Today we are seeing an unprecedented demonstration of why paper money has no real value. We are seeing banks across the world printing money. Money that isn’t based on anything other than the effort it takes to push a computer button to produce it. It’s a deliberate policy to stimulate the economies of those countries that have financial difficulties . In this world of e-commerce the money is just a symbol on a computer screen.
It’s called Quantative Easing . As Wikipedia explains it :-
“To carry out Quantative Easing central banks create money by buying securities, such as government bonds, from banks, with electronic cash that did not exist before. The new money swells the size of bank reserves in the economy by the quantity of assets purchased—hence “quantitative” easing. ..”
And the Government “Bonds” they buy are :
“A government bond is a bond issued by a government, generally with a promise to pay periodic interest payments and to repay the face value on the maturity date.”
Compare how easily money can be created while land is in limited supply, unless you are Dutch or Dubaiian. . If it is created, the cost to produce it is every bit as much, or more, than the land value itself. With Quantative Easing every paper or digital dollar created drops the value of every other dollar currently in circulation and raises the value of hard to get commodities like land.
We have numerous examples of countries that have gone on a money printing rampage. (The best know being the German Mark after the First World War and the more recent example of Zimbabwe, with its having to print a 100 Trillion Dollar bank Note with an exchange rate of around $1.50 US before the dollar collapsed entirely. ) As in both these cases printing money creates inflation. Quantative easing is supposed to be different in that the money is used to buy bonds with a promise to repay it in the future but the actual money used to pay for the borrowing is still created out of nothing.
Let’s have a look at some of the countries using Quantative Easing.
Japan has a saving culture. The good people of Japan are famous for saving money in banks, even when the interest rate for that money is a fraction of a percentage, or none at all. They still save it. This has resulted in zero or negative inflation for years. Japan just could not get any inflation into its economy, so the current government under their Prime Minister Shinzo Abe has decided to fix that once and for all. They started printing electronic money, using the spin “Quantative Easing”. Lots of it!. They have been printing $660 billion dollars (NZ) per year since 2013 and are planning to continue to do that until they have created an inflation rate of 2%. The inflation rate after 5 years is currently at 0.5% so there is plenty more money needed over the coming years to achieve target. The government has said it is willing to create 1.4 Trillion dollars of “eased “money, but at the current rate that is going to run out way before they reach their target
The effect for us is that the Japanese yen is worth less, against our NZ dollar, making our products in Japan more expensive for their consumers. The consumers buy less of our products . The reverse also applies in that as the Japanese Yen gets cheaper against our dollar so their products get cheaper in our country. It has been argued that Japan is effectively shipped its inflation problems overseas. (The current exchange rate is 1 NZ Dollar to 79 Japanese Yen)
The EU or European Economic Union.
Mario Draghi, The President of the European Central Bank and the man who has his finger firmly on the European financial pulse said in a recent speech that they were planning to cut money printing :-“The €80bn-a-month quantitative easing scheme will be trimmed to €60bn a month from April.”
The British Guardian has the amount of Quantative Easing already created for Europe at NZ 1.7 trillion . .
They didn’t even to bother with Billions. They went straight to Trillions. . About 13 Trillion dollars to be exact . Its a bit like the Quantative easing version of the Big Bang Theory . Out of nothing there was 13 trillion! Or as “Dire Straights’ once sang “Money for nothing and the chicks for free! Just as in the past, the ‘Chicks for free” may not be free at all, and will come home to roost.
These three countries (or blocks of countries in Europe’s case) are not the only ones to use Quantative easing. Many other countries are using it, some countries use it and disguise it and some wont report it at all. (Think communist countries ).
THE BIG LAND SALE
A way to put these huge figures into perspective is to look at how much land could be purchased with the created money. If land was freely available at “Wal Mart or Pak &Save ‘ in unlimited supply, and the land was available at the current market rate for selected areas, what could be purchased ?
With its 1.4 trillion NZ dollars Japan could buy 4,721 sq. kilometers of its own prime residential land in the worlds largest city, Tokyo. (Currently selling for $26 million NZ, per hectare.) That is one third of all the land in the largest and probably most expensive city in the world .
With its 1.7 trillion NZ dollars, Europe could buy 163,897 sq Kilometers of Dutch farmland. (Currently selling for $92,400 NZ per hectare) . Luckily for the Dutch that is 4 times the size of the actual country of 41,543 sq. kilometers. With their ability to reclaim land from the sea they will no doubt double that in no time and be the size of Germany in 10 years or so and share a common border with Scotland, where they will no doubt compare notes on how to save money.
With its 13 trillion of electronic money the USA can go on a real shopping spree. Farmland in Wyoming , the 8th largest state, sells for around $4932 NZ dollars per hectare. The USA can buy 23.8 million sq. kilometers of newly printed land. Add this new land to existing land and Wyoming will become 3 times the size of the entire USA. Now that’s going to annoy the Texans .
While this is a strange way to look at Quantative Easing it puts the amount of money being created into real measurable terms.
Money is becoming more and more plentiful. It can, and is being created out of nothing, while land is still in the same short supply. With this huge amount of electronic money floating around it has to become grounded! Somewhere! Somehow! Someday! It doesn’t have real value, because it’s created ,admittedly for good reasons but created none the less. The only place that money will eventually settle is in land, shares or gold. Historically land has been a much better investment than Gold as it returns an income, as well as capital gain. Gold only has capital gain, or loss, as the market dictates. Shares while real in terms of ownership are a nominal concept of shared returns in a company and are only as good as the company. If the company can goes bust you have nothing left but some worthless paper certificates. So it will be land in the long term.
Is it any wonder we are seeing the wise money heading this way. Japan is already seeing signs with most of their 0.5% inflation being in rising land values. The Global Property Guide when discussing Quantative easing in Japan, or “Abenomics” as it’s commonly called, reports:- “Despite its seemingly negligible impact on the economy ……..since the introduction of Abenomics , real estate prices have accelerated strongly in Japan…. Tokyo Metropolitan Area 3.73%….. Osaka Metropolitan area 7.5% ”
With the amounts of money that have, or are being created worldwide, we are going to see real pressure come into land values right around the world. And with the nature of international borders money from one country can be used to buy land in another country. New Zealand is an easy country for overseas people to buy into , just ask the Chinese. You don’ even need residency for most land under 5 Hectares .
Property has to be the safest bet for the years to come. Maybe consider emigrating to Wyoming! With their recent “Wal Mart ” land purchases they have loads of the stuff!