Foundation for Economic Growth - Newsletter

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Last Updated: Aug 15th, 2008 - 11:26:43

Newsletters : 2007 Newsletters : 16 February 2007
Thought for the Day

From December 1999 until December 2006 the M3 money supply (our broadest measure) has risen from $98,748,000,000 to $185,568,000,000. This is an increase in money in New Zealand of 87.9%.

In the same time the Quotable Value assessment on my house has risen by 85.1%.

Is this just a coincidence or are our houses protecting us from the government's inclination to inflate our currency?

Our houses have been worth much the same over these past 7 years it is just that we are measuring their worth in smaller dollars. It is like measuring how fast I can run the hundred metres each year but making the metre rule 10% shorter each year. I am not any faster but it makes me feel good!

We are not alone in this "print more money" syndrome: In Australia, the M3 money supply is 13% higher from a year ago, British M4 is 13% higher, the Euro Zone’s M3 is 9.3% higher, a 16-year high, Korea’s M3 is 10.3% higher, China’s M2 is 16.9% higher, a 16-year high, Russia’s M2 is 45% higher, and the U.S. M3 has been reconstructed to show 10.7% growth in 2006. (The Federal Reserve USA has decided not to publish its M3 any more, hence the reconstruction.)

So we are not alone. Last year we increased our money supply (M3) by 16% - so we are in step with the rest! Why is our government doing this? And where will it lead? All in good time, dear Reader. But just think that if our money is inflating at 16% then we need to earn 16% just to stand still - except that with increasing taxes we might be up for 33% tax on our earned interest so we need to get a return of 24% before tax so that we get a 16% return after tax so that our money pile is worth the same at the end of the year as it was at the beginning.

Makes my eyes water, just thinking about it.

It was Lenin who said: "The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation." Is it happening again after all these years?

Michael Cullen proposed a mortagage levy to fix the problem. No doubt he will come up with another tax designed to solve the problem and no doubt that it will make things worse.

No wonder that people want to own property as a hedge against this run-away inflation. It also seems like a good idea to have a large mortgage when the mortgage rate is only 8% and the loan is reducing by 16% inflation each year. How can you lose? Unfortunately, this situation canot continue forever and what cannot continue forever must stop. The question is; When? Well, unfortunately the government has every incentive to keep inflating the money to pay for all the goodies. When they tried to slow things down a bit in 2005 they discovered that an economy in recession is a disaster so the solution is to inflate the money supply. Alan Greenspan did it for the States and it still seems to be working there.

Just remember that when the money stops there will be a rush for the exits. Its a bit like musical chairs. When the money dries up someone will be left holding the debt. I hope it is not you.


Feb 12, 2007, 14:52

 Newsletters : 2007 Newsletters : 16 February 2007
Nightmares of a Central Banker

Food for thought indeed. A short history of the rise and rise of the Central Bank and some discussion of the present problems facing those in charge.

Are all booms followed by a bust? If so when will our bust happen?


Feb 7, 2007, 10:17

 Newsletters : 2007 Newsletters : 16 February 2007
An Object Lesson in Taxing Growth

We write a lot about how countries around the world boost their economies by reducing taxes. Here is a recent example of a place that did just that then set about destroying the wealth they were creating.

What a pity.


Feb 5, 2007, 10:47

Can we fix it?