Posts Tagged ‘new zealand’

January 13th, 2014

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2014: Evolution not Revolution

I’ve been somewhat remiss in posting to this blog over the last half of 2013. Instead of talking  about politics and policy, I decided to jump in and be involved directly. To that end I stood for election in the October 2013 Christchurch City Council elections and was elected in my local ward. The last few months has been a blur of briefings, updated and meetings, with many crucial issues to be dealt with.

It’s a great opportunity to be involved at the micro level of local government and will certainly help shape some of my more macro level thinking. I will be posting about specific Christchurch issues on my public Facebook page but will still be posting here on broader policy questions.

I have been reading lots of posts about the “ten things” to watch for in 2014 and predictions galore, from the meltdown of the Chinese shadow banking system to the partial breakup of the Euro. I’ve given up trying to predict specific outcomes but we are, I believe, still in a long process of transformation, both at the global economic level and in the social sphere as well. That transformation is likely to keep throwing up small scale conflict, civil wars, major power Sabre rattling, financial crises and resource challenges. Realism is still the order of the day but the forces of change will continue to dilute the desires of the super egos in charge of many of our missile carrying nations. The collaborative movement, building on the back of Occupy, will continue to bring new ideas to the social enterprise and business spaces. Like the early days of social networking and dating sites, it’s unclear how this change will finally manifest, but I expect some major shifts in the way we work, the way we finance that work and how we engage, both at the social and political level.

The political space is one area where change is long overdue. There has been no new serious attempt to reframe the left-right tennis match and put it into concrete policy proposals. The 2014 NZ general election offers that’s opportunity. How the different parties shape their messages, vision and philosophy is going to be very interesting and I hope that we get something a little different from what has been delivered up in previous elections. With all the major global themes swirling around, it’s definitely time for some vision about where NZ is heading as a country and society, and how that vision can be achieved. I’ve read one article recently, which struck me as a good place to start this conversation. It’s fair to say that it came from the more liberal end of the political spectrum (on the left hand side). It generated plenty of interest and it’s fair to say I’m strongly supportive of the proposals in some form. What engaged me even more is that a response came from the conservative end of the spectrum, which explored the same issues from a different perspective, landing up with different proposals, but with enough similarity to allow for a decent conversation.

The five topics covered are:

– Unemployment.

– Universal basic income.

– Land Value Taxation.

– Ownership of productive assets.

– Public banking.

Read both articles and see which one resonates more. They are not that far apart in reality and my hope is that people will see that and start talking to each other rather than shouting at each other.

We certainly need that conversation more than ever. The question for us here in NZ is whether the major parties are up for it, or whether it will be left to the minor parties to do the job. It could also spark a new political movement. It feels like anything is possible.

April 6th, 2013

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We are The People

It was a pleasure to host Icelandic Democracy activist Hordur Torfason and his husband, architect Massimo Santanicchia, in Christchurch a few weeks ago, as part of their New Zealand tour. Hordur is a wonderful speaker and spoke at both Lincoln University and the Aurora Center in Christchurch. He also held a more intimate session with some Arts Scholars at Canterbury University, which allowed for some fruitful discussion. I was very impressed by his calm demeanor and his overall approach to activism. He is no firebrand, as he prefers to articulate a more engaging approach. He does this by questioning people and drawing them into the construction and creation of any particular response or action. As a good journalist might do, he asks “why”, “how”, “what”, “who”….he often provides the “when”. He switches the popular activist discourse of action to discussion; “Does anyone understand what has happened?”; “What can we do about this?”; “Does anyone want to meet the same time and place next week?” and so on.

