40 thoughts on “Weekend reflections

  1. I can’t say it any more politely, F*CK Rudd and Gillard. What the HELL is this “Labor” government thinking, making full-time students work 30 hours a week for 18 months before becoming eligible for Youth Allowance???? I was resigned to the fact that Labor wouldn’t increase the sub-poverty line Youth Allowance pittance, but I could never have imagined they’d manage to out-Howard Howard. “Education Revolution”???? – what a sick joke!

  2. The ‘education revolution’ will continue the Labor dislike of intellectuals and academics and turn Universities into extended high schools and away from higher education. As a senior Labor politician said to me – “people who want higher education can go elsewhere” (meaning another country).
    This government seems to me to embody the puritanical and authoritarian, not that unusual a combination. People should obey the heirarchy/executive at all times and work every minute until they drop. Then they get their reward in Heaven. But on earth it is hard duty, night and day.
    That’s where we are at the moment.

  3. Gittins in his Sat Column http://business.smh.com.au/business/stimulus-strategy-sorted-down-to-a-t-20090529-bq7g.html says a stimulus strategy should follow the 3 Ts. timely, temporary and targeted.

    I will make another plea for the government to follow this strategy but with the focus on stimulating the economy by building infrastructure to reduce the level of green house gas concentration in the atmosphere.

    To give the method again (readers of my previous comments on this subject might like to try again as the message is getting clearer)

    1. Increase the money supply by “printing special money” or if you prefer issuing vouchers. Note this does not require the government to borrow any money to issue the vouchers.

    2. The vouchers are given to anyone who wants them.

    3. Vouchers can be sold if you do not want to redeem them.

    4. Vouchers earn no interest and can only be used with suppliers who can prove their goods and services will reduce the level of green house gases in the atmosphere (either by taking them out, generating energy with little ghg emissions, or by saving energy use). If a supplier cannot prove their claims they are not allowed to accept vouchers as payments. Suppliers go to the government to claim the money for the voucher and it is at that time that the money supply increases.

    Will this approach be timely?

    Yes because a large number of people will sell their vouchers and if they sell their vouchers they will almost certainly spend the money. The money supply will only increase when the vouchers are redeemed but the stimulus comes from people who do not want to wait for the financial return on the vouchers they have been given.

    Will this approach be temporary?

    It can go as on as long as it is needed but as soon as the government realise they can use the approach to reduce ghg emissions without going into debt or increasing inflation they might keep it going. It sounds a good election strategy. Reduce ghg emissions by giving the voters money and not going into debt.

    Will this approach be targetted?

    Yes and the spending of the money is guaranteed to increase the wealth of the country because people will spend the vouchers to their best advantage and so spend it in an economic efficient manner.

    I do not think it necessary but the value of the vouchers could be related to the amount of reduction in ghg achieved per dollar spent and that would ensure even greater targetting.

    To read more go to http://stableproductivemoney.wordpress.com/2009/05/18/amasset-an-economic-tool-for-managing-economies/

    So far I have not heard any cogent argument against this proposal. Look forward to hearing some so we can adjust the system to meet the objections.

  4. 30 hours a week is bizarre. However under Keating in the 1990’s education was expanded to soak up unemployment. Under Whitlam, higher education was not used as a means of soaking up unemployment. In the second year of his government Australian uni students had free education plus a well below poverty line allowance (TEAS) either dependent or independent.

    So, given that education attendance has a new function, we cannot expect Whitlam conditions under Rudd.

    It seems to me we may be over investing in universities and under investing in TAFEs.

    So if much of the recent flood of students into universities is just the top echelons of the jobless – maybe some work is to be expected.

    It would be interesting to see which policy genius dreamed-up Rudds current policy. I doubt it came from the ALP rank and file.

  5. I do not know the details of the accounting for HECS but I expect it works something like this.

    A student goes into HEC debt to the government. The government gives the HECS money to the educational institution. The government net debt has not increased because the student owes the government money.

    Why do we bother putting the student into debt and why is it only for HECS? It seems it is only a book keeping exercise. Why not use the same approach as I am suggesting for funding ghg concentration reductions. Why not give anyone who asks for them vouchers (up to some limit over their lifetime) that must be spent on education. Do not put any restrictions on who can get the vouchers or when they get them – only that they must be spent on education. Do not allow the vouchers to be transferable. Education vouchers if spent are of value to the whole community because they make the individual more productive.

    Ok that looks after the fees.

    Now let adult students take out loans, up to some limit, on which to live for degrees or tafe courses or any other accredited award – If they attain their award then forgive the loans and write them off as a forgiven debt.

  6. If we were a smart country we would do this.

    1. Tertiary education should be made free for Australian citizens. Entry should be based on academic standards only. We should not accept the false premise that we can’t afford free tertiary education. We could do so a generation ago when we were less wealthy per capita than we are today.

    2. Tertiary students should be payed a student allowance at the same rate of single unemployment benefit which should be raised to the same as the single pension rate.

    3. This would be funded from savings by ending negative gearing, fossil fuel subsidies and removing all corporate welfare.

    The above would be a piece of cake fiscally. It will never happen of course because of the greed of the corporates and the stupidity and weakness of the Rudd government.

    The current policy is another example of late stage corporate capitalism killing the goose that lays the golden eggs. The current level of prosperity only exists because of good education in previous generations.

    Now the corporates want to extract such immediate excessive profits that they are not preparing for the demands of the future. Hence prosperity will decline for all including the corporates.

  7. Tweed, Kyogle residents fight to save Australia’s most biodiverse region from threat of motor race

    (cross-posted to Larvatus Prodeo)

    I urge people, particularly those from South East Queensland to follow closely the struggle of the residents of Tweed and Kyogle Shires, just south of the New South Wales and Queensland border, against the plans of their out-of-control, unaccountable local councils and the elected NSW state dictatorship to impose the madness of a World Rally car race on their area in September. Residents of the area have been kept in the dark about the plans of the World Rally organisation and the local shire councils. Even before the Development Application has been considered, and in spite of strong objections from the local community and threats to wild life the World Rally organisers have been advertising the rally.

    NSW state dictator Nathan Rees, who has a perverse fetish for the ecologically destructive sport of motor racing, has promised state taxpayer dollars to subsidise the event. There are fears that NSW Government may take the matter completely out of the hands of the local councils and impose the decision.

    On Thursday, there was a large protest against the World Rally races. For more information go to sites.google.com/site/norallygroup, candobetter.org/NoRepcoRally.

