The RBA has to stop selling Australians out.
It’s like pulling teeth with these Central Bankers.
Manipulating interest rates isn’t part of the solution, it’s part of the problem.
The solution to controlling inflation is to build assets to increase the supply of goods and services.
In the private sector the cost of a loan with a secured asset is cheaper than an unsecured loan.
That’s why interest on credit cards is much higher than interest on housing loans. If the loan defaults you get a security in return.
Yet the RBA is claiming a bond secured against an Infrastructure asset would cost more than an unsecured government bond that is secured against the government’s power to tax the population.
This is ultimately going to lead to ruin because lending to a country that doesn’t actually have any infrastructure is ultimately going to lead to a sovereign default as the nation can’t produce enough goods and services to pay the interest.
Secondly the RBA (right at the end of the clip) claim that they only have a mandate to manage the demand side of the economy.
This is completely false. The RBA has a mandate to manage inflation which is a function of both supply and demand.
Treasury should not be issuing bonds if they aren’t going to build assets that pay for the interest on the bonds.
To just issue debt without ensuring there is a way to pay for it other than taxes, is just selling out Australians to foreign banks.
Economics Legislation Committee
27/02/2025
Estimates
TREASURY PORTFOLIO
Reserve Bank of Australia
Senator RENNICK: One of the criticisms I have of central banks is that they only rely on qualitative easing. In other words, they just change the price of money. They don’t look at quantitative easing. In Australia, the RBA outsourced macroprudential controls to APRA back in the late 1990s. You really have three levers to control monetary policy. The RBA uses only one, which is qualitative easing; that is, it changes the price of money. Companies expand the volume of credit by issuing new shares. Why can’t governments expand the volume of credit by issuing infrastructure bonds against sovereign infrastructure, such as dams, power stations, ports, rail and so forth rather than go out and borrow money? You’re from the Bank of England. I understand that it is a bit different. It is a bigger currency, so to speak. Here in Australia in 1985—I’m not sure if you are familiar with our monetary history—Paul Keating lifted capital controls. We stopped controlling our own volume of capital, which was the contradiction of a 1937 banking royal commission recommendation. Now, for example, if we build a dam for $1 billion, rather than issuing new equity for that dam, which is our own title, we’ll go out and borrow $1 billion to build that dam. That means we have to repay the $1 billion to another central bank because we use a foreign currency—that is, Japanese, US or euro. We now have to repay that money to a foreign bank, which gets it from one of those three central banks, rather than use it ourselves. In order to deal with inflation, rather than just control the demand side, should we look at increasing supply via increasing the supply of sovereign assets such as dams, power stations and what-not?
Mr Hauser : Ultimately, government debt is secured on national assets of the kind you describe. I think you are describing a bond that is directly hypothecated to, say, hydro-electric plant A.
Senator RENNICK: Yes. Exactly. It’s secured rather than unsecured against our children’s taxes and our children’s future.
Mr Hauser : Those are more complicated financial instruments than basic vanilla bonds and would probably cost more. They would cost the public more because the returns on that bond would not come, as you say, from the general power to tax but the specific returns on that particular asset. Clearly—
Senator RENNICK: The government would issue its own bond. It is issuing equity. It would come back to us as a dividend rather than go away from us. It comes back to our children as a dividend. You pay the infrastructure bank that is owned by the Australian government. That pays a dividend back to the actual federal government rather than us paying interest offshore to a foreign bank.
Mr Hauser : I might turn to Brad in a minute. Some countries in Europe, as you may be aware, have infrastructure banks. They have their benefits. They do also have some challenges. If you are seeking to sell an equity stake in national assets, investors will demand a premium because, of course, they could lose all their money.
Senator RENNICK: That’s not the point. The federal government would be funding the state government—I know you don’t have states in the UK—to build that dam. The interest the state government pays is back to the infrastructure bank owned by the federal government. So the interest stays in Australia as well as the initial cost of the capital. We’re retaining the earnings here in Australia rather than letting them go offshore.
Mr Hauser : My sense is that this is a perfectly sensible policy proposal. It is one that other countries have adopted. I wouldn’t recommend that it be used as a monetary policy tool. Imagine a world in which we had a very successful funding flow to a set of infrastructure projects of the kind you describe. If inflation spiked, we would have to raise the price of those assets. That would have to be done in order to bring inflation down, but it might damage the investment.
Senator RENNICK: That is my point. Inflation is a relative concept. We had too much demand through COVID. You are now smashing demand rather than lifting supply. We have gone from 14 million people in 1985 to 28 million people today, so our demand has increased. We have to increase supply to match demand, and we are not doing that. We are just manipulating the price of money.
Mr Hauser : I will turn to Brad in a minute. I think you make a perfectly reasonable point that policies that might seek to increase demand would make monetary policy more straightforward. I humbly suggest that’s probably a government and a parliamentary decision rather than one for unelected central bankers, who have struggled in recent years, as you have quite pointedly remarked, to bring inflation back down. Brad, do you want to add anything?
Dr Jones : I would just say that the remit the parliament has given us is a tool to assist with cyclical demand management. The policies that you are talking about focused on expanding the supply side of the economy are very much in the government’s wheelhouse.
