Reserve bank to start printing money

When people can't spend, the government can -- mostly on bailouts of troubled businesses

Australia's central bank today announced it would use the full extent of its monetary policy powers to stem the economic fallout from COVID-19.

The Reserve Bank (RBA) announced on Thursday it would commence quantitative easing tomorrow, as well as cutting Australia's cash rate to a new record low of 0.25%.

It's the first time ever the RBA has cut rates twice in a month or implemented quantitative easing, after the Board scheduled an emergency board meeting on Monday, with an impending recession potentially looming.

The coronavirus has battered the Australian economy, with the government attempting to stop the spread of the virus by banning overseas travel and gatherings of over 100 people, decimating tourism and retail sectors.

In a statement, RBA Governor Philip Lowe announced a target for the yield on 3-year Australian Government bonds of around 0.25%.

"This will be achieved through purchases of Government bonds in the secondary market," Dr Lowe said.

"Purchases of Government bonds and semi-government securities across the yield curve will be conducted to help achieve this target as well as to address market dislocations.

Dr Lowe said the RBA's main goal was to support the Australian economy through these unprecedented times.

"The primary response to the virus is to manage the health of the population, but other arms of policy, including monetary and fiscal policy, play an important role in reducing the economic and financial disruption resulting from the virus," he said.

"At some point, the virus will be contained and the Australian economy will recover.

"In the interim, a priority for the Reserve Bank is to support jobs, incomes and businesses, so that when the health crisis recedes, the country is well placed to recover strongly."

The RBA also announced it would provide lenders with funding of at least $90 billion if they increase funding to small and medium-sized business, in an effort to keep this sector afloat throughout the pandemic.

What is quantitative easing?

Quantitative easing, also known as QE, is the process by which the RBA uses its cash reserves (aka printing money) to buy government bonds.

In some cases, the RBA can also buy private bonds, but has elected to not do so in the announced program.

The best way to think about QE is the RBA spends huge quantities of cash it has created to ease monetary policy.

But we'll get into the nitty gritty to really understand the concept.

Firstly, a government bond is a relatively low-risk investment product which essentially involves investors lending money to the government for a set period of time, at a predetermined rate of return, which is referred to as the yield or a bond's interest rate.

They're considered quite low risk, as it's considered highly unlikely the government will go broke and fail to repay this debt.

So with the RBA set to buy billions of dollars worth of government bonds, the government is given a lot more cash to spend and this extra money is flushed through the economy.

The RBA's purchase also raises the price of bonds and lowers bond yields, which in turn, lowers funding costs for lenders, allowing them to cut the interest rates on home loans and business loans.

Coupled with low-interest rates, banks are better off lending money than holding onto it.

So we arrive back at the beginning: the RBA spends huge quantities of cash it has created, to ease monetary policy.

Essentially, QE should have the same effect on rates as a rate cut would, but the RBA was all out of rope on rate cuts and had to turn to QE.

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Employment data very good for now but rocky road ahead

The Government is celebrating unexpectedly good employment figures released today, which show the number of Australians in work has exceeded 13 million people.

Employment Minister Michaelia Cash held a press conference to announce the data, saying there’s now a “record number” of people in work.

Senator Cash used the phrase “record number” several times, and in any other time it would be a momentous day for the Coalition Government. The coronavirus has changed everything.

Australia’s unemployment rate fell to 5.1 per cent for the month of February and the participation rate is at the highest point in almost 20 years.

But there’s a hidden detail in the result that paints a dire economic picture of the months ahead as the coronavirus crisis worsens.

The number of underemployed Australians – that is, people who are technically employed but don’t work enough hours to reasonably get by – has hit a record high of 1.18 million.

“Today’s labour force figures released by the Australian Bureau of Statistics are sobering, but just the beginning of what Australians are set to face,” Labor’s employment spokesman Brendan O’Connor said.

