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Monetary policy is not fit for purpose

I have said this many times – monetary policy is not fit for purpose and central banks should be prevented from having discretionary powers to alter rates at will. There are two levels of justification for that assertion. First, at the ideological level, a major (dominant under neoliberalism) arm of macroeconomic policy should not be outsourced to an unelected, unaccountable body of technocrats. This subverts the operation of democracies by allowing elected officials to depoliticise policy settings through their ‘pass the parcel’ approach – ‘oh the central bank is independent and we never interfere in their decisions’ type narrative. Second, on a technical level, the officials have little idea of when and what the impact will be of their policy changes. There are too many unknowns, mostly relating to the distributional consequences of interest rate changes (creditors win, debtors lose) which make it impossible to predict when the creditors will spend up their gains and debtors cut their spending. As a result, there are many examples in history of central banks moving too early (relative to their stated objective) or too late, with the outcome being that they make matters worse, particularly prolonging recessions. This situation is once again looming up in Japan at the moment.

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Latest changes to Australian privatised job service industry are just window dressing and the sociopaths remain dominant

In the 1990s, a new industry was created in Australia. It produced nothing. But it was the federal government’s response to the political fallout from the high unemployment that had persisted since it abandoned its committent to full employment in the 1980s as neoliberal ideology became dominant and the corporate sector took control of public policy. The industry was the ‘unemployment’ industry and took the form of a privatised job services system which was paid billions of dollars in public money to ‘manage’ the unemployment. It produced nothing beneficial and has destroyed millions of lives. It has been a public policy disaster for more than 28 years yet successive federal governments have persisted with it. Yesterday (May 27, 2026), the Federal government announced what it claims are the first major reforms in decades of this failed system of job services provision. Unfortunately, the changes announced by the Australian government yesterday are just window-dressing and behind the hype remains a deeply flawed system that will never produce positive outcomes for disadvantaged Australians. What it will continue to achieve is the enrichment of the privatised operators and their shareholders or stakeholders, while the unemployed are forced to live on income support payments that are well below the poverty line and be subjected to sociopathological obligations that do nothing to advance their job prospects. The whole privatised system should be abandoned.

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Another major disservice in the quest for an enlightened society

I read two articles at the airport early this morning, while I was waiting for a flight, which I wish I hadn’t read. The first was bemoaning the approaching “$A1 trillion problem” that apparently the Australian government and all of us are about to face. It was written by a journalist who is schooled in paraphrasing press releases from corporations and investment banks and holding out the results as somehow informed and independent commentary. The second was about the UK and how it faces a major issue with the ‘bond markets’ a la Liz Truss-style and how it should instead do something about the Bank of England. It was written by a progressive academic (sadly). Neither commentary captures the essence of the issue they seek to write about. But they do present enough reality to provide a pathway into something much better. Today, I will deal only with the alleged $A1 trillion problem.

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Australian labour market – sharp deterioration in April (RBA will be happy!)

The Australian Bureau of Statistics (ABS) released the latest labour force data today (May 21, 2026) – Labour Force, Australia – for April 2026 – which showed that the labour market deteriorated significantly in April. All the main indicators were moving in negative directions – employment growth fell, participation fell, unemployment increased, the employment-population ratio fell. There are now 10.2 per cent of available labour not being used (either unemployed or underemployment), which makes a farce of the RBA’s claims that the labour market is tight. There is substantial scope for more job creation given the slack that is present. However, if the global situation doesn’t improve quickly then that slack will increase sharply.

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Australian government being bullied by the RBA to move towards irresponsible austerity

Last Tuesday (May 12, 2026), the Australian Treasurer introduced the 2026-27 Fiscal Statement (aka Federal ‘Budget’). I have been reluctant to comment on the ‘Statement’ given the constant repetition by the Treasurer about a ‘trillion dollars of debt’ and all the rest of the flawed conceptual development and nomenclature that has surrounded its release and subsequent public commentary. But I do want to make a few comments on some of the detail and subsequent commentary. The Government is running scared at the moment as the extreme Right-wing political party, One Nation threatens to take a swathe of seats at the next election (similar to what Reform UK is doing). It is also being bullied by the RBA Governor who is threatening more destructive rate hikes if the government doesn’t cut its fiscal deficit. Such a policy stance will see unemployment rise further (and in my estimation, much higher than the Government forecasts). And if there is any growth associated with the fiscal stance it will come from increasing household debt which is unsustainable given the record levels of indebtedness currently endured by the household sector. Overall, this is not an impressive fiscal statement.

