Are We Stuck In A Giant Monopoly Game?

Who is really running this country? Is it our elected Federal Members of Parliament or is it the RBA? Or is it APRA? Or is it our banking monopoly?

An expanding economy needs people with money in their pockets for spending.  In the USA, consumer spending accounts for over 70% of their wealth creation each year.  As a result, their unemployment level is back down to 1973 levels.  While their unemployment has been falling, our unemployment has risen 50% since the 2009 ill-fated RBA rate hikes, which sucked money out of our pockets and deposited into bank profits.  In the US the reverse happened.  They had quantitative easing, lowering rates and putting more cash back into consumer’s wallets.

This dark contrast is obvious to all it seems except our elected politicians, APRA and RBA.

There is only a certain amount of free spending money in any community.  If this is evenly spread and people are positive, then they’ll spend, creating even more jobs.  They say that England's prosperity last century was founded on "a shopkeeper on every corner".

This meant there were hundreds of thousands of people out there earning money and spending money, creating increasing employment.  The wealth was being spread evenly though the community.  It worked.  How does that compare with Australia since the banking monopoly was formed by Kevin Rudd in 2009?

Competition in the banking sector evaporated into the hands of the four majors who, according to Westpac's CEO Gail Kelly, took their orders direct from the Commonwealth Bank.  From memory I believe the Commonwealth Bank control about 70% of the home mortgage market and low interest deposit accounts across the country.

Combined Bank profits went from $5 billion to now $32 billion a year.  Corporate profits have not doubled in that time.  Bank greed has grown over 600%!

There’s been barely a whimper from our elected members of parliament nor any action from the bank "regulators," APRA and the RBA.

THE REVERSE

In fact, these regulators have encouraged the banks to profit gouge even further.  APRA have ignored the high unemployment rate.  They’ve ignored the poor wage growth over recent years. They’ve ignored the plateauing of disposable income and the low growth in business profits. They’ve ignored the falling value of our resource exports, and they’ve ignored the slow capital growth in residential property across the country.

They didn't ignore the recent jump in Sydney (and to a lesser extent Melbourne) property prices.  Instead, they overreacted to it.  They completely ignored the fact that this recent jump was, in fact, less than the similar jump in the cycle between 2001-2005.  Now APRA are blaming it on low interest rates, wanting them higher - giving more profit to the banks.  They blame the increased competition from Chinese buyers.

APRA ignored the fact that the previous jump was higher, yet interest rates then were higher and there were no Chinese inflaming the market.  Simply put, APRA have overreacted and have not looked to history for lessons.  Now as then, APRA simply should not have interfered in the market.  They should not have acted to pump up bank greed.

Westpac have just moved again to increase their interest rates on mortgages, pocketing a bonus $120 million in the process!  You would too if you enjoyed a monopoly situation in the market.   Rates would normally be set in a free market by the law of supply and demand.  Competition amongst suppliers of money would determine a realistic market rate of interest.  Now this is controlled by monopolistic greed.  Now this is simply being watched and observed by our members of parliament - without any action!

NO ACTION

Our previous Treasurer, Joe Hockey, two months ago observed that the call for banks to increase their asset base should not come at the expense of borrowers.  Clearly the banks have just laughed at our Treasurer and proceeded to profit gouge to increase their asset base.

This then brings us back to our American example of free spending driving their economy.  We had 60% of GDP coming from free spending and this is now falling.  Why? Money filtered from our pockets into the bank's pockets.  There is limited money circulating in the community.  The banking inquiry, which was run by an ex banker, came up with the predictable call that the banks needed even more protection than before.

We'll ignore for the moment that this inquiry had no concern for the builders, developers and businesses that went broke without any Government or Reserve Bank assistance in the November 2008 Australian share market crash.  The greedy banks took the opportunity to issue margin calls on share loans, forcing many businesses to the wall and costing thousands of jobs, if not hundreds of thousands of jobs.

 

The banking inquiry saw no need to help these victims.  Despite the fragile economy, despite the 50% jump in the unemployment rate, this inquiry called for more funds to flow from the community into the coffers of the banks.

APRA and the RBA enthusiastically supported the weird idea that four bloated banks would somehow help the economy, reverse the unemployment level, increase GDP and encourage spending.  Do you think the average man in the street could have seen the error in this "logic"?

CLIFFORD BENNETT – An Economist’s View

Our consulting economist Clifford Bennett, seeing the fault in the above system, has called for future leaders of RBA and APRA to not come from inbred bureaucracy relying on old textbooks.  He argues for successful people from the marketplace.  Clifford's well-argued case is not getting any media run.  The media financial writers wouldn’t dare question the movements of our bloated banks!  These "journalists" or spokespeople, are not going to threaten their livelihood, bonuses and fantastic Superannuation by criticising the banking monopoly.  They won't even call it an Oligopoly.  They will instead persist with the myth that we have a free market banking sector.

