A Question about the IMF

[max]

In the last couple of days on the news I have heard references to the IMF recommending action to the Australian monetary rulers. For example the IMF suggests that Australian interest rates should rise again, and most recently it warns the Australian federal government to refrain from dishing out tax cuts prior to the federal election next year. I know the IMF is an organisation of some 180 member countries. Some of those countries are places like Sudan and Tajikistan. I would have thought their economies were a bit dodgy. Who is the IMF to dictate fiscal policy to a country like Australia?

[charles_wif_xf]

That is the plan of the Establishment my friend. They also want our hard currency (the notes in your pocket) to be debt based, like the US monstrosity. Their ultimate goal is the complete control of every nation's central bank. Whether that's a good thing or bad thing can be debated till the cows come home, but nonetheless, in my opinion, their stickybeaking is most unwelcome.

[4.9 EF Futura]

The IMF doesnt dictate, it simply 'observes' a county's financial system and makes statements/comments/recommendations in comparison to other observations it has made around the world. The people involved in the IMF's work are independent, part of the financial sector assessment program.

Hahaha, i'd lvoe to see some of the recommendations handed down to some of the corrupt member countries!

I guess to give it a ****y term, it fits into the field of 'better practice'. And in my opinion - they're pretty much spot on. Calling for a rate hike is a bit strong in my opinion, the RBA is yet to see the full impact of the most recent rises... and, although everyone likes tax cuts, this year's cuts have undone some of the RBA's work.

Some may know my role of employment is within financial regulation.. specifically, prudential regulation.

The IMF has also made some very positive comments regarding Australia's prudential regulation framework. "a supervisory function that embodies many best international practices".

http://www.apra.gov.au/media-releases/06_51.cfm

[4.9 EF Futura]

Originally Posted by charles_wif_xf

That is the plan of the Establishment my friend. They also want our hard currency (the notes in your pocket) to be debt based, like the US monstrosity. Their ultimate goal is the complete control of every nation's central bank. Whether that's a good thing or bad thing can be debated till the cows come home, but nonetheless, in my opinion, their stickybeaking is most unwelcome.

I disagree.

The IMF's role is to ensure the international banking market is efficient and competetive.

You cannot have countries operating on a different basis, it leaves itself open to arbitrage and other manipulation of the differences which occur.

The implementation of the original Basel accord for regulatory capital was a huge milestone in setting a level playing field and the implementation of the revised Basel II capital accord is upon us next year. This is an example of the IMF's handywork and represents an amount of toiling on behalf of government and industry - and a level of expenditure - that you would struggle to comprehend.

These tasks of an amazing size occur in the background and 95% of Australians would not even be aware of it happening.

Their stickybeaking is to our benefit as we need to ensure our banking system (well established, but still a drop in the ocean) operates in line with international practice. Like it nor not, it's a global economy, if you want to resist or ignore this fact then you're headed for the same fate as the dinosaurs.

[max]

Originally Posted by 4.9 EF Futura

I disagree.

The IMF's role is to ensure the international banking market is efficient and competetive.

You cannot have countries operating on a different basis, it leaves itself open to arbitrage and other manipulation of the differences which occur.

The implementation of the original Basel accord for regulatory capital was a huge milestone in setting a level playing field and the implementation of the revised Basel II capital accord is upon us next year. This is an example of the IMF's handywork and represents an amount of toiling on behalf of government and industry - and a level of expenditure - that you would struggle to comprehend.

These tasks of an amazing size occur in the background and 95% of Australians would not even be aware of it happening.

Their stickybeaking is to our benefit as we need to ensure our banking system (well established, but still a drop in the ocean) operates in line with international practice. Like it nor not, it's a global economy, if you want to resist or ignore this fact then you're headed for the same fate as the dinosaurs.

You know what 4.9 EF Futura? When I posted this question, I had a strong feeling you would be the first to post a reply. As a matter of fact, I was hanging out for it. You want to know why? Well, you have a way with words chum... that's a compliment. You know your stuff and can trott it out without fear or favour. About the IMF, the explanation you make is perfect sense. And you would know. The thing to me is, up till recently its been the RBA weilding the cudgel over our collective heads, warning us to ease up on debt, credit sprees & the like. With the IMF statements, its as though an extra voice was pulled in to lend chorus to the RBA and federal treasury's
dictums. What do you think?

