It was just over 12 mths ago that the stimulus packages began.Labor was pannicked by it's advisors and the RBA into borrowing $ billions from China.Rather than creating our own credit ie get the printing presses going here,we decided to borrow from someone else's printing press.

The result is worse in this case,since we created more inflation on borrowed money and have the the additional burden of paying back the debt on a depreciated currency.The RBA is taking the money out at one end to the big end of town that futher inflates financial aggragates,and Kevin is giving us debt and devaluation of our currency via excess borrowing.It would have been better to just keep interest rates low for a while and let the economy recover with no additional debt.

So now increased rates will see people lose their houses,consumer demand will fall and a loss of jobs/businesses will ensue.

We need an increase in production,not an increase in money supply.We are too busy paying off debt to build the infrastructure needed to make our economy more efficient.

Arjay this time I agree with you.

We could create our own credit at much less cost than borrowing. It is insane.

People panic when printing money is mentioned suddenly their thoughts turn to Africa or others where the money invested was not then returned to the coffers. They think inflation when either options mean putting money into the economy and then taking it out in repayments.

Madness for sure.

pelican.It would be boring world if we agreed on everything.

The RBA and the mint used to generate more of our currency when there was more cash in our economy.Most of our money is created as debt when people take out loans.So some is supplied by the RBA but most comes from foreign banks.Now with an increase in pop of say 3% and GDP of 3.5% there need to be an increase in the money supply of 6.5%.We also have an average inflation rate of 3.4%.So our money supply increases by approx 10% pa.Who generates most of this new money?

The RBA should be creating this new money since the wealth was generated here.If we are borrowing to pay for an increase in national wealth,then this means we are letting foreign banks loan our wealth back to us at interest.

Now it is very difficult to find out the actual amounts generated by the RBA p.a.We borrow most of our capital from OS.This is why we are so much debt.So if anyone knows how much money the RBA generates each yr,that would be a good starting point for analysis.

Ah Pelican, you are such a charming lady, with so many talents,
but numbers is not one of them :)

Fair enough, none of us are perfect. Arjay OTOH is once again
his deluded self.

So your thoughts are all very sweet, but totally unrealistic.

Our currency is valued every day and every hour, by the marketplace.
That involves thousands of people of means, from all over the world,
making judgements and putting their money where their mouth is.

Now let's say that Arjay ran our RBA and started printing dollars.
The market is not silly and would know what he was up to. The more
Arjay printed, the lower they would value the Australian $.

So when it came to Australians buying petroleum and all the other
things that we import, in A$ terms they would cost substantially
more. Inflation would set in, as unions screamed for higher wages,
to compensate for higher prices of everything. Interest rates would
rise, as investors abandoned the A$, due to higher inflation and
all that money printing.

Pelican, with her huge heart but no sense of numbers, would be
crying out on OLO about the unfairness of it all, as people lost
their homes to ever higher interest rates, to compensate for
higher inflation.

The story goes on if you wish :)

So perhaps we are better off with Arjay continuing with his
conspiracy theories on OLO to keep him off the streets and we'll
let slightly more talented people run our RBA.

Yabby ,you don't have to be good at numbers to have commmon sense.Kevin's borrowing has caused inflation.This coupled with an increase in energy prices and other Govts charges has deacreased the purchasing power of our money.The price of houses have shot up due the increase money supply ,overseas money allowed by Kevin into domestic market and the continued restriction of land by our state Govts so they can profit.

The result is that the RBA has decided to remove this excess money(stimulus), that they advised Rudd to borrow,by way of interest rates rises.A comment the other day was the RBA was doing the heavy lifting and Kevin needs to do more with stimulus.So we can go into more debt while the banks makes more profits.

Show me the logic in this reasoning? The big end of town is screwing the worker and Rudd needs to take control of monetary policy.

Arjay, I've said all along that the stimulus was not required in
the first place and as we've seen, it was not spent wisely, but
largely wasted. A bit of a recession is in fact not bad for an
economy, it teaches people to once again become prudent and restores
values.

The point however is this. If Kevin borrowed, which arrording to
you caused inflation, then Kevin will have to tax to repay it,
which will dampen inflation at some point. If Kevin had cranked
up the printing presses as you suggest, Govt could porkbarrel with
impunity, which would lead to massive inflation breakouts.

Yes, the RBA does use interest rates as a blunt instrument, but its
the best one that they have. The good thing about it is that it
puts the brakes on the largest risk takers, who have the least
equity and live closest to the edge of risk.

