believable, then, that the Prime Minster wasn’t told much as well.

DR NORMAN              Well, what we know is that the Prime Minister discussed at some length— After the Dotcom raid, he discussed Kim Dotcom’s residency, right? You know, it’s recorded in public. And then about a month or so later, he was told something about Kim Dotcom, on February 29th. He says he has no recollection of it, which seems very strange to me. And then, of course, he told us all that he wasn’t briefed at all, but it turned out that he was. What's the important point here is that where is the oversight over the spy agencies? It’s only the Inspector-General of Intelligence and Security who missed this and the Prime Minister. The Prime Minister is the sole democratic oversight of the GCSB. He has a very special responsibility. It’s quite different to a normal ministerial responsibility, which has oversight over a department. He actually needs to look at their operations, because there is no one else.

SHANE                         And finally, I want to ask you, because what do you actually want from this police complaint? We know an organisation can’t be charged. Is there somebody you want charged? Is it, for example, the minion who had the brain fade at the GCSB or the cop who gave the bad immigration advice on Dotcom that you want charged? Who do you want charged?

DR NORMAN              Well, so an organisation can’t be charged under the Crimes Act, but individuals who breach the law if they’re employed by the government can be.

SHANE                         So which individuals do you want charged?

DR NORMAN              Well, obviously we don’t exactly know what happened. So the only report we have so far is the Inspector-General’s report on what the Prime Minister told us.

SHANE                         But you want somebody charged?

DR NORMAN              Well, what we want the police to do is to investigate what happened so that we can find out, because nobody, except perhaps the GCSB and maybe the police, know what happened. The Prime Minister doesn’t seem to know what happened.

SHANE                         And we have to leave it there. Thank you very much for your time.

Watch the interview here.

Comments and questions
44

Chch rebuild was already going to be inflationary, unlikely that the mild QE proposed would add to that.

In which case QE is like adding extra sugar to coke and giving it to a diabetic on the basis only bit more harmful

any evidence to support your flawed metaphors? why do you think QE for the rebuild more inflationary vs borrowing overseas?

With borrowing, you have strong incentive to control spending and stop borrowing. With QE, often carries on

But they don't want you to stop borrowing, which is why interest rates are so low. This way the country gets the money in circulation that it needs without having a debt attached that we won't be able to pay off. Mate, the reason we have this problem is because there were too many (unproductive) loans in the first place. The Greens are spot on, and Key is just unwilling to take on the establishment (which is corrupt).

Just like in the US after QE 1, 2 and 3 right? Oh wait..

Yep, QE is exactly like giving sugar to a diabetic. Can't believe economists have spent decades studying this trying to come up with answers when it was that simple all along!

Or maybe the subject is too complex for simple analogies or comparrisons to hyperinflation in Weimar Germany..

Although excessive money printing could lead to inflationary pressures,a modest amount could be justified,
Regrettably, the govt has a bad case of NIH (Not Invented Here) and dismisses out of hand any suggestions that may have merit.
Something should be done about our high exchange rate and govt obviously has no ideas.They are content to stick with the same old policies which are no longer adequate.
The same with reserve bank policies where revision is clearly needed but govt is happy with things as they are!
liberte

C'mon Liberte, you're better than that.

Ha ha , crack me up, all the countries printing money are so stuffed it's not funny. Greens and anyone else just need to do a little reading, it's all there.

What makes you think NZ is any different?

People are up to there eye balls in debt here, and an increase in mortgagee sales is testament to this.

While the Government may not have the level of debt that other countries are, the current policies of this national government (borrowing overseas) indicates we are on a fast track there.

If we stop borrowing overseas, and in exchange print the same amount money here there would be no inflationary effect.

The effect would be lowering our currency against trading nations. Increasing the cost of imports, however increasing the exchange value of our exports.

This does not necessarily create inflation as alot of purchasers are discretionary, with substitutes available. E.g Public transport for private cars. These monopoly business charge what they can get away with.

