It’s Wednesday and a blog-light day as usual combined with some great jazz. But it is worth commenting briefly on yesterday’s monetary policy decision, which saw the Reserve Bank of Australia hold its policy rate at the record low of 0.1 per cent. That was no surprise. Mildly surprising given all the hype about the size of the public debt at present was the RBA’s decision to expand its asset purchasing program by an addition $A100 billion. In effect, the RBA is doing what many central banks are now doing – buying up the debt that has been issued to match (not fund) the expansion of fiscal deficits by governments as they try to deal with the negative consequences of the pandemic. While all this has helped the Australian economy record the disastrous economic impacts of the virus the state of affairs is still very poor. And the RBA knows that and is urging extending fiscal and monetary policy support until “at least” 2024. Yet, the Federal government is starting to talk about cutting fiscal support next month. This tension in aggregate policy was evident before the crisis. And it has been a global tension. The neoliberals haven’t disappeared. Austerity is in the wind. More struggle is necessary....
Bill Mitchell – billy blog
Central bank at odds with Australian treasury – again
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
7 comments:
As long as we insist on a Gold Standard relic banking model (and, so far, the MMT School does so) then we'll have a continuing battle over whom fiat is created for: for the banks and the rich (the most so-called "credit worthy") or for the general welfare.
“They were saying it before the pandemic as the world economy had started to slow quickly on the back of a lack of fiscal support for non-government saving aspirations.”
That’s because rates were/are too low... if we had a 6% 10-year people wouldn’t have to save as much....
And all this is happening in an environment of lockdowns in the first place... which are supposed to be temporary so no surprise they come up with a temporary policy.,,
Nothing has changed...
Biden/Harris officials already making noises about 'wiggle room'.
Andrew,
"then we'll have a continuing battle over whom fiat is created for: for the banks and the rich..."
The private sector does not and cannot create fiat. What the private sector does is create liabilities denominated in fiat currency as a unit of account. These liabilities can be extinguished with other liabilities denominated in fiat currency. There is no need for fiat currency to be involved here.
Also, banks do not create money, nor do they create "money". Banks are in the business of purchasing securities. When a bank customer signs a loan document, they have created a promissory note which the bank then purchases in exchange for a matching deposit liability. It is that deposit liability which is money. It is we, not the banks, who create money.
As an aside, and as Hyman Minsky said, anyone can create money, the problem is in getting it accepted. One example is a vendor take-back mortgage.
A vendor take-back mortgage is a unique kind of mortgage where the seller of the home extends a loan to the buyer to secure the sale of the property. Sometimes referred to as a seller take-back mortgage, this type of loan can benefit both the buyer and the seller. The buyer might be able to purchase property above his bank-determined financing limit, and the seller can get his property sold. —Investopedia
While a vendor take-back mortgage is secured by the property, there is a chance that the buyer will not be able to fulfill their commitment due to job loss, ill health, death, etc., which leaves the vendor with having to resell the property. For that reason, they prefer that the buyer goes through a bank.
What a bank does is pool that risk in the same way that insurance companies pool risk, like the risk of dying in the case of life insurance, or the risk of outliving your savings in the case of annuities, or the risk of house fire, etc. In addition to pooling risk, the bank puts up its shareholders capital as first-loss capital to absorb defaults.
"It is we, not the banks, who create money."
its not a very productive activity to dialog about the definition of a figure of speech...
maybe consider it a symbiotic financial relationship between the borrower and the lender... and forget about the figures of speech..
The private sector does not and cannot create fiat. Ahmed Fares
I've never said it could and this is the second time I've had to correct you wrt that. I've said FOR the banks and the rich not BY the banks.
Are we clear now?
Andrew,
The economy, for the most part, does not run on fiat so why the obsession with fiat. We receive income and pay our bills in money denominated in fiat currency. The tax department is perfectly happy to accept our taxes with the same money we create.
Even within the banking system, most transactions are a wash, i.e., about the same number of deposits and withdrawals for any bank. There is a slight bit of fiat that moves back and forth as reserves between banks to settle balances.
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