The rise of the vast administrative apparatus of state has resulted in numerous unelected agencies wielding power over the lives of ordinary citizens. There is no pretence that these organisations are independent from the executive branch: they exist to carry out the will of elected representatives, albeit with an eye to the “public interest”.
Central banks are a different story altogether. They are considered ‘independent from politics’. Although not quite as independent as national constitutional courts, they sit apart from ordinary government bureaucracies. The Treasurer, no matter how much he may disagree, is bound either by law or practice not to interfere with the monetary policy decisions of the bank.
This has insulated them from accountability. Parliament does not control the Reserve Bank’s budget, as it does for the independent court system. Full disclosures of monetary policy dealings domestically and internationally are not accessible. The RBA’s exemption from Freedom of Information laws prevents the public from finding out the extent of its relationships with external actors. Like the Fed, no parliamentary committee truly oversees every aspect of its decision-making, meaning it is probably more secretive than the Australian Security Intelligence Service.
Comprehensive audits can reveal useful information about how a central bank is employing its discretionary powers. These audits have been said to impinge on independence, but many fail to consider the protections can be put in place to minimise this risk. Not all documents discovered during an audit need to be made public. Some can be viewed privately by the inspector-general in charge of accountability. Appropriate safeguards, such as time lags between the time of a monetary policy decision and an audit of the decision, can be put in place.
Politicians already have many ways to interfere in monetary policy – using the bully pulpit of parliamentary committees is one of them – and it is unlikely that expanding the scope of audits would significantly affect central bank independence.
Australian Libertarian Society (old site) 
“This has insulated them from accountability. Parliament does not control the Reserve Bank’s budget, as it does for the independent court system. Full disclosures of monetary policy dealings domestically and internationally are not accessible.”
This is entirely unacceptable. The chairman and some other bankers flunkie, showed up in Basel to haggle over what we could and could not do. How deeply understandable, that things have fallen so far, that he would go to haggle with proven failures and overpaid losers, for things that must be domestic policy matters alone. We already know that US and eurozone politicians are fully-paid for bitches of the Northern Hemisphere bankers. But to see our guys expressing fealty to these losers ought to trigger mandatory sacking.
How deeply “humiliating” is what I meant to say.
“Politicians already have many ways to interfere in monetary policy – using the bully pulpit of parliamentary committees is one of them – and it is unlikely that expanding the scope of audits would significantly affect central bank independence.”
The last thing we want is reserve bank independence. Ours may be one of the least bad central banks around, for the moment. Nonetheless a reserve bank is essentially a criminal operation, If they are not controlled by the politicians, they will be controlled by the banks. That is why the era of alleged reserve bank independence has been an era of astounding bank enrichment.
What happens when the politicians control the reserve bank? We get an election cycle. In other words we get predictability, since the central bank is working for the government of the day, rather than the banks. So we get fast monetary growth in the leadup to the federal election. What is so disastrous about that? An enlightened political leadership will practice fiscal and monetary austerity in its first 2 years, and then make promises, cut taxes, and foist upon us buoyant monetary conditions in its final year. That beats the living hell out of a situation where the banks are engineering an environment where they can pyramid 30-to-1, and misdirect loanable funds year in year out.
Consider if the year after an election is always a monetary crunch year, the real estate speculation, the consumer credit addiction,and the bank cash pyramiding racket, all has short legs.
Mostly we want the politicians to take back control of money creation, so we don’t have the dead weight loss of the bankers claiming this benefit.
Good points Grame. I have just finished writing my honours thesis on this exact topic (FINALLY, it was a pain in the ass to write) and come out in favour of accountability rather than independence. The banksters are ripping us off and it’s time we exposed them.
It makes a lot of sense to phase to 100% backed fiat, so that we can dissolve the central bank and just find a few honest men for a currency board, to decide each week how much extra cash needs to be created, and flushed into the system, via the retirement of debt. (Thats better than political control, but political control is far better than bank industry control. Never forgetting that central banks are a banker industry conspiracy.)
From there commodity money can be rigged to crowd out fiat, in an orderly and smooth fashion, by the simple recourse, of allowing tax benefits for the commodity money. Such as no tax on interest, if the loan is in a 100% backed commodity money.
This is all fair and according to Hoyles since the government picks up the cost of currency creation and maintenance services for the fiat currency. So its just a matter of making them recoup their losses, and run their act at a notional profit, by exploiting their control of the tax code.
This is nonsense. If the RBA inflation target was zero and adhered to, there would be no “rip offs”.
No thats just idiocy Mark. The targeting of consumer prices is purely irrational.
Mark will you talk about something you have some understanding of? Anything else but this subject.
All you’ve proven is that the CPI is a busted proxy variable.
What? It ought never be a proxy variable in the first place. A proxy for what? Our best proxy would have to be business revenues as a proxy for economic activity.
Spending on consumer products is a mere subset of total spending in the economy. Therefore, Intervening in the market, with the aim of attempting to manipulate a cosumer price index, is a completely harmful and ignorant thing to be doing. It can only cause wide swings in business revenue, and therefore wide swings in economic activity. Gross Domestic Revenue might not be the only thing to take into account. But its certainly going to be a lot better than a consumer price index. To pick a consumer price index out of the air, and try and stabilize THAT while recklessly destabilizing spending-as-such, is just foolhardy.
Um yes that’s great but you bring up a revenue relating to total economic activity?
You’re bonkers Graeme.
Look just don’t comment if you have no clue. Do you mean to tell me that you can read what I said maybe ten or twenty times and STILL not understand?
What is going on here? Is it a reading comprehension problem? Why can you not comprehend my last comment?
If you intervene like a totally ignorant maniac, into the monetary system, and bring a tiny subset of spending to-mind, and then go ANOTHER STEP FURTHER FROM SOURCE, and take merely a consumer price index ……. and then you try and freeze THAT index ……….
…. then unless you have no clue whatsoever, you must realize, that this will cause wild swings in economic activity.
Now what is it about your brain, that makes it that you cannot understand why such intervention would be harmful to your benefactors?
Graeme — dot is saying that CPI is a proxy for inflation and currency stability. Of course, as Terje would correctly respond, the obvious weakness of CPI is the “C” part… where it focuses entirely on consumer prices and doesn’t watch producer prices. There are other weaknesses too. But I still find myself sympathetic to the idea that CPI may tell us something useful about inflation (so long as we understand it’s imperfections and watch it in the appropriate context).
The best solution is free banking, and let the market decide.
The RBA make incredible international deals all the time. Perhaps the biggest deal currently in place was the deal to not change the cash rate. After all the movements around the GFC certain ‘interests’ got pissed at the RBA and the rate at which they dropped interest rates within 90 day yield times. The creditors threatened to pull a huge amount of credit opportunities from the australian banks, which would have meant that everyone had to by domestically at the higher RBA cash rate. This would have caused interest rates at banks to diverge completely from the RBA cash rate movements. The RBA caved in and agreed to not move the interest rate for 18 months. This is why you can be your bottom dollar that there will be no change to rates until at least we near the end of the financial year in 2012.
I for one advocate a zero inflation target (medium to long run) in a flexible band (priority of liquidity over short term inflation). This would mimic free banking (which would be better).
I wouldn’t mind if rates went up until CPI and PPI had a long run average of zero bounded by real money base growth being equal to output growth.
Pretty easy to audit that…