During COVID, the RBA started quantitative easing - for the first time in Australia (in a significant way at least), my sources say this was ~$300,000,000,000 of bonds bought (300b of public debt)
My understanding is that this 300b was new money (created by fiat, by the RBA). Since our annual expenditure servicing our debt is now the same as the annual cost of Medicare (and growing) why can't the RBA simply cancel the debt?
I'm pretty sure if we all tipped our couches up and shook them and emptied out our ashtrays we could come up with three billion.
Mistake fixed! Thanks!
Check out history of inflation and massive government spending in Germany (Weimar Republic)
Sure let's do that.
Yeah, sure, let the government spend whatever it likes, then just forget about paying it back afterwards. That's the way to govern economically responsibly. It can print money, so have it just print whatever it needs.
PS: with however many trillion it is in debt, that's how Washington does it. It gets enough in taxes and other revenue to pay for its huge military. Then just goes into deeper and deeper debt to cover the rest of the things it has to spend money on, until its so deep in debt that no-one dares to declare it in default.
As long as USD used for oil and other international transactions, there is USD demand and their currency doesn't tank. But more and more transactions are being done without USD, because of them weaponising it. So maybe the days of the USA bludging off the world are over. Either way, they can use the nuclear weapons card if they do default. What ya gonna do about it, punk? Is their attitude, unless someone or some group stands up to them.
This can only last for so long
The dominence of the USD is coming to an end.
The petro dollar is already in sharp decline.
Many countries are already selling off (dumping) thier US Bonds.
Part of the reason is rising interest rates which is crashing the value of US Bonds paying sub 1% interest.
Soon the USD will come tumbling down and inflation will become rampant in the US - just like in Weimar Germany
We just printed money….
Ask Zimbabwe how it works
Do you have a number I can call to ask?
Sure, but I will need some time to type out all the zeros.
1800-MUGABE
You can reach them on the cup and string when the line isn't busy.
Yes we should all do what the OP says and I wondering how well that will work out for everyone as I sip on my $3B cup of coffee…..
I'm not saying we should, I'm asking why we can't?
Let me sip on my $3B cup of coffee as to why it isn't a good idea to wipe out debt like you are asking………
@JimmyF: We've already increased the money supply due to QE… it's already just 'printing money' (just with extra steps) and the current inflation we are experiencing is due to this.
It will make our money worth a lot less
You know how prices of everything are going up? Forgiving that volume of public debt would make that far worse & people would immidiately assume we are going full Zimbabwe & stop holding/accepting the AUD as payment under the assumption it will be printed into oblivion. We could not purchase anything from overseas using AUD. You would find shops trading in paper currency of other countries instead of AU notes. Foreign currency trading would evaporate the tax base, requiring further money printing, further eroding the AUD.
It all falls apart.
Our currency's value rests on the expectation that the future labour of the Australian population is bound to servicing that debt. The government essentially borrows against our future taxes.
@mitt: I guess what you are saying is that… because our currency is fiat…. it's only held up by (global) sentiment and forgiving this debt just looks bad.
I really can't see a logical argument other than this…
A lot of comments here don't seem to understand that we've (effectively) already printed the money… this is about stopping paying interest on the money that we printed.
@The Wololo Wombat: Yes fiat is built on trust. trust we will pay our debts, trust the tax base will be there to service that debt for decades to come & in the case of USD & all it's client states (us), trust that if you try & undermine western fiat dominance you will find out it's also backed by the floating tonnage of the US military.
Why not ask the yanks?
How much has the dollar devalued over the 100 years of fractional reserve banking and a decade or more of money printing? (around 96% last I checked.)
The Yanks have never forgiven the debt though…. They've done a lot more QE then us! Would be interesting to see the per capita comparison though…
US dollar is the defacto global reserve currency. AUD is not. So not comparable. At least until people realise the emperor has no clothes on.
Agreeing with your sentiment, but it's actually been more like 300 years of fractional reserve banking IIRC.
100 years is about how long we've had the oligarchical central banking cartel take over global banking.
Fair point, I was thinking from about the time the fed started and forgot all the previous shenanigans.
It's actually somewhat of a mystery how the USA prints more money than the everyone else but somehow the printer hasn't caught on fire yet
Not a mystery. Just look at how hard the US is trying to hold onto power and influence and pushing competing powers down. As soon as the USD is discarded for global trade and demand for it wanes, the printer wont be just on fire…
Yeah I was reading about the USD being okay because it's the reserve currency, if that ends then the USA will really feel any trade deficit
How is it a mystery? They are Rome… they have the most weapons and power, they are a global empire with a bunch of vassal states.
