• I Have Become Patron of Positive Money, New Zealand – Here’s Why

    The truth about money is now being told, and more and more people are listening.  Among the most persuasive and authoritative of those truth-tellers is a British-based organisation called Positive Money.  I am delighted to say that there is now a New Zealand branch, run by Don Richards and Sue Hamill.  I have agreed to become patron of Positive Money, New Zealand.

    One of the most difficult issues for the average person to grasp is that a country’s economy operates quite differently from the economy of an individual person or company.  One of the main reasons for this is the government’s ability to create money.  Whereas the individual or firm must accept that money has, at any given moment, a more or less fixed value, and the quantity in the individual’s hands will be limited by what he, she or it can earn, sell, borrow and so on, a government can overcome a shortage of money by itself creating, or directing the banking system to create, more of it.

    One of Keynes’ most often quoted statements is that “there may be intrinsic reasons for the shortage of land but there are no intrinsic reasons for the shortage of capital.”   This undeniable truth is often obscured by governments’ reluctance to acknowledge it. The confusion has been compounded by the doctrine of monetarism, which maintains that the quantity of money must be held at a stable level in the interests of controlling inflation; indeed, it is argued that any other intervention by government would be ineffectual, if not dangerous.

    The Global Financial Crisis, though, was so terrifying in its threat of financial meltdown that a number of western governments abandoned their ideological prejudices.  They followed instead a deliberate policy of “printing money” in a desperate attempt to ward off a crisis of illiquidity as the banking system threatened to implode.

    In the US, the Federal Reserve pumped trillions of dollars into the US economy, at a rate as high as $85 billion per month; the result has been that the Federal Reserve’s assets have more than quadrupled to more than $4 trillion.  Some of that money helped to increase the pace of recovery, and even to make some impression on unemployment, but much of it found its way more or less directly into the accounts of banks and other major corporations and thence into stock markets, which have accordingly enjoyed a substantial boom.

    The UK government, too, undertook a programme of printing money, though on a smaller scale; the programme aimed at a total of £375 billion.  Again, the major beneficiaries were the banks.  In neither case was there any perceptible impact on inflation from governments using their power to create money through so-called “quantitative easing”.

    It is not just governments, though, that create money out of nothing.  The banks do so on a much greater scale.  The truth of this matter is gradually becoming accepted.  A significant milestone was achieved in the first quarter of 2014 with the publication of an important paper in the Bank of England Quarterly Bulletin.  In that paper, three Bank of England economists acknowledged that the overwhelmingly greatest proportion of money in the economy – they estimate that it amounts to 97% – is created by the banks out of nothing.

    It is widely believed that the banks lend out to borrowers the money that is deposited with them by savers; they are simply intermediaries, it is thought, which charge for the service they provide in bringing savers and borrowers together.  The truth, however, is very different.

    When a bank lends you money, it simply makes a book entry that credits you with an agreed sum; that sum represents nothing more than the bank’s willingness create money to lend to you.  The debt you thereby owe the bank does not represent in any sense money that was actually deposited with the bank or the capital held by the bank.  The money that banks lend has very little to do with the savings deposited with them and is many times greater than their total.  As John Kenneth Galbraith said in 1976 ‘”The process by which banks create money is so simple that the mind is repelled”.

    There are of course many, including a former Governor of our Reserve Bank, who scoff at the proposition that banks create money out of nothing.  If they could do so, the argument goes, why would any bank ever go bankrupt?  But, as the Bank of England paper points out, when bank loans on mortgage are repaid, they cease to be money.  They are no longer available to the borrowers and they are no longer assets in the bank’s books.   That is why banks cannot just create money for their own use; the money they create is available only to the borrower.  The banks make their profits not by writing cheques to themselves but by charging interest on the money they create to lend to others.

    But, for the lifetime of those loans (which could be decades), they will have added to the money supply and to the spending power enjoyed by the borrower.  And, by the time the loans are repaid, they will have been replaced many times over by new loans created for new borrowers over years, if not decades and generations.   It is no accident that there is a strong correlation between new bank lending and rapid growth in the money supply.

    The astonishing aspect of this creation of new money, and to make billions from doing so, is that it is a monopoly power of private profit-seekers – the banks, especially after they moved into the mortgage market and took over from the building societies – and it is directly contrary to the public interest.  It means that a huge proportion of the new money in our economy goes into asset speculation, mainly housing, and not into productive investment.  The consequent asset inflation has meant that industry has suffered high interest rates and an overvalued dollar and we have all endured a poorer–performing economy, all in the attempt to control a problem created by the banks.

