Richard Prebble: It is Social Credit and it will ruin us

OPINION:

“The dog did nothing in the night-time … That was the curious incident.” Sherlock Holmes

New Zealand has adopted social credit. National and Labour MPs have done nothing. How curious.

Social credit is the Reserve Bank creating credit and lending it to the Government at zero interest. Today the Reserve Bank has a programme to create $100 billion to lend to the Government at near-zero interest via the secondary market so they can pretend it is not social credit. They also keep up the pretence that it will eventually be repaid, although no one seriously believes that.

The leader of the Social Credit Party must be the authority on what is social credit. Yes, there is still a Social Credit Party. Its leader is Chris Leitch, a ballroom dance teacher from Whangarei. He has no doubt the Government is implementing social credit. Leitch says his party has been vindicated.

I have opposed social credit my entire political career. I too feel vindicated.

I have said “if the amount of goods and serves remains approximately the same printing more money will result in inflation”.

“Inflation is ruinous especially for the people Labour represents”.

“Credit booms always end in bust.”

Everything I predicted is happening.

The idea that inflation occurs only when prices rise in the small group of products selected for the Consumer Price Index is absurd. A rise in asset prices is also inflation.

New Zealand today has out-of-control, galloping inflation.

Business commentator Brian Gaynor has calculated asset inflation last year.

New Zealand house prices in the last financial year increased faster than any other country bar Vietnam. Residential housing increased by 16.1 per cent.

Gaynor calculates the share market increased by much more. “The NZX Small Cap Gross Index … [had] a 98.5 per cent return for the year to March 31”. Delegat shares rose 75 per cent. The Warehouse 89 per cent, Briscoe 102 per cent and Hallenstein Glasson 177 per cent.

Gaynor says “it is extremely difficult to find asset classes that didn’t return at least 10 per cent for the year”.

Social Credit is every bit as socially ruinous as I predicted. Economics Professor Robert McCulloch observes in his blog: “The RBNZ’s poorly judged, over-the-top, $100b “quantitative easing programme” has caused wealth inequality to rise by increasing house prices … it’s hard to see how adding a few more dollars an hour to the minimum wage and some tinkering with the benefit system can offset the other powerful forces at work in NZ that are impacting inequality”.

Labour came into office pledging to reduce inequality. Jacinda Ardern claimed her Government had found a new way to address inequality. “Wellbeing as a cure for inequality” she said. “GDP wasn’t enough to measure success”. Jacinda claimed the mental health of the nation was a better measure of inequality.

How is this wellbeing approach to inequality working out? Not good. According to a Mental Health Foundation study published in February a “quarter of New Zealanders currently have poor levels of mental and emotional wellbeing, including nearly a third of women”.

No matter what measurement is used social credit is rapidly increasing the gap between the haves and the have nots.

The signs are flashing that the economy is heading for a crash. In an economic crash the more you have, the more you have to lose.

It is correct that I also predicted that if the Reserve Bank started printing money the kiwi would fall in value yet the kiwi appears to be appreciating. It is an illusion.

If you are traveling in a car at 100km/h alongside a train travelling at 100km/h the train appears to be stationary. With every central bank adopting quantitative easing our currency seems unaffected.

There is a currency that central banks cannot print more of, Bitcoin. Brian Gaynor says Bitcoin in the last financial year increased by 757 per cent from US$6868 ($9789) to US$58,835. To put it another way, relative to Bitcoin, the kiwi is in freefall.

Here is a problem with quantitative easing. Even the Social Creditors admit the credit is debt. The debt is only sustainable as long as interest rates are near zero. Once started the easing cannot stop.

Every central bank says quantitative easing is temporary but none has been able to quit. Our own governor has said the $100b programme will end after two years. As just a minor increase in interest rates will be disastrous the Reserve Bank will go on printing money until CPI inflation forces a halt.

It is Stein’s law: “If something cannot go on forever, it will stop.”

When? In the words of Rudiger Dornbusch. “In economics, things take longer to happen than you think they will, and then they happen faster than you thought they could”.

MPs should be repeating economist Ludwig von Mises warning. “There is no means of avoiding the final collapse of a boom brought about by credit expansion”. “The final outcome of the credit expansion is general impoverishment”.

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