RBA: Let the party rip!

Two RBA speeches this morning confirm that the RBA has sloughed its post-GFC caution, abandoned disleveraging, and is happy now to see a return to yesterday’s borrow and consume economic model.

The first, by Deputy Governor Phil Lowe, is long-winded pat on the back for the RBA in managing the economy through the last few years:

So, somewhat ironically, two of the factors that have created difficult challenges for many businesses over recent years – the high exchange rate and increased household savings – are the very same factors that have been critical to Australia’s good macroeconomic performance. Importantly, these factors have helped Australia to digest a huge investment boom without generating substantial imbalances in the economy. At the same time, these factors have prompted significant structural change which, while difficult, is critical to achieving higher overall productivity and higher living standards.

There is clearly a lot of change going on in the Australian economy at the moment. How you view this change depends critically upon where you stand. However, no matter what one’s perspective, we should not lose sight of the fact that maintaining overall macro balance through this period of change has been a significant achievement. And it is an achievement that has benefited the entire community.

Lowe sees no downsides or imbalances and also reckons manufacturing is adjusting successfully to a new era, though he doesn’t mention that investment in that sector is running considerably below levels first seen in 1989.

For today’s discussion, however, what matters most is the following:

Since November 2011, the Board of the Reserve Bank has lowered the cash rate six times, by a cumulative 1¾ percentage points. These reductions have brought the cash rate down to 3 per cent, which is equal to the lowest level on record. Lending rates have also come down substantially, although a number are still above earlier lows given the general rise in bank funding costs that has occurred since the global financial crisis.

Recently, there has been some discussion as to whether these low rates are actually working. This type of discussion is not surprising given that there are lags between when monetary policy is changed and when the full effect is felt in the economy. It is not a matter of simply changing interest rates today and seeing an immediate response tomorrow. Another complication is that the environment in which interest rates are being adjusted is not the same from one interest rate phase to the next. As a result, the exact way that movements in interest rates are transmitted to the economy can change over time.

All this means that, as always, we need to monitor things very closely. At the moment though, the available evidence does suggest that lower interest rates are doing their work broadly as expected.

In general, the initial responses to a loosening of monetary policy would be expected to include stronger asset prices, improved conditions in the housing market, a lift in consumer confidence and a lower exchange rate.

Much of this does appear to be occurring. Nationwide measures of house prices have increased by around 4 per cent since mid last year, after having declined for around 18 months. Home lending approvals and auction clearance rates have both risen. Equity prices are up over 20 per cent since the middle of last year. And the level of consumer confidence is now well above its long-run average level (Graph 5). Despite what one often hears, households do appear to be feeling better about both their finances as well as Australia’s medium-term prospects.

The one notable exception to the expected responses following a substantial easing of monetary policy is that there has been little movement in the exchange rate. However, this reflects the global factors that I talked about earlier, and the Reserve Bank has attempted to calibrate the setting of monetary policy to take account of this.

Now, if the monetary transmission mechanism works broadly as it has in the past, then an improvement in consumer sentiment and higher asset prices should feed through, in time, to higher spending by households. There are some signs, albeit still tentative, that this is beginning to occur. ABS data and the Bank’s liaison suggest slightly firmer retail spending over recent months than over the second part of last year, though conditions remain mixed across the industry. There are also signs of a pick-up in the forward indicators for new dwelling construction across many areas of the country. In addition, a number of labour market indicators, after having softened last year, have had a slightly firmer tone of late.

Another critical element in the monetary transmission process is a pick-up in private business investment. This is often the last link in the chain, and typically follows increased confidence and higher spending. Given the nature of the investment boom we are currently experiencing, it is non-mining investment where we are looking for this pick-up to occur. As mining investment inevitably peaks and then gradually declines, a critical question for the outlook is the strength of this expected pick-up in non-mining investment.

So, it’s a green light from the RBA to get out there, leverage up some assets and consume.  Astute readers will know that there has been one problem with this model of growth since the GFC. That is, it relies heavily upon banks borrowing large sums of international money to pump up the asset prices that underpin the consumption at home. Since the GFC the RBA has made a very deliberate effort to prevent households increasing their borrowings as part of a program to contain the risks arising from external funding. That has now definitively changed.

