The price of money is driven by supply and demand. Controlling the official cash rate only controls the supply side.
There was once a theory that the demand for money was infinite, but the BoJ and ECB have discovered that it is irritatingly and confusingly not so.
The offficial cash rate is achieved by the central bank manipulating the ESA balances through open market operations. So demand and supply for ESA balances results in the cash rate, but only as a consequence of central bank operations. http://www.rba.gov.au/mkt-operations/
And another thing. In the current monetary/political system, mortgage rates will never go back to 7%, so it is stupid to stress test for it, unless you have an ulterior motive.
We all know where this is going, but it is taboo to talk about it. You are meant to nudge and wink and secure your position at the top of the banana republic, live in your gated community, and wonder why the poor just don't eat cake, or smashed avocado on toast.
b_b
25 Oct 2016, 10:56 PM
The offficial cash rate is achieved by the central bank manipulating the ESA balances through open market operations. So demand and supply for ESA balances results in the cash rate, but only as a consequence of central bank operations. http://www.rba.gov.au/mkt-operations/
So the central bank determines the volume of interbank lending does it?
And another thing. In the current monetary/political system, mortgage rates will never go back to 7%, so it is stupid to stress test for it, unless you have an ulterior motive.
That's an interesting perspective and fits in well with "perception management" as demonstrated by psychological manipulation of the suburbanites. We're hearing and going to hearing much more of perception management as practiced by institutions.
And another thing. In the current monetary/political system, mortgage rates will never go back to 7%, so it is stupid to stress test for it, unless you have an ulterior motive.
We all know where this is going, but it is taboo to talk about it. You are meant to nudge and wink and secure your position at the top of the banana republic, live in your gated community, and wonder why the poor just don't eat cake, or smashed avocado on toast. So the central bank determines the volume of interbank lending does it?
No. they determine the interbank rate. They can not force banks to lend to each other. That was the issue during the gfc. To overcome this they simply filled the banks with ESA balances.
That's an interesting perspective and fits in well with "perception management" as demonstrated by psychological manipulation of the suburbanites. We're hearing and going to hearing much more of perception management as practiced by institutions.
Perception management as a discipline has been evolving for some time now. While it is still in relative infancy, it is probably the most nuanced and effective it has been in human history.
One of the really interesting things that came out of the study of cults is the unexpected effect of cognitive dissonance. It was believed that cognitive dissonance between what the cult leader was preaching as truth, and obvious and unavoidable reality would cause people to leave cults. What actually happened is that cognitive dissonance only led to a small percentage of cult members leaving the cult, the remainder made a decision to disregard their perceptions of reality and believe the imaginary reality of their cult's belief system.
It is believed that this is because people who join cults have a much stronger need to belong than any desire for the "truth". And the same can be said, to a lesser degree, of suburbanites,academics and the intelligensia.
Add to this a good unhealthy dose of fear, in the form of competition from Asia, terrorists from the middle east, and the Russian bear, growling in the north, and you have fertile ground to plant all kinds of nonsense into.
b_b
25 Oct 2016, 11:06 PM
No. they determine the interbank rate. They can not force banks to lend to each other. That was the issue during the gfc. To overcome this they simply filled the banks with ESA balances.
The demand for money comes from borrowers. It's effect is seen in interbank lending. Borrow short, lend long. If there is no lend long, there is no borrow short, and no interbank rate to speak of.
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