BRIAN KANTOR: Reserve Bank says it has done all it can — but has it?
The Bank argues that a structural inability to supply is the cause of our economic distress, not weak demand. Go figure
Central banks have more to offer a distressed economy than lower interest rates. They can supply far more money in the form of the deposits they supply to private banks. They can add as much money to the economy as they believe necessary, by lending more to their governments, private banks and businesses.
If the banks and their borrowers respond favourably to these monetary injections, the supply of private bank deposits and bank credit will increase by a multiple of any additional central bank money. The extra money and credit created will then be exchanged for goods and services, the labour to help produce them and other assets. Higher share prices, more valuable long-dated debt, and real estate, translate into more private wealth, leading to less income saved and more spent, helping to relieve distress.