Has the RBA lost its Mojo or is it just “idling” the Debt Machine.

To read the original version of this comment in the original context at Macrobusiness.com.au click this link. (link maybe locked – but there is a free trial available)

The RBA certainly seems to be waking up to the fact IT is the wrong tool for the job at hand.  The “bait rate” cheerleaders were left feeling desperate and dateless yet again as the RBA failed to deliver an interest rate cut on Tuesday.

While it needs to maintain new debt creation (money supply expansion) to support the existing mountain of interest incuring private and public debt that is spraying deflation rays in every direction,  the RBA can no longer pretend that a large chunk of that new debt / new money being created is NOT going to the wrong places – namely, wealthy speculators, prices of existing housing (yes and even to dog box purchases by foreigners) and other asset prices favoured by assorted debt Base Jumpers (apologies for the double negatives folks).

The grand, if increasingly musty, theory that new debt created by a private banking system would go to an optimal mix of productive investments across the economy determined by an invisible hand guiding a nation of rational actors is not producing empirical results that make for a nice graph

The Glass Pyramid suspects there are LOTS of meetings going on between RBA, Treasury, APRA and the government where they pore over exotic reading materials from the fringes of the interwebs / or Iceland and try to work out how they can fix a Debt Machine economy that is failing – without trashing all of the fairy stories they have been telling themselves for the last couple of decades

The RBA is just in a holding pattern until someone works out what to do next.

Oh to be a fly on the wall.

But then again the RBA may have not lost its mojo at all and it may still reckon that using rising assets prices and “bait rates” is a winning model for getting new money out into an economy wilting under the weight of a mountain of household debt and swelling hillock of public debt and it has just decided it can go light on the accelerator for another month or two.

It is just a shame that most of that new money created by the “bait rates” is ending up in the pockets of already wealthy asset owners and the risk taking debt Base Jumpers rather than the people best placed to give the economy a tickle – the average person on Struggle Street.  But then the RBA probably rationalises this model on the basis that a few crumbs fall from the tables of the asset rich as they traffick their assets and prepare/renovate them for sale or as the asset rich buy a few more trinkets with their “equity” bonuses from the RBA.

3 thoughts on “Has the RBA lost its Mojo or is it just “idling” the Debt Machine.

  1. Do you know whats screaming for a Downfall parody?! The current MMT madness of a monetary system we inhabit….

    “all those who bought gold and silver in the last 10 years, leave the room”….

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  2. What is it with the credit creationists? I mean, any cursory, or preferably perused, overview of the Icelandic paper, which you cover in another page herein, leaves one with inexorable certitude that the malaise of pro-cyclicalism is indeed a concoction of the private bank getting at one turn giddy, and at the next turn shy, with their licensed privilege of entering credit entries into a spreadsheet and pretending to everyone its the national currency? I mean, really, so what’s so hard to get about this?! Why does, for instance, skippy or Fraser always come in with, its the deregulation and the derivatives, not the govt back stop, that’s the problem BS?

    ANY cursory or preferably perused acquaintance with the Icelandic paper on Sovereign Monetary System will leave one with no doubt that, the argument of usury aside, what you have pointed out for so long, that FULL RESERVE banking is the only way to keep them honest, is obvious and compelling. So why do so many even at MB seem aghast at the mention? I figure people actually like the idea of tapping easy credit one day themselves … so screw logic and the future….

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    • Not sure why there is a lot of reluctance to discuss it. I reckon it may be a combination of the following:

      1. A LOT of people quite like the current model of private bank money creation because it has or continues to ‘work’ for them. Mostly these are people in the FIRE sector. They reckon letting the banks create money that is pumped into asset prices is a great idea. The bizarre bit is that they try to argue that this is somehow the ‘free market’ in operation and the government should keep out of it.

      2. Another group prefers to focus on what the current system is rather than deal with what might be. But I agree that group is often talking at length about the faults of the current system but for some reason just refuses to talk seriously about a pretty obvious and compelling alternative that would address many of their concerns with the current system. They seem to take the view that nothing more than tinkering with the current system is about all you can hope for.

      3. The third and probably the largest group do not even understand that the majority of the money supply is created by private banks. This is not surprising as it is not what they were teaching at university back in the stone age when I was there. Most people still are operating on the assumption that banks are places where you put money printed by the government and they lend it to people and you get a share of the interest they charge on lending your money. That idea is still held almost universally even by people in the FIRE sector and the media.

      Speaking of Iceland check out the comment down the bottom from the Icelander. Seems Frosti may have been speaking for himself.

      http://ftalphaville.ft.com/2015/04/08/2125780/icelands-grand-monetary-experiment/?

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