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Bail-in won’t work.

To understand why ‘bail-in’ will not work, we need to look at what it is they are using to bail-in their banks.

One must never forget that money is either created when notes fly out of a printing machine at no cost. Or, when it gets created as numbers in a register when banks make loans. Money is created at no cost. The Reserve Bank states on its website: “At the end of June 2020, there were 1.8 billion banknotes worth $90.1 billion on issue in Australia.” [2] The Reserve Bank has created a total cash-folding-notes of $90 billion and no more. And these notes were created at no cost by printing faces on clear polymer sheet. It prints a few more billion each year, again at no cost. Yet, the total ‘Money Supply’ of Australia is listed as $A2400 billion. [3] Only $90 billion originated from the Reserve Bank. [5] It costs nothing to create money. What then puts value on the notes? Money only has value if you can buy ‘things’. If you cannot buy ‘stuff’, money has no value. Indonesian Rupiah are worthless to you, once you get on a plane out of Bali. It regains value when you get back on a plane to Bali – because you can ‘buy stuff’. So the backing for money is the GDP. If you can buy part of the GDP, money has value. Do not let anybody convince you that gold needs to be involved. No gold is required. Gold is only useful for kick-starting a failed economy or for trade between untrusting nations. The world would continue unhindered if all gold ‘evaporated’ over-night. The world would be no richer if unbelievably vast quantities of gold were discovered. Gold is not needed for a money system.

So, $2310 billion of the Australian Money Supply never came from the Reserve Bank. There is $2310 billion in people’s bank accounts that never came from the Reserve Bank. From where did this money originate? I tell it as a story:

“You are MrBuyer. You wish to borrow one million dollars from the bank to buy a house. Where does the money come from that the bank lends to you? You go into the bank and ask: ‘May I borrow one million dollars to buy a house?’ MrBank looks at you and checks that you have a plentiful income for the bank to garnish. They agree to the loan. On the appointed day, they write $1000 000 in MrSeller’s bank account and they write $1000 000 with a minus sign in your account. You owe them a million dollars and MrSeller has $1000 000 in his account. This is a ‘sum zero’ transaction for the bank. They did not have to look in a vault to see if they had enough money. They did not need to call the Central Bank. They simply wrote numbers in a register. Accountants call it “double entry accounting”, this one being a ‘zero sum transaction’. However, there is a problem. At the end of the year, you owe them $1000 000 plus ten percent. The next year, you owe them $1000 000 plus ten plus ten. The next year, you owe them $1000 000 plus ten plus ten plus ten. There is now more debt than money in the nation. You owe the bank more than you borrowed. Collectively, the nation’s borrowers owe the banks more than they borrowed. Under usury, there will always be more-debt-than-money. One can also estimate that ten percent of people might lose their houses in each year. Not everybody can pay as there is ‘more debt than money’. It is like the child’s birthday game where one chair is removed in each round.

This is reflected in the statistics for debt. The Reserve Bank issued $90 billion in colourful plastic notes. The banks issued a further $2310 as ‘virtual credit’, making a total Money Supply of $2400 billion. All this is ‘virtual’ money that was created at no cost. It does not collapse because people can buy ‘stuff’ with it. They trust it because it is backed by a GDP. So what with the debt? The Australian Debt Clock lists the ‘Total Government Debt as $1230 billion. Total Household Debt is listed as $2843 billion. The sum of these two gives us a ‘Total Debt’ of $A4073 billion. This exceeds the volume of money in the nation at $2400 billion. This means that the debts are unpayable. I have not even added foreign debt at this stage. We have learned that, as a nation, “we can live with debt provided that it is never repaid”. It means that the banks have been making loans that cannot be repaid. It means that the backing for the banks is uncollectible. Loans are listed as assets in the bank’s ledger as the loans are monies that are owed to the banks. Money lent under usury is never repayable. Thus, the banks are trading insolvent. They cannot collect on their debts under any circumstances. To repay them, it is necessary to borrow more. Even if they give their customer’s a haircut, they will never bring themselves to solvency as they are owed more money than exists as Australian Dollars. Even if they took all the money in Australia, they would remain insolvent. If they take any amount at all, they will get closer to insolvency and the money of the those whose incomes they garnish would evaporate. It is impossible to repay by any means. And the money borrowed is the vital circulating medium required to sustain our economy.

