Should we review the RBA?

Should we review the RBA? Yes, of course, we should. If only because the damn thing hasn’t had a review in 40 years. That said, any review also needs to know what it’s reviewing. According to the briefs offered by “leading economists” it’ll be a waste of time.

Pressed by Labor’s Andrew Leigh on the issue of a review at a parliamentary committee hearing last week, Dr Lowe said when people called for a review of the bank it was unclear whether they meant its mandate, governing legislation, the make-up of the board or whether it was meeting its targets.

…Dr Leigh said he was stunned by the governor’s position.

“With many major central banks conducting monetary policy reviews, it’s astonishing the RBA — which has undershot its inflation target for at least 5 years — would not embrace a similar review,” he said.

Lowe is right. What is the point of the review? Is it to delve into:

  • Why it missed its inflation target for so long?
  • Why its economic forecasting has been apocalyptically awful?
  • Why are banks given free dough without any consequence all of the time?
  • Whether it should be banged back together with APRA?
  • Whether house prices should become a part of its mandate?
  • Whether the board is a corrupting influence?
  • Whether its former staff that oversaw mass global bribery were appropriately punished?
  • Whether it should use negative interest rates?
  • Whether climate change should form part of its agenda?
  • Whether its independence works at all in a Cold War 2.0 scenario?
  • Whether it is ready for MMT, CBDC and the digitisation of stimulus?

The Kouk offers bugger all:

“The RBA has made a series of errors in recent years, most notably missing the inflation target for six years,” he said.

Peter Tulip offers bugger all:

“The case for a review of the RBA is much stronger given its persistent failure to meet its targets,” he said.

“The wording of the targets needs to change. Full employment should be an explicit objective in the agreement with the government, given equal priority to inflation. And the agreement should be explicit that financial stability is the responsibility of prudential policy, not monetary policy.”

ACTU’s Margaret McKenzie offers bugger all:

“The relationship between inflation and unemployment has been revealed over years to be uncertain in magnitude and causality and the inflation-targeting approach to monetary policy needs major review,” she said.

Macroeconomics Advisory’s chief economist Stephen Anthony said the first question of any review should be whether the country still needed an independent central bank given monetary and fiscal policy were being carried by federal taxpayers.

Saul Eslake says don’t do it at all:

“I don’t see any compelling arguments for changing either the broad objectives (price stability and full employment) or the inflation target itself. Both have served the Australian economy and people well,” he said.

In short, the idea is out for one second and it is already being pecked at and bloodied by the Australian political economy pet shop.

Basically, the entire RBA edifice is these days held together with clag, paddle-pop sticks and paper clips, intellectually, politically and practically. Pull one out and the whole thing starts to fall apart.

Either a review will need to be so highly targeted as to be useless or so huge that it is revolutionary.

Houses and Holes
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Comments

    • Grubs. Earning $1 million a year from Public Purse, control or significant house price level and trying to hide their financial details.
      Good news site too.

  1. The RBA should start worrying about the businesses being boarded up. There is going to be an abundance of unprofitable commercial real estate. Wouldn’t be surprised to see AMP go tits up.

  2. Jumping jack flash

    Agree completely. A review would be pretty useless because the RBA has largely been brushed aside in favour of the “Agenda du jour” and big business.

    “…it’s astonishing the RBA — which has undershot its inflation target for at least 5 years…”

    Libs (and Labs alike) have adopted an agenda of inflation suppression, starting around 2007 when inflation was actually a problem. High inflation wasn’t really a problem at all but that’s another story. Everyone was so fearful of rising interest rates while debt was so high they vowed keep them low. The best way to keep inflation low is to keep wages low. No money, no spending, prices don’t rise. Howard worked this one out.

    Howard’s Workchoices was rejected so the next best thing was to implement supply-side measures and flood the labour market with slaves. All parties did this. The business owners rejoiced, and the rest is history.

    Over roughly the same period, constant and systematic cutting of interest rates all the way to zero failed to counter this suppression. And here we are. Interest rates at zero, and still no inflation.

    The only solution now is to reverse the inflation suppression by cutting back on importing slaves, then QE like mad to keep interest rates from rising until CPI kicks in again and along with it, wage inflation! After wage inflation returns it is no problem to let interest rates rise again.

    Scomo had his opportunity to fix everything, and bungled it.

    So in a nutshell, the RBA can’t be blamed for not meeting their inflation targets because they faced massive headwind due to the agenda of inflation suppression due to everyone’s irrational fear of rising interest rates.