Last week I noted that Christopher Kent was signaling the RBA’s comfort with a new housing boom. And as well as Phil Lowe’s exhortation to consume this morning, we have another speech today from Guy Debelle, Assistant Governor at the bank, examining the changing dynamics of bank funding. It is long and boring to most of you but in it he says:

In the unsecured market, banks continue to keep their stock of term debt relatively constant, that is, issuance is broadly in line with maturities. This strategy is the result of a number of different considerations, including the relatively subdued growth in balance sheets. But one dominant cause is the desire to maintain a strong rating, with the latent threat of a downgrade if wholesale issuance were to grow ‘too large’. This reflects the somewhat misplaced assessment of ‘deposits good, wholesale funding bad’. As a result, banks are currently paying about the same price for a 3-month term deposit as they are for a 5-year debt issue.

This is either the single most irresponsible statement by the central bank since the GFC, or it is sea-change in their attitude to offshore bank borrowing, or it’s both. If the central bank is happy to see a ramp in wholesale funding then my faith that APRA might stand in the way is also badly shaken.

The RBA’s last three speeches combine to form a singular scream at banks and consumers that it’s party time. Get out there, leverage up some assets and blow it all as soon as you can. Where going to party our way through and over the mining investment cliff. Woohoo!

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)


      • Yeah but at least H&H’s trousers are probably safe – if you want to keep blowing up house prices beyond their currently already overpriced levels, then rising interest rates aren’t going to help with that. Of we go toward ZIRP.

    • Indeed unfortunately that plan is to borrow up to the hilt until it blows up in all our faces.

      With this kind of rhetoric coming out of the RBA I fully expect APRA to fold and not get in the way of this RBA sanctioned “new boom”.

      How much longer can a debt fuelled boom continue for before it all falls apart?

      If this is what we are basing our economy on today it genuinely scares me where jobs and economic growth will come from in the future with both the private and public sector likely both highly leveraged.

      In the medium term (5-10 years) I am worried about the possibility of a complete banking collapse in Australia if housing prices continue to the moon and lending standards continue down to the lowest common denominator.

      • Step back for a moment and consider what would occur if the RBA tightened up on housing right now ever so slightly. Mining has come off quicker than they thought, and housing prices would fall.

        So the only option they have is to cross the fingers and literally throw the money out the door, which is what they will do and have been doing for months, for hardly any result. What else would the top of the mountain look like?

        • I have considered it and I welcome it to be frank.

          In my mind the choices are as follows:

          – The RBA and APRA do nothing and we end up seeing 7-10%+ growth in property prices like we have seen in NZ. How long this can continue for is a matter of opinion. When it does blow up the number of toxic and under water mortgages is going to be huge.

          Even with massive QE and defecit spending its taken 5 years for the U.S to get anywhere near a meaningful recovery, for Australia a nation without an endless line of credit it will probably be 10 years + before our economy recovers.

          – The RBA holds it original course, APRA steps in and crushes mortgage credit growth. We see a downturn in property prices, likely down more p.a than 2011 and 2012, so down say 7-10% nominal. Recent investors will be hit with negative equity, the economy will likely head towards stagnation. Recession is a real likelyhood and not a short one at that. Property prices eventually return to mean over a peroid of 3-4 years, at roughly 3-4 times household (household not personal) income. Once we see a return to mean the property and construction sectors boom as first homebuyers once locked out of the market begin to buy in and build. Retail and the services sector begin a peroid of strong growth on the back of more disposable income from consumers no longer saddled with mega mortgages.

          And that scenario is based on the property market falling apart overnight not the possible slow melt enviroment that prevailed in 2011 and early 2012.

    • GunnamattaMEMBER

      So what exactly are they saying?

      The decline of the investment phase of mining is not going to have the effect of less money all round?

      The high AUD has no impact on jobs?

      That there is no risk to levering up?

  1. This occurred for us in NZ last November. There’s nothing unexpected about this, sad though it is (if that’s the word!).It became clear to me last year that it was ‘borrow all you can!’ time. But I doubt the asset boom will last. Then, it will be the worst of both worlds for both our countries. Even more gross debt,; no one left to take on leverage, when it’s needed to support ‘the system’ and falling asset prices. The Governors of our Central Bank have let the prudent down, and badly.

      • That should not have made me laugh, but it did.

        Maybe, bad times are on their way, and we can fit just one more big party before things like austerity, bank account swiping, unclaimed super and term deposits aquiring, tax department visits to you demanding a receipt for everything they look at,…

        I really hope the economy doesn’t go completely cashless, or fully electronic.

