“[Y]ou can’t fool all the people all the time”, Abraham Lincoln said, but it doesn’t stop Kevin Rudd from trying. In October 2008, Rudd reassured panicked Australians that Australia’s banks were “sound”, contradicting warnings by the CEC that the massive and unpayable derivatives holdings of Australia’s banks meant they were bankrupt.

Now, the reality of the crisis 12 months ago—and what Rudd knew was really the case—has been revealed with the release of the Reserve Bank of Australia’s 2009 Annual Report.

When the global financial turmoil post-Lehman Brothers collapse cut Australia off from overseas credit, Australia’s banks were caught with their pants down. For years, they had borrowed heavily from overseas to on-lend into the Australian property bubble, largely through 90-day bills they would simply roll-over every three months with new borrowing—with no access to international credit, Australia’s banks faced collapse.

To save the banks, which were also hit hard as panicked Australians withdrew cash, the authorities took two dramatic measures: the Reserve Bank cranked up the printing presses—literally—and churned out more than $10 billion extra in cash, a 19 per cent increase in the money supply; and the Rudd government announced the government guarantee for people’s deposits, and, more importantly, the banks’ foreign liabilities.

On 9^th October, 2008, U.S. physical economist Lyndon LaRouche advised the world’s governments who were scrambling around for a bailout: “Until you just shut down the whole derivatives trade—wipe these gambling obligations off the books of the financial system—you are just kidding yourself.”

Australia’s banks, with their combined $14.2 trillion in derivatives exposure, were on the brink, yet Rudd, at the same time as he was scrambling behind the scenes to prop them up, was quoted in The Age on 13^th October, 2008, stating: “Australian banking institutions remain sound, well-capitalised and profitable with high asset quality.”

“Only the CEC has had the courage to state the truth about the banks,” Citizens Electoral Council leader Craig Isherwood said today. “We were right in 2007 and 2008, and we are right now. Our banking institutions are fundamentally not sound—no deregulated financial institution which has been exposed to the international derivatives trade is safe. How close we came to a collapse of Australia’s banking system in late 2008 is now clear.

“By the government committing to essentially cover all bank liabilities, the collapse has simply been delayed to the next crisis … and that crisis is imminent with the coming close of the U.S. fiscal year on 30^th September. The full cost to government of the bailout policies combined with the derivatives refinancing costs will become clear. The U.S. economy, without a fundamental policy shift, will fail within weeks of the end of the fiscal year, and set off a global chain-reaction breakdown, as forecast by Lyndon LaRouche on 28^th July, 2009.”

Mr Isherwood concluded, “The CEC is also right about the solution: LaRouche’s Homeowners and Bank Protection Bill. Anybody who is serious about fixing the economy, should join us.”