NEW ZEALAND SOCIAL CREDIT ASSOCIATION (INC)
Established 1934

14 December 2008

The Minister of Finance & Infrastructure
Hon. Bill English
Parliament Buildings
Wellington

Dear Mr English

Congratulations on your assumption of office . Our nation is too well aware of the current financial repercussions of our debt based financial system . We believe a nation’s credit is a natural resource like air or water . We have seen the folly of relying on private banking to finance consumption & capital formation.

We place for your consideration a new way of creating credit without the associated debt , which exposes the whole economy to pain whenever there is a correction in the credit markets. This is because, under the present system, unless credit continually expands, money must be diverted from consumption to paying of interest . As a nation , we need a body charged with continual monitoring of the mass of the economy & its credit requirements in order for the economy to function . This body – the New Zealand Credit Authority - would also issue & retract credit through the existing trading banks . The banks’ customer relationships centred on trust & creditworthiness would remain undisturbed . Rates charged by banks would be Administration Cost + Profit ( with incentives for lender efficiency ) + borrower risk margin ( varying with a borrower’s credit & governance scores .

The principle is not new . In 1936 , debt free money was used by the Reserve Bank to fund part of the State Housing Programme . In addition , low interest Reserve Bank credit was used for decades to fund local government infrastructure & working capital for our Dairy industry, allowing it to become the mainstay of the NZ economy .. Australia used this system to finance its World War 1 efforts & Canada also employed much debt free money prior to 1960 .

Economic efficiency would be enhanced by having a common origin for New Zealand credit . as the cost of credit would vary much more with its use than which bank issued it . Currently , lending rates between various banks for the same products vary about 0.5% & sometimes more . This makes for sub-optimal lending decisions .

Your government has announced an intention to bring forward Infrastructure projects , partly to use resources which will be unemployed due to the international recession . This is a laudable objective but why add ( directly or otherwise ) to national & private debt or interest obligations in order to do so ? The Reserve Bank Act Section 1 (1A) (1) (b) requires the bank to “promote the maintenance of a sound & efficient financial system”. We have suggested how this objective may be accomplished .

Dan Colgan
President

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