[4.9 EF Futura]

Originally Posted by max

You know what 4.9 EF Futura? When I posted this question, I had a strong feeling you would be the first to post a reply. As a matter of fact, I was hanging out for it. You want to know why? Well, you have a way with words chum... that's a compliment. You know your stuff and can trott it out without fear or favour. About the IMF, the explanation you make is perfect sense. And you would know. The thing to me is, up till recently its been the RBA weilding the cudgel over our collective heads, warning us to ease up on debt, credit sprees & the like. With the IMF statements, its as though an extra voice was pulled in to lend chorus to the RBA and federal treasury's
dictums. What do you think?

Appreciate the compliment! It's not exactly a topic of conversation many of my friends see interest in... so given the opportunity to discuss with someone besides my boss... i tend to get carried away lol.

Indeed the RBA's message to the people of Australia has been SLOW DOWN. Although one must question how far this message has sunken in.

I dont know how many people you work with, but ask the next 5 people you see what the RBA has been telling us and see what the response is. Seems only business in Australia takes heed to the RBA's announcements, individuals just see the RBA as 'those bastards that put rates up'.

I therefore question what impact the IMF would have in throwing their weight behind the message. If we dont listen to the RBA, i doubt we're going to stand up and take notice of the IMF. As Charles has demonstrated, we are more likely to attack them and their motives as opposed to listening to what they say.

It does 'reinforce' the position of the RBA. I guess it validates what they've been telling us - "see, the IMF thinks so too".

The added voice probably resembles more of a poorly harmonised punk rock band than it does a choir lol. The IMF certainly wouldnt have chimed in "at the request" of RBA or Treasury.

Treasury - in the lead up to an election - is obviously not too keen on rate rises. Yes, they are encouraging us to keep a check on spending, but is dead against further rate rises. Not suprising, seeing as the implications of the RBA's actions are usually blamed on government.

The RBA is obviously concerned with the economy but they are on record as not appreciating direction from government. If you've ever met a reserve banker, you'd probably understand why.

So i guess my final assessment of "what it means" in terms of the IMF's comments... is that the RBA's position and its recent behaviour has been validated (and it's a genuine validation, not just doing the RBA a favour). The IMF throwing its hat in the ring and reiterating the RBA's thought process probably will have a nil effect.

HOWEVER... it would have been a different story had the IMF contradicted the RBA's position.... and i guarantee you - if the IMF had something nasty to say, it wouldnt hold back.

[charles_wif_xf]

Originally Posted by 4.9 EF Futura

Their stickybeaking is to our benefit as we need to ensure our banking system (well established, but still a drop in the ocean) operates in line with international practice. Like it nor not, it's a global economy, if you want to resist or ignore this fact then you're headed for the same fate as the dinosaurs.

I do agree with you that this is a global economy. But is it really to the benefit of us all or just the banking sector?

I am of the opinion that accords like Basel and Basel II are to the detriment of the populace of the world, with the exception of said banking fraternity.

I am also of the opinion that currency trading (read speculation) should be outlawed as money should soley be a medium of exchange and not subject to the whims of rogue (and legit) traders.

Let me ask you this 4.9. Do you think that there is an alternative to fractional reserve banking and an alternative to debt money (ala credit) which would benefit society as a whole?

Just one other question for now (slighty off topic):

What do you think is the root cause of inflation?

[max]

Another aside: A lot of people are using borrowed capital for investment portfolios, predominantly in real estate. Are they trashing the markets or fuelling inflation in any way? Reason I ask is that a lot of them are mum & dad investors taking advantage of tax offsets. Became very attractive when superannuation funds were in negative growth. What were they to do? All they want(as most are baby-boomers) is to shore up their nest egg. After all they were constantly warned by Canberra not to expect Welfare to prop them up in old age. The RBA worries about percieved levels of household debt, but in a lot of cases actual personal liquidity won't be apparent until investor's capital gains are reigned in. Sorry to bring down the discussion to a kitchen table level!

[4.9 EF Futura]

Originally Posted by charles_wif_xf

Let me ask you this 4.9. Do you think that there is an alternative to fractional reserve banking and an alternative to debt money (ala credit) which would benefit society as a whole?

Probably?

Im not saying a fully backed system doesnt work. Of course it does - it did up until the 1930s. It just works a little differently doesnt it I've got nothing "against" a fully backed system - i just dont see the need.

I would argue that we are better off under the fractional system.

The track record shows that banks under the basel accord are carrying capital which is commensurate with the risks being carried by these institutions. Risk of failure is managed and capital is commensurate with this.

You criticise the basel accords as you see them as facilitating a banking system which you object to. I see them as ensuring that appropriate, prudent levels of capital are being sustained within the system. Different contexts, i think you'd agree.

