1 The Government creates an IOU on behalf of the nation. These IOUs are called Bonds or Australian Government Securities (AGS), through the Australian Office of Financial Management (AOFM) on behalf of the Treasury. The Government increases the national debt and makes the people pay for them.
2 The Bonds are swapped to create currency. This is done via the Treasury who sell the bonds to banks and financial institutions. The banks then turn around and sell our national debt (Bond), at a profit (Interest) to the Reserve Bank of Australia. The Reserve Bank of Australia opens an account, which contains no money, and buys the IOUs (Bonds) using IOUs that it writes and then the money purchase goes back to the selling bank; and money is created. This process is repeated and results in a build-up of bonds at the RBA and currency at the Treasury, which is just a supply of numbers in a computer. The Treasury then deposits the numbers into the various branches of the Government.
3 The Government then spends the money on promises, public works, social programmes and war, including employees pay. Then the government employees, contractors and soldiers deposit their pay into the banks. Which will become compulsory under digital currency banking.
4 The banks multiply the numbers by magically inventing more currency (IOUs to saving customers) through Fractional Reserve Lending, where they steal a portion of everyone’s deposit and lend it out. This process is repeated over and over again exponentially.
Fractional reserve lending is a system where banks hold only a fraction of customer deposits as reserves (typically 10% or less) and lend out the remainder to create credit and stimulate economic activity. This process expands the money supply, as loans are deposited back into banks, allowing further lending and creating a “multiplier effect”
Example of the Multiplier Effect:
If a bank receives a $100 deposit and has a 10% reserve requirement, it keeps $10 and lends out $90 That $90 is spent and eventually deposited into another bank, which then lends out $81, continuing the cycle and increasing the overall money supply
5 We the people then work for some of this money. Our earned money is taxed and we pay the tax to the Australian Tax Office, who in turn pass the tax to the Treasury, so the Treasury can pay the principal plus interest on the bonds, that were purchased by the Reserve Bank of Australia, with an account from nothing.
6 The Debt ceiling delusion. The system is designed to require ever-increasing levels of debt, which will eventually collapse under its own weight, all because Politicians want to look good by making promises they cannot afford and refusing to deal with the spiralling debt. Instead, they raise your taxes and/or cut your services, whilst all the time making you pay for the national debt, plus interest, that they created.
Interest (Usury)
Google Definition
“The action or practice of lending money at unreasonably high rates of interest.”
This is incorrect. To use the term unreasonably high, would imply that if interest rates are low then usury is ok. Usury does not differentiate between high and low interest, all interest irrespective of the amount is wrong.
The Christian church drew on biblical passages and moral and religious reasons to define usury as a sin. The Church placed a ban on the practice of usury to prevent this “evil”. In Islam, the Quran and the teachings of the Prophet Muhammad led Muslims to also view usury as a crime. This explains the war on religion, that is currently be waged against both Christians and Muslims.
Inflation and our attempts to combat it, is a major issue facing the country. Inflation is the inflating of the economy, which can be done by the government simply borrowing money. This additional money if spent into the economy, then inflates the economy, which then has negative effects on prices and interest rates. The more money we pump into the economy, the more likely that prices will rise, simply because there is more money available. So, the demand for goods increases, but if there is a lack of supply, then prices are driven up. If the supply can keep up with the demand, then in theory prices need not rise. Prices may rise irrespective of any increase in inflation, simply because companies wish to put up their prices for their goods and services. This can also apply to government organisations and public utilities.
The general view of inflation is, that as it grows it devalues money, making things more expensive. If inflation is left unchecked and allowed to grow, then it could grow to such an extent that it becomes hyper, which ultimately results in the total collapse of the economy. This scenario has been played out in Germany, Argentina and Zimbabwe all with terrible consequences.
To stop inflation getting out of control, the general approach is to control the money supply, by adjusting interest rates. The theory is, that as interest rates rise, the cost of borrowing increases, so people or companies don’t borrow, because of the higher cost and those with loans, have their loans increased thus removing money from the economy, preventing people or companies from buying goods. As the demand for goods decreases, the supply increases, thus putting pressure on companies to lower their prices, which in turn lowers price inflation.
This is the current practice which we are all familiar with, but is it right, does it really work and who really benefits. As of October 2024, we have been advised by the RBA Governor that inflation is still too high and it needs to be brought under control. To do this the Governor has recommended that the official interest remain at 4.35%, which in turn means the average mortgage loan rate will remain around 6% give or take. The consequence of this is, that a mortgage holder with a $500K mortgage is paying another $12,000 in extra interest per year. For whom the majority are now having to deal with mortgage stress on top of the everyday cost-of-living crisis that exists.
If we accept that these measures will result in the mortgage holder having less money and not spending it on goods, then the supply and demand factor comes into play and inflation reduces. But this is not the case, for although those with mortgages will reduce their spending, other persons who do not have a mortgage, will not be affected. In fact, if someone has $500k savings in the bank at 2.4% interest, they will receive $12,000 in interest per annum. With this extra money they can afford to pay the higher prices for goods, so the demand meets the supply and there is no need to lower the price. In effect, the non-mortgage holders spending balances out the mortgage holders reduced spending. So, the pressure of high interest rates to drive down inflation is neutralised by those that have money to spend. Unless you stop all spending, then the demand for goods will not stop. Therefore, it is fair to say that raising interest rates, has both a negative and positive effect which balances each out, and has very little effect on price inflation.
