Thanks for your comment Rob. The loan deposit ratio is based on a definition of the word "deposit". eg: When a bank issues a bond the deposit is used to acquire the bond - so the deposit ratio changes but the funding is still sourced in Australian dollars.
Hi Euclid - thanks for your comment. I agree - the high level of household debt along with diminishing household savings rates (due to the pursuit of a budget surplus) endangers the economy. That is why we wrote this non-consensus piece last year arguing the next move in interest rates would be down. https://www.livewiremarkets.com/wires/australian-interest-rates-the-next-move-is-probably-down-2018-11-14
Thanks for the feedback Steven. Some great comments on the role of taxation!
Thanks Rodney - will do
Thanks for your comment Jonathan. "MMT does a better job of explaining some key economics issues, but it fails to understand the use and abuse of credit" My paper above simply focuses on the role of Government in the monetary system. Part 2 of my MMT primer (to be published next month) will focus on the private sector and the role of endogenous money - including the role private credit creation.
Thanks Peter, State Governments can go broke but probably understand infrastructure needed more than the Feds. However I agree, the federal government can assist to fund any required infrastructure a modern economy requires- remembering the main constraint is inflation.
Thanks Chez - having an accounting background is a huge advantage in understanding MMT (I know it helped me) - I think that is why so many economists struggle with the framework.
Hi Ronen, This is true! The currency can be a great shock absorber for a relatively small country like Australia. Separately, a strong fiscal response from the government will also prevent the RBA from moving..hence the title of my piece includes the word 'probably'. Nothing is ever certain.
Hi Ian. Thank you for your comment. I agree with your comments. And I also believe the RBA will be very reluctant to reduce interest rates further due to recent experiences in the residential market. But if we are correct about the macro effect of household savings the real economy will slow. In that regard, please note the paper is a prediction rather than a recommendation. And if the RBA does cut interest rates, I do not think there will be much benefit for house prices in the near term. The current pipeline of new supply is too great.
Hi Robert. Thank you for your comment. I agree with much of what you wrote. I think a far better outcome would be to keep rates steady and for a large scale tax cut and fiscal expansion. That is the easiest way to get money into the hands of households, sustain the savings rate, and support the economy. Unfortunately this response does not appear on the political agenda. The Govt seem happy to have the RBA manage the economy - and when your only tool is a hammer, every problem looks like a nail.