Monday, May 18, 2009

Letter From New Zealand

John G. Rawson
Lookout Hill
R D 8
New Zealand
Tel 09 438 9265

The Editor


How wonderful are the ways of economists and investment advisors! When our Statistics department check price rises for the Consumer Price Index, they are not really checking rising prices at all, but the volume of money in circulation! (Presumably a farmer counting sheep out of his paddock is assessing the earthworm population in his soil?)
I have a message for David McEwen. (Inserted, “Northern Advocate, finance columnist”.) Inflation is rising prices. It is measured as just that, nothing more or less. In the days of Rogernomics madness, the volume of money relative to GDP was cut below half at a time when prices continued to inflate.
Of course too much money in circulation can cause inflation. That’s called demand inflation. Other causes such as rising oil costs or higher interest rates can cause price rises. That’s called cost-push inflation.
Then there’s the phenomenon referred to above, stagflation when prices continue to rise in a stagnant economy. (Economists tend to use this term in hushed voices behind closed doors, because only the Social Credit analysis is able to explain it.) I also have a message to investors. If the IMF and the Bank of England say present problems will go on for some time, listen to them. These are the sort of people causing the problems. They should know what is intended.
However, people could also think for themselves. What likelihood of improvement is there when more and more people the world over are losing their jobs, their homes and their security?
As Keynes pointed out half a century ago, only massive spending by governments can turn the tide. But because nations have lost the ability to use their own money and must borrow, they are reluctant to do so.
The depression of the 1930’s was terminated only by forced spending in preparation for war. Do we have to go through that madness again?

John G. Rawson.

No comments: