Saturday, January 26, 2008
the Reserve Bank arse about
Right now in the US, the Fed is cutting rates - a whopping 0.75%. Apparently this is the biggest cut since way back when. The economy is tanking and more liquidity is required. Meanwhile here in Australia the talk is all about raising rates. The economy is robust and could do with reining in - not quite yet but it all depends on key inflation indices blah, blah, blah.
As I watched this on TV a mad thought struck me. Perhaps we've got it all arse-backwards. Certainly when a Reserve Bank sets rates it does control the velocity of the economy - inflation and deflation and all that. But it's really clunky. It's a long and tenuous path between the official rates and what people are spending and earning. Why is this mechanism, ostensibly the central bank's raison d'etre, such a clunky Heath-Robinson shit fight? Has anyone noticed that the efficiency lies in the reverse direction? When they raise rates there's no lag at all in their profits. The money flies into their pockets like it was on a turbo-charged conveyor belt.
Forget the Reserve Bank as some sober 'independent' quasi-governmental body. Under this job-description it is sadly inefficient. Instead, imagine it as just another profit hungry business. Now it's a model of efficiency at delivering insane sums of insane profit. Forget the self-serving lies. The fact is, each Reserve Bank sets the interest rates solely on what the market will bear. Can you dig it? They merely charge as much as they can, just shy of fucking everything up. If you want to say that isn't so, in what way would this model differ to that of the the banks as sober monetarist stewards of national economies, blah, blah, blah?
Money is merely a product rented by the monopoly that owns the printing press. And it is the wonder product. To hell with ipods, money is the must have accessory. And the only brand is the Reserve Bank brand. Interest rates are just the rent we pay. Without a competition brand, the Reserve Banks charge whatever they want - provided the market can bear it. Like all products, when demand is high the cost goes up and everybody pays more. And yeah, eventually the market cools - proof of the effectiveness of monetarism, ha ha.
Lets put it another way - imagine a loanshark, lacking even a sense of criminal honour, who charged more or less depending on what he thought you could pay. If you're getting ahead and have a few extra bucks, he ups the rate. If you are falling down, and his gig is endangered, he charges a bit less. He's not a humanitarian. He's just wants to keep you alive so you can keep paying.
So. Right now the US pays less and Australia pays more. Forget all that economic mumbo-jumbo on TV. It's really simple. Americans are falling down and Australians have a few extra bucks. Lucky us.
And now the only other question - Does the Reserve Bank exist to make themselves rich or to keep us poor? Given that they're all already richer than god, the former makes no sense, surely.