Australia - you're standing in it

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Sheepdog started the topic in Friday, 18 Sep 2020 at 11:51am

The "I can't believe it's not politics" thread.

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blindboy Thursday, 30 Sep 2021 at 9:27am

"As for "Neoliberalism" its just one of those words that people throw around, but everyone has a different grasp of what it really is,"

The term is frequently misused but the core meaning remains. I think Wikipedia nail it before going on to qualify it to include wider uses.

" Neoliberalism, or neo-liberalism,[1] is a term used to describe the 20th-century resurgence of 19th-century ideas associated with free-market capitalism."

The reference to the 19th Century is particularly relevant as that was the age of laissez-faire (do what you like) economics and the robber barons. Workers were ruthlessly exploieted and wealth was highly concentrated. Keynesian economics, as used in the New Deal and the various forms of a welfare state, led to a more equal distribution of wealth....and power. Neoliberalism was developed to reverse these changes so its major focus was for the wealthy to regain their extreme wealth and power. Since the Reagan and Thatcher era it has been very succesful in doing that. It has also been very successful in getting the support, through the use of compliant media, of those who would do better under less malign policies .

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indo-dreaming Thursday, 30 Sep 2021 at 9:46am
AndyM wrote:

"it's just common sense that endless spending is highly likely to end up going pear shaped, because it defies the whole point of the value of money."

Pretty vague statement but again, it's conflating the spending of a monetary sovereign government and the spending of a household or individual.

If a government creates money to build, say, hospitals, how will that debase the "value of money"?

Like i said it might not to a certain extent but there has to be a tipping point and the tipping point is kind of unknown.

Otherwise if it was that easy, developing countries would just go, okay lets just build new roads, hospitals, schools, water supplies, etc and maybe even great social wealth fare safety nets and just become developed countries.

Or even create some huge military force and take over other countries territories for resources, like China is doing in the South China Sea.

There has to be a tipping point.

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Hutchy 19 Thursday, 30 Sep 2021 at 10:00am

Andy - You are proving you have NFI on how the real world works . You say "If a government creates money to build, say, hospitals, how will that debase the "value of money"? Why stop at hospitals . There are a million great projects we need . Build them ALL with created money . Lets give everyone a million dollars out of created money .

Whitlam had lots of good ideas he wanted to implement , but too quickly . Interest rates went to 18% as a result .

Blindboy - The GFC was caused by the regulators and media being in Wall Streets pockets . They refused to apply the existing rules . Watch the Big Short .

As I have said on the housing thread the governments needs to be very careful when trying to intervene in the housing market , Australia's Golden Goose . Most Australian's ( not a few ) wealth is in their own home . Major changes to the tax regime could be a disaster .

As I said , Australia has plenty of land . Working at home is now the norm so many don't have to be close to the cities . State and Federal governments have HUGE land banks . They can release more of this and we can build more homes . Councils are promoting higher density in their suburbs . More supply to satisfy the demand which which will lead to better affordability .

Let the market do the heavy lifting as it does so well . Governments can ticker around the edges but NEVER try to change the market as they have NFI on what the outcome will be .

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blindboy Thursday, 30 Sep 2021 at 10:32am

"Otherwise if it was that easy, developing countries would just go, okay lets just build new roads, hospitals, schools, water supplies, etc and maybe even great social wealth fare safety nets and just become developed countries."

Well no Indo. It doesn't work like that. The basic idea of Keynesian economics is that there should be no economic barriers to a nation doing what it has the capacity to do. Developing nations simply lack capacity. This can include skills shortages, resource shortages, lack of basic infrastructure etc etc. In the current situation Australia has been able to put money into the economy because we have the capacity to provide the goods and services it is being used to purchase. My point is that, for a very long period, Australia has under invested in building its capacity through better education and training, better infrastructure and wiser use of its resources. As we approach the end of our long resource boom we will come to see this as a missed opportunity as the appalling governance of recent decades will limit our ability to manage future crises.....which are becoming increasingly common.

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seaslug Thursday, 30 Sep 2021 at 10:57am

and endemic corruption at such a grand scale

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blindboy Thursday, 30 Sep 2021 at 11:01am

Just the icing on the cake of neoliberal greed seaslug.

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sypkan Thursday, 30 Sep 2021 at 11:18am

"...Developing nations simply lack capacity. This can include skills shortages, resource shortages, lack of basic infrastructure etc etc."

I guess money (capital) and the ability to raise it (create it) conveniently falls under that vague etc. etc.

"...In the current situation Australia has been able to put money into the economy because we have the capacity to provide the goods and services it is being used to purchase."

so being prudent in the lead up to this disaater wasn't just about being mean?

it figuritively put money in the bank for a rainy day... it also put confidence in our country as a whole so we could print the ridiculous amount of money required as an answer to the pandemic...