This approach creates a more open and iterative process of dialogue, where some form of consensus or action points may appear. Multiple and varied demands may be distilled down to have a more refined focus. In the aftermath of the Icelandic banking collapse, Hordur inspired the Cutlery Revolution and a process of introspection, investigation and reformation. With a background as a singer, songwriter, actor, playwright, poet and artist, Hordur uses creative methods to engage with the issue at hand, enabling people to be involved and have some input. The influence of the creative artist is detailed in Louise Amoore’s “Global Resistance Reader“, specifically in Part 4, with contribution from De Goede and Bleiker. They show that by using music, poetry, dance, comedy and other artistic forms, the activist can reframe the traditional discourse offered by the embedded elites and, thus, undermine their implied seriousness and, ultimately, their legitimacy.

He offers some important lessons about the problem of corruption, even in supposedly highly transparent countries, political oversight, and problematic links between politics, money and media. This has deep resonance for New Zealand, which has suffered similar problems for many years, under both political hues. In the end, people do have power and, most importantly, if committed, organised and engaged, can exercise that power at any time. One point that struck me was that the larger the disconnect between citizen and government, the more opportunity there is for both loss of engagement and control. In large countries, this is a real problem. It need not be so in smaller states, where access to representatives is easier and there are smaller degrees of separation between people. Finally, Hordur exhorts us to all be vigilant, as we can have no complaints if we just sit back and allow stuff to happen to us. For me this calls into question an issue I have been thinking about for sometime, namely our transformation from citizens into consumers. This has been a core part of the neo-liberal experiment, which has seen people focused on their interaction with the market, leading to a subsequent loss of connection with the concept of citizenship and a one way relationship with the state. I believe this is where our ultimate problems lie and, for me personally, this is reinforced by the Icelandic experience. The slow collapse of the post-modern debt-based financial system is a symptom of this malaise. The bubbles of change have been fermenting in many countries over the last decade and point to a subtle shift in how people view their relationship to the market and the state. Hordur’s story about Iceland is part of that process and is worth listening to. I’ve selected a talk Hordur gave last year, as it is quite focused and succinct and just 30 minutes of your time. Enjoy.


May 28th, 2012


Drowning in Debt? QE making you Queasy? Try Monetary Dialysis

As Spain heads to debtors prison, questions are being asked about the viability of the whole Euro project. It’s become clear that a large scale monetary union without fiscal integration, is not a viable long-term structure. Distortions in interest rates and currency levels are good for some but not for others. Add in the corruption of the entire financial system and you have a recipe for disaster that impacts everyone.

Quantitative easing is also not working. Why not?

Quantitative Easing first entered popular language during the 2008 Global Financial Crisis. Central banks, specifically the US Federal Reserve (FED) and the Bank of England (BoE), tried to provide stimulus to their economies by buying securities from banks, with a goal to reduce monetary conditions and, thereby, hoping to induce an increase in lending and hopefully, as a result, new economic activity.

As interest rates fell to zero, the Fed began QE1 in November 2008 with a $600 billion purchase of Mortgage-backed securities (MBS). It did this by creating new credit in its own account and then exchanging this for the MBS held by the banks. The purpose of this was threefold: to improve bank balance sheets, raise the price of securities (and therefore reduce interest rates along the yield curve) and stimulate new borrowing. This was not an entirely new policy, as Japan had been engaged in the same process for over 10 years, though with limited success. The Bank of England followed suit in March 2009 and started buying UK Government bonds and a limited amount of other high-grade assets.

The initial impact was felt in the asset markets with the price of stocks, bonds and commodities all rising. In fact, rising commodity prices were seen as an unwelcome side effect of QE, given that QE was supposed to boost lending and, therefore, economic activity, specifically new jobs. Banks were supposed to be lending these excess reserves, not speculating in financial markets. The reality was that banks had no interest in lending and businesses and consumers had little interest in borrowing. The central bankers had failed to note that they were in the middle of a huge debt bubble and that `trying to offer new debt into a market saturated with the stuff was hardly going to be a winner.

There is no doubt QE helped restore confidence to the financial markets and, as a side effect, helped steady the general economy. Whether it actually worked in the manner it was supposed to, is highly debatable. As Bank of England governor, Mervyn King, stated when giving evidence to the UK Treasury Committee on QE,

“I can’t guarantee that it (QE) means that bank lending will rise, but what I do believe is that it won’t fall as far as it might otherwise have done”.

