Australians now have one of the highest credit card debts on the planet.Total debt for every person is $56,000 compared to the USA of $44,000.For the first time our total debt is greater than our GDP of $1.2 trillion.see http://australia.creditcards.com/credit-card-news/australia-credit-card-debit-card-statistics-international.php

While our credit card debt is much lower than in the USA,our housing debt is much higher reflecting our over valued real estate.

In the last 5 yrs our debt has increased by 71%.Outstanding credit card debt is over $45 billion.

The solution to reducing some of our national debt is to get rid of our credit cards and here is the reason why;Our Govt used to create a lot of cash in the form of notes and coins.This was money generated by our Govt which reduced our taxes and what we owed to foreign banks etc.Now this money is generated by Visa and Master Card etc,which then goes off shore increasing our national debt.

So when our Govt tells you how well we escaped the GFC,don't believe them,since we have just delayed our day of reckoning.

I think you will find Arjay, that Visa and MasterCard work a bit
like franchises. So the money lent on your credit card does not
come from Visa etc, but from your local bank, most of whom actually
own shares in Visa and others.

The average credit card debt is around 3100$, so the 56'000$
debt includes mortgages, car loans and all the rest.

Why on earth should we get rid of credit cards? People can do so
by paying them off, for banks make very good money from credit
cards, with higher interest charged, due to the higher risks involved.

The great news is that as our banks are largely owned by Super
Funds, which are owned by all Australian workers who have a super
account. What they rip off you in fees, they put away for
your retirement one day. That's not so bad, for as Australians
gamble away something like 20 billion a year, if the banks did
not put it away for your old age, you might just blow it at the
pokies!

So if you really want to ban something, ban the pokies

Ban fools too yabby.
As the bread winner for a big family I went into credit card debt, big time.
Not for me for kids not mine and my mum.
In time I found myself alone and lived very frugally.
Paid every cent and buy only with cash and only if a balance remains.
Newly weds wanting it all now even pay housing loans on the card.
Anyone can live within a budget and after the pain after the bills are paid credit cards should never be used again.

That's just more bunkum, Arjay.

>>Our Govt used to create a lot of cash in the form of notes and coins.This was money generated by our Govt which reduced our taxes and what we owed to foreign banks etc<<

There is no correlation between printing banknotes and our level of taxation.

Nor does it have a direct impact on what we owe to foreign banks.

Your statement makes no sense.

At any level.

Yabby,I said nothing about banning cards.I believe in freedom of choice.Even if the banks are providing most of the finance for credit cards,their creation of credit via the fractional reserve system puts us in debt,since when they reach their limits,they borrow from the global reserve banks.

Our balance of trade is positive,we export more than we import.It is our balance of money supply that is the problem.The RBA is not doing it's job ,ie creating the extra money to equal increases in productivity and inflationary money.This is the major reason why we now have a national private debt greater than our GDP of $1.2 trillion.

Belly,it's good to see we agree on something,if only for a brief interlude.

*Our balance of trade is positive,we export more than we import.It is our balance of money supply that is the problem.*

Yes Arjay, our current account is in major deficit, for good
reasons. We borrowed money and used foreign investors money
to build those mines, factories, ports etc. Now we owe them
interest and dividends on their investements. If Australians
saved more, we would owe them less. If Australians bought
BHP shares, rather then blow it at the pokies, we would be
better off. Its all pretty straight forward.

Your notion of the Reserve Bank simply printing notes to solve
our current account deficit makes no sense. For in that
case the market would simply devalue the Australian $ by the
appropriate amount. Inflation would set in. Zimbabwe tried
it, it did not work. We have a free floating market based
exchange rate remember.

In your first post you said that the solution was to get rid
of credit cards. Well people can do that voluntarily now. I
find mine pretty handy, for buying stuff online etc. I just pay
the bank by the due date, no interest charge at all.

Yabby ,I said that ridding ourselves of credit cards was part of the solution.Getting the RBA to do it's job is the major part.It shuold not be loaded by large corp interests on it's board.

Our Govts have become incompetent because their authority has been ursurped by the Corps.Now we all say that Govt cannot do anything so let the Corps control us with no recourse of democracy.

