Wednesday 4 November 2020

Peter Pinter and central banking

Neil Gaiman had an excellent short story, published back in 1989, imagining some of the dangers of a determined bargain-seeker. Peter Pinter just couldn't refuse a good deal. And when he found that the assassin he'd hired offered bulk rates that didn't just reduce the per-person cost for a large contract but also the total cost, well, who could say no?

The story was made into a short film.

"We only had to be asked, Mr Pinter. We always have to be asked."

In our Friday Insights newsletter, I used our third column to think about the dystopias that can emerge where an ambitious central bank and SuperFund find that money is free. That last line from Gaiman was in my head when I was writing it. 

It all finally started coming together in the 2021 Budget. The pieces existed before it, but nobody had put them together. When they did, Pax Zealandia followed.

Borrowing to invest in the New Zealand SuperFund was nothing new. But while money was cheap, the Government hadn’t seriously leveraged up to make stock market plays. Bernard Hickey screamed from the sidelines that the Government should borrow far more. But even his thinking was blinkered by prevailing orthodoxies.

And SuperFund investments were previously used, in limited ways, to advance Government objectives. During the Christchurch Call, the fund had coordinated with other investment vehicles. But ambitions remained too limited.

Once the Government realised that borrowing was effectively free, that debt-to-GDP ratios were pass̩ and that it could exercise ownership rights through the SuperFund to advance state aims Рwell, things started getting interesting. The Government could print and borrow near-infinite money, put it into the SuperFund and buy all the things.

The world’s airlines were dirt cheap. A controlling interest in every publicly-traded international carrier was chump-change. It cost less than $40 billion, or about 12% of GDP. The Government’s high-value tourism policy was the end of economy-class tourist fares to New Zealand.

The US dairy compacts always lobbied against free trade deals. Buying them out simplified an agreement with President Biden. But the second American Civil War made the trade deal futile.

Gross debt-to-GDP really blew out on buying Google, but net debt-to-GDP was fine. A substantial asset offset the debt. Legions of Kiwi censors suppressed unkind search results, and the world was a happier place.

That led to a series of leveraged state takeovers ushering in the new and better global order we all now enjoy. The SuperFund bought whole countries. After installing Kiwi administrators and fixing the worst of those countries’ problems, it sold them back to the residents at a profit. Turkey was the first after its regime imploded. But others were snapped up, including the salvageable bits of the former United States.

The exact moment it started is a small ironic footnote in the history books. Some columnist teased the Government that if it was such a great idea to borrow more than half a percent of GDP in a pandemic to make leveraged plays on the stock markets, then borrowing 50% could be even better. And, for once, the Government listened.

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Doesn't take long for folks to take bad ideas too seriously these days though.  Here's Brian Gaynor in BusinessDesk on Saturday, in an article titled "Spending huge to save us all", with one idea that's apparently been making the rounds:

The Reserve Bank could merge with the NZ Superannuation Fund, which was run by Adrian Orr before he moved to the central bank. This would be an innovative move in unprecedented times with a Reserve Bank/NZ Super Fund merger having much more going for it than the Orr connection. The two organisations are Crown-owned; NZ Super has no debt while the Reserve Bank is highly leveraged. With the current Reserve Bank Governor in the driving seat, the merged group could be incredibly innovative.

We only had to be asked, Mr Robertson. We always have to be asked.  

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