In terms of impact, the US bailout of the auto industry had more success with over 1m jobs saved. Whilst the financing aspects were contentious, the outcome has been positive. As Obama aides noted, direct government funding enabled the auto industry to survive and this would not have happened if it had been left to the market. Setting aside the merits of saving the US auto industry, what was crucial and different about this policy was that it involved direct stimulus into the real economy, where people are employed to make products.

As Nouriel Roubini noted, the US Government would have been better off just spending the new credit used for QE directly into the economy. He suggested, in a co-authored 2011 paper, that there should be a massive infrastructure rebuild ($1.2 trillion) in the US, which would create jobs and lay the foundation for “a more efficient and cost-effective economy”. He further noted that the crisis had been exacerbated by “inadequate action” by policymakers who had an “inadequate understanding of what ails us”.

It’s clear that policymakers have not stepped back and tried to understand both the causes and outcomes of the crisis. In a debt deflating environment, no amount of new debt is going to help the problem. Until the bad debt has been cleared, new investment is unlikely to happen and the economy dies a slow death. One option that hasn’t been considered, as Roubini alludes to, is to actually stimulate the real economy directly i.e. the economy that produces real goods and services. Governments can actually print new money and spend it directly into the economy through infrastructure projects. That way the money directly enters the economy and supports real economic activity, in a way that QE was supposed to do but never did.

We actually proposed this type of policy in 2011, immediately after the devastating February 22nd Christchurch Earthquake. A direct injection of $5 billion of new money was suggested, as a way of financing new and necessary infrastructure for the rebuild of the city. At that time, this was calculated to save around $200 million a year in financing costs and avoid further increases in government debt.

Ironically, the Minister of Finance rejected this, on the grounds that it may cause “an adverse combination of high inflation, arbitrary wealth transfers and a loss of confidence in the creditworthiness of New Zealand”. This response supports Roubini’s position that policymakers simply do not understand the problem. In the case of New Zealand, the Minister of Finance seems to be quite happy to keep borrowing money and worsening the financial position of the country.

As has been seen, inflation is non-existent in a debt deflating economy. Of course, any new injections of new money must be carefully monitored and be at a level which is not likely to cause over stimulation of the economy. As Willem Buiter, a former external member of the Bank of England’s Monetary Policy Committee notes, an injection of base money “even in huge amounts, need not become inflationary ever”. Buiter goes on to state that “any inflationary increase impact of the enlarged stock of base money on the stock of bank credit or broad money can be neutralized by either raising bank reserve requirements, or by raising the remuneration rate on excess reserves held by banks”.

Thus, inflationary concerns can be set aside when this double-sided process is undertaken. This type of intervention has been called “Monetary Dialysis”, where clean money comes into the system (newly minted e-notes) and replaces or causes a reduction in debt money (bank credit) in order to keep the money supply at a prescribed level. The key is that the process is managed within the same framework that current monetary conditions are dealt with. No new legislation is required and the process can begin immediately. The RBNZ is already developing a new suite of macro-prudential tools and will be well placed to manage this policy shift.

In this process, all the objections raised by the Minister of Finance are dealt with. Infrastructure is rebuilt, people are employed, goods and services are provided, inflation is stable and money is saved, as there are no financing costs incurred. This really is the ultimate point: its is not about not having enough money, it is whether you have surplus labour (unemployment) and resources (capacity in the economy). This was the stark lesson of the Great Depression and it’s incredible that it still hasn’t been properly understood.

As to the creditworthiness of New Zealand, it is more likely that this will improve, as the overall level of debt falls and the productive economy recovers. What’s not to like about that?


April 18th, 2012


Selling your Soul: The Unintended Consequences of Asset Sales

Submissions on the new Mixed Ownership Model Bill (who dreamt that nonsense up?) closed last Friday. Although I was away on holiday, I did get mine in, though it wasn’t quite as detailed as planned. I have posted the full submission below but, in light of news out overnight, I wanted to add a few points.

