Suggested title:             USURY HAS DENIED US OUR FREEDOM

What is usury? According to the dictionary definition it is the lending of money at interest - at any rate. According to our law, however, it is the lending of money at exorbitant or iniquitous rates.

In South Africa the law only considers anything higher than 32% per year to be excessive on loans of more than R10 000. On amounts below R10 000 the usurers are allowed to charge almost whatever rate they want with full protection from the law. They may charge "iniquitous" or "exorbitant" rates of interest.

The April 1994 elections, a day of celebrations for most South Africans, held the promise that a democratically elected government would at last care for the needs and aspirations of all our people. However, five and a half years later these expectations of a better life have left a legacy of bitter disappointment for most people.

The promised employment opportunities are yet to materialise. In fact jobs have become fewer. Economic opportunities, especially among the poor have deteriorated markedly. Moral standards have collapsed visibly. And crime and corruption are at an all time high, and soaring higher.

We may well ask why our much advertised new freedom has not brought, at least in part, a realisation of our legitimate expectations of a better life. The answer is simple: We have still not achieved economic freedom. In fact South Africa has been in a state of permanent economic servitude since 1652, except for the periods when the Boer republics had control of their own financial affairs. They had no debt, paid no interest and had no income tax.

Economic freedom can only be achieved with an honest money system where not only the "iniquitous" rates of interest will not apply, but indeed all institutionalised interest charges are outlawed. Then the people will see the benefit of freedom - real freedom.

The current dishonest money system was brought about by usury and is perpetuated by it. Furthermore the usurers are allowed quite legally to create money out of nothing and then to charge interest thereon. That is the money creation process which we have been enslaved to and which people have become accustomed to. And this is the process which brings all our financial misery and suffering. Intrinsically it is dishonest to its core.

The concept of money, in reality quite simple, is nevertheless a mystery to most people - an almost forbidden zone. For most people money is simply there. To get some of it one will have to do some job of work or you would have to produce and supply (sell) something. That does not explain the creation process, however.

The fundamental process of money creation is this: Money is created (out of nothing) by the commercial banks and brought into the game (circulation) through loans being granted at interest for their benefit.

The general conception of money is that it is the notes and coins that we carry in our pockets or the amounts we keep in our bank accounts. Or even that amount we can still draw on our credit cards - i.e. how much more we will be allowed to go into debt.

In the distant past, before the bankers invented their sophisticated ways, before bank accounts and electronic "money" came into existence, only coins of iron, bronze, copper, silver and also gold were used as money. In some parts of the world even stones, shells or buttons were used as money. Paper money came much later

The principal features of money, i.e. coins and notes, are that these means of exchange must be recognisable, acceptable to all members of the community or state in which they circulate and that it must be hard, if not impossible, to duplicate or counterfeit. To facilitate exchange of goods and services, money, of course, must be issued and brought into circulation in sufficient quantities in line with the ebb and flow of the economy. If the amount of money in circulation is kept at the right level there will be no inflation.

When we exchange goods and services, what are we really exchanging? Here is an illustration: Suppose Mr Brown has a piece of leather and Mr Green has a piece of cloth. After a few days Mr Brown has made a pair of shoes and Mr Green a jacket. They decide that these two items represent a fair exchange and they do a trade. What they are exchanging, however, is not a piece of leather for a piece of cloth, but the effort (labour) they have spent working on these materials. In other words labour is money; money is labour.

We may now consider the problem of usury. Of the total money in circulation in South Africa only 7% is represented by notes and coins. These have been printed and minted by the SA Bank Note Company (Pty) Ltd and the SA Mint Company (Pty) Ltd, both of which belong to the SA Reserve Bank Ltd. The other 93% of our money in circulation is in the form of credit which the commercial banks have created out of nothing when they lent "money" to clients. They are merely book entries.

The banks maintain the pretence that they only lend out what they receive from depositors. In this scenario they are supposedly getting R1000 from one depositor giving him or her 10% interest and then lending it out to other clients at 15% interest. The banks would have you believe that they are making only 5% on the R1000. That is simply not true.

