Posted by: graemebird | December 19, 2009

Banking Reform: The Problem Of The Banks Hitting Back

It won’t be until we have banks that have to compete for term loans, in a context of growth-deflation, and 100%-backing, that we will have a banking system that is clearly and obviously a force for wealth creation. Elsewhere we talked about the times of almost zero competition. This is where the banks get cagey and don’t really want to compete in an aggressive way to get the new loans out there. At this point there is almost no impetus for the cartelised industry to compete amongst its constituent banks. So it is during this time periods that the banks hit back at their existing customers. In Australia the banks have backed the public into this most extraordinary situation where most of the home loans are at variable rates. So when we get to these periods of limited competition, the banks can effectively just reach into peoples pockets and clean them out.

The problem here is that, if the banks are no longer able to create new money, as any hypothetical just God would have it, they are fundamentally unprofitable. So the only thing for them to do is to aggressively raid the pockets of their existing customers who are on variable loans, or under nasty credit card debt. It is these people we need to protect in transition, or else any sort of reform is going nowhere.

Just lets recap on what reform consists of. For a start we need to untangle monetary policy from brazen bank subsidy. So interest rate policy must go. No more subsidising banks with low interest rates. If the Reserve Bank wants to subsidise people with low interest rate loans let that be me, as well as females of my choosing. Not the banks and their crony’s.

So the discount rate has to go. It ought to be an issue that would spark revolution if it were not to go. Because this policy, ridiculously referred to as “monetary policy” is obviously brazen stealing. A debt reduction/ new cash creation plan, must replace this interest rate racket. At the moment most new money created is in the form of new debt. But to get to situation of growth deflation, without grave pain, we have to try and get debts down PRIOR TO putting the brakes on the money supply growth. Furthermore money supply growth creates more debt defeating any such strategy. So reform consists of trying to get everyone paying down their debt, while we increase cash, and reduce bank ponzi-money.

This implies that we have a program of the government introducing new cash by way of debt reduction. And at the same time increasing the reserve asset ratio. We keep doing this until the reserve asset ratio is 100%. Now as stated the banks will furiously hit back. Not just the local banks but the international banking racket, which supports most of the powerful elites of that sort, who don’t need elected office to be powerful. Its hard to know what measures these elites would not stoop to to stop the impudence of a nation wanting to be set free from the slavery of fractional reserve, and an environment that arm-twists almost everyone into the servitude of endless debt usage.

Capitalism properly understood, ought to be a system wherein people generally have more cash then debt. So to get out of this slavery we need a concerted effort, in the face of endless subterfuge and wrecking behaviour, to bring debt levels down and cash levels up. This ought to be considered an effort just short of war. Because thats how the opposition will see it. So libertarian passivity is totally inappropriate in this matter. Consider the last time we went through a monetary crunch. Consider just how harsh that was. No-one will want to go through that again. We need to chart a course where the debt levels come down ahead of the monetary growth or we will never have an electorate that can cope with the pain. I think we ought to make payments on both interest and principal of registered debts (including credit card debts, hire purchase, personal loans) tax deductible, and taken into account immediately through PAYE. I think we ought to discourage people from taking on more debt. I think we need to get pty ltd businesses to phase out of debt also. While such an interim strategy is by no means libertarian, the ability then to reduce monetary growth without serious pain, will lead to a freer country that finally starts allocating its savings resources almost exclusively for the purpose of wealth creation. More than anything we have to stop our banks from borrowing off foreign banks. A practice that is destroying this nation.

We need to make a clear and rigid separation between loans made in an environment of 100% backing with loans made in our current illegitimate environment. In transition we ought to be able to subject existing loans to some sort of regulation, even as the loans made in the context of 100% backing ought to be almost totally free of regulation. Interest rate controls on the former type of loans are then by no means out of the question. In this case they are more or less mandatory. Since we already know that the banks are going to attack their existing customers by racheting up their credit card and housing loans, which they are legally entitled at the moment to do so.

