Macrobusiness

Population Ponzi and our broken monetary cartel

Something else that cannot grow when Australian wages and incomes per capita stagnate is household DEBT per capita ……unless interest rates and lending standards fall.

And when household debt can no longer expand that component of the money supply representing household debt stops expanding too. If households actually start repaying their loans the money supply starts contracting with deflationary consequences. The horror!

But total household debt (and the money supply) can still grow providing Australia continues to import more people willing to sign up to new debt contracts with our private banks.

Photo by Pixabay on Pexels.com

In other words a high rates of immigration can allow total credit to grow even as growth per capita falls.

It is ironic that so many people are cynical and opposed to high rates of immigration while at the same time promoting the further cutting of interest rates to promote a further expansion of household debt.

Cutting immigration makes it harder to maintain total credit growth and requires even larger cuts to interest rates and even lower lending standards to maintain total credit growth….everything else being equal.

In other words, it makes NO sense to be arguing for cuts to immigration, if you are not interested in or do not believe that monetary system reform is possible, as immigration helps keep the Australian monetary Ponzi cartel/scheme from imploding.

Of course there is an alternative to running a monetary system on unstable ever expanding private bank balance sheet liabilities and frantically BEGGING the central bank to stimulate household demand for them by cutting rates and/ or lending standards.

Allow the central bank balance sheet to grow by allowing everyone to open accounts at the central bank and increasing the supply of central bank liabilities to meet the demand for them until the inflation limit is hit (the limit will depend on your perspective. Inflation loving old school Keynesians may have a higher limit). 

Expanding the supply requires nothing more than SOME directly monetised fiscal policy and that involves nothing more than the government directing the RBA to buy some zero interest bonds from treasury.

Keep in mind that the purpose of these accounts is to simply allow the public a more convenient form of central bank liabilities ……more convenient than notes and coins…..and like those other types of central bank liabilities no interest will paid on balances in central bank accounts.

NOW is exactly the right time to expand the supply of central bank liabilities into the money supply as it will reduce the almost total dependence on private bank liabilities and the usurious debt contracts they involve.

AND all it requires is allowing everybody the same privilege that is given to the private banks. The right to operate deposit accounts at the central bank.

Central bank cybercurrencies are another form of central bank liabilities that are just around the corner.

So there could be four forms of central bank liabilities that could be made available to the general public and non banks to use.

1. Coins

2. Notes

3. Central bank cybercurrencies

4. Central bank deposit accounts 

I should emphasise that I am not opposed to private money and foreign money as monetary competition is healthy. So people will remain free to ‘invest’ in private banks in the form of unsecured at call investments (currently called deposits) but naturally they will lose any public guarantee. Why should investments in private banks get a taxpayer guarantee anyway. Note: As Private Banks have traditionally engaged in a form of fraud it will be necessary to maintain close regulation over their activities as it is not in anyone’s interest to have crooked bankers accepting investment funds and then blowing up the bank by making bad loans to ‘mates’ and then leaving town.

The key point is ending the loony state / private bank monopoly cartel that we currently have and has been a dud from the start.

It’s not as if we have a choice anyway – those countries in the various US defined axis’ of evil or “bad guys” will be doing it sooner than we think and the less brain dead countries (the Northern Europeans) in the west as well.

It will be just dumb down under Australia left hanging onto to the US fraying coat tails

Wake up Australia…..it is time to try something that will work rather than accelerate down a dead end.

Categories: Macrobusiness

3 replies »

  1. “But total household debt (and the money supply) can still grow providing Australia continues to import more people willing to sign up to new debt contracts with our private banks.”

    There is another option if you look closely enough. The other option is to substitute or supplement existing workers with cheaper 3rd world workers and pay them very little while these cheap workers work at least as productively as a reasonably paid one.

    This increases productivity while not increasing fixed costs by the proportionate amount, which creates capacity in companies. Capacity is valuable. It is then extracted by increasing wages of business owners or the other employees at the expense of the cheap imports. Incresing wages allows increasing the amount of debt.

    This is the mechanism of wage theft. It isnt as good as if the immigrants would take on debt themselves, but it does work. The question is does it work well enough to prevent deflation? I think time will tell. Presently it doesnt look too good.

    Liked by 1 person

  2. Display Name

    Surely the purpose of personal accounts at the central bank is to keep private banks honest. Even if the interest rate was a nominal rate pegged to the cash rate this would probably work. The possibility of a significant flight of cash from a private bank to the central bank *might* make them honor their social license a tad more….provided the central bank acts in the best interests of the average punter. And that may be the catch.

    REPLY

    Pfh007

    I agree. Keeping the private banks honest would be a critical objective of giving everyone access to an account at the Central Bank.

    However, it would not be necessary for the RBA to pay interest on the balances of the deposit accounts (even though it is currently paying interest on the balances of the banks ES accounts).

    It makes sense that no interest is paid on Central Bank deposits as no interest is paid on coins or notes.

    It is enough that they are largely risk free.

    if that is not enough people are free to invest where risk is involved and obtain reward.

    Keep in mind that investment means that the holder of a Central Bank deposit transfers some of their Central Bank deposit to someone else (the investment) in return for a contract promising a return. If the investment fails the Central Bank deposit is not destroyed it just doesn’t go back to the original investor.

    A possible example of an investment might be to buy a bond issued by an investment company who then uses the proceeds of the sale to advance money secured by a first mortgage.

    Like

  3. Even Steven

    PFH: What do you expect would happen to bank share prices if your proposal was given life? And how do you think this might impact the political feasibility of implementing your proposal?

    REPLY

    Even Steven,

    Hard to say. My proposal is a very modest proposal.

    The first step is simply to allow non-banks to open Central Bank deposit accounts.

    I don’t anticipate there will be much demand as they will pay no interest and are likely to only be of appeal to those who want try them out – keeping in mind that initially the guarantee over private bank deposits will remain.

    The following phases might be more interesting.

    1. Gradual restriction and eventual removal of the guarantee over private bank deposits.

    This should not be a major issue either as up until the GFC there was no explicit guarantee anyway. But naturally there should be an education campaign to explain to people that if they want 100% safety for some of their savings they should put them in the Central bank.

    2. Monetisation of some fiscal policy.

    This will only be necessary to the extent that banks trying to persuade central bank depositors to invest are paying a lot of interest to do so. The government may take the view that a larger supply of central bank deposits is required to meet the demand. A simple way of increasing that supply is to monetize part of the deficit.

    All of the above is likely to take place over a number of years so there will be plenty of time for shareholders to digest the implications and for banks to adjust to the changes.

    I don’t see why a bank need be any less profitable simply as a result of citizens having access to central bank liabilities in the form of a central bank deposit account. They may become more like investment companies but that doesn’t mean they can’t be successful and profitable.

    They just may need to be smart to be profitable rather than lazy and profitable as they currently are.

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