  8. I might add a footnote explaining why I prefer the word “prosperity” to “wealth”.

    “Wealth” has connotations of being a material hoard which is jealously kept separate from other people by someone with an extremely miserly spirit.

    “Prosperity” has connotations of being a shared condition which embraces both material plenty and an enlightened abundance of other good things less tangible. It contains the notion that people are prospering in all ways and not just materially.

    I shudder every time I hear the phrase “wealth creation”. It is indicative of the selfish obsessions of late stage corporate capitalism, its pillaging and destruction of the environment and its subversion of the common good for a temporary over-consumption by the selfish few.

    I say “temporary” because this system cannot last. It is unsustainable at all levels.

  9. Ikonclast #6 and #8

    My suggestion gives a practical way we can achieve the same result at your 1,2,3 – and without the government going into debt – and with allowing people to choose whether to go to Uni, Trade school, or study online for whatever reason they might wish.

    I like to use the term wealth in its wider context rather than the word prosperity which brings to my mind images of barons of industry with cigars in their mouths.

    However, I agree with your sentiments and I will hear your prosperity as the equivalent of my meaning of wealth.

  10. 1 and 2# Gerard and Nanks
    Agree wholeheartedly. Rudd and Gillard and their so called “education revolution.” Time to give students a break and get off their backs..
    They have a vote too
    Choice 1. Coalition who couldnt give a damn about the younger generation
    Choice 2. Rudd Government who couldnt give a damn about the younger generation
    Choice 3. Vote to destabilise both of those parties until they are forced to listen.

  11. Luckily for me higher education was free during my undergraduate years; with 10% unemployment in 1982/83 IIRC finding a job straight out of high school wouldn’t have been easy. Plenty of courses had low cut-offs, in spite of being challenging enough.

    Zoom to the present and we have a higher education sector with funding supplied by full-fee o/s and local students, philanthropists, businesses and government. The student-supplied funding via HECS though is more a promise to pay, rather than an iron-clad commitment.

    I too do wonder as to why we couldn’t fund university places out of taxes once again? Forgive my non-economic thinking on this. Surely going from a uni sector where student places (EFTSUs aka effective fulltime student unit, IIRC) were fully government funded, to one where they are partially funded by the student (say 20% of cost, indexed by the Higher Eduction Index, I think they called it – really just a CPI in disguise, I would guess, but back to the main story…), over a short time horizon, say 5-10 years, the overall effect is to free up more of the taxes otherwise dedicated to student places. That freed up funding may be used by the government for spending elsewhere…until the student repayments reach some per annum stable trend, say 15-25 years after introduction of HECS. This money returns to the government at the expense of reducing consumption at the margins, since an employed person over the HECS repayment threshold pays both taxes and an additional HECS repayment. But a “low taxing” (LOL!) government just hands that money back to consumers (sorry, I mean taxpayers) by tax cuts, baby bonuses, and the biggy, a 14% first homeowner’s grant. All good during a boom…

    Now we have our first really decent broad-based contraction in the economy – they used to call it a recession, but apparently that word is off-limits – since the HECS repayments have had time to stabilise, and what do we expect next? During this time of widespread job losses among the intellirati, we find they no longer meet the threshold criteria for repaying HECS. Oops.

    Instead of all this to-ing and fro-ing and frictional costs of administrating it, why not do as others here have argued (#1, #2, #3, #4, etc), and ditch the HECS, go back to notionally free education, but slap restrictions on just how much free education can be consumed before it becomes payg. It all comes out of taxes anyway, sort-of.

    As a final comment, I really really think that TAFE needs to be given a broader and bigger role to play in education beyond training. There is a TAFE two doors down from where I live and it seems like every second day there is some comment on the precariousness of not just its funding, but its physical existence. In a word, developers.

  12. Kevin, I don’t fully understand how your scheme works. Do you propose that each voucher is equivalent to a fixed amount of greenhouse gas reductions, e.g. 1 tonne CO2? Or is it different? How many vouchers would one get for investment in something like public transport infrastructure, where there will be significant emission reduction benefits, but they would be hard to quantify? Similar for research and development.

    How do you see your approach differing from good old fashioned carbon pricing?

    What benefits do you see in “issuing special money” rather than going into debt to fund these vouchers? I’m no expert on monetary policy, but my guess is that issuing money has some inflationary risk; increasing debt not so much, but debt will have to be paid off in the future, possibly by future generations. Because debt may have to be paid off by future generations, it seems to me that the best way to use debt to stimulate the economy is to spend it on greenhouse gas mitigation – so future generations also get the benefits. A corollary of this is that an international agreement on green stimulus to alleviate the recession would be desirable.

    Finally, would your approach work in conjunction with approaches based on carbon pricing? Could carbon pricing fund “vouchers”? If carbon pricing was based on emissions trading, should issuing vouchers lead to additional emissions reductions?

  13. Since having access to the Internet and newspapers on-line etc. the suggestion that the learning to do so is a sort of hedge against Alzhiemers inflation… is a question I ask myself regularly.Am I actually learning anything significant enough to delay the eventual flight into the maelstrom of unknowingness ,but still bodily functions, by doing what I am doing now!? My typing speed will not improve or be corrected,I feel that as a certitude of greater power than the limitation as is,that seems often to be comprehensible enough, to be disregarded for reasons other than always content or style. Where to next!? I had taught myself in part before the ex-Premier of Victoria Bracks had learnt the fundamentals after retiring!? In all that time of his employed career,I had been relegated to long term unemployment,with a burst here and there of casual work!? I work often in a potato shed with people who don’t use the computer much,accept mainly for accounting.The problem for them,is a problem of many…English as a manufactured supplied language,where words equal the order receipt and invoice.If you are troubled by expression,it is more than a uphill battle translating what one knows anyway to written forms of English. There is much that is intelligent behaviour that doesn’t require the finesse of the exacting art of transferring that intelligence to typed expression,and one could be quite capable of understanding presentations ,even using language,but with pictures etc.,of related engineering and science to lifestyle…but unable to transfer that learning back into componentry of the parts of that learning, because of the sheer volume of language traffic used.Learn’t but not with specific spelling,and what the spelling means as functional arrangements to the required subject matter. I therefore bet,if the people I work for occasionally had a greater finesse of language use,to use the computer more thoroughly,then their work output could diminish,unless they found a advantage upon every use of the computer.My practical work in the shed does diminish even by the smarter use of the computer,if late nights are an associated phenomena,or I feel compelled to pull my finger out and do the nana on someone,as eloquently as I can one fingered style!? I feel a residual injustice,amongst many people I know here,about bloody computers,and I am a recidivist of sorts.I will opine again and be disregarded for matters not style or content.

