An excellent piece. The Liberal Democratic Party in its press releases has been trying to highlight the fundamental flaws in throwing (taxpayers) money at the "problem". Australians will soon be asking for more money to be thrown at them! Unemployment still increasing, so the taxpayer base is declining. Where will the extra money come from? Maybe a new Rudd tax on resources? Maybe a Carbon Tax? Maybe an Oxygen Tax?

Peter Whelan has a lot in common with Ron Paul the Congressman for Texas USA.I agree.We need to get back to individual reponsibility.Today we have a strange mix of Corporate/Govt projects which are costing the tax payer even more in terms of money but also the loss of individual freedoms.

We should not be selling off our Govt income earning assets.If China in the form of Chinalco and Singapore Govt's OPTUS can run efficient businesses why can't we in Australia do it? Why do we have tolled roads,no infrastructure and increasing debt when China in the depths of poverty with a Communist Govt and corruption can excel?

The real big lie is that we need to go into more debt to fund infrastructure.The global Reserve banks create most of their money in a computer.The IMF proudly announced 1.4 trillion in cyber money.They have no gold reserves to back it.They do not borrow it.Why borrow from this corrupt system when you can create your own credit and still keep inflation under control internally via interest rates.There is no need to borrow from other countries.Every country on this planet can fund their own needs and still have a stable currency.The credit ratings of the likes of Moodies mean nothing.They gave Fanny Mae amd Freddy Mac a AAA rating.What a lie!

Stop the press a Libertarian doesn't like big Government.....
The biggest problem with this idea is that it's not something that could ever be tried out. No Polly would ever sign up for it, when you’re not in Government you can spout of any old dogma. Can they Author name a single Country that hasn't done something along the same lines as Rudd’s. Your fooling yourself if our electorate would allow a Polly to step back and let the companies fail let interests rate go where they may. As decoupled as they are now any move in interest rates is blamed on the Government as if they actual set it.
A Libertarian Government is a foreign land where no one has ever been, and Libertarians like to pretend they know what the grass smells like.

Any Government that can blow such an enormous surplus in such a short period of time shows it is not only inexperienced but also incompetent. Unfortunately every time Labour gets in we spend decades paying for their uncontrollable spending. It is sad though that our children and grandchildren will be paying for this incompetence. Mr Howard managed to pay for many troops to bring freedom to Iraq and yet he still delivers in the black. Shows the intelligence of the average voter.

I have yet to see anyone, Labour, Liberal, communist or anarchist, describe a credible alternative strategy to the one adopted by governments across the globe in the face of the near-meltdown of global finance.

It would have taken an overzealously idealist government to harden its heart to the devastation that such a collapse would have caused. I doubt that many people would have applauded a policy that simply allowed us to slide into a recession, that could easily turn into a depression as economies around the world contracted.

Which it could easily have done. Viciously.

No-one with half a brain believes that these measures were taken to court popularity. They were designed to avert an immediate disaster that would have caused considerable pain, by accepting a degree of discomfort down the track.

It won't all be pleasant, of course it won't. There will still be a degree of disruption, in both standard-of-living and in unemployment.

But realistically, we are collectively experiencing the hangover of our (that's you and me) consuming too much credit, in the belief that the boomtimes would go on indefinitely. To pretend that the problems were caused by delinquent government policy is about as fatuous as pretending there was some magic bullet that would have enabled us to avoid it.

So instead of simply whinging, Mr Humphreys, take a stab at proposing realistic alternatives, so that we can compare them to the actions that you think so little of.

I also note that the paper you lifted most of your copy from - Robert Carling's "Are we all Keynsians again" - was itself long on points-scoring, but silent on the topic of a better way of handling the situation.

If you want to know the truth and reality see Jim Rogers "Going mad on Bloomberg.."http://www.youtube.com/watch?v=dTQ4zVWt1wQ

Japan has been doing exactly what we are doing now in a more diluted form for 15yrs for no result.What do you think the outcome will be?

