Cometh the moment, cometh the Kohler

Various discredited economists and pollies are still busying themselves with the game of politics as the body count rises:

Thankfully, Alan Kohler has shown great leadership and cut through the guff to illustrate the clear path ahead for macro managers:

The fact that Australia is now in deflation is bad enough, but two other recent bits of data suggest that “fiscal cliff” doesn’t come close to describing what’s coming, and the government and the RBA will need to change course, radically.

Specifically, the RBA’s balance sheet will have to be used to backstop government income support.

The Federal Reserve is now fully monetising the US budget deficit — not by buying bonds directly from the US government, but after they’ve been laundered briefly in private ownership. It’s Modern Monetary Theory in practice. It’s here to stay and the same will eventually happen here, after some kicking and screaming perhaps.

The two bits of data …

First, the digital credit reporting agency CreditorWatch reported that the average invoice payment delay in June was out to 49 days, more than triple what it was a year ago. Some industries are more than 60 days overdue and “financial and insurance services” is out to 75 days.

Second, Morgan Stanley commissioned a survey of mortgagors as part of some research on the impact of the coronavirus, and found that 55 per cent of them have received some form of income support.

…The only solution will be much more government debt to finance income support, followed eventually by a merger of monetary and fiscal policy. It’s been plain for years that monetary policy alone is out of petrol which was confirmed on Wednesday with minus 1.9 per cent CPI. The only effective policy tool is fiscal.

The RBA needs to help the Coalition overcome its queasiness about deficits and debt by buying more bonds, not to control yields but to help fund the fiscal rescue.

Bravo. Strictly speaking, I wouldn’t call this MMT practice. For me, the dividing line between QE and MMT is when the central bank begins to fund ‘main street’ liquidity, lending or income directly. But the difference is a matter of degree not kind.

And Kohler is right. The Mexican standoff between the RBA and fiscal authorities is so irresponsible that it’s going to collapse in crisis as the depression deepens and entrenches.

It already is. Despite its denials, the RBA has been monetising Morrison Government debt since March and it should get on with doing a whole lot more it to fill the black in domestic demand and weigh on the currency.

I’d suggest swinging out the bond curve immediately in a classic “Operation Twist” to enhance its yield curve control with crushed long bond yields to deploy on whatever borrow and spend the Government needs.

Alan deserves a big hat tip for pushing this debate forward. It will help mitigate the depression, unemployment and income losses, as well as bring us out of it eventually.

Those resisting this policy innovation, that is transpiring worldwide amid a once per century pandemic, are shameful recalcitrants costing the lives and livelihoods of a growing number of Australians.

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)


  1. United States have authorized the fed to engage in direct monetary deposits into US bank accounts.


  2. pfh007.comMEMBER

    “..I’d suggest swinging out the bond curve immediately in a classic “Operation Twist” to enhance its yield curve control with crushed long bond yields…”

    Yield curve control?

    Who cares about promising bond traders that interest rates will be held down so bond prices can only go up.

    If we are going to deploy the RBA balance sheet we should do it in a way that is democratic and stops enriching the big end of town.

    A bit of trickle up economics is what we need and that starts at the small end of town.

  3. Kohler’s “policy innovation”/MMT is a theory without empirical evidence. Hundreds ,if not thousands ,of years of commerce has shown what works (even if painful in the short term).
    We violate the wisdom of the ages at our peril!

    • Students in High School back in the 70’s were taught about monetary and fiscal policy in equal measure. The Keating recession skewed things a little and now the pendulum is swinging back.

      • Accounting in this case is a mere tool. It is not “economics”. Kohler’s job is to introduce MMT to the mainstream in order to commence conditioning the masses.
        MMT will come but for such an almost existential issue, there should be no recourse to untested “innovation”. Risk management 101.

        • Agree. The best innovators fail regularly and we need to stop being so caught up with perfection. We have fail fast and fail cheaply and then throw masses of MMT cash behind the successors and industries that can change our future for the better.

          • MMT cash is NOT going to those industries. Show me once, anywhere in these pages, where that approach has been detailed with a realistic plan of what exactly we mean by that; how it can be implemented given the current economic, social and geographiocal state. ,
            The plan is to throw money to be electorally popular and make the government the sole determinant (suppossedly) of our future.

          • Jumping jack flash

            +1 Flawse.

