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!
“…Do you think that deposits flowing from tired old banks into ponzicoins will be tolerated once enough folks realise its a risk?…”
Nope but that is because the partners in the current public/private monetary system hate competition and choice.
Everything coming from that sector – especially from the likes of Rogoff – is all about welding shut any exits or denying people choice.
If people want to use Bitcoin or any other form of private money good luck to them.
Only control freaks would be concerned that any of this poses a threat to genuine well operated public money systems that have massive volumes of required by law transactions to support them – taxation and expenditure by government.
The only reason we having this debate at all is that the PPP monetary model we have at moment has proven such a corrupted and dysfunctional failure. Get the private banks out of the model and it will start operating without so much baked in corruption and unproductive resource allocation.
The solution to that is simple – end the PPP model and separate public money from private money completely.
Let the banks become mere intermediaries in 100% public money or let them develop and try and find a market for their own private brand money.
None of this guarantees a future for bitcoin but at least bitcoin demonstrates that there is no reason why public and private monetary systems cannot co-exist.
I know the FIRE sector are having conniptions that people want to tax and clip their wings but it well overdue. The sooner they hand back their ADI licenses the sooner they will be free of everyone giving them a hard time. Then they will be just your run of the mill financial sectors grifters.
There is force in your point but I really hope that we are not stupid enough to require such a harsh learning experience.
Technically unwinding the PPP monetary model is not very difficult.
The bigger hurdle is political as the banking cartel will kick and scream like anything. If you thought their hysterical whining about the Bank Levy was over the top their squealing about losing the protection of the full faith and credit of the public for their private promises will be deafening.
But if the change is characterised, as I describe above, as being about freedom we can hoist them on their own petard.
Give them ‘freedom’ in abundance. Freedom to create their own money and do with it what they like.
How can they argue against that!!
And when they run their Weimar, Zimbabwe horror stories and baby eating hun stories we can remind them that the public will be perfectly free to reject their Australian Dollars and saving in those dollars and instead put their savings into
Commonwealth Golden Kangas
ANZ – Zoltbits
NAB – Nickle Numpties
Macquarie – Holy Dollars
That word freedom is powerful word that everyone understands. Lets put some truth in it and give the private banks freedom by the bucket load.
I have a copy of the report. Try this link and click on senate tables papers and try searching monetary in royal commissions.
It is very interesting. It seems like people generally had a much better understanding of the implications of our banking and monetary system in the 1930s. I suppose depressions do focus the mind a bit.
This chapter is quite a good introduction.
Click to access ch0861.pdf
From this free book
“..Sort of back to pre Keating days for the banks..”
Yes though a fair bit further than that. You are quite right. Until specific forms of private credit (bank created credit) are no longer given equal status with public sector credit the problem will continue.
The problem with just going back to the Pre- Keating era is that there will continue to be well funded lobbying efforts to unwind the regulation of private bank credit as public money.
The only way to really end the problem is to insist on a clear separation between public sector created money and private sector created money.
Now is an excellent time to do so as the public are starting to understand, from the emergence of things like bitcoin, what private money looks like.
It is a pretty simple and reasonable thing to demand.
The public sector (govt) is responsible for and has a monopoly on the creation and destruction of public money.
The private sector can create their own private monies (aka credit or cyber currencies)
The public can choose which they use and when though the dominance of public sector created money is likely to be considerable as it has the full faith and credit of the public and not just some private capital. Though in corrupt and dysfunctional states people may prefer to use private monies or money issued by other public sectors (foreign currencies) for all but essential purposes.
If the USA no longer was the reserve currency and had a public credit creation system only, would they cease to be the worlds policeman? Would they be replaced by a country or group of countries who undertook those operations (eg new holder of reserve currency)?
Well that is a big question!
I think it is preferable that the means of settling transactions between two nations did not involve the public money of a third. Whether that would change the geo-political role of the US is hard to say.
It may be less a policeman and more a leader. It would probably change the dynamic of how the US engages in the world but there are plenty of things that the US might start doing a lot better if it was not supplying the world reserve currency.
Fixing domestic and international monetary arrangements is likely to be the next great revolution.