  14. Peter Wood #13,

    Peter thank you for your questions and here are the answers.

    Voucher value is not related to carbon saved (they could be but I do not think it is necessary)

    It is not necessary to price carbon (and it is too hard to do effectively)

    Creating money through banks loaning money they do not have is about ownership not economics. The current method gives new money to invest to those people who already have assets. (In my opinion it is better to give new money to invest to people who contribute the least to the problem rather than those who cause most of the problem)

    Yes we could use carbon taxes to fund the system but that is unnecessary and only raises prices. The proposal will reduce the cost of renewable energy relative to fossil fuel energy and will reduce prices. (My rough calculations suggest that within 10 years the cost of energy will be half today’s cost).

    Here is another explanation of the proposal and why it is a good way to go.

    Carbon taxes and emissions trading schemes are ways to encourage investment in renewables. That is, we make polluting expensive and the theory then says that this will encourage investment in ways that do not pollute. That may work but the evidence is not all that encouraging. A much simpler way is to allocate money (vouchers, tagged money) that must be invested in renewables.

    One problem with carbon taxes and emissions permits is that the money collected is unlikely to be invested in renewables. We see time after time when governments collect taxes for a purpose – is that the money collected is spent on something else like compensating polluters because their products are now more expensive!

    Bureaucrats call a tax collected for a special purpose a hypothecated tax. They believe that it is undesirable to have such taxes and that as a general principle it is not a good idea to have a tax to raise money for specific purposes. They do this because – quite rightly in my opinion – they think governments do not know the best way to spend money for particular purposes.

    There are two general ways to encourage investment in alternatives to burning fossil fuels. One is to increase the price of burning fossil fuel and the other is to reduce the cost of investing in renewables.

    My proposal is to reduce the cost of investing in renewables (and other ways of reducing ghg concentrations) by removing the financing costs of interest and repayments. Finance costs dominate the cost of alternatives so removing them makes renewable energy inexpensive to purchase.

    We can do this by using special purpose money that has zero interest and is given to people on the proviso that they spend it on things that will reduce the level of ghg in the atmosphere.

    Where do we get the money to give to people to invest? We could use taxes but it is simpler to print money for this particular purpose.

    Most people seem to think that printing money (increasing the money supply) is the road to financial ruin and rampant inflation. That is true if you print money and spend it on consumption (that is things that do not return more money than you invest). However, that is not true if you invest the new money in ways that will increase total output.

    Each year for the last 30 years we have increased the money supply by 10% or more per year (in the year to April it was 11.8%). The increase is partly government printing money by issuing bonds on which they will pay interest but it is mainly banks loaning money they do not have on deposit.

    This is felt to be non inflationary because the new money (along with existing money) is loaned and hence is likely to be paid back. Unfortunately it does not work as we wished and we end up with financial booms and busts and targetted inflation.

    Another way to increase the money supply – which is what I propose – is for the government to print special purpose money and give it to many people. The recipients must invest the money in a market place in ways to reduce ghg concentration in the atmosphere. The market place will ensure it is spent to best economic advantage. Doing it this way enables many things even such long term things suh as R&D to be candidates for expenditure.

    The emergent properties of an economic system which increases its money supply by requiring the money to be invested in productive ways will be profound.

    It will stop inflation of the currency, reduce ghg concentrations in the atmosphere and distribute money widely throughout the community and not just to those who already possess assets.

    People have difficulty believing what I say because if it was that simple why hasn’t it been done before?

    The reason is that we have not had the technology to implement it. Until the Internet and until we had both the power of computers and the software to drive the machines it was difficult to do. Our current government systems of taxation and disbursement of community funds are based around paper and sending things through the physical post. We can do much better than replicating systems that were designed for manual processing.

    We could build a basic system to create money, distribute it, and have people invest it in ways to reduce ghg emissions up and running within three months. The money to build it could come from the special money printed for reducing ghg emissions. The running costs of the system would be a fraction of a percent of the money spent.

    The banks currently gets 3.5% of money passing through their hands (they are very inefficient or very profitable depending on how you look at it). The government probably spends 10% or more of the money it collects on administering the distribution. (We do not know because even if it is calculated no one is telling us).

    The proposal targets expenditure on things the community wants and will give us 10% or more money to invest.

    To me it seems something we should try – but then I am biased:)

  15. China’s electricity consumption vs GDP:

    2002: Electricity up 9.4%, G.D.P. up 8%
    2003: Electricity up 14.7%, G.D.P. up 10.3%
    2004: Electricity up 16.7%, G.D.P. up 9.8%
    2005: Electricity up 14.3%, G.D.P. up 9.9%
    2006: Electricity up 13.4%, G.D.P. up 10.4%
    2007: Electricity up 12.4%, G.D.P. up 11.7%
    2008: Electricity up 16%, G.D.P. up 10.6%

    April 2009 YoY: Electricity down 3.6%, G.D.P. up 6.1%

    The numbers don’t make sense, so the Chinese have decided to stop publishing the numbers!. Does anyone smell a rat? Paul Krugman does.

  16. Kevin,
    Sorry, but your whole idea is predicated on the notion (common amongst Social Credit people and Rothbardians) that banks somehow loan money they do not own. This is nonsence, as I have pointed out to you before.
    If you want to subsidise renewables by giving them interest free loans then make that case – but it would be inflationary because you would be printing “new” money which would then be circulating in the economy.

  17. Andrew,

    You are wrong on two counts. First, most of the money banks loan is already deposited with them but they still increase the money supply through the loan mechanism. Tell me how we increase the money supply if it isn’t loaning money without having it on deposit? Tell me why we have fractional reserve banking if the main reason is not to restrict the amount of new money banks can create.

    When I receive a loan from a bank and the bank does not have the money on deposit it makes an entry in my bank account and the money magically appears and it is in my name – so I own the money not the bank. I am not saying banks loan money they own – I say they invent it if they do not have enough on deposit. The bank can do this as long as it likes provided they keep a fraction on short term deposits. The fraction limits the amount they can create this way.

    What I am saying is nothing like social credit. Social credit is about consumption. I am about investing.