But no such action ought to be taken without the provision to automatically cancel this interference once the loans from 100% backed banks kicks in. Thats the critical safeguard. Also by bankrupting the existing banks, we want to make sure that we have wiped the slate clean of the foreign debt that these banks have taken on to the detriment of their country. All these debts have done is overvalue persistently the AUD and thus sent our manufacturing business overseas. Setting us up for financial Armageddon. Hollowing out our economy. On top of that we are in for a new round of protection, as people quite sensibly figure that it is the ending of tariffs that has lead to the problem, whereas the reality is that it has been our banks, borrowing money off foreign banks, in a continuous fashion, that is the real relevant culprit.

Its not as if these banks are borrowing for wealth creation either. They will be sidling up to the foreigners for their own domestic liquidity problems, caused by bank-cash-pyramiding alone. Caused also indirectly by the debt-addiction problems that they themselves have created. And its not as if foreign banks can solve any of these liquidity and cash problems in the overall sense. Because only the mint can create the new cash necessary. So our banks borrowing off the foreign banks under the current setup turns out to be a more or less wholly destructive habit. A habit that will lead to the destruction of our nation if allow it to continue under fractional reserve, no doubt about that at all.

Consider the difference here if the loan money is funded via the federal government and the state governments paying off debts, versus the expedient of the banks borrowing off foreign banks. In the latter case no new cash in total is produced to assuage the banks cash problems overall. The only thing that happens is the firms that are borrowing off the banks do get more resources, but the AUD is constantly overvalued, leading to a hollowing out of our economy. In the latter case the government can create as much cash as they want. But if they pay off debts, the money will be recycled as loans to our domestic firms, without the overvaluation of our dollar and the systematic long-term wrecking of our exporters. And also without the consistent overconsumption of exports by all of us.

We cannot take an interim libertarian approach here and hope to triumph against the massive opposing forces that will be arrayed against us if we choose a course towards freedom and sound money. Even the fabled Bilderburgers. Think of how those clowns are made up in their ranks by all sorts of European bankers. Think of the Goldman Sachs Vampire Squid types. All of these people would be out for blood if we were to choose freedom, sound money, and effective capital markets for the very first time. I don’t think there would be anything at all that these backroom powers would not stoop to. We cannot be naive about this at all and hope to prevail.

Naturally all good public policy comes with mass-sackings. The Federal Government ought to help the State Governments out by providing anyone the State government wants to make redundant, with the ability to accept massive tax exemptions that dwarf the redundancy payments that they would legally be entitled to. We need those people putting their shoulder to the wheel in the private sector. To make it easier for the rest of us. To bring down our cost of living.

Not all the new cash ought to be used to buy back debt. We need to increase progressively increase the percentage of our money supply backed by such real resources as copper, silver, gold and platinum. Now supposing if we just devalue suddenly against all these things and have the gold, copper, platinum and silver rushing into the country? Supposing we just declare the an ounce of silver to be worth 50AUD and an ounce of gold to be worth 5000AUD and we do it that way? Well we are missing out on picking up these resources at the lower interim price. So its more like we want a one-sided falling peg against these resources. And we want the percentage of our money supply that can be backed by these resources to be increasing all the time. So we can replace ponzi-money with new cash introduced via debt reduction. But we need to be increasing our backing of the money supply, with precious metals, by more than the growth of the total money supply. So some of the new cash creation ought to go straight to debt reduction, while some ought to go to buying up these metal resources while we can still get them cheap. Once the money supply is fully backed by cash and their is no ponzi money, we might still be exanding that cash a little while longer, depending on how successful our efforts are in incentivizing debt reduction. But at some point we want to call a halt to new cash creation and simply keep devaluing against these metals until such time as the cash is fully backed by them. At which time we would want to find a way of privatizing new money creation in such a way as only the extraction industries and the coiners could get the benefit of the new money creation.

