Comments on: Will the Coalition offer tax cuts during the campaign? http://andrewnorton.info/2007/10/will-the-coalition-offer-tax-cuts-during-the-campaign/ Observations from Carlton's Lone Classical Liberal Fri, 21 Nov 2008 12:19:08 +0000 http://wordpress.org/?v=2.5.1 By: Jc http://andrewnorton.info/2007/10/will-the-coalition-offer-tax-cuts-during-the-campaign/#comment-9825 Jc Tue, 16 Oct 2007 16:06:22 +0000 http://andrewnorton.info/blog/2007/10/10/will-the-coalition-offer-tax-cuts-during-the-campaign/#comment-9825 Leopold CB means central. RBA targets an interest level- by as your said- buying and selling securities. The base money is the soup pot where high-powered money is created. Whenever the RBA does an add- adding liquidity to the system the effect it is that this operation ratchets up the amount of funds the banking system can lend through the multiplier effect of fractional reserve by about 16:1. That means that for ever dollar added to the system by the RBA the banking system is able to lend out 16 as the first tranche. Ordinarily the Central bank ought to increase the money supply enough to satisfy economic and population growth needs and not one penny more. However that isn't the case. They deliberately add more either because they are worried about economic growth or because the interest rate target setting is too low and much more money is demanded than was anticipated. The effect is a money expansion that produces inflation. This time round- for the past 12 years monetary expansion has been felt mostly in the price of hard and financial assets. In other words they have created the money illusion of growth. In other words they have performed monetary debasement in the most explicit way possible. There is nothing more toxic that a central bank conducting monetary policy through interest targeting and maintaining easy money conditions. It will come back and haunt us. Leopold

CB means central.

RBA targets an interest level- by as your said- buying and selling securities. The base money is the soup pot where high-powered money is created. Whenever the RBA does an add- adding liquidity to the system the effect it is that this operation ratchets up the amount of funds the banking system can lend through the multiplier effect of fractional reserve by about 16:1. That means that for ever dollar added to the system by the RBA the banking system is able to lend out 16 as the first tranche.

Ordinarily the Central bank ought to increase the money supply enough to satisfy economic and population growth needs and not one penny more. However that isn’t the case. They deliberately add more either because they are worried about economic growth or because the interest rate target setting is too low and much more money is demanded than was anticipated. The effect is a money expansion that produces inflation. This time round- for the past 12 years monetary expansion has been felt mostly in the price of hard and financial assets. In other words they have created the money illusion of growth. In other words they have performed monetary debasement in the most explicit way possible. There is nothing more toxic that a central bank conducting monetary policy through interest targeting and maintaining easy money conditions. It will come back and haunt us.

]]> By: Leopold http://andrewnorton.info/2007/10/will-the-coalition-offer-tax-cuts-during-the-campaign/#comment-9801 Leopold Tue, 16 Oct 2007 11:20:04 +0000 http://andrewnorton.info/blog/2007/10/10/will-the-coalition-offer-tax-cuts-during-the-campaign/#comment-9801 Um... last time I checked the RBA (not the CB) engages in open market operations (buying/selling bonds) which affect the supply of base money in such a way as to affect interest rates in the way they prefer. Um… last time I checked the RBA (not the CB) engages in open market operations (buying/selling bonds) which affect the supply of base money in such a way as to affect interest rates in the way they prefer.

]]> By: JC http://andrewnorton.info/2007/10/will-the-coalition-offer-tax-cuts-during-the-campaign/#comment-9812 JC Mon, 15 Oct 2007 17:37:46 +0000 http://andrewnorton.info/blog/2007/10/10/will-the-coalition-offer-tax-cuts-during-the-campaign/#comment-9812 Leopold How do you know that the interest level you choose will in fact lower the money supply? Having an interest rate target by defintion means the CB has to supply any amount of money demanded at that level. Tell me how they know it will be the right setting? Is an increase in the price of energy inflationary? Is the fall in the price of computers deflationary? Leopold

How do you know that the interest level you choose will in fact lower the money supply? Having an interest rate target by defintion means the CB has to supply any amount of money demanded at that level. Tell me how they know it will be the right setting?

Is an increase in the price of energy inflationary? Is the fall in the price of computers deflationary?

]]> By: Leopold http://andrewnorton.info/2007/10/will-the-coalition-offer-tax-cuts-during-the-campaign/#comment-9800 Leopold Mon, 15 Oct 2007 10:40:27 +0000 http://andrewnorton.info/blog/2007/10/10/will-the-coalition-offer-tax-cuts-during-the-campaign/#comment-9800 Er... 1) you raise interest rates by contracting the money supply, so advocating higher rates is advocating a smaller money supply by definition; 2) no, mate, inflation is an increase in prices, which, ipso facto, lowers the value of the currency. And it is measured (probably mildly over-stated) by the CPI. - The simplistic monetarism of Mr Friedman (a great economist in other ways, I note) really doesn't have much currency these days (pun intended). Er… 1) you raise interest rates by contracting the money supply, so advocating higher rates is advocating a smaller money supply by definition; 2) no, mate, inflation is an increase in prices, which, ipso facto, lowers the value of the currency. And it is measured (probably mildly over-stated) by the CPI.
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The simplistic monetarism of Mr Friedman (a great economist in other ways, I note) really doesn’t have much currency these days (pun intended).

]]> By: John S http://andrewnorton.info/2007/10/will-the-coalition-offer-tax-cuts-during-the-campaign/#comment-9811 John S Mon, 15 Oct 2007 10:21:32 +0000 http://andrewnorton.info/blog/2007/10/10/will-the-coalition-offer-tax-cuts-during-the-campaign/#comment-9811 Update: Howard has indeed announced a tax cut. Update: Howard has indeed announced a tax cut.