The problem is not giving out money but it is borrowing money and then not spending it on new investments that creates new productive assets. Everyone agrees we need more money in the system. Everyone agrees we have too many bad loans. Everyone agrees we need more productive assets.

Here is a way to achieve these results without involving the government.

Create a special banking product that fits alongside other banking products. It has the following characteristics.

Depositors get zero interest on their deposits.
A depositor is allowed to get a loan for up to say 5 to 10 times the deposit at zero interest - this will keep the bank within its fractional reserve obligations.
The bank must not use the deposit for any loan other than to the depositor.
The loan MUST be invested from a range of approved investments where the money is spent building a productive asset that has a guaranteed income stream. e.g. a new solar thermal power station.
The loan is repaid from the money generated by the asset. The loan terms might be 50% of income generated to the borrower and 50% to lender. The bank may require that 120% of the loan is returned.
Until the loan is repaid the zero interest deposit is not redeemable.
The bank keeps track of exactly how the money is spent and is able to ensure it gets its return when the investment starts to generate income.
If the investment is a dud and does not give a return then the deposit is forfeit if the loan is not repaid and the bank writes off the loan.

If there is a banker reading this that wants to fix the financial system and at the same time reduce greenhouse gas concentration in the atmosphere then contact me. I will build them this banking product and I will show it works by financing it with deposits of $500K at zero interest.

I think we've been here before, Fickle Pickle.

There is a step in your process that you persistently ignore.

>>A depositor is allowed to get a loan for up to say 5 to 10 times the deposit at zero interest - this will keep the bank within its fractional reserve obligations<<

You omit to tell us where the money needed to provide the loan itself comes from.

You take in $100, and put it in a safe place. Fine. You should be able to class that as the deposit you need to satisfy the reserve requirement.

But then you lend, say, $500.

Where does that $500 come from?

You are not allowed to print it. You will need to borrow it from somewhere. And the chances are, that "somewhere" will require interest payments, and your system starts to experience some stress.

That is why you don't have a queue outside your door, clamouring to learn about your magical money machine.

And Arjay, I'd be careful which guru you listen to.

If you listen right to the end of the Jim Rogers rant (was he drunk, or does he always interview that way?), you will hear the question "so, how do you make money Jim"

To which he replies "shorting"

And when pressed further, he states that he will short "I dunno, IBM, GE, JP Morgan..."

That was on February 11th, when IBM closed at $94.67, GE at $11.50 (with a dividend of $0.31c a few days away) and JP Morgan at $26.01.

At yesterday's close, IBM were $117.06 (up 23.6%), GE were $11.63 (up 4%) and JP Morgan closed at $36.83 (up 42%).

Now, if you understand the concept of shorting stock, you will notice that his investment strategy had a few holes in it..

Japan is not a completely realistic comparison, by the way, for the simple reason that they were pretty much on their own. If the US had had to pick itself up in the same way, while other trading blocs continued to boom, the decisions might have been very different.

Pericles you are wrong. The money does not have to come from somewhere. Banks can create bank money by a simple entry in a ledger.

Banks do not have to have money on deposit to make a loan. They create money by making a deposit into an account.

All a bank has to do to satisfy its obligations to the regulators is to have some "real money" to back a fraction of the loan. They then create what some people call "bank money" to make up the difference. To all intents and purposes bank money looks like "real money". To satisfy the book keepers and regulators it has to be backed by a loan.

Surely you are not saying that banks have to have 100% of the money they loan on deposit before they can lend it?

Anyone can create their own money it is just that few people will accept it for trading purposes. Banks are allowed to create Australian Dollars provided it is backed by a loan and this is a great privilege.

There is no requirement for banks to charge interest on the loan and there is nothing to say they have to pay interest on deposits.

What I am saying is 100% correct and can be done.

(I also say that a government does not have create a loan to create money if it doesn't want to as it controls the currency. Banks however are required to balance their books with loans but no one says they have to charge or pay interest).

