Sunday, April 12, 2020

Why Australia is printing money

It is and that may concern many Australians.  But the UK and te USA have been doing it on a large scale for years with no obvious ill effects. 

It goes back to a recommendation by John Maynard Keynes that the government should spend more money than it takes in during a recession or depression.  And that is exactly the situation today.  We are in a situation where a Keysnesian stimulus is appropriate.  When people are not spending because they have lost their jobs, it would normally send lots of businesses broke.  Businesses need people to keep spending. So it makes sense for the government to do their spending for them.

Usually, of course, the government would spend on their own projects but this time governments are actually putting a lot of the new money directly into the pockets of those who have lost their normal income.  But either way the government can and should spend up big on keeping people and businesses afloat.

Unfortunately, governments really like spending money without first taking it in and Keynes has legitimated that.  Keynes said to print money in a recession but government have ignored that restriction and printed some money regularly. So there is usually a small amount of money printing going on.  That is why prices are usually rising.  The extra money leads to extra demand for goods and services and that pushes prices up -- which we refer to as "inflation".

The interesting question, these days is how much you can get away with printing without causing inflation to "roar". Economists always thought that inflation would roughly mirror the amount of new money printed. But in recent years we have seen that you can print a large amount of money and get only a small amount of inflation.  First Obama and now Trump have used that extensively in that they have spent far more than the government has raised in taxes. We have yet to see where that will end up

Hundreds of billions has been spent to help the economy and interest rates have tumbled. But the central bank has also splashed on another plan

The Federal Government has splashed more than $200 billion in support packages to keep the economy ticking over as the coronavirus halts trading for nearly all industries.

The central bank has chipped in, too, recently slashing interest rates to a record level of 0.25 per cent at an emergency meeting.

It has also injected a huge amount of cash into the economy by purchasing $36 billion worth of government bonds since March 19 “to do what is necessary” to help ease the burden on the suddenly surging jobless Australians.

“The Bank has injected substantial liquidity into the financial system through its daily open market operations to support credit and maintain low funding costs in the economy,” the Reserve Bank of Australia governor Philip Lowe said in his statement this week.

“It will continue to ensure that the financial system has sufficient liquidity.”

The central bank will continue to buy government bonds but this will be pulled back and done on a smaller scale in the near term.

But what does this all mean?

Also known as quantitative easing, an avenue to inject money into the economy is by creating extra cash and using that to buy government bonds or other financial assets, AMP Capital chief economist Shane Oliver said.

“They could buy mortgages or corporate debt, which is what the Federal Reserve does in the US, or they could buy shares, which is what the Bank of Japan sometimes does,” he told

The process of buying and selling bonds is part of the RBA’s standard monetary operations to maintain liquidity in the financial system, though this is isn’t usually done through printing money.

SO THE RBA IS PRINTING MONEY?  Essentially, yes, says Dr Oliver.

“For all intents and purposes, they physically print it because they engage in a transaction with a bond holder — which could be a bank, it could be a fund manager, or it could be a foreign organisation,” he said.

“They're going into what you call secondary market for Australian government bonds, when a bond has already been issued by the government and someone has already bought it.

“That bond holder can then sell it on or trade it. So the reserve bank goes into these secondary markets, buys those bonds and in the process transfers money into the account of the person selling the bond. “And to do that, they obviously have the cash backing that.”

The money used to purchase the bonds is electronic but the central bank would have needed to back that up by creating more cash. “Money doesn't just get created in thin air, the Reserve Bank would use printed money to buy that,” Dr Oliver said.

“The RBA is actually increasing the size of its balance sheet and the asset it gets is a government bond. But the liability is, in principle, cash.”


The process has become a popular economic policy move across the globe in the recent months as the coronavirus cripples supply chains and halts business. The United Kingdom and the US have embarked on similar schemes.

“The problem facing Australia right now is a supply shock with people stuck at home and can't work in some cases,” Dr Oliver said.

“But there's also a demand shock so anything the Reserve Bank can do to make it easier for the government to borrow money to finance things like wage subsidies, higher unemployment benefits and payments to companies to help them through this period is a good thing.”


Like any of the stimulus packages being hurled at the frontline of the economic crisis caused by the deadly pandemic, it is increasing the nation’s debt.

“It will come at a cost but providing it's managed well and the Reserve Bank, when the time comes, puts an end to money printing before inflation becomes an issue, then I don't think it's a major problem,” the leading economist said.

“It’s similar to federal government borrowing money to pay wage subsidy and other supportive measures through this period in that it will come at a cost down the track if it’s not withdrawn. “The trick is that once the need is over, then it’s brought to an end.”


A picture to make Australians laugh

A British police officer in Brighton tells a member of the public that sunbathing is against the law.

Sunbathing fully clothed on a bed of stones?

