It is the 8th of July and the Bank of America has just announced that it will be reducing dividends 38%. Of course our closeted Australian banks, thanks to the Reserve Bank of Australia, are lending out at much, much higher rates and they will continue to increase their dividends, at your expense, again thanks to the Reserve Bank of Australia. The Reserve Bank got its independence in 1988. Since then, interest rates have been in the hands of 600 public servants buried in the bowels of bureaucracy. Since then, have we witnessed the biggest transfer of wealth in Australia’s history? All Australians, particularly since 2002, with their own business or employees have certainly been ordered, by these bureaucrats, to transfer their after tax wealth across to the banks. The banks inturn have enjoyed continuing rising profits, year on year since.
This has propelled four of our banks into the top ten most profitable businesses in Australia. The rest of the world only has one bank, at best, in their top ten most profitable businesses. Banks have achieved this without increasing one job. With the push of a button, the Reserve Bank rate increase is advised to you and you pay this increase without the bank having to increase one staff member. As we know, they have been steadily cutting staff members. How sick is an economy that has 40% of its top ten “wealth creating businesses” being banks - the lending of money? Not creating long term assets, cars, food, oil, housing, newspapers, TV shows etc but simply lending money that other people have given them. A country that has 40% of its potential output capacity diverted, in this manner, surely must be long term a poorer and poorer economy versus the rest of the world devoting its resources to constructive output? The rest of the world is creating real jobs, in real businesses, creating real goods and services wanted by consumers. We need a royal enquiry into what I believe is the failed performance of these public servants that we have trusted with our future.
What should the Reserve Bank do? Forget the mad rates of the last 30 years and return to the interest rate setting of 1900 to 1970. Immediately, reduce interest rates to 1% over the core inflation. This would simply go close to matching overseas countries with an AUS setting of 3.5%. This would combat inflation and hopefully stop unions pushing for an anti-RBA pay-rise of 10% to make up for the money sucked out of the pays by the income tax grab and mortgage payments. The Government could weigh in and help to combat inflation, by completely eliminating the excise on diesel. This is not revolutionary thinking; it has just been done in China. The Government could reduce the cost by 59 cents also. As the last newsletter issue mentioned, there are 55billion kilometres travelled, by road alone that feeds into supplying goods and services to Australians and therefore feeds into inflation. Yes the politicians worry about the reduced revenues. Why? The UK for instance has lower rates and yet is in serious deficit, overspending by $120billion a year. Our Government is in surplus ie. has increased our taxes and has a profit.