The seeds of RedPill began on 25th March 2020 when I sent a letter to the Prime Minister and Adrian Orr, Governor of the Reserve Bank urging them to counter the end of free markets by returning the New Zealand dollar to stable money by linking it to the price of gold or the consumer price index (CPI).
Photo: Adrian Orr, Governor Reserve Bank New Zealand
Elena Scheule from the Office of the Prime Minister emailed me to say she had forwarded the letter to Grant Robertson, Minister of Finance. I also heard from “Anne” in the communications department at the Reserve Bank letting me know that Adrian was incredibly busy at this time but to rest assured the Bank was fulfilling its responsibilities. I replied that unfortunately I was not assured at all and asked for the letter to be forwarded to Adrian.
I had clearly missed the mark for two days earlier the Reserve Bank had announced its own entry into Quantitative Easing (printing new money) with $30 billion purchase of government bonds.
The way Quantitative Easing, or as the Reserve Bank calls it, Large Scale Asset Purchase programme (LSAP), works is that the Reserve Bank prints more money by entering the required figure into a computer. It gives this new money to the government to spend. In return the government gives the Reserve Bank newly created bonds (debt) which say it will pay back the debt with interest.
Infinite Money
In theory, and now elsewhere in the world, in practise, this expansion of money supply is infinite. The Reserve Bank can increase the money supply as much as it wants. It can buy government debt, or as other central banks like the Bank of Japan, European Central Bank and the Federal Reserve are doing, enter the financial markets and buy up corporate debt, exchange traded funds (ETFs) or anything else it desires.
The result of this massive expansion of money supply is the end of free markets. Since Friday 10th April we now live in a world where the financial markets are as socialised as they were under the central command economies of the former Soviet Union. The price of any asset now depends primarily on what the central bank does. If it says it will buy then the price goes up. If it does not intervene the price goes down. This is why the world’s largest asset management firm, BlackRock recently announced it was suspending its own trading strategies and simply buying what the Federal Reserve is buying.
Why So Much Money Printing?
The reason why central banks are printing so much new money is that the experiment with floating government money (fiat currency) that began when the world left the gold standard in 1971 has failed. Over that time governments believed they could stimulate the economy and create prosperity through the two tools that fiat currency gave them: manipulation of interest rates and money supply. They have been proved wrong. For example in the United States workers’ wages reached a peak in 1971 from which they have never returned. Fiat currencies are also the reason for the increase in inequality we have seen between rich and poor. The money central banks print has been going into inflated stock prices which primarily the top 1% of the population own.
I had clearly missed the mark for two days earlier the Reserve Bank had announced its own entry into Quantitative Easing (printing new money) with $30 billion purchase of government bonds.
The way Quantitative Easing, or as the Reserve Bank calls it, Large Scale Asset Purchase programme (LSAP), works is that the Reserve Bank prints more money by entering the required figure into a computer. It gives this new money to the government to spend. In return the government gives the Reserve Bank newly created bonds (debt) which say it will pay back the debt with interest.
Infinite Money
In theory, and now elsewhere in the world, in practise, this expansion of money supply is infinite. The Reserve Bank can increase the money supply as much as it wants. It can buy government debt, or as other central banks like the Bank of Japan, European Central Bank and the Federal Reserve are doing, enter the financial markets and buy up corporate debt, exchange traded funds (ETFs) or anything else it desires.
The result of this massive expansion of money supply is the end of free markets. Since Friday 10th April we now live in a world where the financial markets are as socialised as they were under the central command economies of the former Soviet Union. The price of any asset now depends primarily on what the central bank does. If it says it will buy then the price goes up. If it does not intervene the price goes down. This is why the world’s largest asset management firm, BlackRock recently announced it was suspending its own trading strategies and simply buying what the Federal Reserve is buying.
Why So Much Money Printing?
The reason why central banks are printing so much new money is that the experiment with floating government money (fiat currency) that began when the world left the gold standard in 1971 has failed. Over that time governments believed they could stimulate the economy and create prosperity through the two tools that fiat currency gave them: manipulation of interest rates and money supply. They have been proved wrong. For example in the United States workers’ wages reached a peak in 1971 from which they have never returned. Fiat currencies are also the reason for the increase in inequality we have seen between rich and poor. The money central banks print has been going into inflated stock prices which primarily the top 1% of the population own.
Addiction
Now governments through their central banks cannot get out of the cycle of printing more money. Like a patient on a life support machine, if they pulled the plug the patient would die. This is because the world could not service the debt that has accumulated over the time. So, like an addict that cannot free themselves of their habit, central banks print increasingly large amounts of money until….
There is only one ending to the story. The free markets are already dead. If history is any guide fiat money will eventually become worthless through hyper-inflation. It even looks as if central banks are rushing to reach this point so that they can reset the system.