"...My point is that, for a very long period, Australia has under invested in building its capacity through better education and training, better infrastructure and wiser use of its resources."

well yes and no...

the 'investment' has been there, just in questionable (unsustainable) pursuits... with a lot of the investment coming from totally questionable sources as well...

"...As we approach the end of our long resource boom we will come to see this as a missed opportunity as the appalling governance of recent decades will limit our ability to manage future crises.....which are becoming increasingly common."

well yeh... but if we'd been shaking your keynsian tree for the last few decades for some ubiquitous wish list, we wouldn't have had the capacity to face this crisis with such confidence and capacity...

(only to totally overshoot the mark, and totally blow the reserves I would argue...)

as this is the most reasonable thing you wrote

"...will limit our ability to manage future crises.....which are becoming increasingly common."

neoliberalism - for all its faults - did address a problem... as does keynsianism...

you seem to advocate for a never ending policy of money printing...

how's that worked out over the last decade or so for housing affordability and equality?

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AndyM Thursday, 30 Sep 2021 at 11:20am

Haha, so crotchety today Hutchy!

@Indo "there has to be a tipping point and the tipping point is kind of unknown."

Not quite sure what you mean, but governments can cause inflation, if they choose, by spending too much, or not taxing enough (i.e. taxes exist to control inflation).
When this happens, the total level of spending in the economy exceeds what can be produced by all the labour, skills, physical capital, technology and natural resources which are available.

https://theconversation.com/explainer-what-is-modern-monetary-theory-72095

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Constance B Gibson Thursday, 30 Sep 2021 at 11:48am

From one old fella to all youse oldies:

https://www.smh.com.au/world/asia/a-relic-of-a-bygone-age-i-might-be-but...

(for those that can read...the whole thing, I mean)

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sypkan Thursday, 30 Sep 2021 at 11:45am

"Not quite sure what you mean, but governments can cause inflation, if they choose, by spending too much, or not taxing enough (i.e. taxes exist to control inflation).
When this happens, the total level of spending in the economy exceeds what can be produced by all the labour, skills, physical capital, technology and natural resources which are available."

good in 'theory'...

it's a brave (or suicidal) government that raises taxes to curb inflation... inflation that is making life unaffordable for joe average...

yeh, you can say tax business... but...

either way, it seems we're about to see what happens with inflation in the US from printing money...

will big joe tax joe average?

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AndyM Thursday, 30 Sep 2021 at 11:47am

Fair enough Syppo but dare I say there are a thousand ways to sneak tax into the system and disguise it.

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Hutchy 19 Thursday, 30 Sep 2021 at 12:05pm

Andy -"Fair enough Syppo but dare I say there are a thousand ways to sneak tax into the system and disguise it."

There are also a thousand ways a government can stuff things up . I have dealt with markets intimately for over 30 years . They are much smarter than any one human . No chance to disguise anything from them in the long term .

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sypkan Thursday, 30 Sep 2021 at 12:14pm

sure is andym, that's what governments do...

but they never produce the exact desired results... people are odd beasts... and people (corporations) change their behaviours to new rules... i just think it's rather naive to think its so easily tweakable

it's also incredibly difficult to stop once you fire up the printing process, as the US is finding out now with it's delayed and delayed 'tapering'...

it's addictive, and way too easy

until it's not...

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blindboy Thursday, 30 Sep 2021 at 1:23pm

"....but if we'd been shaking your keynsian tree for the last few decades for some ubiquitous wish list, we wouldn't have had the capacity to face this crisis with such confidence and capacity..."

Wrong there. I stated that spending over the last couple of decades should have been used to increase our capacity (infrastructure, education etc) and you conclude that the consequence of that spending would have been.....reduced capacity? Strange logic!

You mention "money in the bank" well unspent money is of much less use in a crisis than existing infrastructure and skills. Consider the difference one existing quarantine centre would have made in reducing the spread of the virus given that many of the outbreaks started from hotel quarantine or the fact that inadequately trained quarantine officers were reponsible for the initial outbreak. Then there is Morrison's penny pinching over vaccines which means we are still in lockdowns that should have been over a long time ago. And if you think this is being wise after the event, infectious disease experts have been warning for decades about the risk of an influenza or corona virus pandemic and yet we were almost totally unprepared. The larger point is that there are many similar gaps that could have been easily filled by the wise use of Keynesian principles. Poor governance is what causes the vast majority of our problems and that flows directly from neoliberal principles.

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Hutchy 19 Thursday, 30 Sep 2021 at 1:30pm

You can only print money for an extended period if you have the worlds Reserve currency ie $US . This will also have to come to an end as the market finally says enough is enough .

At the moment the Europeans , Chinese and Russians can not do this . They all would love to .

Look at what happened to inflation in South American countries when they tried .

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blindboy Thursday, 30 Sep 2021 at 1:38pm

"At the moment the Europeans , Chinese and Russians can not do this ."

