Submission to the Senate Committee into Banking System Reform (Separation of Banks) Bill 2019
By Andrew Jack Chalkley. 72 Eton Street, North Perth, Western Australia 6006
In Australia, we have a problem. Only 3.5% of our money is created as cash currency by the Reserve Bank — some $74 billion.  The rest — 96.5% — is created as ‘credit’ by Commercial Banks when they make loans — some $2017 billion. [M3-Currency]  The loans are mostly issued using land as the backing for the loans. This land ‘ownership’ system has been remarkably successful over the last few hundred years at propelling Western economies. Similar is now propelling China. There is a downside. The credit is created with an equal amount of debt. The debt magnifies to exceed the volume of credit. This credit is what we see as bank balances in our bank accounts. So a massive instability has been created in that there is ‘more debt than money’ — a topic not much studied — a topic ‘avoided’. (Government Debt $826 billion plus Private Debt $3591 billion. Total = $4417 billion. ) But we have an intriguing modern solution — do not pay it back. We have survived and prospered under this ‘more debt than money’ arrangement. But we have a second problem looming. The backing for the loans issued by the banks is the real estate in the street. If the real estate prices fall, the asset backing for the loans evaporates. The banks list their loan portfolios as assets on their balance sheets. If there are significant defaults, their asset base evaporates. Even if the asset base does not evaporate, the banks are unable to collect on their asset base — the debts — because there is ‘more debt than money’. The money owed to lenders exceeds the magnitude of the Money Supply. The Money Supply equals $2125 billion  whilst the debt equals $4417 billion . This disparity caused by ‘Usury’ allows a function money system provided there is no attempt to repay. Any attempt to repay the debt causes the vital circulating medium to disappear.
You can currently see some misbehaviour in the Money Supply on a slowing velocity. We have a bank-created recession. I have stated that the banks are going to punish us for daring to have a ‘Royal Commission into Banking’. Vested interests will deny this — but it is already happening. They are tightening up their lending criteria. Money in the form of credit will be in short supply. Housing loans will not be available and businesses will starve for lack of credit and recession will be underway. Irrespective of the denials, it is already underway. Although they think they are punishing us, they are punishing themselves as their asset base will dwindle. We have an instability capable of bringing down the Commercial Banks. The Commercial Banks are the high street banks that advertise heavily to tell us how wonderful they are. We heavily rely on the Commercial Banks because of their collective monopoly over the ‘Payments System’. If the Payments System collapses, only those with guns will get to eat.
However, there is an even greater instability created by a group of ‘elite’ banks called ‘Investment Banks’. These exist to ‘make money from money’ — to my Christian mind — an evil activity. Nominally, these ‘Investment Banks’ set out to make money for their clients by ‘investing’ said money in projects — traditionally — worthwhile projects like dams, canals, and railroads. However, this noble concept went out of the window during deregulation and they started to invest ‘their own money’ — which in reality was their customer’s deposits — to make money for themselves. Dams and railroads were avoided in favour of ‘Derivatives’ with similar characteristics to ‘hot air’. Derivatives are fascinating. They turn out to be little more than ‘posh’ bets. They bet on the value of something in the future. A ‘Derivative’ is a virtual asset whose value is derived from the value of something else. They have no intrinsic value. Collectively, the sum total of all derivatives is zero. Yet ‘Investment Banks’ list these derivatives as assets. Gullible Australia has an exposure to ‘Derivatives’ estimated to be $39 000 billion — which vastly exceeds the volume of debt in Australia at $4417 billion, which greatly exceeds the magnitude of the Money Supply in Australia at $2125 billion, which vastly exceeds the volume of money produced by the Reserve Bank at $74 billion. This might make the ‘Investment Banks’ appear exceedingly rich … on paper … but they are trading in a manner similar to the South Sea Bubble and the Dutch Bulb scenario. If one Investment Bank collapses, banks would be hard pushed to know who owed what to who and the money system would freeze. This is a best-case scenario. More likely is that the ‘sum zero’ nature of Derivatives would give a nasty surprise. If the Investment Banks collapse due to their supposed asset base evaporating, there would be few tears to shed as their ‘make money from money’ activities are of no great benefit to mankind whilst they avoid dams and railroads. We can well do without their dubious activities. But there is a twist. The Investment Banks have again become tied to the Commercial Banks on which we rely. However much they claim the system is safe — it is not. However much they donate to politicians, political parties, and lobbyists — it is not safe. However, much they flood the airwaves and papers with feel-good articles — it is not safe.
