Abolish the RBA

There is absolutely no evidence or even studies to produce evidence that the RBA provides any value to the Australian people. Anything the RBA does could be undertaken by the private banking sector. In fact the RBA can only perform three types of tasks.

  1. Tasks that the private sector would or are undertaking given the opportunity
  2. Tasks that protect vested interests inherent in  government policy ie major banks
  3. Taking market based initiatives that are bound to be wrong.

The absence of evidence is not evidence in support of the RBA doing anything that is marginally useful. Nor is the argument “if the RBA hadn’t acted in this way, we would have had a disaster”, of any validity whatsoever. But please if you have evidence then I’d love to see it.

Increasing or decreasing an overnight cash rate is a task that can be adequately undertaken by the markets based on the availability of funds. Interest rates set by the RBA can only be as the market would set them or wrong. Yes wrong! For the broader Australian community rather than vested interests, if the RBA sets a different rate than that which would have been set through an open bidding arrangement then the RBA has distorted the flow and price of capital in favour of one market segment over another. It matters not for this argument whether this is by luck or design. The RBA can only influence the markets by getting it wrong.

Do I have to make the case that private enterprise could create a cash liquidity clearing house(s) without an RBA? The RBA can only add to such an arrangement by funding  those that shouldn’t be funded.

Besides the RBA only influencing through getting it wrong, they may even have lost that ability at the moment. Due to our over reliance of offshore debt, setting the cash rate lower would certainly have a negative effect on attracting offshore lenders so whilst reducing rates to stimulate, the RBA would reduce the availability of credit. Of course the reciprocal is true as well, in which case the RBA’s monetary policy is currently all but useless at the moment.

Lastly if you would like the government to set up an organization that can control the flow of funds then not only must they be able to set the cost of credit, they must also have the ability to control the terms or availability of credit and the risk to the system of making that available. An organization with both the powers of the RBA and APRA combined. At that point we may as well nationalise the banking system. We have a pseudo nationalization currently so why not?

The banksters with their snouts in the trough love the current system. The RBA can only distort the system which through political hysteria seems to be mostly in their favour. APRA the arm of government which could have significant influence reigning in the banks excesses and easing the burden of borrowers does not have the correct mandate although it has the powers to take action. Being caught in the middle they are easily bullied by the major banks which turn controls to their advantage.

Australia has a dysfunctional system and if we hang off RBA minutes to glean anything of use or influence the we’re deluded.

Comments

  1. Surely the history of nineteenth century banking and it’s rolling series of financial crises is evidence that having a lender of last resort serves a useful purpose.

    • My memory is sketchy, but apart from the 1893 depression in Oz, weren’t most of these crises (although called depressions) actually quite quick and sharp, and then off we go again?

      Given that the RBA has failed – MISERABLY – at meeting its inflation target (something I agree 100% with Chris Joye) there is call for what is it doing wrong and why can’t it be done by someone else.

      If the market set interest rates, would they revert to what they should be (i.e 300-500bps higher than current) or would the oligopolitic banks force interest rates down artificially by securitisation (or other non-fraudulent (sic)) measures?

      I think what is required is not an efficient system, but a robust system. The RBA and other central banks have provided a veneer of robustness – look at the Great Moderation – but the “rolling series of financial crises” are then replicated in GFC’s et al.

      It is plain to any rational observer that the Federal Reserve has failed on all its mandates (inflation, monetary stability and employment) – and to remember that it is a private body, not a government institution.

      • The RBA just has to meet its quantitative parameters.

        CPI isn’t reflected because of the composition of ‘the basket’, which the ABS/government sets, not the RBA.

        So when the RBA is told to track CPI inflation, it does that, that’s all its mandate allows.

        Whether CPI is an accurate construct of overall inflation is another matter, but that’s not within the RBA’s scope.

        • That’s a mandate issue, and another item out of the RBA’s control.

          The RBA is given a basket, created by the ABS, and the governmetn says ‘keep it betwen 2-3% over the business cycle.

          The RBA tries to do that, accomplishes it for themost part.

