3 March 2023
In a YouTube clip from the BBC show Blackadder II entitled The Idiots Guide to Alchemy, an exchange between Lord Blackadder (LB) and Lord Percy (LP) proceeds as follows:
LP: ‘My Lord! Success!’ LB: ‘What?’ LP: ‘After literally an hour’s ceaseless searching I have succeeded in creating gold. Pure gold!’ LB: ‘Are you sure?’ LP: ‘Yes, My Lord. Behold!’ LB: ‘Percy, it’s green.’ LP: ‘That’s right, My Lord.’ LB: ‘Yes, Percy, I don’t want to be pedantic or anything, but the colour of gold is gold. That’s why it’s called gold. What you’ve discovered, if it has a name, is some green.’
Very few educated Aussies have the economic awareness of a Lord Blackadder – be they working in non-profits, media, industry, government, or even academia. They have not noticed that the RBA is like Lord Percy and his fool’s gold of ‘purest green’.
The review we got:
Coming up soon in March, the Review of the Reserve Bank of Australia (RBA) will report to the Federal Labor government of Prime Minister Albanese. This review was announced by Treasurer Chalmers in July 2022. Unsurprisingly, the review is being made by the typical Praetorian Guard types for Davos-style international statism and elitism.
The four key themes of the Review are the RBA’s: 1) inflation, taxation, and spending; 2) economic and communication performance; 3) governance arrangements and board; and 4) staff diversity and inclusion. Interestingly, the fourth theme includes a ‘willingness to embrace change and alternative views, and risk taking’. However, one of the Terms of Reference states: ‘The Review will exclude the RBA’s payments, financial infrastructure, banking, and banknotes functions.’
Yet, the first theme states:
‘The Review is seeking views on ways to improve Australia’s approach to monetary policy … The RBA aims to get inflation to average between 2 and 3 per cent over time … It does this by influencing interest rates, which in turn affect employment and inflation. The Review is also considering how monetary policy works alongside fiscal policy (i.e. how much governments spend and raise in revenue) and macroprudential policy (i.e. lending regulations).’
The RBA’s money monopoly:
The RBA was established under Commonwealth legislation of the Reserve Bank Act 1959. Under section 10, ‘It is the duty of the Reserve Bank Board … to ensure that the monetary and banking policy of the Bank is directed to the greatest advantage of the people of Australia and that the powers of the Bank … are exercised in such a manner as … will best contribute to: (a) the stability of the currency of Australia; (b) the maintenance of full employment in Australia; and (c) the economic prosperity and welfare of the people of Australia.’
Other key sections of the RBA Act are as follows:
26) Reserve Bank to act as a central bank; 27) Bank to be banker for Commonwealth; 34) Australian notes shall be printed by, or under the authority of, the Bank; 36) Notes to be legal tender; 44) Other persons [or states] not to issue notes; 77) Guarantee by Commonwealth; 79) The Bank is not liable to taxation under any law; and 79A) is … exempt … for the purposes of section 38 of the Freedom of Information Act 1982 ie documents to which secrecy provisions of enactments apply.
The world’s oldest central bank of the Bank of England described in two 2014 papers (here and here) how central bank ‘money monopoly’ in partnership with the ‘monopoly money’ of big banks works. Three key points follow (and quoted by me in 2021 for Townhall Finance):
‘There are three main types of money: currency, bank deposits and central bank reserves. Each represents an IOU from one sector of the economy to another. Most money in the modern economy is in the form of bank deposits, which are created by banks themselves.
‘Money creation in practice differs from some popular misconceptions – banks do not act simply as intermediaries, lending out deposits that savers place with them. The reality of how money is created today differs from the description found in [almost every] economics textbooks. Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits.
‘Of the two types of broad money, bank deposits make up the vast majority – 97 per cent of the amount currently in circulation. For this reason, some economists have referred to bank deposits as ‘fountain pen money’, created at the stroke of bankers’ pens when they approve loans.’
The RBA creates inflation:
In a nut shell, the RBA’s ‘idiot alchemy’ of ‘pure green’ means that: ‘Central banks don’t fight inflation: they manufacture and maintain it.’ This quote appears in a classic Aussie book from 2011 by Chris Leithner with a long and descriptive title of, The Evil Princes of Martin Place: The Reserve Bank of Australia, the Global Financial Crisis and the Threat to Australians’ Liberty and Prosperity. And the book backs up this claim at great length and depth.
In 2017, the precursor to the Aussie CPAC Network of LibertyWorks made a landmark submission (authored by me) to the Senate Select Committee on Lending to Primary Production Customers chaired by Senator Malcolm Roberts of One Nation. This is quoted from former Treasurer Peter Costello, who said earlier that year:
‘Sometimes I wonder whether those running the banks realise how important the government [including the RBA and the Big 4 banking cartel] is to their business. Who benefits from this tightly regulated enterprise? Well, the government does, the shareholders of course, and the senior executives employed on handsome salaries to keep their operation ticking over. It’s the consumer that is feeling unloved.’