The RBA is yet to figure out why house prices increased so much,
as since the first home owners grant was dropped, bank lending for
housing has actually decreased. Its not houses at the poor end of
town that have risen, but in wealthier suburbs. A third of houses
sold and bought, have no mortgage at all involved.

So either a lot of DINKS are uptrading houses and using personal
savings to do it, or alot of foreigners with cash in their pockets
have bid up houses, or more likely a combination of the two.

That could be why Sherry has now put the brakes on foreigners buying
houses locally, for it seems that many were left to stand empty and
not rented out, putting and even larger squeeze on a housing market
that is already short of homes, due to migration.

Yabby
You are thinking purely in terms of the source of money rather than what happens with it at the end of the cycle. If you put money into an economy you have to remove it again (repayments) to control inflationary pressure.

Whether you get the money from borrowings (foreign) or not, the effects are still inflationary in the long term if there is no withdrawal of money from the economy. There is also interest rate manipulation to control inflation, particularly in the housing market which is what is happening at the moment.

Why do you think borrowed money will be less inflationary?

Please edumacate me.:)

Pelican, you have to understand the reasons why we seperate central
banks from politically controlled treasuries. The role of central
banks is to make decisions which keep the economy on an even keel,
avoiding recessions as well as avoiding too much growth, or inflation
sets in.

If Govt paid nothing for money, they could spend at will, slosh it
all around, to buy the next elections etc. If they have to pay a
price for it, it makes them think twice, for it will start to cost
them. So it helps with fiscal discipline.

Central banks can in fact print money in times of emergency, as they
did in the US and Britain, during the GFC.

Where the Govt borrows, does not really matter. It could borrow from
the Reserve Bank. It could borrow from people in the street, it
could borrow from overseas. In the end it all pans out, for of
course our Reserve Bank has to have the money to pay other countries
our huge current account deficit each month. In the past that
has been solved by our commercial banks borrowing ever more, to
lend to people, businesses, State Govts or whatever. If they did
not bring in the foreign currency through loans, the Reserve Bank
would have to do it. For at the end of the day, Australia as
a whole, has to pay its debts to the rest of the world. We ignore
it at our peril. And we can't print dollars to do it, they won't
accept it

Yabby I understand your thinking. I always try and look at things from outside the square even if sometimes I jump back into it.

We would not have to print money per se. It is all electronic transactions, would China care if the money was 'printed' metaphorically speaking.

If money is printed in times of financial distress such as the GFC why not to support infrastructure with those protective mechanisms to protect against inflation I mentioned earlier

While governments may or may not be trusted to slosh money around this could easily be avoided via regulatory or legislative controls to prevent rogue government spending particularly for ill-perceived political gain.

It just seems insane to use Arjay's description, to borrow and then pay back huge interest payments which adds a burden to the cost of infrastructure projects.

There's a hole in my bucket, dear Liza, dear Liza....

>>We need an increase in production,not an increase in money supply.We are too busy paying off debt to build the infrastructure needed to make our economy more efficient.<<

Ahem. "increase in production" of what, Arjay?

Digging stuff out of the ground? We seem to be fairly proficient at that already. Indeed, if the miners increase their production further, Kevin will only ping them for more tax. Why would they bother?

Growing food and stuff? You can't open a newspaper without hearing how tough it is out there to make a quid. Drought one minute, floods the next. How do you suggest they "increase production"?

Manufacturing stuff? Our manufacturing industry needs to be able to compete with the rest of the world, so is continually being forced into a corner, away from the volume and the big bucks. Not much opportunity to increase production there.

The great thing about an open market, as Yabby keeps trying to point out to you, is that it quickly puts a price on everything. Including money - or, more specifically, the cost of borrowing money. If it is too expensive to borrow, people don't do it. If it is too cheap, no-one is going to bother to lend it.

As for the stimulus, its real significance was the fact that it kept some people in work, who otherwise would not have a job. Not particularly beneficial in the long term, in that it distorted the market forces that say "this job has stand-alone value to the economy as a whole". But politically, it meant that a whole lot of people don't get to vote at the next election from the dole queue.

And in the meantime, "working families" can still put bread on the table.

And a 3-D TV in their lounge room.

http://www.panasonic.com/3d/

Whether it offends your sense of justice or not, the world survives on credit. I know you would prefer we all saved before we spent, Arjay, but those days, both for consumers and for governments, have gone forever.

How can people save pericles when we are too busy paying taxes to pay off debt? Having better infrastructure does improve production,since people do not spend hours getting to and from work.Many people are stressed/exhausted before they get to work because of the lack of infrastructure.Are you saying emotional/physical well being has no influence on productivity?