We have two parents working longer and harder for less with increases in technology that reduces the labour imput for a lesser income?

Something is seriously amiss and you fail to see it.

*Getting the RBA to do it's job is the major part.It shuold not be loaded by large corp interests on it's board.*

Arjay, you have this real bee in your bonnet about corporations.

But corporations are mere paper entities, they do not think, feel or
vote. They are run by people. Yes, many people with serious expertise
work for corporations or have worked for corporations. You need
people with expertise on the RBA board, not just anyone from the
street. Corporations matter to all of us, for we own them through
our investments. All workers own a share, through their super savings.
Why should somebody who has worked for corporations, not serve on the
RBA board?

*We have two parents working longer and harder for less with increases in technology that reduces the labour imput for a lesser income?*

So you keep claiming, but the ABS statistics do not show that.
They show that real wages have kept ahead of inflation.

You seem to be judging Australia, by your little patch of Sydney and
by your memories of the 80s. Well yes, the world has changed and
peoples expectations have changed.

A 12sq fibro 3 by 1 house, with a 186 Holden and a black and
white tv, is not enough anymore for most families. Yet that is
how many of today's baby boomers grew up, that was all that was
expected.

Next what changed, was the economy. Australia and Argentina were
once two of the richest countries on the planet. Australia did
it largely through wool, Argentina through meat.

In the 1950s, when the Korean war was on, wool was worth 1 pound
a pound. Really old farmers still talk about that today :)

Australia could afford to create a highly subsidised manufacturing
economy, protected by high tariffs, financed by wool exports.

But the poor old merino started collapsing, when nylon was invented
and a host of other fibres since then. So Australia needed to join
the real world, try to make its economy globally competitive.

You seem to simply ignore all these things.

I love credit cards. I utilise the 55 days interest free to offset my mortgage. The money that would have gone to paying for goods and services stays in my mortgage account saving interest.

It's free money that effectively returns interest at mortgage interest rates for me. Without doing anything, just via this mechanism, I actually save a year off my mortgage.

BTW: I wonder if in calculating the stats for credit card debt, people like me are counted. If that's the case the stats are bogus, as I always pay off the card on time, and only use it to track spending and offset on my mortgage.

ARJAY
In spite of production costs going down, generally speaking a higher cost of living tends to cost more money. I wonder how many would be prepared to go back to the time when only one adult in the family earned the wage. Living in a 12 square fibro cottage with two bedrooms and maybe an outside dunny. No TV or at the best an analogue 15 inch clunker. No ipods, No mobile phones, no air conditioned 30 square plus homes, no computers or broadband, old cars with little comfort compared to ours today, no airline travel.....the list goes on. Everything costs more because most people demand it including education, defence, border security and customs and all the social security that is demanded from government that was once never really considered in the way it is today. I am not saying that we should go back to those days, but there is no such thing as something for nothing, which seems to be prevalent in much of the electorate's thinking these days when you hear them say "they should provide more" meaning the government meaning ultimately us the tax payer. Governments don't provide any money at all, they just take and distribute it from the private sector and when they borrow money it is also paid back by you and me. They might print it, but that only lowers our purchasing power by inflation.

People make their own choices about how they manage their money and much of the current levels of personal debt are self imposed in the lust for material wealth. What is hard to fathom is why banks can get away with lending (either home loans/credit card) money knowing that the person has little chance of repaying. Surely there must be fair and reasonable formula that determines ability to repay.

This cycle of debt just pushes up housing prices and so it goes on.

I was reminded of the moral bankruptcy of banks recently when I went with my yongest child to open a savings account and to convert her old school bank account to a newer version, now that she has a casual job.

Crikey Mikey! What the! The teller didn't ask her if she wanted a credit card - we both very quickly said no and opted for the debit card which can only access money you actually have. Thankfully my daughter also thought this was a ridiculous question to ask of a school student on a small wage from a casual and intermittent job.

What is the deal with banks and why is this debt mentality perpetuated?

Ya got me snake. Bl00dy good deal, with the rest of it the way it was.

A few of those.

Hospital, & medical benefits a couple of bob a week.

