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.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.