          You can fault it for not being consistent when it continues to change focus on headline or underlying inflation, but other that that it does what it is told.

          A 1.5% target is a government policy issue. I agree in you sentiment by the way.

          Other than increasing wage share at the expense of profit share, it is in my opinion the second most crucial reform.

    • Except if one digs deeper, and discovers that powerful banking houses were more often than not the cause of said rolling series of crises.

      The primary goal of which being to substantiate the very point you’ve just made, H&H – that there should be a “lender of last resort” (ie, a bankster monopoly via Central Bank).

    • As I mentioned in my Funds Management article, I recommend that all banks be split up into retail, commercial and trading banks, instead of aggregating together.

      Although this provides efficiency and scale (and benefits the consumer at the front end) it leads to vested interests concentrating what is the most important part of a financial system.

      Cross ownership laws for banks need to be enacted so they cannot have wealth management arms, retail banks, business lending and other ventures all tied up into one.

      They need to be smaller, separated and owned by different diverse interests: so if one or two or seven fail, they don’t bring down the system, and/or they can’t get together and wield they power they have over the economy.

      Sure, it won’t be efficient – lending will be more expensive, insurance will be more expensive, but it will be robust which is more important than economic efficiency.

      • “Further evidence against big banks can be found from studies on banking technologies. Berger and Mester (1997) estimate the returns to scale in US banking using data from the 1990s, to find that a bank’s optimal size, consistent with lowest average costs, would be for a bank with around $25 billion in assets. Amel et al. (2004) similarly report that commercial banks in North America with assets in excess of $50 billion have higher operating costs than smaller banks.”

        http://www.voxeu.org/index.php?q=node/6241

    • Yes ,but they turn out in a financial crisis..
      To be supportive of bank share prices,
      Overtime…seen as bias or economic protection for all..
      Or both….JR

    • Let’s distinguish between “lender” and “creator of new credit”

      1) Real lender is very useful as a link between acummulated capital (savings) and newinvestment.
      2) Creator of new credit is a counterfeiter, simple as that.
      That what modern banking is about- it does not create real wealth and productive assets, it can only financialize existing assets and create malinvestments (distorted interest rates).
      Besides it steals all productivity increases.

      So what good purpose serves counterfeitor of last resort?
      Allows to blow bigger bubbles?

      p.s. US Presidents:
      T.Jefferson: “Banks are more dangerous than standing armies”

      Henry Ford: “if the population fully understood how the banking system realy works- revolution would start before tomorrow morning”

      Glad to see those who has good understanding (Deep T.) started asking hard questions!

      p.p.s. Houses and Holes)- you have to study more. Serious boom-busts started after the FFD was created. And it is their words you are talking about 19th century (creator of new credit created Great Depression almost immediately) before it were isolated counterfeitors without bailout option.

  2. Sure, but without the RBA not only would private banks actually have to meet their obligations or face bankruptcy, the government will have trouble finding takers for its debt and would also have to meet its obligations.

    That’ll never happen when the bad debt can be passed of on everyone else as with the current system.

    Mind you, the RBA will eventually be found to be hopelessly illiquid.

    • Amen alright…what a ripper and the comments from Prince were spot on.

      Why people would entrust the speed of the economy to one man, who leads a board of faceless men and women is beyond me. Without even knowing the economic fundamentals of the RBA’s role and whether a lender of last resort has actually created more crisis than they have avoided…the mere devolution of this kind of power to the RBA is wrong.

      And when it comes to the housing market, the RBA has been sitting there for the past 10 years setting interest rates well below what they needed to be in order to stamp out our nation’s obsession to debt.

      The murky and vague statements made by Glenn Stevens in his smug voice annoy me even more. Despite HnH seemingly to be in love with the man, I cant see how anyone who is aware of our property bubble – which HnH is, as I followed him here from his old blog (cannot hold him massively responsbile) and also question the whole role/motivations of the RBA.

      The sacking of McKibbon was the last straw. The RBA has no indpendance and should be shut down ASAP

      • The RBA isn’t Glenn Stevens.