Free childcare is all very well but what about those who have to provide it?  Who is looking after them?

It seems that no matter who you talk to these days, people are doing it tough. Thankfully, a great many families are still able to eat and celebrate Easter this weekend thanks to the government's recent offerings such as the free childcare plan and Jobkeeper payments.

Just this morning NSW Premier, Gladys Berejiklian announced that the state will be offering free preschool for all ages for the next six months. And while these latest government schemes will go a long way to helping a great many families, they are also crushing others in the process.

Louise White is a mum-of-two and Family Daycare Educator based in Ryde, Sydney. For many years she's helped care for other people's children within her home and it's a job she's enjoyed since her own children were younger.

Now she'll continue to do so ... while earning only half of what she was earning before.

In a post shared to her Facebook profile, Louise detailed how Family Daycare Educators are being disadvantaged by the government's free childcare scheme.

"What the government has failed to mention is that child care is free for the parents at my expense and at the expense of every Family Day Care Educator who has had her income halved over a matter of days," Louise wrote in her post.

Louise explained that the childcare subsidy works by allowing parents to essentially pay what they can afford, through means testing. So while one family might pay $25 per day, another might pay $50 a day.

So if Louise charges a flat rate of $100 per day (as an example), the government would pay the difference. So on one family that would be $75 and $50 for the other.

"This will cripple us"

Now the government have committed to paying half of all childcare fees, which sounds great on the surface, but as Louise pointed out, she's *no longer allowed to charge the gap*.

So rather than receiving one percentage from the family and the remainder from the government, Louise only receives half of what she was earning previously from the government and families don't have to pay anything.

"As of Monday I will earn half of what I earned last week and I will be working the same hours with the same children, doing the same job," wrote Louise.

"I am taking a 50 percent pay cut so that families who are still working and earning their full pay can have free childcare. My family is not a high income family. This will cripple us."

This QLD centre owner doesn't welcome the free child care news, and why this VIC mum working in childcare is worried about coronavirus.

Louise says she loves all of the children in her care, and trusts their families are all taking the relevant precautions, but she is still opening up her home to six families a week. Caring for four children each day, for five days a week over 10 hours a day.

"I am not given PPE, I am not able to social distance from the children (they are all under five and still need lots of love and cuddles) and I am exposing my home and family every day," Louise said.

"All Family Day Care Educators are in the same position and are now expected to do it for half the income."

Louise pointed out that while Jobkeeper payments may help some, it won't help all Family Daycare Educators and isn't available until May.

"We all have to try and operate at our usual high standards, buying equipment, paying our bills and running our businesses," she said, "while only receiving half our pay."


Mum rejects ‘virtual classroom’, writes ‘hard email’ to Grade 1 teacher

Homeschooling to a government formula is hard.  Is no formal schooling an option in today's circumstances?

Overworked parents have been given “permission to let it all go” — including homeschooling their children — as responsibilities and expectations pile up and quarantine stress builds.

Mother and world renowned archaeologist Sarah Parcak struck a chord on social media this week when she shared her decision to pull her son out of Year 1 for good.

“We just wrote a hard email,” she explained to her 45,000 followers on Twitter. “I told our son’s (lovely, kind, caring) teacher that, no, we will not be participating in her ‘virtual classroom’, and that he was done with the 1st grade.

“We cannot cope with this insanity. Survival and protecting his well being come first.”

“We both work full time, I also help run my non profit AND manage a complex project in Egypt AND am running a COVID-19 tracking platform. So, his happiness trumps crappy math worksheet management.

“Managing his education is a bridge too far right now. I also cook, manage cleaning, have a garden etc (husband does 50% of housework BTW, we are a team). The thought of homeschooling makes me want to barf. It’s a f*cking joke.

“He reads a lot. Plays outside a lot. We read to him a lot and talk to him a lot. He gets history lessons.

“Our goal is to have our son come out of this happy and not be long term emotionally scarred (lord knows life will do that anyways). F**k worksheets. F**k shitty math worksheets especially.”

She told her followers to “let it all go” because “it doesn’t f***ing matter”. “School doesn’t f***ing matter right now. All your kids will remember is how they were loved. Promise.”


Coronavirus: Charting a way out of this crippling Pollyanna world

This week there were big black police cars marked Public Order and Riot Squad cruising around the quiet suburb where I live. It was 10.30 in the morning. There were barely any other cars on the road and no sign of any public disorder, let alone a riot.

There were seven rangers in my park the day before, more than the number of people exercising, or walking, or looking for a ray of sunshine. On the same day, a tiny bay — not a beach, and not far away from me — was locked up with 2m-high fencing so surfers couldn’t find refuge in the waves. Like the riot squad, the rangers and the men putting up fencing were all just doing what they were told to do by superiors.