Although you despise the private credit creation process, it is crucial to the standard of living we have become accustomed to. This is also a key part of efficiency, it is uneccesary to have all that capital "laying around".

You gonna give that house back? That car would never have existed without ford's access to money created under the fractional system. Forget sitting here discussing such things over the internet. Life as we know it would be completely different.

The day that every depositor walks into a bank and asks to withdraw, then i'll conceed we have an issue. I'll also be looking for a job.

Just one other question for now (slighty off topic):

What do you think is the root cause of inflation?

Fractional banking and the credit creation process.

So long as the various "levers" of an economy are controlled responsibly, inflation is not a problem.

Even when it does become a problem.... are a few years of recession that bad compared to decades of strong growth and financial prosperity?

Fractional banking works. The world in which we live is evidence of that.

I'd be intersted to hear your thoughts on both of these questions, charles.

[4.9 EF Futura]

Originally Posted by max

Another aside: A lot of people are using borrowed capital for investment portfolios, predominantly in real estate. Are they trashing the markets or fuelling inflation in any way?

You bet.

It's a cycle i guess... people need to borrow money to buy a house. People are buying more than one house. This pushes house prices through the roof, like what we see at the moment.

It doesnt have a huge impact on inflation per-se. When someone sells a house, the money usually goes into another house. Usually a "second hand" house as well.., therefore not considered as part of the GDP. It's not spent on consumer items etc. Therefore the money isnt really being "released" into the economy.

Inflationary pressures are limited to house prices and a few related items. Obviously the cost of putting a roof over your head is a big inflation item, but the "spillover" is limited.

Id be pointing more fingers at the use of home equity to back car/tv/consumer purchases.

Reason I ask is that a lot of them are mum & dad investors taking advantage of tax offsets. Became very attractive when superannuation funds were in negative growth. What were they to do? All they want(as most are baby-boomers) is to shore up their nest egg. After all they were constantly warned by Canberra not to expect Welfare to prop them up in old age. The RBA worries about percieved levels of household debt, but in a lot of cases actual personal liquidity won't be apparent until investor's capital gains are reigned in. Sorry to bring down the discussion to a kitchen table level!

Advantageous tax treatment, yes. As for the validity of property as an investment item... personally i think it's perception.

"Bricks and mortar" as opposed to an electronic item on a stock ticker. This gives an impression of safety and value protection. But do people really think that 2 bedroom house on a 1/4 acre block is actually worth $400,000 of building materials?

History will show that property is just as much a structrual position as listed equities and the volatility (read: risk) is not far behind. They are both growth assets and you need to commit to the long term. Those who pull out of equity investments in their super fund following poor performance are simply crystalising their losses, when in reality they would have bounced back.

"Pickin stocks" is a venture for the lucky, ignorant and people with inside information. Harry Markowitz showed us all the light with the principles of diversication embodied within modern portfolio theory.

Capacity of the market is an interesting consideration. A little bit of trivia... the superannuation industry in Australia could buy and sell the ENTIRE AUSTRALIAN STOCK MARKET at its whim. Some very interesting implications for a country that has put a lot of stock in its superannuation system.

I hope the trustees know what they're doing :

[charles_wif_xf]

Originally Posted by 4.9 EF Futura

Probably?

Im not saying a fully backed system doesnt work. Of course it does - it did up until the 1930s. It just works a little differently doesnt it I've got nothing "against" a fully backed system - i just dont see the need.

I would argue that we are better off under the fractional system.

The track record shows that banks under the basel accord are carrying capital which is commensurate with the risks being carried by these institutions. Risk of failure is managed and capital is commensurate with this.

You criticise the basel accords as you see them as facilitating a banking system which you object to. I see them as ensuring that appropriate, prudent levels of capital are being sustained within the system. Different contexts, i think you'd agree.

Although you despise the private credit creation process, it is crucial to the standard of living we have become accustomed to. This is also a key part of efficiency, it is uneccesary to have all that capital "laying around".

You gonna give that house back? That car would never have existed without ford's access to money created under the fractional system. Forget sitting here discussing such things over the internet. Life as we know it would be completely different.

The day that every depositor walks into a bank and asks to withdraw, then i'll conceed we have an issue. I'll also be looking for a job.



Fractional banking and the credit creation process.

So long as the various "levers" of an economy are controlled responsibly, inflation is not a problem.

Even when it does become a problem.... are a few years of recession that bad compared to decades of strong growth and financial prosperity?

Fractional banking works. The world in which we live is evidence of that.

I'd be intersted to hear your thoughts on both of these questions, charles.

