Yesterday MB won.
Australia has capitulated. It’s a bubble. Nobody has a clue what to do about it.
Regular readers will know that MB has been right about the economy since the GFC. Since then, at Business Spectator, at Fairfax, at the ABC, at individual blogs, and then for 4.5 years here at MB, Leith and I argued that the Australian economic model had run out of petrol, that the commodities boom was temporary, that consumers would never bounce back, and that any reflation of the housing bubble was fraught with danger.
Yesterday the Governor of Reserve Bank mostly capitulated to that same view. He still hasn’t grasped how broken is Australia’s economic structure but when he says households are over-indebted and that Sydney housing has gone “crazy” while still calling for a lower dollar, he is clearly wishing he had the very macroprudential tools at his disposal that MB recommended in 2011. This is something of a Greenspan moment for Captain Glenn, the equivalent of when ‘the Maestro’ woke up with a start to see private sector bankers arbitraging their own firms for personal profit, shattering his libertarian world view.
There was much more yesterday. As Bozo Joe Hockey twisted and turned on a bubble spit of his own making, the ANZ declared that Australia should reform negative gearing:
ANZ chief executive Mike Smith wants the federal government to consider overhauling Australia’s negative gearing rules, saying they “don’t feel right”.
Mr Smith said the government should look at negative gearing – which allows property investors to claim interest payments against their income – as part of a broader review of the tax system.
“It is somewhat ironic that we live in country which encourages borrowing and discourages saving, that doesn’t, somehow, feel right,” he told the Trans Tasman Business Circle lunch on Wednesday.
“But I don’t think you can look at negative gearing in isolation, I think the whole tax system needs to be looked at.”
This comes on top of Westpac’s call this week to reverse the Costello halving of the capital gains tax. Even the banks want out of the ponzi. It’s blowing them up too.
As well, yesterday MB’s long term sparring partner, The Kouk, doffed his cap:
Even Bloxo called the bubble, in not so many words.
After years of being pilloried, mocked, plagiarised and vehemently ignored, the MB view is now preeminent. The only holdouts are the professional real estate spruikers, “Mad” Adam Carr, and the Government. The first will never change, the second is click bait and the third is hardly an endorsement.
Indeed, everything Prime Minister Abbott and Treasurer Hockey touch turns to shit. They are the worst top tier leaders in my lifetime, flopping about like landed salmon, totally without economic understanding or narrative. They strike strident poses one day, back-flip the next, and generally rule by political sociopathy. As a kind soft fascism substitutes for intellect, they climb aboard every populist cause eventually, resulting in an uncanny ability to pick a loser. Piling in behind the bubble as near everyone else bails out of it is surely its death knell. Not to mention the same for Hockey’s career, from the AFR:
One senior MP said Mr Abbott should wait until the parliament rose for the winter and replace Mr Hockey with Social Services Minister Scott Morrison.
“There’s nothing malevolent about Joe, he’s a good bloke; but his preferred mode of debate is stream-of-consciousness,” the MP said. “In this climate, when were being accused of lacking empathy and we’re using a budget to try and make up on fairness, we can’t afford this.”
He said Mr Hockey, whether with his comments on housing or last year’s statement about poor people not driving cars, was a valuable source of material for the ALP’s election campaign.
While the government considers supply the main key to housing affordability, Labor is working up a policy and has already flagged that it could put limits on negative gearing, such as capping the number of properties that could be geared, or restricting it to new homes only.
I am sorry to report all of this. MB tried to inject reason into the debate. Clearly we succeeded given the size of the MB community. But more generally we failed. The bubble is real and there is no stopping it now. When it bursts the nation will be razed.
MB won, sadly too late, and now the real hard work begins.