This line this article takes is the latest propaganda from the right wing neocons with their economic "theories" that bear no resemblance to reality. Were is the tiniest shred of evidence put forward in this article?
There is no basis for this argument (apart from scaremongering).

Lenders will lend when they think it is worthwhile. The oh so great private sector is a pretty abysmal bet at the moment so I would suggest that all the moneylenders out there are cheering that there a few gov bonds lying around they can put their lucre into. The fact they wont lend to the capitalists is the proof that the private sector is a failure and needs an overhaul.

The tories would of preferred massive unemployment to have flowed from the financial crisis thereby not endangering their leverage driven exploitation and giving them another stick to beat their opponents with. It not only doesnt matter to them what happens to the working classes they would be happy, no deliriously happy, to see unemployment rise and poverty and deprivation so as to put the working plebs back in their place.

It is fun to see them frothing at the mouth trying to come to terms with their loss of their supremacy in economic matters. They just cant imagine that a left wing government could manage the economy well so they come up with grasping, surreal arguments such as this.

Its all a bit sad how loss of power has hit the tories. They need counseling, they show all the signs of having suffered a touch of post traumatic stress syndrome. Thats what happens when those who are bred to rule us are made to feel the lash of democracy.

Neither a slave nor a master be!
Mikk

*The money does not have to come from somewhere. Banks can create bank money by a simple entry in a ledger.*

Wow, I'm goint to have to email Gail Kelly at Westpac about this
amazing possibility. No longer will she have to worry about the
cost of funds, competing for deposits etc.

My Westpac shares will go through the roof, once she understands
her apparent new amazing powers!

Fickle Pickle, you should be a consultant to the big banks, to
explain to them why they have it so wrong :)

Pericles -- the better alternative to the stimulus was to not have the stimulus. It is not true that the government must always act. If their actions will make the situation worse, then they shouldn't act.

I think the RBA was right to loosen monetary policy last year, in response to the drop in the credit multiplier. This policy has increased spending power by more than double the stimulus, without the negative side-effects. (I might not have done the last rate cut, but that's a different issue.)

I don't believe we had a near-meltdown of the financial system. The reality is that we still had savers and we still had borrowers, and that they still had a very strong incentive to find each other and they were always going to find ways to continue the flow of funds. Indeed -- that is exactly what we have seen. No surprise there.

This is not an issue of hardening your heart. It's not like one side of the debate wants to do good, and the other side wants to do evil. Intentions aren't the problem. The problem is correctly understanding the consequences of policy.

I also disagree that this downturn in Australia is caused by excessive credit in Australia. We have imported this recession from world. And in America this recession was caused by lax monetary policy, poor regulation, moral hazard and bad risk management. That's 3/4 government mistakes.

mikk -- there is nothing "neo-con" about my article. I find it odd that so many people confuse "neo-conservatism" with "economic liberalism". They are quite different. Neo-cons are often economic interventionists. Indeed, in America they were basically left-wingers who decided they liked war. That's not me. Neither am I a Liberal, nor a tory. You are quite confused about political philosophies, and seem to assume that everybody not-left is the same.

I'm surprised you asked for evidence. That's like asking for evidence that 2+2=4. It is a simple fact that if you want to spend money, you first need to have the money. Do I really need to give you evidence for this idea?

There are three places for the government to get money. Either through tax, or printing money, or borrowing. The Australian government has clearly stated they are doing the later to pay for the stimulus. When the government borrows, that can either come from Australians or non-Australians. Do I really need to give you evidence for this? If you disagree... perhaps you'd like to suggest an alternative. Pixies? Aliens? A money tree?

If the money comes from overseas, then that increases demand for the Australian dollar and puts upward pressure on our exchange rate. This is a simple fact. If the money comes from Australian savers then this increases demand for loanable funds and puts upward pressure on our interest rates. This is a simple fact. We don't know yet how much money will come from overseas, how much will come from domestic savers, how much the credit multiplier will change (if at all) and how much domestic savings will change... so we don't know the size of the effect. But we know the direction.

