Who is that economist working for?

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If you believe that . . .

Economics has been called the dismal science. Well, “dismal” it may be, certainly in the way it is used to justify the gross inequalities in the distribution of our planet’s wealth – but “science”? Possibly a “human” science, ranking with other notoriously imprecise fields of human knowledge such as psychology and sociology.

I have noted previously that Alfred Nobel did not include economics in his list of prizes. Not only did he think it unfit to sit alongside the true sciences (physics, chemistry, physiology, medicine), he didn’t even consider it as objectively assessable as Literature and Peace!

Bearing that in mind, then, it seems to me that I have as much right as anyone to have my ideas on the subject taken seriously. It could even be argued that the views of a high profile rugby player in New Zealand have greater validity than those of a former Governor of my country’s Reserve Bank.

We are all aware that high-level sport these days is mostly about money, and economics has inserted its dismal finger so that honesty, fair play, clean living and sportsmanship now rank well down the list of priorities. The home ground of Istanbul’s Beşiktaş football club, formerly commemorating the republic’s second president and close friend of Mustafa Kemal Atatürk, has recently been rebuilt and reopened as the Vodafone Arena, commemorating . . . the power of money.

banksters-300x199It’s a brave sportsman or woman these days who can cite moral principles to his or her paymasters as Sonny Bill Williams has done in New Zealand. Williams has the advantage of being an extremely valuable property, moving seamlessly between two rugby “codes” (league and union) in a way that would once have been frowned upon. So, when he announced that he would not wear a team strip emblazoned with the logo of the Bank of NZ, he opened a can of worms. Williams is, apparently, a Muslim, and follows that religion’s injunction against usury – the lending of money at interest.

A columnist for the NZ Herald, Brian Gould, picked up on Williams’s moral stand, writing an opinion piece entitled “Banking should be under closer Government control”. Supporting the Muslim rugby player’s position, Gould said, Most people believe, and it is a belief assiduously promoted by the banks themselves, that the banks act as intermediaries between those wishing to save and those wishing to borrow, usually on mortgage. . . But this benign view of their operations is inaccurate and misleading. The banks do not lend you on mortgage money deposited with them by someone else. They lend you money that they themselves create out of nothing, through the stroke of a pen or, today, a computer entry.”

The next day, the Herald published a reply from a gentleman by the name of Don Brash insisting that both Williams and Gould were wrong.

“Mr Gould is not alone in peddling this nonsense, but that certainly doesn’t make it correct.

How the Fed works

How the banking system creates MONEY. Money is not wealth, especially if you have to borrow it at commercial interest rates. (Source: Time Magazine)

“The banking system does create money. When Bank A lends money to one of its customers, the customer may use those funds to buy something from somebody who banks with Bank B. Bank B then finds itself with an additional deposit, a part of which it can lend out to its customers (keeping some of the additional deposit as a liquidity reserve). So an initial loan may end up considerably increasing the total lending by the banking system.

“If individual banks really could create money by “the stroke of a pen or a computer entry”, as Mr Gould contends, why do they bother paying interest on deposits, why do they borrow funds from parent banks overseas, why do they borrow funds in the international market, why do they need to hold some funds in government securities as a liquidity reserve, why do some banks occasionally run out of money when customers lose confidence in them?

As well as being a former Governor of the Reserve Bank, I now chair the small New Zealand subsidiary of the Industrial and Commercial Bank of China, the largest bank in the world. It would certainly make life very much easier if we could, “by the stroke of a pen or a computer entry”, simply create the money which we lend out to New Zealand borrowers. Unfortunately, we can’t.” (My highlighting)

Pinocchio

Would I lie to you?

So, according to Brash, Gould and Williams are wrong – but the banking system does create money. Huh? Look at the weasel words in the last sentence. OK, that’s not how they do it exactly, Don. And Bill Clinton did NOT have sex with that woman.

As I hinted above, Don Brash was Governor of New Zealand’s Reserve Bank from 1988 to 2002. He has held academic positions at several universities at home and abroad, sat in big chairs in large offices in several well-known banks, and even been involved in politics at the highest level. Clearly he, and the editor of the NZ Herald, and other naïve souls too for all I know, believe his words carry the power of gospel truth in matters of economics.

Look closer, though, and ask yourself if a guy who works at the upper levels of banking administration can possibly express publicly an unbiased view of the workings of the banking system.

Check the guy’s record, and you’ll see that he is a loser from way back. His first foray into politics was in 1980 as National Party candidate for the “safe” National seat of East Coast Bays. He lost, not to the main opposition Labour Party, but to an opponent representing Social Credit, a party whose main platform was exactly the view of banks expressed by Messrs Williams and Gould. That was a by-election. He failed to win the seat back in the General Election of 1981 and was dumped.

es514f00bfSomehow he managed to get himself elected as leader of the parliamentary National Party, despite his inability to actually win an electoral seat – holding the position from 2003 to 2006, then resigning from Parliament in 2007 to take up another academic post as economics guru.

He returned to politics in 2011 as leader of the right wing ACT Party, holding the post for seven months before resigning again after failing to make any impact in that year’s General Election. Clearly the average New Zealand voter is more perceptive than those who appoint general managers in banks or professors of economics at universities.

Brash is a hired lackey of the capitalist establishment, and a loser whenever he has offered his services to the New Zealand public. I’m not going to stoop to discussing his private life. If you’re interested you can get an overview on his Wikipedia page.

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