Gestalt theory proposes that the whole,is different from the sum of the parts.Perhaps this is why so many economists and environmentals get it so wrong and so regularly.

In the precise sciences of physics, engineering and chemistry the sum of the parts does often equal the whole.However our linear logic fails us with the interaction of multiple variables.

In the field of economics I propose that we that we have a third level of democracy beyond Govt and private enterprise.We need a National Monetary Fund.[NMF] Instead of banks and our own RBA creating currency from nothing,we can develop a third body owned by the people who elect members to it's board.A National Monetary Fund would be independant of Govt and have limited functions thus would not be exposed to the excesses of Govt empire building or the avarice of Corporate empires.The NMF would replace the bank's fractional reserve system whereby they create from nothing, 9 times the money they have on their books.

A NMF could provide liquidity to the banks as well as to Govt but not businesses or individuals.This would be the function of the banks.If every person in Aust is a share holder,then the profits could then be distributed equally.It could be used as a pension fund which all individuals can only take profits upon retirement.It could be also used as a source of infrastructure funding that is sorely missing at the moment.

If run as a private enterprise body with salaries/job security is based on merit,it can be both a source of wealth and democracy for all Australians.

Those on the board of Governors of a NMF would have to have an economics or business degree in addition to having experience in private enterprise.Every 4 yrs have national elections to vote in or out new board members.It would have be non-partisian and no one could belong to a political party or be on the board of any other institution.

An NMF could over see and make recommendations on large Govt projects.eg in NSW the Desalination Plant should never have been built.It is far cheaper and makes more environmental scense to re-cycle existing waste water.State Govts could seek funding for important projects and an independant NMF could make sure that they have done all their homework before issueing funds.

Another positive point about such a body is that it does not take donations form interest groups wanting to push their own financial agendas.It is self funding and every Aust has an equal say whether they be poor or filthy rich.

People could invest additional funds if it was performing well but this would not give them additional voting rights.

If Pericles or Yabby read this,duck,since they will spitting chips with the venom of a King Cobra.

You seem a little defensive about your proposal, Arjay..

>>If Pericles or Yabby read this,duck,since they will spitting chips with the venom of a King Cobra.<<

Seems reasonable to me that this is a proposition we can explore together. We might both learn from it.

>>A NMF could provide liquidity to the banks as well as to Govt<<

Ok. This presumably is what makes it different from the present situation. So in this capacity, on what basis would it deliver this liquidity, i.e. what instruments would be used to move the funds around? Would they be in the form of loans? In which case what security would they require from the Banks?

Would Government loans need to be secured as well, or would we just trust them to pay up when the interest falls due?

>>If every person in Aust is a share holder,then the profits could then be distributed equally<<

First, we need to make a profit, of course.

But where there is profit, there is also risk. So how would losses be handled? And would the NMF be required to maintain a level of reserves, or would it simply dish out its profits as they are earned?

>>It could be used as a pension fund which all individuals can only take profits upon retirement<<

Well that answers the reserve question. It would have to keep some money available to pay these pensions. So, how much would be prudent?

>>It could be also used as a source of infrastructure funding that is sorely missing at the moment.<<

It sounds as though we are talking about a lot of money here.

Infrastructure fund, pension fund, lender to Banks and Government, and a source of income to every Australian.

Sounds good. Managed properly and prudently, it could easily work as you describe.

A couple of details are missing though. Presumably the NMF would themselves have to invest - what sort of assets would you allow them to hold?

And where would the money come from, that starts this enterprise going?

*If Pericles or Yabby read this,duck,since they will spitting chips with the venom of a King Cobra.*

Hehe Arjay, in fact I started laughing for I realised that you
are as confused as ever. You seemingly still don't understand
the banking system and the RBA largely does what you are
suggesting anyhow.

Wether you get to vote on who heads the Reserve Bank, is hardly
of significance. People voted for George Bush, that did not
make him a good prez, but in fact largely responsible for the
debacle that has been happening in the US.

All you have shown is that you would not have the knowledge to
get that one right either.

Arjay, I mean it sincerely, learn the basics before you sink
yourself armpits deep in economics.

