Citizens Electoral Council of Australia

Media Release Thursday, 19 December 2013

Craig Isherwood‚ National Secretary
PO Box 376‚ COBURG‚ VIC 3058
Phone: 1800 636 432
Email: cec@cecaust.com.au
Website: http://cec.cecaust.com.au

Abbott won’t subsidise productive industries, but he’s heavily subsidising the banks

Prime Minister Tony Abbott beat his hairy chest yesterday and declared his government won’t subsidise businesses, but it seems he means only businesses in productive primary and secondary industries that actually produce for the country.

Because every day that Australia doesn’t have a Glass-Steagall separation of banking, his government like those of his predecessors is heavily subsidising the reckless gambling of the too-big-to-fail (TBTF) banks.

Since 2008, the Commonwealth government has first explicitly, then implicitly, guaranteed the hundreds of billions of dollars that the major Australian banks have borrowed from overseas.

That guarantee enabled the banks to borrow against the government’s AAA credit rating, at quite a few per cent cheaper than they would pay on their own much lower credit rating.

That explicit guarantee ended in 2010-11, but it didn’t matter to the banks. It turns out they don’t need it, because they are too-big-to-fail. The lenders in the international wholesale money markets know that the government cannot let the Australian banks fail, so they continue to lend to them at a much lower interest rate than the banks’ own credit ratings would qualify for.

And what are the banks doing with this money they are borrowing from overseas at low interest? They aren’t lending it on to small businesses and farmers at similarly low interest rates so they can produce wealth for Australia. No, they are speculating, by pouring it into the fully-stretched property bubble. By and large they are lending it to property investors so they keep buying real estate and therefore keep property prices sky-high. The banks are fully aware that these inflated prices lock genuine home buyers out of the market, but their only concern is to keep prices high, because they know even a modest collapse of property prices, in the order of 15 per cent, could wipe them out. Precariously balanced on top of these mortgages is a mountain of derivatives and mortgage backed securities, which will go into meltdown if Australian property prices fall to affordable levels.

Citizens Electoral Council leader Craig Isherwood said today, “Tony Abbott should cut the crap! Of course his government is subsidising businesses, but it is subsidising the banks that are bleeding the nation dry, and not the farming and manufacturing industries that produce our wealth.

“How would Holden and Ford perform if they could borrow at the same low interest rates that the banks can? Australia’s 40,000 family farmers are often paying 12 per cent interest on $65 billion in debt; how would they go if they could pay less than 5 per cent?”

Isherwood concluded, “If Abbott is really concerned about taxpayers, he should do two things: enact Glass-Steagall to split up the banks, so they are no longer TBTF and can no longer run up debts and derivatives bets that the government will be on the hook for; and support our productive industries so they expand, produce more wealth and create more skilled jobs, which means more taxpayers!”

Click here for a free copy of the CEC's infrastructure blueprint, The Infrastructure Road to Recovery, which shows how Australia can build its way out of the depression.

Click here to join the CEC as a member.

Click here to refer others to receive regular email updates from the Citizens Electoral Council of Australia.