There is production happening here whether it be digging ore/coal out of the ground,building houses,roads bridges etc. As you have noted previously the balance of trade is fairly good but we borrow money from OS banks puts us in unnecessary debt.Much of the money we need can be generated here so long as the money supply does not outstrip real productivity.Money only represents human potential.It is not necessy to borrow from the big counterfeiters like the IMF and Bank of International Settlements.They are a fraud.

Fair comment Arjay.

>>How can people save pericles when we are too busy paying taxes to pay off debt?<<

Trouble is, we are already in debt, having used the money to buy stuff. Now it is time to pay it back, or at least keep up with the interest payments.

>> Having better infrastructure does improve production,since people do not spend hours getting to and from work.<<

No question. Unfortunately, building better infrastructure requires money. Governments get money by taxing us - so before we can have more infrastructure, we have to pay more taxes. Or if you want private enterprise to do the job, guess what? They will need to borrow money.

>>Many people are stressed/exhausted before they get to work because of the lack of infrastructure.Are you saying emotional/physical well being has no influence on productivity?<<

Not at all. It has a considerable influence. But you cannot simply wish it away. You have to have money to pay the builder to build your infrastructure.

>>As you have noted previously the balance of trade is fairly good but we borrow money from OS banks puts us in unnecessary debt.<<

But ask yourself, where does this money go, Arjay? Into whose pockets? And then, what do they do with it, once they have it?

It's a cliché, but a useful one: follow the money.

But you still misunderstand the reality of money:

>>Money only represents human potential<<

No it doesn't. Look up the word "potential" and ask yourself how that relates to people and money - you'll find that it doesn't fit anywhere. Money is a form of measurement of human activity, most useful when that activity needs to be exchanged for value.

Money does represent human potential, aside from the medium of exchange store of wealth etc.Fiat money has no intrinsic value,therefore it does represent unrealised potential.It all depends on how we make the game of economics fair.Govt should only be a referee,not and player.Currently we have and oligarchy whereby Govt and Corporates have subjugated the individual in debt slavery.There is a better way.

Free humans from any slavery and creativity will make many things possible.Pericles,we humans in this era are limited by our avarice, fuelled by insecurity & fear.

Pelican, it does not matter if money is printed or not. The
RBA could write an IOU to other countries, when they have to
pay our current account deficit. But they would need US $,
as that is the global default currency.

So how do we get US $ to pay our bills? We have to borrow
them.

One answer to our current account would be if Australians
saved more. I was happy to see that the latest tax
suggestions to Govt, suggested exactly what I have been
harping on about for years, when it comes to tax on
bank deposits. But the Govt ignored them.

Australian's prefer to be the world's largest gamblers,
with something like 20 billion a year being spent,
commonly down the pokies. If they had a reason to
save more, without getting done like a dinner on tax,
they might actually do it. People generally act out
of self interest.

If Govts really were serious about infrastructure, they
could start by spending the money which they already
receive, a bit more wisely. Add up the megadollar give
away, insulation scheme, wasted money on school halls,
etc, you could have built lots of infrastructure.

Working in the public service, you yourself would
know how much money is wasted by Govt.

I realize that it is one of your mantras, Arjay, but you do need to explain what you mean by it a little better.

>>Money does represent human potential, aside from the medium of exchange store of wealth etc.<<

It is the word "potential" that robs your statement of any meaning, thus:

potential n.
1. The inherent ability or capacity for growth, development, or coming into being.
2. Something possessing the capacity for growth or development.

You are suggesting that money is somehow the measure of something that does not yet exist - it may do in the future, but not now. That clearly cannot make sense. What happens to money if that potential is not realized?

I also take issue with your view that money is somehow a "store of wealth", which it is not.

It may be used as a measure of stored wealth at a specific point in time. But money itself has no intrinsic value - it only has value when it is used.

Hiding it in a vault somewhere actually eliminates its value entirely. You can look at it, and touch it. But it doesn't actually assume any measurable value until you do something with it.

Think about Weimar inflation for a moment. If you parked a million Marks on Monday, when it might have bought you a loaf of bread, and brought it out again on Friday to do the same transaction, you would have been laughed at, as the price was now two million. Far from being a store of value, it turned out to be a sink of value.

>>Fiat money has no intrinsic value,therefore it does represent unrealised potential<<

No money, fiat or otherwise, has any intrinsic value.

A ten-dollar bill, in any currency, is simply a unit of information.

An ounce of gold has the same characteristic. An ounce today costs over US$1,200, when five years ago it was a third of that price. But that value is only realized if you sell it.

Start thinking of money as information, Arjay, and you won't go far wrong.