    The RBA also can’t be raked over hot coals for cutting interest rates systematically over 15 years, because they were just trying to induce some inflation to meet their target while it was being madly suppressed so interest rates wouldn’t rise.

    You’d think the government would get the hint when Phil took over and explicitly said that he’d decoupled interest rates from inflation! But no.

    • That’s convenient, can’t be blamed. Govt tinkering with some things, RBA with others. Nice trick they’ve worked out to get minted without being held accountable

      • Jumping jack flash

        All I’m saying is that the RBA shouldn’t be crucified for not meeting inflation targets. Inflation was actively and purposely suppressed by the government, starting with Howard, and continues to this day long after inflation ceased to be a problem.

        On top of that, the CPI figures were manipulated to make inflation appear lower, as almost everyone is aware.

        For sure the RBA could have handled other things better.

        • Genuine Q: Do you know if they’ve been explicitly calling out this inability to meet the target based on those practices since earlier days and in their meetings/announcements?

          I wasn’t aware of Lowe decoupling interest rates from inflation but recall more recently they set a sub 5% employment figure as target. We’ve reached that. Believe we also had a 3.2 CPI print.

          • Jumping jack flash

            He decoupled interest rates from inflation shortly after he took over.

            No, RBA probably isn’t calling out the government for suppressing CPI, at least not yet, but government policy speaks louder than their words.

          • Ok thanks. I suppose with all these lockdowns they can also kick the can further and put it down to not being satisfied with full employment.

        • The RBA should still be crucified. They took house prices out of the CPI in the 1908s, and then removed mortgage repayments from them in 1997 and then they say “Don’t blame us, inflation is low” as the housing bubble is continually blown thanks to the govt incentives and schemes while helped blow it further by cutting interest rates since the 90s.

        • We have had massive inflation in the money supply. Young people cannot buy a house without becoming slaves. The currency debasement has shredded cash as an asset class. I would scrap the bank.

  3. The stupidity of these targets reflects our own belief that the RBA works in a vacuum. In truth the RBA’s mandate is to achieve Relative stability (of the Australian Economy) within the Global economy. Unfortunately (for Phil) our success/failure metrics reflect a desire for Absolute stability irrespective of what happens outside our borders.
    Maybe we should review our expectations before we embarrass ourselves …but hey if Scotty can survive Engadine Maccas than Andrew Leigh has nothing to worry about

    • Jumping jack flash

      “The stupidity of these targets reflects our own belief that the RBA works in a vacuum”

      Definitely!

      I wonder when those trillions of US stimulus dollars will arrive from China to save us, because Scomo’s pathetic effort certainly didn’t achieve much.

  4. Brick on the lever, I said it some years ago, would have been money better spent, now $0.99c was $0.89c when I first suggested this:

    https://www.bunnings.com.au/pgh-common-brick-qld-only-230x110x76mm_p0078202

    Suggest we don’t miss this time and get the helium balloon and string right now before the rush.

    I think this is also supported by empirical evidence that they change the direction of rates AFTER the turn inflation/deflation but who knows if that still holds these days?

    Since central banks came in to stop JP Morgan having to dip into his beer and skittles money each time the banking industry fragged the rest of us, might it be simpler to just nationalise home lending and remove the systemic risk element for the majority of people who work for a living and let the rest eat a bag of dcks every time they go too far? They will do it again. And again and again. Lending outside housing to non-productivity enhancing ventures should have no back-stop by govt and should be entirely segregated to a group who can afford to lose everything.

    Having unaccountable people in charge of printing money is the same as giving this function without fetter to the rich and powerful who will buy their influence on it. What might you expect? Pretty much exactly what we have now.

  5. The purpose of the review should be obvious. Alone among the gilded elite, RBA has dared to question the approved state religion of mass migration 4eva, and this heresy must be expunged before it spreads.

  6. What’s Andrew Leigh’s go? For a lefty he sure seems a fan of more monetary stimulus that’s already had a fair impact on inequality IMHO.

    • What’s left or right got to do with it? Both sides are pro monetary stimulus because they can point to mainstream economics without any referral to the inequality it causes.

      • yep fair point DSS. I wasn’t trying to be disparaging or partisan, but he seems particularly keen for the RBA to keep the throttle open..

        • Agreed. I think you’ve touched on something that probably annoys us both. The left should be much more anti QE and stimulus than it is, but I think it’s probably because the topic is too complicated for most beyond the basics to attack it with any conviction.