    Secondly even if you are right and banks do not loan some money they do not have then that does not invalidate the argument I am making. Do you agree that the government can print money? Do you agree that the government can give it to people? Do you agree that the condition of the gift is that the money is to be spent on building assets?

    If you agree to all those then we can increase the money supply responsibly without creating a loan and that is what I am proposing.

    It is easy to increase the money supply through the loan mechanism. However you and many others have been led to believe that this is the only way we can increase the money supply responsibly. I have outlined another way that is also responsible.

  18. #17 Andrew,

    I have been trying to understand why you and many others do not believe that banks increase the money supply by lending money they do not have.

    I think it is the “bookkeeping” process we use.

    Here is what happens in a bookkeeping sense.

    A bank has depositors who put money in a bank. That money remains there and is available for a person to take it out whenever they wish.

    A bank makes a loan and it does not take the money from depositors but it creates more money that it puts into the borrowers bank account. At this point in time we have depositors money and borrowers money now in the bank so it appears we have twice as much money. However when the borrower pays back the loan the bank does not “put money” into an account but writes off the loan which in effect destroys an amount of money that was created for the loan.

    Hence we have this idea of banks not creating money because they create loans which get paid back and money gets destroyed. This now means that banks did not create any money.

    This is all true while they never loan out more money than is on deposit. However, the moment they have more loans than there are deposits to back them the more net money there is in the system and hence they have increased the money supply.

    What I am saying is that increasing the money supply through loaning out more money than you have on deposit has proved to be a bad way of controlling the money supply.

    I say that increasing the money supply when we increase productive assets is a better way.

  19. Kevin,
    No – you have the process wrong. Don’t worry – it is a common mistake.
    Banks accept deposits.
    Bank keeps a proportion of the deposit in the form of cash.
    Bank lend out remaining funds to borrowers.
    Borrowers repay the bank out of future income.
    Depositors redeem deposits on demand.
    If you choose to call a bank deposit “money” then of course this process creates money – but there are no additional amounts of money out there actually being used. There cannot be. The bank cannot lend out funds that it does not have and it cannot redeem deposits from funds it does not have. Ergo – no money has been created at any stage. A simple point, but one that has been missed by theorists as silly as Major Douglas and as intelligent as Rothbard.
    As a point of fact, depositing your money in a bank actually reduces the money supply – as some of the funds have to be held within the bank as cover against unusually high requests for the redemption of deposits. In most Australian banks this is 9% (per APS 210) of the amount deposited, although the bigger ones may have lower percentages.

  20. Andrew,

    You have the process right – in parts – but then I think there is a whole generation of economists who do not understand so you are not alone:)

    Banks actually do not lend out depositors money. Banks leave the depositors money in their accounts (you never see your money going out of your account do you? It is always sitting there way waiting for you to take it out).

    Banks put some money in your account. Let us assume the bank had $100 in deposits. The bank now lends me $91 against my motor car. They put $91 in my account. They do not take $91 of the deposits and put it into my account – they create $91 of money and it is in my bank account and I call it money. (It looks like money, it smells like money and it talks like money) There is now $191 of money in the bank. However the bank is now – as you say -allowed to lend 91% (100%-9%) of the money it has on deposit. That is about another $82. So it loans $82 – which gets deposited and which it can lend 91%.

    So the initial $100 turns into $1111 dollars of money on deposit.

    That is the money supply starting with $100 has turned into $1,111 dollars of money being used throughout the economy.

    Fractional Reserve Banking has created money. The fact that the money will be “destroyed” when the loan is paid back is irrelevant. The money supply has increased.

    I am saying let us go back to what you say happens. Do not let a bank deposit “extra money” into my account. Move the money “notionally” from the depositors account to my account and when the money gets paid back notionally move the money back to the depositors account.

    However, if we do this where do we get the $1111 dollars that we need to keep the economy going? I say let the government create it, put it into its citizens bank accounts at zero interest and require the citizens to invest the money on a productive asset of their choosing. Whose bank accounts it puts the money into is a political decision but I suggest put it into those bank accounts of people who use little electricity for personal consumption and require them to invest the money on anything that reduces the level of greenhouse gases in the atmosphere.

    There will be plenty of money for the banks to still lend – but they will have to have it on deposit before they lend it.

    In the scenario above begs the question on where the first $100 come from. Well in the case of the USA it comes from the government issuing a treasury bond for $100 and selling it to a bank. The bank now has $100 on it is books as a deposit. This now gives the bank the right to create another $1111 and lend it to the government! This is so monty python that it must be difficult for the banks to withhold their mirth.

    A better explanation of all this is at http://www.chrismartenson.com/crashcourse/chapter-8-fed-money-creation

    Even though the money created by a loan is destroyed when the loan is repaid the fact is that the money supply has increased while the loan is outstanding – and there is an awful lot of it.

    This system is designed to fail because the more money is in existence, the more money can be created. Conversely when asset values contract the less money can be loaned which in turn reduces the amount of assets. The miracle is that it works as well as it does.

    I have given one solution and I am sure there are others but I think mine has a lot of merit as it will

    Stop inflation. (I have explained why elsewhere)
    Remove greenhouse gases from the atmosphere.
    Make the business cycle a thing of the past.
    Stop global financial crises
    Do all this without increasing debt

    How does it do all this. It is called investing. If we invest in productive things we end up with more money than we started. That is what pays for it.

  21. No, Kevin. That only works if both the deposited money and the loaned money is similtaneously available for transactions. It is not. You may think it is because you see the balance on your bank account, but I can assure you that if everyone who had amounts deposited with a bank went to the bank to withdraw the money then there would not be the money there to get it out – i.e. the money is not there.
    Perhaps you can explain to me – under your system how could a bank – any bank – ever fail to deliver cash to depositors? If the bank both has the funds on deposit and (as you claim) is also able to lend money by creating new money how can a bank ever fail to deliver during a bank run?
    If you answer that a bank can fail (as they demonstrably can) then there has, in fact, been no “new” money created, surely.

  22. Andrew,

    You ask “If the bank both has the funds on deposit and (as you claim) is also able to lend money by creating new money how can a bank ever fail to deliver during a bank run?”

    My answer is that it will always deliver in a bank run if the organisation in whose name the money was created creates some more.

    Can’t happen – well what do you think the recent government guarantee of bank deposits was all about?

    The response of the government to guarantee the bank deposits is my answer to your rhetorical question.

    If the money creation system worked the way I suggest then banks would not have been able to create loans without having money on deposit and so they would not be able to increase the money supply and build a mountain of unsustainable debt. Remember in my system the total amount of money on loan cannot be greater than the total amount of money on deposit.