        I’d be putting more focus on some of the board members, such as the COMPLETELY USELESS heather Ridout.

        She is supposed to be a mouthpiece for business and enterprise. She doesn’t have a clue about how an economy works, and the effetcs Ponzi financing will have on business and revenue.

        I’d like to know what value she offers.

        I know what Stevens offers, he has tacitly expressed there is an issue with housing prices, but one of his other mandates is to ensure economic prosperity.

        If he explicitly regonised a housing bubble, it would no doubt create downward sentiment in the housing market and the harm would be much greater. I have doubts whether avoiding a crash is actually possible, but he is trying with all he has available to him. Wayne Swan isn’t helping him much on that front.

        • “board members, such as the COMPLETELY USELESS heather Ridout.”

          Of course she’s a useless RBA Board Member. she’s not on it.

          For god’s sake could we have something resembling accuracy when attacking people?

          And to Stavros: McKibbin had 10 years which is as much as anyone really should on a board like that. He had his turn, his term expired. He wasn’t sacked.

      • Deep T,

        You may well be the sanest person in the banking sector. Thank you for your excellent work.

        Stavros,

        +100

        When the RBA can tell us with certainty the correct market price for a paper clip I, for one, will be happy to see them set the price for “renting” money.

        Why isn’t there a chapter on “Cartels” right next to the chapter on “Central Banks” in the economic text books? Maybe because cartels = bad and central bank = good.

  3. I’m curious as to how the banks would react to this. Surely the RBA acts, at least in part, as a watchdog of interest rates? If there were no government body ‘setting the tone’ for interest rates in general then the banks could run away with the spoon and set anything they like?

    The RBA may not be the actual government, but many see it as an independent monetary umpire – an unofficial arm if you will.

    The system might be more efficient without it, but I’m not sure the public could swallow it.

    History is littered with examples of more efficient models, products and services that just weren’t marketed well and lost out to less efficient, but more psychologically pleasing to the consumer, products and services, or the comfort and reliance of the incumbant.

    Telling Joe Public that the banks are now setting the monetary agenda isn’t a message many would like very much.

  4. END THE FED. ..oh wait i mean…

    “Anything the RBA does could be undertaken by the private banking sector”

    Is the RBA like the FED in that they just pretend its part of the gov, when in fact it is part of the private banking sector?

      • So read the Reserve Bank Act 1959 on CommLaw. The answer is there. Unlike the Fed, the RBA is a statutory authority of the Commonwealth of Australia.

        How hard is it for you conspiracy theorists to google something?

  5. Deus Forex Machina

    Guys…22 years without a recession are you seriously telling me that this would have happened without the RBA. They may not be perfect but they are about the best in the business.
    Many in this place rage against the banks and their schemes to lend and lend and lend yet you want to give them the keys to the liquor cabinet.
    Surely there is a certain cognitive dissonance here in that argument.

    • “22 years without a recession are you seriously telling me that this would have happened without the RBA”

      That is not evidence in favour of the RBA but even if the RBA did influence 22 years recession free through encouraging the greatest expansion of credit in history then, they should take responsibility for the massive number of over burdened under qualified borrowers that Australia now has and the lives that will in effect be turned into slavery to repay it.
      To attempt total control of a system is just to delay and supercharge the effect when something goes wrong.

      • Deus Forex Machina

        Come on Deep T
        The RBA did not make Australians believe in bricks and mortar that is a cultural thing, the rba did not up a tax system which is slanted toward property investing against good old deposits and other forms of investment, the RBA did not spend the profits from the boomos on middle class welfare.
        I think your being too hard on them…we need to rage against the machine not the cog.

        BTW Atlas Shrugged is apparently out at the movies now 🙂

        • DFM, A movie I must see.

          I agree that the RBA staff may have done a good job on what they are tasked with. I have a problem with the institutions reason for being. Its mandate is either irrelevant or far too narrow which I think from your reponse on what the RBA is not responsible for that you agree 🙂

    • I’m for having an RBA, but that’s not an argument for the positive.

      With government relinquishing for the most part fiscal policy to smooth the cycle, and relying on monetary policy, it did appear that the economy worked well.