What makes the situation worse, as confirmed by the RBA Governor is, that Government spending is still too high and this is the real cause of the rise in inflation and its failure to reduce. In view of this, as government spending is outside the control of the mortgage holder, it is unfair that they must bear the brunt of the anti-inflation measures. Where if the Government undertook a strategy of decreasing spending and stopped borrowing, then this would have a far greater effect on lowering inflation, which would enable the RBA to reduce interest rates.
If you borrow $500K over 30 years at a rate of 5.74% you will repay a total of $1m. The original $500K loan plus $549K in interest.
$500,000 loan 30 years 5.74%
Monthly repayments $2915
Annual $34,980
Total Repayment $1,049,400
Interest paid $549,288
If you borrow $500K over 25 years at a rate of 6.74% you will repay a total of $1m. The original $500K loan plus $535K in interest.
$500,000 loan 25 years 6.74%
Monthly repayments $3452
Annual $41,424
Total Repayment $1,035,600
Interest paid $535,421
The banks have worked out that if interest rates lower, then they just extend the length of time for you to repay your loan. If interest rates increase, then they can reduce the length of time to repay. Either way they end up making 100% interest on the amount borrowed from the payer.
So, when interest rates go up or down, is it really to do with the fight against inflation or simply to make banks rich at your expense. If inflation increases to 3% and Harvey Norman increases the price of their TVs from $5000 to $5150, as a consequence, why is this so terrible, that the Government must act, to force Harvey Norman to reduce their prices; and yet they don’t do anything against the banks to prevent them from charging 100% interest of 100% inflation on a mortgage. And everyone is scratching their heads asking why they can’t afford a home. I wonder why!
It must now be accepted, that using interest rates to control inflation is ineffective, unless all the pieces fall into place, which they never do.
There is an easier way to control people’s spending habits and it would be applied to every person, irrespective of whether they have loans or not. To combat price inflation, we should be using GST. The benefit of GST is, that it is applied to most goods and services, therefore if it is increased, everyone is affected. It will mean that the total price of an item will increase, but the base price will not. But, the whole purpose of controlling inflation is, that they do not want you to buy the goods in the first place, to force the price down.
By using GST, you can either increase it across the board or target selected goods or certain sectors of commerce, where the increasing price is an issue. So, say you want to slow down the sale of TVs, you could increase the GST on TVs to 20% or 30%. This will increase the total price and deter people from buying the TV. If retailers want to sell TVs, but cannot because of the higher GST, then they could decide to lower the base price of the TV to offset the hike in GST. Working on the assumption that the Bureau of Statistics will use the base price of goods, nett of GST, to measure prices, then the price of TVs will be lower, thus having a positive effect on reducing inflation.
Using GST instead of interest rates means, that mortgage holders do not get hit with the double whammy. With a typical household having an annual budget of $50,000 to spend on their living costs, excluding mortgage and rental payments; if inflation is 10%, then the annual cost of living increases by $5000 to $55,000. If interest rates rise, which they have; and increase your interest repayments by another $12,000 a year, then in real terms the total effect upon the household budget is an increase of $17,000. So, the question begs, which is having the worst effect on peoples’ cost of living, inflation or higher interest rates. If polled, it might be said, that the people are prepared to put up with the $5000 increase cost of living and forgo the larger expense of the $12,000 interest increase. It does seem odd that the logic of RBA Governor is, that they don’t want you having to spend an extra $5000 on your cost of living, but they are prepared to slug you with an extra $12,000 mortgage increase, in the vain hope that it will reduce the $5000 increase in cost of living.
Under a Conservative government we will introduce sovereign money, which in simple terms is the Government borrowing money off the people, from their future tax contributions; and printing money, without any interest component. We can then lend you that money to purchase your house, which you will then repay back to the government over 15 years. Once repaid the debt no longer exists and we can cancel the sovereign money for that mortgage, as if we had never created the money in the first place.
So, if sovereign loan mortgages replace traditional bank home loans, then there will be no interest accrued on the loan. If there is no interest applicable, then how will increasing interest rates combat inflation, it won’t. That is why the best way to combat inflation is through the manipulation of GST rates, or ensure that supply keeps pace with demand.
Another two-part way to combat inflation is, first to have a government that is extremely careful with how they manage the finances of the economy, focusing on efficiency to reduce costs and spending. The second is to work with businesses to ensure, that there is always an adequate supply of goods to meet the demand and to keep prices consistent and not increase them to make a quick profit. This request of business not to increase prices, will run contrary to their core capitalist dogma. However, profiteering by corporations is one of the main reasons why prices have been increasing. This is understandable in view of the fact, that the government is hell bent on taxing every bit of profit out of companies; and this is their way of clawing some money back. A government that works with business for the greater good, is more likely to be supported by business; for what they lose on price increases, is offset by lower taxes, a growing economy and more goods being sold.
Inflation can be controlled and kept under control far easier than the government and the RBA would have you believe. High inflation always results in high interest rates, which if the incorrect way to combat inflation, then why persevere with this course of action, who benefits. The only entities that benefit are the banks, for they can charge more for a loan, which increases their profits. Raising rates to a bank is the same as increasing prices; and yet, bank price increases are not regarded as inflationary, even though they are. Some would say that the whole system of interest rates is a con and that the banks are aided and abetted by the RBA to enable them to facilitate huge profits at the expense of the struggling battler, who is then told by the RBA Governor, that it their fault for going to the dentist or having a haircut; and if they can’t afford their mortgage then they should sell their home. If Government spending is the main cause of inflation, then why doesn’t the RBA Governor, practice what she preaches and take a substantial pay cut and reduce her $1m annual salary. Or better still just abolish the RBA Governor and board.
