Good morning (here)/ Buenas tardes (there), Timber.
Keating was pulling the strings, Fraser was reacting, or perhaps overreacting. Blame? Same as Costello gets the blame for the RBA selling our gold.
The main difference between a CB or Treasury regarding monetary policies, is flexibility. A CB raises/lowers interest rates and prints/withdraws supply.
Generally speaking during boom times you like a strong currency, and during bad times you like a weaker one. (As discussed previously).
So what generally happens when you raise rates? Overseas investors see a high return, buy our currency and this revalues of currency. When this is done in boom times, overseas money supply is not as important. By doing so o/s investors are making money at the expense of our manufacturers/exporters. They are ahead of the curve, getting in before our exporters (unless hedged). Rising interest rates (doing what they are intended, because of boom times) force borrowing costs up, and thus helps reduce borrowings. But remember, a lot of these costs are going overseas.
A Treasury Dept can be more flexible. Whilst Fraser was raising rates, I was saying, and still think, that a better option to slow spending was to charge a tax surcharge. This would slow spending and the money would stay here, to help ward off a recession when things turn.
Now, I talking about an ideal world, in which we're not. That suggestion is unpalatable to the gov't, who would get kicked out of office. They would also blow our money, which wouldn't be there when needed.
But, if we could put this money into a Sovereign Wealth Fund with restrictions, it may work.
Back in about 2005/6, when our Gov't was bathing in dollars, I recall some official saying we should give a temporary tax break whilst times were good. (opp. of what I pointed out above).
If we could instigate a SWF next time we boom, we could end up like Norway, who are currently considering giving each inhabitant 1200 Euros/ mth. Switzerland something similar.
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