Australia’s Central Bank Says It's Bust

 This is one way that global financial collapse can begin.  When people realize that paper money is only paper and is backed by “faith and confidence” in the government’s currency, they can make a run for something else.  If the other global central banks are also revealed to be bust, contagion can spread quickly.

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The central bank of Australia on Wednesday made the astonishing admission that it is, basically, bust. Its entire equity has been wiped out by pandemic-related bond buying.

Of course, the Reserve Bank of Australia is a central bank, and can print money. So it can work its way out of a situation that would bankrupt a conventional bank or company.

Still, as the U.S. Federal Reserve meets today on interest rates, it's an interesting insight into the challenges other central bankers face as they attempt to reconcile Covid stimulus with post-Covid inflation and economic emergence.

The RBA began its bond-purchase program in November 2020 as a second stimulus package in response to the pandemic. The first round of measures saw it slash rates to record lows, and set up a term funding facility offering cheap three-year funding to banks. For the bond buying, the central bank bought Australian government bonds and semi-government securities in the secondary market to lower interest rates on bonds maturing between five and 10 years out.

The program was extended, and extended, and extended yet again. Ultimately, the RBA bought A$281 billion (US$188 billion) in national, state and territory government bonds.

Now the bill has come due.

https://realmoney.thestreet.com/investing/global-equity/australia-s-central-bank-says-it-is-bust-16103021