Foundation for Economic Growth - Newsletter

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Last Updated: Mar 3rd, 2014 - 11:01:36


Newsletters : 2008 Newsletters : 5 December 2008
Thought for the Day

New Zealand has had quite high interest rates for a long time. When we were at 9% Australia was at 6% and most others were lower again.

This encouraged the "carry trade" which is borrowing money in Japan at very low rates and lending it to New Zealanders at very high rates. "Money for old rope", you might say.

This influx of money caused the Reserve Bank to raise interest rates in an effort to slow down the boom that the cheap Japanese money was causing which caused even more Japanese money to flow in. And so on and so forth.

Now the reverse process has started and the banks might get short of cash - just like the finance houses. After all, borrowing short and lending long is the classic recipe for disaster. This is why the Reserve Bank has a new lending policy of taking mortgages off the hands of the banks when they become strapped for cash. Where does the Reserve Bank get this money from? The end of the printing press!

So the endless cycle of paper money goes on. The problem is too much paper money chasing too few goods around the world and the solution is "print more money".

At some stage the people begin to wake up to this Ponzi trade, and as their suspicions about paper money grow, so they look for alternatives. How long do we have before hyperinflation begins?


Dec 5, 2008, 12:07

Newsletters : 2008 Newsletters : 5 December 2008
Swiss Central Bank Seeks New Tools in Zero-Interest World

So our interest rates have fallen by 1.5% - the biggest reduction ever.

This brings our over-night cash rate to 5%. But the Americans and the Europeans are looking towards zero interest rates from their Central Banks. Just like the Japanese.

What gives?


Dec 3, 2008, 13:31

Newsletters : 2008 Newsletters : 5 December 2008
America’s Coming Financial Vortex

We predicted the current trouble and we are predicting that things will get worse. We are unable to get the timing right because politicians can and will interfere in the natural process of the bust. As this boom/bust cycle is bigger than previous ones the bust will be longer and harder than any before.

We are in recession, and have been all year. This will show up more and more next year and more and more people will be effected. Prices will drop more and the bust will be very deflationary. The government will pump paper money into the system to try to get inflation back and will succeed eventually, probably, and set the next boom off.

The next few years are sure to be exciting. See here what is forecast for America:

Visit Website ]
Dec 2, 2008, 22:38

Newsletters : 2008 Newsletters : 5 December 2008
Bernanke Says Fed May Buy Treasuries to Aid Economy

The Fed looks like dropping its interest rate to zero. Just as the Japanese have done.

This sounds like "free" money, to me.

It didn't work for the Japanese. Will it work for the Americans?


Dec 2, 2008, 11:44

Newsletters : 2008 Newsletters : 5 December 2008
The Strange Case of Falling International Reserves

In the bust period of our boom/bust cycle money starts to disappear. We see it in New Zealand. Just ask any of those people who had their money invested in the finance sector. Many of them lost it all, most have lost a significant portion. This is paper money going back to the nothing from whence it came.

As the share market slides downwards the same effect takes place. The easy capital is destroyed.

More interestingly we now have the case of the decline of the national reserves. With all the paper money being generated by reserve banks around the world they were accumulating piles of each others debt at the explosive rate of 26% per annum.

That has now suddenly stopped.

The big question is, "What will this mean to us?"

If nations stop accepting debt from other nations then those nations running current account deficits may suddenly find themselves in big trouble. New Zealand is running one of the biggest current account deficits in the world.

Read this website (You may need to change the Spanish into English!!):

Visit Website ]
Dec 2, 2008, 10:17

Newsletters : 2008 Newsletters : 5 December 2008
The Ethics of Money Production

We are pleased to announce the publication of a new book by Jorg Guido Hulsman: The Ethics of Money Production.

This pioneering work, in hardback, by Jorg Guido Hulsmann, professor of economics at the University of Angers in France and the author of Mises: The Last knight of Liberalism, is the first full study of a critically important issue today: the ethics of money production.

He is speaking not in the colloquial sense of the phrase "making money," but rather the actual production of money as a commodity in the whole economic life. The choice of the money we use in exchange is not something that needs to be established and fixed by government.

In fact, his thesis is that a government monopoly on money production and management has no ethical or economic grounding at all. Legal tender laws, bailout guarantees, tax-backed deposit insurance, and the entire apparatus that sustains national monetary systems, has been wholly unjustified. Money, he argues, should be a privately produced good like any other, such as clothing or food.

In arguing this way, he is disputing centuries of assumptions about money for which an argument is rarely offered. People just assume that government or central banks operating under government control should manage money. Hulsmann explores monetary thought from the ancient world through the middle ages to modern times to show that the monopolists are wrong. There is a strong case in both economic and ethical terms for the idea that money production should be wholly private.

He takes on the "stabilization" advocates to show that government management doesn't lead to stability but to inflation and instability. He goes further to argue against even the theoretical case for stabilization, to say that money's value should be governed by the market, and that that the costs associated with private production are actually an advantage. He chronicles the decline of money once nationalized, from legally sanctioned counterfeiting to the creation of paper money all the way to hyperinflation.

In his normative analysis, the author depends heavily on the monetary writings of 14th century Bishop Nicole Oresme, whose monetary writings have been overlooked even by historians of economic thought. He makes a strong case that "paper money has never been introduced through voluntary cooperation. In all known cases it has been introduced through coercion and compulsion, sometimes with the threat of the death penalty. ... Paper money by its very nature involves the violation of property rights through monopoly and legal-tender privileges."

Here is the full book in digital form:

Visit Website ]
Dec 2, 2008, 09:47

Newsletters : 2008 Newsletters : 5 December 2008
Why Are Wages Low in Developing Countries?

The amount that the worker can command in wages is the amount that the business can afford to pay. If, say, the business decides to pay its workers $70 per hour like GM pays its Autoworker's union members when other companies like Toyota in the USA pays its workers only $30 per hour then the result is inevitable.

All else being equal, GM will go bust.

Visit Website ]
Dec 2, 2008, 09:09

Newsletters : 2008 Newsletters : 5 December 2008
Quote for the Week

The ultimate result of shielding men from the effects of folly is to fill the world with fools.

Herbert Spencer, English Philosopher (1820-1903)


Nov 5, 2008, 10:57

Can we fix it?