]]> By: Jc http://andrewnorton.info/2007/10/will-the-coalition-offer-tax-cuts-during-the-campaign/#comment-9823 Jc Sun, 14 Oct 2007 14:37:56 +0000 http://andrewnorton.info/blog/2007/10/10/will-the-coalition-offer-tax-cuts-during-the-campaign/#comment-9823 Rajat They don't consider it to be a major problem because they have forgotten how to define the problem in the first place. The RBA cannot even define money any longer so it can't define inflation. In your example the price of energy affects all goods and services. If the price of energy rises due to higher demand eleswhere or supply is constricted the effect is actually deflationary in that a larger some of money has to be spent to purchase the same quantity of energy input. The fact the RBA does not see it like this is going to be tragic. Rajat

They don’t consider it to be a major problem because they have forgotten how to define the problem in the first place. The RBA cannot even define money any longer so it can’t define inflation.

In your example the price of energy affects all goods and services. If the price of energy rises due to higher demand eleswhere or supply is constricted the effect is actually deflationary in that a larger some of money has to be spent to purchase the same quantity of energy input.

The fact the RBA does not see it like this is going to be tragic.

]]> By: Jc http://andrewnorton.info/2007/10/will-the-coalition-offer-tax-cuts-during-the-campaign/#comment-9822 Jc Sun, 14 Oct 2007 14:32:45 +0000 http://andrewnorton.info/blog/2007/10/10/will-the-coalition-offer-tax-cuts-during-the-campaign/#comment-9822 Leopold, you don't have to believe anything. But Inflation is not the CPI. Inflation is a debasement of the currency brought on by centeral bank mismanaging the supply of money.. that is printing too much money. the money supply M3 has risen 350% since 1994. Infaltion is not the price of eneergy going up and neither is it the price of food going up because of drought like conditions. Raising rates to curb inflation has nothing to do with interest rates going up or down. It has everyithning to do with the quantity of the money stock. But hey, you can believe what you like. Leopold, you don’t have to believe anything. But Inflation is not the CPI. Inflation is a debasement of the currency brought on by centeral bank mismanaging the supply of money.. that is printing too much money. the money supply M3 has risen 350% since 1994.

Infaltion is not the price of eneergy going up and neither is it the price of food going up because of drought like conditions.

Raising rates to curb inflation has nothing to do with interest rates going up or down. It has everyithning to do with the quantity of the money stock.

But hey, you can believe what you like.

]]> By: Leopold http://andrewnorton.info/2007/10/will-the-coalition-offer-tax-cuts-during-the-campaign/#comment-9824 Leopold Sun, 14 Oct 2007 10:03:57 +0000 http://andrewnorton.info/blog/2007/10/10/will-the-coalition-offer-tax-cuts-during-the-campaign/#comment-9824 So according to you either a) I have to believe the money supply is the ONLY thing that affects inflation, or b) I have to believe the money supply has no effect on inflation. - Or maybe - just maybe - I can believe money is ONE of a number of things that affects inflation. Considered that? - And I personally think the RBA should have raised interest rates higher, sooner. But that doesn't make your arguments any less wrong. So according to you either a) I have to believe the money supply is the ONLY thing that affects inflation, or b) I have to believe the money supply has no effect on inflation.
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Or maybe - just maybe - I can believe money is ONE of a number of things that affects inflation. Considered that?
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And I personally think the RBA should have raised interest rates higher, sooner. But that doesn’t make your arguments any less wrong.

]]> By: Rajat Sood http://andrewnorton.info/2007/10/will-the-coalition-offer-tax-cuts-during-the-campaign/#comment-9799 Rajat Sood Sun, 14 Oct 2007 08:16:24 +0000 http://andrewnorton.info/blog/2007/10/10/will-the-coalition-offer-tax-cuts-during-the-campaign/#comment-9799 spog, I'm not a macroeconomist, but I can tell you that inflation is a sustained rise in the *general* price level. This presupposes a common means of exchange, which I guess does not exist in a pure barter economy. Anyway, it's the general nature of price rises that indicates inflation. Just because gold or oil prices rise does not mean there is high inflation. If the cause of a price rise of a good is scarcity of that good, then not all prices will rise in a similar fashion. What has been happening in recent years is a rise in the prices of commodities and real assets (eg property) but falls in other prices (eg manufactored goods). Accordingly, central banks have not considered that we have a major inflation problem. spog, I’m not a macroeconomist, but I can tell you that inflation is a sustained rise in the *general* price level. This presupposes a common means of exchange, which I guess does not exist in a pure barter economy. Anyway, it’s the general nature of price rises that indicates inflation. Just because gold or oil prices rise does not mean there is high inflation. If the cause of a price rise of a good is scarcity of that good, then not all prices will rise in a similar fashion. What has been happening in recent years is a rise in the prices of commodities and real assets (eg property) but falls in other prices (eg manufactored goods). Accordingly, central banks have not considered that we have a major inflation problem.

]]> By: spog http://andrewnorton.info/2007/10/will-the-coalition-offer-tax-cuts-during-the-campaign/#comment-9809 spog Fri, 12 Oct 2007 22:11:48 +0000 http://andrewnorton.info/blog/2007/10/10/will-the-coalition-offer-tax-cuts-during-the-campaign/#comment-9809 Perhaps for the blood and guts, I could just ask the same question on Catallaxy. Perhaps for the blood and guts, I could just ask the same question on Catallaxy.

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