What could be more inefficient than paying some bureaucrat to take my money, & another to pay my doctor?

PAYE tax, 7.5% on the average wage.

Interest at 4.25% on my housing loan.

Don't really have to go any further to be so far in front it's silly, but anyway,

That lousy fibro box, [actually a big 3 bed in what is now an inner suburb], cost just a little less than 4 years average salary.

Total cost of house payed off in 20 years at that interest rate, 7.6 times annual salary.

Petrol so cheep that you could enjoy a 250 mile drive, & picnic on Sunday, Even that picnic spot is now some one's back yard, & they think they live in the city.

Back yard cricket, without the ball hitting the house 5 doors down the road.

Room for any back yard sport.

Banks that wanted to help, & paid 3.25% interest on a ten bob savings account.

Besides, I drive a 31 year old car by choice, not this modern white goods rubbish. Love to be able to buy a new one, rather than rebuild one myself.

& who on earth needs a mobile phone that cooks dinner, & does the washing up, between calls? I don't

Anyone who would not want it as good as we had it 40/50 years ago is an idiot.

I know a couple who paid off a credit card with another credit card, owed 27 grand for a car, then got a loan for a 20 grand boat & finally received another credit card with a 15 grand limit. When I put 20% deposit on the table for a block of land for 30grand the bank knocked me back. why don't I understand how this works ?

Bad editing on my part re the last post. Should have obviously read the teller "asked" as opposed to "didn't ask".

Too true Individual. The banks are getting as stupidly bureaucratic as government.

A mate of mine, recently retired, & living on the pension with his wife, applied for a credit card, after receiving an offer in the mail from his bank. He has never had a credit card, only a debit card.

It is 18 years since he last borrowed any money, & he cleared his home lone 8 years ago.

He has a lovely home on acreage, nice furniture, cars & equipment, with a total value between $850,000 & $1,000,000.

He was refused a credit card, but all the unemployed ferrals, with zero assets, around the place, have them.

I loved that film, "The goods must be crazy" but I wish the banks weren't.

Snake and Hasbeen while it is true that life was more frugal 40 yrs ago in that we did not have all the mod cons,families basically lived on one salary,could pay for the mortage but could not afford a new car.cars are far better and cheaper.My first house in 1981 cost me 4 times my annual salary.Today that same house costs 18 times my annual salary.Both Govts and the banking system have contrived to limit land,tax housing and out us in enormous debt.

As I've said before GDP + infaltionary money imput is a 6.5% increase each year.This is almost $80 billion which should belong to all Australians because we all contribute to GDP.It is the private banks that get to create this money and loan it back to us as debt.

My question to you also: Who does this inflationary money belong to and why?

Today's lesson, Arjay.

>>My question to you also: Who does this inflationary money belong to and why?<<

My question to you is:

How do we recognize this inflationary money when we see it, and who is using it?

Because if you can work this out, it will tell you to whom it belongs, and how they got it (i.e. "why" it belongs to them).

That's easy Pericles.The ABS and RBA each year puts out figures on inflation and GDP.All the Aust govt need do is to produce what rightfully and lawfully belongs to the people of Aust visa the RBA.GDP and inflation has averaged 6.5%,although with Labor borrowing from China we paid for our inflation with interest.A double whammy.

Now the banks won't be oput of business.They can still loan out people's money and make profits,borrow from OS banks or the RBA whoever has the cheapest money,but will not have the wild loaning ratios of banked $1.00 for $9.00 created in their computers and loaned out.The least productive of our institutions will then be in proportion to what they are really worth, ie just agents of the medium of exchange.Then real producers will shine and our economy will also.

Bank shares will take a bit of a hiding but we will be able to pay for infrastructure with no debt and have reduced taxation.Also our banks will not have to borrow OS thus improving the balance of payments deficit.Certain elite groups will be worse off but the majority of people will benefit.

I'm afraid this still doesn't make any sense, Arjay.

