Australian Banks : The bit Anna Bligh does NOT talk about

Anna Bligh, in her new role in political retirement as spruiker in chief for the interests of the Australian private banks, gave a speech yesterday at the Australian Press club in Canberra. Watch it here.

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Macrobusiness.com.au

Macrobusiness.com.au reprinted, along with critical commentary and the cheeky graphic, a large chunk of the transcript of the speech here

However, amidst all the puffery and attempts to gild the Australian banker’s lily, Anna Bligh does get one thing right

“…In this context, there is an ever diminishing appetite for thoughtful and sensible public policy making. Any appetite there may once have been to explain the complexity and importance of banking to the Australian economy has been all but extinguished…”

Not that she tries to fix that herself as she does not a utter a single word in that speech that attempts to explain in clear and direct language Continue reading

Banking Royal Commission: Bowen says do the job right!

Mr Bowen, the Shadow Treasurer, has given a speech in which he is reported to have made clear that a Royal Commission into banking must be thorough and carefully look at the banking regulators (APRA, ASIC, RBA) as well.

This is welcome news as a worthwhile Royal Commission into Banking and the Monetary system must, by definition, include an examination of the regulatory framework.IMG_2336

But there are some who remain uncertain.

“…But what can a royal commission usefully deliver on these questions without diffusing the more precise focus on illegal and unethical bank behaviours?….”

The last thing we need is a Royal Commission that creates the impression that specific manifestations of the underlying rotting core are all we need to worry about.

Illegal and unethical behaviour are the expected result of the current banking and monetary model. Continue reading

Bligh and Baird: Brazen private bank spruikers.

Nothing like an industrial grade testing of the gag reflex first thing on a Monday morning!

A flock of recently retired senior politicians from the major parties are out and about, with juicy Banker paychecks in their pockets, spruiking the Banker’s line and demonstrating they have no idea of the difference between sectional private interests and the public interest.

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Continue reading

The Greens: Can they avoid the fate of the Australian Democrats?

Are the Greens on a slide that ends in oblivion or just suffering a loss of direction?

Across the land many are wondering.

Everyday, the Greens become more and more like the old Australian Democrats.

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A bunch of middle class political science ‘professionals’ and self appointed do gooders who are mostly disinterested in and bored by the issues of concern to low and middle income earners.

When they do trundle out policies that they think might appeal to lower socioeconomic groups they are invariably nothing more than centrally administered ‘programs’ delivered by know-alls that mostly appeal to those who have lost any sense of self reliance and self determination.

If you are not a ‘virtue signaller’, live in a “heritage value gated” inner urban white zone or a welfare state recipient the Greens have little to offer.

Middle and lower income earners need ONE thing.

More money in their wallets at the end of the working week. Do that and they can work out perfectly well what is in the best interests of themselves and their families.

The single biggest determinant of what is left in your wallet is the cost of living.

Debt driven ponzinomics, inflated and cartel gouged and tax farmed prices for land, housing, food, education and transport are what the Greens SHOULD be concerned about.

Address those and they will quickly find they are winning seats across the country and can actually pursue environmentally sustainable objectives as well.

Ignore those issues and they are doomed to be nothing more than the ALP and LNP with a handful of goiji berries.

In other words irrelevant – two duds are enough to choose from – and the electorate will dispense with them.

Whether the ALP can pull their finger out fast enough is the only question.

If the ALP get their house in order and decide to represent middle and low income earners for a change, rather than their generous mates in the financial sector and foreign interests, the Greens are dust.

Usury – Always bad or only sometimes?

Over the weekend regular MB commenter “footsore” linked to an article regarding usury (charging of interest) and how and why it become ‘respectable’  (**cough cough**) after a long history of prohibition, restriction and generally bad press.

Of money and morals:   Moneylending has been taboo for most of human history. So how did usury stop being a sin and become respectable finance?

https://aeon.co/essays/how-did-usury-stop-being-a-sin-and-become-respectable-finance

Below is a quick response from the Glass Pyramid to the general theme of the article. Some modifications to the original comment on Macrobusiness have been made.