  2. This reflects the somewhat misplaced assessment of ‘deposits good, wholesale funding bad’.

    That’s sticking it to you MB doom-and-gloomers. Its party time! I’m heading down to my local Megabank branch now to load up on a mil or two to get myself some IPs.

    • A mil or two will not get you some IPs Lorax (The), it may get you one though. Especially now the whole country will go on a feeding frenzy.

      Considered loading such loans up via a network of overseas trusts, companies, and obtaining a bomb proof, fire proof, bio-metric identifier-locked, yet comfortable matress?

  3. Aaaaaaaahhhhhh Yes

    The tyranny of distance.

    It has worked so well for all those overly indebted countries overseas has it not.

    Bring it on is all I can say as we are very determined in this country to keep the punch bowl full to the brim.

    The ONLY way we will ever learn is for a massive correction to occur that will drive the message home thru all those thick skulled speculators brains that housing IS NOT the gauranteed path to riches without providing anything in return for all those gains.

    Pathetic does not even go close to describing our collective delusion.

    We have so much still to learn in this country and when we finally do we will find ourselves left behind as the rest of the world will have moved on.

  4. I find it really hard not to see this as sinister. The outcome of these policies will inevitably turn the majority of the population into impecunious debt serfs and result in a MASSIVE transfer of wealth to those that already hold assets.

    The fact that this is being done with housing assets is just staggering and even more odious.

    This really is the new feudal world and the RBA and the other well heeled bankers are the new budding aristocrat class. This is a generational and class war like none other.

    When the mining tide ebbs away and the economy has been hollowed out watch the bankers come to the rescue of the asset holders.

    RBA = Alan Greenspan. They are putting the settings in place to impoverish a nation. Nice one w*nkers.

    • While I agree with you this is quite a bit different to the usual seizing of power by the upper/moneyed classes.

      The idea of modern day serfdom and debt slavery is hardly a new thing, we have been moving towards this “brave new world” for decades.

      Many Australians seems to be willing participants in making themselves a modern day serfs and to be completely honest if someone is willing to make that decision they deserve no pity because they made it of their own free will.

      We are all sick of the nanny state mentality in this country, maybe we should let people make their own decisions and live with the consequences no matter the consequences.

      • We already are, and the consequences are housing unaffordability and recessions. Other people’s stupidity/greed would be much easier to turn your back on if it didn’t f*** it up for everyone else.

        • I agree with you, personally I am locked out of the property market due to sky high prices along with most of my generation.

          • The X & Y generations have had their country taken from under them by the baby boomer generation – their chance to live a nice life and enjoy the same urban amenity the boomers had has been stolen. There really is no other word for it.

            The only Xers and Ys buying houses that i know are either getting the money from their parents or capitulating and buying a dog-box in the boon-docks.

            This is and should be a war. We need to get the grimy greedy rentseeker speculators out of the market and we need to stop all the loose speculative cash the idiots from the RBA want to pump into the economy from just heading straight to residential housing.

          • I wonder sometimes if Australian’s were less laid back and more politically active if all this would of occured in the first place.

            For example in France they riot and set fire to cars if they talk about raising rates of tuition for university students.

            If they tried to lock generations out of the property market I would imagine they would have a full blown revolution on their hands.

            Off on slight tangent with the size of blocks of land these days Gen Y is watching on as the great Australian dream of a quarter of an acre block with a dog and a couple of kids dies. Not only is Gen Y locked out of the property market they feel locked out of financial security which leads many couples to either put off having children or not have children at all.

          • amen Tarric. Amen.

            My partner and I just signed a long-term lease on house in Sydney’s inner west.

            Have been diligently saving our way through the GFC in the vain hope that prices would mediate to something akin to normal.

            All this new insanity from the RBA meant it was time to find a nice house to rent and settle in until it all blows sky high.

          • Just plan to leave, which is harder getting residence in another country or having a shit quality of living for 30 years because some baby boomer wants an ivory back scratcher for his retirement.

            On another note this isn’t unexpected, to what degree they can really fire up a market at close to the limit of borrowing capacity without sub-prime like practices occurring I am skeptical. Maybe you only have to stay O/S for 2-3 years. Biggest question for me is where can I hide my money so it doesn’t get used to bail out the morons who defaulted.

