Why aren’t people making more of a song and dance about this?
Ok, I’m not seeing enough people making a big deal about this, so maybe people just don’t get it.
As I flagged last week, the RBA left rates on hold (no surprises there), but announced they’d be printing another $100bn dollars and flooding the market with it.
That was a surprise, and frankly, it’s huge.
The RBA have unleashed a tidal wave of money on the Australian economy. It’s massive.
This chart helps you understand what I mean. The RBA has committed to “expand its balance sheet” by another $100bn through purchasing government bonds.
This is one of those terms that I think is designed to sound cute, and actually kinda hide from the public what’s actually going on.
So the RBA “expands its balance sheet.” How does it do that. Well, it purchases assets, because that’s what goes on a balance sheet. Namely it purchases government bonds.
And where does it get the money?
It prints it. It just flicks a button and prints it.
And the amount of money in the economy goes up as a result.
So it’s money printing. That’s what’s actually going on. But no, let’s be cute and call it quantitative easing, or ‘expanding the balance sheet’ or whatever you’d like to call it.
Anyway, so this is what the RBA’s balance sheet looks like:
So you can see there, we were hovering around $160bn in the lead up to Covid. Since then we’ve printed (sorry, “expanded”) by another $160bn. So it’s doubled.
The current bond buying program runs until March, at a pace of $5bn a week, after which it will be followed by another $100bn.
So, that’s going to leave the balance sheet somewhere around the $450bn mark.
So in 18 months, the RBA’s balance sheet (which remember, is another way to think about the amount of money in the economy) will have expanded from $160bn to about $450bn.
That is, it’s tripling.
It’s tripling. Do you get what happens when you triple the amount of money in the economy in such a short time?
In particular, do you know what happens to asset prices when the money supply triples.
Through. The. Roof.
This is a big deal.
But I don’t see anybody making enough fuss about it.
Maybe because its disguised in all that econo-babble about quantitative easing and expanding the balance sheet or providing liquidity or whatever term they want to use.
Maybe its designed to stop ordinary people clock what’s actually going on.
And what’s going on?
A massive explosion in the money supply is going to cause a massive explosion in asset prices.
But that’s there secret. You’re probably not meant to know that.
But now you do.
So what are you going to do about it?