This would also create more local employment, as the price of our exports becomes more competitive.

As far as I can see, the only businesses that might be disadvantaged is the overseas investor, who sees their local business return reduced by the lower exchange rate. Nothing wrong in that. They own too much of this country already.

Its time this national government started working for its people, rather than these large overseas corporates who are buying up our national assets with speculative/printed money..

devalue our dollar,fuel goes up ,everything follows !

I would rather play Monopoly than Snakes & Snakes.

Anyone remember Social Credit?

What an idiot Norman is - this is exactly the comments that killed social credit. Even a course a Year 10 (Fourth form) course in economics would have told him the consequences. I had just started giving him some credit for some of his media commentary re Dotcom and other issues he has held the prime Minister accountable for, but clearly he has massive gaps in his commercial and financial thinking to even think of this. This is the same policy that European Governments have followed to the peril of many future generations. This shows the Greens are not up to any sort of power. This is good for Shearer if he has the balls to run Norman down ?

Haha Tumbler - unfortunately for Shearer - Auntie has the balls, not him.

Shearer couldn't run Norman down even if he drove a bus full of unionists singing solidarity songs to the picket line. He's about as effective as a thrice-used teabag - and his policies, philosophies and front-bench are about as insipid as the teabag...

Labour & The Greens always have the answers - until they run out of other peoples money... then they'll just print some more.

I wonder if the Reserve Bank would put Shearer & Norman's mug on the NZ $500,000 dollar bill?

Printing money is quite frankly selling our assets via reserve bank mechanism. The Greens really are out of their depth when it comes to monetary policy. The panelist got it right...get the business people around the table and not unionist, greens or politicians

The business people are why we are in a mess busily defaulting on loans paying 3rd world wages and generally gorging themselves on everything society has to offer.

So if wages are "third world" now, what will they be when the dollar halves in value?

Even Less

What kind of Dr is that guy Norman, I wonder? He freely recognizes of not having any knowledge or even an informed guess of consequences to which money printing would lead, but still insists the greenie "plan" should be implemented. Hemp repercussion, may be.

Russel Norman's PhD was in political science, based on studying the old Alliance Party. About as meaningless a qualification as you could think of. He has no background in, or real knowldege of economics.

So - he couldn't even be a failed teacher then - because he's not "registered" yet the greenwashing propaganda machine have him as a mouth piece?

Go figure!

Devaluing the dollar may help exporters but its going to hit everyday kiwis in the pocket with food, fuel and consumer goods price increases.

M3 monetary growth has been approx 7.8% for the last year - August 2011 to August 2012. as published by the reserve bank - thats $16 billion in increased money supply. Looks like Dr Norman hasn;t seen whats currently happeneing - maybe he should find out whats really happening out there before performing another publicity stunt.

"Printing money" to finance only new houses is an excellent idea. It was ried in NZ after the war with great success. It would bring down excessive house prices and rents.
Controls would have to be put on house rentals to ensure none of this money goes into house speculation and existing house investments.
When this money is paid back in the form of mortgages etc it would be "destroyed" as it never existed in the first place.
This government has been sitting on its hands and has no policy on how to get people employed and bring down the price of housing. I guess it is just self interest as many politicians have numerous rental properties.

I am glad you are in front of your computer and not running the economy.

Cloudy computing, sorry what do you know??

Key, English, Joyce and the Dunne Puppet need to go this little club is destroying the country and the thing is they don't even know it. Heard Key on Newstalk ZB this morning when asked about adding more cash to the system he referred to Zimbabwe all he come up with is hyper inflation and higher mortagae rates. Puppet Dunne was on the Breakfast show with his usual fluff.

Strange that a wannabe government wants to deliberately debase our currency by 15% i.e have every worker take a 15% cut in real wages.
AND he's supported by the unions!!
Go figure??

surely the government can create money, spend it into the economy, and when everything comes right, slowly withdraw that money from the system?
I can't see a reason not to do that.

