Tag Archives: Frydenberg

Progressiveness from the Conservatives?

The Morrison government will prioritise reducing the unemployment rate ahead of debt reduction in a significant overhaul of its fiscal strategy in response to the coronavirus-caused recession.

In a major shift away from the Abbott-era hyperbolic rhetoric of “budget emergencies” and “deficit disasters”, treasurer Josh Frydenberg said on Thursday the government would not begin the work of substantial debt and deficit reduction until the unemployment rate was “comfortably” back under 6%.

“With historically low interest rates, it is not necessary to run budget surpluses to stabilise and reduce debt as a share of GDP — provided the economy is growing steadily,” Frydenberg said.

“Even though debt will be at much higher levels than we are accustomed to, it remains sustainable and will be put back on a steady path of reduction.”

Liberals drop obsession with debt and deficit to focus on job creation by Katharine Murphy and Paul Karp in The Guardian.

Australian Real Progressives would argue that under 6% is not enough but the Treasurer did state ‘comfortably’ under six per cent.  That leaves plenty of room for interpretation.

The Queensland Liberal Andrew Laming even said “…“is almost a diluted version of Modern Monetary Theory, a belief that the true crime is to leave the citizenry unutilised or underutilised”.

It’s a start!

Frydenberg “Having a Lend” when he Tells You to be Worried about “Borrowing”

When the treasury instructs the AOFM to get $X to fund government spending, the AOFM conducts a bond auction on the primary market. This means that they create new bonds and people buy them, and the money they buy them with goes into treasury’s account at the RBA and is then spent by the government, neoliberal economists call that borrowing. If the RBA were to simply buy treasury’s bonds or the treasury just directly issued funds into accounts at the RBA then neoliberal economists would call that printing.

The standard argument from neoliberal economists is that all printing is bad and will inevitably result in hyperinflation.

There are 2 obvious and provable flaws in this view though:

1) The reserve balances used to purchase the bonds were already on account at the RBA. They already existed and were already listed as a liability on the RBA balance sheet (this is public information on the RBA website). Since the RBA is just a branch of government, this means that when people buy bonds it is not like borrowing at all, it is like having a term deposit at your private bank. When you deposit $1000 at ING the balance sheet changes: their $1000 liability is your $1000 asset. If you move that $1000 into a term deposit, did they borrow $1000 from you? No, the balance sheet doesn’t show an increase in bank liability by $1000, their balance sheet liability increases by the amount of Interest they will pay you at maturity.

2) Almost all transactions in our economy occur in the private banking system. The only constraint on private banking are what’s called liquidity ratios: how much in government financial assets do banks need to hold in order to issue a certain amount in loans. In this context, reserve balances and government bonds are identical. Both can be used to satisfy bank liquidity ratios. So from the perspective of total spending in the economy, there is literally no difference between issuing bonds “out of thin air” and issuing reserve balances “out of thin air”, that is to say, the economic effects of what neoliberal economists call printing and what they call borrowing are identical…

Well, almost, ironically because the government typically pays higher interest on bonds than on reserves what neoliberal economists refer to as borrowing is actually slightly more inflationary than what they call printing.

The belief is that by having this absurd system the private bond market exerts discipline over government spending which, if it were a purely political process would result in pork-barreling. In other words, private citizens who have the most money already should be the ones to dictate how a democratically elected government should allocate resources for the social good.

As well as being utterly repulsive ideologically this is also completely false because the bid to cover ratios for every single bond auction (also public on the AOFM website ) show that demand for bonds exceeds supply by 2.5-4x.

The truth is that spending constraint is already legislated by the charter of budget honesty. So legal and political processes are perfectly capable of disciplining spending and do so already.

Your Honour, The Fight Started When I Punched Him (Back) 🙄

Some three weeks ago there were two announcements. One by the Treasurer, the other by the (RBA) governor.

The Treasurer’s announcement (some $17 billion worth of chaotic stimulus ) was gasp-inducing and it (almost) stole the show from the RBA governor. But the governor was very clear in announcing two significant measures (in four points). The Treasurer, in turn, hijacked and subsequently obfuscated the governor’s announcements.

The RBA governor, Philip Lowe announced two things:

1) the (target) cash rate down to 0.25% and

2) Quantitative Easing. He announced a minimum of $90 billion of QE. What he also announced was “bond-buying” and targeting bond yields.