    What I am suggesting is for banks to only lend money if they have it on deposit.

    You think that the money banks create when they make a loan is not real money because it goes away when the loan is paid out. I am sorry Andrew but everyone else in the world (except perhaps a few economists) thinks the money is real and it is what we punters think that matters.

    However, if we stop banks creating money by lending money they do not have then we have to have a sensible way of increasing the money supply to allow trade to grow and investment to happen. I am proposing a way to increase the money supply without lending money. I have yet to hear anyone tell me that what I am proposing will not increase the money supply in a responsible controlled manner.

  23. Kevin,
    In the current system the total amount lent out cannot be greater than the amount they have on deposit. Have a cursory look at any bank’s balance sheet: Westpac’s for example. Go to page 124 of the link. Total amount on deposit from both customers and other banks (bank liabilities) is less than total amount lent (assets) by the amount of bank capital (owner’s equity). This is the basic accounting equation – and all banks, like all businesses, fit within it. So it is not only economists, Kevin – it is the accountants too. And I can assure you, it is all of them. No need to change, then.
    The whole reason for the government guarantee is that they cannot repay all of the deposits at once – because they have lent nearly all of it out.
    As for your point about what the “punters” think – so what? The “punters” may think (like you seem to) that banks can ignore basic accounting. I can assure you – they cannot. If the punters thought (unlikely as it may be) that you were right it does not change the basic facts of banking.
    I know that the bank creates no money at all. They borrow it and lend it. The fact that most measures of money supply include some bank deposits is neither here nor there. Most measures of money supply do not include debit balances on credit cards – yet these are just the same as a bank deposit.
    Sorry, Kevin – but your position is wrong on this from the start. More than happy to keep going, though.

  24. Just to keep it clear, I have done up a spreadsheet, using your example above. It is here.
    It clearly shows what actually happens. You deposit $100 in the bank, earned from some productive activity. It lends out $90 (keeping $10 as its reserve), which then gets used for something productive and then re-deposited. The bank then lends out $81 (keeping $9 this time). This is then also used for something productive and re-deposited.
    In the end, the bank has a total amount lent out (I stopped at 5 cents on the spreadsheet) of about $899.44, liabilities to pay depositors of $999.37 and a total amount of reserves of $99.94.
    There is still only the original $100 in the system, Kevin – it has just been used (in my example) 70 times for productive purposes.
    If you claim (as I presume you do) that this means there is now (approximately) $1100 in the system I say that is balderdash. This is exactly the same as saying that if there is only one hammer on a building site, being used by the 6 tradies there in turn that we really have 6 hammers. Sorry, Kevin – there is only one hammer.

  25. Andrew,

    If the loans are all paid back then there is only $100 left on deposit. However at some point in time there is $1000 in deposits in the bank. Freeze frame the system. Observing all this from the outside and “forgetting” about the loans we can see with our own eyes $1000 in deposits. To you the banks may not have created $900 but most people will see $900 and they will act as though the money was “real”.

    Let us now imagine for some reason or another all the loans default and no money is repaid. How much money is on deposit in the system? It is still $1000. The lenders may have acquired other assets in return for their loans but there is $900 in extra money and there are no extra assets in the total system.

    This is why it is so dangerous to create money (even temporarily) this way. The most common way that things go wrong is that the loans are given for assets that are not worth as much the money loaned – the classic asset bubble.

    To make the hammer analogy match what happens with money then when a hammer is used on a different trade then a copy of the hammer is created and two hammers now work on different trades at the same time. When the hammer stops being used on a trade then the hammer “disappears”. At some point there will be six hammers all working at the same time. Freeze frame the system and we can see 6 hammers. The fact that five of them disappear after being used does not alter the fact that at some point in time we can see 6 hammers being used. Now let the mechanism that causes the hammers to disappear malfunctions and we have a surfeit of hammers:)

    I am not denying that there is only $100 of “real” money but I am saying that allowing banks to create extra money even for a short time is dangerous and leads inevitably to trouble. Calling it something else like fiat money does not make it less real.

    I haven’t even got onto the bit where I think the islamic approach has it right when they decry the payment of interest on the money created as loans. Interest on fiat money adds to the problem because until the money has turned into a productive asset there is nothing to pay the interest and we have to create more money from loans to pay the interest.

    I also haven’t got onto the creation of the first $100 of real money. It is also created through a loan mechanism so the question now becomes where is the real money?

    The proposal I am making is that we will have a better system if we get rid of fiat money and find another way of creating enough money that does not involve loans.

    In practice I do not think it necessary to get rid of fiat money if we have other ways of creating money especially if we can use those mechanisms to deflate asset bubbles before they get too large.

    That is, when we have a variety of ways of creating money then we will not get the lemming like rush of money to the latest financial fad with its inevitable inflation of asset values and the panic rush of money out of deposits when asset values are shown to be wrong and loans are liable to default.

    I think you would agree that fiat money is “dangerous” and that our money system would work better if it did not exist – provided we had some other way of creating money.

    The discussion over whether we call fiat money real money or not is irrelevant to the issue. What is relevant is whether the mechanism I propose to increase the money supply will work and not have unfortunate side effects.

    I would urge you to look more closely at what is proposed because if it is a sensible way of increasing the money supply then the likely properties of a financial system with this mechanism inside it are pretty amazing.

    It should appeal to those with libertarian tendencies because it puts the government spending in the hands of the individuals not the government and it should appeal to the social democrats because it distributes new wealth through society and not mainly to the already rich. Fiscal conservatives should also like it because governments no longer have to go into debt to get public infrastructure built.

  26. Kevin,
    The point is that there is no extra money at all. Ever. The only money available to actually transact is the original $100 – now minus what the bank is holding in reserve.
    If people are ‘act[ing] as though the money was “real”’, what does this actually mean? They are not spending it. It is sitting in their bank deposit account. For them it is the same as if it were sitting under their bed. The difference with a banking system like ours is that, instead of it gathering dust under their bed it is out there actually being used for productive purposes – it is earning them interest. Borrowers are using it to either buy consumption goods or for investment.
    How is this a bad thing?
    As for “those with libertarian tendencies” I would completely and utterly disagree. I covered this a while back. To achieve such a ban the extent of the regulations and the force needed to achieve such a ban I see as being out of all proportion to any possible (if there are any) benefits.