      It could be a case of monetary policy being quite irrelevant, and with government out of the way on a fiscal front, then government had minimal interference, and that’s why we had 22 years of good economic times.

      I think back of what strucutural reforms we went through between 1983 to 1996, and by the time the Deputy Sheriff of Benelong took the reigns, how lean and efficient the country’s economy was.

      My observation was increased fiscal interference, and the capture of some policy making by vested interests stuffed things up.

    • Snap-shotting “22 years without a recession” as an argument in favour of the RBA is fallacious. During that time, society’s debt levels have become the 2nd highest on the planet –

      http://www.dailyfx.com/forex/fundamental/article/guest_commentary/2011/04/18/Guest_Commentary_Australia_Danger_Lies_Ahead_Part_II.html

      “Tick ticK tiCK tICK TICK” for 22 years (a mere 3 “business cycles”) does not a lay-down misère argument for central banking make.

      History will be the ultimate judge. And the deepening crisis experience of other nations recently suggests that the writing’s on the wall for Oz at 170% household debt.

    • Yes 22 years without a recession and now we are staring into the biggest recession Australia has ever faced since the depression.

      There is simply no way this extreme amount of debt can be worked off without a major bust.

      Im with Deep T ( And Ron Paul )abolish the Central banks. They exist to fund wars and banking cartels with printed money.

      The U.S grew to be a major industrial power without a Central Bank, Australia was also a very wealthy coutry before the advent of the first Central bank the Commonwealth. We would alll be better off without this continual inflation of money and credit. I think the Austrian School was correct on the perils of endless inflation & credit.

      Steve

  6. IF the RBA role is for banking stabilty, they have certainly achieved that so far, certainly I prefer the RBA to the FED. What is a better alternative re the issuer of the nations currency, the old commonwealth bank model ?

    My own preference is something modelled on the Swiss model

  7. My God.. Have people gone completely bananas for Tea Party propaganda? Allowing private banks to issue currency is simply stupid : think about the conflict of interest involved and the potential for massive fraud unless the currency is pegged to some kind of asset. It will bring price stability at the cost of very high unemployment. Please read the history books on why it’s a bad idea.

    It is disappointing to read how so many people have no idea what money is. Money is a representation of economic potential, which is why the money supply needs to grow with production capacity. When consumption exceed production capacity, you get inflation, and the role of the RBA is to reduce consumption via tightening of credit. As the issuer of currency, it acts the an absolute ‘zero risk’ reference point.

    The RBA is far from perfect, the alternatives are however far, far worse. Suppose Australia uses something like LIBOR instead : what happens during the GFC? The LIBOR went up. Under this system, Australians will pay higher interest rates when a recession hits. This leads to unemployment and asset depreciation, and the increase in risk makes credit even more expensive. This is what happened in the Great Depression from 1929 to 1933. Interest rates needs to be counter cyclical, and that can only happen with a reserve bank.

  8. I’m not interested in what money “is” (ie, has become). I’m interested in exploring what it *should be*.

    Have seen all the arguments against private banks issuing currency. Though not ideal, if given a choice I’d far prefer that risk – where responsibility falls on the public to vote-with-their feet on the credit-worthiness of any bank whose currency they choose to use – than the risk of consolidating exclusive legal rights over a nation’s money issuance to one tiny body of men.

    Better again would be to remove the power of all banksters, by introducing a peer-to-peer, decentralised, pure digital currency system empowering everyone with the legal right to issue their own IOU’s backed by their own personal reputation (ie credit-worthiness). Which is all “banking” really is/was in the first place.

    • “by introducing a peer-to-peer, decentralised, pure digital currency system”

      already running and looking good 🙂

      https://secure.wikimedia.org/wikipedia/en/wiki/Bitcoin

      “Bitcoin is a digital currency created in 2009 by Satoshi Nakamoto. The name also refers to the open source software he designed that uses it, and the peer-to-peer network that it forms. Unlike most currencies, bitcoin does not rely on trusting any central issuer. Bitcoin uses a distributed database spread across nodes of a peer-to-peer network to journal transactions, and uses cryptography in order to provide basic security functions, such as ensuring that bitcoins can only be spent by the person who owns them, and never more than once.

