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.