Yes I wholeheartedly agree with you: in this world, it is almost unheard of for someone to buy a house with no debt (aka loan). But to every rule there is an exception. This house I live in was paid for in cash in 1977. My trusty XF was the result of 6 years of saving and driving an HJ Premier till it rusted into the ground (I bought ye old XF in 1990). But you are right, credit has funded big industry for ages now.

"Even when it does become a problem.... are a few years of recession that bad compared to decades of strong growth and financial prosperity?"

A few years of recession can be tolerated, as long it is at recession levels and not of prolonged duration. My contention has always been, with everything built on debt, what happens when a large percentage of the creditors of this world call in their outstanding loans?

[charles_wif_xf]

I have to say, 4.9, you are one of the very few people which will calmy and rationally discuss financial matters like these that I have ever encountered (both in person and on forums like these). What I hate most is when I have asked "financial experts" the same questions I posed here and their response is one of derison and annoyance to be pestered with such questions. Once again thank you for the calm, rational and thourogh discussion.

[4.9 EF Futura]

Originally Posted by charles_wif_xf

I have to say, 4.9, you are one of the very few people which will calmy and rationally discuss financial matters like these that I have ever encountered (both in person and on forums like these). What I hate most is when I have asked "financial experts" the same questions I posed here and their response is one of derison and annoyance to be pestered with such questions. Once again thank you for the calm, rational and thourogh discussion.

Those sentiments are reflected in my own mind, charles. It's nice to not be the subject of personal criticism for a change, lol.

To be honest i have little faith in those purporting to be "financial experts". Unfortunately such a title is often bestowed upon the likes of morgage brokers and accountants. When in actual fact, their day-to-day expertise requires little understanding of the fundamental concepts of the finance world.

As another glimpse into my ideal of the perfect world, i wish that i had been around in 1977... or more to the point... to have been in a position to purchase a house freehold. Unfortunately such a dream is in the realm of the wealthy and the winners of lottery draws.

Well my blood alcohol level is well in excess of something appropriate for this line of conversation lol. Take it easy charles.

[fmc351]

Originally Posted by 4.9 EF Futura

To be honest i have little faith in those purporting to be "financial experts". Unfortunately such a title is often bestowed upon the likes of morgage brokers and accountants. When in actual fact, their day-to-day expertise requires little understanding of the fundamental concepts of the finance world.

Finance is a key part of any quality accounting degree. A degree is foremost an exercise in encouraging continued self development beyond said degrees completion, along with the specified expertise. Suggesting accountants are lacking is missing the point, the individual holding themselves out to be an expert is in fact the problem, that could occur with someone holding a specific degree in finance. Yes, Im just a tad inclined to favour the bottom line. :

[MO]

Todays inflation is at 3.9 which is above what the RBA want...who is going to guess the amount the interest rate will go up by...here goes I think it will be between .5% and 1%.

[Outbackjack]

We supply too much in the way of raw material to the world. If our currency goes too high some developing countries will suffer.

[charles_wif_xf]

There will be a massive uproar if the rate hike in a single month is 1/2%. One percent and there will rioting in the streets. But 0.25% per month for three or four months would be easier to swallow, as the RBA has done so in the past.

[MO]

Well I don't know about the rioting..I think the general populace has been indoctrinated to the point of compliance.

What it will do is send the over mortgaged into bankrunptcy for too long we have been living high off the pigs back.

Outback..don't know about developing countries suffering when we are suffering at the hand of the single desk..aka AWB who signed a deal for our wheat farmers at about 60/80 dollars a ton less than going rate.

The Solomons are gesturing to forego our aid how is this tied to our raw material and currency?

Maybe if we were selling our uranium to India et al.........

[4.9 EF Futura]

Originally Posted by MO

Todays inflation is at 3.9 which is above what the RBA want...who is going to guess the amount the interest rate will go up by...here goes I think it will be between .5% and 1%.

I dont think you'd ever see the reserve bank make a single adjustment to its cash rate greater than 0.5%. I'm tipping 0.25% next week, as would many other people i imagine.

A 1% rate rise would be chaos domestically and would probably receive some fairly harsh international criticism. Banks would be losing HUGE amounts of money - and we'd finally have the chance to see the lenders mortgage insurers put their money where their mouth is... for a small amount of time before they start looking to knock back as many claims as they can.

Heck, wouldnt be suprised if we saw a run on the banks. That's the stuff my nightmares are made of.

3.9% inflation is far too high above the target. It's still low though. 4% inflation a disaster does not make - but better to feel a little sting now instead of letting it get away and pushing interest rates into double figures trying to bring the CPI into single figures.