One thing we should all be able to agree on, whether or not we agree that all usury or the charging of interest on loans is a problem, is that the charging of interest in at least some circumstances warrants very careful regulation if not complete eradication.

For example, payday lending, loan sharking and consumer credit generally are all areas considered to require copious regulation.

One area, often overlooked, where it should be beyond argument that the charging of interest is totally inappropriate is the creation of public money.  By public money I simply refer to money that is given specific or effective status at law as public money.  There is no need to bog down this article with the minutiae of bank credit v central bank reserves and whether or not there is a meaningful distinction.

Currently there are two primary sources of “public money”.

The public sector is the source most people understand, and the other source, and by far the larger of the two, are the private banks. Approximately 94% of what is ‘effectively’ public money is created by the private banks.

If you have ever wondered what really makes a bank a bank, it is the privileged status that is given to the IOUs or promises issued by them.  When a bank grants you a loan it is really only giving you a promise that it will honour payments made by you that draw upon that promise.

While it is no surprise that private banks charge interest / usury when they create credit (honour drawings on a loan) that is treated at law as if it were public money, it is simply bizarre that the government is forced (by nothing more than convention) to pay interest/usury when it creates genuine public money.

Why on earth do we force the government to pay interest on the creation of something that it is perfectly capable of creating without charge?  If the government wishes to ‘spend’ money it can do so simply by taxing or creating the money as required – or asking the RBA to make appropriate entries in its ES account.

When we talk about government ‘borrowing’ from banks and others to fund a fiscal deficit we are talking about a scam of the highest order.

100% Public Money

Governments executing the most basic and fundamental obligations of government are more than capable of producing 100% of the public money an economy might require and this process need not involve the imposition of interest/usury at all.

Governments  would simply spend what they need to spend and then tax back that which is necessary to avoid the inflation that might otherwise result from too much money created and now circulating in the economy.

If the economy is growing quickly and a lack of money to support that growing level of economic activity is producing deflationary pressures the government will simply tax less or spend more and thereby introduce more money into circulation.   If inflationary pressures are building the government will simply reduce the size of the deficit or perhaps run a surplus.

This is not “magic money tree” economics as avoiding inflation (or deflation) remains as a very real constraint on government policy and action.

The RBA “interest rate” fiddling model is a failure

Government management of inflation primarily via fiscal policy is a much simpler task than the task that is currently attempted by the RBA, where it tries to manage inflation/deflation via the complex mechanism of fiddling with the interbank overnight interest rate and hoping that these changes transmit to the broader economy in a way that is productive, equitable and fair to all citizens.

How much more evidence do we need that the current RBA model of monetary management by fiddling with the overnight rate is a dismal failure?

  • Inflated and bloated housing asset prices
  • Growing levels of inequality and distortions in the distribution of wealth
  • Record levels of household debt
  • Record levels of foreign debt
  • Record sales of Australian assets, businesses and industries offshore
  • Rapidly rising levels of public sector debt
  • A decline in productive economic activity
  • A rapid increase in unproductive economic activity centred around leveraged speculation.

Forcing governments to ‘borrow’ from the private sector.

The one thing we do not need is to continue the current farce whereby the government is forced to “borrow” from the banks or other individuals by selling bonds and paying interest on those “borrowings”.

If for no other reason than that these transactions do not really involve borrowing at all as the purchase of the bonds by banks often requires offsetting action by the RBA. The Reserve Bank usually has little choice but to ‘buy’ bonds from the banks in order to ensure that the target rate is not distorted by the impact of government ‘borrowing’ reducing the ES account balances of the private banks when the banks pay for the ‘bonds’.

When the RBA “buys” bonds from the banks it creates the money required to do so in the form of accounting entries to the selling banks ES account.  These entries increase the ES balances and remove the downward pressure resulting from the government bond sales.

As the government spends the proceeds of the bond sales and these flow back into the Bank ES accounts, the RBA then reverses the process by selling bonds to the banks to reduce their ES account balances.  All of these transactions involve the payment of interest that would not otherwise be necessary.

The simple alternative is that the government simply directs the RBA to credit the governments ES accounts as required by the fiscal policy that has been determined necessary to avoid inflation or deflation.   The corresponding debt would be made to a RBA account called something like “100% Public Money in circulation” account.