      Bitcoin’s design allows for anonymous ownership and transfers of value. Bitcoins can be saved on a personal computer in the form of a wallet file or kept with a third party wallet service, and in either case Bitcoins can be sent over the Internet to anyone with a Bitcoin address. Bitcoin’s peer-to-peer topology and lack of central administration make it infeasible for any authority, governmental or otherwise, to manipulate the value of bitcoins or induce inflation by producing more of them.”

      • There is a world of difference between online secure transaction and a currency. Now consider this scenario. What happens when a guy grabs all the 4.5 million bitcoins in circulation and then turn off his computer?

        • “What happens when a guy grabs all the 4.5 million bitcoins in circulation…”

          Can you explain *how* exactly this hypothetical person might do that?

          Even if your theory is plausible, it is beside the point. Which is, that alternate (complementary) currency systems are gathering increasing attention, and one need not wonder why.

        • umm bitcoin is a currency. from their site.

          “What if someone bought up all the existing Bitcoins?

          What if somebody bought up all the gold in the world? Well, by attempting to buy it all, the buyer would just drive the prices up until he runs out of money. “

          • Right now 1 USD = 0.85 BTC. You can write a program to buy up a lot of bitcoins simultaneously due to the time difference between updates of distributed servers. What’s more, since the value of bitcoins goes up when there is less money in circulation, this gives an incentive to ‘horde’ them.

  9. I cannot believe the apologist for the RBA in relation to their fanning of the house price bubble in Oz. People will look back at the RBA is the exact same way as the Americans look down on Greenspan. If anything, history should be harsher on our mob of central bank thieves, because from international evidence, they should have awoken to what was going to happen in 2007.

    Look over their minutes from the past few years and somehow they have managed to totally ignore the private debt levels of Australians and their capacity to pay that debt.

    Ric Battelino and Lucy Ellis have by far been the worse, but Stevens has done little to correct their lies about how our debt levels are AOK.
    When house prices start really tanking as the banks stop their crazy lending habits, the RBA obviously think they can lower rates rapidly and like a bowl of porridge get the money price just right for a soft landing. Like all bureaucrats, they are power hungry, self-serving morons.

    Did you guys know what sub group of employees owns the most property…yep, the employees of the RBA! They are dead set crooks!!

    • The point about RBA employees being the biggest employee sector owning resi rental property is soooo interesting. It really needs more investigation!Who’s banking them?

      • I’ve heard nothing about this … links/sources please? Most intriguing (and if true, wholly unsurprising).

        • I don’t have a link right now but as memories serves me, the info is available from the ATO from tax returns with negatively geared properties.

          • Based on the five people who put “central banker” as their occupation. According to the last Annual Report, there were about 1000 staff.
            Most of them probably just say “banker” or “economist” or something.

            I saw that report – I think it was from Goldman Sachs – and laughed. I know several RBA and ex-RBA people. Most of them own their own homes but don’t own investment properties.

      • And while I think of it – don’t tell me you are one of these people who types things on the internet but has no guts. Don’t tell me — you’ve never tried to get in touch with those individuals, but you are content to slag them off in blog postings? It’s a big call to call someone a crook, especially when you have named (misspelled) names.

      • Do you not know who I am talking about Goodness Me…

        Surely a letter or two wrong in someone’s surname doesnt really matter does it?

        Maybe you should stick to the topic and forgive the odd spelling mistake as bloggersw are often pushed for time (bloggers that have a life that is)

  10. Don’t agree with the article at all. Liquidity has to be a public good. If you want to know what happens when it isn’t, look at the Free Banking era in the US… chaos.
    And no the markets do not set interest rates. What they do is act on communication from the central bank. If there wasn’t a price maker for money, interest rates would not move to the natural rate and inflation/deflation would be more intense.
    The real problem with the RBA and other central banks over the past 30 years, is their stupid fetish with inflation targeting and a floating exchange rate.