Ajay
Full marks for the effort to think beyond constrictions of Yabby's world of deterministic status quo. I would remind you that most original thoughts emanated from comparative amateurs. Your seed is valid.

Although he is right in that your plan doesn't seem to have a means to solve the key short comings of the RBA now. As well fatal flaw in capitalism. Clearly we need a different way at looking at things Perecles' approach is at least sensible in that there maybe some wisdom to be found if no what is lost?

In an recent comment to a thunk tank article I described the scientific flaw in terms of a whimsical definition of an economist
"A dysfunctional sooth sayer lousy at predictions but boy can they tell you what happened."
Thunk tanks are nearly always little more than sophisticated spin source adjuncts to political ideology. In that they start with a dogma (Conclusion) and work back in order to justify it. i.e. a 'research institute into economic deregulation'.


The point is that the flawed practice of economics has so many flaws and imponderables in it prediction is impossible give current abilities (except in hind site) and even then the models apply in/under one circumstance probably won't fit else where.

It seems to me that the creation of money should be out of the hands of speculators, short term profiteers etc and based on actual value.
Given that broadly speaking the uncontrolled creation these quasi implements caused the crash and seemingly had part in at least the last 3.
Good luck

There you go Arjay, at least you got a patronising pat the on the
head from examinator.

Are you sure that you arn't just snipping bits of the latest, crazy
manifesto from LaRouche?

Another thought just occurred to me, on the topic of "creating money".

Many of us have money in Super Funds, right?

Public servants, on the other hand, do not.

They still live in a world where their Super is calculated as a factor of their final salaries.

Where, pray tell us Arjay, does the money that supports this little gem come from?

Does it exist? Or is it simply an amount that is actuarially determined from time to time, and recorded in a ledger somewhere.

Because on of the realities of this particular system is that right now, there is probably an enormous hole in that bucket too.

Let me know when you have worked it out, Arjay.

And then position this particular bucket of potential cash within the four strong walls of your NMF.

Hello Arjay & others,
I have had a smile at your exchanges on a subject of banking which
to me is a rather black art.
However surely we cannot rely on economists ?
They still believe that the tooth fairy will provide us with an ever
increasing rate of growth.

I know that you are aware of the limits of energy that we have come up
against and surely we need a markedly differently structured banking
system to cope with the loss of interest charging, amongst other new
parameters in the financial scene ?

Pericles,First of all we use the expertise and financial structures of the RBA.Just re-name it and re-write it's charter and constitution.Some of the board members will have to go since they cannot wear two hats.By vitue of removing the banks's ability of creating inflationary money the NMF would have access to a large pool of finance when it creates money.Also when the GDP increases say of 3.5% another $35 billion in money needs to be generated,so instead of the private banks owning it,the vast pop including you benefits.Now presently the RBA are happy for inflation to be 2-3% range which dilutes all our wealth,so if a NMF creates this amount in inflationary money,there is another $30 billion pa that can be used.

Now Ron paul wants to go back to a gold or silver standard.I do not think that this will work since not enough liquidity will be created to equal new human potential that may arise.As I said before,money represents human potential and this is real wealth.If Pericles comes up with a wizz bang idea and we have a gold standard backing our money,then limited funds will stop new concepts from being developed.So I think that a certain degee of inflation is in fact good.We just have to try and make sure that the finance reaches productive enterprise instead of inflating property and share values.

Perhaps a NMF could also have a scientific and innovation branch that is able to deternmine worth while Australian concepts that need funding.Too many of our innovations go off shore.

Whether or not such and institution should be involved in other areas such as super,I'm unsure.Too many hats causes conflict of interest and we need diversity/competition in the market for everyone to benefit.

Yabby you are clutching at straws.I have little interest in La Rouche.This is my concept.I have not even searched on the web to see if someone has come up with a similar idea.Perhaps you could do it for me.I wrote this a few hrs after getting the idea.

Examinator,thanks for the accolades.Pericles,at least you are will to explore new ideas.