  27. Expectations that the economy may have avoided a contraction in the March quarter have been raised by data showing a narrowing of the current account deficit and improvement in net exports, economists say.

    “The seasonally adjusted current account deficit was $4.614 billion in the March quarter, the Australian Bureau of Statistics (ABS) said on Tuesday, equivalent to about 1.5 per cent of gross domestic product (GDP).

    The ABS said net exports – the difference between import volumes and export volumes – would add 2.2 percentage points to GDP in the March quarter, after exports held up reasonably well in the quarter while imports declined sharply.

    ANZ Banking Group economist Alex Joiner said the large contribution of net exports would offset sharply lower business investment and residential construction.

    “It now appears that Australia may have avoided two consecutive quarters of negative growth and hence a ‘technical recession’,” Dr Joiner said.

    “ANZ is now forecasting GDP to expand by 0.4 per cent in the March quarter, reversing the 0.5 per cent fall in the December quarter and highlighting Australia’s relative economic resilience.”

    ANZ had forecast last Friday a decline of 0.2 per cent in the March quarter.

    ICAP senior economist Adam Carr also revised upwards his GDP forecasts from an 0.3 per cent contraction to a flat result.

    Mr Carr said there was a strong probability that GDP would be positive.”


    wow, who could have predicted that.

    It’s almost as though Chinese demand for Australian commodities rebounded strongly after the decline in the December/January period was exacerbated by the timing of Chinese New Year for 2009.

    I look froward to the Marxists and Austrians alike explaining how this result is ENTIRELY consistent with their respective ideologies.

  28. http://www.bloomberg.com/apps/news?pid=20601081&sid=avfqhRWZVKOs&refer=australia

    May 27 (Bloomberg) — The Baltic Dry Index, a measure of shipping costs for commodities, surpassed 3,000 points for the first time since October, buoyed by Chinese demand for iron ore.

    The index tracking transport costs on international trade routes rose 222 points, or 7.6 percent, to 3,164 points, according to the Baltic Exchange today. The measure posted an 18th straight gain, its longest advance in two years.

    “Such is demand that shippers “are almost pleading” to hire vessels, Stuart Rae, co-managing director of M2M Management Ltd., a hedge fund group that trades freight derivatives and operates carriers, said by phone today. The rally “is being driven by iron ore, by congestion in China, and by a lack” of ships available for hire in the Atlantic.

    The Baltic Dry Index advanced fourfold since the start of the year, recovering some of last year’s record 92 percent collapse. China’s iron ore imports ran at a record pace in February, March and April, according to customs data.

    The line of capesize vessels at Chinese ports has climbed to 70 from 33 two months ago, according to data from Simpson, Spence & Young Ltd., the world’s second-largest shipbroker. The carriers are waiting nine days to unload, compared with five on March 25.

    Contracts indicating future freight costs surged. July-to- September forward freight agreements, bets on the exchange’s future price assessments, rose 21 percent to $47,000 a day for rentals on capesizes. Panamaxes gained 16 percent to $21,250. ”

    Oh wait, I forgot we’re only interested in indicators supporting apocalyptic visions of economic collapse.

    Never mind then.

  29. Andrew,

    I am struggling to understand your view of the world. You ask

    “If people are ‘act[ing] as though the money was “real”’, what does this actually mean? ”

    It means people use the money to trade. They do not leave it sitting in their bank account. They spend it and it goes into someone else’s bank account. That is what makes money real. It is real if others will accept it in exchange for goods and services.

    I read your bit on regulating fractional reserve banking and you have missed the point on what fractional banking is about. We do not have to regulate loans to stop fractional reserve banking.

    To stop fractional reserve banking we stop banks being able to call loan IOUs Australian dollars. We require banks who make a loan to have a positive value for the total amount of deposits minus loans on issue.

    To stop fractional reserve banking we make the system simpler and we turn banks into institutions with the same rules as building societies or credit unions.

    Banks are more than welcome to create their own money from IOUs. I don’t mind them calling them bonds but I object to them calling IOUs Australian dollars.

    You haven’t answered my question. Will my proposal increase the amount of money in the system or not?

    You haven’t commented on the revised analogy of hammers.

    You haven’t commented on what happens to the money deposited in a bank account when a loan was made, subsequently transferred to another persons bank account and then original loan is not repaid.

  30. Kevin,
    1. If you create more money and use it then of course it means there is more money in the system – leading (if this money is more than is needed) to inflation.
    2. The revised analogy is obviously wrong – as there is only one hammer on the building site. A building site does not have hammers appear and disappear just because someone else is using it.
    3. If the funds are transferred within the bank then, obviously, nothing happens. If the funds are transferred to another bank than the cash reserves of one bank drop and the cash reserves of the other bank increase. Productive activity happens in the mean time This would happen with or without fractional reserve, so I do not see your point.
    As for the regulation – to stop FRB you would need to regulate banks into the ground. It is, as I presume you can see, a profitable activity for the bank and for the depositors – as well as facilitating the flow of funds to borrowers, reducing th ecost of borrowing. It is good for all involved.
    If you want to stop it the regulations to require this would have to be massive and intrusive to stop an activity that everyone actually makes a return out of. If you think this is good from a libertarian standpoint then I believe you really do not understand either what would be required or you do not understnad banking – or probably both.

  31. Andrew,

    At least we agree on one thing.

    “1. If you create more money and use it then of course it means there is more money in the system – leading (if this money is more than is needed) to inflation.”

    Where we disagree is with whether money that a bank puts into someone’s account when the bank makes a loan (and the bank does not have matching deposits BEFORE making the loan) is or is not creating money.

    If the bank issued its own currency and put that into the borrowers account then I would agree with you – but the bank does not do that. It is allowed to put in the common currency and that is different.

    I am not saying we stop lending. I simply say if you do not have matching uncommitted funds on deposit then you should not lend it. That is banks should have the same rules as credit unions and building societies.

    On 2 when you are using analogies to support an argument the analogy must be correct and your analogy requires hammers to appear and disappear because that is what happens with loan money.

    On 3 I agree it is irrelevant where the bank account resides.

    We do not have stop lending to get rid of FRB. All we have to do is to say if a bank has $x on deposit and it has $x in outstanding loans then the bank is not allowed to lend any more money.

    You seem to think that banks already do this. I keep saying building societies do but banks do not. Banks are allowed to lend more money than they have on deposit.

    You seem to think that because the bank is able to increase $x to $y then that is not creating money because $y-$x = the loan liability. I am sorry you are wrong. Going from $x to $y where you already have a loan book of $x increases the money in circulation while-ever the loan remains outstanding.

