Friday, 19 April 2013

John Key international investment bank executive and current New Zealand Prime Minister knows exactly the systemic predatory lending trap we are in! Further confirmed by New Zealand Westpac Bank Senior Economist Michael Gordon

John Key current(2013)New Zealand Prime Minister and former international investment bank executive knows exactly the internal dynamics of New Zealand's money supply being entirely interest bearing private institution loan based as proven below in a 17-11-2012 interview with Rachel Smalley on - The Nation ;

John Key - "Our (Govt) debt to GDP levels by then will top at just under 30 percent, in other words, um, we'll be relatively lowly indebted compared to countries like America and Europe, but I put it to you we are a small open economy, we have high levels of private sector debt, we, Mum and Dad, have borrowed that debt effectively from foreigners because their local bank has sourced that from foreigners."

Further confirmed by New Zealand Westpac Bank Senior Economist Michael Gordon;

Full Transcript;
Radio New Zealand – Afternoon Panel with Jim Mora Thursday 25 October 2012
Jock Anderson and Simon Pound.

Jim – Lets talk about money, and few money topics actually with Michael Gorden about to join us. The New Zealand First Leader Winston Peters has accused foreign owned banks of snatching obscene profits from the New Zealand economy. Commenting on the latest KPMG quarterly financial institutions performance survey which showed New Zealand's banking sector reporting profits of $914 million dollars in the June quarter, and KPMG head of financial services John Kensington says the figures represent a good news story and are positive for New Zealands economy as a whole.
Well I suppose it depends how you look at it really does'nt it? It is positive because our Aussie owned banks are stable. Which compared, agh, is a lot more than can be said for some of the other banks in other parts of the world.
But if you are Russel Norman the ANZ and the big three banks are strip mining our national economy of capital.

Simon – You know, a couple of years ago when they were having a hard time, the banks, and the government put together a deposit guarantee scheme to help them out, the situations have turned a bit now and their having a great time and were borrowing all kinds of money. Do you think as a country we could ask them to give us some kind...

Jock - … to give some back

Simon - ...deposit guarantee scheme for us. Like, you've got a billion how about you help us with our 200 million dollar a week debts.

Jock – On the basis that most of them are Australian banks I think Simon you're shoving it up hill on that one...

Simon - …but you always wonder...

Jock - …. we know what the Australians are, and isnt Russel Norman one?

Simon – But we were great at socialising the debts and privitising the profits.....

Jim – ….Oh yes....

Simon - ...its a constant problem and we only seem to get into it when they're in trouble.

Jim – Need it be a problem, aggh, did you want to say something else?...

Simon - ...No....

Jim - ….OK, need it be a problem? Banks have ended up in the position, as Bernard Hickey has said a time or two on the panel, where they have the franchise on the creation of money and governments put banks in this position and could very easily change the rules. A revolutionary paper by the International Monetary Fund claims that you could eliminate the net public debt, for example that of the United States, at a stroke, and by implication do the same for Britain and Germany, and Italy, and Japan.
Joining us is Westpac New Zealand Senior Economist Michael Gordon. Michael good afternoon.

Michael – Good afternoon.
Jim – So I suppose at the back of this discussion is there any real reason we ask why there has to be this deep and fast flowing river of capital, argh, flowing out of our economy and into the banks, argh, across the ditch?

Michael – Well...

Jim – You've seen, I think, the essential argument, I think we sent you the story out of the Telegraph which attempts to analyse it, of this interesting paper, and widely discussed, discussed now, out of the International Monetary Fund about whether we could just essentially flick away all this global debt. Is it possible?

Michael – Argh um, its certainly possible to have this kind of arrangement. Argh, this IMF paper, is um, really revisiting a plan, is, was really born out of the Great Depression of the 1930's, um, when there was a lot of sole searching about how did we get ourselves into this position in the first place and I think its come up again, particularly in the Northern Hemisphere where they are again asking how did we get ourselves in this position in the first place? Um, I mean Im certainly not, sort of, to well rehearsed in the exact details of the plan, but um, I quess you can, sort of, really put it on a spectrum of sort of possible plans of controlling the money supply. Um, really, but money is, is it doesn't have value in itself, but its a useful thing, so it, you know, its, its useful to have it in society.
But you really need some sort of control on it so you dont have people, agh, effectively, sort of, granting themselves more of this, um, essentially valueless but useful product.