Two of the most highly respected economists of the 20th century of Milton Friedman and Maynard Keynes backed this up when they wrote respectively (and quoted by me in 2021 for the Mises Institute):
‘Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.
‘Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.’
Some inflation related stats:
The Aussie and world media almost always equate inflation with the Consumer Price Index (CPI). CPI is simply one of a number of price-related statistics. It has many problems, both in principle and in practice. The main problem in principle is that it is not the cause of inflation but one of many possible effects. The main problem in practice is that it is missing many non-retail prices such as production, wholesale, and asset ones as well as government-related ones. CPI, thus, significantly and consistently downplays inflation. Despite that, the picture is still not pretty since the early 1970s after the end of the Gold Standard. However, National Competition Policy (NCP) and other great Hawke-Keating-Howard-Costello economic reforms did help to keep CPI under control in the 1990s.
Inflation was, is, and always will be inflation of the money supply. The Aussie money supply starts with RBA ‘printing and lending’ and ends with big banks ‘lending and printing’. Two standard measures of these are M1 and M3. The RBA’s online glossary states: ‘M1 [is] defined as currency plus bank current deposits from the private non-bank sector; [and] M3 [is] defined as M1 plus all other authorised deposit-taking institution (ADI) deposits from the private non-ADI sector, plus certificates of deposit issued by banks, less ADI deposits held with one another[.]’ The index numbers (and underlying dollar amounts and growth) for M1 and M3 are ‘eye watering’ … showing increases in the tens of thousands, not just tens or hundreds like that for CPI, GDP, etc.
Money supply inflation puts upward pressure on all prices eventually, including retail ones, but certain prices more immediately. The latter typically includes those in capital, equity, and property malinvestments. This is the source of bubbles and booms. Market reality ultimately corrects for these through bursting and busting. The so-called ‘business cycle’ is, thus, not a natural market phenomenon but an artificial government one. Gross Domestic Product (GDP), as a fully price times quantity measure, reflects inflation better than the partial price times quantity measure of CPI. GDP is ‘jacked up’ on the price or demand-side by money inflation and on the quantity or supply-side by government and population inflation including mass immigration (legal or not).
The review we need
The ‘dirty little secret’ of Big Government, along with their Capitalist Cronies and Court Defenders (or proverbial Bootleggers and Baptists), is that they above all others profit the most from this Inflationary Industrial Complex. From their commanding heights, these insider power elites can take better advantage of this easy fiat money by keeping their inflating revenues above and ahead of their inflating costs. The rest of us, not so much. This is where inflated levels of poverty and inequality come from. Free and competitive markets deflate these, or in other words, create real wealth and opportunity for all.
The recommended reforms from 2017 by LibertyWorks to the Senate Select Committee on Lending to Primary Production Customers are still a great place to start. These were:
[In the shorter term], complete a Royal Commission into Australian and international money and banking focusing on the performance to-date and regulatory drivers of central banking, fractional reserve banking and banking cartelisation … with the aid of an Australian National Audit Office (ANAO) ‘blue team’ and an Austrian School free market ‘red team’.
[In the medium term], legislate for a comprehensive reform agenda of Australian money and banking focusing on removal of regulatory (and international treaty) barriers to ‘sound money’, ‘free banking’ and banking competition … with the aid of a Productivity Commission (PC) ‘blue team’ and an Austrian School free market ‘red team’.
[In the longer term], complete the comprehensive reform agenda of Australian money and banking … including National Competition Policy (NCP) style compensation and transition payments with the aid of a National Competition Council (NCC) ‘blue team’ and an Austrian School free market ‘red team’.
All the best satire, like the Blackadder’s ‘purest green’, has a healthy dose of truth to it. Usually intentionally, but sometimes unintentionally. Blackadder’s was most likely the latter, at least in terms of central banks and Fractional Reserve Banking (FRB). The brilliant satire website of The Babylon Bee was most intentional in their piece Biden Asks Federal Reserve To Just Print Him More Approval Points. In many ways, this is why most politicians … be they left, right, or in between … never take on this inefficient, immoral, and unsustainable system. They can gain popularity through higher levels of fake prosperity and equity.
‘In a move that experts on both sides of the aisle are praising as financially bold and politically effervescent, President Biden asked the Federal Reserve to just print up a few batches of approval points.
‘It’s doggone brilliant,’ said Fed Chairman Jerome Powell while warming up a printing press. ‘The genius did it with our nation’s dollar and it worked splendidly, so it only makes sense for him to solve his low approval rating in a similar manner.
‘At publishing time, Biden was overheard asking the Fed Chairman if any of those printing machines could print out hair.’
Darren Brady Nelson is a truth-bomb-throwing Chief Economist, media commentator and intellectual Christian who calls both Australia and America home. He works with think tanks, industry associations and freedom activists from around the Anglosphere in dogged pursuit of Life, Liberty and Economics. His university degrees are in economics and law. His book is the Ten Principles of Regulation & Reform which combines Austrian, Chicago and Public Choice economics.