The Reserve Bank and Governments Can Stop Inflation, have Full Employment and Increase Community Wealth.

The Reserve Bank complains that it can only control inflation by changing interest rates. They are wrong. They can control inflation by

1. Stopping banks from charging borrowers a capital gain equal to interest as well as charging interest. This will halve the cost of a loan and double the financial system's productivity.
2. Only allow loans of new money for new assets.
3. Encourage, by example, companies to share profits with future buyers.

Today, banks have different rules when selling new money to wealthy customers and their shareholders. They charge them less or nothing at all. The money comes from the double payment of interest and other fees charged to most borrowers, including governments.

Banks create capital gain on loans by debiting interest and fees on loan accounts that extend the borrower’s loan. They put the money made from the loan extension into their capital account instead of putting it into the borrower's trading account as they should. The borrower then transfers the funds from the trading account to the loan account, leaving the balance the same but paying the interest with new money. With some borrowers, banks have different rules, often based on mutual credit ideas, and these clients get new money for little or no cost to them. We know this from the release by ProPublica of the tax returns of the wealthiest USA citizens. There is no reason to believe it is different in Australia.

Loans are an excellent way to increase the money supply because they are meant to be repaid, causing the money to be cancelled. If the funds were not cancelled, the amount of money in the system would increase, creating inflation.

Today, as the capital gain to the bank is not part of the loan, the interest is NOT destroyed, causing endemic inflation. Policymakers have bowed to the inevitable increase in unnecessary money by setting an inflation target.

The Reserve Bank and the Federal Government can stop this financial system failure by preventing banks from claiming capital gains on loans.

This should be done immediately, making the economy stable and housing affordable.

However, the Reserve Bank can do even better. It can stop issuing new money to purchase existing assets and only allow the issuing of new money to build new assets. Loans for existing assets can use existing money and give a higher return to deposit holders. Local communities can get new money for community assets for government-approved purposes.

The immediate effect will be to halve the cost of buying a house while keeping the price of homes at their current levels. This will encourage a spur of new buildings to meet the expected demand, which will be paid for by the increased productivity of the financial sector.

The productivity improvements will improve all State and Local Government Budgets without requiring more taxes or the States selling community assets. It will allow the economy to evolve to meet the existential demands of keeping the planet liveable.

Part of the evolution will not require repaying the loans for new community-owned assets, while the assets remain with the community served by the assets.

The other part of reform is for all businesses that profit to share the profit with their future buyers. This incentivises buyers and sellers to work together to keep the business operating and builds trust within the system. With trust comes lower costs and more production for lower cost and lower use of natural resources.