    Positive Money aims to ensure that these matters are properly understood and that the power to create money is no longer used on a huge scale to make profits for banks but instead serves the public interest in securing a stronger and better balanced economy.

    Bryan Gould

    28 March 2016



  1. Pietrad says: March 28, 2016 at 5:16 amReply

    Great news and I’m so very pleased that someone of your intelligence and calibre is now helping drive this necessary change. Kia kaha.

  2. Shane says: March 28, 2016 at 10:54 amReply

    Fantastic. Wish you all the best and you have plenty of aware people behind you already.

  3. Don Richards says: March 28, 2016 at 7:08 pmReply

    Thank you very much for your backing Bryan.

    Positive Money New Zealand is part of a global network of organisations committed to reforming our banking system.

    The Swiss movement have forced a referendum on the subject and the Dutch are having money creation debated in parliament.

    We can solve a lot of the issues with our economy by sorting out who issues our money supply and who benefits from it.

    Thanks again – Don Richards and Sue Hamill

  4. Lowell Manning says: March 28, 2016 at 9:37 pmReply


    The relationship between debt and money is 1:1. For every dollar of debt there is a dollar of money somewhere.

    In New Zealand, until recently at least, the relationship was published monthly by the Reserve Bank. (Current credit aggregates)

    Debt (domestic credit) = Deposits – Bank residuals (net worth) – Net foreign currency assets.

    The bank residuals are almost always negative (because the money accumulating to banks is withdrawn from circulation). And iNew Zealand’s case the net foreign currency assets are also heavily negative mainly because of our persistent current account deficits. So our total debt far exceeds our banking system deposits.

    • Ben says: March 29, 2016 at 9:39 amReply

      You’re forgetting interest. Interest is not accounted for in a credit borne money supply. It can only be serviced by further credit or by sovereign money creation.

      • Neil Wilson says: April 5, 2016 at 5:23 pmReply

        That is incorrect and a common mistake.

        Interest is in the units $/month. Loans are in $. One is a flow, the other is a stock.

        Interest is paid from the spending of bankers, because interest is the wage of bankers. Just as profit is the wage of capitalists.

        They earn what they spend.

  5. Peter Judd says: March 30, 2016 at 9:37 amReply

    Great news Positive Money NZ and thanks Bryan Gould. ( Can we get Bill English on board too please. 🙂 )

  6. Jeremy Callaghan says: March 31, 2016 at 3:19 pmReply

    Great, Bryan. Your clearly and carefully explained arguments have certainly helped me to understand what happens in the banking industry and I have signed up with the UK group.

  7. Edward Miller says: April 1, 2016 at 3:05 amReply

    Great to have somebody of your stature behind this critical education drive Bryan. I wrote about the need for something along the lines of a peoples’ quantitative easing as a key green jobs policy in the latest BWB short text ‘The Interregnum’, check it out if you’re interested!

  8. Patricia says: April 2, 2016 at 7:14 amReply

    Yes and yes and yes

  9. Peter J. Morgan says: April 14, 2016 at 1:26 pmReply

    Bryan wrote:
    “But, as the Bank of England paper points out, when bank loans on mortgage are repaid, they cease to be money. They are no longer available to the borrowers and they are no longer assets in the bank’s books. That is why banks cannot just create money for their own use; the money they create is available only to the borrower. The banks make their profits not by writing cheques to themselves but by charging interest on the money they create to lend to others.”

    However, that is only part of the story. Banks create money ex nihilo in two other ways that do not involve granting loans. The 1956 New Zealand Royal Commission into Banking, Monetary, and Credit Systems stated that banks also increase the money supply ex nihilo, debt-free, when:

    1. They purchase any assets, e.g. a building or shares, which they do just by crediting the vendor’s bank a/c, or

    2. They pay salaries and bonuses, which they typically do simply by crediting their employees’ bank accounts.

  10. Greig Cleland says: September 2, 2016 at 11:12 pmReply

    Thanks Bryan for lending your name and belief to this global issue.Your right more people are becoming enlightened to the debt based system we all live under .
    This has made me mad and feel powerless to change this injustice. However it seems world wide more and more people are talking about this crazy system so yesterday I joined postive money the first organisation I have ever joined knowing they will need everyone’s help for those who profit from this system won’t let it go without a huge fight.
    Thanks again Greig

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