If you are angry about the existence of facts and logic I suggest you take it up with allah, not me.

The fractional reserve banking system works thus.When you get a loan from the bank they do conjure into existence the principal which the borrower then usually buys an asset ie shares or property.When the borrower repays the principal the bank cannot use this money again as capital.It simply is enters oblivian.The interest the bank makes on this new money is kept by the bank.The inflationary part happens when the recipient of the new loan money puts it with another bank which then becomes part of their fractional reserve to create more loan money and thus more interest for the banks.For savings banks the ratio is usually 9:1 in terms of loan money to reserves.With investment banks it can be as high as 30:1.This is what feeds the inflationary share market.

The banks are the prime drivers of inflation contrary to the popular opinion of labour v's prices.If the reserve banks were doing their jobs properly,then there would be a lot less inflation.

Inflation is compounding like interest.In 96 yrs the US currency has lost 96% of its value.$ 1.00 now will only buy you 4 cents worth goods in 1913.The banks have added 25 times the total currency to the economy above pop growth and increases in GDP to achieve this depreciation of the US currency.We have suffered a similar fate.

Inflation really hurts the poor since they cannot save to buy assets that appreciate against currency depreciation.The banking system needs an injection of fair play to really get the best out of all citizens since your wealth is in your people not in a system that treats money as a commodity.

Pericles.Jim Rogers was not drunk.Perhaps tired but right on the money in terms of bailouts and market truth.The markets are now bullish with new counterfeit money created by the US Fed but there will be another collapse soon.The truth lies in the levels of unemployment and bankruptcies.

When are you going to swap personal attacks,innuendo and character assassination for real substance?

*Pericles.Jim Rogers was not drunk.Perhaps tired but right on the money in terms of bailouts and market truth*

Arjay, it seems to me that you are cherry picking Bloomberg here.

Rogers is just one of a host of colourful Bloomberg characters,
who regularly appear and give their 5c worth, about the global
economy. He is mates with Marc Faber. IMHO those two just love
being controversial and find that in itself amusing.

If it had been up to Rogers, it seemingly would have been best to let the
whole thing collapse and no doubt he would have made a fortune,
by shorting everything. Never mind the carnage and job losses
for all those little people.

If you ever bother watching Bloomberg, there are a heap of investors
and fund managers, responsible for hundreds of billions of $, who
completely contradict him. Bloomberg is there to inform of various
opinions, not to pass judgement.

But I know, you will highlight anyone who is singing from your
present song sheet. Its human nature I guess, quite predictable.

To simplify things about the bank discussion, I have a simple
question. If I go to Westpac and deposit 1000$ at 4%, according
to FP, Arjay and others, how much can Westpac lend to borrowers at say
6% ?

Thank you for the civilized response Mr Humphreys.

I appreciate that you consider the government's reaction to have been excessive. But I still believe that on balance, an overreaction was preferable to a weaker response. Belt and braces, as it were.

But I believe you are also taking an unnecessarily political stance, when it is difficult to envisage a Liberal government's response being substantially different. It is too easy to snipe from the opposition benches, when you are not going to be responsible for the consequences.

And Arjay, you still seem to be struggling with the basic concepts.

>>When you get a loan from the bank they do conjure into existence the principal which the borrower then usually buys an asset ie shares or property.When the borrower repays the principal the bank cannot use this money again as capital<<

Arjay, when you get a loan from the Bank, it doesn't "conjure" anything. It has to borrow, or take the cash from its vaults. Either way, it is real.

>>The inflationary part happens when the recipient of the new loan money puts it with another bank which then becomes part of their fractional reserve to create more loan money<<

Once again, the misunderstanding stems from the fact that money isn't simply magicked into being.

The best way to demonstrate this is to imagine there are only two Banks.

Trace the transactions for yourself.

Bank A has $100 of capital in its vaults, and lends you $1,000 on the strength of it. To do so, it borrows from Bank B, which happens to have $1,100 in the safe, from which it takes a grand to lend to Bank A. You then lodge your $1,000 with Bank B.