One day mate you might actually randomly state something true and send us all into shock but at the moment you are running 100% the other direction. $2.2 trillion pumped into the EU.

https://www.bloomberg.com/news/articles/2020-12-10/eu-leaders-approve-2-...

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Hutchy 19 Thursday, 30 Sep 2021 at 2:48pm

Blindboy-"One day mate you might actually randomly state something true and send us all into shock but at the moment you are running 100% the other direction. $2.2 trillion pumped into the EU."

I hate to show that you have no idea about this simple concept . The headline says the 2.2 is backed by Joint Debt . Debt is not money printing . I hate my time being wasted by smart arses that make randomly stupid comments . I hope you can realise what I am saying now IS true .

"A deal was agreed on Thursday with Hungary and Poland, which had angrily protested a mechanism tying funding to upholding democratic norms. The agreement paves the way for the EU to put into effect not just its seven-year budget but a 750 billion-euro ($909 billion) pandemic relief package that will be financed by joint debt."

Countries CAN as I have said print currency . Most do to slightly increase their money supply and replace old denominations . NO country other than the US do it for an extended period of time without suffering the severe consequences of the market . As I fucken said .

Why don't you be a reasonable person and retract what you wrote above ?

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AndyM Thursday, 30 Sep 2021 at 2:51pm

Jeez Scratchy, you really do have some particularly coarse sand in your vajayjay today.
Scrape it out big fella.

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Hutchy 19 Thursday, 30 Sep 2021 at 3:14pm

Andy - I assume I am scratchy and I am often called big fella . Your post made me smile . Just a bit fed up with the foolish responses although they do get the blood flowing to my vajayjay .

I will try and cut out the swearing .

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MartinNow Thursday, 30 Sep 2021 at 3:07pm

My first ever car was a Valiant Safari Wagon. Bought for $900 in winter 1977.

Problem was that on a warmer day it became almost unbearably obvious that someone had thrown up in it in the past!

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blindboy Thursday, 30 Sep 2021 at 3:43pm

Hutchy, sorry to disappoint you but the joint debt deal was basically the same as Australia the US and other countries have done. Bonds were issued, backed by the EU credit, and sold into the market to generate the money. The joint debt refers only to the fact that it was spread over several member states. The single debt type of deal is the top chart, the joint debt is the lower chart.
Screen-Shot-2021-09-30-at-3-41-06-pm

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Hutchy 19 Thursday, 30 Sep 2021 at 4:11pm

Blind one - sorry but you are wrong . From your pretty picture - "Bonds were issued, backed by the EU credit, and sold into the market to generate the money."

They issued ( created ) the bonds which was backed by credit ( this is borrowed money !!!!! It HAS to be paid back ) . The bonds are sold into the market and they get the cash to spend . Printing of new bonds yes ( backed by credit ) not printing of new money out of thin air . It is done around the world as you point out .

I will point out I am not a bond expert but this is basic stuff that even I understand .

Time to apologise !

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blindboy Thursday, 30 Sep 2021 at 4:44pm

I'll grant you a small technical point Hutchy but since the effect of bond sales and the various forms of "printing money" have the same impact of increasing the money available to the government it's not much of one, particularly when your next point depends on a narrow definition when a wider one is more commonly used.

"“Money-printing” is the colloquial term for the ECB’s asset purchase programme, a form of “quantitative easing”."

https://www.ecb.europa.eu/explainers/tell-me-more/html/what_is_money.en....

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indo-dreaming Thursday, 30 Sep 2021 at 4:55pm
sypkan wrote:

"Not quite sure what you mean, but governments can cause inflation, if they choose, by spending too much, or not taxing enough (i.e. taxes exist to control inflation).
When this happens, the total level of spending in the economy exceeds what can be produced by all the labour, skills, physical capital, technology and natural resources which are available."

good in 'theory'...

it's a brave (or suicidal) government that raises taxes to curb inflation... inflation that is making life unaffordable for joe average...

yeh, you can say tax business... but...

either way, it seems we're about to see what happens with inflation in the US from printing money...

will big joe tax joe average?

sypkan wrote:

sure is andym, that's what governments do...

but they never produce the exact desired results... people are odd beasts... and people (corporations) change their behaviours to new rules... i just think it's rather naive to think its so easily tweakable

it's also incredibly difficult to stop once you fire up the printing process, as the US is finding out now with it's delayed and delayed 'tapering'...

it's addictive, and way too easy

until it's not...

100% all this.

And thank god BB or Andy aren't running the country :P

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gsco Thursday, 30 Sep 2021 at 5:20pm

The debate between blindboy and everyone's new bestie hutchy seems a bit convoluted and mangled. Loosely speaking:

The term "printing money" is generally being used to describe when central banks purchase govt bonds (and other govt debt securities), mostly when the market has lost its appetite for purchasing more of them (as is happening nowadays across the globe) and consequently it becomes challenging to inject money into markets via traditional means.

