Don’t judge our performance, we’re central bankers


I see Philip Lowe didn’t resign. Said he’d no intention of resigning. Claimed credit for low unemployment. I would have thought Morrison might claim credit for that? In any event, whatever the Reserve Bank’s total mission in life we all know that keeping inflation in check is its raison d’être. All else is embroidery. Could be the ‘note printing and payments agency’ if not for its role in ensuring price stability. No need for all those economists.

So, in reality, Lowe and his army of economists have one job for which they’re paid handsomely. That is to prevent inflation. They didn’t. Ergo, they failed in fulfilling their primary responsibility. Then, to boot, they’ve determinedly set out to compound the failure by implementing a policy of steep and rapid increases in interest rates. Go hang those who took out mortgages, or borrowed more generally, having been informed by the Reserve Bank near the end of last year that interest rates would not rise until beyond 2023.

Of course, panicking is afoot; not edifying for central bankers, but not surprising when they’ve royally messed up and there’s no hiding place. Having messed up and created inflation a better response (as advocated by Milton Friedman) would have been to rein in monetary growth slowly and gradually. As it is, the growth in the money supply could well collapse as bad debts grow and new bank lending falls off. Result: at the least, economic distress for many people and businesses; at the worst, recession.

Not bad if the Reserve Bank pulls off both inflation on the one side of things and unemployment on the other. Hopefully, we’ll get away with it. The lucky country. Exporting heaps of primary products, much coal and gas included. But if the economy does go into some kind of tailspin don’t expect resignations. There are no defining KPIs in government service.

An excuse. The Reserve Bank is at one with the Fed, the ECB and the BoE. They can’t be all wrong surely? They can’t have all stuffed up? Well, yes, they can. They all follow a Keynesian script. In this script, the money supply hardly rates a second thought. The Quantity Theory of Money, popularised by Freidman, is a footnote, if that. And what is the Quantity Theory? Simply put, it says that if you allow the money supply to grow faster than the real economy, then the excess money growth will find its way into prices. If excess money growth is material and persistent, as it was in Australia, in the US, in the UK and in Europe during 2020 and 2021, inflation will very likely occur.  As indeed it did.  (See here for my longer take on it.)

Too much money. Money falls in value.  Correspondingly, the prices of goods rise. Not hard to understand. Unless, that is, you’re the product of economics faculties run by lefties. Wait a minute. Isn’t that mostly all of them? There’s a depressing thought.


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Timothy Neilson
Timothy Neilson
September 13, 2022 2:48 pm

I see Philip Lowe didn’t resign. Said he’d no intention of resigning. Claimed credit for low unemployment. I would have thought Morrison might claim credit for that?

He did, but in fact it was caused by the temporary cessation of the population ponzi scheme during the height of the covid scare.
But you’re right – it was nothing to do with Lowe.

flyingduk
flyingduk
September 13, 2022 3:55 pm

who says prices should be stable? Advances in technology means they should generally FALL over time …. think TVs, computers.

Chris M
Chris M
September 13, 2022 5:31 pm

This inflation is 100% caused by govt actions and policies (both AU govt here and some abroad).

It’s going to be 100% paid for by the middle class, which is already well under way. So a classic wealth transfer scheme.

Covid regs took the freedom and power, inflation takes the wealth.

Now our caring masters (apparently in response to the constant urging of their electorates) turn their attention to other factors like housing, healthcare, energy and food supply.

Oh well, let’s enjoy the ride down I guess.

Eyrie
Eyrie
September 13, 2022 6:11 pm

If excess money growth is material and persistent, as it was in Australia, in the US, in the UK and in Europe during 2020 and 2021, inflation will very likely occur. As indeed it did. (See here for my longer take on it.)

Try at least since 1966. Australia went to decimal currency on the 14th February 1966. I last looked at this a couple of years ago and our currency has been debased by about a factor of 13 or so since then. I calculated this is equivalent to 5.2% compounded.
Yet there are fuckwits on this blog who argue that 2% inflation is just great and deflation is a dire threat.