There is a solution – but it will not be popular with the banks that ‘advise’ the political parties. But I give you another story to illustrate the magnitude of the problem created in a ‘borrowing society’. It is the problem of usury which I again explain as a story:

“If you and I own all the gold in the world and we lend it out to all those people, at the end of the year they owe us gold plus ten percent. At the end of the next year they owe us gold plus ten plus ten. At the end of the next year they owe us gold plus ten plus ten plus ten. They cannot repay us. We start to take over all the assets. After a few years, we own the bulk of the land, assets, and the bulk of the shares of the companies. We have more money than we know what to do with. We fund the politicians. We fund the media. We collect the profits of the companies. We control the corporations. We own almost all the shares of the corporations. We are the classic story of usury. We own both the ‘creation of money’ and the ‘means of production’.”

Let us consider the humble mortgage used to ‘buy’ the permission to use Australian land and improvements under certain conditions. I often say: “This land was created by god or nature, depending on your thinking, for all living things to share. It is not reasonable to clear all the land for humans. Man has drawn lines on the land and the rights to exclusive use of the land is sold from one to another. But god did not sell us the land. He gave it to us for free to share.”

Firstly, if young people cannot buy houses, then we are living under ‘false affluence’. We have biased tax systems to favour the well-off. But that aside, land has become the major backing for our bank-issued money. They create money as credit in their books using land as a backing for the virtually created money. The price of land represented through the mortgage repayments escalates costs everywhere to the extent that I calculate that one third of everything we spend goes to the banks as interest somewhere along the production line. Life in Australia is expensive because of a false value put on land through the money lending system.

The primary figure that the ‘Australian Debt Clock’ [6] gives is ‘Total Australian Credit’ at $7600 billion. Irrespective how you wish to denigrate these figures, they cannot be repaid and any attempt to repay them destroys the vital circulating medium. This figure is three times greater than the volume of ‘virtual’ money in the nation. We, like the rest of the world’s nations, are in a permanent debt bind. We cannot rid the debt because any attempt would demonstrate that the banks are operating insolvent. Any attempt to repay would destroy the ‘vital circulating medium’ and destroy all economic activity in the nation. The only solution, if a debt banking system is to be tolerated, is to recognize that the debts cannot be repaid and that the banks operated insolvent from the day they made their first loan.

The solution was put in place in Australia in 1911 when a freshly created ‘People’s Bank’ created money and spent it into society giving Australia the reputation as ‘The Lucky Country’. China has instituted a comprehensive network of ‘Public Banks’ through out its nation mirroring that of ‘The Lucky Country’ of 1911. This bold transformation has turned China from an impoverished and backwards nation into the powerhouse that it is today. China is demonized in every way even though it does shoot foreigners for fun as do USA and Australia in Abu Ghraib and Afghanistan. Australia’s foray into ‘Public Banking’ was stymied by agents from the ‘City of London’ acting as ‘envoys’.

The solution involves the creation of an Australian Public Bank of some description along with an unpopular directive that ‘only the government should create the money of the nation.’ A nation should never be in debt for its own Money Supply.

The Reserve Bank has created a total cash-folding-notes of $90 billion. This equals $3500 per person including children. I keep some money in my safe ‘for a rainy day’, but not that much and I do not know anybody that holds that amount of cash folding notes. So, somebody is holding an awful lot of cash. There must be a lot of idle cash. Next, consider the Money Supply of $2400 billion, on a per head basis. This is $94 000. I don’t know many people with $94 000 in bank accounts. The Money Supply on a per head basis is excessive. The average Australian has no money at the end of the week, so the average person is turning over money on a weekly basis. There is an awful lot of idle money in the nation for which some mortgage payer is paying interest garnished from income. The problem is that money is not moving with a horrendous velocity figure of less than one. The average money item only changes hands once in a year. Taxation causes the problem. We only tax when money moves. Thus, we only tax when money is being useful. We do not tax ‘idle money’.