Jim – I dont, yeah....sorry I didnt mean to interupt you, but I dont pretend to understand and I think the economics editor of the Telegraph is in a similar position, their entire position, but essentially isnt it Michael, that, um, credit cycle trauma caused by private money creation dates deep into history, and lies at the root of what they say is necessary to solve the problem, and thats periodic debt jubilees which use to be held throughout history, and in simple terms is what they are saying is that were under the kind of impasse that has only been solved in the past by a forgiving of debt. A debt jubilee of some sort. Would that sum it up?

Michael – Um, I think thats one aspect of it. This um, the, the plan that the IMF paper was looking at was, um, effectively more about, um, who,I quess, who gets to dictate the overall growth in the money supply, and, um, there are a range of approaches you can take to this, agh, you can have, on one end of the spectrum, you can have whats called free banking where, where banks, its essentially entirely private credit creation, banks, sort of, print their own versions of currency and the discipline in that case suppose to be, argh, just about reputation. If one bank prints to much of its own currency then, um, sort, sort of people realise that they're just, sort of, money printing and it sort of loses its reputation and so on. But generally the, the approach tends to be at the other end of the spectrum , so some sort of centralised control. You can also have systems like a gold standard where money supply is kind of dictated by the quantity of gold in the world and you just have to hope that the government chooses not to, sort of, adulterate that some how, by, sort of, deciding that silver is also money, or tin, or lead, or pet rocks or whatever. Um, then theres I quess, sort of, more direct state control, and that can be either through the quantity of money, which is kind of along the lines of what the IMF paper looks at. Or it can be through the price of money, through the interest rate, which is more akin to the system we have. Um there is all these different ways of arranging it but ultimately someones got to be the adult and sort of say, um, e,e,e, establish some discipline about it.
Which is why for example we have independent central banks so that this issue of the growth in the money supply doesnt get politicised, and I think, um, agh, we've kind of been through atleast a decade or so of a period where, um, central banks, while being independent were probably a little bit lapsed.
They ran very loose monetary policy. We had very rapid growth in the money supply, um, very rapid growth in asset prices, but they kind of said its not our problem we deal with consumer prices, and I think there is a little bit of soul searching going on all around the world in that aspect of it.

Jock – Ive got two questions!

Michael – Sure.

Jock – And heres a patsy question from a government backbencher to the minister,
Why is it good for banks to make large profits, and my second question is are you familiar with what happened in Iceland as I understand it they were so heavily in debt they said we cant pay, we are not going to pay, do your worst, we will just carry on as normal....

Jim - …. and theyve carried on as normal, hmm, and done very well.

Michael – um, yeah, yeah, Iceland, Iceland have argh, to some extent, the argh, argh, they've kind of, um, defaulting on some of their debts is, is probably given them some, sort of, relief as opposed to trying to struggle through and pay back what was the equivalent to debts of about a thousand percent of annual GDP, it was just monsterous but it, um, but it certainly hasnt been a free lunch for them, they are still, argh, big issues, like they still have, argh, large overhang of mortgage debt that was, um, denominated in other currencies, um, their currency fell and all of a sudden the value of their mortgages just, just ballooned, um, I quess the issue about, about bank profits, I mean, I quess my starting point for that is New Zealand, um, still has this imballance between saving, saving and investment here, were still um effectively, you know, borrowing a lot more than the nation saves , um, you know, argh, that gets funded from offshore, argh, by and large that gets channelled through banks because they have the name out there and the reputation to, um, raise the money from overseas.
And I think to some degree bank profits kind of reflect the fact that they have, um, access to international markets, but the bottom line is, um, even if that wasnt the case I think we would still be paying a lot of money offshore, it would just be less in the form of bank profits and more in the form of interest, argh the fundamental problem is, is, is the fact that we, we have this great need to, or I guess, this great desire to borrow from overseas in the first place.