JC
JC
September 13, 2022 6:43 pm

Try at least since 1966. Australia went to decimal currency on the 14th February 1966. I last looked at this a couple of years ago and our currency has been debased by about a factor of 13 or so since then. I calculated this is equivalent to 5.2% compounded.
Yet there are fuckwits on this blog who argue that 2% inflation is just great and deflation is a dire threat.

Eyrie, would you mind providing the data on how you came up with a compound rate of 5.2%. It would be great if you showed your workings.

Thanks so much.

flyingduk
flyingduk
September 13, 2022 6:50 pm

our currency has been debased by about a factor of 13 or so since then. I calculated this is equivalent to 5.2

1) by my ‘pine lime splice index’, it’s worse than that: I well remember the desperate quest to round up 17c to buy this roll Royce of ice confections on the walk home from school in the early 1970s. Now it costs over$3.50. That’s a 95% loss of purchasing power.

2) So, the money has been losing purchasing power at over 5% a year for 50 years? … adjust by that and let’s see how long Australia’s economy really avoided a recession… seems to me we are in one almost every year. Adjust GDP for population growth and it looks even worse!

JC
JC
September 13, 2022 6:56 pm

Peter

So, in reality, Lowe and his army of economists have one job for which they’re paid handsomely. That is to prevent inflation.

It would be really good if you were accurate with the exact description of the RBA”s objectives. It isn’t to “prevent inflation” as you state

These objectives are simple to obtain as all you have to do is a Google search under this parameter:
” Objectives of the RBA”. It’s actually inscribed in statute.

You could also do a search under “Legal Objectives of the RBA”, which are very specific and also don’t include yours.

Here it is:

The Reserve Bank conducts monetary policy to achieve its goals of price stability, full employment, and the economic prosperity and welfare of the Australian people. It does this by targeting inflation between 2-3%, on average, over time.

There’s not a single set of words suggesting its job is to prevent inflation.

Next time, please try to be more fucking accurate as we’re the first here to highlight fakenews and therefore it would be a good idea not to peddle errant nonsense.

JC
JC
September 13, 2022 7:17 pm

Duk

We don’t calculate inflation on the price movement of an ice cream cone over a period of time. We calculate it across a basket of goods.

NoFixedAddress
NoFixedAddress
September 14, 2022 12:59 am

JC says:
September 13, 2022 at 6:56 pm

The Reserve Bank conducts monetary policy to achieve its goals of price stability, full employment, and the economic prosperity and welfare of the Australian people. It does this by targeting inflation between 2-3%, on average, over time. .

What do you, JC, think that objective means?

Take your time to give us your fullest response.

JC
JC
September 14, 2022 3:15 am

Ask Faulty, Chilli or Stuphid, NFA. Why ask me what price stability, full employment, economic growth mean, you one man mentally impaired clownshow? And don’t even dare ask me another question again.

NoFixedAddress
NoFixedAddress
September 14, 2022 4:39 am

In other words JC, you cannot answer my question and I note you could not bring yourself to mention the inflation component of the RB’s objective.

Good to know.

Fast Bowler
Fast Bowler
September 14, 2022 9:32 am

Reliance on Ad Hominem attacks tells me more about the attacker than his victim. Sad, really that one has to debase themselves so openly.

JC
JC
September 14, 2022 9:49 am

The point is, NFA that inflation control is not the only RBA objective, you clown. Smith suggested there was one, referring to it as to prevent inflation. That isn’t the case. Moreover the RBA has an actual inflation target. Perhaps you can explain where it says the RBA objective is to “prevent inflation” .
Go!
You’re as insightful as the Stuthid

Peter Greagg
Peter Greagg
September 14, 2022 6:34 pm

Thanks Peter.
My thoughts as well about the RBA’s performance.
I am a “Rules” kinda guy, and have thought that John Taylor’s approach to setting interest rates has a lot going for it.

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