Plutocrats obtain their money to enslave a population by manipulating the financial system to receive capital gains for no cost to themselves. Trump tariffs will increase costs to USA consumers and transfer money to the financial markets, benefiting the wealthiest in the country.
Increasing tariffs is another way of transferring value to the wealthiest, who grow their wealth without increasing the value of goods and services. The primary method will remain the banking system. Australia, less under the control of the plutocrats, still has time to reform the financial system to finance our internal industries and stop the outflow of profits and capital gains, making us less dependent on overseas finance and markets.
Capitalisation of Interest with Debt
Australia still has a government-owned Reserve Bank and a sound electoral system to stop the debt capitalisation of interest.
Nixon’s removal of the USA from the gold standard removed one control over banking addiction to capital gains. The control put a notional limit on the money banks could create for the government with debt.
Banks buy money from the government and rent it out. They pretend they borrow from the government but do not return the repayments. When there is interest on cash and the interest payment does not reduce the amount outstanding, then the money is rented, not sold.
This means banks buy the money at par and rent it out meaning the money generates more money without doing anything. Banks must get paid for the service they provide such as allowing people to buy money with payments spread over time, exchanging money between entities, and providing a place to store money. However banks should provide these services to all and the price should be the same for all. Banks should NOT earn income through renting money.
The correct accounting is for the bank to deduct interest payments from the amount owed on the loan and include interest payments to depositors as a cost. This way of accounting for interest removes the capital gain from loans, as renting money capitalises interest while selling it doesn’t.
Changing from renting to selling money with a margin saves the economy the cost of interest in unearned capital gains. On home loans alone, this is about 5% of GDP and is a direct cost to the economy as it means we can reduce the cost of introducing new money into the economy by 5% on home loans alone.
However, it gets worse. Wealthy people do not pay as much interest because they pay off their loans quickly — often instantly — so they buy money for less.
If you thought this was unfair, it gets worse. Since the privatisation of the CBA and the widespread use of credit cards, capitalising interest and other fees has become the standard for loans to most citizens. In capitalising interest and fees, the bank extends the loan by debiting the loan account, resulting in a credit transaction that puts the value into the bank’s capital account rather than a credit transaction to the loan account—not crediting the loan account results in another interest payment by the borrower.
In the 1960s, Australians’ increase in wealth was pretty much the same regardless of their existing wealth, meaning the wealthiest 10% received 10% of the new wealth. Today, the top 10% get 90% of the increase in wealth.
What does this have to do with the USA and Australia? Plutocrats get their power from their wealth, which they obtain from capital gains by getting others to pay rent on the money they use while the wealthy do not pay rent.
Some relatively simple changes to bank accounting practices and enforcement of existing capitalisation rules can prevent Australia from becoming a plutocracy. The changes would make us highly competitive as investment increases, as we would remove the rental costs on money.
We could also replace internal capital markets with local capital markets, where we circulate profits within the market for goods and services. Local capital markets increase the availability of capital because they move capital with the sale of goods and services, making it available for reinvestment at a faster rate.
With the extra money available for reinvestment and a strong export market for our energy, primary products, and minerals, Australia can buy back the farm and invest in new industries by buying factories and keeping ownership in Australia.
How to Buy Back Productive Assets
Overseas investors have purchased or provided expansion money for many Australian businesses using cheap money. They do it by outright purchasing with overseas or local funds. A small or large local Australian company that needs money has to go to a bank or look for other investors.
Small businesses have to put other assets like their home as collateral, and the banks buy the money at face value and then rent it out, capitalising interest. With home loans, the interest is capitalised twice, making financing investment prohibitive, meaning funds for expansion or purchase tend to come from multinational companies (both Australian and overseas) via loans or equity, as Australian Finance is prohibitively expensive or unavailable.
For example, a group of doctors create a clinic with a full range of services and economies of scale in rent, support staff, and other costs. The shares in the clinic are not on the stock exchange, and share sales are private, so the market is limited. The clinic is making a profit, and one or more doctors wish to leave or need money to expand.
Their choices are to find another doctor to buy into the clinic or to take the offer of a listed group of clinics owned by a multinational group or private equity. The value of the clinic will typically double once it becomes part of the multinational group. The new larger organisation often sell more shares to pay off the loans they used to buy the clinic. Alternatively, they will move some of the assets, like IP, off-shore or give loans to the clinic for expansion. Essentially they purchase the clinic for no cost.
An Australian-Owned Alternative
Let us say the clinic is making a profit of $1,000,000 each year, of which half is reinvested, and half are dividends to existing investors, and the company's valuation is $10,000,000. The clinic wants to expand and needs another $2,000,000. There are five investors, each with $2,000,000 worth of shares. The turnover is $10,000,000 a year.
The doctors do two things.
- They approach a community bank, and the bank offers to sell them a loan, which will be repaid over five years at an interest rate of 15%. The interest payments from the clinic reduce the amount owing, and the loan is to be repaid in five years, meaning the clinic pays $400,000 a year to the bank, of which the bank keeps $150,000 each year as income.
- The investors agree to receive 10% more shares each year instead of a dividend and to sell 10% of their shares to patients. This means that the shares in the company increase by 10% or $1,000,000 a year, which means the company has $1,000,000 a year to invest. This means the loan will be paid off in two years.
These two things will result in further benefits for doctors and patients
- Having repaid the loan, the company has $1,000,000 a year to invest in making the clinic more profitable, expanding, or buying back shares.
- The patients have a stake in the company. They can sell to other patients or investors. Patients who stay as investors get a say in how the clinic spends its profits, which might be to improve the patient experience or add other services.
Existing clinics owned by external investors can buy back the clinic with low-cost money and keep the profits with the doctors and patients.
