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Quantitative easing by stealth?

By Malcolm Roberts and Darren Nelson - posted Wednesday, 22 March 2017


Many in the mainstream media and even much of academia, mistakenly confuse one of the statistical measures of inflation – ie the Consumer Price Index (CPI) – with the underlying economic reality of inflation itself. This statistic is regularly produced by the Australian Bureau of Statistics (ABS). CPI has been rising quite a lot since 2000 but not as much as M3 as can be seen in Chart 3 … rising from an index of 70.2 in June 2000 to an index of 106.6 by June 2016, which is an increase of nearly 52%. Other statistics point to the other expected impacts from artificially inflating the money supply, such as: downwards pressure on interest rates, for the private and public sectors; upwards pressure on debt levels, for the private and public sectors (especially government debt); increased instability of, as well as downwards pressure on, Gross Domestic Product (GDP) growth and unemployment rates (ie boom-and-bust); as well as downwards pressure on the Australian dollar and upwards pressure on equities.

Chart 3

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Note that CPI has many weaknesses including that it more-often-than-not understates inflation or the cost-of-living. Another weakness is that according to Murray Rothbard in Man, Economy and State: “[A]ny concept of average price level involves adding or multiplying quantities of completely different units of goods, such as butter, hats, sugar, etc., and is … meaningless and illegitimate. … And if one is tempted to use poundage as the common unit of quantity, what is the pound weight of a concert or a medical or legal service?” CPI’s biggest weakness, however, is that explaining an increase in prices as being due to increase in prices is no explanation (of cause-and-effect) at all.

Also in October 2016, Senator Malcolm Roberts asked the Secretary of the Treasury (and RBA board member) Mr John Fraser during Senate Supplementary Estimates “does the Australian government, the Australian Treasury or the Reserve Bank of Australia have a transparent quantitative easing policy?” and added that “from what I have seen of the M3 money supply figures, there seems to be some quantitative easing going on”. Mr Fraser responded “no” and added that “M3 … was the clear focus in the mid-eighties” but “I have hardly heard the term since” and “it is just not a focus of monetary policy”. Nevertheless, the RBA continues to publish a monthly M3 figure, which it has done since July 1959, along with other monetary aggregates like M1 and BM, which it has done since the mid 1970s … but not M2 or M0 as in the US.

More recently in March 2017, Senator Roberts said to Mr Fraser during Senate Additional Estimates that “I remember that you dismissed—or I took it that you dismissed—M3” and then asked the following three questions: 1) “how much has CPI inflation increased in Australia since publication from September 1948 to December 2016?”; 2) “how much has M3 money supply increased in Australia since publication from July 1959 to January 2017?”; and 3) “is there a relationship—fully and/or partially correlated and/or causal—between the money supply as measured by M3 and inflation as measured by CPI?”. Mr Fraser responded by saying “I did not dismiss M3”. He went on to say “conscious that I might be meeting up with you today, I did look at the recent [M3] numbers all around the world, and it remains very flat” adding “over the longer term, Friedman made a case that there was a link between M3 and prices … [so] fiddle with money supply at your peril”.

Therefore, especially given Charts 1, 2 and 3 below (and the apparent correlation between Charts 3 and 1), the RBA appears to have a very strong prima facie case to answer to the people of Australia whether or not: A) the RBA has been undertaking Fed style QE or not? B) the Treasurer is aware, or approves, of any such Aus-QE? C) the RBA and/or the Treasurer believe that an Aus-QE is to the net benefit of most average Australians? At this stage, the short answers to these questions are: A) “yes”; B) “maybe”; and C) “no”. In conclusion, it has been asserted by Chris Leithner in his book The Evil Princes of Martin Place that: “The RBA does not fight inflation, it manufactures and maintains it.” To quote Senator Pauline Hanson, Treasurer “please explain”.

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This article was first published on Liberty Works.



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About the Authors

Malcolm Roberts is a One Nation senator representing Queensland. His primary policy interests are in energy, tax, regulation and banking. He has qualifications in business, engineering and atmospheric gases.

Darren Brady Nelson is an Austrian School economist, conservative-libertarian and Christian who lives in Brisbane Queensland but is originally from Milwaukee Wisconsin.

Other articles by these Authors

All articles by Malcolm Roberts
All articles by Darren Nelson

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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