LUCK – Labouring Under Certain Knowledge
By David Lawson
Yesterday’s talk by RBA Governor Glenn Stevens at the Anika Foundation Luncheon, The Lucky Country, has been well spread across the press today. While Glenn Stevens has an undeniable obligation to uphold confidence in the financial system as part of the overall economy, credit to him for acknowledging the sceptics when he said:
Suggesting that:
Those who have followed Steve’s research into the financial instability for some time would understand that this so called LUCK (Labouring Under Certain Knowledge) is unsustainable on the grounds that conventional economic theories fundamentally ignore the essential role of banks, money and debt. Their oversimplified models provide a false sense of certainty around a dynamic uncertain real world economy.
Then again, if central banking officials were to acknowledge uncertainty on a credible level it would be extremely counterproductive to their obligation to maintain confidence in the financial system. Just ask US Federal Reserve Governor Ben Bernanke what he thinks of Black Swans?
Meanwhile on the political front, Treasurer Wayne Swan was far more belligerent to contrarian points of view. Saying Glenn’s speech was a:
“a body blow to the doomsayers and scaremongers determined to talk our economy down”.
Fortunately, he has today’s CPI release on his side to provide positive news for the general cost of living for the Australian people and grounds for the RBA to provide monetary stimulus in the coming months. Fiscally speaking, there is limited room for the Federal Government to provide additional deficit spending with AU$238,276 million of Commonwealth Government Securities on issue, before hitting the AU$250,000 million ceiling.
We should always bear in mind is that nothing is certain in relation to financial system. The RBA clearly states that they will not facilitate an environment of certainty in Australian financial system, when saying:
When you listen to leadership [be it political, corporate, academic, what-have-you], what they do is start with their reality [their system] and work their way back, attempting to rationalize all the insanity.
An economic system using play-money has to, by definition, must end badly. It would be me attempting to diagnose a patient with my handy doctor kit I bought at the toy store.
This is what these political and economic leaders are doing, running the global economy with money they bought at the toy store.
Disagree. What you have to do is enable and insure that money goes for the most part to constructive purposes, and be unafraid, due to dogma or fear…to control BOTH the direction of money, AND manipulate prices AFTER price has already been established.
Then the system will work, and be more free for both the individual and the system.
“What you have to do is enable and insure that money goes for the most part to constructive purposes,…”
Steve H., if you had real money, this would naturally occur.
“Fiscally speaking, there is limited room for the Federal Government to provide additional deficit spending with AU$238,276 million of Commonwealth Government Securities on issue, before hitting the AU$250,000 million ceiling.”
well, get rid of the debt ceiling.
and keep running large deficits to the tune of 4% of gdp, to help the savings performance of the private sector.
we have rate targeting by decree, with the rba support rate only marginally below the interbank rate, so the government doesnt need to issue securities to manage the inter bank interest rate.
rates can be set independent of the reserve and liquidity position of the total banking system.
i can understand glen stevens optimism since the rba certainly has a large enough liquidity buffer to counter act any banking system problems now. a 240 billion dollar war chest in terms of potential central bank liquidity swaps is a pretty mighty weapon for the rba to have at its disposal.
It’s not exactly a hard ceiling but clearly we have a government determined to have a surplus budget. Together with deleveraging in the private sector it puts less pressure on long term rates.
While deleveraging Australia is maintaining high employment and reasonable GDP growth as well as strong wages growth. We know the RBA, particularly Glen Stevens made comments to try and cool down property market inflation. At the same time Australia is investing in productive capital at an unprecedented level. Plenty of reasons for optimism.
CPI – who are these jokers kidding. If it was in any way meaningfull … bah I am not even going to jump on to this broken record. Needless to say anyone who pays rent, owns a house, eats food, uses electricity and water would have noticed CPI is out of kilter with the real world. A 3.2% drop in food prices over the last 12 months who are they kidding. My grocery bill has gone up 20% in the last 12 months. (Yes I know they exclude all the seasonal stuff)
Anyway if Glen Stephens admits this much maybe there is hope for him and he will realise one day central banks shouldn’t set the price of money at all.
Any thoughts on the validity of the relationship between a) current account deficit and bank credit and b) inflation and money increase developed over at Buoyant Economies?