Some History from the 1990s... increased Money supply = mainly higher prices along with little activity.
‘Two Perspectives on Monetary Policy’ | Speeches | RBA
My talk will focus mainly on the past decade. This is the period I know best, being privileged to have served as Treasury Secretary for five years, and as Governor for the past three years:
In leading the revival of the old Quantity Theory, Friedman emphasised that money and prices were closely linked, and that increases in the money supply would lead mainly to higher prices, with no long term increase in real activity. This provided a much sharper focus on what caused prices to rise. It had the policy implication that governments can and should control the money supply in order to avoid inflation; in its extreme form, it implied that monetary policy should be put on auto pilot. Australia did not go that far but a form of monetary targeting was introduced in 1976.
Increasingly of the view that the RBA is a joke. Here are some fun facts.
Has >1,400 employees. A figure that has grown 40% in ten years. (see Parkinson's law)
In 2022, it spent $324m in salaries/super. About $227k per employee.
Phillip Lowe, the RBA Governor, is on a base salary of $890k. Including super and other benefits, he received over $1m in total remuneration for FY22. In 1997 Phil Lowe received a tax-payer subsidised home loan for his 5 bedroom home in Randwick. The variable rate was half that available to others in the market.
At a speech earlier this year, he suggested people cut back on spending and find extra work to help maintain their standard of living..
There are 9 people on the RBA board. While the board is independent, board members are appointed by the Treasurer, and there are no term limits. So, yeah...
A look into the profiles and history of these board members reveals a picture of privilege, wealth and political connection. One is the wife of a former PM, others sit on the boards of companies like Fortescue and CSL. Most are members of the Order of Australia. Very little real world experience.
The RBA balance sheet has tripled in size since March 2020 due to covid emergency measures. After buying up billions in Government bonds, which subsequently plummeted in value, the RBA has more liabilities than assets. It has $12.4 Billion in negative equity. For anyone else, this would mean insolvency. But not when you have the power to create money out of thin air.
Prior to 1993, only 30 short years ago, the RBA did not have an inflation target or mandate. The 2-3% target band was based on an arbitrary suggestion from Bernie Frazer who in a 1993 speech said:
It was the Kiwi's who pioneered inflation targeting in 1989, and they decided that 2% was "about right". It's not based on anything scientific.
Anyway.. it's all kinda crazy when you think about it.