          • Sorry re: aj. I think you will find GenX has been very nicely catered for. The majority have houses, the majority bought before and during the first stage of this inflation and are sitting pretty, the majority of genX do not give a monkeys toilet parts about those that have to pay todays insane prices. There are many BBoomers who are either very worried about their kids situation and even a very few genX whos kids are now in their early 20’s and still at home. Yes Gen Y has been completly done over. However dont be paranoid, its not a generational thing, its more a political/financial-elite thing, you are either connected with them or not, if your pareents have made a killing you will be ok, if they are more normal, they may just have paid off a mediocre house in their working lifetime but little else and you wont benefit. Time to get really political and collectivised, not just blame an easy to spot target in the street, they have no power and control, they never did.
            To believe it is generational, well the combined block of genX + Gen Y is now the absolute biggest demographic, BBoomers are quite small by comparison.

          • @ Steve – i reckon you’d be surprised how screwed over with debt most xers are. The step up to a house big-enough for a family has smashed most.

            Agree that the Y’s aren’t even in the game. See my comments below. I think it is a generational thing, but now it is moving to a finance/elite game as the boomers pass on some of the money to their Y kids.

            Of course all this would easily be stopped if we took speculators out of the market and broke the land cartels. X&Y can do this if they want as you say.

      • “Many Australians seems to be willing participants in making themselves a modern day serfs” … due to lots of factors (eg) ignorance, greed, grossly misplaced trust, complacency, hope, conditioning; all of which are heavily influenced by the vested usurers, via their many and varied communication mediums.

        • Also – it is very difficult to step outside the system. Once people have families the thought of being at the whim of a vile landlord is a huge factor.

          The australian punters are being herded towards a life of debt slavery that they see as their only option. At the same time the usury business just loves the churn – they take a risk free slice and laugh at the carnage.

          • That’s where the (bankster-financed) age of consumerism/materialism, and its superficial, egoic, short-term mindset of “keeping up with the Joneses” brings so much pressure to bear.

            I wonder how many others have found themselves deemed a 2nd class citizen within their own peer group – much less the peer group you/your partner aspires to – because you do not yet “own your own homemortgage.

          • Anecdotally speaking most of the people in my social circles (most of us in our mid-20’s) don’t deem having your own home as a must have.

            Quite a few people I know have spent $10-15k setting up a granny flat arrangement at their parents houses (even those couples with children). We don’t look down at them, many people envy them, they have to pay a tiny percentage of what they would if they rented let alone a mortgage but have the security of never having to move until they want to.

            It seems to me it is the older age bracket 35+ who deem renters their inferior. At least in my experience.

          • @ Tarric – i own my own place but getting and owning a pad has been a big job for an her. I gave up on being a property bear many years ago when the writing was on the wall for the central bank support of asset booms.

            The ups and downs of renting that you might take on the chin are pretty consistent with how i viewed the world when i was in my 20s – wait till you have a family and you have to rent flea infested sh*t boxes that the land-lords don’t fix and will sell from under you if it suits them. You’ll be feeling your disempowerment fairly strongly then.

            Don’t say you weren’t warned.

    • I might add that the property bulls and the finance machine that supports this speculation are just the useful idiots in the game. In the US many were the big losers in the end.

      The big finance houses won’t care who wins and loses or even when the game ends; what matters is that they get to take a slice of the massive amounts of money that wash around the economy under these conditions in an almost risk-free way.

      It is clear the RBA is being romanced by these institutions just like Greenspan – they are too close, too easily manipulated.

      We need to hold these economic vandals to account in the future for the carnage they are causing now.

      • “We need to hold these economic vandals to account in the future for the carnage they are causing now.”

        I couldnt agree more, it is however politically impossible to hold these people to account. That would mean acknowledging that the system is broken and that a crash is a likely outcome of the current situation.

        Anecdotally it seems to me that most Australians are quite happy with the current system despite the debt slavery, because they are safe in the knowledge that if they buy enough investment properties they will be the one holding the chains, not the one in shackles themselves.

  5. Oh well, when it all turns to shit the RBA and APRA can impose a 10% depositor levy on the banks. What could possibly go wrong?

  6. Cognitive Dissonance

    If the government gets re-elected it means they are more likely to keep their jobs

    • Absolutely. Always bet on self interest. These assistant governors aren’t going to intentionally make any comments that conflict with the views of Captain Glenn. Glenn himself has about 20,000 reasons a week plus untold growing multiples of super at risk in the event he decides to stray from the populist straight and narrow.

