Financing an Age-Friendly City with Friendly Finance for All
Recommendations to the ACT Government
The ACT government negotiate with a Community Bank to convert ACT Government Loans to simple interest from compound interest.
The ACT government negotiate with the Bank for approved community organisations to get simple interest loans.
The ACT government negotiate with the Reserve Bank to remove the necessity for the government and community organisations to repay the capital of loans and only pay the interest to cover the cost and profit to the bank.
Background to the Recommendations
Friendly Finance is finance without the suppliers taking “unearned income” like capital gains, insurance, or generating unnecessary profits. It is achieved by the unearned income going to those who earn it or by sharing the unnecessary profits.
All Plans for the elderly involve finance, and the ACT Government can find it and make Canberra an Age-Friendly City by, amongst other things, using ideas from Modern Monetary Theory. The changes will benefit all Canberra residents, regardless of wealth, age, or social status, and will create a more inclusive and prosperous society.
The current capitalist system, focusing on maintaining the wealth of the already wealthy, has led to stark wealth inequality and a form of debt feudalism through bank loans. The existing system, which allows bank loans of new money, favours the wealthy and puts barriers to the less wealthy by banks treating new money as if they owned it. The banking system was designed to exclude the poor from access to new money and is a reality that we must confront for the betterment of our society.
Many believe the financial system generates new money by generating profits, and the banking system encourages that belief. Profits come from the use of existing money. Profits do not create new money. New money comes when governments create it and put it into bank accounts or license banks or other bodies to create it. The cost of creating money is zero.
The issue is that the receiver of the money must justify their receipt. The standard way is to use a loan to create a profit and repay the money with the profits. This means the cost of loans is double what it needs to be. The first payment is the assumed cost of creating the money, and the second profit is the profit generated by the money.
This means that paying off a bank loan is double the interest charged. It is remarkably easy to remove one of the costs of interest. When the bank enters a transaction into the loan account to debit interest, it should be followed by another transaction to cancel the debit by putting the money back into the account with a credit. Interest to the bank is a service fee for arranging the loan and ensuring the borrower repays it. When a bank loan is repaid, the bank destroys the repayment by cancelling the loan.
Banks are agents of governments and are contracted to introduce money into the community by lending new government money. The banks do not own the new money created but are responsible for borrowers to spend it appropriately. Borrowers pay back the money and also pay the banks for providing the service to the government.
However, the idea that money is created when a profit is made is entrenched, even though it is demonstrably untrue. Money does not make more money tokens. Profits do not create more money tokens. Profits come from charging more existing money than the cost of the goods or services used to create it. Profits come by redistributing existing money from customers to producers.
Profits are good as they tend to make products and services cheaper. However, we don’t need to encourage people to make profits, and we should use new money for things that society wants but does not make a profit. We can change by using new money for societal needs and the common good rather than increasing private profits. We can use existing money for profit-making ventures.
The Misrepresentation of Interest
As argued above, governments see making profits as the best use of money. “Making more money” became synonymous with profits, and profits became synonymous with literally making money. Unfortunately, this does not represent what happens. The issuers of currencies are governments. Governments make money by authorising banks to put new government money into bank accounts.
There needs to be a good way to control how much money the banks create. Governments took the advice of the wealthy and decided that loans repaid from profits were the best way to control the money supply. The idea works well for the wealthy but not those with little or no money.
In banking, profits do not increase the money supply by repaying loans from profits. The government allows banks to create new money, which increases the money supply. Banks supply a service to economic entities and lend other people’s money - not their own - and interest is their service fee.
A solution to this misuse of banking follows.
How the ACT Government can make all Canberra Citizens Wealthier
Modern Monetary Theory recommends spending money into existence. It is used to successfully address emergencies like money to fight wars, financial collapse, and a global pandemic. It is not popular with the wealthy because it gives new money to everyone in society and is not reserved for the wealthy to make a profit.
The ACT Government can decide to only deal with banks that follow the following rules for the government and all citizens living in the ACT. If no bank can be found, the ACT Government could start a new one with the following rules.
There will be no double paying of interest on loans. Achieved by eliminating compound interest.
There will be a list of loan types that must use existing money. These will include loans for the purchase and transfer of existing assets.
There will be a list of loan types that can use government money. The government will specify how much of the loan needs to be repaid and who owns any assets created with the loans.
For example, all infrastructure loans where the government owns the infrastructure will use government money to fund it, and there is no need to repay it. All social security payments will use government money. All grants and government incentives will use government money.
Doing this will mean that most of the wealth generated in Canberra will stay in Canberra, and it will replace all ACT government taxes.
It opens up the ACT to innovations to control the spending of new money so it is used for the common good.
Examples of how to do it are Permanent Home Loans, Paying People to Walk, and Local Electricity and Water Markets, where consumers own the enterprises operating in those markets.
Benefits for the Elderly
The main worries and concerns for the elderly are the cost of living and access to funds to pay for emergencies and health services. The ACT is amongst the wealthiest places in the world, and everyone should have the money to meet their everyday needs without worry.
For the elderly who spend capital, it will provide a way to get full value because they can access loans backed by existing assets and only pay once for interest.
For the elderly, Permanent Home Loans will allow renters to purchase the place they live in at a lower cost than their current rent or mortgage repayments. For those that own their homes, they can access most of the money in the home by selling parts of it for specific purposes while they continue to live in the home.
Paying people to walk will encourage healthy practices, lengthen lives, reduce health costs and improve the walking conditions in their suburbs. The funds will be used to build walking infrastructure owned by Canberra residents.
Local Electricity Markets owned by consumers will supply the funds to put battery and solar panels on everyone’s home, buy or share electric cars, and allow those without a suitable roof to buy a share of large wind or solar farms. It will at least halve the price of electricity and car transport.
A similar system will reduce the price of water by removing the cost of loans to banks.
The new community assets are paid for with new government money. The ACT Government will need an agreement from the federal government and the reserve bank that the products and services created from the loans are the same as collecting taxes and paying for the same services. The agreement is that the bank does not have to receive all money from the borrower to cancel the loan - only the bank service fee. A critical part of the agreement with the Commonwealth is that asset ownership goes to a community organisation or the ACT Government - not private entities.
Today, the assets financed with new public money go to borrowers after they have repaid the loans.
With the suggestions above, new public money will go to goods, services, and assets owned by public organisations, including local, state, and federal governments. Collective ownership, where the collective owns the assets, is a control mechanism to ensure money is used for custodians of the assets - like the person who occupies a house and consumes the electricity.
There are various other ways to achieve these objectives, many of which can be found in the book Assets in Common. Using new money to fund these approaches will lead to a vibrant, productive, and wealthier society.