An indicator of the impact of coronavirus on employment is seen in the monthly hours worked data, Mr O’Connor said, which decreased by three million in February.

“Australians face difficult times ahead in terms of unemployment and underemployment, because of COVID 19,” he said.

Senator Cash conceded the strong figures don’t reflect the challenges currently being faced by many, particularly small businesses as a result of coronavirus.

“But what the figures do show – and the fact that we do have a record number of Australians in employment – is that we are facing this crisis and we come from a very good base,” she said.

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Alan Jones claims Australia’s response to coronavirus is worse than the virus

As Australians are warned to prepare for the “long haul” – with the possibility that extreme measures preventing a widespread coronavirus outbreak could stay in place for 18 months – radio shock jock Alan Jones has suggested that some Aussies’ response to the pandemic could be worse than the pandemic itself.

Six Australians have died as a result of the infection, and there are now 596 cases of the virus confirmed across the nation.

But, Mr Jones said on his radio show on Thursday morning, only one of these cases was “on the books” as what the World Health Organisation (WHO) would define as “serious”.

“There is another way of looking at this, which may provide some comfort,” the 78-year-old, who is broadcasting from his Fitzroy Falls home, said, after listing off a series of statistics relating to the number of worldwide cases, deaths and recovered patients.

“No one’s diminishing the significance of it, but we could just go on accurate figures.”

While the worldwide cases – a statistic he said he didn’t regard “as having a lot of significance” – had increased “slightly”, so too had the number of recovered cases.

“They’re at 84,314,” Mr Jones said, citing the latest statistics at the time of him going to air. “That is – they no longer have a problem.”

Mr Jones said that of the 170 countries in the world, 112 were yet to report any deaths.

And, per WHO statistics, he said that the total number of coronavirus cases in Australia per one million people was only 22.

After once again accusing the media of “alarmist” reporting and apocalyptic headlines, Mr Jones said that the information he provided on his show about the coronavirus outbreak was not going to be “elaborated, embellished or exaggerated”.

“You know, people don’t have an in-built mechanism to handle this sort of stuff,” he said, adding that people were “sick of this”.

“People are hearing this alarmism every day. It’s on the news, it’s in the papers, it’s on social media. It’s almost impossible for them to, on the one hand, be fully informed – they don’t the voracity or the truth of what they’re being told – and secondly, they can’t escape it.”

Earlier this week, Mr Jones expressed his concern for his listeners, stating that the media had done a “poor job” at informing, advising and not alarming them.

“The fact that people are fighting over toilet paper indicates the deep sense of alarm,” he said.

“Unless I’m moving in different circles, the almost universal reaction I am getting is that we have gone mad.”

Mr Jones said this morning that while supermarkets had tried to do the right thing by opening early for the elderly and the disabled, the question was no longer what the shops were doing but what Australians were doing, following news that police had been forced to stand guard in grocery stores to stop violence between stockpiling shoppers.

“What are we doing?” Mr Jones asked. “How has our behaviour reached this point? Are we a worse society than we were 20 years ago? I think we are.”

The Sky News host came under fire this week for reportedly claiming the concern around the coronavirus is “nothing more than hysteria”.

But, Mr Jones told Sky News on Wednesday night, he “never said the pandemic is hysteria”, saying that he has “persistently stuck to the facts” updated every day by the WHO.

“I have sought to dismantle the hysteria by sticking to the facts as know them today,” he said.

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There is no place for politics in the appointment of High Court judges

The High Court decision that Aboriginal people are not aliens under the Constitution has provoked calls for the appointment of “capital-C conservatives” to the bench. This could ensure that ­future High Court decisions are in line with conservative values on identity politics through to economic policy.

The idea is flawed and misguided, and it threatens to undermine public confidence in the courts, as well as damaging the ­independence of our judges.