My opposition to the proposal to partially sell 4 of our energy companies (and who knows what else down the line) is based not on an ideological opposition to privatisation (government should only own assets that have a public good purpose or have key national strategic value) but on the issues of finance, risk and law.

The finance argument is simple. There really is no case for selling these assets based on their poor performance, funding costs or return. Government debt may be high and set to rise but flogging the family silver provides short term gain with long term pain. The debt position in NZ (both public and private) is a structural problems and will not be solved by a $5-7b sell down of core assets.

The question of the risk of these proposed sales is perhaps more subtle. It simply comes down to how one views the provision of energy on a national scale. It is a clear public good, even if it can be provided privately (e.g solar or micro-wind) and therefore should be provided at least cost (taking into account externalities) to the public. Floating energy providers onto the stock market changes the goal of the company. It is now a profit maximizer with long term shareholder value as its primary concern. Some might argue that SOEs are already operating in that model but that’s not relevant to this argument. The key is that in order to provide a public good, ownership must be in public hands. Added to that, the changes in technology and energy availability will require national level changes, planning and investment. Diluting ownership will make this problematic. At some point, the national interest may come back into focus and then what? What of the shareholders? They may not be interested in the national interest, especially if it impacts on the share price or their dividends.

This leads nicely into last night’s news. Argentina has sensationally nationalised YPF, a unit of the Spanish energy giant, Repsol, quoting “Hydrocarbon Sovereignty” (in Spanish) and basically arguing a lack of investment by YPF in Argentina. This is out and out expropriation and Repsol has hit back with a claim for $10.5b as compensation. This has been completely rejected by Argentina, as expected. This is likely to play out very badly in the international trade and investment arena and will probably end up in the international courts, if it is not resolved diplomatically.

Now this is exactly what I alluded to in my submission around the issue of international law and any future re-nationalisation or expropriation of assets, no matter what the situation is locally. Added to that we have the TPPA lurking in the background, which may further complicate matters, especially for a National government desperate to turn everything in NZ into an investment. One may argue that there is absolutely nothing to worry about in terms of possible future legal claims or problems but history shows us that this is a serious and unconsidered risk. Certainly I have not seen it in mentioned in any commentary. The government tries to duck and weave around the wording and structure of the sales model but it really needs to rethink the whole process from start to finish.


Submission on the Mixed Ownership Model Bill

The main purpose of the bill is to raise funds to reduce government debt and provide funds for new spending on public services. Reducing government debt is a laudable proposition and one can do that by increasing taxes, cutting expenditure or selling assets.


The government has chosen to sell publicly owned assets, specifically energy companies, in order to raise somewhere between $5 and $7b. These numbers are purely guesswork and will depend on a number of factors, including current market conditions, offering price and the structure of the companies post-sale.


This proposed bill is of concern for a number of reasons, which are listed below. I have categorized them into three areas: finance, risk and legal.


1)   Finance: The prime reason given for selling energy companies is that they provide a poor return to the government and that private owners may extract more “efficiencies” from the businesses. There has been no clear-cut evidence provided to support the former assertion, namely that the return from the energy companies is lower than the cost of government debt. Furthermore, there is scant evidence to support the proposition that privately run energy companies are any more efficient than publicly run ones. As we have seen from the Pike River disaster, private companies tend to be poor managers of risk and cut costs wherever possible, in order to increase profits. As many costs are externalized as possible to achieve this goal. In the energy business, this is a very dangerous approach. It seems that the financial argument is weak at best.

