Real economic reform starts with a Banking Royal Commission


What a week it has been.

The Prime Minister Malcolm Turnbull and the Treasurer Scott Morrison have been dragged kicking and screaming by the public, the opposition and even members of their own Liberal Party / National Party coalition into having a Royal Commission into their Australian Banking “mates”.

There has been an air of pandemonium as the Banking industry and their “special friends” in politics and the media have run multiple scare campaigns and threatened the end of life as we know it … unless we back off.

“..“Australia is capital hungry, and when the capital is gone our economy has a very good chance of going into some form of economic collapse.”.

If nothing else this attempt by the Bankers to create an atmosphere of panic and fear makes the point how insane the role of private banks in our monetary system has become.

A Royal Commission into Australian Banking is NOT an “inquisition into capitalism” or “Rank socialism“.

It should be nothing more than a thorough inquiry into why our banking system is so dysfunctional, bloated, greedy, powerful, sneaky, dodgy and incompetent and why the period of deregulation of Australian banking since the 1980s has produced record levels of household debt and an economy that is now hooked on using foreign debt and liabilities to speculate on the prices of houses and land rather than investing in productive industries. Continue reading

APRA and credit creation regulation: Economic secret business


It is that day of the month when the RBA board meets to pluck some wings off bats, boil them with eyes of newt and distil the resulting mixture down to an interest rate decision.

Across the nation thousands pay close attention to every aspect of the


deliberations and complete secrecy is maintained to ensure that everyone gets the news at exactly the same time.

But what about APRA and its regulation of credit creation by the Australian Banking sector?

Good question because while the RBA has a spotlight on every action it takes, APRA engages in regulation of economic activity, that has equally important effects on the Australian economy, in almost complete darkness.

Continue reading

Australia fixed it’s gun problem: Now it should fix it’s ‘private bank’ problem.

One of the most effective lines peddled by the National Rifle Association ‘NRA’ in the USA in relation to gun regulation is that guns don’t kill people, people kill people.

The NRA argue that guns have no agency and in the hands of sane, god fearing upright responsible people they are harmless.revolver-2933620_1280

It is an effective argument because it is true.  A gun that is the hands of a sane, responsible, upright, law abiding member of the community is unlikely to cause harm.

Responding to that argument with “……but guns make it much much easier for people who are not sane, responsible, upright, law abiding people to kill people..” struggles for traction even though it is also true.

The private bank apologists use a similar strategy with regard to the role of private banks in the public monetary system.

They try desperately to characterise private banks as having no agency.  They like to portray the role of the private banks in the public monetary system as ‘natural’ and ‘normal’. In essence they argue that banks are just part of the routine structure of a modern civilised society.

Instead they argue, if you want to fix the problems of how the economy has a remarkable habit of grinding out a very small number of “super winners” and lots of “losers”, we need to investigate, unpack, interrogate and solve the problem of  ambiguous things like “neoliberalism” first.

In other words, like the gun debate, banks are not the problem people are the problem.

When understood as good old fashioned private greed the war on “neoliberalism” becomes little more than a call that we must first solve the problem of human greed. The thinking seems to be that if we can solve the problem of human greed then we need not fear private banks. After all according to the private bank apologists banks are ‘agency free’ and natural parts of a modern economy.

Unfortunately, the idea that private banks are agency – free like a “gun” – is absurd.

Private banks consist entirely of employees, shareholders, management and customers who are all deeply interested “agents” and in ensuring that private banks serve THEIR interests rather than the public interest.  Each of these stakeholders has a very real and powerful motivation in ensuring that a private bank operates in their private interests rather then the public interest.

If private banks ‘naturally’ served the public rather private interests they would not require the armies of regulators, regulations and laws they currently require ….and have managed to capture or avoid with relative ease.

If there is a concern about the rising prevalence of human “greed” then the best way to address the issue is to focus on the role and operation of the organisations that primarily manifest and facilitate that greed.

Which means that if your concern is the dominance of “neoliberalism” – aka the rise of private greed – the regulation of the organisations – the private banks – most central to the process MUST be your central concern.

If it isn’t then #GreedisGood and  #FakeLeft are the hats that fit you best.

When it comes to regulation of the private banks the test is simple.

What works!

The current model of banking and monetary system regulation clearly does not work.

How many more stories of banks abusing their ‘privilege’ do we need?

The onus is on those, who believe a functional role for private banks in public monetary systems is possible, to articulate exactly the suite of regulations that will work.

If they cannot make a case and we are surrounded by their failures, the sensible and reasonable approach is to abolish the role of private banks in the monetary system and convert the private banks into investment companies that operate on exactly the same basis as all the other companies – investment or otherwise – across the economy.

If banks really are competent at selecting ‘credit worthy’ projects they should have no trouble identifying ‘investment worthy” projects and persuading investors to advance funds to be managed and invested by them.  The investors would then share in the fruits of those productive investments.

Considering the track record of private banks over the last 100+ years and of the failed attempts to regulate them to operate in the public interest the answer should be clear.

The role of private banks in the public monetary system is a barbaric relic of the 19th century and its time is up.

But don’t expect the Royal Commission to examine any of this as Malcolm specifically excluded issues like this from the Terms of Reference.