The lowest level of the solution is to forcefully separate the Investment Banks from the Commercial Banks. The next level of protection is to stop Investment Banks from ‘investing’ (betting) with their own money. The next level is to ban the trading in Derivatives before the Derivatives system self-implodes back to where it started — thin air. The next level of protection is for the government to create a ‘Public Bank’, owned and operated by the government to finance public infrastructure. The next level of protection is for the government to be the sole issuer of money in a system where the private banks would on-lend money issued by the government. The next task would be to curb the hoarding of the Money Supply — the greatest blight on our money system.
Australian money only changes hands once each year. Families spend their money weekly creating an effective velocity of fifty-two. Yet so much money is hoarded by the better-off that Australia has a velocity of one. Our recession problem is not lack of money — it is lack of movement of money. Unfortunately, we tax money when it moves and fail to tax money when it is idle. Money held for more than one month should be taxed at say 1% and GST abolished for most items.
In Australia, there is $3000 in currency notes per person. I am well off, but I don’t carry $3000 in cash. The total Money Supply on a ‘per person’ basis is $85 000. Most of this $85 000 is sitting idle in bank accounts. The very essence of money is that it needs to move to create prosperity and feed the people. Our money is almost entirely created by bank lending. But the credit so created is mostly sitting idle and at the same time the volume of credit is drying up due to bank intransigence. The Reserve Bank pays lip-service to the collusion. One-hundred and forty years ago, one-hundred years ago, eighty-years ago, heroic politicians stood up and denounced the activities of the banks — but the banks have become more skilled at surmounting this obstacle. Mr. Duthie had this to say in the Australian Parliament in a heated debate in 1947. He refers to the year 1694 which is the date that a private group of businessmen created their own private bank which they inappropriately named “Bank of England”:
“…control of finance and credit can no longer remain a private monopoly, but must, for financial and economic sanity, become a people’s monopoly. Ever since 1694, private banking institutions have issued the credit of the nations and dictated to governments, withholding or releasing credit at will, thus holding in their hands the destinies of the people. For 353 years, these institutions have had world ramifications, surrounded themselves with a holy of holies atmosphere, discouraged a study of money and finance among the common people, put out such false stories as ‘safe as a bank’ and ‘banks lend only their depositors’ money’,…” 
“Ever since 1694, the private banks have created credit on which they have charged interest to individuals and governments.” 
“…it can be seen what a profitable industry the private banks have carried on for 353 years—creating credit by book entries in a ledger and charging the borrower up to 10 per cent., and even 12 per cent., interest. Credit manufacture became more profitable when it was discovered that a bank could lend safely even up to ten times the amount of its deposits. Money has been made a weapon for good or evil, boom or slump, in the hands of private banking institutions — a master of the people and governments instead of a servant.” 
Mr Duthie knew that bank credit was virtual, was manufactured by the bank, and did not originate from the Reserve Bank. In his words: banks had become ” a master of the people and governments”.
To protect the banks from themselves, it is necessary to separate the Commercial Banks from the Investment Banks. As a sideline, the least important component in the discussion, the people of Australia, will benefit. We need you, in the Senate Committee, to have the courage of Mr. Duthie. You will be part of Australian history if you stand with the people. Do not fail the people.
Andy Chalkley BSc(Engineering) 2019-04-05
Author of: “The Politician’s Guide to the Operation of a Money System.” and “Hoarded Money has no value. The Economics of Velocity.” and “Dogs in Fur Coats. The Greek Money Solution.” Andy is a former high school teacher but now runs his own charter bus business and computer consultancy.
 RBA 2018-08
 Australian Debt Clock
 [Hansard 1947 Australia, House of Representatives, Debates, 6 November 1947. Born 1912-05-21 at Nhill, Victoria. Died 1998-06-13