Reserve Bank petitioned to send Covid cash to where it’s needed

A new petition is asking Parliament to require the Reserve Bank to directly fund the Covid recovery and other essential infrastructure, cutting out the unnecessary bank middlemen.

The Reserve Bank plans to spend up to $100 billion to buy bonds on the secondary market. The Treasury bonds are sold first to selected banks, who on-sell them to investors. The Reserve Bank then buys the bonds from the investors. The investors make a tidy profit, at the tax payers’ expense.

According to Don Richards, National Spokesperson for Positive Money NZ:  “Direct funding, where the Reserve Bank buys up Treasury bonds on the primary market, would cut out the middlemen. There would be no mark-up and no debt to burden future generations.

“Direct financing can also provide funding for our failing infrastructure as water and sewerage pipes are in need of repair, our roads are a menace, and our hospitals and schools are underfunded. We are repeatedly told there is no money to fund infrastructure and essential services, but the Government continues to pump billions of dollars into the financial sector.

“Independent analysis of the British experience showed that for every dollar spent buying up bonds on the secondary market, 8 cents found its way into the productive economy where jobs are created and goods and services sold. Contrast that with Direct Funding, where it is estimated that for every dollar spent, it is multiplied up to $2.80 being injected into the productive economy.”

The Government needs to stop providing money to the banks, who are flooding the speculative economy with money that pushes up the cost of housing

There is a form of Direct Funding occurring currently with the Reserve bank creating $28 billion through its Funding for Lending programme. The problem is that the money is also going to the banks, and they are sitting on the money. By mid-February 2021, the banks had only lent out $1.4 billion dollars.

Richards says: “The Government needs to stop providing money to the banks, who are flooding the speculative economy with money that pushes up the cost of housing and boosts the share market. Rather they need to cut out the middlemen (the banks) and provide funding directly to The Treasury to get the economy moving again.”

Richards refutes claims that Direct Funding will be inflationary.

“So long as there is capacity in the economy to put the money to work it will not be inflationary,” he says. “In the 1930s, the Reserve Bank used its balance sheet to fund the building of tens of thousands of State Houses with little or no impact on inflation.

“It is time to stop providing money to the banks, and put it where it is needed most.”

The petition to enable the Reserve Bank to directly fund the Covid-19 recovery is on Parliament’s website.