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Ken Grundy, Naracoorte, April/ May 2025

To suggest we have not sufficient money for the economy is like saying we cannot measure a piece of timber because we haven’t sufficient feet or inches.

The economists, financial advisers and Treasurers all offer advice. Usually, the recommendations from one will be criticised by others.

The usual factors include tax cuts, tax spending, debt and surplus. Most things fit into one of those categories.

The supporters and critics of the budgets raise points including: How will they pay for it? Where will the money come from? Debt! How will the pensioners survive? More needs to be spent on Hospitals, Education and Roads! Is the budget addressing the cost of living? Etcetera.

Governments and Oppositions play with the figures as they allocate the number of dollars they plan for each category.

No matter which Government party is in power, their figures will be disputed by the Opposition.

MPs obviously wish to be elected so their party attempts to fashion a budget to impress voters. Traditionally, the Coalition sees the situation requiring some belt-tightening and offers less ‘goodies’ to citizens, while the ALP is more generous with ‘goodies’ which is likely to require greater tax gathering or an increase in debt.

Despite the differing budget plans, the deficit / debt generally increases whichever party wins government.

What is this picture telling us?

It is difficult to please everyone in the community and by the time we meet most of the needs, there will be an increase in the size of the debt.

The debt figure was at approximately $600 billion when the Albanese Government took over from the Coalition in 2022. Now, in [April/ May] 2025 it is nearing $1 trillion according to the ABC 730 Report with Senator Pauline Hanson. Please note, it rises whichever Party is in power.

Under the present rules, as the money supply increases, so does the debt. The money supply must increase while Government budget spending is greater than Government income. There would be uproar if total budget spending was funded from tax, so the extra money is introduced as debt. 

There must be a case for an increase in the money supply. If there was no increase, we would still have the amount of money that was around in grandfather’s day. Let us say in 1960.

Well, where does the money come from to facilitate the debt? It does not breed in a bank vault. Some suggest it is sourced from foreign banks or wealthy tycoons. But every nation around the world is in debt. Each one of them is seeking to raise more debt money. Do you really believe this source would be sufficient to provide debt money to every nation? Even if this unlikely source of funds did exist, how could Australia benefit from borrowing say 10 million rupees? I don’t imagine they would be welcomed into circulation in our economy.

It is time to understand why we need to increase the money supply in Australia and every nation as far as that goes. The need is not political, it is simply mathematically necessary to keep the economy functioning.

Without too much detail, let me acknowledge that it has been well proven that in every production process, there is not sufficient purchasing power distributed to buy the goods produced in that exercise. To maintain the economy, it requires an injection of some ‘new’ money to fill the deficiency or gap. Presently the new money is created as debt. When you consider every single production system in the nation is delivering goods on to a market where there is insufficient buying power, you can imagine the amount of new money required would be substantial. Now you see why the debt figures grow in every nation.

Why does it have to be a debt?  

Well, you presume the banking system had to borrow it before it could be handed on.

This belief must be challenged. Firstly, consider what is money? The notes and coins are a miniscule part of banking (and getting less each day).

Predominately money is in the form of entries on a computer. Secondly, the banks do not lend their depositor’s funds. You have never noted an entry on your bank statement showing where some of your deposit had been removed to lend to another.

Banks legitimately create money and this is done recognising a formula. This is where your deposit comes into play. Modern banking practice enables a trading bank to create an amount of new money in excess of their deposits. It varies according the Central Bank regulations, but may be eight or nine times the amount of deposits held. This is known as Fractional Reserve Lending which is confirmed by the Bank of England.

You can appreciate this rather effortless task might be able to be applied in a different way to benefit the economy. Obviously, the concept of using some of this newly created money as a credit to overcome the deficiency of buying power would be very beneficial.

It would see a lessening of overall debt; costs would have no need to rise and inflation would be curtailed. Having studied this matter for many years, I am convinced it lies at the heart of practically every problem encountered by every nation. We actually can measure the timber because there are plenty of feet and inches and we could run a good economy with money derived as a credit!

It warrants wider attention. You might like to suggest this to your employer, your union, your MP etc.

Nothing ventured means nothing gained.

Ken Grundy, Naracoorte