Failure of Fiat Currency
This failure of fiat currency has happened many times over the 2,700 years we have had money. Nathan Lewis gives a very readable account of this history in Gold The Final Standard which can be downloaded for free as a pdf.
So this brings us to RedPill. As Nathan points out the only solution to the debacle of fiat money is to return stability to the currency. The way to do this is by linking the value of the currency to gold so that it does not “float” anymore. Gold has had a stable value for thousands of years. As the banker JP Morgan once said, “Gold is money. That’s it.”
The link to the value of gold imposes discipline. Central banks can no longer print as much money as they wish. They need to use their ability to increase or decrease the money supply in order to keep the currency at its peg to the price of gold. If they print too much then the money looses value relative to gold. If there is not enough currency the money becomes more valuable than gold.
It was a return to this discipline that I wrote to Jacinda and Adrian about in order to save the New Zealand dollar from collapsing with the rest of the fiat system.
RedPill has this discipline in-built, not because of the actions of any external authority like the Reserve Bank, but by people agreeing to use the money at 1,000 RedPill = 1 oz of physical gold. This passive peg means that RedPill can buy the same goods in 5, 10, or 30 years’ time as it does today. It also means it is not vulnerable to what happens in the fiat financial system.
The second feature of RedPill is that it does not need a central authority like a central bank. The invention of the decentralised ledger (blockchain) in 2008 means that there is a way of keeping track of who owns how many RedPill without any central control. Digital currencies such as Bitcoin, Monero and Litecoin also use a blockchain to maintain records. All people need to use the money is an app on their phone that enables them to send and receive RedPill when they buy and sell.
The supply of RedPill is also capped. The Reserve Bank can print more New Zealand dollars but there will only ever be 7,507,500,000 RedPill. This prevents any temptation to debase the currency by issuing more. When the NZ economy grows so that more money is needed someone else can create a new currency to meet the demand. I have put details on how to do this here.
The upshot is that 750,000 Kiwis, a quarter of the adult population have the opportunity to own 10,000 RedPill completely free, no strings attached. Once all RedPill have been issued my role comes to an end. Kiwis can start using their RedPill knowing they have a stable form of money that as Nathan Lewis has sown in his history of money can help restore prosperity and social justice to the country.
Now governments through their central banks cannot get out of the cycle of printing more money. Like a patient on a life support machine, if they pulled the plug the patient would die. This is because the world could not service the debt that has accumulated over the time. So, like an addict that cannot free themselves of their habit, central banks print increasingly large amounts of money until….
There is only one ending to the story. The free markets are already dead. If history is any guide fiat money will eventually become worthless through hyper-inflation. It even looks as if central banks are rushing to reach this point so that they can reset the system.
Failure of Fiat Currency
This failure of fiat currency has happened many times over the 2,700 years we have had money. Nathan Lewis gives a very readable account of this history in Gold The Final Standard which can be downloaded for free as a pdf.
So this brings us to RedPill. As Nathan points out the only solution to the debacle of fiat money is to return stability to the currency. The way to do this is by linking the value of the currency to gold so that it does not “float” anymore. Gold has had a stable value for thousands of years. As the banker JP Morgan once said, “Gold is money. That’s it.”
The link to the value of gold imposes discipline. Central banks can no longer print as much money as they wish. They need to use their ability to increase or decrease the money supply in order to keep the currency at its peg to the price of gold. If they print too much then the money looses value relative to gold. If there is not enough currency the money becomes more valuable than gold.
It was a return to this discipline that I wrote to Jacinda and Adrian about in order to save the New Zealand dollar from collapsing with the rest of the fiat system.
RedPill has this discipline in-built, not because of the actions of any external authority like the Reserve Bank, but by people agreeing to use the money at 1,000 RedPill = 1 oz of physical gold. This passive peg means that RedPill can buy the same goods in 5, 10, or 30 years’ time as it does today. It also means it is not vulnerable to what happens in the fiat financial system.
The second feature of RedPill is that it does not need a central authority like a central bank. The invention of the decentralised ledger (blockchain) in 2008 means that there is a way of keeping track of who owns how many RedPill without any central control. Digital currencies such as Bitcoin, Monero and Litecoin also use a blockchain to maintain records. All people need to use the money is an app on their phone that enables them to send and receive RedPill when they buy and sell.
The supply of RedPill is also capped. The Reserve Bank can print more New Zealand dollars but there will only ever be 7,507,500,000 RedPill. This prevents any temptation to debase the currency by issuing more. When the NZ economy grows so that more money is needed someone else can create a new currency to meet the demand. I have put details on how to do this here.
The upshot is that 750,000 Kiwis, a quarter of the adult population have the opportunity to own 10,000 RedPill completely free, no strings attached. Once all RedPill have been issued my role comes to an end. Kiwis can start using their RedPill knowing they have a stable form of money that as Nathan Lewis has sown in his history of money can help restore prosperity and social justice to the country.