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The Forum > Article Comments > The RBA`s struggle about what to do > Comments

The RBA`s struggle about what to do : Comments

By Henry Thornton, published 1/10/2013

In the end, the Aussie dollar will only be tamed by Banana Republic #2 (unlikely with this government) or some sort of tax on capital inflows.

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The elephant in the room is the tea party and what they seem to be doing to the world's largest economy, with their mindless antagonism to Obama care.
A shut down of the US govt, and a resultant contraction of the US economy by around 1.5%, could precipitate another global slow down, and even more upward pressure on the AUD.
Our FBA has no control over what the rest of the world does, and as the housing market shows, has all but exhausted its ability to moderate the high AUD, with interest rate reductions.
It could try quantitative easing, and quite literally double the money supply?
All that's needing to accomplish that is a few strokes on a keyboard!
But that would require official permission from its masters, and like the Author, (gasp!) I don't see that happening, due to a lack of credible/literate economics inside the upper echelons of the coalition.
Imagine the antics and language of a florid faced Barnaby, if someone suggested we double the money supply or (GASP!) introduce a great big new tax!
One can only imagine that this has to get worse, (a bubble burst) before it gets better, along with yet another change of govt, back to a crowd, who just might listen to some sage advice?
Just don't hold your breath!
The only real and permanent remedy is quite massive and thoroughgoing, complete tax reform!
Again that's not ever going to happen, while we are led by the tin eared people, who are welded to the very economic theories, that created the calamity in the first place!
Rhrosty.
Posted by Rhrosty, Tuesday, 1 October 2013 10:57:48 AM
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Rhrosty, are you actually claiming that "a few strokes on the keyboard" can create real physical wealth - roads and ports and hospitals - out of thin air, and that it is only the want of economic expertise that is preventing the government from realising this fact?
Posted by Jardine K. Jardine, Tuesday, 1 October 2013 11:37:49 AM
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I never ever made such an astonishing claim JKJ!
Listen and learn, this is exactly what happens, with quantitative easing.
Most of our so called wealth is just worthless paper, or notations on magnetic tape or some such, so literally doubling it with a few key strokes is of very little moment, except say, it eases the demands on foreign currency or capital!
Which by the way, is only as safe as the economy that produces it.
However, the real solution to our current raft of problems is genuine and long overdue tax reform.
That reform would simply jettison the current rotten mess, we call our tax act, and replace all that convoluted complexity, with a single stand alone expenditure tax.
That would not necessarily reduce our individual tax burden, but spread it far and wide, and onto all those currently avoiding a FAIR share.
This alone can deal with the approaching destiny of demography.
The upside is, we will no longer have to shell out the averaged 7% in tax compliance costs, which will then be no longer necessary, and in most cases, more than, the new, better spread tax liability.
The downside is, some will finally have to pay tax! One thinks of the 15 or more billions currently avoided by so called religious establishments, for starters!
We also need to end negative gearing to finally put some downward pressure on house prices!
We currently have the highest median house prices in the English speaking world, with Sydney now listed as the world's most expensive city.
In place of housing as a relatively safe haven for capital, we should create thirty year, self terminating, income earning infrastructure bonds?
These would attract all the foreign capital we could possibly need, without also attracting the foreign exploiter/carpet bagger/multinational tax avoider?
Rhrosty.
Posted by Rhrosty, Tuesday, 1 October 2013 12:52:19 PM
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We could also try social credit. If we would create roads, ports and very rapid rail out of virtual thin air?
The theory is, the sitting govt creates a people's bank, and then uses the debit side of the ledger to create, INCOME EARNING nation building infrastructure/low rent housing and the like; with only actual admin costs, (around 2.5%) needing to be applied.
Once the income earning asset is created, it then offsets the debit. Which for bookkeeping purposes, is simply written off!
As time goes by, the increasing value and income earnings of all such assets are loaded onto the credit side of the ledger, which is then reinvested and reinvested in more of the same.
It is the govt guarantee, that makes any and all such schemes viable?
And indeed, not too dissimilar to what occurs in, highly profitable, (licensed to create money) private banking today!
We just need to avoid allowing people, without proper means, from ever becoming more than renters.
Such housing schemes would of necessity include some lower level commercial premises, and high class penthouses, to avoid the possibility they could ever degenerate, into no go ghettos!
Even so, low cost housing, would allow some of the more industrious to set aside some of their income, as a sound deposit.
And it is those very savings and their consistency over time, which almost alone, would mark them as a good risk to buy the premises, they currently live in?
Which for the poor and downtrodden, would be all they might aspire to, initially?
As some might remark, 50% of something, is a whole lot better than 100% of nothing!
Rhrosty.
Posted by Rhrosty, Tuesday, 1 October 2013 1:29:31 PM
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Snake oil.

It all depends on the assumption that you know how to direct the economy so as to direct scarce resources to their most productive and fair uses.

You don't.
Posted by Jardine K. Jardine, Tuesday, 1 October 2013 4:38:05 PM
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Resources are not scarce. We have plenty of minerals and energy. It is money that has been made scarce in the real economy because we no longer create any of our credit.

Even our inflationary money gets created as debt by mostly foreign Central Banks. We lose out 3 times. First by depreciation of our currency, then have to repay the principal and last paying the interest. Our inflationary money is $45 billion pa + interest. Then there is our growth of 3% which is another $45 billion + interest.This is why we are consumed by debt and have no money for infrastructure and services.

Why don't we create our own credit? Money is created with the click of a computer mouse.
Posted by Arjay, Wednesday, 2 October 2013 6:10:24 AM
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Observations like this still annoy me.

>>It could try quantitative easing, and quite literally double the money supply? All that's needing to accomplish that is a few strokes on a keyboard!<<

Yep. All that is needed is for someone to sit at a computer, and stroke its keyboard. Presumably, it doesn't matter who is doing the stroking, probably some idiot somewhere in the global bankster community.

But it is just a bedtime story. A bit like those reds-under-the-bed tales we were told.

Back then, all that was needed to end the world during the cold war was simply somebody, somewhere, pressing a button.

As I recall, it was usually red.

The image was a powerful one, no doubt about it. But totally mythical, in the sense that the button was at the end of a very long command line. And that the wherewithal to actually unleash all that nuclear destruction had been painstakingly assembled, over a number of years, each unit with its own purpose, power and direction. After all, the button had to have some kind of practical connection with the real world, in order for it to have any impact at all.

The chain of events needed for that finger to do its deadly work was long, and complex.

These days we seem to have a similar imaginary red button, only this time it is a computer mouse, or "a few strokes on a keyboard".

In order for our modern-day red button to actually do anything at all, it needs to be attached to specific financial instruments, that have to be created, priced and sold, before anything actually happens. And the chain of command to actually caress that little mousie into action involves a lot of mathematics, and a fiscally attuned government. You don't just wake up one morning and say, "I know, let's double the money supply".

QE is a process, not an event. It is designed to address part of a very complex series of problems.

It is not a red button.
Posted by Pericles, Wednesday, 2 October 2013 4:20:27 PM
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Pericles they have more than doubled the money supply. World GDP = $70 trillion. World Derivative market = $700 trillion. All this money still enters the non productive gambling derivative market while the real economy gets starved of cash. They are a bunch of economic terrorists.
Posted by Arjay, Wednesday, 2 October 2013 5:37:42 PM
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