    • None of your arguments are valid or logical.

      So the Free Banking era in the US which formed the basis of the largest economy in the world and until recently the strongest was….chaos? No it was survival of the fittest, evolution at its finest.

      • Wrong. America’s economy took off after the Civil War which was also after Free Banking had ended.

        • OK but I was trying a little humour. Abolishing the RBA does not mean a lack of good regulatory infrastructure so in that sense I’m not advocating “free banking”

          • So you’d keep APRA and abolish the RBA.

            All that would happen would be that APRA would end up being a central bank without a balance sheet, using liquidity and capital rules to mimic monetary policy.

            Now I know you have really lost it.

          • It’s clear from the article and your comments that you don’t undersand what a central bank actually does. To say you would keep prudential regulation but not central banking is simply ridiculous.

            As I said in my first comment. Without a price maker for money, the market will NEVER move towards Wicksell’s natural rate, and therefore the price level will need to do the adjusting. Thats all the central bank does; anticipate the natural rate. To see how the price level would need to adjust, again look at Free Banking in the US.

            And wave after wave of bank failures would not be evolution, it would be dysfunctional.

  11. Deus Forex Machina

    I’m back for another go.

    While I don’t agree a modern economy would be better off without our Central Bank it is interesting to posit would things have been better or worse over the last 20-40 years without one.

    I would argue that since the collapse of Bretton Woods the world would have had more economic and thus market volatility. It would have been harder to transfer to a freely floating currency regime in developed countries and towards one for the emerging world and in general economic growth would have been constrained because the uncertainty that was in evidence meant forecasting was more difficult and thus investing lower and saving higher. We would have had smaller economies and lower standards of living, wouldn’t we.

    But the post Bretton Woods era while it might have been economically less volatile with our Central Bnakers taking centre stage it did lead to belief in the Great Moderation and the type of Ponzi Finance Minsky warned us about. Indeed as he said, and anyone who trades markets know’s, stability breeds complacency, over-reaching and ultimately sows the seeds of its own demise building the catalyst for instability. We hit an unsustainable growth path and are now paying the price globally.

    But this is not true in all jurisdictions, Germany for example didn’t have a housing boom nor bubble. Yet they have a very doctrinaire central bank. But it equally didn’t seem to have the type of avaricious consumer and consumption that the anglo-saxon west did.

    Perhaps its not the Central Bank per se but the type of Central Bank and the cultural and regulatory back drop that it sits against.

    Strange for a currency guy to say but maybe the world was better off in the bretton Woods era where Central Bankers knew their palce and global frameworks were more robust and less nationalistically self centred.

    Thanks for making me think Deep T

    • Great thoughts DFM – heres my very shallow reply.

      Gold just broke $1500 US an ounce.

      And one final thought: why is their only one central bank per economy? Why can’t you have several reserve banks?

      If the true role of a reserve bank is to be the lender of last resort – an insurance company more or less – why can’t there be more than one?

      I also agree culture has a lot to do with it, which is why, ultimately, the Euro and the EU is doomed to fail.

    • DFM,

      “While I don’t agree a modern economy would be better off without our Central Bank it is interesting to posit would things have been better or worse over the last 20-40 years without one.”

      It’s all about incentives. Incentives to perform in a manner, thus gravitating towards performing in such a way.

      To be honest, I would see the last 30 years, i.e Post Reaganomics, as an utter nightmare without central banks.

      The push through the developed world of increased profit share at the expense of decreased wage share ultimately says selling labour is not a way to proposer, allocating your capital is.

      Those who wish to have ‘optimal performance’ in regards to capital allocation thus will endeavour to control it, and the price.

      Some semblence of ‘independant’ pricing of money at least gave us the perception of keeping self interst at bay.