Note:   There may be some benefit in the government continuing to conduct some bond sales and purchases on a limited scale, if the government wishes to inject or remove public money from the economy at short notice, but this is very different to essentially requiring ALL government deficit spending to be financed with bond sales.

Private individuals borrowing and lending 100% public money

So if we eradicate usury from the creation of 100% public money what about other transactions?

If private individuals wish to borrow or lend quantities of 100% public money created as above and charge interest when doing so, this is unlikely to present a major problem as the government can take into account changes in the tendency to save or spend public money when making decisions on future government expenditure and taxation.  In other words the government can readily create additional 100% public money and stymie those who might seek to “hoard”.

If people want to hoard or save more in their deposit accounts and/or mattresses and effectively remove it from active circulation the government will be free to run a larger deficit. Likewise if those mattresses start give up their savings or savers become spenders, the government can take that into account as well as reduce the rate of creation of 100% public money.

This does not mean that individuals or organisations charging interest on 100% public money will not present potential problems that will require regulation but regulating these transactions to limit their harm is unlikely to be a major difficulty when the government has a monopoly on the creation and removal of public money from circulation.

In practice the rate of interest that anyone can charge to lend 100% Public Money will be limited because the government will be always able to counteract a shortage.

First step to a more equitable and fair economic model

If we want to make some progress towards a more equitable and fair economic model a very good first step is ending the farce that is requiring a government to ‘borrow’ – often from offshore parties – to finance a deficit.

Government deficit financing by bond sales does nothing more than bake usury into the monetary model from the foundations up.

Fixing this fundamentally defective model of public money is the key project.

Regulating private transactions that charge interest / usury is likely to still be required (pay day lending, loan sharking etc) but without usury baked into Public Money creation the issue of usury in private transactions (that may involve private money) is less likely to be an issue simply because there will now be a genuine usury free public money option.

But who will be the losers if such a reform was undertaken?

And yes you can expert the FIRE sector and its many varied minions, apologists and trolls to unleash hordes of flying monkeys the moment anyone suggests such a simple and obvious reform.

Oh and yes this does mean that the privilege enjoyed by the banks with regard to the status of the credit they extend would cease. No harm in that – there is no good argument why one particular class of private credit by one class of private organisation or individuals should be given the protection of the state.

Let the bankers go free to create their own credit, IOUs, promises to pay and let them try and find a market for them.

At least they will no longer have to whine about the government (APRA) regulating how they exercise their credit creation “privilege” or taxing it in the form of Bank Levies and other taxes.

If our Big 5 Banks really were as brilliant and helpful to Australia as they try to claim they would happily surrender their credit creation privileges and seek the introduction of a model where public money is a monopoly of the public sectors and the banks are nothing more than intermediaries of that public money.

If they wish to create their own genuine private money and issue private banknotes or private cyber currencies like bitcoin they should have every freedom to do so.

Competition between 100% public money and private money will be good for both.

A bit of choice for the public in something as important as money is just what this century needs.

Bankers Attack: South Australia must stand firm on Bank Levy

This morning on Macrobusiness there was a call for the state governments across Australia to work together to support a Bank Levy that is distributed to the states and not Canberra.

“..The states should get band together urgently and apply a pro-rata levy right across the nation…”

This is the key.

This is really an issue of state self determination and fiscal independence.

We have a federal system of government and the constitution provides an important role for state governments and clear powers in relation to banking. Why shouldn’t the proceeds of a Bank Levy on the top 5 private banks be distributed between the states?

A Bank Levy on the big banks is good

Everyone (except the banks) agrees that a Bank Levy is appropriate so that the 5 large private banks are not getting the support of the full faith and credit of the Australian public for free (they get to borrower cheaper than the smaller banks because it is assumed that they will never be allowed to fail) so it is not a large leap to the idea that the proceeds of the levy should be distributed to the people who are effectively providing the guarantee.

Yep – the average wage earner is the one who will be asked to bail out the big banks so they should benefit from the fee paid for that guarantee.