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Latest wages data makes a mockery of the RBA claims that the economy is overheating

Last week, the RBA hiked interest rates again and tried to claim the economy was overheating. One way that we assess that claim is via the wages pressure in the labour market. An economy that is running out of productive resources, typically sees firms competing for scarce workers and bidding up wages to attract them. Yesterday (May 14, 2026), the Australian Bureau of Statistics released the latest – Wage Price Index, Australia – for the March-quarter 2026, which shows that the aggregate wage index rose by 3.3 per cent over the 12 months and is steady. Meanwhile, the annual inflation rate for the March-quarter came in at 4.1 per cent, while the monthly CPI inflation rate for March was 4.6 per cent. That means real wages are falling quite sharply, which is not consistent with an economy that is overheating and running short of resources. The RBA are grossly misrepresenting the current situation because they need cover to pursue their ideological crusade and assert their prominence in the policy making arena. The costs are borne by the workers who cannot get decent wage rises and the low-income mortgage holders that are transferring income (via the rate hikes) to the financial asset holders and bank shareholders (the ‘top-end-of-town’). It is extraordinary that the working class is so compliant in the face of this arrant power abuse by the elites.

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Article 4 of the Bank of Japan Act 1997 ensures fiscal and monetary policy must work together

Last week, the RBA increased interested rates claiming there was a growing capacity constraint (even though there is 10.2 per cent labour underutilisation) and inflationary expectations were increasing and in danger of propelling inflation even further. The RBA governor once again threatened the Treasurer along the lines of ‘unless you cut net spending we will continue to hike rates’ – which not only demonstrates that the central bank is not politically independent but also reveals how poor monetary policy then compromises fiscal policy. The double jeopardy of New Keynesian macroeconomics – pretend monetary policy is effective and then cripple fiscal policy (which is effective) by subjugating it to the central bank whims. If we look at what is going on in Japan at present, we get a different angle to this. The Bank of Japan is certainly worried about inflation but it is being tethered to some extent by the Prime Minister who is placing a specific emphasis on Article 4 of the Bank of Japan Act. The resulting policy dynamics stand in sharp contrast to the way the RBA acts and thinks it is appropriate to bully the government into pursuing austerity when there is massive wastage of available labour resources.

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RBA rate hikes – ideology triumphing over evidence and reason

In some respects, we are back to where we were in 2021 when the supply constraints that arose from the COVID lockdowns and widespread illnesses started to reveal themselves in escalating prices around the world. This time it is the US-Israel folly in the Middle East that is the culprit and the supply constraints are largely confined to energy, specifically oil (and its derivative products). And like the COVID inflation, the current inflationary pressures will prove to be transitory and will dissipate as soon as Trump gets bored and decrees his folly is over. It is irresponsible to adjust monetary policy, which will have long-term consequences, to deal with a short-term blip, especially when the causes of that blip are not sensitive to interest rate changes. When the RBA hiked interest rates again they knew they could not justify it based on the energy cost rises. Everyone knows these cost rises are temporary. So the RBA resorted to “capacity constraints” and ‘rising expectations’ to justify their action yet provided no robust evidence to support these assertions. It was ideology triumphing over reason. Just what we have come to expect from our central bank.

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US economy on an unstable knife edge at present

The income and wealth inequality that continues to grow in most advanced nations has led to some new terminology being introduced into the lexicon of economic terms, the – K-shaped economy: When growth moves in two different directions. When this pattern of growth is identified you know how far out of kilter the world has become. Essentially, for most people, times are so tough that even essential goods and services become so expensive that even non-discretionary spending starts to take a hit. Yet, for the top-end-of-town, with the high wealth and high incomes, who are boosted by rising central bank interest rates and rising asset prices (financial and real estate etc), their spending goes crazy as the Porsches roll out the showroom door at an increasing rate. The K-pattern relates to the less well-off heading south and the rich and high income cohorts heading north in terms of prosperity and capacity to consume. The latest data from the US, which exemplifies this trend more than most countries, given its massive inequality, clearly demonstrates this phenomenon.

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Has the UAE seen the writing on the wall (peak oil that is)?

A lot of the post WW2 institutional structure is being challenged at present and/or vanishing altogether. Some of the changing environment will prove to be disastrous for the world, while some of the changes are likely to be beneficial. There will also be pro and con of many of the disruptions. Tomorrow (May 1, 2026), the United Arab Emirates (UEA) will formally leave the Organization of the Petroleum Exporting Countries (OPEC), which many consider will mark the beginning of the end for the cartel that has shown at various times since it was established in 1960, that it can manipulate world oil prices to the advantage of cartel members. But OPEC has been in decline for many years and member states have been doing informally, what the UAE plans to do formally as a Non-OPEC, non-DoC member. The departure will have some negative impact on oil prices once the Iran mess ends. But the most significant aspect I think is that it marks the recognition by one of the largest oil producers that peak oil is past and they need to cash out their remaining reserves and invest in renewables before it is too late. If that is correct, and that sentiment catches on then positives might come from the decision in the medium-term.

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