The banks operate under a system known as "fractional reserves". This allows them to actually have only a fraction of their "reserves" in cash and this fraction can be as low as 5%. It works as follows: Mr Blue deposits R1000 and this now serves as the 5% reserve that the bank is required to keep in its vaults or some other place of safe-keeping. With its 5% fractional reserve secured, the bank may now lend out R19 000 to other clients. And because it has not got R19 000 in hard cash, it creates it out of nothing by making book entries when they "lend" to borrowers.

Or the bank will give a client or two an overdraft facility (the right to draw more than you actually have) and allow these clients to write out cheques which the bank will honour. The minute the loan (for a house, car, holiday) is granted or the overdraft facility allowed and a cheque written, the money has been created and will now start earning the bank interest (usury) at a healthy rate.

As can be seen from this the bank has to pay interest on the R1000 while it is not earning anything on it, BUT it is earning interest on R19 000. Using our previously mentioned example the picture now looks like this: The bank is earning R2 850 on the R19 000 and has to pay R100 on the R1000. A neat profit of R2 750 or 275% on R1000 that does not belong to them in the first place. Even after allowing for expenses this amounts to a very lucrative business. No wonder the banks consistently report earnings in excess of 35, 40 or even 50%. Even these earnings have to be adjusted because banks have the habit (the right) to show their depositors' money as if it is their own, i.e. as assets and not as liabilities which they in actual fact are.

In all this one can see that the bank has not as much as made one pair of shoes or one jacket from a piece of leather or a piece of cloth. They have merely provided a service. And it is a service which our government can be and indeed, should be, providing at no cost to us the citizens of South Africa.

Usury affects us adversely in every aspect of our economic life. A four-year hire purchase contract (time payment plan) can easily result in one paying almost double the price for an item compared to the cash price. Similarly a housing loan at 16% interest over 25 years means that we will pay the purchase price four times over.

According to the SA Reserve Bank Ltd's latest figures R9,2 billion of housing loans are in default. As most of these "non-performing" loans are in the poorer areas, this translates into 600 000 people who will shortly be forced to abandon their homes. They will receive little or nothing for all the payments they have made in the past and will be compelled to live elsewhere in greatly reduced circumstances, their hopes and aspirations dashed. Victims of the usury system.

Usury also impacts on us negatively through the borrowing activities of the state, the parastatal institutions such as Eskom, and the municipalities. Instead of borrowing money created out of nothing and paying interest (usury) on it, a re-organised SA Reserve Bank - a State Bank - could make the necessary credit available at no interest for the benefit of all the citizens of South Africa.

This year 22% of the budget (i.e. R49 billion) will be used to pay interest on government loans. This sum is roughly equivalent to the amount raised through personal income tax. The termination of this dishonest money system whereby commercial banks create the credit at interest will enable not only the abolition of income tax but also VAT.

Using the Honest Money System, money required to run the state (e.g. payment of salaries, pensions, education, hospitals, roads, and other public amenities) can be catered for. This can be supplemented by partnerships at various rates between the state and certain large mining and industrial companies. This latter arrangement is not far-fetched. To name but two examples where it is already being practised: Botswana has exactly such a partnership with the De Beers diamond company called Debswana, and Namibia has a similar partnership with De Beers, called Namdeb. They are by all accounts very successful.

In this manner the natural resources and wealth of the country, which after all belongs to all of us, can be equitably shared.

A number of Moslem countries have adopted this partnership formula and usury is not allowed under the laws of Islam. In the United Arab Emirates, for instance, there is no income tax, no VAT, no national insurance, and the cost of utilities is very low. In some of these countries even fuel, such as petrol, is supplied free of charge.

Usury is not only responsible for the impoverishment and financial enslavement of the general population, it can also contribute to stress which frequently manifests itself in family slayings, anti-social and criminal behaviour, and reportedly even dread diseases such as cancer.

There are some short term remedies which will help some people:

(1) Pay off your credit card debt and then cut the card in half. If you need the convenience of plastic, apply for a debit card (an account with a positive balance of your own money which can be drawn on by presentation of the card). And repay your overdraft as speedily as you can.

(2) Repay your home loan by accelerating your payments. Rather put your savings account balance into your home loan account - it makes much more sense. It may necessitate "downsizing" your standard of living for about five years, but it is far more preferable than paying for a house four or five times over.