Alternatively it may be more prudent right from the start to create new money simply via the expediency of buying the precious metals. And rely from the getgo on surpluses to reduce government debt. The new cash comes into the system in a roundabout way via the hoarding of these precious metals, and the money supply is stopped from expanding simply by increasing the reserve asset ratio. This may be more in keeping with getting to the long-term goal of sound money in a less hazardous and more certain way. Because we must remember that the government is a natural counterfeiter as well as the banking system. And putting in a blanket rule that aggregate demand is to be increased only via the purchase of precious metals and reduced only by increasing the reserve asset ratio is therefore a safer way to protect against the hardwired immorality of both parties.

One thing is for sure. We have to get away from the immoral practice of any government or government department borrowing more money. We have to get away from the outrage of all these attempts to protect and subsidise the banking system. And we must see all these former bigshot banking officials down at the Centrelink looking for honest work for one time in their lives.



  1. I just downloaded all the RBA graphs in pdf form. I found one thing that contradicted some of what I said above. Our banks have been absolutely stunning in their ability to maintain their profits, even when the money supply was falling. This is different to the late-eighties tightening when for a while they took a hit. This time around, with so many of us with outstanding variable rate home loans, it looks like they just casually took, what would otherwise have been a hit to their profits, implied by their inability or unwillingness to create new money, straight out of their existing customers pockets. They just jacked up their margins to existing variable loan borrowers. I suppose one might have expected this from all the news reports of when the Reserve Bank would reduce their interest rate subsidy, by increasing their discount rate, and our banks took the trouble to double that increase.

    Let us not think that we need to treat banks like other private business. Certainly not like sole traders and founder-run companies, which ought to be sacrosanct. This is dirty business the way the banks have backed the public up against a wall. And sometimes we need to hardline it to regain our freedom.

    The relevant graph records no serious drop in their profits even in 2008. This is quite different from the situation of many foreign banks. Who have not so successfully backed their public into this incredible no-lose situation that prevails in Australia.

  2. Philosopher Barnaby Joyce heroically sticking up for one of our blokes on death row in Indonesia.

  3. “US officials say the agreement includes a commitment from wealthy and key developing nations to limit global warming to two degrees Celsius”

    HAHAHAHAHAHAH What a bunch of idiots. Well thats a relief. We don’t need to do a damn thing since there is no way we are going to be fortunate enough to get temperatures up to that level again until the next interglacial. So its over. What a relief.

    We have to go back to the start with the analysis of the effect of CO2. When the CO2 level increases at sea level it also increases all the way up to an altitude of about 100 kilometres. But this is not the distance that the light has to travel through this increased CO2 level, except at the equator at noon. In all other cases the light must travel through extra CO2 for a far longer distance prior to the light hitting the ground.

    More then 40% of the radiation from the sun is in the infrared region. Hence the first step to understanding this matter is recognising that prior to the heat coming up from the ground, that same energy is earlier blocked by extra CO2 doing its work for hundreds of kilometres, depending on the angle of incidence. So right from the beginning the extra CO2 is having a cooling effect. There are also other cooling effects along the way. So any alleged warming effects has to over-match this initial cooling effect, and all the other cooling effects as well.

    Now watts and joules are not equal as to their usefulness in heating us. The extra warmth from a change or other is not independent from at what level that change is made insofar as the joules are concerned. A heater in the basement is doing double and triple duty as compared to a heater in the attic. So the joules that the extra CO2 prevent from lodging deep into the ocean during the daytime, are far more important than some joules that the CO2 might allegedly slow from leaving during the night-time. By this I mean if an initial tally is made of the joules blocked coming inwards with the joules slowed going outwards, still we have to put a much heavier weighting on the inwards joules blocked to reflect that they are blocked from lodging deep in the ocean.

    Empirically this movement has to be rejected as a clear fraud. But where is the apriori assumption in its favour coming from? Clearly it is coming from ignorance and the effect of propaganda on the sheeple. Clearly it is coming from these sources alone.

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