Antinuclear

This Government really does have trouble actually governing. Lest it be accused of spending too much, its routine accusation against arch-rival Labor, and although it has already more than doubled the nation’s debt, the Government has decided to outsource its spending decisions to the banks. Ironically, the banks have today emerged to say the $90 billion loan package announced this week won’t work.

Commonwealth Bank chief, Matt Cormyn, has just stated the obvious, small businesses don’t need a loan as much as direct assistance. Even if they did need a loan it would take a month to organise the $90 billion program and by then, we suspect, it might be too late anyway. Small businesses needed “direct” assistance, Cormyn told the ABC.

As for the QE program, it is more nuanced than our explanation above – written to capture the essence of what is going on here (the very mention of the letters QE make the eyes glaze over and that sleepy feeling come on).

Dissecting QE

To the Reserve Bank’s QE program, Quantitative Easing or QE is technobabble for the RBA creating new money or, as they say, “printing money”.  But there is a twist to this QE — a twist which has entirely eluded the mainstream media.

Rather than the Government raising money – that is by issuing bonds – it has designed a program, a liquidity facility effectively, to be operated by the banks.

In other words, the banks get money at attractive rates and they are expected to lend it to their customers.

Herein lies the rub; how do the banks lend their new billions to small businesses with no customers?

Anybody who has been awake over the last ten days and has engaged in the old-fashioned activity of conversation will have heard story after story about people who had a business last month but barely have one now. Their problem is not how to grow their business by borrowing money. They don’t have any customers.

To be more specific, and as predicted here, the government has privatised its QE program. Instead of issuing bonds and deciding who needs it most, it has outsourced that decision-making process to the banks.

How QE works, a simple explanation:……….

So, the government has so far seen interest rates cut despite it being clear there will be little relief from even lower rates – and despite the banks declining to pass it all on to customers. It has buck-passed its QE program to the banks – which in reality is more of a liquidity bail-out than anything which can help small business. It has already had its $90 billion loan program queried by the banks themselves – all while ramping up its buying of assets from the banks.

Over the past week the Reserve Bank’s repo holdings have soared to $20 billion which means they are using taxpayer money to cover the banks’ risk in their mortgage lending books. Most of this is RMBS, bundles of residential mortgages.

Question: what will be the upshot of the coronavirus crisis?

Answer: big business will grow in power and market dominance.  https://www.michaelwest.com.au/bankster-bailout-will-the-trickle-down-package-trickle-beyond-the-banks-and-big-business/