Bank A has $100 of Capital, but no more lending capacity, as it owes Bank B $1,000. Bank B meanwhile has exactly the same amount that it started with, so its lending capacity hasn't changed.

The system as a whole has had its overall lending capacity reduced by the amount that you borrowed.

Which is exactly as it should be.

A bit clearer now?

Pericles says "To do so, it borrows from Bank B, which happens to have $1,100 in the safe, from which it takes a grand to lend to Bank A." This is wrong. Bank A is allowed to deposit money without borrowing it elsewhere. It is constrained by having to keep a fraction of all its loan as cash and by the fact that it must lend against an asset. Creating money this way is "disguised" by the repayment of the loan "destroying" the money. Some people argue that the money is bank money not real money and so it does not create money.

My attempts to suggest that we use other methods than loans to increase money supply has met with little support. In a recent ah ah moment I realised that we can have the equivalent of increasing money supply without loans if we pay zero interest on newly lent bank money until it is spent and backing the loan with a deposit that attracts zero interest.

If we ensure the loan is invested in productive assets that, over time, generate more money than they cost to build this will not cause inflation. As the bank does not pay any interest on the deposit and defaulting loans means the bank keeps the deposits banks CANNOT lose money with this product. The banking product will tell the borrower exactly what happens to the money invested and it will monitor the returns generated. If your loan does not perform you will know. The bank is in the happy position of not having to worry about the performance of the loan. This is in contrast to the current system where the bank has to worry about your ability to repay.

Another issue is building the system economically. Our company has built a system with many of the same elements and it is being rolled out across the banking sector. We can build a banking product as described and run it for less cost than current banking products.

WTF?

“Real money”,”bank money”, “disguised money”, “created money”
– what a bunch of nonsense phrases invented to rationalise our economic system.

These phrases are invented by those who fail to grasp that our economic system is a ZERO SUM GAME.

In fact the only form of currency is the minimum amount that an unskilled worker anywhere in the world
is prepared to accept for an hours work.

Everything else is just a bet to see who can best take advantage of this minimum currency.

Some bets will win others will lose. If you borrow to bet and win – luxury awaits.
If you borrow to bet and lose – welcome to slavery for you and probably your children as well.

The problem is now Rudd is betting on our behalf. He is hoping someone else will lose.

J.H.

You lost me after this:

"Neo-cons are often economic interventionists. Indeed, in America they were basically left-wingers who decided they liked war."

What-tha? Cheney is a 'leftie'?

John
Whether you identify as a "neocon" or not this is an argument straight from their "textbook".
And as usual it is a complete distortion and fabrication designed to sow fear.

Hasnt the vast majority of the governments stimulus already been handed out in $900 cheques and the start of infrustructure spending etc? So in other words it has already borrowed the money and I dont remember interest rates going up lately do you? Where did the billions for those handouts come from? Overseas? Local? Made up? Why didnt interest rates rise?

Your facts and your logic are faulty and designed to mislead. Indeed they are nothing more than right wing propaganda spouted by mean, selfish, heartless, bloated, snouts in the trough exploiters who have no idea of hardship and absolutely no concience nor empathy.

Im confused? You called bush and cheney left wingers? Your nuts.

Pericles,where does the inflationary money come from each yr.You are denying the very existence of the fractional reserve system of banking.Only a small proportion of money belongs to depositors or is borrowed from other banks.So let's not deny the reality.

Every yr the banks have to create new money to equal the increase in population,increases in GDP and inflation.They do not borrow to cover these.Why would you borrow money to cover what you have already produced and pay interest on your own productivity?

