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The RBA governor jumps the shark

Today we consider how asinine Australian’s monetary policy makers are now sounding. Yesterday, I reported the massive income redistribution that is going on at present as a consequence of central banks now hiking interest rates. This not only favours those with interest rate sensitive assets and punishes borrowers, but also necessitates, under current policy settings that central banks pay millions to trillions of cash to the banks that hold excess reserves. The excess reserves are the consequence of quantitative easing programs. Some might say this is the fault of the QE programs. But an Modern Monetary Theory (MMT) interpretation is that under optimal policy where no public debt is issued at all, the bank reserves would still accumulate. The MMT position would see no support rate paid and a Japan-style zero interest rate regime maintained at the short-end of the yield curve. In that case, there would be no transfers of cash to the banks as a result of their excess reserve holdings. Today, there is more though. On Tuesday (November 22, 2022), the Reserve Bank of Australia governor gave an address (November 22, 2022) – Price Stability, the Supply Side and Prosperity – to the Annual CEDA dinner in Melbourne. He told the audience that we are entering a period of global uncertainty which will require more rapid adjustments in interest rate settings, up and down, to deal with the growing threat of inflation. It was an appalling display of hubris and September cannot come quick enough – when his contract as governor expires.

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