(3) Consider getting an interest-free housing loan from a terminating mutual building society. There are three in Cape Town: Salt River Terminating Mutual Building Society, Cape Town Terminating Building Society and Southern Cross Terminating Building Society. For more details approach them directly.

(4) Establish a LETS (Local Exchange Trading System). They are very popular in England, Australia, New Zealand, and parts of North America. A bit complicated, they involve exchanging services within a specific community, such as lawn-mowing for child minding, a car service for an accounting job, etc. Each activity is awarded an agreed number of points or credits and do not attract income tax or VAT. Look around, there may be a LETS operating in your area.

As can be seen these are more or less centred on individuals or small groups and do not change the existing paradigm. And of course, they fall far short of being the solution to the problems created by usury and a dishonest money system. A lot more can and must be done. We can start by educating ourselves and our youth about the realities of money and credit; how they are created and managed. And how we are enslaved by it when it is dishonest.

For a more lasting and generally more beneficial change, the best that we can do today is to lobby government to adopt the Honest Money System described here. Demand from our elected officials that they do the right things to make us truly free - economically free.

We will only obtain our true freedom once economic freedom has been attained, and that economic freedom is entirely dependent on the abolition of usury and income tax/VAT, and the introduction of a transparent and honest money system.

Further information regarding a local campaign for the abolition of usury (and income tax) can be obtained from the Abolition of Income Tax and Usury Party by writing to them. Their telephone/fax number is (021) 558 2122.

There was a time when the Church was the most powerful institution in Western Society and few questioned its right to be so. In some countries governments are still all powerful. In our society today by far the most powerful institutions are banks, supported by a web of financial structures which reinforce this power. It is time we questioned their right to be so mighty and to ask whose interests they serve.

The media beguile us with the impression that politicians hold and wield the power, and we believe them. It is virtually impossible to escape hourly political and current affairs reports which reinforce this misconception. So vast and cleverly contrived is this mass of information that it is difficult to keep in touch with reality. Young people describe things that tru1y impress them as "unreal". How right they frequently are.

While we are thus preoccupied, bankers and financiers go about their business.

Most of us make extensive use of banks -- they inevitably play an important part in our individual and collective lives. Like so many other things, we take our banking for granted, giving it little thought and scant examination. We seldom stop to consider its real nature or its cost to us individually or to the community at large. Many of us do not even examine our bank statements to make sure there are no errors on them. Few of us would have any knowledge of the nature and justification of charges we regularly meet, but we assume that it is all in order. We trust that interest is being charged at the right rates. Above all, we do not check our statement for deliberate fraud.

It would be foolish to argue that banking has no place in society. Quite obviously it is the powerhouse of modern commerce and must remain so. The real point is, however, that banking has two faces -- one socially creative, the other devastatingly destructive. That of course gives rise to a number of challenges.

The first and most demanding is to put in place that model of banking which serves the best interest of Australia. One which is socially creative and not destructive. This is the responsibility of government -- and only courageous governments will do it. We do not have courageous government in Australia and there is none in sight.

The second is that, having built the best banking system possible, we should ensure that no-one destroys it, either deliberately or by neglect. Both have happened in Australia in our lifetimes.

The third challenge is to expose and remove people, be they bankers, treasurers, business people, politicians or whoever, who abuse the system for their own ends or neglect their responsibilities to it. I have given evidence that such abuse and neglect is rampant in Australia today, indeed throughout banking around the world, and that there is little will to reduce this.

It is abundantly dear that banking can help us create a truly free and prosperous society, but it is not doing so. It is equally clear that abuse of banking practice is a major factor in the degeneration of our nation.

How great a hold do banks have over us? To answer this question and to appreciate the potency of the answer, let's start from absolute basics.

Let's consider this. When banks lend us money, (give us credit), we go into their debt. Of course, you say. The bank argues that since it is taking the risk of lending us money (extending us credit), they require some security. So we put an asset on the line such as our home, our business or our farm. The bank then says it deserves a regular fee for its risk taking and for providing credit. That fee is interest, although other fees, such as establishment and management fees are also charged. Finally, the bank requires that if we cannot meet the agreement then they are entitled to any home, business, farm or other real asset that we may have put up as collateral.