Some of those supporting the general concept of a Bank Levy include:

  • Chris Joye from the Australian Financial Review.  Though Mr Joye does not agree a single state should go it ‘alone’ and charge a Bank Levy.
  • Scott Morrison, the Liberal Party Treasurer in Malcolm Turnbull’s LNP government, who imposed the first Bank Levy in the 2017 budget.
  • The Federal ALP and Greens who support a Bank Levy
  • Macrobusiness.com.au

Federal Treasurer Mr Scott Morrison’s comments in support of imposing a Bank Levy included:

“..Importantly, it will also support competition in the financial system by providing a more level playing field for smaller banks and other providers of financial services who compete with the larger banks who enjoy cheaper costs of funding…”

“…The levy is also designed to support competition.

The House of Representatives Economics Committee’s ‘Review of the Four Major Banks’, commissioned by the Government last year, concluded that Australia’s banking sector is an oligopoly and that Australia’s largest banks have significant pricing power which they have used to the detriment of everyday Australians.
This is not a situation that the Government is willing to accept….”

Why should the states and not Canberra receive the proceeds of the Bank Levy?

Rather than create yet another source of revenue that is centralised and hogged by that soap opera in Canberra it makes much more sense that the proceeds, of charging the major banks for a privilege that relies on the support of ALL Australians, are distributed to state governments.   Perhaps a fraction of the proceeds (an administration charge perhaps) might remain with the Federal Government for collecting the Bank Levy on the states behalf.

The imbalance between between tax (Canberra) and spend (states) in Australia is bad enough without making the situation worse with yet another source of revenue being directed to Canberra and left in their hot little paws to pump into pork projects of their choosing.

Better than the GST

While the states governments continue to squabble over GST they should be able to reach a quick agreement to support a larger Bank Levy that is distributed to the states and is in proportion to each states share of national economic activity or some other measure that is appropriate.

No tricky formulas that favour some states or are hard to explain.

Revitalising the states and reducing the Canberra ‘elites’ control obsession

If the South Australians frame their Bank Levy as an exercise in revitalising federalism, poking Canberra’s clowns and state self determination, and seek support from other state governments they will have an effective counter to the outrageous propaganda campaign being waged across South Australia by the Australian Bankers Association and the individual banks who are trying to thump South Australia into submission with barely disguised threats.

That the South Australian Liberal Party were stupid enough to fall for opinion polls run by the Australian Bankers Association and oppose a higher Bank Levy was breathtaking but then we cannot expect the ‘vision thing’ from everyone, especially those rattling their corporate donation begging bowls.

So why should South Australia go it alone?

The only way to get such a scheme up and running is for South Australia to impose its own Bank Levy now and encourage the other states to do so as well. That will make it clear that this is a serious issue for the state and not just hot air.

More than a few of the other state treasurers will jump aboard once they understand that this is for real and is happening.

Once imposed by South Australia and a fact of life there can be discussions about the most efficient way of administering the levy.   It is likely to make sense to have Mr Morrison collect the Bank Levy on behalf of the states and pass it on directly to each state government.

If the states feel generous they might throw a few coins towards Mr Morrison for his services in that regard.

Stand firm South Australia.

Westconnex – For Western Sydney the great toll rip-off starts in August.

Only 6 weeks to go before Western Sydney drivers find their wallets feel a lot lighter each week as the NSW government turns on those new toll readers over the M4 near Parramatta.

How much lighter?

Try $45.00 lighter per week for most drivers.  If you drive a truck get yourself a stiff drink and sit down.

What ?  What is this new road that you will be paying through the nose to use?

Ah not quite…….You are dreaming !  

You will be paying to drive on a road you have ALREADY paid for!

Well this brand new $45.00 toll, that Premier Gladys Berejiklian is going to get you to pay each week, is for the privilege of driving on a bit of M4 surface road between James Ruse drive and Homebush Bay Drive.

Yes, that roughly 8 km bit of M4 surface road that Western Sydney paid off years ago.

So what do you get for $45.00 per week?  Apart from paying off that bit of road for a 2nd time?

