Wednesday, 3 November 2010

Emergency powers.

The government of any country has almost unlimited power to pass emergency legislation as circumstances demand. In time of war or natural catastrophe it may need to bring in controls that are far outside the normal range of civil law.

Right now Australia has a challenge from one of a group of four institutions which hold an essential service in their hands. The Commonwealth bank has decided to hike interest rates in excess of the controls instituted by the Reserve bank - and against the wishes of the government.

Interest rates can be either a brake or an accelerator on economic activity. When they apply to home mortgages they directly affect the spending power of the public, and as such they either slow or speed up retail activity - and that affects employment and profits down the supply chain.

The other three vulture banks are sitting on the fence posts - waiting to see if the Commonwealth bank gets away with this challenge - or if Treasurer Wayne Swan will act - or simply cave in !

Gathering fresh funds overseas is a rising cost, but at the same time the big three banks in Australia have been making record profits - and they could afford to show restraint to help the Australian economy recover.

What they are doing is exploiting their control of a natural resource - the money supply needed to finance business and allow people to buy homes. Their primary interest is profit - and to keep those profits coming they will disregard the common good - and the responsibilities that go with it.

Most people go along with the notion of free markets, but if the banks become predators out of control - then it is time to apply restraining measures.

Treasury dictates the amount of tax we must pay. It would not be unreasonable if that same Treasury slapped a " super profits tax " on banks that hike interest rates outside it's guidelines.

After all, interest rates have a critical bearing on the Australian economy - and that is worthy of invoking emergency powers !

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