MSM piles into QE whaaambulance

Some relatively sensible whinging about QE from the boffins today. First, Adam Creighton:

Prosperity is never the gift of ­either fiscal or monetary policy and its supposedly wise practitioners. It’s a consequence of technological progress and more efficient allocation of resources.

On the former, we’re hostage to fortune. On the latter, we need much more: such as tackling waste in the supply of healthcare, financial services and education — and, of course, government itself.

Unfortunately, it’s much easier to demand more from obscure monetary and fiscal policies which can have no beneficial effect in the long-run.

Second, the AFR editorial:

By repeatedly resorting to Reserve Bank monetary policy or massive government borrowing to shore up the economy, Australia is failing to grasp the opportunity to make the most of its great achievement in suppressing the virus. The federal government shows little inclination to lead on federal-state tax reform. Workplace reform is going nowhere. Energy policy remains a mess. State premiers are maintaining barriers against millions of fellow Australians even when local transmission of the virus has fallen to virtually nothing throughout the nation.

What would such a sensible reform agenda look like? This:

  • cutting away negative gearing to kill land price booms;
  • slamming APRA and RBA back together with the former pushing macroprudential policy to the fore;
  • domestic reservation for gas to crush energy prices;
  • dramatically boosted taxes for iron ore channeled into an SMF;
  • tax cuts for all non-commodity tradable sectors;
  • zero immigration to prevent crush-loading and industrial devolution;
  • break up oligopolies for greater competition;
  • huge incentives to innovation incentives.

This would move the needle on Aussie productivity and sink the AUD such that national income would lift and tradable sectors boom.

Of course, both The Australian and AFR have aggressively attacked and killed most of these policy options over years. They have done so because they would do serious harm to the owners of both papers, the policies have been championed by the hated Labor, and both prefer to enrich oligarchs at the expense of markets while pretending to liberalism.

Today’s sense is only virtue signalling within the Murdoch businessomics identity politics niche that dominates both papers. Every time such reform becomes a live option they kill it mercilessly.

So, in lieu of the reforms that we need so desperately, that are directly prevented from coming to fruition by The Australian and AFR editorial points of view, QE becomes a simple matter of national survival. Australia and its currency are price takers, not makers. While the world fights a global currency war to retain and steal each other’s industrial bases, we have to fight it too. Otherwise, industry disappears inexorably, such as in the case of the car manufacturers or oil refineries, and the nation plunges ever deeper into economic and strategic helplessness. Do I even need to add China decoupling to this equation?

In short, the occasional sensible word cannot alter the fact that RBA’s decade-late pursuit of QE is the one bright light in an endless dark of Australian macro-mismanagement brutally promoted by The Australian and AFR over the national interest.

David Llewellyn-Smith

Comments

  1. I’m sorry I know you all disagree but QE with no other structural changes as above is a complete disaster.
    We have gone past the point of no return now

    I can’t see QE lowering the AUD, lowering AUD will now come from SPX sell off and rising DXY

    Also DLS said 3 years ago it wouldn’t work in a small economy like AUST

    This is complete desperation and I believe they know it

    If they implement negative interest rates with QE close the curtains and switch the lights off

    If anyone is running into borrow money to buy a home at this stage of the game

    Good luck !!!!!

  2. Jumping jack flash

    “…obscure monetary and fiscal policies which can have no beneficial effect in the long-run”

    Shhhh… You can’t let on that the emperor has no clothes!

    But with regards to the solution, its easy, but first we need to get real, identify and define the actual problem. The problem is debt, but that is actually two problems. The first problem is the debt isn’t growing fast enough, or the other problem is that the debt is sucking the life from our economy like some wild, enormous leech.

    So there are two solutions. Double down on debt by attacking eligibility criteria so everyone can double their debt and counter the effect of the leech for a while. This would involve using the QE to fund debt incentives or a UBI.
    Or, alternatively, we start producing and selling useful items to the world to earn real income for the nation so we can all repay our debt, kill the leech, and heal the broken economy. This would involve using the QE to build factories to produce these useful items plus all the supporting infrastructure required.