Pericles in regards to Public Servants super funds,most of this has been funded by taxes.The state Govts in their old schemes cannot be funded alone by investment in th real economy.This is why you and I are taxed to to hilt by our State Govts.John Howard tried to address this with the Future fund of $40 billion,but this is obiviously not enough.

Perhaps you are a Public Servant and thus have a "manifest destiny philosophy" towards the masses being slaves to your indulgences.

Arjay, it is with the greatest respect that I suggest you take a short course in Finance, simply in order to understand how far from reality your posts have become.

>>First of all we use the expertise and financial structures of the RBA.Just re-name it and re-write it's charter and constitution...By vitue of removing the banks's ability of creating inflationary money the NMF would have access to a large pool of finance when it creates money.<<

Here is the balance sheet of the RBA. which it updates each week.

http://www.rba.gov.au/Statistics/statem_liabilities_assets.html

Where is the "large pool of finance?" from which to "create money?"

Remember, that double-entry bookkeeping requires that the balance sheet errr... balances.

Explain to me the process by which "when the GDP increases say of 3.5% another $35 billion in money [is] generated"

Fire away. You can probably find all the background information you need on the Internet, so - go for it.

>>Perhaps a NMF could also have a scientific and innovation branch that is able to deternmine worth while Australian concepts that need funding.Too many of our innovations go off shore.<<

In my experience, Bankers are the very worst category of people who you would want to evaluate innovation. Even worse than the government, and that is saying a great deal.

>>Pericles in regards to Public Servants super funds,most of this has been funded by taxes<<

The reality is that public service pensions have been until very recently, unfunded. That is, there cannot be a specific identifiable amount of money put aside to pay them when they become due.

"To understand the significance of the recording of government unfunded pension schemes in Australia, at 30 June 2006 the value of these liabilities for all governments stood at AUD 202,736 million<<

http://www.bis.org/ifc/publ/ifcb28zb.pdf

Also, at the present level of the securities markets, it is highly likely that a further hole has developed in the bucket, and it needs refilling.

Taxation on its own cannot do the job without sinking the entire economy - if you extract those kind of numbers from it, we will be in recession for decades.

*By vitue of removing the banks's ability of creating inflationary money the NMF would have access to a large pool of finance when it creates money.*

Arjay, it is only the RBA which has the power to simply add some
zeros to its computers and create more $ in that way. What banks
do is in fact circulate the same money over and over. They have
to keep a % of that as liquid reserves. Most of our banks operate
around the 8% mark. The RBA has tight control over the banks in
that if it wants to decrease the money supply, it simply increases
the level of required reserves. Therefore that same money can
can go around and around less times.

Its not as if banks can do what the RBA does. Any funds that they
lend out, they have to borrow somewhere, minus the required levels
of reserves, which can be in cash or deposited at the RBA.

Yabby "what banks do is in fact circulate the same money over and over." Where did you conjure that gem up from?
In 1970 the price of a schooner of beer in a pub was 25c and a labourer earned $20.00 per day.Now the price of a schooner today is $5.00 and a labourer earns $250.00 per day.Your money back then could buy 30 beers more than today if you were a labourer.

Where did all this inflationary money come from Yabby?In almost 40 yrs we have seen and increase in money supply above GDP and pop increase of at least 1200%.You and I are not allowed to counterfeit money and the RBA heaven forbid has an acceptable inflation rate of only 3.5% pa.The average inflation rate over 40 yrs according to the RBA is 4%.Using the compound interest formula there should only be 5 times the amount of inflation since 1970 compared to the present.Instead houses in Sydney are at least 36 times more expensive and food is at least 22 times more expensive with wages being 12.5 times higher than the present.Petrol in 1970 was 8c a litre.Today it is 16 times more expensive.A day's wages could buy 250 litres and today a day's wages buys 192 litres of fuel with much higher taxes and expenses we now endure.

Something is seriously amiss in the ABS statistics on inflation.The average inflation rate over 40 yrs is more like 8% pa.Who created all this extra inflationary money if it wasn't the banks?

Arjay, there are many things which affect inflation. For one if
workers want pay rises above their increase in productivity and can
enforce them. Some workers have more pricing power then others.

