Australian Treasurer refuses to use his legislative power to rein in the rogue RBA

It has been quite the week in central banking terms in Australia. We had the Federal Greens economic justice spokesperson demanding that the Federal Treasurer use the powers he has under the Reserve Bank of Australia Act 1959 and order the RBA to lower interest rates. Then we had the Treasurer playing the ‘RBA is independent’ game, which depoliticises a major arm of economic policy, a (neoliberal) rort that ordinary people are finally starting to see through and rebel against in voting intention. Then an ABC journalist finally told his readers that the RBA was using a flawed theory (NAIRU) and was screwing mortgage holders relentlessly for no reason. Then the RBA Monetary Policy Board met yesterday and held the interest rate constant despite the US Federal Reserve lowering the US funds rate by a rather large 50 basis points last week and continued their pathetic narrative that inflation was too high and ‘sticky’. And then, today (September 25, 2024), the Australian Bureau of Statistics (ABS) released the latest – Monthly Consumer Price Index Indicator – for August 2024, which exposed the fallacy of the RBA’s narrative. The annual inflation rate is now at 2.7 per cent having dropped from 3.5 per cent in July and the current drivers have nothing to do with ‘excess demand (spending)’, which means the claims by the RBA that they have to keep a lid on spending – which really means they want unemployment to increase further – are plainly unjustifiable. As I said, quite a week in central banking. My position has been clear – the global factors that drove the inflationary pressures are resolving and that the outlook for inflation is for continued decline. This was never an ‘excess demand’ episode and there was no case for higher interest rates, even back in May 2022, when the RBA started hiking.

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More economists are now criticising the British government’s fiscal rules – including those who influenced their design

There is renewed debate in Britain at present on the use and design of the new government’s fiscal rules, which many people are now saying will force expenditure cuts which will “damage the ‘foundations of the economy”, according to the Financial Times article (September 16, 2024) – UK spending cuts would damage ‘foundations of the economy’, Reeves told. Those reported ‘telling’ Reeves include British economists, who were instrumental in the design of the rules that the new Chancellor has taken on and deemed necessary to rigidly control government spending. The economists claim that if Reeves continues to operate according to the fiscal rule “inherited by the Labour government” it will cut public investment expenditure significantly and undermine prosperity. I agree that the application of the ‘Fiscal Rules’ will be damaging but I find it amusing that some of the ‘Letter Writing Economists’ were prominent in advocating such rules in the past as the way ahead for British Labour are now criticising those rules.

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Australian labour market – signs of weakening with underemployment rising

Today (September 19, 2024), the Australian Bureau of Statistics released the latest – Labour Force, Australia – for August 2024, which shows that the labour outlook might be about to change despite the on-going employment growth. Employment growth was biased towards part-time jobs as full-time employment fell. The unemployment rate was slightly lower (decimals) as employment growth outstripped the underlying population growth – although the rise in underemployment might be due to employers rationing working hours as a first step in dealing with lower sales. We will know more next month. But we should not disregard the fact that there is now 10.6 per cent of the working age population (over 1.6 million people) who are available and willing but cannot find enough work – either unemployed or underemployed and that proportion is increasing. Australia is not near full employment despite the claims by the mainstream commentators and it is hard to characterise this as a ‘tight’ labour market.

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The ‘MMT is dead’ crowd are silent now the yen is appreciating

It’s Wednesday and I am mostly thinking about Japan today. In just over a week’s time, I will once again head to Japan to work at Kyoto University. I will be there for several weeks and will provide regular reports as I have in previous years of what is happening there. The LDP leadership struggle is certainly proving to be interesting and there is now a view emerging that the hoped for break out from the deflationary period has not happened and further fiscal expansion is necessary. This is at a time when the yen is appreciating and the authorities are worried it is making the external sector noncompetitive. That is, light years away from the predictions made by the ‘MMT is dead’ crowd when they saw the depreciating yen during 2022 and beyond. It just goes to show that trying to interpret the world from the ‘sound finance’ lens will generally lead to erroneous conclusions.