Protip: forget all the complexity and bullshit people (or the media) talk about when discussing economies, and think about what stops one man from taking all the apples from the rest of the village. Then scale up that sentiment, it's usually more correct than whatever talking heads on TV are saying to obfuscate the truth.
Technically can continuously print money but it just means every dollar they print out the less valuable it becomes.
Or look up Weimar Germany
If it gets cancelled then it sets the precedent of free money. Why bother paying taxes then?
The government could just raise taxes on 10m+ incomes instead of tax cuts to clear out 300b.
As much as I will benefit from stage 3 tax cuts, I don't think we should be doing it. Creating a meaningful sovereign wealth fund it the path Australia should seek.
We already have one called the future fund, it seed money from some of the government asset sale
it setup by then Treasurer Costello with initial $60bn, he is now chairman of that fund and under his watch it has grown to over $200bn from smart investment
This fund does get tap into for building infrastructure every now and then and to pay government employee pension
and it should grow over time.
you can learn more from here
https://www.futurefund.gov.au/
dont listen to hype up media about our debt, it manageable and we have a sovereign wealth fund worth 250bn plus
You'd think the government would have set precedent bailing out the likes of Holden, (profanity)us and other registered charities for billions.
But we cant print money to pay the higher taxes
Give it to Albo. There is more room for flags on the bridge……
This isn't Albo doing though, Labour wasn't in power when the gov was on a spending spree racking up billions in debt that is now driving up inflation.
But Labour did vote in favour of JobKeeper though due to COVID. The prime driver of those deficits. Fryndenberg was on the verge of balancing the books before COVID hit and ScoMo asked him to open up the purse.
https://www.abc.net.au/news/2020-04-08/jobkeeper-coronavirus…
LOL The books had been bad way before JobKeeper, gov debt was at record levels BEFORE covid.
If only Fryndenberg had bothered to put in a simple clause so companies like Hardly Normal who had record profits and banked JobKeeper payments as well, paid them back.
Yeah that's a bit nasty that Hardly Normal. Not sure in the end he paid them back or not.
He had no plans to pay it back, then people got cranky at Hardly Normal, so they made some sounds about paying it back, but yes I think you're right, they never did.
@JimmyF: my local Hardly normal never got any Jobkeeper or any other covid business handouts for that matter. Weird.
my local Hardly normal never got any Jobkeeper or any other covid business handouts for that matter. Weird.
Weird indeed considering the Hardly Normal 'chain' banked a good chunk of JobKeeper cash.
The bit that people seem to miss and shrug off is it isn't my money, but 'government' cash, it is really your cash they are giving away. Your taxes are what is funding this, but people seem to think it's some magical money.
@JimmyF: And Qantas. The government should have bought shares or given them a loan instead of gifting billions to them. At least they'd be getting something back now.
And Qantas. The government should have bought shares or given them a loan instead of gifting billions to them. At least they'd be getting something back now
1000% Agreed, Qantas is no longer gov owned, it shouldn't be getting 'special' treatment like it got. Giving billions in handouts under the table shouldn't be on. They should have been given equity in exchange for the cash.
They had many years before then and failed to deliver the promised surplus.
Give it another week and we'll see what he's doing. But considering the things he's promised over the last month, it doesn't seem like he's doing anything to slow down government spending/increasing available money and thus inflation.
Just start the money printer again but this time don't let it stop. Problems solved. I am glad we don't have a wombat as our Finance Minister.
You've not provided anything of value here.
Turkey has entered the chat.
Zimbabwe has also entered the chat
Argentina has just arrived
Venezuela says pops in to say hi
Sri Lanka is waiting in the lobby to be Admitted. Admit?
Pakistan passes its hat for more assistance
Greece says Hold my beer!
It shows people borrowed too much to keep up with the Jones'
"Why Can't The RBA Cancel The 300b of Debt We (The Public) Owe Them?"
You don't understand 5th generation warfare very well…… :)
"Why Can't The RBA Cancel The 300b of Debt We (The Public) Owe Them?"
You have this mixed up, the government actual owes this to us.
I don’t think so?
They could.
The problem with economics is everything is connected to everything else and there would be an overall detrimental effect to the economy. Wiping government debt would be the equivalent of printing money which would devalue of currency.
If you have a government printing money to fund expenditure rather than debt then eventually you'll get hyperinflation.
