The Minister of Finance replies to a plea to use monetary financing

Amanda Vickers of Waikanae wrote in March to the Minister of Finance and here is his reply.

16 April 2020

Amanda Vickers 

Dear Amanda

Thank you for your email on 27 March 2020 regarding the Large Scale Asset Purchases (LSAP) programme. In particular, I note your suggestion that the Reserve Bank of New Zealand buy bonds directly from the Treasury rather than using the secondary market.

On 23 March the Reserve Bank announced a LSAP programme of purchasing New Zealand Government bonds on the secondary market. This followed the Monetary Policy Committee’s decision that further monetary stimulus was needed to meet its inflation and employment objectives in the light of intensifying economic implications of the coronavirus. The programme will purchase up to $30 billion of New Zealand government bonds, across a range of maturities in the secondary market over the next 12 months.

The LSAP programme is designed to help the Bank meet its economic objectives of keeping inflation low and stable and supporting maximum sustainable employment. The Bank would normally do this by changing the Official Cash Rate (OCR). But the OCR is currently at an historic low of 0.25 percent, therefore it is using LSAP as another tool to lower interest rates.

While central banks have the option to purchase bonds directly from government treasuries, the Reserve Bank is currently making its purchases in the secondary market. Doing so can influence the bond markets to reduce longer term interest rates thereby reducing the cost of borrowing for households and businesses. It will also enable the sellers of assets to use the money they receive from the Reserve Bank to switch into other financial assets, such as new lending. These are effects that could not be achieved through the direct purchase of government bonds from the Treasury.

The Reserve Bank will continue to follow developments and has the option to take further action to support stability in New Zealand’s financial system – such as widening the asset classes that could be purchased under LSAP. Purchasing Government bonds directly from Treasury is one such option that could be taken up by the Monetary Policy Committee if it were deemed appropriate and consistent with financial system stability.

Thank you for your interest and taking the time to raise your views.

Yours sincerely

Hon Grant Robertson

Minister of Finance

 

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This is a better way to raise all those billions Grant!

Recently I wrote to the Minister of Finance the following letter. I have not had a reply or an acknowledgement of receipt to date (ten days later)

18 April, 2020

 

Hon Grant Robertson

Minister of Finance

Parliament Buildings

Wellington

 

Dear Grant,

In the middle of all the work you and your teams are doing, you and Adrian Orr are about to make a decision that will greatly affect the lives of New Zealanders for years to come. You have to decide how you will borrow a great many more billions (we understand Parliament has authorised up to a total of $52 billion) to fund necessary infrastructure and government support.

Those of us who have family including grandchildren and great grandchildren don’t want them as future taxpayers to be beholden to some massive overseas finance institution like the Bank of America, JP Morgan Chase or Goldman Sachs and paying interest and capital back year after year.

WE WANT YOU TO DO WHAT THE GOVERNOR OF THE BANK OF ENGLAND HAS JUST DONE – TO FUND IT, OR AT LEAST PART OF IT, BY MONETARY FINANCING. THAT MEANS THE RESERVE BANK BUYS BONDS DIRECTLY FROM TREASURY AT ZERO INTEREST.

See this article from the latest (18 April) Economist where Andrew Bailey changes his mind within four days and says “it is better to be right than be consistent”.

As you know with deficit spending there is no great hurry to pay the principle as the overdraft could just sit on the central bank’s balance sheet for as long as the Government wants.

We don’t believe it is necessary to wait until public opinion is strongly behind this move, but we are working hard to extend and strengthen the coalition of organisations and prominent economists behind this move.

The following organisations or individuals that support this move appear to include Social Credit, Positive Money, Living Economies Educational Trust, Bernard Hickey, Shamubeel Eaquab, Geoff Bertram and yesterday BERL Ganesh Nana said on Morning Report the following:-

Economist Ganesh Nana of BERL. Morning Report 16 April 2020. Second half of interview. 

“Government must underpin economic activity. Government is the backstop, both central and local government. It is important not to go down the austerity track. Government debt is not always bad there are ways we can borrow and we use and others have used the term “helicopter money”. Government can borrow from The Reserve Bank. It is literally borrowing from itself. I noticed that many in New Zealand have an allergy to government effectively printing money. It has consequences but it is an element that government should not only explore but utilise. There are implications of course – you are running down the value of those who have assets. The value of my mortgage free house might decline a bit. And you benefiting those who have mortgages and other debts. We should not close off all the options just because someone told us 30 years ago it was bad.”

Question: Could you please ask Treasury to estimate the difference in the cost of the two alternative measures and publish the outcome? We as the public need to know.

 

Sincerely

Deirdre Kent, author of Healthy Money Healthy Planet – Developing Sustainability through New Money Systems and The Big Shift – Redesigning Money, Tax, Welfare and Governance for the Next Economic System

 

 

 

 

 

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