Simon – Is one of the reasons we have to go overseas to get capital is because so much of our capital leaves through things like bank profits of Australian banks.

Michael – Argh, no, if you, if you look at, um, I mean if you look at the break down of it, um, the, the investment side in New Zealand is not really out of line with other OECD countries. Its, its the savings that, sort of, looks very low compared to a lot of our peers, um, I think that, that really raises more questions around, argh, you know, what are, what are the incentives say versus invest here.

Jim – The Imf paper, not to get bogged down in it, but one more question on it.

Michael – Sure.

Jim – Is essentially making the point that, argh, the control of credit growth would become much more straight forward because banks wouldn't be able as they are today to generate their own funding, and, argh, which is an extraordinary privilege not enjoyed by any other type of business says the IMF paper and banks would become what many erroneously believe them to be today pure intermediaries that depend upon obtaining outside funding before they're able to lend. Is there some truth in that.

Michael - Um, well, I, I mean, I think the, the proposition that banks make money for themselves I dont think is right, um, banks can create money for their customers not for themselves, there is quite an important distinction there, and, you know, people borrow from banks, they, I mean they dont do it for fun, there is a reason, theres usually some intent, some understanding that its going into, um, some, some productive purpose, um, but, but coming, coming back to the heart of the IMF paper, the idea, its, its really more about, um, a shift from the, the role of credit creation, its away from banks but its really putting more of the onus onto the state. Which is why I mention you've gotta have someone be the adult and someone to actually say you know we are going to limit growth in the money supply to X amount, and, the, the more they control the more risk you have of becoming politicised, um, one of the, I quess one of the modifications that the IMF looked at was saying well , I mean, banks can still, argh, create credit for socially useful investments, still, still let them do that but thats basically saying the state decides what is and isnt a socially useful investment.
So, um, you know alarm bells cropping up there for a start.

Jim – Yeah, no, your quite right and thats one of the arguments against it, that the state becomes a kind of leviathan in the whole process with all the attendant problems. Argh, Michael very nice of you to join us on this, thankyou very much.
So its got its game sayers but its also got its supporters. The guy who coined the term 'quantitative easing' Professor Richard Werner, He says that a switch to state money will have major welfare gains is backed by a few other groups as well, but I think that it is regarded at the moment as a fringe paper....

Simon - …..I think...

Jim - ...but it might not be in a couple of years if nothing else solves the problem.

Jock – Yeah probably, but you dont want to get the state, um, to heavily involved in, um, monetary systems if you can avoid it. You should try to have some sort of free market, free price.

Simon – I think most people would be quite surprised, most lay people, argh, were very surprised to learn that the Federal Reserve was'nt infact part of the American government in any way shape of form and was infact a private bank, and, argh, I think that most people would probably think that the state was already much more involved in these processes, internationally anyway, than they, they are infact.

Jim – Yeah, and, argh, I notice in the National Business Review today, I think, because we have asked many times on this show about inflation bonds.

Jock – Yes

Jim – You remember the inflation bonds of old.

Jock – Yes.

Jim – How easy they used to be to buy, and we've asked why they were'nt being offered forsale , we knew they were coming up, and gee, the float, they have proved popular.

Jock – They are indeed.

Jim – Havn't they.

Jock – Yeah.

Jim – Argh, inflation the first, argh, 2.5 billion of inflation indexed bonds in the first auction since.....

Jock - ... I mean this might be an indication that, that people are at last, um, putting their money into something that might be a bit more useful, a bit more stable than say the property market.

Jim – Yeah. You will only get 1.96 I think, or there abouts, but if inflation should take off you might be thankful, argh Jock Anderson, Simon Pound, back with more from them after the news headlines.

Take a look at John Key's history(link at bottom)in international investment banking circles and please seriously consider just who's interest (pun intended) he is actually serving here in New Zealand whilst printing private bankers interest bearing debt as our entire money supply instead of non interest bearing sovereign dollars?

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