    • That wouldnt work, the only thing we could make in adequate numbers would be boomerangs and those buggers keep coming back….

      Maybe we dont need to make many of them, just sell them again when they come back…. 😉

      • Jumping jack flash

        I’m absolutely serious.

        We certainly have the ability and resources in this country to produce useful things and sell them to the world. The problem is the enormous debt we all have requires enormous incomes (comparatively) to service it, and therefore we can’t be competitive.

        We could always use QE to get around that though. Its free money, kind of.

        • And I agree with you but until the costs of real estate are reduced enough to make it feasible we are wasting time talking about it.

          I spoke to a manufacturer in Goulburn last Xmas and he said he had out grown the current space, and could not get anything he could work in that would not wipe out any profits.

          The way he put it, wages are cost of production and while high are part of the production costs of each item. But real estate are a coat of operation, the cost is the same if he produces 100 units or 100000 units.
          If he doesn’t make enough sales he can wind back his staff or even shut down…. But he still has to keep paying his rent until the lease is up….

          He owns the current space outright so it’s a coat he controls after an investment. To buy another place would add new overheads he can’t afford it justify.

  3. kierans777MEMBER

    The use of QE in the US and other places has shown the ultimate outcome. Growing income inequality followed by civil unrest that is the natural consequence of punishing/destroying the prudent middle class to make debt cheaper. We need a debt jubilee in conjunction with a real draining of the swamp and jailing of the banksters like Iceland did (the fastest EU country to recover from the GFC). Then maybe we can achieve the other reforms

  4. Is it an accident that the Anti lockdownists are also opposed to QE?
    “efficient allocation of resources” obviously doesn’t include high unemployment

    • pfh007.comMEMBER

      Efficient allocation of resources?

      Very amusing Sweeps!

      How does giving private banks a monopoly over deposit accounts at the central bank assist in the efficient allocation of resources?

      How does forcing the public, who wish to operate electronic bank accounts, into making unsecured investments at call at private banks assist the efficient allocation of resources.

      How does manipulating the price that the private banks pay to attract those unsecured investment assist the efficient allocation of resources?

      How does having the central bank buy assets of rich people to maintain or inflate the value of those assets assist the efficient allocation of resources?

      How does having the Central Bank buy up shares of start ups assist the efficient allocation of resources?

      Keep those fingers crossed and you mind get another instalment of Central Bank administered efficient allocation of resources this afternoon.

      Bring back the shark tank but replace the judges with Phil Lowe, Ken Henry and Luci Ellis!.

      Now that would be an efficient allocation of resources.

      Plenty of sensible people are critical of QE AND the idea of letting COVID-19 rip.

      • 10 Spot on …… !!

        You may be aware the ECB currently is seriously investigating digital cash as a modern replacement for notes/coins. When this goes live it comes very close to your suggestion of private persons being able to have ‘safe’ bank account with the central bank.

        Of course, payments will be traceable and there may balance maximums – as the risk of bank runs in a negative interest rate climate then would be substantial.

        • Of course it will be an amusing experience for all when at some point the communications network ceases to function.

        • Jumping jack flash

          Digital isn’t going to solve any major problems but the actions for continued stability can be faster and better targeted.

          Kind of like the difference between an old engine with a vacuum carby and push rods and a new one with 1000 sensors, an ECU and VVT/Fuel injection/etc etc etc.

          And then we can train up an AI by reading it a couple of Keynes’ books, put it in charge, and everyone can finally stop worrying and love the infinite debt.

      • Oh dear.
        The CB is not allocating resources. That is Austrian dogma.
        It is attempting to increase the level of aggregate demand but can not control the composition.
        People can spend the money on whatever they like.
        High unemployment is the most inefficient allocation of resources you can possibly imagine.

        “Prosperity is never the gift of either monetary of fiscal policy”
        Since when?
        Even Friedman would disagree with that it’s just garbage.

        Here is the reality.
        ‘Over the short, medium and now the long run as economists have discovered through hysteresis, prosperity is in fact the gift of monetary and especially fiscal policy’.

  5. There is no meaningful alternative thinking about how the economy should set up to generate wealth. They will continue to go down the debt path.