Banks corner a vital service for this nation

Opinion: Banks corner a vital service for this nation

Opinion
John Carter examines Nicholas Gruen's idea about the Reserve Bank becoming the people's bank, lending directly to the people at 0.5 or 1 per cent interest

John Carter examines Nicholas Gruen's idea about the Reserve Bank becoming the people's bank, lending directly to the people at 0.5 or 1 per cent interest

Aa

Banks are currently sucking the lifeblood out of the real economy and multiplying the gap between rich and poor.

Aa

As the drought continues and farmer debt explodes, one ponders solutions.

Following the 19th century droughts, banks owned huge areas. Understanding of finance has improved-thanks to JM Keynes.

Where to now? Moratorium as in the Great Depression? Bail outs as in the GFC? Northern flood disaster intervention?

Credit creation isn't a subject the general public is meant to understand.

The GFC aftermath resulted in a wider realisation that if credit can be created from nothing for the rich financial sector, then why can't it be done for other sectors?

A country with a central bank can always create credit in its own currency.

Provision of credit is an essential service, like water and power.

Governments have given banks the licence to create it -with a supposed government guarantee. Obscene profits follow.

However, that hugely privileged licence carries a responsibility to provide credit to keep the economy operating. This should take precedence over shareholder returns.

When banks stop lending, the economy freezes and anarchy beckons.

Banks are currently sucking the lifeblood out of the real economy and multiplying the gap between rich and poor.

Australia's four major banks now account for nearly 25 per cent of the Australian ASX200 capitalisation. Bankers have cornered the market. Worse, our major banks are exposed to derivatives (futures) to the tune of 50 to 100 times their capitalisation.

Warren Buffet called derivatives "financial weapons of mass destruction".

Our economy's largest sector is now heavily into gambling.

In 1933, during the Great Depression, the Glass-Steagall Act saw US investment banking separated from deposit holding banks, as is done in China.

President Clinton had the act rescinded, and opened the gates for the GFC. Bob Katter and Pauline Hanson are now trying to have the separation introduced here.

Nicholas Gruen has a civil solution. The Reserve Bank becomes the people's bank, without the expense of branches as internet banking takes over.

It lends directly to the people at 0.5 or 1pc interest, diverting the billions in 5-6pc interest "mark up" by the Australian retail banks - to the real economy.

It leaves risky investment ventures to the retail banks, which charge interest according to the loan's perceived risk.

Because of its low-cost operation, the people's bank could increase the interest paid on deposits, in contrast to the current peanuts given by banks to our nation's savers - a crazy situation as the banks need to hold up to 10pc of everything they lend.

Chinese Chairman of multinational Ali Baba, Jack Ma, said that banking's protected dominance is unsustainable. They will become irrelevant as the internet will see new forms of oiling the wheels of trade develop.

Hope springs eternal.

Aa

From the front page

Sponsored by