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When everything turns to caca, who gets covered in the muck?

RBA is the Australian central bank. Its role in fanning the flames of inflation is now crystal clear. The RBA drove interest rates to zero just as the Government flooded the economy with freshly printed dollars. The banks joined the party and lent money to property buyers at unprecedented rates.

Households where the occupants had jobs were floating in a sea of disposable income. They found all kinds of ways to spend, but not on expensive overseas holidays, because, well, they couldn't. Spending on consumer goods was on steroids, just as the global supply chain came close to grinding to a halt, sending input costs sky-high.

The RBA got the party started, and then it sat and watched, and sat and watched, dozed off for a time, and when it woke up, inflation was cruising towards 8%.

Then we hear the screams of panic from the RBA Governor, Philip Lowe, that the sky is falling and drastic action is needed. Americans can substitute Philip Lowe with Jerome Powell, both cut from the same cloth.


adj  If you have to take drastic action in order to solve a problem, you have to do something extreme and basic to solve it. (=radical)

Drastic measures are needed to drive down inflation    

adj  A drastic change is a very significant change.

...a drastic reduction in the number of people who can withstand high mortgage interest rates.     

drastically     adv    

As a result, household expenses have drastically increased.

Governments hand off the blame for high inflation to the central banks. Central banks refer to government fiscal policy and factors outside their control when raising interest rates.

Homeowners, home renters, the poor, and the disadvantaged are the meat in the central bank's shit sandwich.

The engine room of high inflation is a triumvirate comprising Government, Banks, and the Central bank.

This triumvirate screws the citizenry. We're an easy target because we're effectively powerless. Citizens act as a herd. The triumvirate watches the flock and supposedly works in our best interests.

So it would make sense for the triumvirate to collaborate closely in their crucial decisions. But that doesn't happen. The triumvirate's constituents operate independently, making decisions unilaterally, each declaring the importance of their independence in a free market economy.

~ Government floods the economy with newly printed money, giving the herd confidence to spend

~ Banks ramp up their lending to capture new customers or new loans to existing customers, and

~ The Central bank chimes in with low/zero interest rates

The crucial work of the Central bank is to continually watch and model the likely outcomes of the actions of the Government and Banks together with other factors like supply chain input costs, consumer spending behavior, and the trends of global economic conditions.

The average citizens would rightly think that Government, banks, and the Central bank would work together to ensure an economic even keel. Trim the sails and steer the boat in a way that keeps the hull steady and the boat sailing smoothly.

But that doesn't happen. Amazing that the triumvirate entities are so arrogant that they think they can act unilaterally. But that's what they do.

So when everything turns to caca, who gets covered in the muck? Average citizens; those with aspirations, families, mortgages, fortnightly rent, car lease payments, childminding expenses, school fees, grocery shopping, and so on.

We can blame governments for turning a deliberately blind eye to the inflationary pressures building within the economy in 2021, hoping that it would magically cure itself before painful economic interventions became necessary.

But perhaps above all, we can blame the Central Banks, the leadership of which, after 2008, kept pumping cheap money into the economy for years beyond when they should have gradually eased back on the process. As a result, interest rates tumbled to historic lows, and house prices, buoyed by the low-interest payments on mortgages, rose to historic highs—creating an unsustainable bubble nobody could risk bursting. Then, after ignoring inflation for more than a year during the supply-chain disruptions unleashed by Covid, the Central Banks suddenly went into reverse, desperately using one weapon, the bluntest tool at their disposal, to reel in inflation. Higher interest rates will bludgeon the herd into compliance and reduce consumption.

It's fitting to picture the scene of a medieval torture session.

The torture device is a rack designed to stretch the victim's body, dislocating limbs and ripping them from their sockets.

The victim's ankles are fastened to one roller, and wrists chained to the other. Large, strong men at each end turn their roller in opposite directions, causing discomfort, significant pain, agony, and death.

The "victim" in this scene is the collective citizenry, and the torturer is the Central Bank Governor. The strong men at each end are hooded, therefore, unknown.

Ratcheting up interest rates has the same slow and ultimately agonizing outcome as the rack. We all feel like our limbs are torn apart by the continuous pressure of high interest rates on our daily lives.

The Central Bank torturers are oblivious to our pain. Annoyingly, they smirk as they watch us all writhe. They live in their million-dollar bubbles because of inflated salaries that apparently befit their status.

They are rarely, if ever, held to account—a historical fact.

Central bankers sat and watched as economies boomed on the back of ample credit and low-interest rates and did nothing until the rack had to be brought out, with no impact on their status or remuneration.

With one historically large interest rate hike after the next, the Central Banks have no interest that today's inflation rate is at least in part a psychological reaction to the unprecedented two years of COVID lockdowns the world experienced—to people wanting to spend, spend, spend, as a way to obliterate the memories of despair and isolation.

Central Bank Governors and Boards, so single-mindedly focused on their 2 percent target, are misguidedly fighting the last war rather than the present one, using weapons that might have worked once upon a time but really aren't particularly effective today.

Their strategy assumes that, as interest rates rise, people pull back on spending. Instead, there is a psychological need to bury the memories of pandemic-era pain under mountains of consumer goods that the public is ignoring the higher interest rates and continuing to party like it's 2019. Determined to beat sense into the thankless multitudes, central bankers et al. raise interest rates further. Keep on turning the wheels at each end of the rack.

It's unfashionable to criticize Central Bank Governors, who rightly need a high degree of independence. Walled off from political decisions and pressures. Yet time and again, central banks show themselves to be peculiarly blinkered. Their awful decisions in the years leading up to 2008 created the worst meltdown in the housing markets, and, by extension, the financial system, since the Great Depression.

Now, Central Bank Governors' ham-handed approach to managing inflation will likely trigger a largely avoidable banking, market, and employment meltdown. The body of the citizenry on the rack is metaphorically pulled apart by the people whose job is to protect us from financial hazards.


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