And what is UE you might ask? Unemployment easing! As the major economies start to slow again (as fiscal stimulus is withdrawn prematurely), the calls are coming thick and fast for more quantitative easing. The Bloomberg editorial (June 8, 2012) – The Key to a Stronger Recovery: A Bolder Fed – was representative of this renewed call for the central banks to somehow stimulate aggregate demand to the tune of several percent of GDP in many nations. Like the latest bailout in Europe, the call for more QE is predictable. Neither initiative addresses the real problem with the relevant policy tool or change. What is needed is something much more direct. Why don’t we have a policy of unemployment easing (UE) where the treasury departments, supported by their respective central banks, immediately set about directly creating jobs and reducing the unemployment rates around the world. Putting cash (wages) into the hands of those that are most constrained (the unemployed) will do much more good for the economy than doing portfolio swaps with banks who will not lend to thin air! So we need UE not QE.
On November 16, 2011 by the Australian Prudential Regulation Authority (APRA) published a – Discussion Paper – Implementing Basel III liquidity reforms in Australia – which details how the prudential regulator plans to implement the new Basel III reforms which aim “to strengthen the liquidity framework for authorised deposit-taking institutions (ADIs)”. in that paper, APRA indicated that there were not enough assets in the Australian financial system to satisfy the new liquidity requirements. In other words, there are not enough government bonds on the issue that the banks can use for this purpose. This is a consequence of the excessive pursuit of government surpluses over the last 16 odd years. APRA indicated that a country-specific solution to this asset would be required. in this context, the Reserve Bank of Australia (RBA) a new facility – the Committed Liquidity Facility (CLF), which will provide high-quality liquidity to the commercial banks to allow them to meet the Basel III liquidity requirements. What the CLF demonstrates once again is that a currency issuing government is not financially constrained and can maintain integrity of the of the financial system and purchase any goods and services that are available for sale in its own currency any time that it chooses.