A Better Way to Control the Money Supply

The ancient Sumerians understood that compound interest caused debt to rise to an unsustainable level.  They solved the problem by periodic debt jubilees where some debt was forgiven.  Today we have better ways to reduce debt than by the forgiveness of loans.

It would be prudent for the Australian Government to halt the rise in debt to European levels by replacing some existing Government compound interest loans with non compounding loans.  One place to start is with State Governments. A non inflationary approach is for the Reserve Bank to buy some interest bearing State Government debt and replace it with interest free loans.  Instead of the Reserve Bank being restricted to manipulating interest rates to keep the currency stable they could also buy some loans and replace them with interest free loans.  The effect would be a reduction in State Government Costs and a stimulus to the economy as the money freed up looks for another home.  The Reserve Bank could experiment by increasing interest rates while at the same replacing some State Government Loans with interest free loans. This would enable them to better tune the economy no matter what the interest rates or what was happening in the rest of the world.