>>All the Aust govt need do is to produce what rightfully and lawfully belongs to the people of Aust visa the RBA.<<

When you say "produce", what do you actually mean? The Government does not "produce" anything. The RBA does not "produce" anything - I posted this link a while ago, do have another look.

http://www.rba.gov.au/about-rba/our-role.html

>>[Banks] can still loan out people's money and make profits,borrow from OS banks or the RBA whoever has the cheapest money,but will not have the wild loaning ratios of banked $1.00 for $9.00 created in their computers and loaned out.<<

But Arjay, if a Bank is only allowed to loan against deposits, then it is effectively barred from borrowing at all - RBA, overseas, whatever.

>>The least productive of our institutions will then be in proportion to what they are really worth, ie just agents of the medium of exchange<<

When you say "the least productive of our institutions", I assume you mean "Banks".

But exactly the opposite will happen.

When money is in short supply, the interest rate skyrockets. If I had funds in those circumstances, why would I put them in a Bank in the first place? I'd simply lend it to the highest bidder on eBay.

>>Then real producers will shine and our economy will also.<<

Not a chance. They would all be dreadfully short of working capital. They would not be able to afford to grow - even the tiniest increase in inventory levels would be prohibitively expensive.

>>Bank shares will take a bit of a hiding<<

No. Banks would simply disappear. How can you envisage any other outcome?

>>we will be able to pay for infrastructure with no debt and have reduced taxation.<<

Under your scheme, Arjay, who will pay for the infrastructure, "without debt"? Where will the money come from - especially if you plan to "reduce taxation".

It's back to the drawing board for you, I'm afraid.

*but will not have the wild loaning ratios of banked $1.00 for $9.00 created in their computers and loaned out.*

It seems to me, that you still dont' get what banks actually do,
Arjay. If I deposit money at a bank and you want to borrow it
from the bank, they need to keep some of it as reserves and lend
you the rest. Some of those reserves need to be Tier 1 Capital,
but we'll ignore that to keep it simple.

Now lets say that the RBA insists on 10% reserves, the bank lends
you 9 $ for every 10$ that I deposit. Now you spend it and Joe
Bloggs banks it at the same bank and the bank once again lends
out 90% of that figure. In other words, the money supply is
increasing, by the same money going around and around.

There is in fact a rumour circulating, that banks only need to
have 1 $ in deposits, which will let them lend out 9$. It is
incorrect.

Yabby and Pericles,let's face it,the fractional reserve banking system is "secret banking business".In reality nobody can define the actual mathematical formulae.

I think it works thus.The ordinary retail banks can create new loans equal to 9 times their deposits,however the banks get to keep the interest,but the capital repaid enters oblivian,ie It does not become part our economy.The interest then becomes part of deposits thus causing the inflation of our currency.

Using this formulae,our banks cannot fund the needs of inflation + increases in GDP so they borrow from the international reserve banks who create money in their computers to equal our inflation + GDP increases.It is a very insidious form of debt enslavement.

Sorry, Arjay. I've tried to explain it all in simple terms, but it is clear that you either do not listen, will not listen, cannot understand or do not want to understand.

>>Yabby and Pericles,let's face it,the fractional reserve banking system is "secret banking business".In reality nobody can define the actual mathematical formulae.<<

Two sentences. Both entirely, specifically and completely wrong, in every detail.

If pressed, I would accept the use of "the". And the full stop is reasonably accurate. But that's it.

Arjay: nul points.

*I think it works thus.The ordinary retail banks can create new loans equal to 9 times their deposits*

If they could Arjay, I would be selling my BHP and other shares
and just buying more bank shares!

Sadly they cannot and there is a simple proof, which you can verify
for yourself, if you do a little homework. All the banks have
investor websites. You can study their financials. You can see how
much they paid in interest on money borrowed and how much they
received in interest on loans.

We know roughly what they pay for borrowed funds and we know
roughly what they charge for various loans. If you were correct,
the difference would be a factor or 9, which is enormous! Sadly
that is not the case :)

Fact is that the banks work on a net profit of around 1%, after
all costs and charges and tax. Running banks is not cheap.
Yes, they make huge profits, because they lend out huge amounts
of money.

Now if your theory was correct, banks would be paying out hardly
any interest, for remember, you claim that for every 1$ in deposits,
they can lend out 9$. That is nonsense.

But check it out for yourself Arjay. The figures are there for
all to see.

