Right Pulse

With the release of the latest inflation figures showing a 16 year high in Australia, maybe its time for new solutions. Ever since my London School of Economics days I’ve been skeptical of adjusting macroeconomic policy in response to every quarterly economic figure. Central bank people are a different breed, they really think the economy should revolve around them and they use what tools they have to make sure that it does. So when Alan Jones does his nut at them, I take a step back. Further, according to my calculations a 20 per cent growth in M3 money supply over the past 12 months has not done inflation any favours. This has been mostly ignored by the media, but it might go some way to explain our high interest rates compared to the rest of the world, see table at the end of this thread.

I noticed just this moment that the issue was picked up by The Australian from MAN Financial chief economist Dr Frank Shostak:

“The Reserve Bank claims that it does not print money, but merely accommodates demand, but printing money is exactly what it is doing,” Shostak told The Australian in Sydney this week.

“Most people define inflation as a general increase in prices, but what inflation used to mean is an increase in the quantity of money, which is the primary long-term cause of general price increases.

“The money supply is out of control. The Reserve Bank balance sheet has increased by over 35 per cent and, according to my measurements, during the year to February there has been in excess of a 21 per cent increase in money supply. This can only result in general price increases.

If you don’t believe me, then here are the money supply figures from the RBA – you want M3.