This is where the hilarity (and bastardry) begins. 3 (4?) days later the government announced an additional $67(odd) billion of “stimulus” (I call that support). AND the Treasurer displayed his adding up skills: 17+90+67=174. Well done him. 🙄

He added fiscal measures to monetary policy. He added a few limes to bullet train engineering. In order to boast with a “really big number”. Another gasp!

What he, and the mainstream commentary neglected is to explain the RBA announcement. To explain the fact that 2) QE and 3) bond purchases and 4) squeezing yields are the steps of the same operation.

Instead, the Treasurer added the sum of monetary operation (targeting bond yields) to the sum/total of a fiscal operation (injecting $84 billion into the real economy). Money- money, who cares, the learned commentators in the MSM can’t tell the difference between a duck and a lizard, both break eggshells.

But it does matter and it does matter for a number of reasons.

Let’s start with the QE part. The part the MSM calls money printing. Incorrectly.


  1. the RBA credits government accounts with $X by marking up accounts electronically,
  2. Treasury issues bonds (more or less) to the value of $X.
  3. Traders in the Primary Bond Market bid and acquire the available bonds,
  4. the central bank (RBA) buys the bonds from the traders (secondary market).

This is what the RBA announced and promised: “print” money and buy bonds. Yay! There is an inverse relationship between the price of the bonds and the yields they deliver. The RBA’s buying up the bonds is squeezing the yields, making good on its third announcement (promise) to target a yield of 0.25%. Nobody knows how many of the government bonds it needs to buy in order to hit its (yield) target. It could be 50%, it could be close to 100%. (Beside the point).

Here comes the really funny part: the RBA types numbers into government accounts, Treasury issues bonds to roughly match the RBA account typing, AND THEN the RBA buys the bonds. WTF? So now the bonds are on the RBA’s balance sheets. The bonds are now an RBA asset which pays interest! So when the bonds mature the government refunds the money to the bondholder (RBA) along with the interest (0.25%?) to the RBA. The RBA has just made a profit. Do you know what happens next? The RBA returns the profits to Treasury? OMFG!

Well, this is what QE is. In this case, it is a really opaque and weird way for the RBA to honour every government payment. And it is a really opaque glass for the government to hide behind.

It is essential to realise that the government’s large spending announcements (totalling over $200 billion) were preceded by the RBA’s very confusing QE announcement, and tell me I’m wrong: no *taxpayers’ money* was mentioned by anyone. At all! That is no accident.

But once the population accepted this deficit spending the government is hinting at intergenerational debt. And we all know how that particular narrative is worked …

Except we should all realise that it is a lie and that the majority of the newly issued debt is in fact held by the issuer itself. As Bill Mitchell put it recently, the right pocket is paying the left pocket.

Zoltan Bexley is a woodworker, armchair economist, sustainability and social justice advocate

Frydenberg sends Mixed Messages

Previously we examined the Treasurer’s opinion piece from the Fin Review with our progressive and modern monetary frame and now we examine the message contained within.

From that frame we learned the Treasurer at least admits we are not investing enough in childcare and perhaps schools.

The Government is currently reducing its ‘real spending growth’ thus is removing the real income effect from Australian households and businesses. This is a deliberate lowering of investment in Australians.

The treasurer recognises that unemployment statistics have fallen but fails to acknowledge underemployment statistics according to the Australian Burea of Statistics have grown. This is a sign that people desire to work but there is a lack of willingness of the current government to put Australians to work.

Many of the facts the Treasurer quotes are not in dispute but nor are they given in their full context.

The government has committed $1 billion to farmers and local drought-affected communities. This is only 0.05 per cent contribution of GDP to the economy. It doesn’t take into account that farmers and communities need real resources like food and water so we have food security in Australia. These have ripple-through effects to home security, housing stress, school affordability, access to food, isolation and a lot of other social costs. This is what the Treasurer and government need to focus upon.

The spending on health, education and disability support is not contingent on high commodity prices and as much as recent positive terms of trade have been helpful, the well-being of Australians has never been contingent on high commodity prices but our access to support workers, doctors, nurses, counsellors, psychologists, teachers, disability advocates, etc. and preferably in person too so those requiring assistance are able to establish a rapport and connection

And yes ageing is an issue it will cost us real resources whether they’re sourced domestically or internationally but financially affording what we need is of no real concern as we have our own sovereign free-floating currency and much more.

The Treasurer acknowledges the NEED for all these things but is unwilling to put the financial resources that only they can access behind what is necessary. This is a mixed message and the people should confront the Treasurer and relevant ministers of why this should NOT be so.