OK Pericles since you seem to be so well versed,tell us how the mechanism of fractional reserve banking works.The ratio is 9:1.Do the banks here have only have the rights part of this ratio and the Global Reserve Banks create the bulk of the money? So Pericles when this new money is created as a loan,that is not someone's savings,what happens to the principal as it is repaid? We know the banks gets to keep the interest.

Now don't forget,we are only talking about increases in GDP and inflationary money.Where is this new money created and by whom? ie $78 billion pa.

Are you serious, Arjay?

>>OK Pericles since you seem to be so well versed,tell us how the mechanism of fractional reserve banking works<<

OK, here goes.

I'm a Bank, I have three basic tools of trade.

Deposits: these are Liabilities. I have to pay them back

Loans: these are Assets. I grade them according to when I am allowed to "call" them (term of loan) and the quality of the borrower. Governments are good risks. My business loan would not be quite so highly regarded

Shareholder Capital: it is important to recognize that on the Bank's balance sheet, this is recorded on the same side as the Liabilities

If more people want to borrow from me than I have cash in the vault, I can borrow from "the market", which might be other Banks here or overseas. This is recorded the same way as the deposit above, (i.e. as a liability), and I use that to lend out to my customers.

However, I am restricted by law from lending out more than what is regarded as a "safe" amount. The calculation involves working out the ratio between my Capital (not deposits, please note) and the total of my loan book.

This is known generically as the capital adequacy ratio, which is the ratio between my "Tier 1" Capital - shareholder funds plus accumulated reserves - and the total of my loan book.

This ratio is in the region of 10-12% or so - which gives you your "9 to 1 multiplier". Here is the NAB's:

http://annualreports.nabgroup.com/afr/page151

There's whole lot of regulation on "what is capital" (Basel II refers), and a whole lot of discussion on asset quality.

But basically, that's it.

Remember that my assets (cash, plus what I have lent out) will always equal my liabilities (deposits, plus borrowings, plus Capital).

Give or take a few derivative instruments...

No small furry animals were harmed in this process.

Nor is there a secret stash of loot. The "new money" has been lent to businesses like mine, on the basis that I am, with some qualifications, "good for it"

Thank you Pericles that explains much.Some have then mistakenly called the multiplier the ratio.This is what did not make sense to me because a ration of 9:1 would put enormous sums of money into the economy.

It also explains why our banks then borrow OS increasing our debt.Now what restrictions are on the Global Reserve Banks in their creation of new money?

It still does not make it any less true about increases in GDP belonging to all Australians nor the fact that the creation of inflationary money dilutes the values of all our wealth.The RBA should produce this money, $ 78 billion pa,thus lowering all our taxes and greatly reducing our debt.

You are welcome, Arjay.

The next part should now be fairly straightforward, now that you have the fundamentals.

>>Now what restrictions are on the Global Reserve Banks in their creation of new money?<<

Since the "new money" is essentially created by the demand from the marketplace - that is, you, or my business, or BHP, asking for a loan - the principle mechanism for managing money growth is the interest rate.

The Reserve Bank is given this task, here in Australia. If the economy needs a boost (e.g. "fiscal stimulus") the interest rate goes down. When the RBA determines that the economy is running too hot, it will dampen demand by raising the interest rate.

Meanwhile - still thinking "fiscal stimulus" - the government is borrowing a ton of money to inject into the economy via the BER etc.

But if you look at the numbers, "our" debt is far, far higher than the government's.

http://www.stubbornmule.net/2010/03/where-is-debt-headed-now/

Which brings us right back to your opening post on this thread.

>>Australians now have one of the highest credit card debts on the planet.<<

You can look at this two ways. One view is that "this is a dangerously high level of debt for us to carry". Which, given that it is about a year's salary, is a fair point to make.

Another will say "this is a sign of a country confident in its future, convinced that it will be able to pay it off". Since we still have relatively low unemployment, this is also a reasonable stance.

Both are "right", given that each is simply a value judgment.

I think you can now see a little more clearly how your proposed solution, which is to restrict the money supply "at source", as it were, can only be achieved through raising interest rates (see above).

While it will certainly dampen demand, it will also make paying off that massive debt significantly more difficult.