    Here is another question for you.

    What is the difference between a bank like the CBA and a credit union in terms of their ability to make loans?

  32. Kevin,
    There is no difference. None at all. In Australian law at least (similar to elsewhere) the difference between a “bank” and a “credit union” is simply that a “bank” has been inspected to a higher degree by APRA and holds at least $50 million in shareholder’s funds, a building society has at least $10m in shareholders funds and there is no lower limit for the credit unions. There is no other difference. They are all regulated under the same rules. People in the industry normally refer to them all as “ADIs” (Authorised Deposit-taking Institutions) just to make this point. Using the word “bank” is unusual and pointless.
    Just have a look at their balance sheets, as I invited you to do. If you can find one bank, anywhere on the planet, that has more in assets (loans etc.) than the total they have on deposit (their liabilities) plus equity then I will show you a bank that is not doing its accounting correctly – and has an auditor that should be sacked.
    It is simply not possible. Loans are funded by deposits and equity. There is no magical source of money for a bank. None.
    As for the process of granting a loan – you seem to be reading some very old textbooks. It is now very rare for the funds to be disbursed into a bank account. Typically the bank will simply mark a limit on an existing account or disburse the funds straight away.
    For example – I go in to the bank for a car loan. They grant the loan. What happens (normally, not always) is not that the bank will deposit the funds into a deposit account, but that they will either mark a new account (or an existing account) with a borrowing limit or that they will hand me a cheque to hand to the car dealer. From the bank’s point of view withdrawing the funds just to put them back on deposit makes no sense at all, as the regulatory capital and liquidity positions would be harmed by this sort of action. It does not (normally) happen.
    It happened up to the 1970s, but computerisation eliminated the need to account for it in this way.

  33. Andrew,

    You are correct in that banks and credit unions are both ADIs. Presumably the difference between a credit union and a bank is in the amount of credit they are allowed to generate. I have been unable to find the limits on credit creation allowed by any ADI. In other words I cannot find for Australia where the fraction of fractional reserve is defined for any institution.

    If there is no fraction and if banks and credit unions are allowed to create as much credit as they feel appropriate then the situation is even worse than I thought. You may be able to enlighten me if there is a limit and where it can be found.

    The discussion on whether money created through credit is or is not money is a sterile argument. I say it is, you say it isn’t. A more useful discussion and the one that I was hoping you and others would address was the proposal to increase the money supply through the mechanism I have described and have called an amasset to distinguish it from creating money through loans. http://stableproductivemoney.wordpress.com/2009/05/18/amasset-an-economic-tool-for-managing-economies/

    The current system is to create commercial money through the issuing of debt. However, according to Steve Keen the money system does not operate as expected. http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/
    He says that the empirical evidence is that the fractional reserve system does not work as described in text books. That is, the central bank loans some money which now permits the banks to lend more money up to the fractional limit. That is, the money from the Central bank comes first then commercial money. The empirical evidence is that credit expands first then the Central bank issues more money – not the way of the text books.

    If this is the case then it makes it even more urgent to find ways other than debt of increasing the money supply because Minsky’s Financial Instability Hypothesis appears to hold with the current approach to increasing the money supply. http://en.wikipedia.org/wiki/Hyman_Minsky

  34. Kevin,
    The system is a lot more complicated than you seem to think it is – and there are many ratios that are monitored on a day, weekly and monthly basis. Two of them, however, may fit with your question on how much “credit” a bank is able to “create”.
    The main regulated liquidity ratio is fairly simple and relates to how much a bank has to hold in “HQLA” (High quality liquid assets) compared to parts of their liability base – let’s say call deposits as a shorthand (but this is not strictly correct). Not wanting to get too deeply into it, but the smaller ADIs this has to be 9% – i.e. holdings of cash and other high quality liquid securities (like government bolds) has to be at least 9% of the call deposit base – in practice this is normally kept around 12% for safety. If you want to get deeper into it have a look on the APRA website and in particular here. The larger ADIs that have approved risk model have to keep the ratio above whatever ratio the model says is appropriate.
    The other main ratios are the tiered capital ratios. Again, a very complex area. Essentially, though, the risk of all of the assets you have on your books (loans, shares, buildings, bonds) etc. is assessed and an appropriate amount of capital (ordinary shares, reserves, certain types of long term secure liabilities) have to be held against those assets. Again, there are two major approaches – if you can model the risk then you are able to use those models (subject to regulatory approval) and if you cannot then you use a simplified approach.
    Both of these ratios to some extent restrict your ability to lend, but neither of them allow you to lend more than your deposit base. That, as I said before, cannot happen.
    I am not surprised that the system does not work the way that Steve Keen seems to expect, Kevin, he has the system wrong.
    Sorry, but on Amasset – if you want to directly subsidise something there is no need to print new money to do so, all the government has to do is what they normally do – tax the productive part of the economy to subsidise the less productive. Printing money to do it would be directly inflationary and harm everyone.

  35. Andrew,

    Thanks for that. The system works the way I thought it worked but I did not know that the ratios are so low and for so many institutions. I thought credit unions had 100%. I can see now why when, a few years ago, we tried to become an ADI it was such an expensive operation even though we wanted to have a ratio of 100% and never give loans and never pay interest. We were trying to set up a system to transfer money for trading but we were only allowed to do it provided the total amount of money “residing” in the system stayed below $2Million – I think it has been increased to $10M but that is still not enough for a viable money transfer system. I could never understand why they had such a restriction. I now do because deposit taking institutions have the ability to turn $10M into $100M through issuing commercial money and they can charge interest on it all. In the system we built the income was going to come from transaction fees and not interest which is why we were able to live with a ratio of 100%. We were unable to commercialise because we could not become an ADI and existing ADIs had no incentive to change the system.

    I am now even more convinced that commercial money created the way it is done is dangerous and unnecessary. The reason is that it is in interest of an ADI to lend as much as they can simply from the point of view of lending and not from the point of view of lending for a purpose. Lenders in the current system do not care why the money is lent as long as they can get the money back and get paid interest. The system should favour lending for productive purposes which is why the Islamic approach of banning interest and getting your return when the borrower gets a return is better – but it suffers from the expense of the extra due diligence required.

    The use of money for the exchange of goods is not an issue – as long as there is enough of it around and it does not attract interest only transaction fees. For trading purposes we can use money that has zero interest and charge transaction fees to cover the costs and the system will work well.