This is a simplified but reasonable [sic] accurate description of a bank's money-lending function and of how it goes about it. Let's look at it in detail under three headings: credit, collateral and interest.

CREDIT
When banks give us a loan, does it actually cost them anything? Curiously, it costs them virtually nothing. This is the special privilege of the banker -- the privilege of creating credit.

Many years ago, a report commissioned by the British Government summarised it like this:

It is not unusual to think of the deposits of a bank as being created by the public, through the deposit of cash representing savings or amounts which are not for the the [sic] time being required to meet expenditure. But the bulk of the deposits arise out of the actions of the banks themselves, for by granting loans, allowing money to be drawn on an overdraft, or purchasing securities, a bank creates a credit in its books which is the equivalent of a deposit. (The Macmillan Report, 1929-31, Inquiry into Banking and Finance and Credit, p.34, para. 74)

Here is the crunch concept -- the one we must grasp if we are to truly comprehend the power of banks. Most of us imagine that, when we borrow from a bank, somewhere out in a back room, someone is pairing off our need for an overdraft with somebody else's deposit. We are not so naive as to think that they are counting real, touchable money, and moving it from one persons [sic] pile to another. But at least we think that the bank must borrow before it lends.

But no. The money does not need to exist either in a real, touchable sense or in any other sense. After our interview with the credit manager we walk away and begin to write cheques or use our credit card. All that happens in the back room is that entries are made in books. Nothing more than ink on paper. Even simpler these days -- nothing more than the click of computer keys.

John Kenneth Galbraith, one of the most eminent and respected modern economists, wrote a book with the simple title, Money. In it he writes:

Graham Towers, the Governor of the Central Bank of Canada put it bluntly when asked how banks create money and credit:

That was 1939. Clicking today's computer keys makes it easier still.

Is there any limit on the amount they can create? In July l99l, the Joint National Secretary of the Finance Sector Union of Australia wrote this:

If the 'equation' doesn't make much sense, don't worry. We'll come to that next. The crucial words are the ones in italics. Banks create money with creation based on the level of demand. If they want more, they just create more.

The only limitations are those of prudence and statutory rules. In March 1988, a General Manager of the National Australia Bank wrote this clear summary of the limitation in Australia today:

This is the 'equation: M3 over base money' Mr Hingley was talking about.

The summary goes on:

That is the most lucid statement of the current Australian situation that I have ever seen. And all this is enshrined in law. The Treasurer of Australia wrote to me in 1991, saying:

It might seem, then, that there should be no doubt about the fact that credit creation exists and how it is limited. Yet there are people who deny it.

Mr. Alan Cullen, Executive Officer of the Australian Bankers Association and spokesman for Australia's largest banks, made this statement as recently as November 1991:

"Credit creation is a sort of old fashioned religious idea." (Statement made during an ABC (SA Regional) debate with Paul McLean concerning the Repoort of the Martin Committee, 27 Nov 1991).

Deny it as he might, there can be no doubt that credit is not restricted by the amount the banks have in their vaults.

But back to the day you get your loan. The bank attends to these entries in its double entry books of accounts. Its accounts are in balance. You are in debt to the bank and the bank has given you the green light to go out and do some spending. You can draw it out in cash, but the vast majority of transactions will probably occur on paper (for example, cheques) or via electronic transfer (credit cards, EFTPOS and so on).

But, says the bank, you are forgetting the question of liquidity. It will be our money you draw out, as you have not yet paid any in. True. But what happens to it next? You write some cheques, use the credit card, and spend the cash. All of this goes into the tills of the people you pay it to. And where do they put it at the end of the day? Back in the bank, of course. Not necessarily your bank, but back into the banking system.

If the banks have issued a total of a million dollars in new credits one day, they will have a million dollars in extra deposits the next. And unless something very odd is happening, your own bank will have roughly equivalent shares of both the new credits and the extra deposits. Thus they have only had to use their own money for a few hours and back it comes. In other words, under normal circumstances, bank liquidity corrects itself just as surely as their balance sheets do.