Surprise! Surprise! A certain K Rudd, writing in today's Sydney Morning Herald, claims that "Australians should brace for high unemployment, rising interest rates, severe budget cuts and more expensive food and petrol". He should have added, "as forecast by John Humphreys and also the National Executive of the LDP". ( also, I might add, many members of the Liberal Party!)
Now, the alternative would have been to cut taxes and reduce the size of government(s). Cutting taxes would have kept more money in the hands of employees and companies, so they could have had more to spend (or save) and could have made better decisions on how it was to be spent or saved. As it is, the Grand Plan of infrastructure spending involves several layers of governments at the Federal, State and (sometimes) local council level. Our taxes are skimmed at each level, before the actual work on painting a school house, or building a bridge to nowhere, even begins.

Once more into the breach.

>>Pericles says "To do so, it borrows from Bank B, which happens to have $1,100 in the safe, from which it takes a grand to lend to Bank A." This is wrong.<<

No, Fickle Pickle. It is right. Otherwise, how would you get your loan from Bank A? It has only $100 in the vaults. If it credited your account with $1,000 that it didn't have, and you went to the ATM to withdraw it - it simply wouldn't be there.

This is mysterious, too.

>>defaulting loans means the bank keeps the deposits banks CANNOT lose money with this product.<<

If the borrower defaults on the loan, how can you avoid losing money? You have $100 in the vaults, you lend $1,000, the loan defaults, you have lost $1,000. Fact.

Until and unless you accept that Banks cannot produce money out of a hat, any understanding of our financial system will be closed to you.

That applies to you too, Arjay.

>>Pericles,where does the inflationary money come from each yr.<<

Government policy determines the presence or absence of monetary inflation. Many governments have delegate the mechanics of this to Independent institutions, such as the Bank of England in the UK, or the Fed in the US, but they will be conducting government policy as they do so. How else do you think Mr Rudd is able to inject the billions that is described as the "economic stimulus package"?

>>You are denying the very existence of the fractional reserve system of banking<<

Not at all. What I am saying is that the requirement for a Bank to maintain prudential reserves (that you describe as "fractional Banking) is not what causes monetary inflation.

>>Only a small proportion of money belongs to depositors or is borrowed from other banks.<<

That is where you go wrong, Arjay.

In order to provide you with your loan, the money has to be borrowed, from somewhere. A quick glance at the balance sheet of any Bank will show you the reality of this.

>>So let's not deny the reality.<<

Agreed. Let's not.

Pericles,

I understand where you are coming from but you (and many others) make the mistake of not seeing the need for a difference between loans of "existing money" and of loans against "existing assets" and of loans to produce future assets.

This is caused by the fact that for the last 100 years and in fact since about 1694 when the Bank of England started to increase the money supply through loans that people have come to believe that loans are the only prudent way to increase the money supply.

You would agree that we can increase the money supply by the controller of the currency printing the money. We would both agree that is not sensible.

It seems sensible to use the loans mechanism to increase the money supply and it could be a sensible way of doing things but it has been abused and we have the GFC and so it would seem sensible to look at alternatives.

I agree we can use the loans mechanism to create money. I agree we can give loans and pay interest on those loans. Where I disagree is that when we loan money that is not backed by an asset that it should be subject to interest payments.

There are better ways of increasing the money supply than by creating interest bearing loans and I have given one way.

To see a more complete description of variations on this theme go to.

http://stableproductivemoney.wordpress.com/2009/07/25/a-banking-product-to-fund-renewable-energy-infrastructure/

and

http://stableproductivemoney.wordpress.com/2009/06/12/submission-to-national-broadband-network-greenfields/

I give ways that money can be increased prudently that will stop the business cycle, the wild fluctuations in exchange rates, the stop financial services destroying the "real" economy and stop permanent inflation.

Fickle Pickle, it doesn't work that way

The web site you refer to makes the same old mistake.

"In the FRIB monetary system, money created out of nothing is “loaned” into existence with interest due, thus creating an interest burden."

Here's the description of fractional banking provided by the Concise Encyclopedia of Economics.

"If the required reserve ratio is 10 percent, then starting with new reserves of, say, $1,000, the most a bank can lend is $900, since it must keep $100 as reserves against the deposit it simultaneously sets up."

http://www.econlib.org/library/Enc/MoneySupply.html

Notice that the loan is made from the deposit.

