But to answer your point about my seeming inconsistency, PuntPal, I guess my view is that, whatever system the RBA is supporting or pursuing, they should damn well keep to it, instead of chopping and changing and wrongfooting people’s expectations and calculations with business and money. So, if it is a fiat money system based on continuous credit and monetary expansion, then they must stick to it, or they will bring the whole house down. In some ways, the more fundamental consideration is consistency and certainty. Without these even sound money would be useless. The arguments behind sound money carry weight primarily because such would bring greater monetary and economic stability.

So, the reason I am saying that it is the RBA that is going to cook our goose is because I see them now flooring the accellerator, and now hitting the breaks hard at a risk of stalling the engine altogether, and as with driving a car, such is unlikely to end well.

Does this mean that Westpac wants to palm off risky assets to gullible investors?

But when it comes to house price inflation being specifically excluded in 1998 (about the time the boom was really taking off) then you have evidence and a smoking gun for the CPI conspiracy theory. As I have said too, this aspect of the CPI conspiracy is the most important due to the cost of living increase the housing ‘boom’ (I hate that word and its positive connotations!) has had on Gen Y and on future Generations.

So although the RBA doesn’t have the ability to include house price inflation under its mandate to manage inflation, it can probably interpret its mandate with enough flexibility to say that this house price bubble needs to be deflated in terms of managing the nation’s financial stability. I know you think Glenn Stevens is to blame for raising rates from emergency low levels – but I find that argument totally at odds with your concerns about excess liquidity causing inflation. Interest rates stop money from entering the economy because people are less eager to borrow from the Bankstas…

To me, this is the missing link – its so simple, house price inflation has been excluded from the CPI and therefore monetary policy has totally and utterly failed to address one of the most damaging forms of inflation.

Presuming there is an accurate way of measuring the cost of buying a house, then surely this should be inserted into the CPI or even a supplementary component of the CPI (i.e. CPI + cost of housing).

I am surprised Steve Keen, Kris Sayce, Denning and others havent honed in on this point, thats all – I just find it amazing

JC – I can only ask and he is more than entitled to ignore the suggestions. And rather that vaguely say that the CPI is a con, I was just suggesting he focus on the exclusion of house price inflation. Kris seems to be pretty keen on showing why the property market is rigged, however since I have been on MM I have never heard him bring up this specific point. It was just a suggestions and I think I was entitled to put it forward

2. Any excess money and credit created like this, will end up pushing up nominal prices in some sector or other, simply because excess cash/liquidity is chasing the given and available goods and services at any one time. In other words, this is inflation. Money and credit hitting the economy in excess of goods and services created and available to purchase with that money within a the given period of time.

3. This is how you get rising prices, which nowadays is called inflation, instead of inflation being defined as it should be, as that which causes rising prices, and namely the said excess liquidity being pumped into the economy.

4. So, if inflation is defined as rising prices, then anyone claiming to fight inflation, will have to show that prices are not rising. This is one of the dirty jobs given to the ABS, so that the populace can be lied to about just how fast prices are rising. One of the purposes is to short change all those people who are on fixed incomes, including pensions, etc., which are all indexed to the CPI. So, as long as the CPI is low, pensioners of all sorts are getting tiny little increases to their payments, while their real costs of living are rising multiple times faster from all the excess money being created, as described above.

5. One of the ways in which the CPI is manipulated lower is to use median rent as part of the basket of goods and services being monitored, instead of the cost of the dwelling and the land it stands on, because the latter is always higher than the median rent.

6. One corollary here, of course, is that those who rent are being subsidised by their landlords. Anyone who has held and let out a residential property can attest that the rent is never enough to service all the maintenance and loan interest and rates and what have you, and that you have to subsidise that rent to meet all the expenses associated with that property. A property investor is willing to do this as a way of forced saving, and in the hope that the value of the property will keep pace with inflation, which it tends to do in the long term, but it can really go against you in the short to medium term, so the investment strategy is obviously not without risks.