This is why the total amount of credit advanced by all the banks to all their customers can go up and down from day to day, why we can have credit squeezes and credit expansions, all without the banks losing liquidity or unbalancing their balance sheets. But there is a very big difference between the bank's circumstances and yours. When you got your overdraft, what the bank gave you it created with the stroke of a pen, a click of computer keys, ink on paper; what you give back to the bank you earn by your talent, labour, sweat of your brow and risk of your assets.

Even though the purchasing power you now have was created by the bank out of thin air, you as sure as hell are in their debt and the bank may well have control of a real asset of yours which you were required to offer as collateral.

So banks have this great privilege -- that of creating money and credit. By the exercise of that power banks determine who sinks and who swims, who eats and who starves, who lives in luxury and who in poverty.

COLLATERAL
When it lends us money, does the bank put itself at risk? If it has lent prudently, (that is to someone who will be able to repay and honest enough not to abscond), there is every chance they will pay the loan back. Does the bank then actually need to have our home, business or farm as collateral? Only if it does not trust its own judgement. Demanding collateral is a wonderful way of avoiding the need to be prudent and wise, so they demand it all the time.

This represents a real risk to the borrower. Just as banks can create credit by the click of computer keys, so also they can contract or destroy credit by calling in loans. Experience indicates that there are cycles of credit expansion and credit contraction. Ordinary people and their debts are caught in these cycles irrespective of anything they may have done or not done, and for them the consequences can be great.

There are very few people or businesses which could immediately find the money to pay off all their debts and mortgages. They could not find the money immediately even in the best of times, and if times are tough it is still more difficult. So the bank may move in, sell their collateral assets for fire-sale prices, and leave them destitute.

Of course, this does not mean that every bank foreclosure is unreasonable. But unreasonable foreclosure is the most common malpractice reported to me as a bank-watcher.

Often, the foreclosure is not part of a general credit squeeze, but is imposed by a bank on a single business. This, too, is not necessarily unreasonable. If they have good reason to believe that a business is going bad, banks have to try to get their money out like anyone else. However, thanks to having demanded guarantees, mortgages, floating charges and other forms of collateral, banks are the least likely to lose in any normal business failure. More often, they walk off with all the assets, leaving hundreds of small trade creditors with nothing, so all sorts of innocent third parties are caught in the net.

Despite all these privileges, however, banks have managed to run up mountains of bad debts. How? It is very easy if you are stupid enough, and lending large sums to irresponsible entrepreneurs is a very good start.

All the honest depositors and borrowers of Australia are suffering today because our banks have been in the hands of people who were incapable of recognising a shonky deal when they saw one. These bankers, greedy for a bigger share of the financial market, gave credit to people who were simply corporate raiders, people who were not building genuine businesses or doing anything for the well-being of the community. Bank financed takeover bids did immeasurable harm to many of our greatest companies, while the subsequent corporate collapses left the banks with bad debts which they then claimed as tax deductions, making the taxpayer pick up the bill for 39% of the cost of their folly. They then charged the rest to their surviving customers in increased charges and continuing exorbitant interest rates.

All these bad debts were supposed to have collateral backing, but when the chips were down the collateral was insufficient. How this happened is an object lesson for anyone who believes either in market values or the acumen of the banks. Let us suppose that Fred wanted to buy a television station for $l.2billion. He went to a bank for a loan. They asked for collateral, whereupon he offered the TV station he was buying. They checked the market and found that be had offered $l.2bilhion. To the market value addicts, this was the latest price and hence what the TV Station was 'worth' as collateral. So Fred got the loan. What price the Clever Country when people of such paralysed intellect are holding the reins?

These were the people who were determining the economic future of the country. It was the bankers, not the government who decided that the corporate raiders should be bankrolled and productive industry starved. It was the bankers who created a climate where Australian inventions and innovations of real commercial value have had to be sold to overseas manufacturers for exploitation. "Too risky", they chanted, and rushed off to their appointments with Christopher Skase.

What is worse, these people have not had the decency to crawl away under a stone and die. Look at the names of the people who were running the banks in the late eighties, when the mountains of debt were piled up. They are still in their boardrooms, blaming everyone but themselves for the results of their incompetence.

Perhaps they aren't just bastards after all, but stupid bastards.

The enormity of this power of credit creation and collateralisation of assets is itself stunning, but when one realises how and why it can be used then the situation becomes even more frightening.

