Economic Proverbs for a sustainable future
- Only lend money if you have it to lend.
- Only create new money once it is backed by an asset
- Reward people for consuming less
- Require Rewards to be invested to create new resources
- Measure economic success by the productive assets we possess
These proverbs contrast with the way the world’s economic system is currently organised
- Lend money you do not have
- Create new money on a promise that you will get back more than you create
- Only give resources to those who have resources
- Reward the profligate by how much they consume
- Measure economic success by how much is consumed
The total amount of money in Australia is $1,200 Billion dollars. In the previous 12 months the money supply increased by 12% by banks loaning more money than they had on deposit. The system is called fractional reserve banking and requires banks to have 10% of their money on deposit with the Reserve Bank to guarantee the safety of deposits. This reserve is no longer necessary as the government now guarantees bank deposits. This means that the banks can lend the 10% they have with the Reserve Bank but this will mean the banks can only lend money they have on deposit.
As the banks are no longer able to create money the government has to take responsibility for increasing the money supply. An increase of 5% or $60 billion dollars per year would seem a reasonable figure. Let the government create this money and lend it at zero interest to members of the community who consume few resources – but with the proviso that they invest the money in infrastructure projects. $30 billion invested each year in renewable energy will reduce greenhouse emissions to zero within 10 years. $10 billion in urban transport infrastructure will fix the cities transport problems. $10 billion per year will get the Murray/Darling flowing and $10 billion in health and child care facilities will do much to relieve social problems. The government still has its regular taxes to pay for social welfare and other government services. It can keep inflation under control by not spending all the taxes it collects and increase its surplus – and it can all start tomorrow.
We get liquidity (spending) in the economy when banks lend money. The modern economy generates money through lending. In other words money is only created when someone borrows. Banks only lend money if they are likely to get it back and they are the main source of loans. The Reserve Bank dropping the interest rate to the banks encourages borrowers but they are loath to borrow because they do not know what will happen next week with interest rates. The banks have stopped lending to people without assets and most assets have dropped in value. A solution is for the Reserve Bank to issue zero interest loans for renewable energy infrastructure spending and to get the money back through taxes paid on the returns of that spending. This will solve the liquidity crisis and the greenhouse gas emissions problem for no cost to the deficit, no inflation, and no increase in energy prices.