This is also what "quantitative easing" generally refers to.

The reason it's being referred to as "printing money" is that central banks, as the bankers to govts, just credit their govt's accounts with money that came from "nowhere" when they purchase the securities. To central banks this new money they create from nowhere is just "numbers on a computer screen".

But it's not really "printing money" in the sense that the central banks expect the govts to pay back the securities. It could however very well turn into literally printing money if govts are unable to pay back the securities and they come to an agreement with central banks to just perpetually keep rolling over the debt.

This perpetual rolling over of the debt govts have with their central banks is one idea advocated in modern monetary policy.

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AndyM Thursday, 30 Sep 2021 at 5:23pm

For the record, I’m not for unlimited application of MMT.

However as shown during the GFC and also Covid it obviously has its time and place, and demonstrates that the old chestnut of “balancing the books” is bullshit.

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AndyM Thursday, 30 Sep 2021 at 5:30pm

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troppo dichotomy Thursday, 30 Sep 2021 at 5:26pm

gsco just wondering who runs or owns the central banks?thnx

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Hutchy 19 Thursday, 30 Sep 2021 at 5:49pm

Blindboy "“Money-printing” is the colloquial term for the ECB’s asset purchase programme, a form of “quantitative easing”."

Not in the finance industry I work in . If the ECB were going to print 2.2 trillion is would be all over the financial press . The Euro would have plunged and the ramifications would be global ! A catastrophe !

It is definitely not a small technical point ! It is like chalk and cheese . You might not see the major difference but the world of finance sure does !

GSCO "The term "printing money" is generally being used to describe when central banks purchase govt bonds (and other govt debt securities)",

No it is NOT . Not sure what universe you are in .

Troppo - The Fed in the US is of course the most important central bank . It is NOT owned by the US but by a consortium of Private Banks .

FDR was convinced during the Depression 1933 to enact the Emergency Banking Act which gave all the power to this group . A fiscal tragedy .

The government appoint it's Chairman but they are supposed to be independent .

The RBA is Australian owned . Again they are supposed to be independent . Not an expert in this area and not sure about other countries so don't listen to me .

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velocityjohnno Thursday, 30 Sep 2021 at 6:01pm
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gsco Thursday, 30 Sep 2021 at 6:44pm

Hutchy said:
"GSCO "The term "printing money" is generally being used to describe when central banks purchase govt bonds (and other govt debt securities)",
No it is NOT . Not sure what universe you are in ."

From the Reserve Bank's own mouth in their explainer about unconventional monetary policy, of which quantitative easing is one tool (https://www.rba.gov.au/education/resources/explainers/unconventional-mon...):
"Asset purchases involve the outright purchase of assets by the central bank from the private sector with the central bank paying for these assets by creating ‘central bank reserves’ (in Australia these are referred to as Exchange Settlement or ES balances). (Some people have referred to this as ‘printing money’, but the central bank does not actually print..."

(I should have mentioned in my post above that the main way the reserve bank implements quantitative easing is via purchasing securities/assets in the secondary markets, not necessarily directly from govts as I mentioned.)

Also, this (https://www.abc.net.au/news/2020-11-04/what-is-quantitative-easing-and-h...) is a nice ABC article explaining quantitative easing, in which it is said:
"According to Sean Callow, a senior currency strategist at Westpac, you can think of it like money printing.
...
"The basic mechanics of it is the RBA says, 'We'll buy that bond from you. And here you are, we've just nudged up your account by the value of that bond — $100 million or whatever.'

"Now, that money is just created.""

So I'm not sure what planet you're on, actually...

Hutchy also said:
"Troppo - The Fed in the US is of course the most important central bank . It is NOT owned by the US but by a consortium of Private Banks ."
In fact, the Federal Researve is not owned by anyone, as is clearly explained on its webpage https://www.federalreserve.gov/faqs/about_14986.htm...

So you're exactly wrong on that one too.

I've been watching from afar for a while now, and I have to say, you seem like full blown looney bin material mate...although you do provide some comical entertainment, so keep it up dude...

PS You also said "The RBA is Australian owned." But it's also not owned by anyone... The powers, structure and operation of the RBA are set out in legislation, as explained at https://www.rba.gov.au/about-rba/our-role.html/, https://www.rba.gov.au/about-rba/accountability.html and https://www.rba.gov.au/about-rba/governance.html...

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Hutchy 19 Thursday, 30 Sep 2021 at 6:58pm

Really GSCO - I showed you were wrong already and your post has this Some people have referred to this as ‘printing money’, but the central bank does not actually print..."

Your sure about the Fed ? Don't automatically believe what you read . Read this that had to be squeezed out of the Fed under FOI rules . Anyone in my industry have know it for years .

"Now, thanks to a Freedom of Information Act request filed late last year by Institutional Investor, we know the truth.

