Our political leaders did not like dealing with the inflation outbreak of the 70's, they did not like it at all.

It was around this time they realised with some clever trickery they could aid any future battles they had with inflation by reducing future wage demands by removing house price inflation from the inflation calculation and as a consequence they gave birth to CPI.

CPI (being consumer price index) is meant to measure the impact of rising prices on the consumer, yet this measure specifically excluded the largest single purchase any consumer ever makes with respect to earnings, namely their first house.

Most economies have suffered a housing boom. In the U.K (being British I site this by personal experience) between 2000-2003 the average price of a house doubled. The U.K regularily quotes that the domestic housing market contributes 40% of the domestic economy. If these two facts are considered together, then to service this housing boom, the money supply in the U.K expanded between 2000 and 2003 by 40%. A classic definition of inflation indicates that it was running above 8% at a time when the officially quoted rate was between the target 1 and 2%.

All these derivatives, the collateralised debt obligations, and the many and varied vehicles that were created during the late 80's, progressively into the 90's and with vigour during this decade were all about allowing bankers to utilise this margin between CPI and real inflation.

Why would they want to leverage this margin in so many multiplier ways ? Because the Bankers get wealthy by applying fees.

If in the process of investing $100 they can under-write it, and distribute it over 5 levels, then there are 5 levels of fees to be collected. Charging 1% a time, by the time the original $100 is actually placed, the real asset has been devalued to little over $95. Already you have a near 5% decline in the underwritten assets' value.

Add on to that a crash in the previously inflated asset price, and you can see that once it is all unwound the asset value is quite able to be revalued at 50c to the dollar. A position we are currently in.

Basic banking rules have been systematically thrown out the window, and we will know when our leaders really get the cause and the cure, when CPI holds a measure of median housing values, and when banks are required to uphold to the basic rule 'that the average man earning an average wage, should be able to afford the average house'.

End of rant all nominations of my name to the RBA board please submit to the RBA care of Government House.

How much difference does it make, in your view, if the C' wealth runs down its large deposit account at the RBA, from positive to zero, compared to a hypothetical situation where it had zero to start and went into deficit at the RBA by the same amount? People/companies paying Australia taxes over the last 10 years have built up that surplus, by spending less on themselves than they might have if they hadn't paid so much tax. But how much difference does that previous reduced consumption make now if the RBA now were to "inject" money from the C'wealth's surplus into the economy?
The idea behind saving in the Hayek view is that it is invested to produce something, isn't it? Is saving by the C' wealth, where it merely takes the money out of circulation (hoards it at the RBA) the sort of saving/investment that Hayek talks about? I think Hayek would be as much against hoarding cash under the pillow as Keynes was, as far as its effect on the business cycle is concerned, but maybe I have missed something.