      • +1 As in the US, the corporates (particularly the finance houses) own the political parties.

        This is just status quo on steroids – no Australian should be under any confusion that Glen and his team work for the big banks and finance houses.

  7. Also remember that here in Australia we have a very complacent public distracted by all those ‘reality’ shows on TV that has turned our collective attention away from the very real problems confronting this country.

    Bread and circuses anyone ?

    We have our heads shoved so far up our collectives arses that we are in grave danger of eating our breakfast, lunch and dinner for a second time.

    Which is why we will never learn and correct this obsession with wealth thru speculation.

    PS: I do love this country I was born in but as each day passes I count my blessings that other options abound.

    • drsmithyMEMBER

      PS: I do love this country I was born in but as each day passes I count my blessings that other options abound.
      Where else are you looking that’s any different, though ?

  8. We have a very fortunate to have a media outlet that maintains a spot light on the behaviour of the RBA – even if I think you were a bit too generous in your interpretation of recent RBA policy.

    Thank you MB.

    If the RBA are complying with their charter, and it appears that they are, than is is quite clear that the charter must change.

    The idea of an ‘independent’ non representative authority using interest rates to manipulate the level of economic activity and whether it needs ‘stimulation’ has been exposed for the farce that it is.

    All that has happened during the low inflation period is that the government of the day has abrogated its responsibility for the level of economic activity to the RBA.

    If the economy needs ‘pumping'(and that is doubtful as micro reform is mostly what is required) that is the job of the government via fiscal policy.

    The RBA should have one role only.

    Removing the punch bowl when a govt loses fiscal discipline and inflation results.

    A simple amendment to the RBA charter is all that is required.

    The amended section 10(2) appears below.

    ‘It is the duty of the Reserve Bank Board, within the limits of its powers, to ensure that the monetary and banking policy of the Bank is directed to the greatest advantage of the people of Australia and that the powers of the Bank … are exercised in such a manner as, in the opinion of the Reserve Bank Board, will best contribute to:

    (1) the stability of the currency of Australia;

    The following are to be deleted.

    (2) the maintenance of full employment in Australia; and

    (3) the economic prosperity and welfare of the people of Australia.’

    • Hear, hear. Full employment and the economic prosperity and welfare are the province of the government, not the RBA.

    • Ummmm. We floated the dollar in 1983. You want to go back to a fixed rate regime? The value decided by whom?

      • Not sure who that remark is directed to, nor where you draw that implication from, Smokester.

      • Is there anything worse worse than the current regime where the exchange rate is so out of kilter with the realities of the economy?

        Is there anything more stupid than a nation trying to protect itself against over-consumption and debt by raising interest rates where that results in a higher exchange rate and higher imports.

  9. Did you expect anything more? I’m sorry but this was inevitable. Especially from the RBA – I actually think the Australian bureaucracy is a lot more corrupt than we think (RBA’s had some scandals of their own – Australians are just more forgiving than other countries/less aware)

    Politicians and the bureaucracy have been doing this for a very long time. I was a housing bear once – but the more I see things here the more I realise I was wrong. In the beginning I discounted the role of governments in my trading/financial decisions. By all signs houses should of fallen in 2007/08. However the government stepped in and saved it massively.

    Fast forward to today and I now have global precedents to say that the governments on both sides will do anything and everything to save the housing market. They will turn on the printing presses, sell off the country, confiscate savings, pass laws that reward land owners, double/triple the population and make sure that every single bit of wealth (mining, superannuation, etc) keeps funnelling into this one asset class.

    They hold power over the young generation really. I wouldn’t be fighting them now – the war against the crash/deflation is global and the banks/governments in my head are winning.

  10. I’ve been busy ringing plasterers to come and repair the walls I’ve kicked in. Spot on comments everywhere.
    I’ll only add this one

    “However, no matter what one’s perspective, we should not lose sight of the fact that maintaining overall macro balance through this period of change has been a significant achievement.”

    Please! please! Can someone from the RBA explain how going into debt to foreign intersts at the rate of over $1,000,000,000 a week to add to the something like $12,000,000,000,000 we already owe is a significant achievement.

    Strike me bloody roan! It’s just one great big whirling insanity.

