*So there's an intrinsic cost in the money-creation process. I think that's what you're saying. Correct?*

Absolutaly. For each time that money goes around, back into another
account, it is lent back to the bank and they have to pay interest.
The money supply still grows.

*"workers" may in principle "own" Australian industry through super funds, but they have no control.*

Not so Geoff. Fact is that most workers simply arn't interested.
They look at the bottom line on their slip and the more profit
it has made for them, the happier they are. But they can choose
their super fund, many are union run. They can even run their
own fund, we have a few hundred thousand of them now. I quite
agree however, workers should take more interest in how their
super is managed. Most are more interested in how their footy team
is doing.

* And you gloss over the fact that many people have little or no super.*

Hang on, 9% plus of all wages are paid into super funds. Anyone who
works, would have super.

*and this produces debt bubbles and crashes.*

Geoff, it is the role of the reserve bank to regulate things, so
that booms and busts don't occur. They have lots of power and can
do so. Personally I agree that we have a housing bubble in Australia.

Banks focus on safety, to make sure that they are repaid. But we
saw what happened, when American banks, mortgage brokers etc moved
in, who sourced money directly from overseas. Banks lost a big chunk
of their business, low doc loans and hardly a deposit became common,
which left the banks in a sticky situation. Now that most of those
have fallen over, the big 4 are tightening up again, in terms of
the deposit required, to buy a home. To me that is a good thing.

At the moment, our economy depends very much on China. If things
go wrong in China, and they pull the pin for a while, then you are
going to see lots of tears.

Yabby -

It is not practical for me to monitor the firms my super fund invests in, and then to monitor those firms' behaviour. So my control is not "in practice", it is only "in principle", which is what I said.

Yes, a lot of wages money goes into super funds, but a lot of people don't earn wages, or have only earned wages for part of their lives (many women especially). So they have little or no super, as I said.

The whole point of Steve Keen's post is that most money creation is beyond the control of central banks. They do not have the power you attribute to them. If they still have any power, evidently they're not using it well. Banks' behaviour is creating booms and busts, because they profit most from creating more credit, then stop lending when it all goes pear shaped.

Banks used to pretend they focussed on safety, then they started gambling in the financial markets. OK, perhaps ours did it a bit less than others, but it's naive to think their focus has been on safety.

I've conceded your point about the cost of money creation, but I think you're still quite uncritical about a lot of what banks are doing, and the consequences.

I agree about China. I think we ought to be investing in much more of our own self-sufficiency. This whole free trade thing is very naive, like so much of mainstream economcs.

*It is not practical for me to monitor the firms my super fund invests in, and then to monitor those firms' behaviour.*

Fair enough Geoff, like most people, you most likely lead a busy
life and have other priorities. The point is, you do have a say
in how your super fund invests and how those companies behave.
Rest assured, your super fund would have a good chunk of its assets
in Australian bank shares. Part of your annual bottom line, would
depend on them for profits.

Your super fund managers would be doing what they do, ie benchmarking
banks against each other and any CEO not generating increasing profits
through more lending, would soon be out on his or her ear. For super
fund managers are of course highly paid and they compete with each
other for ever better figures, to impress you, the customer. Then
they can charge you a big fat fee and obtain a pay rise.

*They do not have the power you attribute to them. If they still have any power, evidently they're not using it well.*

I would have to disagree there Geoff. Central banks can increase
interest rates. Central banks can change the level of reserves that
banks need to keep. The effect on lending, would be quite dramatic.
Just how much power Central banks have, has been demonstrated by
the US Fed, when a crisis hit the US. Bernanke has used his powers
but he also avoided a global depression in the process. Besides,
if the RBA did not have enough power, the Govt could give it to them
at any time.

Yes, many women have less super then men, but these days most women
do in fact have a career and AFAIK women also have the right to tap
into hubby's super. These days, if only one partner works, then
you are doing ok. Its just about a luxury.

Geoff it seems presently that out RBA has less control over monetary policy or the banks.Recently they have not passed rate reductions on and now are putting up rates independently of the RBA.The RBA's board is mainly made up of corporate interests.People like Frank Lowy should not be there since they can influence markets to suit themselves by acting or not acting when they should.John Howard gave the RBA too much power.

