Okay, lots happening behind the scenes, so apologies for the lack of posting, but here’s an article to make up for it.
The Reserve Bank of Australia (RBA) raised interest rates again this week, claiming the move is necessary to keep inflation low and stable. But according to proponents of modern monetary theory, the RBA’s rationale is misguided. When the RBA raises rates, it is directly increasing the very measure of inflation it claims to be controlling. With wage growth stagnating and supply-side factors driving many price increases, higher interest rates will only slow growth, reduce government revenue, and diminish private-sector income. This undermines the RBA’s stated goal of sustainable employment and economic opportunity for all.
The RBA’s dogged focus on an arbitrary inflation target forces unemployment to rise and penalizes borrowers to privilege lenders’ interests. It’s based on an outdated “loanable funds” view suggesting higher rates attract saver funds and curb inflation. In reality, the RBA creates money electronically, so costs are not a real constraint.
As amateur MMT economist Darren Quinn notes, “Interest rate targeting results in deliberately creating unemployment to control inflation. This is unethical and counterproductive.”
Rate hikes redistribute income to banks and investors, depriving households and businesses.
Data shows mortgages have increased over $2,600 yearly from rate hikes, with another $4,000 hike expected if rates reach 4% – the prevailing view of experts like Centre for Future Work Policy Director Greg Jericho. For a $500,000 mortgage, repayments would rise $400 monthly. This policy disproportionately affects those who are struggling financially and benefits lenders, despite the fact that unemployment caused by the RBA’s actions is the real threat to price stability. When sustaining community welfare, should be policy’s goal, an understanding of money as electronically created by central banks for public purpose is essential.
It’s time to rethink RBA policy based on how modern money works, not discredited theories. Rather than weakening growth to control inflation, policy should support full employment and distributive justice. The RBA should invest in opportunities and well-being for all, not deprive the vulnerable to privilege powerful interests. An evidence-based approach recognizing monetary operations’ real potential could achieve stated goals, not continue producing results opposite rhetoric. With inequality deepening and recession risk rising, revamped policy improving living standards through job creation and investment in human potential is needed – not tightening harming most to advantage the few.
And yes, I did quote myself!