    • Well. There is a capital account surplus which means that overseas is investing in assets in the country which presumably means higher production/income in the future. Actually the increased savings rate means that the amount of investment is actually more than the current account deficit, so actually Australians areprobably doing the right thing

      • smokester…unfortunately that theory is mostly baloney. Note that our recent increased savings rate is offset by Govt deficits. As a nation we are NOT saving.

        Follow Rumples posts on Superannuation investment. If savings are not invested productively then they are not savings. For example savings (Super) going into retail shopping centres in an economy as badly structured as ours is NOT investment.

        “overseas is investing in assets in the country which presumably means higher production/income in the future.”

        The first question to be asked in response to that statement is “higher income for whom?” We are sowing the seeds of higher and higher perpetual CAD’s here.
        Second question is why would anyone ‘presume’ such a thing. We borrow and we consume. The CAD has been running for 50 flaming years (bar 1971) so at some stage in 50 years all this foreign investment ought to be turning into a CAS? This ought be telling us something about the balance of our economy. We’ve destroyes rural Australia socially and economically. We’re busy destroying what little manufacturing is left. We’ve sold off 80% of our mines!

        Unfortunately modern economic teaching seems to be that all imbalances thus revealed can be safely ignored and that the external account is an infinite source of free funds. No worries mate!
        The western world is starting to get a lesson that it ain’t quite necessarily so. Few yet appreciate it. It will be an ongoing lesson …especially for our children.

      • I had a reply which went to cyberspace somewhere.

        Our increased savings rate, on a national basis, is a myth. Govt deficits are allowing the savings rate.
        Saving unless invested productively is not saving. For example a lot of Super is ending up in houses and shopping centres. In our badly distorted economy neither of these things is really ‘saving’. At another stage they might be although I’d have thought they both belong on the consumption side of the ledger. I’m kind of old fashioned!

        “which means that overseas is investing in assets in the country which presumably means higher production/income in the future”

        The first question is ‘income for whom?’
        The second question would be why would we presume any such thing? If it had all been invested so wisely over 50 years wouldn’t we, at some stage, have managed to achieve a balanced external account?
        Wouldn’t we, at some stage, have stabilised our economy such that foreign interests did not now own 80% of our mining resources and still buying, all the food chain between the farm gate and the retail store, most of our large manufacturing, and an increasing share of our rural lands?

  11. Sorry that is ONLY 1,200,000,000,000
    Whatever the hell the number is it has at least 11 too many bloody zeros.

    • No you need to calm down and get some high grade coke upya nose….

      Wait on, according to this article we pay 4 more for our snort than they do in the UK;


      Sorry, just making you more depressed now knowing that our recreational drug use costs us the earth. No point having booming house prices without the drug market following in its footsteps.

      Or maybe as a country we just love getting ripped off.

      Nothing makes sense anymore as you infer.

      • Thanks Bob 🙁
        Re the Cocaine…it’s the freight you know!

        “Or maybe as a country we just love getting ripped off.”
        There’s more than a grain of truth there! More to the point we continually place ourselves in a position where we can be ripped off.

      • drsmithyMEMBER

        Or maybe as a country we just love getting ripped off.

        “Look at all the money we have, we can afford to pay twice as much as everyone else and still have the same stuff.”

        Certainly that is the logic a certain three European car manufacturers have nurtured here successfully for decades, so it shouldn’t be that much of a surprise everyone else is getting in on the act as well.

      • dumb_non_economist


        I was waiting for someone at MB to pick up the smh piece that it’s not just our “shopping” consumers who are willing to pay over the top, but our drug consumers as well.

        I wonder what bs “economics” excuse the dealers give their “client?”

        “Sorry scumbag, but my borrowing costs are a lot higher than my UK associates, and Ozzie border protection is more on the ball plus my manufacturing base is not as productive or have the same economies of scale as the EU. So you’ll just have to suck the price increase up, hahahaha!”

  12. Glad I’ve always left that 1/4 acre of ground between the house and the driveway vacant – with my young bloke’s chances of ever affording to buy a house of his own looking sicker, at least I might be able to build him a granny flat if the local council allows.

    Wife and I never stop telling ourselves how lucky we were to have bought during the late 1990’s.

  13. RBA is a whole owned subsidiary of Mega bank. These speeches ripped apart the charade that they are an “independent” entity. They are independent alright.. independent of oversight from parliament and the people, while being subservient to banking vested interests.