Nothing much.  You will still be driving/grinding along the choked Parramatta Road from Strathfield to the Bunnings at Ashfield for years and when they do finish digging the tunnel under Parramatta Road they will charge you extra for that section.  Another $4.00 each way.

Yep in 2019 you will be paying $17.00 for a return trip to the City on the M4 from Parramatta.
$85.00 per week or $4,400 per year.   That will sting.

$45.00 for a couple of extra lanes?

At best that $45.00 per week will give you a couple of extra lanes between James Ruse drive and Homebush, that do little more than reduce the crush resulting from the thousands of extra cars flooding on the roads as the immigration minister Mr Dutton in Canberra packs Sydney with thousands of new Australians each year.

It would be nice if Mr Dutton offered to pay for the road works that his very Big Australia program requires, but don’t hold your breath as he reckons that building roads is a “state” problem and of course Gladys reckons that it should be your problem.

What if you are driving in from the south west or north west?

If you are travelling on the M7 toll road (now also needing widening) you will be looking at up to another $8.00 each way.

Bingo – $25.00  ($16.00 + $9.00) per day to get from Leppington to Olympic Park.  $125 per week.

About $6,500 per year after tax income. What is that in pre-tax income?

https://www.roam.com.au/using-westlink-m7/about/toll-pricing

So why are we building so many very expensive toll roads all of a sudden?

The answer is simple.   This is what a Big Australia population program is all about.

Filling the country with new residents as fast we currently are (approx 200,000 per years compared to the long term average of 70,000 – 80,000) costs a fortune because infrastructure is very very expensive and especially when it involves tunnels and cutting through a city that is 200 years old.   Building roads in smaller regionals cities is much cheaper.

Lets face it – if Mr Dutton was not stuffing the country with 200,000 new Australians each year and driving most of them into Sydney and Melbourne, we would not be building massive and incredibly expensive toll roads right across Sydney.

Instead of building the bits of the Sydney road network that should have been built 30 years ago we are desperately trying to fix the whole road network because ALL of it is now overloaded.

So why not catch the train?

Have you tried to catch a train on the Western Line recently?    Had much luck finding car parking near a station.  Had much luck finding a seat?

Catch the train from Leppington instead?

Well the massive new station car park at Leppington is already stuffed to its sardine gills by 8.30 am and that is without any housing or the Leppington town centre being built!  People are driving up the newly widened but already congested Camden Valley Way from miles around just to find a station they can park near.

So when will the job be done?

Currently there are over 300 construction cranes operating in Sydney and most of them are building new residential buildings.   In New York City there are 28.

With that rate of residential construction do you really think that Westconnex will solve Sydney’s road problems?

At best Westconnex might slow the rate at which the congestion gets worse.img_1079

The problem for Premier Gladys is that the congestion egg is hatching now – and will continue to hatch relentlessly while the cranes continue to build and Minister Peter Dutton stuffs more people in.

At the moment she is paying for it by selling off all the remaining public assets that Greiner and Baird did not sell and taxing /milking foreigners who she is happily allowing to buy up local housing hand over fist.

Does that sound sustainable to you?

The Westconnex thought bubble that is being built to solve Canberra’s Big Australia problem may prove to be one of Sydney’s most expensive underground car parks.

But surely car drivers should pay something?

Leaving to one side that car drivers already pay plenty in petrol taxes and car registration it is worth keeping in mind that the biggest winners from better roads are the owners of land that is connected and made valuable by better roads.

So while drivers should contribute to the cost of roads and in some circumstances might pay modest tolls to do so, why should drivers pay the biggest share and the owners of very valuable land pay next to nothing to have their land made even more valuable?

Council rates on land are barely enough to pay for garbage collection, a swimming pool, the local library and fill a few potholes.  A few more dollars on the rates of all the land that will increase in value by being connected to or being close to Westconnex will allow for much lower tolls. Keep in mind that all that land east of Westconnex also benefits when people from Western Sydney can drive to work so don’t buy the claim that only Western sydney land benefits.   Lots of people should be contributing to the cost of roadworks as lots of land increases in value from better roads.

Anything who thinks that paying $45.00 per week, to drive on a road they already paid off with another $40 per week to come in 2019, is reasonable is probably not planning on paying the toll.