    The amasset approach will be non inflationary if governments stop selling the equivalent amount of bonds (or go into debt). The reason amassets are a better way of increasing the money supply than governments selling bonds is that the money will be invested in productive goods and services. The investment will be done through a market place and so it will be invested to good purpose by individuals who will get the benefit from the investments because they will own the investments – not the government if it issues bonds and tries to build infrastructure.

    If you agree that increasing the money supply through amassets rather than governments issuing bonds is a good idea then why not extend it to the way we create commercial money for ADIs who then lend the money through the normal loans process. If we start to do this then we would have to increase the liquidity ratio of ADIs above 9%. If we get too much money created through amassets then the money can be destroyed through government taxes. It is not too hard to keep the money supply under control and stop inflation because we will now have many avenues of adjusting the money supply and not depend on the government setting the interest rate on its bonds and on governments creating enough bonds to seed the commercial money system.

  36. Andrew,

    Thinking about this a little more the ability of an ADI to lend $100 even though they only had originally $10 is much riskier than lending ten lots of $10. The problem arises because ADIs loan money for things that they see as being less risky but the fact is that they all tend to go for the same things be it bonds or houses. This in turn increases the risk of systematic failure through asset price increases (bubbles) followed by rapid decreases when things fall out of favour.

    If there are other ways of increasing the money supply for people to lend then we can get to the situation where $10 is backed by a deposit much closer to $10. This will change the psychology of the process. It will not stop bubbles but it will make them less likely – or at least that is my belief. We will only find out by trying it.

    What I am advocating is reducing our dependence on ADIs lending more than they have received in deposits to make loans. This can still go on but at a much reduced level.

    One of your concerns is that commerce will grind to a halt. Of course that would happen if it was done too quickly but a gradual introduction of amassets would allow the system to adjust and we could observe the outcomes and adjust accordingly. One of the nice things, from a control point of view, is that we will know in real time how much money has been released into the system and how much money is still sitting in zero interest accounts waiting to be spent. The other is the price of zero interest money. If the price of the zero interest money is close to its nominal value then we do not need to issue any more as the purpose for which the money is created can be satisfied by the money market. If it is very low then we have issued many more than the market can absorb or there has to be a good social reason to continue. For example, I believe that Energy Rewards will initially be priced quite low when first issued because the cost of Renewable infrastructure is very high. However, people will still build the renewable infrastructure and we know that we have a wonderful compounding effect that every time we double capacity of product or service it drops in price. For things like photo voltaics it has historically been 50% or more. For solar thermal and geothermal and windmills it is likely to be 10 to 20%. As we will not be doubling the capacity of fossil burning systems their costs will remain the same so we know that sooner or later Energy Rewards will be priced close to par – at which time we can stop issuing them.

  37. Kevin,
    If a bank could lend $100 if they only had deposits of $10 then I would agree it would be, at best, dangerous – but they cannot. It really is that simple. For them to lend $100 they need to have a deposit (or equity, or some other source of fundss) of about $110 – not $10. I do not know that I can put it any simpler than that.
    Sure, not all of the deposit sits mouldering away in a bank vault somewhere, but this is a good thing. It means that people’s savings are mobilised to all for current investment and spending.

  38. Andrew,

    You are of course correct and I have never said that the banks do not have backing for the extra funds.

    I do appreciate your effort in trying to explain to me why I am misguided (that is a genuine statement and I am not being sarcastic) I have been trying to understand why people think what I say is wrong and you have been kind enough to take the time to tell me why you think I am wrong.

    Of course I do not think I am wrong but I have been having trouble understanding why others cannot see the world as I see it.

    I am not talking about changing bookkeeping. I am talking about a change to the rules we use when an ADI creates a loan.

    At present the system is that I go to an ADI, I say I have these assets that I can mortgage against a loan. The ADI says yes I will loan you some money, puts some money into my account and keeps my mortgage.

    Before we started the ADI had $100 of “real money” on deposit. Of this it was limited to lending me $90 so there was a limit on how much the ADI could lend. So the ADI starts off with $100 and lends $90. The books before said that there was $100 in cash and that the ADI owed this to the depositor. The books later says there is still $100 in cash, there is a $90 as a mortgage and the borrower owes the ADI $90. So $90 as been lent. You say there is no new money created because there is a loan and mortgage that balance each other out and the money was just used to allow the transaction. You say all we have done is reuse the money not create more money.

    I as a person building the system to do the book keeping observe that there is now $190 in deposits and so I say that there is now more money on deposit – hence there has been some money created. However, your view in saying that this is not new money but old money reused and the extra money can be considered a property of the way we do our bookkeeping is also a valid way of viewing the transaction.

    What I would like to do would be to change the way we limit how much an ADI can lend. I suggest we allow the ADI to lend $100 – but put a “mark” against the $100 on deposit with a little note saying this is no longer available to lend. That is get rid of the fractional reserve – but everytime we create a loan then mark the money as being committed. So when we give a loan of $100 the money is reused but the limit is now $100 not as in the current fractional reserve method $900. In my terms we will limit the limit on deposits to $200 when we started with $100.

    You will say, if you limit the amount that can be lent to $100 that will cause commerce to come to a halt because we will not have enough money when we need it and besides it is unnecessary because the ADIs making loans secured against assets is as safe as houses and they should be allowed to create as much as they like as long as there is a matching asset.

    I say commerce will not come to a halt if there is enough “real” money in the system to loan.

    You will say if we print this much real money then we will get inflation.

    I will say not if you print “real money” give it to a lot of people who must invest in market places that only sell new productive assets and long as the newly minted money does not collect interest until it is spent on a new productive asset – and if you limit the loans people can make with existing money.

    I will also say you can have both systems operating and you can see how the new approach works.

    I urge you to think through the way I am proposing we “print money”. It will not be inflationary and it will mean that we “stimulate” the economy in ways that we can predict the outcome – while at the same time allowing the normal lending and borrowing of money continue as it does at the moment – and with a whole lot less regulation.

    There will be many emergent properties of what I am saying. One will be that banks and ADIs will no longer require regulation. We can get rid of APRA and replace it with fair lending legislation administered by Attorney General.

    Another will be we will get rid of private/public infrastructure projects – they will all become private.

    Another will be a reduction in taxation because we will give people money that they must first spend in productive ways instead of giving social security payments.

    Another will be that we will be able to set an inflation target of zero and meet it but still grow our economy.


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