A bank, by giving you a loan to buy your house, increases the money
supply by that very fact. But its the same money that they got
from somebody else, to lend to you. Its the same money circulating
again and again.

Go back to the original goldsmiths. They would take your gold as
a deposit, charge you to hold it for you, when you wanted some,
you could go and get it. Eventually they realised that not all customers needed their money at once, they could lend out some of
it in the form of IOUs.

Now lets say in today's world, that the RBA decided that banks needed
100% reserves, to give you back your money when you as a depositor
requests it. Banks could lend you nothing, your money would sit there, until you spend it. No loans means no increased money supply.

If the RBA decides that 10% should be held as reserves, banks can
lend out 90%, keep 10% as reserves, but that money is deposited once
again by somebody else. Once again it is lent to another home
buyer, only this time less 10%, for again, 10% have to be kept
as reserves. But its the same money circulating. In other words,
banks cannot create money from nothing, pay no interest and charge
you 7% interest or whatever. Only the RBA can do that.

That it seems to me, is where fractional reserve banking is
misunderstood by many.

All good points, Yabby.

The other little problem would be, if there is no money to lend (as in your 1:1 capital adequacy scenario), where would the money come from to grow the economy? Arjay's "GDP increases say of 3.5%" become null and void.

The "growth is bad" mantra needs to be examined in the light of the alternative. Which isn't "no growth", it is the inevitable destruction of our way of life.

No jobs. No salaries. Farmers would close their gates, and build fences to keep out the food-hunters from the towns and cities. Then they'd have to build bigger and bigger walls, until... Well, we'va all seen the movies.

Arjay's "beer model" is actually quite instructive, too, if we think about it.

To get an accurate picture of inflation, a "basket" of products and services is used. And the prices of these - as you point out - will move at different rates.

So he's perfectly right, the worker on $250/day today is worse off than the worker in 1970, if he spends it all on beer. If he spent it all on cigarettes, or whisky, I have a strong suspicion he'd be even worse off.

Which of course is also where tax comes into play, but that's an entirely new calculation...

What also needs to be considered is that there's a ton of stuff that we put in that basket apart from just beer, cigs and scotch. I seem to remember that TV sets were quite expensive for someone on $100/week in 1970...

All part of the learning curve, Arjay.

I hope you are appropriately grateful for all this new stuff you are learning.

Pericles and Yabby,what a dishonest way to wage an argument.Both of your are playing game if intellectual thrust and parry with intent of deflecting attention from the real issue of the bank's ability to steal weatlth from the rest of society by virtue of counterfeiting,which is illegal for the rest of society.

A National Monetary Fund will see a more equitable society whereby the burdens of new inflationary money are shared by all,instead of an elite group of snotty nosed wannabies,who think that their genes give them the right to rule the planet!

This is not socialism but a re-defining of the rules of fair play.

Pericles and Yabby,what a dishonest way to wage an argument.Both of you are playing game if intellectual thrust and parry with intent of deflecting attention from the real issue of the bank's ability to steal weatlth from the rest of society by virtue of counterfeiting,which is illegal for the rest of society.

A National Monetary Fund will see a more equitable society whereby the burdens of new inflationary money are shared by all,instead of an elite group of snotty nosed wannabies,who think that their genes give them the right to rule the planet!

This is not socialism but a re-defining of the rules of fair play.

Arjay, I'm really not sure what your point is. The RBA is in control
of the money supply in Australia. It has the power to change
commercial banks reserve ratios, so can create a credit squeeze if it
wishes. It can determine interest rates. Any profits made by
the RBA are paid to the federal treasury. It is the job of the
RBA to be at arms length from politics or from short term politically
expediant decisions. It is their job to make decisions which are
best for the Australian economy as a whole.

If an economy is to function and grow, there needs to be credit
available. Only the RBA can issue currency, nobody else.

If there is some inflation, it is in the hands of the reserve bank
to weigh that up with economic growth and credit availability.

I just can't see your issue.

But, But, But; Pericles & others;
If there is no growth possible in energy how can there be growth in
the economy ?

