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?
Guess we are all out of options then and should just curl up and sob in a corner.
10 years after the Great Financial Crises and we are still reading brain dead statements of the bleeding obvious because it is all too hard to discuss alternatives to the status quo.
The lack of imagination amongst our economic chattering classes and their rigid adherence to bad ideas is impressive.
No wonder it took so long to convince folk that the earth revolves around the sun.
Here once more is the Glass Pyramid “3 Step Plan” to drain the Australian economic swamp.
1. Reintroduce private bank credit creation regulations that restrict lending by reference to the purpose of the loan ….not the category of the borrower.
In other words loans with a high risk of encouraging speculation in the prices of existing assets will be rationed. Loans directed to building more productive capacity will be encouraged.
This is largely how we ran our banking system until the bankers managed to fool the public into believing that the ‘discipline’ of the free market would force them to allocate capital / credit productively. Well we now have 30 years of evidence that deregulated private bank credit creation means one thing: Asset price bubbles and more wealth for wealthy pockets.
2. Unproductive capital inflows will also be heavily restricted – starting with the three key forms of unproductive capital inflows
- Mere transfer of title to existing Australian assets to offshore owners
- Mortgage operations of private banks, secured by existing property, supported by capital inflows
- Sale of government securities to offshore parties.
The features of these three forms of unproductive capital inflows have been discussed at length by the Glass Pyramid so we will not go over that ground here.
A completely unrestricted capital account is yet another ‘reform’ recommended by the bankers and their finance mates back in the 1980s. It was a mistake but do not expect any of them – even now – to admit that.
3. Start funding a modest portion of the fiscal budget with the sale of 0% non transferable bonds to the RBA.
The budget is about $420B so $20B is about 5%. That is enough to start with.
This amount will make little difference overall but we need to start somewhere and it will allow all the sound money loonies and private Bank apologists to exhaust themselves for 12 months announcing the end of times and the onset of totalitarianism.
Over time as the hysteria reduces, the proportion of the budget / deficit funded by selling interest free bonds direct to the RBA can increase, though a limit will be reached soon enough as inflation will remain a policy constraint.
The effect of these 3 steps will be as follows.
The AUD will start to soften as unproductive capital inflows are restricted. Ultimately the level of the AUD will reflect our trading performance rather than the capacity of our banking and financial sector to sell off Australian assets and claims on our future income.
This will allow our businesses to better compete against imports and on the world market. Good for business and good for jobs.
Existing asset prices will soften as unproductive credit creation by our private banks slows and productive credit creation expands. Banks will lend to create new productive capacity – new houses and new factories – rather than simply lend to speculators in the price of existing housing.
The amount of interest accruing debt issued by the government will stop rising and start to fall as it is replaced with zero interest accruing money created explicitly by the RBA.
Inflation will continue to be monitored and reported on by the Australian Bureau of Statistics and the RBA and will remain a limiting factor on fiscal policy and the fiscal deficit.
There is nothing complicated or difficult about the above – except if we simply refuse to discuss it.
Don’t expect economists or public relations people from our banking and finance sector to discuss the above or even admit that these options exist.
If they do they will run a bunch of wild “sky is falling” scare stories to divert attention.
From the perspective of the banks and finance industry the above plan will weaken the stranglehold they have had on the economy since financial deregulation in the 1980s.