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.