II asked the New York Fed for the capital stock holdings of its members as of year-end 2018, as well as for each year going back to 2007. The bank responded with copies of what it calls its Capital Stock Master Report, a compendium of shareholdings of member banks, for each of those years.

The big reveal for year-end 2018: Citibank, the No. 1 institution on the roster, held 87.9 million New York Federal Reserve Bank shares – or 42.8 percent of the total.

The No. 2 holder stockholder was JPMorgan Chase Bank, with 60.6 million shares, equal to 29.5 percent of the total. In other words, the two banks together control nearly three-quarters of the regional bank’s capital shares.

But does share ownership matter?

Each bank, after all, has only one vote when it comes to electing bank directors (their only shareholder responsibility) regardless of stock holdings. And New York Fed shares cannot be traded, shorted, or pledged as collateral.

Nobody is getting rich owning the New York Fed’s stock. The shares long paid a dividend of 6 percent. But that payout was amended in 2016; now, members with more than $10.7 billion in assets, like Citibank and JPMorgan, receive the lesser of the 6 percent dividend or the high yield of the most recent 10-year Treasury auction rate – 1.62 percent as of earlier this year.

From Citibank and JPMorgan, there is a steep drop off in shareholdings. Bulge bracket rivals hold far fewer shares, with Morgan Stanley Bank owning 4.8 million and its affiliate Morgan Stanley Private Bank 2.8 million shares, for a combined 3.7 percent stake in the New York Fed.

Goldman Sachs Bank USA owned 8.3 million shares, equal to 4 percent of the total, and Bank of New York Mellon held 7.2 million shares, or 3.5 percent.

It may surprise observers that some big holders are affiliates of foreign banks: HSBC Bank USA, part of London-based HSBC Holdings PLC, owned 12.6 million shares, or 6.1 percent, of the New York Fed’s total. Deutsche Bank Trust Co. Americas was the owner of 1.7 million shares, and Deutsche Bank Trust Company 60,678 shares, for a combined 0.87 percent stake.

Mizuho Bank (USA), an affiliate of Tokyo-based Mizuho Financial Group, owned 819,344 shares. Industrial & Commercial Bank of China held 221,278 shares.

There are scores of smaller owners, from Bank of Cattaraugus, which held 180 shares, to Cayuga Lake National Bank, with 375.

Still, it serves as yet another red flag for those concerned with the power of too-big-to-fail banks that the top two banks hold nearly three-quarters of the New York Fed’s capital shares.

“It’s surprising to see how concentrated it is,” says Razza. That lopsided ownership hasn’t changed much since the financial crisis: In 2007 JPMorgan owned 41.7 percent of the New York Fed’s shares and Citibank 36.6 percent, a combined 78.3 percent.

The amount of share ownership plays no explicit role in the complex electoral system that determines the make-up of the New York Fed’s board.

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blindboy Thursday, 30 Sep 2021 at 7:02pm

Thanks for that gsco. My original point was that the amount of money created could increase as long as we had the capacity to provide the extra goods and services it would purchase. Happy to hear your thoughts.

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Blowin Thursday, 30 Sep 2021 at 7:42pm

Anyone still want to claim ABC as left leaning?

As long as you get your pronouns correct that’s all that matters, right?

https://www.smh.com.au/politics/federal/abc-discloses-more-staff-underpa...

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gsco Thursday, 30 Sep 2021 at 7:50pm

Apologies blindboy, your main point seemed to get lost in the confusion. I'd make a few comments off the top of my head:

Your point may roughly coincide with MMT in that govts can/should focus on spending money via fiscal policy to keep the economy at full employment, and not fear debt so much. Regulators nowadays seem to be tilting towards this, particularly by keeping quantitative easing in place until they see some inflation in the actual flesh.

But I'd also say that all govts/central banks have always gradually increased the money supply over time, roughly in line with their economic growth objectives. So your point is kind of saying that govts can indeed do what they already actually do do. Maybe the question here is just how aggressively they can do it before running into inflation, running up too much debt too quickly, creating asset price bubbles, debasing their currencies, and in general destabilising their overall financial and economic systems.

My personal opinion is the main question is how the newly created money is spent in the economy over time. It should be invested in productive assets that increase the capacity, productivity, technology and efficiency of the economy, since increasing the productive capacity of the nation is the main way to drive growth in (real) GDP per capita.

Increases in the money supply due to private sector borrowing should, via a system of regulations and incentives, be funnelled as best as possible also towards private investments in productive capacity and technology. It seems that one issue in Australia with the current stimulus packages, particularly ultra low interest rates, is the question of how much of that money is going towards increasing the technological capability and productivity of the private sector vs just getting funnelled into property and other speculative assets...