Odds on they live east of Westconnex.

But before pitting drivers against land owners don’t forget these big projects are being driven by the big business Big Australia campaigners.

ACT NOW – Before it is too late

Today Premier Gladys announced that she is keen to flog off Westconnex as early as next year.  There is a reason for that.   Selling it off with massive tolls will make it much more valuable to some foreign pension fund who love a nice income stream.

Basically she wants top dollar for her ‘Gouge a Westie Wallet” project.  Once Westconnex is sold you will have buckley’s of getting the tolls reduced because the new owners will demand compensation for the reduced value of their “asset” if the tolls are reduced.

If you don’t like the sound of your wallet crying for the next 20 years it is critical to sort this issue out before Premier Gladys flogs off Westconnex.  Demand that she seriously cut the tolls and find some other way of paying for roads that have more to do with the Big Business obsession with a Big Australia than improving your commute to work.

The only thing pollies value are their jobs so give Premier Gladys and your local member a call, drop them a line, tweet them or facebook them and let them know what YOU think about paying through the nose for Mr Dutton’s very Big Australia program.

UPDATE – BREAKING NEWS

NSW Treasurer promises to double the rate of housing construction.

“..The Treasurer, Dominic Perrottet, said about 75,000 homes were expected to be built next financial year, double the long-term average of 40,000.

“We are about to embark on a construction boom,” Mr Perrottet said…”

http://www.smh.com.au/nsw/nsw-budget-201718-councils-under-pressure-to-deliver-more-homes-20170619-gwu3ul.html

Looks like 330+ construction cranes in Sydney is not enough.

How can Westconnex improve road congestion when the NSW and Australian government are determined to pump Sydney full of people until the pips squeak.

Building more housing “more supply” will not help make housing more affordable if new people are arriving in Sydney faster than ever.

Sydney you are being taken for a ride……and it will cost you dearly.

Decentralising Australian cities. Why the dream is as far away as ever.

Decentralisation?   The dream throughout Australia’s history and a key driver for the creation of Canberra and the government investment in Albury Wodonga in the 1970s.

Today the dream lives on as our major cities Sydney and Melbourne start crushing those who live in them with house prices bloated on mountains of private bank created credit.

Barnaby tells young folk to go west and live in Tamworth!

Nice ambition Barnaby but a complete waste of time while the fundamental Australian economic model, since the deregulation of banking in the 1980s, is about driving private bank credit creation at unproductive but highly profitable purposes.
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Make a note of that Barnaby and other enthusiastic decentralisers – nothing will happen while unproductive but highly profitable purposes are the objective of most private bank credit creation.

By unproductive I mean it does NOT clearly or directly expand the productive capacity of the economy.

Continue reading

APRA Watch:   Non-bank lenders?  “LOOK SQUIRREL!”

Michael Pascoe spent some time last week arguing that having APRA do something useful for a change,  i.e. restrict unproductive credit creation by our big 5 taxpayer guaranteed banks, was a bad idea because that would allow more opportunities for non-bank lenders to gain market share.

The big 5 banks’ spin departments must love this kind of article.  They can take the afternoon off.

Another week and the same old thing.     APRA needs to chase non-bank lenders.

Good grief do we need any greater sign that APRA have no intention of doing anything of substance and by that I mean anything that will seriously put our inflated asset prices, and the cheap unproductive credit hose that maintains them, at risk? Continue reading

Bank Royal Commission: The wisdom of Ben Chifley in 1937

Although the Turnbull government recently decided to impose a small Bank Levy on the taxpayer protected five large private banks, it remains a very “banker friendly” government and it has been insistent that there will be no Royal Commission into the role of the private banks in Australia’s monetary and banking system.StateLibQld_1_80007_Ben_Chifley

Needless to say the large private banks view a Royal Commission into banking with dread and have campaigned incessantly against another one being held.

Another one?    You mean there has already been a Royal Commission into the Australian monetary and banking system?

Yes.

In 1937 after the Great Depression a Royal Commission was established in Australia by the Commonwealth government to examine what went wrong. Continue reading