The RBA are clueless as to how monetary policy works.
In 1985 Paul Keating lifted government capital controls. This meant that private banks were no longer restricted as to how much money they could borrow from offshore banks and what they used it for.
The private banks had $8 billion in foreign debt in 1985. By 2008 they had $800 billion in foreign debt. This lifted house prices from 4 times average earnings to around 12 times average earnings.
Banks now lend 70% to Households (consumption) and only 30% to Business. (They now tap superannuation funds I.e. your money that be used to pay off your mortgage.)
The 1937 Banking Royal Commission recommended that the central bank should control the volume of credit in the system as opposed to private banks.
In 1992 the RBA was made independent and APRA was split off in the late 1990’s.
It’s a sad reflection on just how little monetary policy is understood that RBA officials had no idea as to what I was talking about when I asked why they don’t establish an infrastructure bank.
It beggars belief that the RBA could print $300 billion to pay people to stay at home and get brainwashed by State Premiers but not actually set about funding our Australia’s infrastructure which would actually solve our productivity crises which is what is driving inflation.
More at: https://www.aph.gov.au
Rural and Regional Affairs and Transport References Committee
01/12/2023
Bank closures in regional Australia
Senator RENNICK: This is my last question. Have the RBA and Treasury considered setting up an infrastructure bank and then using the profits from the infrastructure bank to fund a publicly owned bank and a development bank?
Mr Preston : I would have to take on notice whether we’ve provided advice in relation to that.
Senator RENNICK: I’ve asked both of these questions in estimates. APRA uses macroprudential control. The RBA only uses qualitative control. There’s another lever called quantitative control, controlling the volume of money in the system. It was a recommendation of the 1937 banking royal commission that the central bank should control the volume of credit in the system. Why doesn’t RBA/APRA/Treasury look at controlling the volume of credit in the system, rather than outsourcing it to foreign banks, and then using the profits from that in a productive manner: to fund a development bank and a public bank?
Mr Preston : There are two elements to your question that I’m struggling to piece together. One is, I think, about the volume control of money, which gets to how monetary policy is set. I might leave it to my RBA colleague to offer any views on that. In terms of setting up a public bank, that’s a question of government policy.
Senator RENNICK: Okay, I’ll take that up with the Treasurer. In terms of the volume of money, what’s the RBA’s view on that?
Ms Coombs : I think that we’ve shown that we’ve taken approaches to needing to stimulate the economy through the crisis period of the last four years in ways that were different to what had been experienced in Australia in the previous 20 years.
Senator RENNICK: But that’s a very good question. You printed $300 billion and paid it to people to stay at home, watch TV and be terrorised by the state premiers. My point is: if you can do that for consumption, why not do it for production and, for example, lend money to a state or federal government to build a dam or a power station, rather than pay for people to sit at home and do nothing? Why can you do it for consumption—
Ms Coombs : I think, as my colleague was saying, it was a crisis economy at the time. There was a huge level of uncertainty, and in that period we went to very exceptional policy measures.
Senator RENNICK: We’re living in a cost-of-living crisis now. We’ve got power prices through the roof because there hasn’t been enough investment in baseload energy for the last 20 years. Surely this would warrant some emergency productive stimulatory measures, to go out and build some power stations. We’ve got a pad out there at Kogan Creek in Queensland where you could put a power station and 400 million tonnes of coal, and you could deliver more energy into the market within a matter of five years. Why is it okay to print money just to spend it, to pay people to stay at home but not to fund the construction of sovereign infrastructure, which will help our regions and make them more profitable so banks stay open?
Ms Coombs : From our perspective, it’s back to what should be happening in more of a normal part of the economic cycle than what was happening in that period, during 2020-21.
Senator RENNICK: Governments building infrastructure is a normal part of the economic cycle. This is a Treasury policy—they’re pushing the ‘big Australia’ policy. We’ve had half a million immigrants in the last year. What are we doing to build infrastructure in those regions so that we can attract people out there and keep the branches open?
Mr Preston : You’re taking me outside my field of expertise when it comes to the Australian government’s approach to infrastructure spending. How that works is managed by another department. Your proposition is setting up a—my previous evidence was that I’d have to take on notice any work that we’ve done looking at setting up an investment-funding vehicle.
Senator RENNICK: One of the reasons why branches are closing down is that some of these towns are getting smaller because the essential services are drying up, and they’re drying up because of the lack of infrastructure spending. That’s my point. Is that something that should be on the radar of the RBA/Treasury, rather than just choosing the blunt instrument of quantitative easing? At the end of the day, that’s a speculative measure and a blunt measure, smashing demand rather than increasing supply. I’ll leave that as a comment.
