BLUF

To counter the economic effects of COVID-19, the Reserve Bank of Australia adopted quantitative easing measures, but if this fails to control inflation, it may have implications for future Defence budgets.

Summary

COVID-19 has affected more than the health and social welfare of the Australian population; it has affected the Australian economy. The taxpayer has and will bear a burden to fund the cost, including paying back the cost of quantitative easing; note the following from: Explaining Quantitative Easing (QE) (thebalance.com):

  • Quantitative easing is when a central bank purchases long-term securities to boost the economy.

  • QE expands the money supply and stimulates growth.

  • The Fed used it to combat the 2008 financial crisis.

  • It revived QE to respond to the COVID-19 pandemic.

In Mar 2020, the Reserve Bank Australia (RBA)  announced it was engaging in a money-printing program, also known as quantitative easing.

The RBA created new money to buy Government Bonds from commercial banks through an unconventional monetary policy.

The RBA did this to: 

Quantitative easing works well for the government if interest rates don’t rise. However, interest rates may increase to curb inflation, causing the RBA to suffer significant losses under its bond-buying program. These costs will have to be underwritten by the taxpayer. As a result, government budgets, including Defence, may ultimately be impacted. 

However, when reading this article, it is worth considering that the idea of quantitative easing may, in fact, cause inflation. Note the following articles:

The COVID-19 economic strategy of printing money could backfire if interest rates rise.

References

Recent Runway Posts related to this topic:
References from the Web :
Source Information: ABC Australia