            Any MMT money will simply be used to restart the debt machine. There will be no “creation of industries”. Nobody has a clue anymore. The best we could hope for is for the Chinese to open a few sweatshops here, but it wouldn’t work because we all need to be paid too much money to afford the debt we all have and need.

      • GDP as the sole/main measure of an economy was introduced after great debate and most controversially. Now it’s the ONLY consideration. Kicking the can down the road, with GDP as the only goal, in favour of continuing debt expansion is going to end unwell for someone – our kids. So who gives a rats.

  4. Students in High School back in the 70’s were taught about monetary and fiscal policy in equal measure. The Keating recession skewed things a little and now the pendulum is swinging back.

  5. Scomo already a dollar short and a day late. So when it finally happens, what then for the pacific peso?

    • msdee – please don’t tell me that, after 60 years of GROSS economic mismanagement resulting in a grossly distorted economy and value for the A$ that any fall now will be all Morrison’s fault.
      We both know better than that.

  6. PaperRooDogMEMBER

    Agree. Hopefully we do it properly and skip the laundering part and go straight to the helicopters for main street. Sadly we seem to have the wrong people in charge for this both in Canberra & at the RBA. So a deeper depression is a comin’

  7. Lucky there is no such thing as the external account or foreign debt. Suddenly national sovereignty doesn’t matter and Chinese ownership of infrastructure, water farmland and mines means diddlysquat.
    It’s a great world we live in – Money for nothing and chicks for free – that’s the solution to everything.

  8. Perhaps its a silly question but do we need taxes when the central banks can simply monetise govt debt within yet to be found limits? If deficits don’t matter as I hear often said. Or is it more a case of deficits don’t matter within the lifespans of current voters?

    • Taxes are still needed to control inflation – effectively draining money out of circulation.

      • Ummmm – what is the point of withdrawing money, that you have just handed out in bagfulls, from the economy ?
        Excess money has not resulted in inflation in the past 30 and more years. it HAS resulted in a CAD and the sale of all and any asset sand resources to foreigners.

        • The90kwbeastMEMBER

          Don’t forget asset price inflation!

          However I think what the MMT folk are proposing is the RBA lending directly to the government, or in other words because we are a currency issuers, the government effectively lending to itself. This is different to what has happened in the past, which is the government borrowing offshore from some other lender.

          • It doesn’t matter much which way it goes in curent circumstances. The economy is screwed to hell and distorted beyond way beyond my understanding of how corrupt people, economists and politicians could be.
            You are making the mistake all MMT proponents make. You are assuming that when you inject money into an economy it stops where you put it. It doen’t. If you track the flows, without changing the very basis of your economy, then the money pretty much ends eventually up in the same place – foreign debt and the necessity to sell our assets to foreigners.
            It is now pretty much impossible to change the basis of our economy. The dislocation will be beyond what the majority of voters, i.e. those who live in the major cities, would tolerate.

          • The90kwbeastMEMBER

            Link please to where MMT creates foreign debt when the RBA owns the currency and debt issued

          • Strewth!!!!! Use your own brain. You already have an economy massively distorted for over 60 years by a chronically and severely over-valued A$. This has distorted our society, our population distribution and our education system as per our hero Rudd! Our productivity is shot to hell. We’ve destroyed industry after industry. We’ve destroyed regional economies – all to pump money into cities where nothing is produced.
            So…you are starting with an economy that already has a major productivity problem, and education problem, and a societal belief problem. Now you are going to inject unlimited masses of money into it….where? How is NONE of that going to end up as imports?
            Links – strewth! Our imports are 23% of GDP. The marginal propensity to import must be in the region of 40 to 60% – nobody seems very keen on finding out or even raising that topic. It’s one hell of a snag in the whole economic policy debate so NOBODY from the RBA, Treasury, Banks, Universities, politicians wants to talk about it.

            Are you saying to me now that we don’t have a Current Account and economic distortion issue?

          • The90kwbeastMEMBER

            I’m not suggesting we don’t have a CAD issue but I’m not sure that MMT (at least specifically the RBA financing government activities) necessarily has anything to do with the issue, it’s just a different means to potentially the same end, driven by inept fiscal policy and a lack to desire to make anything in this country. Hopefully with COVID that will change somewhat.

      • Isnt that the job of monetary policy? Arent taxes supposed to fund operation of government? If you are right then the entire monetary and fiscal system of government are being overturned, not to mention the dubious prospect of politicians using tax to control inflation and monetary policy becoming a tool with which to contest elections. Its obvious that its almost impossible to increases taxes, so expect politician controlled monetary policy to be completely ineffective.