      “I would argue that since the collapse of Bretton Woods the world would have had more economic and thus market volatility. It would have been harder to transfer to a freely floating currency regime in developed countries and towards one for the emerging world and in general economic growth would have been constrained because the uncertainty that was in evidence meant forecasting was more difficult and thus investing lower and saving higher. We would have had smaller economies and lower standards of living, wouldn’t we.
      But the post Bretton Woods era while it might have been economically less volatile with our Central Bnakers taking centre stage it did lead to belief in the Great Moderation and the type of Ponzi Finance Minsky warned us about. Indeed as he said, and anyone who trades markets know’s, stability breeds complacency, over-reaching and ultimately sows the seeds of its own demise building the catalyst for instability. We hit an unsustainable growth path and are now paying the price globally.

      But this is not true in all jurisdictions, Germany for example didn’t have a housing boom nor bubble. Yet they have a very doctrinaire central bank.”

      One thing I believe is crucial in the German psyche. They still remember Weimar. They have a complete, pathological fear of inflation.

      This is in regards to previous comments I have made, I’m still relatively keen on inflation targetting. It’s just the measurements we use to quantify inflation that is busted.

      I would say fix that, don’t throw the baby out with the bath water. (more after next paragraph).

      “But it equally didn’t seem to have the type of avaricious consumer and consumption that the anglo-saxon west did.”

      Well it’s not that easy when interest rates are priced properly.

      I still vividly remember the coalitions 2004 elctioneering. “Interest rates will always be lower under a coalition government”.

      As if ‘low’ interest rates are a virtue. We don’t want low interest rates, we want the proper interest rate.

      The Prince reflects, amongst others, that interest have not been accurately gauaged by our current CPI basket.

      If we had a better measure, more finely calibrated to real inflation, then I supsect 150bp higher interest rates every years since 1997, we would have curbed some investment property enthusiasm, thus depressing housing prices, thus removing the feedback loop for more investment property demand.

      Instead, the focus would have to be on more higher return enterprises, such as Lorax’s bits and bytes enterprise. High tech, high skilled, and any uncompetitive labour costs borne by lowering our dollar.

      I believe a ‘proper’ cash rate is crucial, and I’m not sure private banks will offer us that.

      “Perhaps its not the Central Bank per se but the type of Central Bank and the cultural and regulatory back drop that it sits against.

      Strange for a currency guy to say but maybe the world was better off in the bretton Woods era where Central Bankers knew their palce and global frameworks were more robust and less nationalistically self centred.”

      Keynes was an extremely intelligent guy, just read his views on the drafting of Bretton Woods, and his Bancor proposal. To this day I find it hard to believe that people think they know more than he did.

      A lot of your concerns would be resolved there.

      • Deus Forex Machina

        Hey Rusty Penny…thanks
        I’m not going to disagree to much on any of those points, particulalry the Keynes one.
        This is a really interesting debate.

  12. I don’t think the RBA should disregard inflation figures that are affected by global events. Yet they will employ inflationary measures when the Australian government taxes something. A new tax is hardly an effect of supply and demand.

  13. To paraphrase Churchill: “The central banking model is the worst banking model except for all the other forms that have been tried.”

    There are good reasons why we moved away from private banking and away from commodity-backed currencies.

  14. One only needs to read ‘The Great Bust’ by Jack Lang in order to understand why the current RBA is undesirable. The way in which it came into being is astonishing.

    I’m not against central banking per se, but central banks owned by offshore banking interests? No thankyou.

  15. I have little doubt that since deregulation the Reserve Bank board meetings have been great social occasions, and that there is a wonderful sense ‘bon ami’ about them – The relaxed kind of place where Sir Desmond Glazebrook would feel he was ‘one of the chaps’.

    Not even the correlation of the growth in bank lending with the Current Account Deficit since 1983 under their stewardship seems to have fazed them. See graph at http://macrobusiness.com.au/2011/03/guest-post-leigh-harkness/

  16. it looks like the world is going back to hard backed money, if they dont let the liquidations happen then money will be backed by gold silver ciggerretts booze blowjobs you name it, it will become worthless. Seems the banks, corporations, gov’s have become to big for the economy and refuse to let the market work to cleanse the shit, that seems to be the story from were I sit.

