Chris Joye brings the pain again today in an excellent interview with Jeremy Lawson, a former senior economist at the RBA, who calls the housing bubble what it is, from the AFR:
…As an economist focused on investing Standard Life’s capital around the world, Mr Lawson said he can take a longer-term view than “sell-side” counterparts inside investment banks…it is “reasonable to assume that future house prices will grow in line with real household disposable income as the commodity boom unwinds…That would imply overvaluation of between 20 per cent and 30 per cent”.
…“Overall financial conditions have probably been too loose and that has undermined longer-run financial stability…Part of the problem is that rates are being relied on to do too much work…I would like to see the RBA and APRA make much more active use of macro-prudential instruments. That way you can have both low rates to support the overall economy while maintaining tighter credit conditions for riskier sectors.”
…“The biggest cultural and organisational challenge the RBA faces I think is avoiding group-think,” he said.
Mr Lawson also described the huge risks in Chinese imbalances and the dramatic deterioration in Australia’s fiscal position when they correct.
Another senior MB reader!