but are the two linked? excessive borrowing allowed excessive spending which put pressure on inflation.
so, limit the borrowing and limit the inflation perhaps?
Just how bad will this all get ???
- Thread starter landlubber
- Start date
but are the two linked? excessive borrowing allowed excessive spending which put pressure on inflation.
so, limit the borrowing and limit the inflation perhaps?
I don't know how anybody could defend the RBA's action when those actions completely defy basic logic. When petrol, food etc go up people have LESS money in their pocket to spend. LESS $$...and that's inflation ? ...so we increase IRs which takes even MORE $$ out of their pockets? How can anybody defend that mechanism? It's patently and basically flawed. Now if petrol, food etc went up "x" BUT wages and salaries went up "2x" or "3x" i.e. the went up by MORE then I can see that would be inflationary. No debate. People would have more money to spend. But, as Gittens points out wages and incomes remained under control FOR THE WHOLE TIME THE RBA CONTINUED TO RAISE RATES. This defys logic and plain old common sense. No wonder we get bubbles and then recessions with their methodology. No wonder when you look at an historical graph of IRs they go up & down like a yo-yo. What a load of crap.
Anybody noticed how the "inflation %" is nver mentioned on the media anymore ??? It's like it fell off the edge off the earth...
LL
Anybody noticed how the "inflation %" is nver mentioned on the media anymore ??? It's like it fell off the edge off the earth...
LL
inflation? how about another core issue...?
why is diesel now 40c a litre more expensive than petrol?
why does diesel not move with Singa's Benchmark?
bring diesel down with petrol to put more money into the pockets of farmers, truckies and miners already...this would have a "uh - oh, DEFLATIONARY" effect on our comparitively exorbitant food and transport costs...
why is diesel now 40c a litre more expensive than petrol?
why does diesel not move with Singa's Benchmark?
bring diesel down with petrol to put more money into the pockets of farmers, truckies and miners already...this would have a "uh - oh, DEFLATIONARY" effect on our comparitively exorbitant food and transport costs...
Certainly there is a link between borrowing and inflation.
But all the RBA can do is change the cash rate (that is the only policy they have at their disposal) - from 2002 to early 2008 they raised it - didn't stop people borrowing though did it?
Now they've slashed the cash rate - are we all running out and borrowing as much as we can?
Basic rule of demand (for a normal good): "demand for a good will fall as the price, per unit, of that good rises" (and vice-versa).
I recall a lecturer of mine saying that, if the empirical (real life) evidence was to be believed, then it didn't apply to money.
I think we have seen some good evidence of that in recent times.
NB the comment above about how the cash rate is the only alternative the RBA has at it's disposal.
Otoh, excluding for a moment external factors such as the price of oil, exchange rates, etc, the government of the day has the capacity to influence CPI through:
- tax rates (personal and company)
- the budget balance (and how a deficit is funded)
- transfer (welfare) payments
- policies on things such as negative gearing
- wages policy (real wages fell in the 1980's under the Accord)
- industry / trade policy (R & D concessions, subsidies, tariffs, etc)
- microeconomic policy and reform (including NCP)
- prudential policy (changes to the asset base that banks must hold)
Changes to any one of those could affect CPI through the demand and supply mechanism.
So, to me, it seems pretty harsh to sit there and throw criticism at the RBA for doing what they're legislatively empowered to do, with the only mechanism they have to do it, while the Government has numerous other policies at it's disposal that also have the potential to impact on CPI.
The RBA only wields one stick - monetary policy - it is big and it is blunt.
But you can hardly blame them for that.
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Mark B, You can muddy the water any way you like. But the logic or lack of it remains the same. Given all the parameters that the RBA were taking into account ...all the numbers they had at their disposal ...their decisions STILL defy logic. They're just not logical. They just don't make sense.
Bluecard ..I totally agree with you on diesel pricing. It also defies logic. I suspect profiteering, but because it effects a whole lot less users ( me too BTW) as opposed to petrol, the gov. "lets" the oil companies get away with it. It is certainly never raised in the media or anywhere else.
LL
Bluecard ..I totally agree with you on diesel pricing. It also defies logic. I suspect profiteering, but because it effects a whole lot less users ( me too BTW) as opposed to petrol, the gov. "lets" the oil companies get away with it. It is certainly never raised in the media or anywhere else.
LL
5 years ago you seemed happy with that the RBA was doing.
What happened in the meantime?
Incidently, they did as you had hoped... a series of slow and steady moves.
The RBA did, and this is precisely my point, exactly as they were legally and morally obligated to do. That others (various governments at both state and federal levels) fed the fire is not the fault of the RBA.
The law is or may be an ***, but the RBA didn't write it.
I don't disagree with your general sentiment, but I think you've missed the strike zone and walked the batter instead.
What happened in the meantime?
Incidently, they did as you had hoped... a series of slow and steady moves.
The RBA did, and this is precisely my point, exactly as they were legally and morally obligated to do. That others (various governments at both state and federal levels) fed the fire is not the fault of the RBA.
The law is or may be an ***, but the RBA didn't write it.
I don't disagree with your general sentiment, but I think you've missed the strike zone and walked the batter instead.
Was that really 5 year ago ... !!
That quote from 5 years ago was in no way a "blessing" for the RBA. It was merely my predicition for what action I thought the RBA would take at that time, and as you say, I turned out to be pretty right.
But that quote ( 5 years ago) is not relevant in any way to this discussion, nor the recent decisions of the RBA.
In any event, I'm having trouble understanding your defence of the RBA, when, from Gittens article, it certainly seems the RBA have themselves realised they were focussed on the "wrong monster" and at their most recent meeting were (maybe) looking at "alternatives".