        • The90kwbeastMEMBER

          Well the MMT folk are basically saying that in the old days (gold standard), yes governments had to tax so as to not go broke. But since as a fiat currency issuer no longer tied to the gold standard, Australia can create as much AUD to fund whatever it wants, and just use taxes after the fact to determine the rate of growth.

          I also think you do raise an interesting point around politicians not wanting to increase taxes, I think Philip Lowe is acutely aware of this also and represents a key flaw of MMT which is why he shot down the idea being further embraced by the RBA. On the other hand, this would basically be an admission that the treasurer and the Australian Treasury are actually incompetent and cannot do their jobs…

          • ” Australia can create as much AUD to fund whatever it wants, and just use taxes after the fact to determine the rate of growth”

            As long as they don’t give a RA about the external account; sales of infrastructure, resources farms and key businesses to foreign governments – particularly China. Whether they like it or not, the majority whatever dollars they print, in this economy, will end up as foreign debt necessitating the sale of anything that is or is not nailed down to foreign interests. Track the flows and at every layer take out the % of any injection that goes in tax and the MARGINAL tendency to import consumer goods. A spreadsheet would do.

  9. If I read through the blather, it sounds like we want higher inflation to make it cheaper to pay back the debt. Money printing is definitely one way to do that. So what is the trade?

      • Bwahahahaaa!!!! What do you reckon has created the current BS economy and house prices young people can’t afford?
        If you make RAT rates even more negative than they have been for the last 50 years, how does debt get paid back? I’ve asked over many years in these pages, show me a part of history, where running negative intersts rates has resulted in significant repayment of debt?
        Also, given we owe a Trillion odd dollars in Foreign debt – show me flows and numbers as to how our making interest rates even more RAT negative can result in teh repayment of that debt – let alone start buying back our own country.

        • bolstroodMEMBER

          let alone start buying back our own country.
          Good on you Flawse, you old Whitlamite.

          • pffft! Whitlam was a rich city lawyer who had no idea at all about Economics or anyone who lived outside capital cities. Not much has changed.

          • by policies like this?
            “likely to increase strongly from a level which still remains excessive. After close and careful examination of the present situation and prospects in these regards it has been decided to appreciate the exchange value of the Australian dollar.”
            Remember at this stage we were already running a significant and growing CAD for 25 years.

          • bolstroodMEMBER

            I will acceed to your superior knowledge on this,
            but Gough did have a go, and got the boot.
            Doesn’t eally matter at this point.
            We are like the Jumblies from the old Nonesense Book,
            “all at sea in a sieve.”

        • hey flawse. you make valid points, and you are right, the narrative of low or negative interest rates is always tied to “its never been a better time to borrow” rather than lets use these low interest rates to reduce our debt principle and interest payments. and you are right…there is no realistically foreseeable circumstance in which this debt ever gets paid back, even with interest rates at zero forever.
          I think the intention is for all currency issuers to manipulate interest rates to zero forever and never pay back principle, with interest rates at zero, interest payments are zero irrespective of the debt balance. Dont forget who buys most of this govt debt…pension funds, insurance companies …..all of which are spending private money.

          • Hi Rob
            You are still leaving out the external account.
            Note also – zero/negative RAT rates have as their prime objective to create debt and spending and to ensure nobody saves.
            Savings are a conservation of resources – the stuff the planet is made up of.
            Spending is the use of those resources.
            i.e. Negative and Zero RAT interest rates are DESIGNED to use up the planet at as fast a rate as possible. If there ever is a situation where all the nations of the world are combined in blissful socialist harmony and the scenario you describe did exist, the cost of the policy is still using up the planet as fast as possible and at a significantly faster rate than is currently happening.
            Meanwhile the reality is that all nations are different with different goals and desires. Ours is, having been richly endowed with a beautiful country with vast resources, to sit on our arses, consume as much as possible, and pay for it with the livelihood of our kids. Someone tell me where MMT, as its proposed with no limits, doesn’t accelerate that process

  10. The idea that Kohler is now somehow suddenly a source of great wisdom is somewhere further down the road than laughable.

  11. This is a superficial debate amongst the blind and deaf. The underlying problem must be addressed for any real solution to be reached. MMT, fiscal bribes and welfare handouts as anaesthetic, are no solution.