Not sure if your comments are a result of a bad eduction, lack of sense, or the failure to maintain medication.

Heard Joyce on Nat Rad this AM justifying his comments that Norman's ideas were crazy citing in favour of his argument that NZ's unemployment rate was far lower than the US rate... pity Simon Mercep wasn't in possession of the latest US unemployment rate (as of the end of last week)... down to 7.8% only 1% more than NZ.

House prices as low as 10% of sticker prices, millions unemployed (do the math...8% of 300million) soup kitchens, unrest....need I go on.... The US is knackered...

Are you serious - those US unemployment figures are completely bogus and everyone knows it - one month before the election and a swing like that in Obama's favour?!? Real unemployment in the US is over 20% - they don't count people who have "left the workforce" because they cannot find a job, or those on disability as their benefit has expired. Food stamp recipients are at a record high 46.7m (over 22.5m households)!!!

But I guess you trust everything the Government tell you.

Paul - since when did you start believing US economic data. The 7.8% announced on Friday night was denouiced as bogus by every informed commentators...when people stop looking, they fall off the unemployment data, and specifically Friday's night numbers included revisions of revision of seasonal adjustments.

If you actually compared all the economic indicators between NZ and the US its clear that oen is a basket case, if haviung to do dangerously risky things to try and hold it togetehr, the other one doesn't. And risk invoives consequences as can been evidenced by the GFC that is the result of previosu such risks resulting from pre-2007 debt piling, over the top deregulation, excerssively easy monetaryt conditionds during a growth spurt etc. Dumb decisions are not restricted to third world economies all the time.

Hopefully with these comments Normans aspirations of being Finance Minister in any future left leaning government can be sheleved. The only problem is a likely labour candidate for that portfolio is Parker. Oh dear!

The two Johns, Peter and Pita please hold this together we need at least one more term.

US and Europeans print trillions and their inflation is under control.

Yet another NZ government government is captured by right wing free market pimpled faced Treasury officers who have yet to work for a real living.

As for John 'don'Key, his time is up. The guy looks more shifty by the day and he is only getting away with his mismanagement because Labour has no real leadership.

People will not be able to understand why this would be a good idea unless they understand what it means to have a debt-money system. Any talk of printing money should have a companion article explaining the differences -- and virtues -- of what it a full reserve lending system would mean.

And it's not just "printing money" as recent reports would have the public believe -- it is added public debt (to sort out a problem created by the public sector). Any money printing should be just that, not a loan the govt takes one with bonds or anything else.

It is the government's job to create and control our currency, no one else's!

QE in the UK did fuel inflation somewhat.
It did nothing for the economy.
It just raised prices , making consumers poorer, thus fuelling the UK recession.

QE has not worked in ObAmerica either.

Are the Greens now bankrolled by Fjui-Xerox?

QE, the old 1950-60's Social credit policy resurected under a new title.
I watched the 'Norman' show on Sunday, he never once sounded convincing, nor sure of his facts.
It is frighteneing to think that this fool could be the Deputy PM in a LabourGreens government.

I know what you mean R. J. Roberts. He sounded just as convincing as John Key and Bill Engish which does not fill me with much confidence of the countries future!

Buddha/God/Dalai Lama/Allah/the Hindu cow/Flying Spaghetti Monster help us if Russel Norman ever become prime minister of NZ.

Oh... the shudders...

Dr no belongs to those who think that easing means a solution to solve a tiny economic country's growth. Just look next door and they want economic growth to satisfy a nation's appetite for trade. Economics are about use of resources not fiscal policies for the faint hearted. Borrowing is healthy as long as you control your risk. Easing means weakening an economic cycle to depreciate value of your trading unit. Why shooting yourself in the foot while pretending to compete on a global scale? When you can use financial tools to offset Forex variations for trading. NZ needs to upscale its management of resources rather than destroying its value. You can not trade without a monetary sound system. This is why QE has failed to ensure.