I have, in the past, submitted papers to politicians and economic commentators detailing from publicly available data that the way Australia’s monetary system is being run is not in the best interest of the population. I will explain what I mean from a personal experience, but omitting many references to internet data and information, which it seems, are not common knowledge.
My personal history illustrates one aspect of monetary policy that was used, but has been abandoned. I arrived in Adelaide in 1968 as a migrant with a wife and two children. After initially being a labourer in a winery and a vehicle assembly plant, I got a job as a junior clerk, and then in the early seventies, as a man with a family to support from a single modest income I still managed to get a mortgage to buy a house! That is no longer possible in 2024.
A second element of public history, which I consider further proves my point is this quote from the 2002 Inter Generational Report on page 2: “Fiscal sustainability is the government’s ability to manage its finances so it can meet its spending commitments, both now and in the future. It ensures future generations of taxpayers do not face an unmanageable bill for government services provided to the current generation.”
Since that was published, the Australian Government debt to commercial lenders has sky-rocketed, providing taxpayers with a large and growing interest bill.
My opinion is that the two above elements show that, as I stated in my recent letter to the editor, we now experience, “Mismanagement of Australia’s monetary system”.
I state this based on the fact that the policy that made it possible for me to buy a house in the 1970s as a sole earner with a wife and two children was due to the use of this provision of the Banking Act 1959: “Section 50, Control of interest rates, (1) The Reserve Bank may, with the approval of the Treasurer, make regulations: (a) making provision for or in relation to the control of rates of interest payable to or by ADIs, or to or by other persons in the course of any banking business carried on by them”. That is still part of our laws, but has been abandoned. That seriously disadvantages the young people in their early careers in the twenty first century
Regarding the interests of all taxpayers, I submit that the borrowing from commercial sources of ballooning government deficits, incurring a growing interest and repayment commitment to be met from tax revenues, is not justifiable for at least two reasons.
Firstly, as Peter Costello’s 2002 report warned about: current fiscal policies do no ensure that the budget does not place a burden on taxpayers.
Secondly, because as the RBA states in one paper on its website: “Money can be created, however, when financial intermediaries make loans”, which is a jargon reference to the modern fiat money creation practice of banks referred to as:“Loans Create deposits”. (Do search the internet for academic and Central Bank papers on that topic, there are many).
Note that the RBA Act 1959 includes: “Section 27, Bank to be banker for Commonwealth, The Bank shall, in so far as the Commonwealth requires it to do so, act as banker and financial agent of the Commonwealth”. So, why does the Commonwealth not direct the RBA, as its financial intermediary to create the fiat A$ it needs to cover its budget deficits?
If the Commonwealth borrowed from the RBA, then the profit made by the RBA on A$ creation from thin air would be available to the treasury as part of the RBA profits, profits now made by commercial banks! Hence deficit funding would be free of charge to the taxpayer – but of course would be still inflationary, like all money creation from thin air that is not properly controlled.
The practice of fiat money creation by commercial banks is aided and abetted by the accounting rule that requires that loans need not be revalued for periodic profit and loss reporting as long as the debtor meets the contractual obligations, but loans must be revalued if the debt is trading stock. Thus, banks can report massive profits, even when there are indications that some mortgagees are struggling; but the RBA had to book a loss in excess of $15 billion on 26 October 2022. Its capital base then was reduced to $40 million from the previously reported amount of $15,406 million.
If the RBA had lent the Commonwealth the massive debts incurred in the 21st century, rather than buy those Commonwealth obligations as trading stock in the open market, then it could have ignored interest rate fluctuations like all other banks do in respect to their long-term loan assets (mortgages) on their balance sheets.
Why the politically induced double whammy for the taxpayer? Payment of interest to banks other than its own bank and writing off RBA reserves due to revaluation of trading stock debt papers?
If the Commonwealth operated in matters of banking and finance on the basis stated in the RBA Act 1959: “Section 10, Functions of Reserve Bank Board,… (2) It is the duty of the Reserve Bank Board, within the limits of its powers, to ensure that the monetary and banking policy of the Bank is directed to the greatest advantage of the people of Australia”, then less tax takings would be passed on to the commercial creators of modern fiat digital dollars, and the RBA would still report a decent capital and reserves in its balance sheet.
That in a nutshell is why I consider that for decades we have had mismanagement of Australia’s monetary system.
John Kampert
Retired Accountant, aged 81. I qualified in the Australia in the 1970's and have worked as an accountant worked in private enterprise and the public service. I have become interested in the politics and economics of money and finance since my retirement and found the internet a fascinating source of information. Most of which unfortunately is NOT common knowledge. It seems the professions prefer to keep the public undereducated.
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