Just think about this. Almost all real property in our society is collateralised to banks. In other words it is in 'hock'. When you next look out of your window across our great cities and towns and rolling hlls, realise that the vast majority of everything you look at is in hock to banks -- homes, farms, factories, businesses, cars, boats, TVs -- almost everything. And all in exchange for what banks create out of thin air.

When next you walk the streets of a major city note how many bank buildings there are. Corner after corner is occupied by huge highrises bearing the names of our masters. Note also the buildings of their subsidiary finance and insurance companies. Then remember that almost all other buildings that do not bear their names are also collateralised to them by their owners.

Several important question arise at this point.

First, is credit so bad? Of course not. It gives rise to actual purchasing power and much of it is exchanged for real goods and services. Without it, it would be very difficult for anyone without capital to establish a business, so the rich would remain in charge and the poor would remain poor. Credit is one of the agents of social mobility. But delivering the power to create and distribute it into the hands of private banks is fraught with danger.

It was the awesomness [sic] and potential abuse of this power that caused Thomas Jefferson to say, two centuries ago:

Not only is it dangerous. It also means abandoning one of the most powerful tools of a nation's control over its own destiny. Little wonder that Mayer Amschel Rothschild, the founding father of one of the greatest and wealthiest banking families in history said this:

Abraham Lincoln thought he had the answer:

And it was this realisation that caused the founding fathers of the Commonwealth of Australia to create a banking system designed to match Lincoln's dream.

What, then, will history say of those who, in the name of deregulation, systematically and deliberately weakened public control and supervision?

The implications of what has been described are that most real property and resources of the world are now in the control of banks. As financiers have increased the availability of credit to individuals, businesses, institutions and governments, so in turn they have increased their control and power.

Because they are inextricably linked, the explosion of credit in recent decades has also been an explosion of debt. Much of the world's productive effort and resources are consumed in servicing the interest and other costs of this deliberately created debt and much of our productive effort is to avoid foreclosure and the loss of collateralised assets.

Moreover, as banking has become global the web of debt now spans oceans and continents. With growing internationalism have come the challenges inherent in the uneven distribution of the world's resources and wealth and the vastly complicated question of international lending, exploitation and indebtedness. Bankruptcy allows an 'out' for individuals and corporations so they may escape permanent debt if they are prepared to part with their assets, but sovereign debt, (the debts of states and nations), is much more difficult to throw off.

In the complex world of international currency dealings, countries which have entered into debt in their own currencies have been able to reduce the damage of their debt by deliberate devaluation of their domestic currencies. However, where debt is in other denominations, as is the case with the greater part of our own national debt, this cannot be readily done.

Furthermore, the international banking community is more willing b accommodate those countries whose monetary policies are judged to be prudent or responsible. This sounds fine. But what is prudence and responsibility? International bankers know the answer: deregulation and free market economics. Such policies are of unquestioned advantage to the bankers themselves but less obviously so the workers of Venezuela, Brazil or, God help us, Australia.

If this is so with business, commercial and sovereign debt, it is much the same for the private individual. Just as all credit is not destructive nor therefore is all debt. Where we can comfortably service debt it works for us in expanding purchasing power and access to resources for a wide variety of uses. Both the degree and nature of indebtedness are therefore important considerations. How we cope with our debt is what is most important. Moderate debt under control is socially creative; debt out of control is socially destructive.

Although individuals may escape unmanageable debt by opting for bankruptcy, this means that the collateralised assets change hands. Governments therefore, have an obligation to create constructive coping mechanisms in the form of compassionate and just bankruptcy laws.

Australian governments have been weak in this law-making role, just as they have been weak in monitoring the system at large, and so Australians, both individually and collectively, are frequently at the mercy of creditors. In efforts to avoid bankruptcy and to retain their assets they frequently commit themselves and their families to virtual permanent indebtedness. For the more fortunate debt may be transient and short lived, but for many it has become permanent. It is their slavery.

INTEREST
The final question in this chapter is that of interest rates. It is this area probably more than any other which concerns ordinary Australians. This is for two reasons; interest is what they have to meet month by month, and it is interest charges that determine whether they sink or swim -- whether they save their assets or go under to the bank. Of course, those who have money to invest welcome high interest rates; but, overall, the prosperity both of individual Australians and of our business enterprises is promoted by lower interest rates.

