Discussion
Banks are agents of the government that help control the creation of money by the government. Modern Monetary Theory notes that the government can create money directly and put it in people’s bank accounts. However, the government still needs help deciding which bank accounts should receive new money and creating money through debt is an excellent way to introduce new money.
Banks are agents of the government and charge the borrower a fee for the creation of the new money. When the bank receives the money back, it destroys it; otherwise, it would create double the money. The Banks pretend they own the money and charge interest twice. Once when they charge for the interest and once when they collect repayments. See Banking Sleight of Hand. While not illegal, it is deceptive, and it increases the cost of loans. It also slows repayments, meaning the economy is less productive.
The government has many ways to use new money and banking to raise the productivity of the whole community while still preserving the advantages of markets for distributing goods and services and bank loans for distributing money for investments and the rewards from the investments.
Suggested Actions
The actions the Reserve Bank and the government can immediately take is to stop banks from collecting interest twice on home loans. This will not disadvantage the banks in the short term and they can cover any loss by increasing the interest rate, increasing their volume of loans while reducing the time and money to repay the loan.
A second immediate action the Reserve Bank can take is to means test bank customers with credit card debt and repay some of the amount collected to the customers.
These two will immediately reduce the cost of living for the most vulnerable in Australia.
The government can then take submissions from the community - rather than business - on other ways to improve the productivity of Australia by giving consumers more opportunities of investing in capital goods through community organisations. In particular government regulated infrastructure like water, electricity, public transport, roads, education and health.
The government can run an education program on how money is created and the advantages of markets and the use of loans to direct investment by the community.
The government can create an advisor board of community representatives to recommend the priority items for community investment funds released by the productivity improvements created from the new loan methods.