We compared Britain's economic powerhouse growth to having hundreds of thousands of shopkeepers on every corner.  Let's contrast that with how consolidated our wealth engine is in Australia. The ASX Australian Share Market top 200 companies is the ASX200.  Our banking sector occupies a whopping 47.5% of the turnover on this exchange and generates a huge 20% annual return.  Not bad for just four banks out of two hundred companies.

A good return versus the average of all the others, including the banks, come to only 12.2%.  The banks’ 20% compares with just 5.7% return for consumer discretionary companies.

OUR SHIP

Our economic ship has a dangerous list to one side.  All our wealth is pouring into just one sector of the economy that employs just 2% of Australians!  As explained above, this dangerous sideways tilt started with Kevin Rudd's ill-fated favouritism of the big four for absolutely no reason whatsoever back in 2009.  They already enjoyed a $90 billion line of credit offered up by the RBA.  Of course, this lifeline from the RBA was not extended to any businesses that were being hit with these unfair margin calls caused by the temporary drop in shares.  Again, our elected Federal MP's deserted the captain’s bridge and handed it over to bureaucrats in APRA, the RBA and Treasury.  It was a diabolical mistake then as it is now.  Our MP's apathy then is exactly the same as their apathy now.

WHO'S GOING TO MAKE THE MONEY?

Whenever there is stress in the economy there will always be winners and losers.  My aim is to see the opportunities and help you become one of the winners and not one of the losers.  Banks are profit gouging and raising interest rates.  What is the normal reaction of borrowers? They fix. (But I suggest you don’t) The economy, the RBA and APRA have been calling out for residential construction to replace the mining boom.  (As explained previously it was really a mining mirage that only fooled APRA, our MP's and our beloved RBA).

Now ironically, the RBA and APRA are doing their best to reverse this call for dwindling jobs and will squeeze out funds that should flow into dwelling construction.  What happens as the flow of funds to construction dries up?  Fewer and fewer new dwellings come onto the market. And yet, we have a rising population - more and more people in full time jobs earning higher and higher wages (as paltry as the increases have been lately).

You know my bananas story.  What happens when there's limited supply of bananas but more and more people want the bananas? The price of bananas rises.  This is why I think the losers will stop borrowing money.  They will stop buying property.  They will sit back then and watch the law of supply and demand drive up the price of those very properties.

SO YOU ARE A WINNER?

So you do see the way to wealth is to increase your ownership of well-located quality property in the cities that are growing in population?  I recommend you don't borrow from the four majors nor the banks that they wholly own.  They keep the different names on these banks to help fool you into thinking you are buying from opposition!!

Our MP's think this is OK.  ACCC don't think this is misleading the public!!

THE RICH GET RICHER WHILE THE POOR GET POORER.

That's because the poor get their education from the media who believe instead that their role is simply to entertain, amuse and confuse.

WHAT SHOULD OUR POLITICIANS DO?

Wouldn't it be nice if they put someone in charge of these critical departments that was not an inbred bureaucrat but a successful person from the marketplace?  Be it a butcher, baker, candlestick maker... but certainly not an ex banker! Nor a career Politician!

What I would do is abolish negative gearing unless the property is a brand new one that has created jobs and local, state and federal tax income.  Then related expenses could be transferred across to other income.

I would return competition into the banking sector.

The RBA could extend mortgage loans to the many competitors out there in the marketplace who are not owned by the four majors.

Unlike Kevin Rudd, the RBA would offer these funds at a discount to the funds that are going to the four majors.

The average person owns a property for six years so these loans would be fixed in for six years.  It could be less at the option of the borrower.  This means that these mortgages can't find their way back onto the books of the four majors from their offering temporary honeymoon rates in a year or so's time.

Currently your hard earned Superannuation would only provide you five years retirement before you are thrown on the pension.  This is applying now to those who retired after twenty years.  Budget papers show that it will apply to you in 2050 if you have worked all your life paying into Super.

So, I would allow your Superannuation to be channelled into your home mortgage.  This reduces your reliance on our banks.  This in turn greatly reduces our combined bank's reliance on overseas investors for their funds to then on lend to you.  This would help make our country much, much more financially stable.

WHY THIS SOLUTION WON'T HAPPEN!

1. a) The four majors won't like it and won't put the donations to the party endorsing it. Bribery works.
2. b) It won't be supported by the Unions who have their nose in the trough for half of this huge $2 trillion flow of funds.
3. c) Your elected Federal MP does not want to put (a) or (b) off side.
4. d) Your elected Federal MP sees you as a majority but unfortunately a silent majority, so they can ignore you.

CONCLUSION

So people will get rich, or richer, from seeing a shortage of supply looming.  They will see there will be a shortage of bananas and they will hastily gather bananas in advance.  How is your banana gathering going? Do you want to know about the many traps in gathering these bananas? Just contact your Property Mentor for our free booklet on one hundred traps in property.

 

I love property.

Regards,

Kevin Young

Club Founder