    The problem is that our economy is based on stolen land. The powerful & greedy came first and stole the land, which was given free by the Creator, from the first nations. Since then, the Crown, the banks, the wealthy and the squatters have demanded that newcomers pay a price to hold what they stole. That price [“property value”] now forms the basis for bank securities.

    Land price represents theft from the Creator, from first nations, from labouring classes enslaved under mortgages, and now — via governmental fiscal largesse – from future generations. An economy based on theft can never survive. Sites must transfer for the value of their improvements only. “The land shall not be traded forever; for the land is mine: ye are strangers and sojourners with me” [Lev. 25:23].

    The modern way to achieve this is to ditch all taxes & imposts, at every level of government, next 30 June and to collect instead (as sole source of public revenue) the market-set annual rental value of sites privately occupied. Politicians must be kept entirely out of this process. ‘Sites’ include wavelengths and licences to exploit renewable & non-renewable resources. This is the old Henry George philosophy, which has been suffocated by politicians, unionists, the wealthy, the media and even by academics (scrambling for salary) for 150 years.

    At one blow Site Revenue would bring land price to nil (plus value of improvements), make land & home sites easily available to anyone willing to work by hand or brain, give instant bargaining power to labour, end the rich-poor gap, restore voluntary family & community co-operation, eliminate the need for a welfare state, reduce the manipulative power of politicians & financiers, and place public finance on a sound footing.

    All across the globe, greedy & myopic vested interests have perverted this clear, simple truth. These prevail due to the confusion & preoccupation of the struggling masses. It is unlikely that the necessary popular understanding & political will can be gathered anywhere, except perhaps in Australia.

  12. macaroni jewelerMEMBER

    How might MMT be implemented?
    1. ban cash
    2. Initially anyone who requires support receives the digital AUD, (Cashless welfare card is beta testing)
    2a. -ve Political control economy … anything is possible- expiry dated digAUD to increase velocity; price/ product/ commodity/ behaviour and belief manipulation. ie Brave new world/ China
    2b. +ve Decentralised /laissez-faire, sustainable production most highly valued. Ending the sell-out of Australia whilst permitting foreign buy-in without controlling interest.

  13. MMT or debt based deflation has to occur at this point. We’ve been printing money for the last 30 years or so via mortgage borrowing – all that is also inflationary with the proviso that all the inflation it produces has to be wound back as the debt is paid off. There’s 30 years of debt based inflation that could unwind in a quick feedback loop bankrupting most actors in Australia – after all debt based money involves securitising actual assets.

    We either replace that debt with actual money (no REAL liability) to keep inflation stable, or we let things unwind. As a CAD country the unwind scenario is a net loss for Australia – some marginal savers may benefit IF banks don’t fold under the pressure.

  14. Watching people use hard money metrics in a international standard that has not been in effect for a long time and then complaining about anything need a mental enema.

    Whilst were at it MMT – the group – goes further than what a autonomous developed sovereign currency issuer can do with its own currency, it suggests the JG to end the structural unemployment created by NARIU that was forwarded by neoliberal economics – in keeping them keen and without bargaining power.

    All this stuff is clearly set out in papers, books, and web sites, so cranking up the wood chipper and backing up a dump truck of strawmen says more about those doing it, than what the MMT group has been banging on for since at least the GFC.

  15. For the pro-MMT crowd, how weak does the AUD have to get before you can reign it in? Pretty risky.

      • Well if your using gold as a singular price comparison then your question about MMT is irrelevant, does not work that way. USD is problematic because it is reserve currency and needs to export lots of it because it is reserve, but that means jobs too E.g. export jobs for cheaper price of imported stuff.

        The whole thing is a lot more complicated than currency crosses, maybe this will help.

        • I use gold priced in a given currency as a measure of that currency’s value. That link seems to suggest increased deficit spending is key to MMT? If that’s a fair point and we go down that path I still think there’s negative ramifications for that. As an insignificant nation on the world scale, we risk weakening our currency to the point of being borderline ‘developing’ if other similarly-important countries don’t spend as much borrowed/printed money as us (again, relative to their importance and risk in paying back that debt in inflated currency, or at all).

          I see why you would exclude the USD as they are a special case being the main reserve currency.

          • Then some wonder why the MMT Group is anti a UBI … no productivity with money chasing goods … yeah duh.

            I would price according to a wide range of factors in the near and far term, manias and groupthink are quite volatile.