    • RBA is a whole owned subsidiary of Mega bank

      Absobloodylutely! I had some vestige of respect for the RBA due to family once having workied there. Today sure as hell killed off any of that.
      *%&$#*[email protected]^$%*&^*$%#!!!!!!

      Thanks for the thread and commentary HnH. It’s a really important one for the reason Mav clearly points out.

    • dumb_non_economist

      Sorry, but I don’t just get it. You guys know way more than I do, but I didn’t see it being any different here than in the US.

      Stevens has behaved like I expected him to and has confirmed why I more than just dislike him. The guy is a pontificating banker, now say “banker” like you did as a kid with your fingers either side of your mouth and stretching it apart.

  14. Dr. Stevens is simply preparing for the change of government. He knows that private sector borrow-and-spend was the growth model that was in place under the previous conservative government. He is getting ready to turn back the clock. Make no mistake, Stevens and Swan have fallen out. The RBA is preparing for Hockey and Abbott.

  15. “In general, the initial responses to a loosening of monetary policy would be expected to include stronger asset prices, improved conditions in the housing market, a lift in consumer confidence and a lower exchange rate.

    Much of this does appear to be occurring. Nationwide measures of house prices have increased by around 4 per cent since mid last year, after having declined for around 18 months. Home lending approvals and auction clearance rates have both risen.”

    Horrifying. Have the RBA wonks given any thought to how house price rises can continue to be funded? I mean Aussie households are more or less tapped out in terms of the amount of debt they can service, so where will the increases come from? Not sure they’ve really thought this through?

    • “Aussie households are more or less tapped out in terms of the amount of debt they can service”

      No problemo. It’s called “leverage”.

      The only noteworthy growth in housing “credit” thanks to the (what?) half dozen interest rate cuts, has been amongst the specuvestor crowd. (And even that not sufficient to flatten, much less reverse, the long downward trend in total housing credit annual growth).

      Now that house price declines are over and “certain to rise”, specuvestors leverage up even more, acquiring even more properties to rent out debt … until whatever event (likely external, but quite possibly internal) puts a lit match to an increasingly short fuse.

      • Unfortunately in the gap between when the whole lot falls in a heap and the specuvesters are making hay ordinary families are completely f**d over.

        I look forward to seeing some kind of militant backlash against the speculators – owning residential property for lease has to be about the most parasitic thing a person can do.

  16. The point being, the minute your average RE speculator realises there’s no out-sized capital return to compensate for the cashflow losses he/she will pull the plug and a disorderly unwind will ensue.

  17. I would much prefer to see interest rates up again if house prices get near previous peaks or rise at more than a few percent above inflation, with construction stimulated by infrastructure renewal/replacement/additions and larger FHB grants for new dwellings.

    What we need from Treasury and independent economists is analysis of how to keep employment full(ish) without causing asset price booms and for the least net cost to the taxpayer.

  18. General Disarray

    No RBA member wants a recession on their watch. They’ll do what’s in the best interest for them in the short-term, and that’s cheap money for you plebs until something goes bang.

    It’s why I can’t stand the rational self-interest argument. No one is rational, especially when their self-interest is involved.

    • “It’s why I can’t stand the rational self-interest argument. No one is rational, especially when their self-interest is involved.”

      Yep, I’ve never seen rational self-interest yet.

  19. “What we need from Treasury and independent economists is analysis of how to keep employment full(ish) without causing asset price booms and for the least net cost to the taxpayer.”

    Explorer the first thing we know is that none of that lot have a clue what is going on. They all went to the same schools as the RBA bods, believe the same stupid theories and go to the same conferences telling each other what great economists they each are. (not how reserved I was not using the vernacular to describe that process)

    I don’t know why but I keep getting repeat visions of Larry Kudlow.

  20. It is heartening to see both the MB site getting some real knowledge on the views of the RBA out there, and the high quality vitriolic response to the ongoing insanity of the central bank.

    Have these nut-jobs even read a book or watched a show about the US debacle that lead to the GFC? or the things that put europe in the mess they’re in? Seriously, this lunacy combined with the a bunch of sell-out political parties that are two corrupt or stupid to put some other layers of prudential controls in place just damns us all to be victims to the greed and short term ignorance of the specuvestor.

    • And so the new bubble begins: REO to Rental securitisation.


      Reinstalling some form of residential property type securitisation is the holy grail of the finance industry – fortunes beyond imagination were made on the first round.

      This is bad news for the bears.