Surely soon, zero growth will be imposed on us ?
Growth is tied to energy, not money.
Unless we can increase the amount of alternative energy dramatically
we will have a decreasing amount of energy and negative growth.
BTW what is a better phrase than negative growth ?

Yabby you cannot see because you don't want to since a more equitable system will see the banking system and it's parasitic share market cease to hyper-ventilate.The easy money for people like yourself will be gone,since the ability of the banks to create money from nothing will be limited or at least taxed.

Arjay, not so, I am prepared to discuss anything, as long as it
makes sense, is thought through and could actually work.

When banks "create money from nothing" as you call it, that means
they lend out money, but that is recirculating money, somebody else
deposits it. Without that system, there would be no loans.
If you think that an economy can function without credit, good luck
to you.

As for the share market, I think you still don't understand its
vital role. When corporations are formed or need capital, selling
shares in themselves is how they do it. That money needs to come
from somewhere. Anyone, including you, can risk your hard earned
savings and buy a share, small or large. Those shares need to
be bought and sold, as anything else is bought and sold.

Once again, if you think that corporations can function without
capital and without trading those shares in themselves, you are
frankly kidding yourself.

You Arjay, if you think that banks are ripping you off, can go
and buy 1000$ worth of bank shares, risk your money, go to the the
AGM and study their annual report. Then you might finally understand
how and why banks and sharemarkets function as they do, all for
very good reasons.

I sense this thread is nearing its natural end, Arjay, since there is little point in explaining to you the processes involved in the banking system, if your response is political, rather than practical.

>>you cannot see because you don't want to since a more equitable system will see the banking system and it's parasitic share market cease to hyper-ventilate.<<

Your idea of an "equitable" system is the issue here. As far as I can tell from your explanation, your proposals would result in a total freeze of the banking system. Which would be a really bad thing for everybody. Not just the "parasites". Everybody. You. Me. Yabby.

Everybody.

>>The easy money for people like yourself will be gone,since the ability of the banks to create money from nothing will be limited or at least taxed.<<

This is where the problem shows itself most clearly.

The money, as has been explained to you on more than one occasion, was not "created from nothing".

It was created in response to a request for a loan, which brought into being some form of debt instrument, which in turn became an asset.

Where you touch - albeit lightly - on the truth, is that the banking system was able to become profitable through the growth created by these debt instruments. But since their shares occupy a significant corner of the Super Funds upon which many Australians continue to rely, these profits were not all bad, either.

And a quickie for Bazz while I'm here.

>>Unless we can increase the amount of alternative energy dramatically
we will have a decreasing amount of energy and negative growth.<<

The economics of substitution will take care of this.

http://www.economicswebinstitute.org/glossary/substitute.htm

The fact that it will initially be more expensive - i.e. we will be driving existing sources way up the curve before substitution can take effect - will certainly dampen demand for other products. Will it be sufficient in itself to drive us into negative growth? Too far away to speculate.

Incidentally, the technical terms for negative growth include contraction, recession and depression.

take your pick.

Thanks for the link Pericles;
I think I will use contraction, that seems a more direct opposite of
growth.
The problem as I see it is one of scale.
We have to use the currently available energy sources to do the change
to the new energy regime, which I believe will have to be very largely
electrically orientated.
With the scale back in oil search and development I don't think we can
get any significant amount of energy conversion done in time before
depletion becomes quite significant.
It is becoming more and more certain that peak oil occurred last year.
The IEA believes we need to find three or four more Saudi Arabias by
2017 which I think everyone believes just won't happen.

To substitute enough energy just to replace transport fuels will be
a massive job especially as it will mean a complete rebuild of the
mobile assets, due to their new energy sources.
For that reason I believe that we should put every available dollar
into the rail and shipping networks and abandon the highways to their
fate.

In the Hirsch report Hirsch stated that to get the change done without
some dislocation we would need 20 years, and that with some
significant dislocation 10 years would be needed before peak oil.
It now looks as though we have -1 year.

The big problem is that the politicians refuse to even acknowledge
that there is a problem and so they will drive us even further into
trouble and will not react until someone tells them about the
petrol queues.