  17. On the RBA website it states:

    “The Reserve Bank Board’s obligations with respect to monetary policy are laid out in Sections 10(2) and 11(1) of the Act. Section 10(2) of the Act, which is often referred to as the Bank’s ‘charter’, says:

    ‘It is the duty of the Reserve Bank Board, within the limits of its powers, to ensure that the monetary and banking policy of the Bank is directed to the greatest advantage of the people of Australia and that the powers of the Bank … are exercised in such a manner as, in the opinion of the Reserve Bank Board, will best contribute to:
    a. the stability of the currency of Australia;
    b. the maintenance of full employment in Australia; and
    c. the economic prosperity and welfare of the people of Australia.’”

    Is the currency stable? No, and everyone is complaining. But what is the RBA doing about it?

    Is there full employment? No.

    How is the economic prosperity and welfare of the people of Australia? People have a large debt burden and are feeling insecure.

    How is the economic prosperity of Australian manufacturing and agriculture? Poor

    How is the economic prosperity of the banks? Great. They are doing well.

    If the RBA acts in anyone else’s interests, it acts in the interest of the banks. Its banking policies are not “directed to the greatest advantage of the people of Australia” but to the advantage of the banks.

    There is no mention in the legislation about keeping inflation around 2.5% or in managing interest rates.

    If the Commonwealth Auditor General was to assess the RBA’s performance against its own legislation, it would be found to perform poorly. It may as well be abolished because it is not doing what it was established to do.

  18. Two main problems with central banking today as I see it:

    1) they are “independent”, but often have the very same beliefs and/or belief structures as the govt of the time, such that they effectively operate as extensions of the govt (selling money to fund govt debt programs, whatever they are, is a good example of this)

    2) central banks have too many mandates – they should, really, only chase inflation, and forget about all the other mandates (eg. Using Interest rates to stimulate the economy…not your job to worry about people!)

    In the sense of points 1 and 2 together, the central bank almost always has either lowered interest rates to stimulate extra credit growth, or to stimulate recovery by the same – credit growth…this is essentially socio-political ideology at work, not inflation control via interest rate changes; and the result is, in effect, an addiction to solving all ones problems by the expansion of credit.

    And it is not that credit and money destruction is a bad thing per se, economically speaking, but that it is socio-politically unfavorable in the short term.

    Hence, in this sense, central banks become quasi-independent socio-political machines that do little more than expand credit again and again and again to assist the populace and the powers that be be avoid the consequences of their actions – at least in the short term.

    The long term consquences are:

    1) the expansion of credit until to avoid or deal with socio-political issues, until it stops working anymore, and the entire system itself collapses, and Capitalism is blamed – when it is actually just the fractional-reserve-type, central banking version that has failed.

    2) central banks are rendered impotent and effectively useless by zero or near-zero interest rates, trapped by a damned-if-you, damned-if-you-don’t inflation/deflation scenario, which has it’s roots in an expand-credit-to-achieve-socio-political-ends mindset

    3) private lending and banking will seek to find the true market value of money on top of the now-impotent central banks zero-bound – as, unlike the socio-political machine thatbisnthe central bank, they see their own money as something having value, and warranting adequate interest rates to reflect that value, unlike other socio-political interests such as most govts and central banks, which, in effect, view money as something mechanical to be manipulated to achieve socio-political ends.

    And, finally, the argument for having a lender of last resort is really quite a weak argument when we consider the bigger picture: if private banks did not keep having such govt-type entities continually backing and bailing them out, then they would actually learn to value their asset (money!) accordingly via decent interest rates and wise lending practices, and not be so stupid and lax in the first place; hence, perpetuating the expand-credit-to-achieve-ends paradigm.

    My 2 cents.

  19. I’m a fan of the RBA.
    but I agree with:
    “Its mandate is either irrelevant or far too narrow ”
    Maybe it has become complacent ..and worse far too inactive ..in the currency markets and money markets.
    So the Prince’s suggestion of another RBA is inspired.
    If RBA2 Limited could be infused with suffient capital = RBA 1’s capital base and with a mandate to make money – at the expense of the now grubby commercial banks – it would attract top talent and undoubtedly be a vote winner .
    hail the Prince!