Macrobusiness this morning really got stuck into the rotten state of Australian political economy. Hurrah!
The Glass Pyramid made the following contribution to the ensuing debate.
Why is Australia becoming such an economic mess?
As the old saying goes “He who pays the piper calls the tune” but who is the piper and where does the money used to pay the piper come from?
Perhaps what we are really talking about is those who have special access to the money that pays the piper and how they use that ‘piper’ money power to make some people, including a lots of mates, very wealthy and other people left scratching around just to get by.
A public monetary model where over 90% of public money is created by the lending decisions of private organisations (private licensed banks) is the core of the problem. The other <10% is the difference between government spending and taxation.
That process of private bank lending, that is effectively public money creation, involves private bank decisions as to who has access to the fruits of the process – new money – and for what purposes.
This is not a trivial power, it is fundamental. It determines who gets credit/money to ‘bet’ on rising house and other asset prices, grab opportunities before anyone else does, ensure that some industries do well and others fade. Access to a cheap credit line from a private bank is a major advantage.
Mates get the best rates.
We are not talking about mere intermediaries competing to bring, most efficiently, borrowers of some ‘substance’ called money together with the savers of that ‘substance’. We are talking about organisations who are creating over 90% of what is both the substance of borrowing and saving – money – that at law is treated as if it were created by the public sector. Plus charging a fee (an interest charge) for doing so.
Those decisions alone are inherently powerful but those decisions and the organisations that make them form the foundations of an even larger group of derivative transactions. The functions of the licensed banks are essential to all of the transactions and operations of shadow ‘banking’ and all the other FIRE sectors. As we know it is in those derivative markets and sectors that the speculating rats really run wild in the ranks. While derivative markets, as creatures of private credit , will always exist their potency and virility depends on a private banking sector largely free to create private credit as public money as it sees fit.
Keep in mind that regulation of this model – RBA and APRA – has been deliberately made independent of the political process. In other words a massive curtain has been erected around the model.
If you wanted to create a driving force for massive and systematic and unaccountable corruption you could not invent a better model if you tried.
All of the crooked schemes, all of the dodgy scams by corporates, local and foreign and their ‘pocket’ pollies revolve around access to and applications of the public power that has been privatised or franchised to the private banks – the power to create and destroy money that has the full faith and credit of the public behind it.
While accumulated capital has power mere intermediation of that capital has nothing on the power that has been given to the private banks.
This model has been bouncing around in various manifestations for hundreds if not thousands of years and the only reason we are seeing it at its most dangerous at the moment is that the regulations that kept it within some boundaries for a few decades were removed – ironically and darkly in the name of ‘freedom’.
Freedom for who? Not the general public.
Nothing wrong with freedom and lots of it but privatising what is rightfully a public property – the creation and destruction of public money – has NOTHING to do with freedom at all.
Freedom is giving private organisations the power over their own created money AND the Public Sector power over the money it creates.
Freedom is giving people the choice between public and private money options and in particular the freedom to choose an entirely public money option.
Forcing people to use a mutant form of public money that is nothing more than a well concealed privatisation or PPP model where the model of creation and destruction implicitly tends towards unproductive asset price pumping and consequently wealth concentration is fundamentally undemocratic and a recipe for the corruption and dissolution we see hatching all around us.
If you want to start lancing boils on the body politic and preventing new ones forming the demand is simple.
Separate public and private money now!