2)   Risk: As alluded to above, risk management is of serious concern when privatizing companies in the energy space. Energy provision is a prime public good and should therefore be provided by the public. Like water, energy is a pre-requisite for basic survival and should, therefore, not be seen as a profit maximizing good. By giving up pubic ownership of these basic assets, we open ourselves up to a poorer service, which may be based on ability to pay rather than a right to have the basic provision of energy. We may also lose the ability to make changes to and investment in the development of new energy production and networks. Investors, even with a 10% cap and other restrictions, will still have rights and views (see legal for further argument on this point), which may not be aligned with the public good. As well as safety and control risks, there is the risk of prices being raised over and above what might be appropriate. The example of the Bolivian water privatization and the Bechtel corporation (see Cochabamba riots of 2000) is a good example of what can go wrong when private interests are allowed to control basic pubic goods. Theses risks should not be taken lightly.

3)   Legal: Global investment rules have been expanded significantly over the last 20 years. NAFTA, the WTO and numerous bilateral trade agreements, have made the investment law field extremely complicated. What is clear, though, is that foreign investors have clear rights and these rights may, in some cases, trump domestic law and the expectations of the domestic citizenry. Examples of this are the Santa Elena case in Costa Rica, the Metalclad Corporation vs. The United Mexican States and the Ethyl Corporation vs. Canada. These are a small example of cases taken by foreign investors against states, where they feel their rights have been infringed. This could be for a number of reasons: environmental laws, human rights laws or expropriation (e.g. arising from renationalization or similar action).  We have transnational agreements being negotiated in secrecy (the Trans Pacific Partnership Agreement (TPPA)), which may contain further restrictions on the ability to make decisions based on domestic considerations but perceived as harmful to foreign investors. The making of new international investment rules has seen many unintended consequences. The same outcomes may apply to this bill.


In summary, it is clear that the proposed bill has some serious problems. There are many consequences, known and unknown, which give cause for deep reflection and concern. The financial argument is weak and there are other ways to raise funds for public expenditure. Of more concern is the risk and legal framework that may end up being applied. The examples are too numerous to fully list but they are clear and unambiguous as to the impact on the local population and its finances.


This bill seems predicated on an ideological desire to privatize state assets and not on any serious and well thought out argument for doing so. I would therefore argue strongly against its implementation.



Raf Manji,


Sustento Institute,



August 16th, 2011


System Cure: Monetary Dialysis

Slowly but surely mainstream commentators, economists and policy analysts are all starting to realise that exponential debt is the core of our current economic malaise. This is great news to those of us who have been banging on about this for many years.

But still there is confusion around what to do about it. “Saving” has become the new buzzword, sitting squarely alongside “austerity”, as private individuals are urged to save more and governments are urged to spend less. That sounds like a sensible way forward. But watch the economy tank when that happens. Why?

Simply because when debt is paid down (and no corresponding new loans made) the money supply contracts as the debt is destroyed. The debt never existed as “money” in the sense of notes and coin but as an asset and liability for the bank. The interest is collected and the debt destroyed, leaving the profit for the bank. A monetary system based on debt will always lead to booms and busts as the interest charged overwhelms the ability of the productive sector to pay it. Ironically the system always needs infusions of new debt to stay afloat as the amount of money in the system declines.

Of course, when companies start to lay off workers (their first cost saving option) this creates uncertainty and an unwillingness for new borrowing to take place. This creates a self-reinforcing cycle which in some cases leads to recessions and occasionally to depressions. So what’s the best way out of this?

Austerity? No. Austerity will keep some investors happy but generally this will simply lead to slower growth and higher unemployment. But austerity is also a fact of life. When you have borrowed money and spent it, you know one day you have to pay it back. If you haven’t saved for that day then you will have to forego consumption for repayment. If you are in that position, which many governments are, you have, in fact, over consumed your income and eaten into your future. That’s not a pleasant space to be.

Is there an alternative?

Yes there is. I’d like to propose what i term “Monetary Dialysis“. This process seeks to replace debt money with real money (let’s assume for the moment that fiat money is real). The difference between debt money and real money is two fold: firstly, real money is permanent and once it enters the banking system it remains there; secondly, real money enters the banking system without interest, with no charge for its creation.

This two key differences will lead to new outcomes: a more stable money base and a less inflationary one.