Appointments to the High Court are the sole discretion of the federal government. The process is secretive, with no advertising or selection criteria. The Constitution merely states that the justices “shall be appointed by the Governor-General in Council”. In practice, this means that the ­governor-general makes the appointment on the advice of the prime minister and the cabinet. The public is told when the government has made up its mind.

In announcing a High Court judge, federal governments inevitably say that the selection is on merit. This obscures the fact that merit is in the eye of the beholder, and that in the absence of criteria the choice is open-ended between many candidates. Legal ability is one factor that is considered, but past choices have also been influenced by personal friendships, gender, the state a person comes from and guesses as to how the person might decide key controversies, especially those involving disputes between the states and the commonwealth.

References to merit hide the fact that the system of appointing High Court judges is highly political. This was a deliberate choice on the part of the framers of the Constitution, who followed the British method of appointing judges. It was felt that our elected representatives should act as a check on the High Court. Leaving the choice to the government creates a form of judicial accountability. But this method comes with costs. In deciding who to appoint, our politicians naturally look to political advantage, whether it be through patronage, public approval or favourable decisions.

This is why so many countries, including the UK, have introduced new systems for judicial appointment. These limit political discretion and instead favour independent processes that identify the finest candidates according to publicised selection criteria.

Australia’s system of appointing High Court judges has produced a succession of strong courts despite problems with the method of selection. This reflects admirable self-restraint on the part of our governments. There have certainly been questionable appointments, but these are exceptional. No government has ever sought to use its power to overtly “stack” the court. They have kept an eye on ensuring that the High Court includes people of the highest legal calibre.

This would change, and the frailties of the system exposed, if governments publicly sought to appoint judges based on their political views.

Australia has flirted with this in the past. In the late 1990s, the then deputy prime minister in the Howard Coalition government, Tim Fischer, called for the appointment of a capital-C conservative judge to the High Court. The government in 1998 selected Ian Callinan, who had sharply criticised High Court decisions such as Mabo. In 2003, Dyson Heydon was chosen after giving a well-publicised speech that attacked the “judicial activism” of the Mason era.

Fortunately, the government did not continue down this path. It found that it could appoint excellent judges from a range of backgrounds without calling attention to any perceived political leanings. The government no doubt also recognised the dangers in promoting the appointment of capital-C conservatives, and in being seen to appoint judges on that basis.

Choosing judges because of their politics would erode confidence in the judiciary. Once a judge has been labelled, rightly or wrongly, according to their politics, people will assume that the judge has a predetermined outlook. People will question whether the parties are receiving a fair hearing by an independent judge able to respond to the arguments with an open mind.

This scenario is not far-fetched. It is exactly the problem facing the US Supreme Court. Its judges are seen at appointment as being either conservative or progressive, Republican or Democrat. The result is a politicised court in which the judges often split along party lines. What is more often newsworthy in the US is when a judge is seen as having departed from their political typecasting. By contrast, it is rarely possible to tell on Australia’s High Court which government has appointed a judge.

Another consequence would be tit-for-tat appointments to the High Court. If the Coalition prioritised the appointment of capital-C conservatives, Labor would be compelled to respond. The court is too important an institution for ­either side of politics to abdicate to the other. No doubt Labor would come under intense pressure in government to appoint capital-P progressive judges, a term that is equally harmful and meaningless.

Australia should reform how we appoint High Court judges. We should bring more transparency to the process, along with a clearer sense of the qualities that make a good judge. These qualities should not focus on the judge’s political leanings, but on their legal skills and whether they have the intellect and independence to fairly resolve the most difficult legal questions. This is the direct opposite of the idea that the High Court should be stacked with conservative or progressive judges.

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 Posted by John J. Ray (M.A.; Ph.D.).    For a daily critique of Leftist activities,  see DISSECTING LEFTISM.  To keep up with attacks on free speech see Tongue Tied. Also, don't forget your daily roundup  of pro-environment but anti-Greenie  news and commentary at GREENIE WATCH .  Email me  here