By Chris Leitch, Leader, Social Credit Party
The pre-budget speeches of the Finance Minister have indicated he will deliver a budget this week that is fiscally conservative with reduced spending and will prioritise debt reduction, based on a debt to GDP ratio that he obviously considers too high.
However, that government debt could be halved overnight if he took out the debt the government owes to itself. The Reserve Bank, an arm of government, is currently holding around $60 billion in government debt – the bonds it has purchased off banks and other investors on the secondary market.
How is it that money owed by the government to itself is considered a debt?
It’s like borrowing from your own savings account to buy something in cash and then saying you’re in debt and you have to pay yourself back. It’s nonsense.
The government could write off that pretend debt overnight and nobody would be any the worse off.
Former National Prime Minister Jim Bolger understands that.
He had this to say on Radio NZ on 15 July 2020: “We need to bring a policy approach to address the enormous economic issues that New Zealand now faces with the Covid19 and all the spending that the government have engaged in – billions of dollars here in New Zealand that were just created by the Reserve Bank.
“We have to decide whether to follow traditional economics and pay that off over the next 20 years by austerity politics or we actually say we owe it to nobody – we created it, the Reserve Bank has created it, and we write most of it off.”
The Treasury and the Reserve Bank understand that. They jointly presented an ‘aide-memoire’, titled “Quantitative Easing and Monetary Financing Compared”, to the Minister of Finance back in May 2020.
The report says that Monetary Financing could be used to “meet specific funding needs of the Government at lower cost and with greater certainty than QE (Quantitative Easing – buying bonds on the secondary market)”.
Monetary Financing means using money creation by the Reserve Bank, which the government owns, to finance government spending.
Instead Labour continues to borrow from the commercial banks and other money market players who will pocket a cool $11 billion profit from ‘clipping the ticket’ on those transactions.
Taxpayers are already in the gun to pay interest on that borrowing and debt repayment, and in addition Mr Robertson wants to divert taxes away from hospitals, schools and infrastructure so the government can pay itself back $60 billion it owes to itself.
Alice in Wonderland’s Mad Hatter would have a field day with such stupidity.