We are particularly harsh on business, particularly small business, by effectively turning them all into criminals. One can hardly talk to a business owner without them confiding how they get around ‘the system’. Anyway, taxation of movement, must be all but removed. Payroll Tax is the first to go as it gives concessions to unearned income not available to those who sweat and toil. GST must be brought to zero for all items except those involving waste or harm for which the GST will be tripled. In its place, is a tiny Transaction Tax of 0.1% or less on all transactions, including share trading. Income Tax must be reduced. Depreciation rates are fully self-evaluated to as low as zero percent. I usually say: “You cannot eat wheel-nuts.” Tax should not be applied to money spent enlarging a business or to productive assets. Negative gearing is currently tolerated without applying an increase in annual value of the underlying asset. This is a tax subsidy to the well-off not available to our young first time home buyers. Next is a tax on stagnant money in bank accounts is essential and shall be less than one percent per month on ‘minimum monthly balance’.

Money was a flawed, but essential, human invention. It was invented to enable transactions, not stifle them. It was not invented to be hoarded. There is no ‘right’ to hoarding of money, only a right to use money. As it says in the Koran: “If you hoard money, when you die, it shall be heated, and burned onto your forehead.”

Capital Gains Tax is a windfall tax concession on unearned income. Unearned income should be taxed at a higher rate than earned income.

To repair our broken ‘debt banking system’, a correction:
Only the government should create money.
Create provision for high employment
Tax of hibernating money.
Reduce tax on money movement.
Recognition that ‘debts that cannot be repaid, do not need to be repaid’.

The toughest obstacle is bank intransigence.

We must also realize that the statement on the Reserve Bank Website is incomplete:

“The Reserve Bank is responsible for Australia’s monetary policy. Monetary policy involves setting the interest rate on overnight loans in the money market (‘the cash rate’). The ‘cash rate’ influences other interest rates in the economy, affecting the behavior of borrowers and lenders, economic activity and ultimately the rate of inflation.”

If you read that again, the statement: “Monetary policy involves setting the interest rate…” gives a clear indication that they believe that the economy is adjusted by adjusting interest rates alone. Any business owner knows that it requires more than just a volume of money. It requires that money to be turned over. The rate of spending is more important than the volume of money. The blunt instrument of interest rate adjustment is insufficient to make money move. US Quantitative Easing gave money to organisations and the economy still foundered. Europe reduced interest rates to zero and they still could not get the economy to move. Australia gave money to the people, and money moved. The solution to a stagnant economy is clearly not expansion of the money supply in favour of the money lenders. Nor is it the reduction of interest rates to increase the money supply. Europe’s reduction of interest rates progressively to zero has demonstrated that interest rate reduction is not a solution, yet they still seek to reduce interest rates. The solution is in money movement. The money supply of Australia stands at $2400 billion. This is close to $A96 000 per person. This is excessive money, most of which is sitting idle in bank accounts for years on end. The solution is to make this money move. Bail-in is unnecessary and destructive of the standing of the banks, unless it is their intention to crash the economy which would lend weight to the conspiracy theorists that disagree with the government.

For an economy, money must exist and it must move. Interest rate is an inadequate instrument for adjusting an economy. In so many countries, interest rates have fallen to almost zero and the economy remains stagnant. Money does not move simply because there is more of it. One hears these people say the likes of “The people are hoarding money.” [4] The people are spending their weekly income by the end of the week. It is the money of the well-off that sits idle. The move to ‘cash free society’ leads to the concept that further reductions in interest rate will cause money to move. This is erroneous thinking as previous reductions failed to improve the economy. Further reductions in interest rate will not improve the economy.

Do not play into the hands of the bankers. Search your Hansard for the word ‘bank’ and you will find speeches by your predecessors hammering the banks for their detestable behavior. Particularly, their habit of calling in loans in times of need when the opposite is needed. The banks create the recessions and depressions. No window dressing of their operations will cover for their despicable attitude towards the welfare of Australians.

In Australia, only 4% of the Money Supply originates from the Reserve Bank. 96% of the money in use is created as credit by banks and is listed in bank accounts. The credit created by banks creates debts that exceed anybody’s ability to repay. More is owed to the banks than exists. Stability will never come from bail-in.

[1] For ease of comprehension, I work to two decimal places, so figures are accurate to about one tenth of a percent. $90.1 billion is listed as $90 billion. $2399.49 is listed as $2400.

[2] banknotes.rba.gov.au/production-and-distribution/distribution/ retrieved 2020-11-19

[3] tradingeconomics.com/australia/money-supply-m3 $2399.49 $A billion.

[4] Federal Reserve statement during the financial mishandling of 2008.

[5] Printing costs are a few cents which is negligible in this analysis.

[6] ‘Australian Debt Clock’

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