Lord :0 I was loans officer in 1982 I think (memories getting vague) :) ive held exec positions the banking sector for almost 30 years I am currently CEO of my own Asian based software company I could probably cover the internal process and policies of about 40 banks within Asia
Nick , yes i understand most of the theories on monetary policy published in the last 100 years
In monetary theory terms what the RBA is doing is fairly narrow, they are inflation targeting using a narrow set of levers. Targeting CPI without consideration to levels of debt and asset prices allows debt inflation to transmit monetary growth through the asset channels, folks feel wealthier because of equity increases and so consume through utilizing debt.
Central bank independence is a two edged sword, yes it makes sense at a theoretical level because it promises the a monetary policy free of short term political interference, in reality though it delivers some fairly narrow policy , defendant on the theoritical motivations and beliefs of the central bank folk that hold the reigns
The folk that hold the reigns at the RBA at the moment have a belief in a central banking and policy theory developed by folks like Krugman, Bernanke , Solow, Weil and Delong in the 90s, the is US based policy theory puts the focus on consumption, that is they avoid deflation through inflation targeting and specifically ignore asset price movements, they over rely on monetary measure like interest rates and money supply(despite the warnings of Friedman, Keyenes, Schumpeter and Galbraith), what they end up creating is asset bubbles that spike consumer spending, everything runs from bubble to bubble until the underlying ability of the economy to absorb debt is tapped out
This creates malinvestment in speculation instead of investment in production and trade.
The point I am making is that allot of well known macro economists have been screaming about the risks that are inherent in these policies for years, what the RBA has been doing is extremely risky in that it ignores the long term consequences and economic health to the country of ever expanding debt.
No ones trying to be a smart , my issue is the we have an RBA thats been captured by a wave of central bank policy fads and its destroying the future of the country.
Why is it that these people are immune from the realities of democracy, the housing bubble should have been stopped in its tracks in 2003-4 but because they believe in their muddle headed minds that asset prices should be ignored we end up with the mother of all RE bubbles and consumers in 40% more debt than at the depths of the great depression
its madness to say they should be just allowed to do what they want when there track history is so bad its a joke
