The aim of practical politics is to keep the populace alarmed, and clamouring for safety, by menacing it with an endless series of hobgoblins, all of them imaginary. - H.L. Mencken
Commonwealth Bank of Australia Ltd (CBA) has announced a $5.66 billion annual profit for 09-10 and the usual suspects are demonising "free markets" and "capitalism" as the cause. The problem with this critique is that free markets don't exist in the banking system. The reason the Commonwealth Bank makes these massive profits is that government provides them with powers that they would not have in a free market. The first and most obvious is the access they have to the most horrific government agency of them all, the Reserve Bank of Australia. The Reserve Bank creates its own deposits out of thin air. It is able to do this because the government has allowed it to. It then lends out these deposits at an interest rate determined by a group of disturbingly secretive government bureaucrats. Then there is government-ordained fractional reserve banking, the government-ordained currency monopoly and more. The point is, don't be fooled by the zealots. Banks make their big profits because of government, not the market. |
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FRB & Monetary Policy
I actually got into an argument about this recently. I believe FRB & monetary policy are two different issues. You could abolish FRB without drastically changing monetary policy, and vice versa.
I've come to the conclusion that FRB is fraud, since a deposit is, by definition, not an investment. Unfortunately in order to abolish FRB we'd have to
a) Argue for higher bank fees. That's the only way a bank could sustain 100% reserve accounts. It's going to be hard convincing people the banks aren't ripping them off with fees, but through the monetary system!
b) Print about 10x the current money supply. There's nowhere near enough cash in existence for 100% reserves. So politically we'll be dubbed the money printers!
With regards to monetary policy; an improvement I think would be for the government to print and spend the money directly. I think that is easier to justify than just handing the money over to banks. Of course I'd be dubbed a socialist for arguing that!
We can phase in competing
We can phase in competing currencies while phasing out the central bank. This was Hayek's prescription. Ron Paul had a very good policy on this during his US presidential campaign. I think you are correct in that moving to, say, a fixed monetary increase controlled directly by the parliament, would be an improvement but only because it would remove the aura that the system we live under has anything to do with "markets", because it doesn't. The RBA is a socialist institution that has been propagandised as havng something to do with capitalism. People think anything that inolves "money", "banking", "finance" etc... is capitalism.
You are correct that FRB is a fraud but only because of legal tender laws and lack of contractual obligations on the part of banks. In a proper market, if a bank wanted to engage in FRB it would have to disclose this in its contracts because to do anything else would be fraud. It couldn't engage in FRB and at the same time act as if "demand deposit" accounts were genuine.
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Intervention begets more intervention
Anthony, without an understanding of how markets work and how gov't intervention stifles the market process, the 'solution' we're offered is just more of the same, i.e. more gov't intervention. See, for example, this article yesterday by ABC business reporter Michael Janda: "Govt action needed to end bank 'stranglehold.'"
Katrina Lowe, the co-chief executive of the Consumer Action Law Centre, says that:
"The banks have had a chance to do something themselves to remove those barriers. We haven't seen that work, so we think it's now time for the government to step in to make the market work better for consumers."
While Christopher Zinn, a spokesman for consumer group Choice says:
"We think there's some benefit in a broad bank, and that's a national, low-fee bank, perhaps supported by the government, that puts customers before shareholders."
Argh, very frustrating!
LOL. I think we say
LOL. I think we say ABC "business reporter" with tongues firmly implanted in our cheeks.
The ABC doesn't have "business reporters", because that would presuppose that the reporter knows something about business and being productive. All the ABC knows is how to leech the taxpayer. The wages of their reporters are essentially an elaborate form of welfare payment to stinky leftist ideologues. No different to deductivle gift recipient and tax exemptions for "environmental" (aka. Marxist) organisations.
Even that Alan Kohler guy is a Green fanatic. A marxist in a business suit talking about the stock market, is still a filthy marxist.
Why is no party willing to kill the ABC? Do Australians actually watch it?
I do
I don't own a TV, but I'd rather watch the ABC over the other channels any day. The ABC have the best internet accessibility, for example. Kerry O'Brian is alright; I'd say he's much more productive than his privately employed counterparts.
I don't want the ABC killed. I want it privatised by giving everyone an equal share.
I too, almost solely watch
I too, almost solely watch the ABC because they have the most political content. I bite my tongue at the extreme socialist/green bias.
I commend you on your advocacy of privatisation, but will you allow me to sell "my share". Because if I cannot sell it, then it isn't truly mine and isn't truly privatised.
Also would you completely remove tax-payer funding and force the ABC to survive via private donations, advertising etc ?
-Robert, the reason no party
-Robert, the reason no party has tried to ditch the ABC is because with a coercively awarded budget around $1.5 billion it is 2nd to only Fairfax in funding and power media network in Australia.
-Faced with the threat of extinction the ABC would wield all it's powers against the fiefs in Canberra (woops, I mean politicians in Canberra), slandering and misrepresenting them to ensure their political defeat.
-Personally if I was in Canberra as an independent at this point in time and held the balance of power I would seek to privatise the ABC in which it is 100 million shares are created and distributed evenly to every adult who has ever filed a tax return. Once it is cut off the government teat it would be forced to compete for funding through donations, syndication and advertising.
-It would be hard to argue against my plan which only puts an asset in the hand of individuals whereas selling a tax payer built organisation to investors is quite rightfully seen as theft: http://www.la.org.au/opinion/251010/qld-government-asset-sales-more-stat...
Yep
Yeah, I mean full privatisation. But not as revenue generation for the government. I don't think anything like that has ever been done, so it would be interesting to see what happens!
The left-wing bias does make me cringe. What's more cringe-worthy is when people tell me we need it as an unbiased news service!
True that. All news is
True that. All news is biased, whether through omission or simply straight-up lying. So just let the market decide.
You make good points in this
You make good points in this article but on major government intervention in the banking market you are forgetting is the implicit guarantee on bank deposits given by the Australian Federal Government in 2008.
This has the effect of giving the banks an unfair advantage over credit unions and building societies in attracting deposits thus they have funding costs and marketing opportunities far greater than competiting institutions.
Not anything in Dodd-Frank
Not anything in Dodd-Frank has been approved, notes Bankrate. The Volcker Rule, which would control banks and just how they invest consumer dollars, is still on hold thanks to Congress. Source of article: Congress drags feet on Volcker Rule, Wall Street reform.