How will this process take place?

The government, instead of issuing new bonds to raise money (primarily from overseas investors), will directly spend the money into the economy. In other words public spending will be funded by new money, not new debt. Immediately there will be a saving in interest costs, with current funding costing 5-6% per annum. The current annual bill (previous to the recent enlarged debt issuance) has been running at close to $4billion a year which is a hefty sum (I am only talking government borrowing here).

I use the term dialysis as a representation of a monetary system that is malfunctioning, not just here but globally. I propose a slow transfusion with the goal to end government borrowing completely by 2017.

Where’s the catch? Ok clearly there needs to be some balancing on the other side of the equation. As well as issuing new money instead of new debt, another part of the monetary dialysis approach is to create stronger limits on the abilities of banks to increase the money supply through the issuance of new debt. This can be done in many ways, using a variety of macro prudential tools, whether it’s increasing capital requirements or other similar actions.

Monetary Dialysis is the first step to cleaning up our monetary system. It will lead to a more stable money supply, lower inflation and clear savings in interest costs. The reduction in public debt will be highly beneficial for the economy and the country as a whole. The cost savings from this clean up will be in the order of $20billion over 6 years.

Now that’s something to really think about.

April 22nd, 2011

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Danger: Moral Hazards Ahead

Capitalism and free markets.

What a great idea. It’s a shame no one has actually tried it out or bothered to let homo rationalus economicus that it’s an urban myth. We operate mainly in a state sponsored system of capital markets underpinned by arcane and often opaque trading rules and regulations.

The provision of capital is key to any functioning economy and has been since the beginning of time. Each empire had its own approach to coinage to support trade and the governing class or head of state. The first pillar of modern capitalism was established in 1694 with the formation of the Bank of England. Thus began the first stirrings of the fractional reserve banking system and the modern financial system.

I’ve previously covered the many bailouts experienced by the banking system and the Bank of England itself and in some ways our current malaise is no different. The central precept of free markets is that they should operate on their own merits – caveat emptor.

I’m not going to discuss that fallacy here but focus on the problems of bail outs. Why should a failing business be rescued by the state? The simple answer to that is when it has implications for the national economy or issues of national security (often regarded as twos sides of the same coin). We have seen the fiasco in the US, the UK and Europe. We have seen the banking system bailed out, private companies bailed out and yet we still hear the mantra of free markets, trade and market liberalisation and privatisation repeated.

Here in NZ we have seen South Canterbury Finance bailed out and most recently AMI. On both occasions the government intervened to provide capital from taxpayers for businesses which had clearly failed. In the case of SCF depositors were guaranteed under a standard deposit guarantee framework but bondholders also benefitted to the tune of $350m. Those bonds should never have been covered under a deposit guarantee scheme. Investors enjoyed a big free lunch here at the expense of the taxpayer. In the case of AMI, the government intervened to support an insurance company who didn’t have enough reserves on hand post the February 22nd quake. The government could easily make a good case for supporting AMI, in terms of providing it with backstop liquidity but in doing so it needed to be very clear that it was suspending any belief in free markets.

The moral hazard is clear but the implications have not been explored. On one hand the government wants to bail out private companies who are clearly responsible for their own position. At the same time they want to promote policies like privatisation because, wait for it, private companies are more efficient than public ones.

It’s very clear that the neo-liberal dream is in tatters but no one seems to want to wake up and smell the reality. Market morality is indeed quite hazardous.


"I’m a Londoner who moved to Christchurch, New Zealand in 2002. After studying economics and finance at Manchester University and a couple of years of backpacking, I ended up working in the financial markets in London. I traded the global financial markets on behalf of investment banks for 11 years. Since moving to NZ, I have been an angel investor, budget advisor, director, trustee, mentor and business consultant. I'm currently a Councillor at Christchurch City Council and a Trustee of the Volunteer Army Foundation and the Christchurch Arts Festival Trust. I write about the intersection of economic, social and environmental issues."

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