No, I think you misunderstand. We've already 'printed' the money and used it - it's just that we now pay the reserve bank interested for the money we printed.
Then that sounds like a loan and not simply printing money?
What if we "print" 300b, go to use it but say it's a loan that we have to keep paying back and then, as we pay it back we burn the money so it doesn't exist anymore. That's different than if we printed the money and used it and left it in circulation right?
True. I guess that’s what I missed. We created 300b new money, but also 300b new debt!
Quantitative Easing explained the way only Clarke and Dawe could - https://www.youtube.com/watch?v=j2AvU2cfXRk
Give it to Gerry
At least the RSPCA will be happy….
Because those treasury securities (bonds) are held by investors - institutional, retail etc - and it is backed by nothing except confidence in the government. If those investors are not paid what they are due for holding that debt, what do you think happens to the monetary system?
No, they are not? The 300b I refer to is owed to the RBA. Previously to COVID what you are saying was the case (and we still have the debt) but the new debt is owed to the RBA.
True, but the RBA creates central bank reserves to purchase those bonds, which commercial banks ultimately end up holding and are tied to other financial assets and loans.
I think that's how it worked in the past (as the RBA could only buy bonds on the second-hand market. However, on this occasion the 300b was purchased directly (through the creation of new money, without it being linked to underlying assets)
@The Wololo Wombat: QE has been undertaken before COVID, the Federal Reserve did so post GFC. It's literally just a name given to a programme of relatively more aggressive asset purchase by the central bank. There's no special magic that happens.
When you undertake QE, you change the composition of money in the economy (between treasuries, central bank reserves, bank deposits etc) - the government spends that money from the bond purchases and the money ends up in the commercial banking system - which corresponds to reserves that commercial bank now holds in reserves with the central bank.
I guess to correct your point - QE doesn't create "new" money - it changes the composition of it in the economy. I recommend reading this explainer by the Bank of England: https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m…
let me ask venezuela
Sounds like you're referring to this program…
https://www.rba.gov.au/mkt-operations/government-bond-purcha…
And asking why after purchasing the government bonds from other bondholders, the RBA can't just forgive the debt?
Good question, but keep in mind the RBA's aim at the moment is to tighten monetary policy. The RBA wants the government and everyone else spending less. Forgiving the debt would make it easier for the government to spend more (as those interest payments would now sit in government coffers).
Alternatively you could ask why the government couldn't just issue more government bonds and spend more? The answer is not that the government couldn't sell them. Even in the rare case the government couldn't sell them it simply offers them at a better coupon rate.
The answer is a combination of convention, pantomime and actual sound economic reasoning. The reason the government doesn't spend until the streets are papered with money is exactly that - it causes huge inflation. But, particularly in Australia where government debt is low and the economy is stable, government can spend more quite easily. And while it might eventually start crowding out the private sector - we're probably a long way from that.
That's the sound part! So why pretend it has to balance the books and do things like make mugs that say "back in black". That's the pantomime part. And while it's easy to make fun of - the fact is a stable economy with sensible leadership is more likely to be well-regarded and the official fiat currency used instead of a shadow currency (be it bitcoin, gold, the US dollar or bartering of goods). That last bit is no joke - if your currency and government isn't well-regarded - it can have a huge impact at the individual level well beyond the risk premium foreigners expect the government to pay on its bonds.
Finally some things just don't happen because of convention. Someone asked this morning on radio why not let the RBA control the GST. It's probably going to cause shopkeepers to lose their hair changing the GST daily or even monthly. But yearly within a narrow range maybe 10 to 18% in increments of 0.5% - that's possible. It touches more people than interest rates and presumably a consumption tax would directly impact, you know, consumption. The answer is probably convention and maybe even a little "we just don't do that - it's not our strength." The same answer is why RBA doesn't directly invest in building housing, running hospitals or providing commercial banking services: "we just don't do that - it's not our strength/role."
Thanks for this!
My summary is:
If the RBA canceled debt it would harm (destroy?) the international reputation of our currency. Since currency is 'fiat'… all that it has is its reputation, so (similar to the stock market) negative sentiment could be catastrophic.
My follow-up question is… who (when not the RBA) buys Australian Government bonds and why do they do it? The UNSW seems to think it's not always transparent
Money market funds, banks, superannuation funds, etc.. buy government bonds to generate a low risk return.
They can purchase directly from the government (primary market), and can also buy/sell on the secondary market.
The RBA can only purchase these government bonds on the secondary market (the RBA cannot purchase government bonds directly from the government / cannot fund the government directly).