Are there alternatives?

Meanwhile in other countries Central Banks are leading the debate about alternatives to a clapped out private bank dominated system.

Here is an interesting speech by the Norweigan Central Bank. Don’t hold your breath waiting for something like this from our RBA.

“…But there are some characteristics deposit money lacks. It cannot offer anonymous payments. The system is vulnerable to advanced attacks. Having more money on deposit than is covered by the deposit guarantee scheme involves risk. Nor is direct and immediate settlement between two parties, without the involvement of a third party, possible without cash.

In the future, new payment solutions may be able to offer these possibilities. Private digital currencies providing anonymity are already on the market. These currencies can also be used even if banks’ systems fail – as long as the Internet is still functioning. The same applies to platform currencies and e-money. However, there are other crucial characteristics missing from these solutions – they are not backed by any authority and the level of foreign exchange and credit risk can be high.

One alternative currently being discussed is the introduction of electronic central bank money. There are several ways of achieving this: consumers can have an account either at the central bank itself or in a system controlled by the central bank. Another possible solution is for Norges Bank to issue a payment card or develop an app for consumers to use for anonymous payments….”

Meanwhile in Switzerland they are taking the issue very seriously with a referendum in June on the subject.

And conferences as well.

The world is moving on……we don’t have to be left behind……in broken and dysfunctional 19th century private banker world and a bunch of #FakeLeft slogans.


Renting in Australia: Some signs of health

SQM has. published new data on the level is vacancies in the rental markets across Australia.

Signs of improvement in Sydney (2.6%) and Brisbane (3.8%) but still tight as ever in Melbourne, Hobart, Adelaide and Canberra.

Perth (4.6%) and Darwin (3.5%) are the only markets showing real health with a reasonable level of residential vacancies over an extended period. Continue reading

Policy paralysis: Capital flows from China.

A lot of people spend a lot of time engaging in the reading of Chinese government tea leaves.

It is the modern equivalent of the Cold War exercise of Kreminology where platoons of pointy heads watched the Kremlin and tried to work out what the commies were up to.

When it comes to capital flows the “SinoSpooks” get very very excited on almost a daily basis as they try to work out whether the Chinese government has turned the capital flow tap on or off. Continue reading

Bank “Junk Food” credit, macroprudential and the Australian Banking Royal Commission

With all the excitement surrounding the announcement of a Royal Commission into Australian banks, a few have asked whether there are less drastic options than those recommended by the Glass Pyramid in the article “Real reform starts with a Banking Royal Commission”

One option that is often raised is that the Australian Prudential Regulatory Authority “APRA” could make more use of a regulatory tool that is commonly referred to as “macroprudential”. The argument goes that macroprudential action by APRA would ease the worst of the problems and allow the ‘hard’ issues about banking to be avoided or put off for another decade /generation – though most likely only until the next time the banking system explodes after too much greed and gouging. Continue reading

Banker Panic ! Why a Royal Commission is so important.

What a week it has been.

The Prime Minister Malcolm Turnbull and the Treasurer Scott Morrison have been dragged kicking and screaming by the public, the opposition and even members of their own Liberal Party / National Party coalition into having a Royal Commission into their Australian Banking “mates”. Continue reading

Fixing politics:  How to get rid of political hacks and vote for change in Australia

Are you completely fed up with Australian politics?

Fed up with career politicians who can’t even read the constitution and renounce claims to privileges granted to them by foreign powers?

Fed up with politicians who seem more interested in rorting perks and entitlements?

Fed up with politicians who seem more interested in what some large corporaion or foreign donor want than what the people who elected them want?

Fed up with politicians working hard to sell off Australia to foreign buyers bit by bit?

Fed up with Free Trade Agreements that close down our factories and make it easier for foreigners to buy what our politicians are eager to sell.

Fed up with politicians who resign and the next day take big fat jobs working for the outfits who were lobbying them the day before they resigned?

But don’t know how you can make a real difference? Continue reading

A 3 Step Plan to drain the Australian economic swamp

The Bank of American Merrill Lynch reportedly thinks the RBA monetary policy lever might be broken, while many other are concerned that the rising levels of interest bearing public debt incurred by Mr Scott Morrison may soon be reaching its limits.

Monetary policy exhausted and fiscal policy not far behind?

Fancy that.

Guess we are all out of options then and should just curl up and sob in a corner. Continue reading

What do people mean when they say “Sydney is full”

The media in Sydney is currently full to the brim with stories about the fullness of Sydney.

Some people like former NSW Premier Mr Bob Carr reckon Sydney was full 20 years ago.

Others argue it started to overflow the lip of the teacup a couple of years ago after the rate of immigration into Australia – which means mostly Sydney and Melbourne – was given a massive boost by John Howard and Peter Costello in the early 2000’s with the tap left on full by successive governments.


Continue reading

A Productive Banking system? A job for RBA and APRA.

Macrobusiness ran a post today about a suggestion that Central Banks like The Reserve Bank of Australia should target nominal GDP growth.  The article was critical of the proposal and identified the central failing of the Australian economy over the few decades as too little productive investment.

As regular readers of The Glass Pyramid would know, this is a topic close to the furry heart of TGP Head of Research. Continue reading