The RBA blinked. Er, that is, it decided not to put the smack down on Australian homeowners and borrowers and leave interest rates at 6.25%. This is all fine and well. Yet wages and spending in the Australian economy are still rising. The bank will probably have to raise in May. But maybe by then it will have a better justification for doing so.
The scary truth for central bankers around the globe is that they aren’t calling the shots in the global economy. Credit creation happens outside the dark boardrooms of government central banks. True, credit is not the same thing as money. But in the “New Monetarism” we wrote about at the turn of the New Year, which you can find here, official money creation cannot account for rising stock, bond, commodity, banana, petrol, and red wine prices.
What we have here, dear reader, is the demon child of bad monetary policy, otherwise known as stagflation. It is the spawn of low growth and rising pricies (money supply) “Growing body of indicators raises spectre of stagflation,” reports the Globe and Mail. Merrill Lynch’s chief North American economist David Rosenberg wrote to clients that, “Not that we think we're going back to a 1970s backdrop, far from it; but enough has changed, especially in the past week, to consider stagflation as a serious threat to the inflation outlook.”
Dan Denning
The Daily Reckoning Australia
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About the Author
Dan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). He began his financial publishing career in 1997 and has covered financial markets form Baltimore, Paris, London and, beginning in 2005 Melbourne. He’s the editor of The Daily Reckoning Australia and the Publisher of Port Phillip Publishing.
