A story that appears in the AFR today and was noted by Macrobusiness concerns a call by Doug Turek, managing director of Professional Wealth, for more representation, on the Board of the RBA, of the interests of retirement savers who have been suffering as the RBA and APRA desperately try to keep the economy floating on growing private debt – mostly household – by setting ultra low “bait” rates.
It is excellent that we are now seeing some real lobbying for seats on the RBA board as that indicates that finally the political nature of what the RBA does is being understood by the community.
It is not surprising that groups are starting to realise that if they want to influence the Macro-Political activities of the RBA they need a seat at the table. It will not be long before they understand they also need to influence the credit control, allocation and price setting role of APRA.
Even better would be to completely rewrite the charter of the RBA and limit it to the following.
1. Stability of the currency
2. Advising the government on the fiscal deficit or surplus required to achieve No 1.
3. Buying or selling sufficient 0% govt bonds from or to the Australian Office of Financial management “AOFM” to achieve No. 2.
4. Private Bank IOUs – aka deposits created by the private bank lending process will no longer be treated as equivalent to fiat/Public Money. The lending of Public Money by private banks will first require the acquisition of Public Money deposits on terms consistent with the proposed lending activities. In other words banks will simply connect savers and borrowers and will not engage in the creation of Pseudo Fiat (aka Bank Money).
With this charter the politics inherent in the allocation of resources by government and allocation of Public Money is back where it should be – the political sphere.
The RBA would then be a technical body with a purpose so boring – advising the government how much Public Money creation / destruction is necessary to avoid inflation/deflation – that no one would want to be on the board.
What would this mean for grey beards wanting to live off interest on savings?
Hard to say but in all likelihood it will be less than they think but more than they are getting now.
Currently interests rates are being manipulated to stimulate the demand for private debt because private debt is the main form of money. Yes – it is bizarre that our monetary system is largely based on Private Banks making loans and treating those loan deposits as if they were Public Money – a relic of 19th century history that is long due for retirement.
In order to keep money pumping out into the economy fresh private debt is currently essential. As we know public debt (especially 0% debt sold to the RBA) is an alternative way to create Public Money but the minions of the private banking sector have been very good at convincing everyone that public debt (aka Public Money creation by the Public sector) is evil.
The private banks know that if the government was creating more Public Money it would have to restrict the amount created by private banks to avoid inflation. This is why private bank economists and neo-liberals hate the idea of public sector deficits as these inherently involve money creation by someone other than them and will inevitably result in government limiting the private banks freedom to create Pseudo Fiat via lending!
Without the need for ‘ bait rates ‘ to drive private debt creation, interest rates between savers and borrowers will probably be higher but not very high as there will no particular reason other than avoiding inflation to limit real Public Money deposits. In other words borrowers are likely to find that there will be plenty of competition between savers to lend them ‘real’ Public Money deposits – even in a country like Australia where people tend to be poor savers.
The chances are that borrowers would find deposits available for hire relatively easy to obtain but if they don’t – because people are not very diligent savers they would find they need to offer more to secure a loan.
In short we would have an actual market in Public Money – intermediated by the private banks /public bank – rather than the thoroughly captured, corporatist and anti-democratic monetary model we have currently have that understandably more lobby groups are seeking to bend to their will out of the sight and control of the elected representatives of the people.
The RBA would still have a very important role – advising the government on how much Public Money is required to keep the currency stable (and producing it when required) but it would not be the highly political and secretive role it has now.
Oh and in case you were wondering – this new market in “real” Public Money would still require plenty of regulation to limit the usual predatory behaviour (e.g. usurious rates of interest, extended credit to the vulnerable etc) that arises in markets for goods and services, so APRA would still have a job too but it would be much less involved in picking economic winners as the credit creation sweep stakes will no longer involve the creation of Pseudo Fiat/Public Money.
In short all the Glass Pyramid is proposing is ending the economic dysfunction caused by Banker created Pseudo Fiat/Public Money (that is created with a highly profitable trailing commission attached).