In its simplest terms, interest is the price of hiring money. Just as you pay a charge for the use of a rented car, so you pay a charge for the use of rented money. And it has been mighty expensive in Australia in recent times. Australians, from the mid '80s through until mid '91, were paying between 13-18% for home mortgages, 18-24% for overdraft funds, 20-25% for rural short term finance, 20-25% on credit card finance and 18-25% on lease and hire purchase finance. Additionally, a range of management charges applied in many cases. Often rates were subject to variation without notice or agreement and borrowers were frequently not clear as to what rates they were paying or what charges applied until they were levied.

By world standards these levels were exorbitant. What, then, is fair?

It is generally reckoned that, in a 'free' money market, the base rate of interest will be between 2 and 3% above inflation. It never works quite like this, however, because the market may take a longer view. There was a period, in fact, when Australian interest rates were actually less than inflation, but this was because the market expected (rightly) that inflation would soon come down. As it did so, the rates dropped, but not as fast as inflation. This, too is to be expected.

At the time I write, however, inflation has been at a rate of 3-4% per annum for two years. This should be long enough for interest rates to come down to match, and would make a 'reasonable' base rate of 5-7%. But they are standing at 8-9% and show no indication of corning down.

When, Congressman Henry Gonzales, Chairman of the US Congressional Committee on Banking, learned of the level of charging by Australian banks he commented, "Any country which tolerates usury cannot prosper". (Comment made to Paul McLean at a breakfast meeting in Washington DC, on July 19th 1991).

Usury originally meant 'lending money at exorbitant interest', and this is what Congressman Gonzales meant. How right he was. Australia has tolerated usury and has not prospered because of it.

The next reason for variation in interest rates is the variation in the risk to the lender. Thus the base rate applies to loans where there is assumed to be no risk at all. The extra percentage is then like an insurance premium which you pay for to insure that hank against the risk of not getting their money back. This sounds fair enough, but it results in a Catch 22 situation: if your capacity to repay is in doubt, you are charged extra interest to cover the risk. But if you are a bad risk, the higher interest rate will make you a worse one.

This is the source of one of the most blatant bank malpractices. Say you go to them for a housing loan -- normally one of the safest and hence cheapest loans a bank offers. They know that their money is safe with you, but they want to get a higher interest rate. So they refuse the housing loan, but instead offer you an overdraft or a personal loan, with a lien on your assets as collateral. You are then paying overdraft or personal loan interest rates on a loan which is as safe for them as the housing loan they refused to give you.

Moral: make sure you get a loan whose interest rate matches your trustworthiness and capacity to repay. If you are a longstanding customer with a secure income, do not allow them to persuade you that the only type of loan they can give you is a high-interest personal loan.

Remember: they are not giving you independent advice, like a solicitor might. They are just loan salesmen. Like any other salesmen, they won't show you straight to the best-value car in the yard; they will first try to sell you the one giving them the biggest profit margin. Caveat emptor.

The rate of inflation and risk are two reasonably justifiable reasons for interest rates to vary. However, in contemporary Australia interest rates have served two more purposes which do not sit comfortably together. Banks have used high interest rates as one way of covering the bad debts from their debauches of the late 1980s, while governments have used them as an instrument of monetary policy -- a means of constraining consumer expenditure and therefore inflation and encouraging a flow of funds from overseas to finance our foreign debt. Each has conveniently blamed the other for exorbitant interest rates. Meanwhile the rates have inhibited business investment and caused financial hardship and misery on a massive scale.

We have seen that the banks' power comes from their unique ability to create credit and destroy credit, to collateralise assets and dictate interest rates. The impact of all this was neatly summarised by an eminent Chancellor of the Exchequer in England, Mr. Richard McKenna, who said this:

Paul McLean was a foundation member of the Australian Democrats, and was elected as a Senator for NSW in 1987. He came to prominence especially through his historic battle to get the now infamous "Westpac Letters" before the parliament and public scrutiny.

This resulted from his pursuit of bank malpractice and corruption in the Senate. He constantly called for a Senate inquiry, and moved a bill proposing a full Royal Commission into the banking system.