They did during COVID though? The 300b was direct?
@The Wololo Wombat: From my understanding, the RBA only ever purchases on the secondary market.
The RBA also put out a brief explainer of what monetary policy tools they used for COVID:
https://www.rba.gov.au/education/resources/illustrators/pdf/…
@The Wololo Wombat: I came across an RBA presentation which goes into more details of the monetary policy used during COVID, and also explains why and how they are implemented (if you are interested).
- Purchasing of bonds on the secondary market @ 26:18
- Total bond purchase was $350B @ 33:05
- Term funding facility (TFF) was $188B @ 33:35
https://www.youtube.com/watch?v=Lil6EESRQEk
I'm hungary but can't afford food as its inflated too much
I think you misunderstand what QE is… (or maybe I do?), we've already artificially created money (through QE) and the current inflation is a result of that.
I couldn't care less, I just wanted to drop a country name. You probably missed that
clearly if it was a good idea then it would have been done.
A lot of good ideas don't get done. We are in a democracy so, when there are vested interested, it's important the masses (you and I) are not ignorant.
@The Wololo Wombat: I am not ignorant.
if it were a good idea it would have been done.
I have zero ability to influence the government. I like you am just a tax paying paying piece of crap that fuels the ponzi scheme.
this country is a fricken mess, it will just get worse and worse
if you think you can go down to parliament house and wave a flag of some sort
@Donaldhump: My opinion is the we are the second greatest country in the world and that ordinary people can do quite a lot to make this country a better place.
@The Wololo Wombat: what have you done?
are you running for a seat in government?
have you got yourself on Q&A to propose this simple solution
have you rang the government offices and told them of this simple solution you have.
no offence but do you ever tell yourself this with out even thinking about why
if your idea was doable and yet so fricken simple to implement, it would have already been done because there are at least 100,000 people smarter than you in this country with kick ass economics back grounds.
@Donaldhump: No need for personal attacks..
What have I done? Well,I opened up the discussion here for starters…
Separately, yesterday, I also participated in a forum (together with other leaders in my community) that sought to identify and solve some of the biggest issues facing our region… so, there's that…
Also, I'm not saying this SHOULD be done… I'm just asking questions… because I don't understand WHY it's not being done. The general public (myself included) is quite ignorant when it comes to money creation etc and I'm seeking to educate myself. I'm not satisfied with the logic of: "well if it was a good idea, would've been done" because, with that logic, I remain ignorant. I've found the answer here btw - it's because:
A: If the RBA did this, the RBA sets a precedence whereby the federal government would feel they did not need to be accountable for ensuring future spending is efficient/effective
B: It harms the international reputation of our currency (and would TANK the AUD)
C: It'd piss of the Americans due to its effect on the USD…
@The Wololo Wombat: come on mate harden up, its not a personal attack, your asking the bloody question.
and i am giving you my reply and asking what you have done in your response to you saying ordinary people (i yourself) can do alot, so what have you done. You opened yourself up to that response and question.
I also participated in a forum (of leaders in my community) that sought to identify and solve some of the biggest issues facing our region… so, there's that…
which forum
what did you solve
do you not think if something was so piss easy and logical some one would have done it like 100 - 200 years ago.
convo over your too sensitive
@Donaldhump: I'm not sensitive, nor bothered by your comments… I'm just asking and answering your questions. I do believe your comment about "100,000 people smarter than me" was personal and I read it with an aggressive tone (perhaps I am wrong)… I don't believe it was helpful.
I'm not going to dox myself with too many specifics… we worked with local government on the allocation of public funding and collaboration with public and private organisations sector focussing on social infrastructure, education and housing… if you must know?
The interest on the Government Bonds paid by the Australian Government held by the RBA is paid to the RBA.
The interest earned by the RBA is treated as income by the RBA.
The RBA repatriates its profits to the government at the end ot the year.
The interest on the bonds paid by the government held by the RBA is netural.
Hmm… very interesting!
If the RBA repatriates its profits… why not cut out the middle man?
Also, I didn't know that the RBA repatriates its profits to the Government….
The whole fiat scam could be put to bed with each country printing one speical note for the value of what they owe BANKERS (yes actual people) they tell them to eff off..take control back of the money supply and start again.
Of course it will never happen because the masses are thick and allow this whole system to continue
$300,000,000 isn't 300 billion, its only 300 million. Three hundred billion is $300,000,000,000.
Edit, oh, wait, you slipped a stray extra 0 on. That's still only 3 billion.