One thing I can say is that we're currently in unprecedented times in terms of increases in the money supply, government debt and asset prices, and I'm super interested to see just what happens in terms of economic growth, asset prices and particularly inflation over the next year or two. History tells us it will be a disaster but there seems to be a very strong view out there, possibly partly influenced by MMT, that this time will be different...

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velocityjohnno Thursday, 30 Sep 2021 at 8:22pm

Good posts gsco, here's an example of a spec bubble that is about to have more fuel poured into it:

https://www.carexpert.com.au/opinion/investing-in-cars-does-it-make-fina...

if this time it's different, a lot of us are going to regret selling our old surf beasts...

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blindboy Thursday, 30 Sep 2021 at 8:46pm

Thanks gsco. Yeh interesting times for sure. I was thinking about the refusal to increase welfare payments or fund climate action as compared to the willingness to pump out money during the pandemic. Also the effect of distortions like negative gearing on how money actually gets used. I came across a quote attributed to Keynes to the effect that at the national level, if you can do it you can afford it. With a few caveats I think that is probably true.

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Hutchy 19 Thursday, 30 Sep 2021 at 9:05pm

gsco You said -I've been watching from afar for a while now, and I have to say, you seem like full blown looney bin material mate...although you do provide some comical entertainment, so keep it up dude...

Any comment on your misinformed post on who owns the Fed . Would hope you have the same view I hold and admit mistakes . I presume you saw my reply .

Also admit I was right about printing money out of thin air . Two things from the looney that were right just today .

Your post above is pretty good . Just a few things I would say -" Increases in the money supply due to private sector borrowing " - this does not happen and for good reason . The private sector always need to act within the systems boundaries . The RBA is never beholden to their wishes or needs as this would be abused .

Your comment -"and not fear debt so much. Regulators nowadays seem to be tilting towards this, particularly by keeping quantitative easing in place until they see some inflation in the actual flesh."

They should fear debt because as you say -"History tells us it will be a disaster but there seems to be a very strong view out there, possibly partly influenced by MMT, that this time will be different..."

Also a little detail -it is the Central banks , not regulators , who are doing the QE . You say -"keeping quantitative easing in place until they see some inflation in the actual flesh." The Fed is now ignoring inflation when seeing it in the flesh . They say it is transitory . Many think they are wrong .

They have changed the measure where they get worried to now an average rate ( takes into consideration when inflation was low and if it goes up over the old band of 2-3% ). Very handy for them as this can provide any answer they want by choosing which dates they will use .

The current QE in the US and Australia is way too high and is affecting asset prices . The central banks will change their view to inflation is good to avoid putting up rates until it is too late . History will then repeat itself and it will be a disaster .

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indo-dreaming Thursday, 30 Sep 2021 at 9:23pm
blindboy wrote:

Thanks gsco. Yeh interesting times for sure. I was thinking about the refusal to increase welfare payments or fund climate action as compared to the willingness to pump out money during the pandemic. Also the effect of distortions like negative gearing on how money actually gets used. I came across a quote attributed to Keynes to the effect that at the national level, if you can do it you can afford it. With a few caveats I think that is probably true.

Why do you say things that are just not true?

Wasn't there a $50 increase in a range of wealth fare Payments? (or at least proposed)

Im sure you think it should be more, but thats different to no increase.

Same with Climate change funding, you may not like the approach but big money is still being spent in many areas around the issue..

Budget measures

$50 per fortnight increase for most working-age payments

"The 2021–22 Budget includes the previously announced and legislated $50 per fortnight increase in the rate of JobSeeker Payment, Youth Allowance, Parenting Payment, Austudy, ABSTUDY Living Allowance and other allowance payments. This measure will cost an estimated $9.5 billion over five years and includes several other policy changes (Budget Measures: Budget Paper No. 2: 2021–22, pp. 181–182):"
https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parlia...

And also billions in regard to all kinds of aspects around climate change

https://budget.gov.au/2021-22/content/resilient.htm

In regard to negative gearing, Labor took this issue to the last election and are now expected to drop pushing the idea of restrictions as it was not popular with most Australians,
https://www.smh.com.au/politics/federal/labor-to-dump-bill-shorten-s-neg...

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gsco Friday, 1 Oct 2021 at 6:35am

blindboy you said:

"I came across a quote attributed to Keynes to the effect that at the national level, if you can do it you can afford it. With a few caveats I think that is probably true."

This general idea has been getting debated a lot over the past decade or so and it seems there has recently been a paradigm shift towards it.

The debate is roughly about the role and effectiveness of monetary policy (interest rates and inflation targeting) vs fiscal policy (targeted government spending and taxes) in achieving economic prosperity, and raises questions about the traditional focus by nations of basically monetary policy as the main tool over fiscal policy:
(i) largely using monetary policy instead of fiscal policy to control the business cycle, and
(ii) focusing on a low interest rate and inflation environment, competition policy and microeconomic reform, globalisation, and high levels of immigration, etc, and largely leaving things to the private sector, to drive economic growth and prosperity, as apposed to (also) using high levels of appropriately targeted government spending.

