Allowing the Banking System to Collapse

This was the screen that met your editor and millions of other Australians yesterday…

We were attempting to login to our Commonwealth Bank ’savings’ account to check on the family fortune.

Ok, actually we were checking to see if a new direct debit was working.

According to yesterday’s Sydney Morning Herald, Commonwealth Bank chief information officer Michael Harte told the paper, “Until we can identify that traffic, we’re being cautious about who we let in.”

He went on to say, “It’s doubly inconvenient on a day like today because people are trying to finish off their tax year and get their end-of-year payments and that is a problem.”

He’s right, it is a problem. But it’s not half as big a problem than if the entire banking system crashed. A web site crashing can be fixed by a few tech savvy boffins with uncontrollably fast fingers…

A collapse of the banking system, well, that’s a whole lot harder to fix. Or is it?

It got us thinking that perhaps the only real way to rid the market and the economy of all the ‘bad apples’ is to actually allow the current banking system to collapse.

I mean why not? What is there to lose? The paper currency (fiat currency) system has already collapsed. Take a look at the following chart from our helpful friends at the Reserve Bank of New Zealand…

It shows the devaluation of the Kiwi dollar since 1967. The Aussie dollar would look pretty much the same. What you’re looking at is the effect of inflation.

Forget about ‘Output Gaps’, which I’ll have more of in a moment. This is what real inflation does to your wealth – it kills it.

It took less than 20 years for the Kiwi to collapse in terms of its purchasing power, and it’s getting weaker all the time. It would be handy if the RBNZ could provide the chart with a logarithmic scale so we could get a clearer picture of the currency’s devaluation during the last 20 year.

Since 1967, the Kiwi has lost nearly 95% of its value. Or to put it another way, 95% of its purchasing power.

The chart shows you the final death knell for paper currencies could be closer than you think. Once paper currencies die then the whole banking system – as we know it – must surely die too.

Take a look at that chart again. If the Kiwi dollar (or any other currency for that matter) was an old car you’d just give it away if it had depreciated by that much. If it was an old horse, you’d take it out the back and shoot it.

We think it’s about time the same thing was done with the ever devaluing system of paper-based (or plastic-based in our case) currencies. And if it takes a collapse of the banking system to do it, then so be it.