Debt-free option better

Government documents released last Friday include a May 6 Treasury warning to Finance Minister Grant Robertson about ‘‘significant downside risks’’ of the Reserve Bank’s $70 billion quantitative easing programme.

One significant downside is a $2.3b net interest rates loss, on top of a $200b debt to be incurred by 2024 from the issue of government bonds by the Treasury.

Quantitative easing creates asset inflation with only a tiny fraction of the money issued trickling down into the real economy. Issuing government bonds creates unnecessary interest costs, only benefiting the already wealthy.

A far better option is readily at hand. Why does Robertson reject stimulating the economy via the debt-free option referred to by the Reserve Bank governor Adrian Orr as ‘‘money financing’’? With that process, the government would use the Reserve Bank’s overdraft facility to inject money directly into the economy (rather than borrowing it). Those funds could then finance the Covid-19 recovery, pay for housing the homeless, and fully fund our financially stretched health system and schools.

The first NZ Labour Government did this in 1936 during the Great Depression to pay for the construction of thousands of state houses, low interest mortgages through the State Advances Corporation, and eventually the war effort.

Otto Mengedoht, Hastings