Telling the RBA like it is

If the major land price correction forecast by Prosper Australia comes to pass, those with heavy mortgage debts and the banks that gave them the money will be insolvent.

What Dr Ellis does next is absolutely critical for the future direction of our country.

The RBA may preserve the banks to live to lend another day, but this good work is no help for the vast majority of Australians who simply want a home to call their own and not be some cat's-paw in financier rent-seeking.

So the RBA may, in the pursuit of a 'stability' mirage, preside instead over a moribund and introspective country slowly and painfully paying down debt - for decades.

There are genuine options to budget-busting bank bailouts and agonising deleveraging, both developed in Australia by world-class thinkers.

Steve Keen suggests a modern 'Debt Jubilee' – the government gives every taxpayer a large sum of money to pay down debt. We step back from debt default, the banks are made whole again and those without debt are rewarded for their prudence. But this option must be considered early. Once bank bailouts begin, it will be difficult to change course.

Australia has the borrowing and printing capacity for this stunning manoeuvre. Treasury had better be calculating its practical application – the austerity alternative is proving very ugly in Europe and the USA.

It would provoke an angry army of noise-makers defending privilege, determined to keep the Australian people in debt-slavery.

Meanwhile, the sweeping tax reforms proposed by Ken Henry can proceed, crisis or not. His blueprint would cut major deadweight costs, restore government finances and restore incentive destroyed by the rentier counter-revolution of the last forty years that delivered to wealth in spades.