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Early in November the Reserve Bank of Australia (RBA) announced it would intervene to stimulate the economy more directly than it has before. Since the 2008 Global Financial Crisis, a number of countries have taken to ‘printing money’ to stimulate their economies, using a policy called ‘quantitative easing’.
Quantitative easing involves central banks buying bonds from investors, putting newly created money into their hands. A bond is a type of “IOU” promise to pay an investor money in the future. In this case they come from state and federal governments.
The idea is that increasing demand for these bonds lowers the interest rates on them, and when interest rates are low across the board, it becomes easier to invest in businesses and houses. Theoretically this creates jobs and puts more money into the economy.
The problem is that ordinary people still have no control over where investment goes. This kind of stimulus still leaves the decisions in the hands of capitalists, who invest only for the sake of profit.
Capitalists are not investing money into socially necessary and useful things like better health and aged care or more secure and better paid jobs. Instead they pump cheap credit into speculative asset bubbles like the housing market or shares, hoping to win big like high rollers taking enormous risks at the casino. When the gambles don’t pay off they shift the cost and consequences onto ordinary people.
The RBA has resisted the idea of quantitative easing for a long time, but began doing so on a small scale in March, as the coronavirus crisis took hold. Since then Australia entered its first official national recession since 1991, our deepest recession since the 1930s.
The trigger for this recession was the massive job loss caused by the pandemic, but the Australian economy has been weak for a long time. The reason boils down to ordinary people never being paid wages or salaries which equate to the full value of their work. Large numbers of people also face stagnant wages, underemployment and insecure work. The working class as a whole has built up a huge amount of debt, among the highest in the world.
This is ultimately because capitalists take profits out of our labour. But this works against capitalists as well. If working people can’t keep spending to buy back everything they make, then businesses go under.
In October the RBA declared that the recession was ‘technically’ over, and the government’s Homebuilder policy has temporarily held back a crash in the housing market that would have made everything worse. But even though spending has gone back up for the time being in some places, job losses have been severe, and the rollback of welfare will take more money out of people’s pockets.
In this context the RBA has ramped up its quantitative easing, and plans to buy $100 billion of bonds over the next six months. It will electronically credit the accounts of bond-holders to the tune of $5 billion a week, hoping to encourage lower interest rates, cheaper loans, and more investment in the economy.
One of the other outcomes they are hoping for is to reduce the value of the Australian dollar. Lower interest rates in Australia mean less foreign investment in the economy, pushing the value of the Australian dollar down. This would make Australian exports more attractive.
But this creates another problem. Other countries in competition with Australian exports want to protect their own industries. China, Australia’s biggest trading partner, has been objecting to the Australian government’s protectionist approach for the last ten years.
In May the Chinese government imposed tariffs on Australian barley, a measure which had been in the works since 2018. Partly this was in response to the Australian government opposing Chinese strategic interests, but it was also related to China’s attempt to secure it’s own agricultural industry.
Since then there have been restrictions on beef and the beginning of a Chinese investigation into Australian wine exports, and on 6 November it was reported that there is an unofficial customs ban now in place on Australian lobsters, sugar, coal, timber, wool, barley and copper ore.
Under capitalism, different countries are in competition to protect the political and profit interests of their local ruling class. The RBA’s goal of lowering the value of the Australian dollar is a part of this, and over the next six months or more it could invite retaliation from other governments protecting their own capitalists.
The RBA’s intention is to stimulate the economy and create jobs to prevent recession from returning, but capitalists themselves work against these goals. The RBA itself has identified low wage growth as a key issue.
But higher wages depend on workers organising in unions, fighting for better wages, and winning them from bosses. Bosses want to push wages downwards. The fact that we are exploited for the sake of profit is the fundamental reason for the economic instability in Australia and globally.
What we actually need is for ordinary people to have democratic control over the economy. Instead of creating conditions for capitalists to invest, which they may or may not decide to do, working people should have a direct say over investment to create jobs.
We would be able to invest in industries that we need. We could share out the work, maintaining pay but reducing hours, instead of throwing people into unemployment. Without the profit system, we could put an end to the cycle of boom-and-bust and create an economy that serves all of us.