THE REMARKABLE MODEL OF THE COMMONWEALTH BANK OF AUSTRALIA
The US Federal Reserve is as federal as Federal Express and there are no reserves. The Federal Reserve has been founded in secret and is privately owned by elite criminals.
Virg Bernero, the mayor of Lansing, Michigan, just won the Democratic nomination for governor of his state, making a state-owned Bank of Michigan a real possibility. Bernero is one of at least a dozen candidates promoting that solution to the states’ economic woes. It is an innovative idea, with little precedent in the United States. North Dakota, currently the only state owning its own bank, also happens to be the only state sporting a budget surplus, and it has the lowest unemployment rate in the country; but skeptics can write these achievements off to coincidence. More data is needed, and fortunately other precedents are available from other countries.
One of the most dramatic is the Commonwealth Bank of Australia, which operated successfully as a government-owned bank for most of the 20th century, until it was privatized in the 1990s. The Commonwealth Bank’s creative founders demonstrated that a government-backed bank can make loans without capital. Denison Miller, the Bank’s first Governor, was fond of saying that the Bank did not need capital because “it is backed by the entire wealth and credit of the whole of Australia.”
The Commonwealth Bank’s accomplishments were particularly remarkable considering that for its first eight years, from 1912 to 1920, it did not have the power to issue the national currency –unlike the U.S. Federal Reserve, which acquired that power in 1913. The Commonwealth Bank was thus in the same position as a state of the United States or a member country of the European Union (think Greece), which also lack the power to issue their own currencies. Operating without that power and without startup capital, the Commonwealth Bank funded both massive infrastructure projects and the country’s participation in World War I. According to David Kidd, writing in a 2001 article titled “How Money Is Created in Australia”:
“Australia’s own government-established Commonwealth Bank achieved some impressive successes while it was ‘the peoples’ bank’, before being crippled by later government decisions and eventually sold. At a time when private banks were demanding 6% interest for loans, the Commonwealth Bank financed Australia’s first world war effort from 1914 to 1919 with a loan of $700,000,000 at an interest rate of a fraction of 1%, thus saving Australians some $12 million in bank charges. In 1916 it made funds available in London to purchase 15 cargo steamers to support Australia’s growing export trade. Until 1924 the benefits conferred upon the people of Australia by their Bank flowed steadily on. It financed jam and fruit pools to the extent of $3 million, it found $8 million for Australian homes, while to local government bodies, for construction of roads, tramways, harbours, gasworks, electric power plants, etc., it lent $18.72 million. It paid $6.194 million to the Commonwealth Government between December, 1920 and June, 1923 – the profits of its Note Issue Department – while by 1924 it had made on its other business a profit of $9 million, available for redemption of debt. The bank’s independently-minded Governor, Sir Denison Miller, used the bank’s credit power after the First World War to save Australians from the depression conditions being imposed in other countries. . . . By 1931 amalgamations with other banks made the Commonwealth Bank the largest savings institution in Australia, capturing 60% of the nation’s savings.”
Harnessing the Secret Power of Banking for the Public Good
The Commonwealth Bank was able to achieve so much with so little because its first Governor, Denison Miller, and its first and most ardent proponent, King O’Malley, had both been bankers themselves and knew the secret of banking: that banks create the “money” they lend simply by writing accounting entries into the deposit accounts of borrowers.
This banking secret was confirmed by a number of early banking insiders. In a 1998 paper titled “Manufacturing Money,” Australian economist Mike Mansfield quoted the Rt. Hon. Reginald McKenna, former Chancellor of the Exchequer, who told shareholders of the Midland Bank on January 25, 1924, “I am afraid the ordinary citizen will not like to be told that the banks can, and do, create and destroy money. The amount of money in existence varies only with the action of the banks in increasing or decreasing deposits and bank purchases. We know how this is effected. Every loan, overdraft or bank purchase creates a deposit, and every repayment of a loan, overdraft or bank sale destroys a deposit.” Continue reading »
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