.....even they know ...they screwed up !!
LL
PS Another observation I would make is this. Go back a few years and look at interest rates in the 60s and 70s. They were MUCH more stable and far less volatile than today, To me, this also indicates something NOW is basically screwed.
That quote from 5 years ago was in no way a "blessing" for the RBA. It was merely my predicition for what action I thought the RBA would take at that time, and as you say, I turned out to be pretty right.
But that quote ( 5 years ago) is not relevant in any way to this discussion, nor the recent decisions of the RBA.
In any event, I'm having trouble understanding your defence of the RBA, when, from Gittens article, it certainly seems the RBA have themselves realised they were focussed on the "wrong monster" and at their most recent meeting were (maybe) looking at "alternatives".
.....even they know ...they screwed up !!
LL
PS Another observation I would make is this. Go back a few years and look at interest rates in the 60s and 70s. They were MUCH more stable and far less volatile than today, To me, this also indicates something NOW is basically screwed.
The $AUD was fixed from WW2 to 1983, at which time it was floated.
Different exchange rate regime > different way of implementing monetary policy (fixed ERs actually render domestic MP useless).
"...a fixed exchange rate prevents a government from using domestic monetary policy in order to achieve macroeconomic stability"
Source: Wikipedia
So comparisons between the 60's / 70's and now are irrelevant.
From Gittens:
To give it its due, our Reserve Bank devoted its annual conference to the study of asset prices and monetary policy as long ago as 2003.
The perceived problem then was this: what do you do when you see an asset bubble building but don't have a conventional inflation problem and so find it hard to justify raising interest rates?
This insight achieved nothing, however, because other central banks weren't greatly troubled by the problem. They should have been and, no doubt, now are.
The difficulty then was in thinking of an instrument that could be used to discourage borrowing other than raising rates. Impose direct controls on lending? Oh no, not in an era of financial deregulation.
My defence of the RBA is that as it stands the only instrument they have at their disposal is the official cash rate. Gittens talks of thinking of an instrument that could be used to discourage borrowing OTHER than raising interest rates.
Oh, but all the RBA can do is raise (or lower) interest rates.
That they dont have another instrument is not their fault. The responsibility goes back to Treasury and ultimately the Government of the day. You cannot blame the RBA for heading into a gunfight carrying only the knife that was given to them.
It isnt their job to equip themselves with tools. That job belongs to Treasury and the Treasurer. The RBA can certainly lobby for more ammunition, but the decision to give them more isn't theirs. Their job is to fight day in day out as best they can with the tools they have.
That is the reality of the way economic policy works and it is my defence of the RBA.
Thanks. I've learnt something. I had thought it may have related to the departure from the gold standard.
LL
I am with you and Gittins on this one.
My opinion is that the government is way more responsable of credit/debt bubble then RBA. The main reason would be the stupid tax system of Australia where saving is taxed extremly high and inflated away (why bother saving?) and with borrowing for homebuyers you'll get tax break and capital gain tax cut. RBA is still responsable for not pushing the government to change that system.
The RBA has no legislative ability. How would you suggest they act given their powers are at the whim of the government of the day. They will act within their legislative and regulatory framework publicly. We get the government we deserve. If we are unhappy we can vote them out.
Personally I think the tax act is knackered and starts from a poor basis. But since I have too much regard for my family and my own ego to stand for parliament, all I can do is write to my elected representatives.
What do you think?
Cheers
Shane
The RBA is very important and investor and media listen to the speach of the governor, specially if it is in contrast with the government. Markets and exchange rate also consider the speach from RBA. Government can't ignore them as they'll take big risk in doing that as they'll be the only responsible if RBA is right.
About the tax system I think now it is too risky to change as could destabilse the markets even further. I am sure government and central banks will learn the lesson and plan changes in the system. That would probably done without penalising homeowner but more favouring the alternatives to have a balance of debt/credit and a a trade position more in balance and not so much dependent from influx of capitals.
The RBA's greatest feat is convincing everybody that it's never been the cause to blame for anything. Just like Greenspann & Bernanke.
Nope never did anything wrong, they just control the money.
Nope never did anything wrong, they just control the money.
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Personally i dont give a stuff either way, thats the way the system works. Instead of bleating about it, just accept is as the rules of the game and make your investment decisions accordingly.
If you cant change the system make the system work for you.
Wonder if that is the same thing they thought in Iceland few months ago. If the system implode is because it is not well designed. In Iceland there are no winners. The only winners are the ones that took the money out of the country or bought gold (or similar). It is very important to have a system that can work in the long term. The RBA have to check and report on that
Agree totally here.
It is obvious that the Gubbermint wants the cash flowing, and also pumped into property to help under-pin the economy.
And what about the wages structure; the more you work, and/or the more jobs you have - the more you are penalised.
Where is the incentive for people to go out and work hard in that?
In my tiny mind, there should be one global tax rate. For argument, let's say 10% tax across the board.
You earn $500k per year - $50k tax, minus the deductions, but maybe have a very slight scale down on the rates of the deductions at this level.
You earn $50k per year - $5k tax, and deductions are not affected, and so on.
If I'm earning $1 under the threshold of another tax bracket, why would I bother working another 10 hours a week if the lion's share of it is going to be swallowed up in tax? No one would, and no one does.
Housing to survive tough times...
http://www.theage.com.au/national/housing-to-survive-nations-tough-times-20081212-6xl1.html
A note of optimism for our local housing market.
LL
http://www.theage.com.au/national/housing-to-survive-nations-tough-times-20081212-6xl1.html
A note of optimism for our local housing market.
LL