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The 20 EMU Member States are not currency issuers in the MMT sense

For some years now (since the pandemic), I have been receiving E-mails from those interested in the Eurozone telling me that the analysis I presented in my 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale (published May 2015) – was redundant because the European Commission and the ECB had embraced and was committed to Modern Monetary Theory (MMT) so there was no longer a basis for a critique along the lines I presented. I keep seeing that claim repeated and apparently it is being championed by MMT economists. While there are some MMTers who seem to think the original architecture of the Economic and Monetary Union has been ‘changed’ in such a way that the original constraints on Member States no longer apply, I think they have missed the point. They point to the fact that the ECB continues to control bond yield spreads across the EU through its bond-buying programs (yes) and that the Commission/Council relaxed the fiscal rules during the Pandemic (yes). But the bond-buying programs come with conditionality and the authorities have now ended the ‘general escape clause’ of the Stability and Growth Pact and are once again enforcing the Excessive Deficit procedure and imposing austerity on several Member States. The temporary relaxation of the SGP rules (via the general emergency clause) did not amount to a ‘change’ in the fiscal rules. Indeed, the EDP has been strengthened this year. The Member States still face credit risk on their debt, still use a foreign currency that is issued by the ECB and is beyond their legislative remit, and are still vulnerable to austerity impositions from the Commission and their technocrats. To compare that situation with a currency-issuing government such as the US or Japan or Australia, etc is to, in my view, commit the same sort of error that mainstream economists make when they say that ‘the UK is at risk of becoming like Greece’ or similar ridiculous threats to discipline fiscal authorities in currency-issuing nations.

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British House of Lords Debt Report starts with false premises and then just repeats conventional fictions

On Tuesday (September 10, 2024), the UK House of Lords Economic Affairs Committee released their first report for the Session 2024-25 (HL Paper 5) – National debt: it’s time for tough decisions – which was the result of their decision to hold an inquiry – How sustainable is our national debt? – into whether “UK’s national debt is on a sustainable path” and whether “the Government’s fiscal rule regarding the national debt is meaningful”. They didn’t need a large-scale investigation to come up with answers to those questions: Yes and Not meaningful- are my answers based on the reality of the currency status of the British government.

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Treasurer-central bank stoush – a case of the pot calling the kettle black

The Reserve Bank of Australia has certainly attracted headlines this last week or so starting with the claim by the Federal Treasurer that the monetary policy stance is “smashing the economy” (Source), while a past Labor Treasurer and now Labour Party National President (Wayne Swan) was much more openly critical of the RBA conduct over the last few years. Things then came to a point when the new RBA governor gave a speech the day (September 5, 2024), the day after the National Accounts came out with the news that the GDP growth rate had slumped to 0.2 per cent for the June-quarter (well below trend), and told her audience (a Foundation that “supports research into adolescent depression and suicide”) that around 5 per cent of mortgage holders were falling behind payments and many would “ultimately make the difficult decision to sell their homes” (Source) as they would be forced into default. Meanwhile, the conservatives (and economists) have claimed the Government is impugning the ‘independence’ of the RBA. It is a case of – The pot calling the kettle black – and demonstrates how ridiculous the policy debate has become in this latter years of the neoliberal era.

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Delinking and degrowth

One of the issues that some on the Left raise when the topic ‘degrowth’ enters the conversation relates to the sense of elitism from the wealthy nations, which can now indulge in a bit of non-material aspiration amidst the large houses, two-or-three car garages, speed boats, lycra-clad journeys to coffee shops on $10,000 bicycles designed for racing but ridden around the corner … you get the message. The criticism is that such a bourgeois ‘movement’ has no correspondence with the needs and aspirations of citizens living in poorer nations with fundamental development challenges, not the least being food security and poverty. They thus reject the idea as another ‘woke’ issue. There is some truth in what they say but it is an inadequate stance given that the global economy is operating 1.7 times over regenerative capacity and urgent changes are required. That means we have to deal with the notion of dependency between ‘North’ and ‘South’, which takes us back to the colonial relations and beyond, as an integral part of the degrowth agenda. This is where the concept of ‘delinking’ comes in. Here are some preliminary notes on all that, which arise from research I am doing for my next book on these issues (probably coming out first quarter 2025).

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