NZ Everyday Investor

Inflation, Modern Monetary Theory, and you / #148 / Oliver Hartwich

Episode Summary

Modern monetary theory, while it’s not openly discussed, seems to be one of the frameworks increasingly used as a quasi-taxation through our monetary system. It's important when we invest then, that we understand how the currency that denominates our assets, can be manipulated.

Episode Notes

We like to think that when we borrow money, in fact we're taught this, that money is simply transferred from savers to borrowers and banks act as intermediaries. While that's partially true, it's potentially more true that new money is created every time you take out a loan from the bank...out of thin air. Technology has been tremendously deflationary, so for decades, money creation [by retail banks and also our Central Bank] had no significant impact on consumer price inflation (CPI). 

What we've observed in the last 12 months however, is that increased money supply does have an impact. It appears first in the giant sponges of our financial markets - property markets and equity markets have boomed, along with justified cries of anguish from those with no assets to inflate - all partially thanks to new money creation at a scale we've never seen before. 

I want to know, what happens when this sponge is wrung out?

So I have some question for Oliver Hartwich today, from the NZ Initiative

-Why is there no inflation, as defined by the CPI occurring with all this ‘money printing’? 

-How can governments act to create economic growth through money supply growth – is this even possible, or is this simply an monetary hallucinogen?

-How important is central bank independence from the government, and are we seeing this independence erode here in NZ? How does this trend compare to overseas?

-What are some negative outcomes that are possible from too much inflation and how can we get back to further stability here – return of the gold standard in some capacity?


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