After WW2 with the Bretton Woods agreement countries were beholding to the USA via the IMF and World bank.They were not allowed to create much of their own credit so they had to borrow from the world central
banks.When we went off the gold standard in the early 70's banks went into overdrive in the production of money that fed share and property markets thus over inflating their values.Today two people have to work just to pay the bills and survive.

The GFC will not go away with more of the same ie creating more debt to service derivaties and hedge funds.Dick Smith has been warning for decades now that we need to support our own industries but no one listened.The greed of the minority ruled and thus we have an oligarchy,whereby both the major parties are controlled by the corporate elites.

The Murdoch and Fairfax press can make or break a party,so all pollies have to toe the line.Keeping the bastards honest was too big a task.

Any new parties will suffer the fate of One Nation.The electoral office has just tried to de-register the Citizens Electoral Council.They said they rang up a number of its listed members and could not reach them.You have to 500 listed members.When confronted with a list of thousands,they would not say which members they tried to contact thus their decision still holds and now will try to de-register this party.This is how dirty the game has become.

I'm not optimistic about our future since the oligarchs have too much power.

Arjay, you overlook the fact that the Keynesian model policy instruments that avoided severe impacts from the GFC, he developed from the events of the Great Depression.

Yabby, thank you for your contributions. I would note the US regulatory authority with jurisdiction over derivatives, warned Bernanke as far back as 1997-98 of the potential threat inevitably realised as the GFC, and the recommendations of that authority were denied by Bernanke and the US Govt instrument responsible for oversighting such issues.

Of macro economic perspective, I would observe the following;

[1] resolution of the energy crisis being a key to future global prosperity. Since man discovered the ability to make fire, the harnessing of energy has been key to our progress. We now realise linear energy sources are unsustainable and inefficient, therefore there is no alternative than to move to renewables.

[2] I agree with your assessment of the influence of China, they took the hit of the GFC, and it hardly dented them. It was a lot of their money driving the boom, yet with the onset of the GFC, the GDP growth of China only halved to 4%, a rate any country would be very happy with at any time.

The economic ascendency of the Asian tigers may be observed with comparative analysis of current US debt. For currently, if the US did nothing with its GDP but pay its debt, it would take four years for it to break even.

China is facing inflationary pressures owing ostensibly to creeping global recession, to date a hangover of the GFC. Very recently reported, it has determined slowing its rate of growth, however, currently it is a decision of which it retains the privilege of implementing the time frame and settings.

[3] that the global western economy is reliably predicted to enter into gradual decline over an extended indeterminate period, until GDP growth rates [and effectively standard of living rates] between the West and Asian tigers comes into balance. The reliable factor qualifying this prediction is the expenditure multiplier ratio.

Yabby,

Banks ONLY increase the money supply by collateralising existing assets. Banks enable a person with an asset to "monetize" an asset by buying partial ownership of the asset. The bank can sell the asset if the loan is not repaid. Most assets that are used as collateral can also be rented. Hence it is reasonable for a bank that monetizes an asset to also collect rent on its "share" in the asset. Hence it is reasonable for a loan to attract interest. It is a historical accident that we only create money that earns interest.

For most of our transactions we do not need money that attracts interest. If I purchase something from you with cash then I do not pay interest on the money. Why should I use interest paying money when I buy something from you when I use money from a bank account and not cash?

When I get money from an investor who wants to buy equity in a future asset I am about to build why should I use money on which interest is paid?

The problem with our banking system is that ALL money attracts interest whereas for the majority of purposes we need a banking system where the only money that attracts interest is savings or money created by monetising an existing asset (which is also savings). This also implies that we should only use interest bearing money when we buy existing productive assets.

We can solve the banking crisis and get rid of the business cycle by judicious creation of a small amount of interest free money through interest free loans. This money is then used for purposes where we do not require interest bearing money. An outline of the use of interest free loans that also "solves" the ghg problem can be found at http://cscoxk.wordpress.com/2010/02/24/zero-interest-loans-for-ghg-mitigation/

We only need to create a small amount of interest free loans because once such money is created it can be continually reused for all transactions until the loan is repaid.