Which is the same as the Morrison government. They keep telling us they are doing what their superiors, a panel of scientists, are telling them to do. Closing down businesses, large gatherings, sport, church services, culling funerals and weddings, curbing gatherings to two people, unless you are with family or friends you live with.

Two people? It wasn’t so long ago that governments were making room in their ministries for ministers for social isolation. Now, our governments are forcing the country into strict isolation, under threat of jail.

After only two weeks of this, many people are asking whether we are in a corner with no discernible way out. These sentiments are serious. They will get more serious in another week, two weeks, in another month. Talk of putting the country into “hibernation” for six months seems ridiculous. Can it really work?

We are told there is “no magic” to the highly hypothetical modelling released this week. It is guesswork then? If it is not guesswork, please entrust us with meaningful information that we can use to judge whether the cure is worse than the disease.

All we can see so far is an arms race of restrictions on how we live and work by state and federal governments. Let us award Victorian Premier Daniel Andrews first prize in this alarming competition for doing the most to close down an economy and constraining citizens. With that out of the way, it is time for the federal government, using real metrics rather than hypothetical modelling, to start planning how to reopen the country.

To be sure, listen to medical experts. And then add, weigh up and parse other information too. Information such as the economic costs of shutting down businesses, the long-term effects of unemployment, the costs of piling debt on to future generations, the ability of the country to deal with future crises from a position of economic weakness. Other information too, such as the costs of isolating millions of Australians, the mental health costs, the diseases that won’t be treated properly during this pandemic. And share it with us, even the uncertainty.

From chief scientists to premiers to police commissioners and the Prime Minister, they have all talked about the journey we are on together. Journey together? Short of our political leaders mapping an eventual path to recovery for us, and sharing that with us, there is no journey, only confusion.

There is not going to be a “snap back” to normality — that is the stuff of dreams. It is more silly ­language that must stop. But please, Prime Minister, take us into your confidence, trust us by telling us what you are watching to plan for recovery, so we can watch for the same metrics. There is a need for some meaningful light and hope for a country swathed in darkness, uncertainty and fear.

Trust is a two-way street. If you trust us with a way out, we might trust you. We will also have some hope, some light at the end of this tunnel. Not trusting us is surely the road to civil disobedience. It’s only been two weeks and people are getting tetchy, itchy, restless. Has the government factored this in? Have they worked out what might be the tipping point for when we disobey and hop over fences?

There are powerful forces working against a meaningful exit strategy. The first one is human nature, always planning for the worst, avoiding all risk instead of managing it sensibly. That is killing our economy right now. It is leading people to despair. The second equation is that no politician is going to be held responsible for the future suicide of an unemployed young man who has lost hope. But they imagine they will be held responsible for the immediate death of a 94-year old from, or with, COVID-19.

No wonder many feel we are heading on a path more dangerous than a virus. Alas, if we want the government to come clean with us, it is time for us to come clean with ourselves. There is no easy option here. We can’t build walls around the country indefinitely. We can’t keep 25 million people in lockdown without dreadful, deadly consequences. We can’t keep praying for a vaccine. What if there is not a vaccine for a year, two years, five years, ever?

Even building up immunity may not work. What if there is another virus just like this one next year, or the year after? The economy in ruins, how do we support another six million who would be thrown out of the workplace by shutdowns. The shocking truth is we may have to learn to live with a killer virus just as we live, and some die, from other killer, albeit non-contagious, diseases.

Before this pandemic is over, we are all going to have to address some tough ethical questions. Questions of life and death, questions about rationing scarce resources, and questions about who gets priority when there is only one parachute but two aircraft passengers. A virus that disproportionately kills old people raises awful, but unavoidable, questions.

But in today’s society, Pollyannas will claim that all lives are of equal value, and that everyone has an equal claim to our limited ­resources. It is heartwarming. It is also wrong.

How do you answer an 83-year woman who says her life is every bit as valuable as that of a teenager? If there is only one ventilator in the COVID-19 intensive care unit, someone has to choose between giving it to the old woman who may have many health problems and only a few more years to live, or to an otherwise healthy 19-year-old. Do we make them toss a coin? How do we decide, if not by judging which life has more value?

Steve Waterson’s sobering piece last weekend had one particular line that has stuck. Life is precious, but it is not priceless. That is a confronting reality. All sorts of dreadful decisions are frequently made that will save some lives and cause others to die. Who gets the liver transplant, an old man or a young woman? Why aren’t all very expensive lifesaving drugs offered free of charge? Because we do not have infinite resources, so we choose some which we will offer for low or no cost.

Maybe one benefit of the COVID-19 pandemic is that Pollyanna thinking will be put to bed. We can surely never again pretend that hard choices, about life and death, need not be made.


 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

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