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Hanging on to our assets

By John Turner - posted Thursday, 26 August 2010

At the Mt Druitt “Town Meeting” Julia Gillard came very close to revealing the true state of affairs regarding Australia’s escape from the worst aspects of the GFC.

Ms Gillard asked each member of the audience to indicate if their family would have been able to continue to pay off a mortgage had one of the partners lost his or her job during the worst of the financial crisis. I wasn’t present but I assume there were quite a few who would have indicated, “No!”

Australia in effect escaped a collapse of the housing market because the government took successful action to avoid substantial unemployment. It was not the regulation or strength of the financial industry which avoided the possible collapse; it was the support for employment, that is, the stimulus package. In fact the Federal Government underwrote the major banks to minimise the problems which would have hit that sector had employment dropped significantly.


The conservatives claim that much of the stimulus package was unnecessary and that we were saved by China’s demand for our raw materials. They conveniently forget that China itself provided a massive stimulus to its own economy. The Labor Party leaders would have been fools to assume that the Chinese stimulus was all that was necessary to rescue Australia.

All Australians have been charged excessive fees and interest since the privatisation of the Commonwealth Bank and the substantial deregulation of the financial services industries which flowed from John Howard’s actions when he was the treasurer in the Malcolm Fraser Government.

John Howard initiated a banking enquiry so structured that it was bound to make recommendations that met his ultra conservative philosophy. Bob Hawke and Paul Keating could not see the dangers and proceeded to follow the recommendations of that enquiry. The effect has been that for 15 or more years the banking system has increased credit at between 12 per cent and 15 per cent each year (which compounds), rates well in excess of the rate necessary to fund the real needs of productive industries and services.

That the Commonwealth Bank has extorted money through excessive charges during and following the financial crisis should be obvious to everyone after that bank reported its profit recently. Why is it that shares which returned about $8-9 average to Australian citizens, as a collective, when the bank was privatised are now worth $50? The share-market value of the CBA is now about six times its value when privatised. That is because the Australian population is being screwed by all banks now that there is no bank owned in the interests of the common weal. Banking is a service industry and in a decent society the cost of all such services should be minimised as they are parasitic to genuine productive activities.

During the years 1996-2007, with Howard’s pressure on the incomes of working people, the excess funds created by the banking system had nowhere to go but into the inflation in capital asset values, one effect of which was to price the average home out of the reach of a single income family. Each partner in a low wage relationship now has to work to pay the excessively large mortgage, to pay child care costs incurred so both parents can work, and to pay the transport costs associated with work. It used to be much better. In the late 50s, as a junior shift supervisor in heavy industry I was able to have a three-bedroom brick home built for just over two years salary, on a block of ground costing less than six months of my wage, with a Commonwealth Bank mortgage fixed at 5 per cent for about 20 years. My wife did not need to work to pay off that home.

There are serious problems still existing in the international financial system. The use of the $USA as an international trading currency was feasible while the USA was not a major debtor nation but that situation ended in about 1973 with the first oil crisis. Since that date the USA has had virtually a free ride as it has been able to buy its fuel needs and other imports by simply establishing bank balances for those supplying its oil and balance of trade shortfalls. For the USA the peak in domestic oil production was the early 70s despite the then new Alaskan oil fields.


The UK North Sea oil wells are similarly depleted and that country is now in dire straits. Australia’s oil is also largely exhausted and we are only avoiding the immediate consequences by exporting massive tonnages of coal and iron ore to pay for our oil imports and to pay for goods we no longer produce in Australia. Raw materials are capital assets and every tonne exported makes Australia less wealthy. We should be exchanging those raw materials for other real assets and with that aim excess profit taxes are a legitimate charge over and above royalties.

The international trade financing problems, and adverse financial speculation, can only be cured by the creation of an international trading currency as was proposed by Keynes at the Bretton Woods Conference in 1944. Such a currency should be based on a weighted percentage of the currency of each of the principal trading nations, with the amount available only that vital to fund necessary trade in real products and services, not wasteful speculation.

The Basle Agreements appear to have been designed to delay the day of reckoning which eventually arrived with the GFC. Unless the governments of the major trading nations take action now to rectify the trading and financial speculation problems the GFC will prove to have been a minor hiccup compared to the ultimate crisis.

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About the Author

John Turner has an applied science degree on top of a diploma in metallurgy.

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