It is easy to prove this to yourself. Open a spreadsheet, and use the example that the article provides:

"When the borrower writes a check against this amount in his bank A, the payee deposits it in his bank B. Each new demand deposit that a bank receives creates an equal amount of new reserves. Bank B will now have additional reserves of $900, of which it must keep $90 in reserves, so it can lend out only $810. The total of new loans the banking system as a whole grants in this example will be ten times the initial amount of excess reserve, or $9,000: 900 + 810 + 729 + 656.1 + 590.5, and so on."

Put this calculation - deposit, reserve kept, money available to lend - into a spreadsheet, and repeat the transaction as many times as you want - I used ninety, because that's when the available loan amount reached $0.01c.

If you then add up each column, you will - not surprisingly - find that the aggregate deposits made totals $9,999.06, the "reserve" column adds up to $999.91, and the "money lent" column totals $8,999.15.

So while the loans themselves add up to ten times the original capital available - and ninety people have taken advantage of the loan facility - the deposits made do not themselves add to the capital stock.

They each come from the money deposited, each time.

Does that make it clearer?

Pericles,

I understand what you are saying and I agree 100% and the scheme I am proposing uses the same rules.

Now follow me through. I deposit $1000 in the bank at zero interest. The bank lends me $900 at zero interest. I deposit the $900 into the bank at zero interest. The bank lends me $810 at zero interest .....

At the end of the process I still have my initial $1000 on deposit. I have another $9000 on deposit with the bank at zero interest and a loan of $9000 at zero interest. There are a whole lot of conditions on the use of the $9000 some of which are, that I get no interest on the money, it must be spent on productive asset, and I must pay back the loan from the earnings on the new productive assets.

Here is a better description of the banking product for renewables.

http://stableproductivemoney.wordpress.com/2009/07/25/a-banking-product-to-fund-renewable-energy-infrastructure/

The real issue here is not so much banking as not getting any bang for your buck of stimulus spending. The govt has been talking about the homeless (most of whom were made that way by deliberate govt poverty creation schemes in the first place but that is another story) and spending some money on public housing but most of that money is going towards admin and social workers who will hand out tea, sympathy and actually do nothing. If there was more money being spent on actually building more public housing then builders would have more work and more people would be off the street.

fractelle, chazP, bobtwat, greenmaps, briar rose and their kind are more interested in jobs for the girls, than doing anything about homelessness.

So far the stimulus money has been spent on retail therapy, gambling, alcohol and drugs. Of course the loony, left, lesbian, feminazi paedophiles know this, but maintaining a dysfunctional welfare dependent underclass keeps the social talkers in jobs for the girls.

There is still one gigantic flaw in your proposition, Fickle Pickle.

At the end of your merry-go-round with the ninety Bankers, what exactly do you have left over from your original $1,000?

Think very carefully before you answer.

This is what you think you have:

>>At the end of the process I still have my initial $1000 on deposit. I have another $9000 on deposit with the bank at zero interest and a loan of $9000 at zero interest.<<

But...

While it is true that you have generated $9,000 of loan documentation, and have recorded deposits of $9,000 (plus the original $1,000, of course), you actually have no money left in your pocket at all.

Not a single brass razoo.

Think of it this way.

You deposit your $1,000 in bank A, and leave with $900, which you deposit in Bank B. At that precise moment, you have nothing in your pocket, so you borrow $810 from them which you take along to Bank C. When you deposit that, you have nothing left in your pocket, so you borrow...

Rinse. Lather. Repeat.

At the end of the trail you have left your entire $1,000 scattered across ninety Banks - which, as you agree, they have to do in order to maintain their prudential reserves - and have ninety pieces of paper showing deposits of $9,000, and ninety pieces of paper showing loans of $9,000.

But no cash.

With me?

Pericles,

I said I deposit the money in the same bank with the same conditions.I am not depositing the money across different banks. That was not part of the deal. I have NOT got the money scattered across a multitude of banks. I have $1000 in bank A, I have a loan with bank A for $9000 and I have an account with bank A with $9000 in it and which I can spend according to the rules of the loan.

