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Monetary Policy

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There is a flaw in the way the Australian Governments controls Monetary Policy.

A so called independent body, The Reserve Bank, tries to control inflation.

The Reserve Bank Board sets interest rates so as to achieve the objectives set out in the Reserve Bank Act 1959:

the stability of the currency of Australia;
the maintenance of full employment in Australia; and
the economic prosperity and welfare of the people of Australia.

So if the RBA controls inflation by setting interest rates then the flaw that exists is that the institutions that distribute the money (the Banks) do not have to follow the RBA's announcements when they change interest rates.

The Banks have the ability to ignore the RBA announcements all together or only pass on part of the changes. In fact this flaw in the system has been recently highlighted. The banks have flagged that they will change rates independently of the RBA's announcements.

So there appears to be two options to overcome this flaw in the system
1. Legislate that the Banks must pass on in full all RBA changes - unlikely
2. Government needs to come up with some other system of controlling inflation (and the economy).

Otherwise the governments efforts (through the RBA) to control Monetary Policy is limited and could be ineffectual.
 
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So if the RBA controls inflation by setting interest rates then the flaw that exists is that the institutions that distribute the money (the Banks) do not have to follow the RBA's announcements when they change interest rates.
You're assuming the RBA operates in a vacuum and doesn't take into account the actions the Big 4 may take in response to an interest rate movement.
 
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There is a flaw in the way the Australian Governments controls Monetary Policy.

A so called independent body, The Reserve Bank, tries to control inflation.

The Reserve Bank Board sets interest rates so as to achieve the objectives set out in the Reserve Bank Act 1959:

the stability of the currency of Australia;
the maintenance of full employment in Australia; and
the economic prosperity and welfare of the people of Australia.

So if the RBA controls inflation by setting interest rates then the flaw that exists is that the institutions that distribute the money (the Banks) do not have to follow the RBA's announcements when they change interest rates.

The Banks have the ability to ignore the RBA announcements all together or only pass on part of the changes. In fact this flaw in the system has been recently highlighted. The banks have flagged that they will change rates independently of the RBA's announcements.

So there appears to be two options to overcome this flaw in the system
1. Legislate that the Banks must pass on in full all RBA changes - unlikely
2. Government needs to come up with some other system of controlling inflation (and the economy).

Otherwise the governments efforts (through the RBA) to control Monetary Policy is limited and could be ineffectual.
Let the big banks do as they please.

Perhaps the govt should not have dropped the ball (as in howard and costello) when cutting back marginal tax rates and then giving consumers the money to waste on technology, cars and holidays, and to park into unproductive "assets" such as residential housing..

Now, what better shape would our economy be in if Howard and Costello increased super to 15% instead of tax cuts so high.

Our listed companies would be in better shape, and our housing would not be in such a bubble...

imo let bracket creep do its thing for 10 years, and increase super with the money caught in its net.

This will decrease inflation, help fund large Australian companies (and help keep those companies Australian = THERE IS NO NEED FOR A MINING TAX IF WE OWN THE SHARES IN THE MINING COMPANIES)

So in all, a winner for all, with minimal pain.. but then again, doesn't buy votes NOW.

MW
 
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I find it interesting how when mentioned it is obvious, yet the mainstream media never touches it, perhaps it is not in their scripts?
 
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