Regarding inflation targeting, from the RBA's explainer on monetary policy (https://www.rba.gov.au/monetary-policy/about.html): "The principal medium-term objective of monetary policy is to control inflation, so an inflation target is thus the centrepiece of the monetary policy framework."

This debate has largely been motivated by the experience of Japan over the past few decades and many western nations since the GFC, in particular the US. Here, these nations have experienced a declining effectiveness of monetary policy in the sense of ultra low interest rates over sustained periods of time but little responsiveness in terms of economic growth - nations have just been stuck perpetually "at the bottom of the business cycle" with even declining productivity growth, so just stagnant economically, by arranging things as in the points above...

As a consequence, people (in particular those advocating MMT) have been arguing for an increased use of fiscal policy, in particular appropriately targeted government spending, to not only control the business cycle but also to encourage long term growth in productivity, capacity, efficiency and technology, and hence in economic prosperity. In particular, a point being made is that the governments need to invest more heavily than they traditionally have in infrastructure and other capacity, efficiency, productivity and technology building and generating projects and assets in order to increase the nation's long-term economic prosperity - that arranging things as per the points above and then "leaving things to the private sector to drive growth" is just not working so well, as evidenced by Japan for many decades now, and many western nations after the GFC.

Another point that has been made is that what is viewed as the minimum level of unemployment that a nation can sustainably handle before experiencing inflation has been viewed as too high, and should be lowered. The argument is that by focusing on inflation targeting, as apposed to building capacity via government spending, and failing to always operate the economy at low levels of unemployment, nations have been held back and "missing out" economically and in particular the level of unemployment has been held at artificially too high levels, so a lot of people have been denied and missing out on a job and decent life, which is just not ethical and has further engrained inequality in nations and the associated social problems.

The recent paradigm shift has been towards more government spending and in general government participation in the economy via fiscal policy, a relaxing of the inflation target in that now central banks need to see the average level of inflation sustainably go above the target before stepping in and increasing interest rates, a lowering in the perspective of the minimum level of unemployment that can be sustainably achieved, a movement away from globalisation and towards trade disputes and restrictions in trade, governments being more willing to take on significant levels of debt, a moving away from high levels of immigration, a movement towards trying to operate the economy at the lowest levels of unemployment possible instead of the lowest and most stable levels of inflation possible...etc...

So in summary, a lot of people are also having the same thoughts as, and the overall debate is moving towards, those ideas that you're saying.

I personally find it a very interesting time to be witnessing the current paradigm shift, particularly given a significant portion of my educational and employment background was in economics. To see the current shift take place right in front of my eyes is very interesting to me and I'm very curious about how it will all play out.

Right now governments and central banks are basically conducting one of the biggest economic experiments they ever have in order to test the boundaries the above ideas being debated, due to the recent Japanese and post-GFC experiences. Pretty cool I think....but also frightening...!

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blindboy Friday, 1 Oct 2021 at 7:07am

I think, if we are lucky, it might just be the end of neoliberal economics and a return to (updated) Keynesian principles. I have just read the Price of Peace which is a biography of him and his work. He forecast his grand-children might only have to work 3 hours a day. With less greed and better governance it would probably be possible. Thanks for the explanations. Very helpful!

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gsco Friday, 1 Oct 2021 at 7:45am

btw there are various definitions of the money supply and if you click on the MAX tabs for the following AUS and US money supply graphs, you can see how these various definitions increase over time and the unbelievably wild, drastic, out-of-control increases that have occurred over the past 18 months or so:

Australia:
M0: https://tradingeconomics.com/australia/money-supply-m0
M1: https://tradingeconomics.com/australia/money-supply-m1
M3: https://tradingeconomics.com/australia/money-supply-m3

US:
M0: https://tradingeconomics.com/united-states/money-supply-m0
M1: https://tradingeconomics.com/united-states/money-supply-m1
M2: https://tradingeconomics.com/united-states/money-supply-m2

More generally, if you click around these websites:
- https://tradingeconomics.com/
- https://www.macrotrends.net/charts/economy
- https://www.longtermtrends.net/
you'll find some very alarming graphs relating to, for instance, government and private debt levels, and asset prices.

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Blowin Friday, 1 Oct 2021 at 7:46am

The alternative to work is government benefits. This might sound superficially appealing but it’s handing control of your life to an untrustworthy rabble. Worse than untrustworthy….a predatorily greedy and immoral rabble.

Hands up who wants to swap all agency for an Indue card?

A 3 hour work day is not in itself anything to aspire to if it is achieved through loss of individual prerogative and control of your own destiny.