This is what happens everyday of the week now except for the payments of interest and except that bank A has lien over an asset of mine that is theoretically worth $9000.

Think of what happens when a bank gives me a loan for a house. I promise to spend the money on a house and the bank gives me a loan of $9000 and provided it has $1000 on deposit it can do this. The bank does not take $9000 of other deposits to do this. It creates the loan and the money to cover the loan.

In the home loan scenario the banks put $9000 in my account, they will also pay me interest on the money until the money is paid for the house but they also charge me interest on the loan. These are only banking rules. They do not have to do that. They could put $9000 in my account and not pay interest on the money and they need not require me to pay interest on the $9000 loan.

In the house case the bank tells me that I have to spend the loan on buying the house.

In my scenario the bank tells me I have to invest the money buying a new productive asset.

Think it through. I have added some extra rules on the use of the loan but in terms of the mechanics of the loan the rules are the same and in my scenario the rules are more onerous - except for the payment of interest.

BTW what I am saying is one way Islamic banking works.

Makes no difference, Fickle Pickle.

>>I said I deposit the money in the same bank with the same conditions.I am not depositing the money across different banks...<<

If the loan comes from the deposit, less the amount retained as prudential reserves, you end up with nothing but pieces of paper.

>>I deposit $1000 in the bank at zero interest. The bank lends me $900 at zero interest. I deposit the $900 into the bank at zero interest. The bank lends me $810 at zero interest .....<<

The Bank ends up with your $1,000. You have pieces of paper describing $9,000 worth of loans and deposits, but no cash.

>>I have $1000 in bank A, I have a loan with bank A for $9000 and I have an account with bank A with $9000 in it and which I can spend according to the rules of the loan.<<

But quite simply, you do not. Follow the money trail. Each time you deposit, it will be a smaller amount, until it disappears to zero. You will have no cash at the end of these transactions.

It doesn't matter whether there is interest involved or not. It doesn't matter what the "loans" are intended for. You will not, in this series of transactions, be left with a single dollar.

This is where you go wrong, every time:

>>I promise to spend the money on a house and the bank gives me a loan of $9000 and provided it has $1000 on deposit it can do this. The bank does not take $9000 of other deposits to do this. It creates the loan and the money to cover the loan.<<

It cannot create money, it has to find it from somewhere else. You have only given them $1,000 - who is going to pay the builder?

Once more, with feeling:

>>They could put $9000 in my account and not pay interest on the money and they need not require me to pay interest on the $9000 loan.<<

But where do they find the $9,000 in the first place? You have only given them $1,000...

Pericles -- I think we have more often suffered from too much government rather than too little. I agree that the Liberals wouldn't have done much better. I'm not a Liberal. I preferenced Rudd over Howard at the last election, but I'm a swing voter.

Fractelle & mikk -- This is semantics. If Bush/Cheney are "right-wing" then I'm the opposite. If I am "right-wing" then they are the opposite. Bush increased government spending, ran a big budget deficit, invaded two other countries, maintained troops around the world, restricted civil liberties, suspected haebus corpus, banned gay marriage, over-ruled medical marijuana, continued industry & farm subsidies, introduced a huge stimulus package and bailed-out the banks.

Whatever you want to call it, it is the direct opposite of me. I am a classical liberal, aka libertarian. I suspect that you (and most other people) actually agree with more of the Bush agenda than I do. Consequently, for mikk to accuse me of being a "neo-con" is absurd. I suspect he is thinking of "neo-liberal" and has got them confused because they both start with "neo-".

mikk -- you suggest most of the stimulus has already been spent. It hasn't. You suggest interest rates haven't risen. They have. You ask why they haven't risen more. The answer is that we will probably get most of our money from the international money markets, which drives up exchange rates (not interest rates). I explained all of these clearly in my original article. You then follow this anti-logic with a string of abuse. Either address the arguments, or admit that you can't.