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In this week's Australian Alert Service
16 January 2019

Break the self-inflicted spiral of economic doom

With the biggest Australian housing collapse since the global financial crash occurring in 2018, and international warnings that our bubble is in the "Top 30" crisis triggers for a new GFC, the actions of Australian leaders—from Financial Services Royal Commissioner Kenneth Hayne to our politicians—will be closely scrutinised in the coming weeks as the Royal Commission reports (1 Feb.) and parliament returns (12 Feb.).

In December the Reserve Bank of Australia told banks to keep credit flowing to households and businesses, and from 1 January the Australian Prudential Regulation Authority (APRA) removed lending restrictions to get money flowing. Despite these moves, neither banks nor regulators can make people borrow, and investors in particular are spooked. International funding for our banks is drying up, and simultaneously they are being asked to keep more cash on hand in case of a new crisis. The Big Four banks are screaming about an 8 November APRA proposal which will force them to comply with international standards by holding more bail-inable capital—one of the more expensive types of capital for banks to raise. The market for such bonds is not there, given the global financial climate, they say. The increased funding burden would lead to higher lending rates, throwing more Australians into mortgage stress. Smaller banks like the Bank of Queensland have already had to raise rates this year.

To meet the proposed increase, of $75 billion over five years, Aussie banks would become the biggest issuers globally of this type of bail-in debt, to recapitalise themselves in a crisis. For the same purpose, the Reserve Bank of New Zealand is demanding our banks, which control nearly 90 per cent of NZ bank assets, increase their NZ capital by $15-20 billion. The Australian Financial Review reported 9 January that JCP Investment Partners, which had warned in mid-2017 that a collapse of the housing bubble could wipe out 17 to 50 per cent of the capital of Australia's major banks, is now putting the chance of a banking crisis and credit crunch at 40-50 per cent. "[T]he environment for the Australian banking sector seems at best, very challenging", it said.

Bank funding began deteriorating in November with US and Australian central bank rates diverging. "One of the medium-term challenges for the Australian financial system is the ability to continue to attract offshore debt to fund the $1.7 billion mortgage market", JCP warned.

This comes in the context of a global credit crunch, reminiscent of 2008, which affected lending dramatically over Christmas ("Christmas crunch portends 2019 financial disaster", AAS 9 Jan.). But the reaction of authorities is locking us into a self-inflicted spiral which ensures an even worse crisis will engulf us. It is time for real solutions that address the mistaken underlying assumptions of today's economy.

For instance: We needn't be dependent on foreign investment; governments can use a national bank to create credit that will not have an inflationary effect if directed into the productive sector. Strict regulation is necessary, be it for business or banking; Glass-Steagall restrictions on commercial banks to prevent them from speculating will not collapse the financial system, but save it.

There is a growing global movement for change in precisely this direction. A pro-Glass-Steagall (and anti-war) US Congresswoman, Tulsi Gabbard, has announced she will run for US President in 2020 (as will 21st Century Glass-Steagall legislation sponsor Sen. Elizabeth Warren). There is a resurgence of support for national banking in the USA (Almanac). In the UK, Labour Leader Jeremy Corbyn, whose party manifesto includes banking separation and a National Investment Bank, is potentially a hair's breadth from taking the Prime Ministership following the 15 January defeat of Theresa May's Brexit plan by a historic margin (432 to 202). Here in Australia we have made these policies a major topic of discussion among both political leaders and the population—we are in a position to make them reality.

Articles include the following:

  • Housing approval collapse shows the game is up
  • Criminal masterminds: the real 'Big Four'
  • 'Winter is coming': Subservience to bankers and failure to reform is leading us into another crash
  • Italy's tenth-largest bank in receivership; Glass-Steagall solution raised
  • A Wall Street felon and high frequency traders plan to form stock exchange
  • Government shutdown is a no-win situation for all
  • 'Global Britain': an attempt to retain power as global balance is disrupted
  • Xi's Taiwan 'invasion threat' is just more Western hype
  • Qld activists launch plans for potent 2019
  • May's Brexit trap extends legacy of Thatcher, Blair
  • ALMANAC: Frequently asked questions on the National Infrastructure Bank (NIB)


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