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brutus Friday, 1 Oct 2021 at 8:48am
gsco wrote:

The debate between blindboy and everyone's new bestie hutchy seems a bit convoluted and mangled. Loosely speaking:

The term "printing money" is generally being used to describe when central banks purchase govt bonds (and other govt debt securities), mostly when the market has lost its appetite for purchasing more of them (as is happening nowadays across the globe) and consequently it becomes challenging to inject money into markets via traditional means.

This is also what "quantitative easing" generally refers to.

The reason it's being referred to as "printing money" is that central banks, as the bankers to govts, just credit their govt's accounts with money that came from "nowhere" when they purchase the securities. To central banks this new money they create from nowhere is just "numbers on a computer screen".

But it's not really "printing money" in the sense that the central banks expect the govts to pay back the securities. It could however very well turn into literally printing money if govts are unable to pay back the securities and they come to an agreement with central banks to just perpetually keep rolling over the debt.

This perpetual rolling over of the debt govts have with their central banks is one idea advocated in modern monetary policy.

GSCO , great explanation , especially a couple of your other posts........I see the problem as when there is risk aversion by private investors in buying bonds/Govt debt so then the central banks have to intervene to replace Private investment .
As you say we call this quantative easing , so everytime our economies start taking on risk such as the GFC /Pandemic , private money goes to safer havens , and the Central banks have to intervene......as you said we are in uncharted territory right now , do you think that our current Capitalist model seems to be under threat as it seems very socialist to me that when there's risk in the economy , Government bailouts have to happen?

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Hutchy 19 Friday, 1 Oct 2021 at 8:55am

gsco - Biden's nomination for the Top Bank Regulator .

What's more, Omarova supports several progressive proposals - including the Green New Deal, and the creation of a giant bureaucracy she dubbed the National Investment Authority, which would - among other things - coordinate the long term economic strategy for the United States with upcoming infrastructure developments, according to the Washington Free Beacon. It would also manage a "big and bold" climate agenda.

The authority would have a congressionally approved governing board and regional offices across the country. In addition to developing roads, bridges, and other traditional infrastructure projects, the authority would fund affordable housing, public transit, and clean energy projects, as well as "climate change mitigation solutions," Omarova told Congress this year. -Free Beacon

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brutus Friday, 1 Oct 2021 at 9:34am

FFS Hutchy, what has Bidens nomination for Top bank regulator got to with ," Standing in Australia ??

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gsco Friday, 1 Oct 2021 at 9:54am

brutus you asked:

"do you think that our current Capitalist model seems to be under threat as it seems very socialist to me that when there's risk in the economy , Government bailouts have to happen?"

What's happening could be viewed as the same old pattern or cycle of behaviour that has played out over 100s or possibly even more generally the last 1000 or so years in various guises of nations very slowly on a longish time scale wavering back and forth somewhere between the extremes (but never exactly equal to) of pure capitalism and pure communism. So there's possibly really nothing new to see here.

European economic history provides a number of (spectacular) episodes in which nations tended towards more capitalist style societies/economies and then this cycle peaked with various economic, social and environmental problems particularly related to the concentration of wealth and financial power, and then these nations started to swing back towards incorporating elements of communism/socialism back into their economies etc... Europe also provides a number of great case studies right now of economies/nations currently sitting on various points along the spectrum (but not at the extremes).

Possibly what we're witnessing right now in western economies, particularly the US and I would argue Australia under Abbot/Turnbull, is this cycle possibly peaking and starting to swing back towards nations more being open to some socialist/Keynesian elements of economic and social organisation.

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blindboy Friday, 1 Oct 2021 at 10:39am

brutus given that most financial crises are caused by poor governance it seems sensible for governments to fix the mess they caused in the first place. The GFC was a classic example of that. The current situation less so, but even in this case one of the prime roles of government is surely to reduce the impact of such events. If you want to label that socialism then from my perspective, bring it on. It would be a huge advance on the neoliberal exploitation and manipulation of markets and the unnecessary implementation of austerity in some countries we have seen since the 1980s.

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Hutchy 19 Friday, 1 Oct 2021 at 11:01am

Brutus-FFS Hutchy, what has Bidens nomination for Top bank regulator got to with ," Standing in Australia ??

Plenty . We have been discussing Central Banks roles , printing money and other world wide issues which have an enormous affect on Oz .

Not my problem you cannot see the implications of this appointment on Australia .

Probably not an area you understand so no problems with the question .

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brutus Friday, 1 Oct 2021 at 11:43am
Hutchy 19 wrote:

Brutus-FFS Hutchy, what has Bidens nomination for Top bank regulator got to with ," Standing in Australia ??

Plenty . We have been discussing Central Banks roles , printing money and other world wide issues which have an enormous affect on Oz .

Not my problem you cannot see the implications of this appointment on Australia .

Probably not an area you understand so no problems with the question .

So what's the "enormous affect on OZ " in Biden nominating a top bank regulator........as it's only a nomination and nothing else....so what are the implications of a nomination , genius?