Hockey, IMF back macro-prudential

ScreenHunter_69 Sep. 20 16.34

By Leith van Onselen

The International Monetary Fund (IMF) has dealt the RBA/APRA another credibility blow, endorsing macro-prudential controls on high risk mortgage lending in its communique to the G20:

To mitigate financial stability risks from a prolonged period of low interest rates and prevent premature monetary tightening, macro-prudential tools should be the first line of defense…

Macro-prudential policies are an important first line of defense to address potential financial stability threats associated with too low for too long rates…

Financial stability risks related to a prolonged period of low interest rates bring macro-prudential policies to the forefront. Excessive risk-taking may be building in some sectors (U.S. corporate credit and insurance markets, housing price booms in a number of smaller advanced economies) after more than five years of exceptionally low rates (see annex). Completing the reform of financial regulation and deploying macro-prudential tools as a first line of defense, as needed, are essential to limit financial risks. This will also reduce the risk of premature monetary policy tightening not warranted by the cyclical position. It will also make systemic institutions more resilient, help contain pro-cyclical asset price and credit dynamics, and cushion the consequences of liquidity squeezes if volatility spikes.

It’s yet another slap in the face to RBA governor, Glenn Stevens, who has previously referred to them as “dreaded macroprudential tools” and “the latest fad”.

Meanwhile, Treasurer Joe Hockey seems to be coming around to the whole macro-prudential idea, supporting “targeted” measures in an interview over the weekend on AFR Sunday:

Treasurer Joe Hockey has said any ­limits on mortgage lending must be “targeted” as house prices bolted forward once again in Sydney auctions over the weekend.

Mr Hockey gave a cautious nod to macro-prudential restraints of the kind employed by New Zealand, as a means to rein in what he described as “quite limited massive growth” in pockets of the Australian property market.

“Any action needs to be specific, it needs to be very targeted and it needs to have some capacity to be time-limited”…

“The Reserve Bank needs to be mindful of some of the domestic challenges and the quite limited massive growth in real estate prices in part of Australia,” he said.

It’s now only a matter of time.

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Unconventional Economist

Comments

  1. Great, so the crash / dramatic fall in prices will coincide with MP policy…meaning there is a scapegoat to blame for what follows.

    This will pave the way for some form of home mortgage grant policy, which will spurn another uptick for 2015-2016, until the final implosion.

    The key to successful monetary policy, is not having a central price fix on the price of money. No policy works…doesnt that seem obvious now!!

    • How refreshing, Fred. You claim no monetary policy works, therefore we shouldn’t have one. However, no policy is also a policy and the tail chasing begins. Official inaction is an action.

      We need a scapegoat, an individual or institution with broad shoulders and sufficient credibility with the punters to personify the bad old ways we need to discard.

      I think we have the makings of a correction already before us in the end of the mining investment boom, close of the car makers and an obvious unwillingness to take on further debt. All we need add is overseas lenders wanting their money back on the $A fall.

      Don’t Look Down!

  2. So what is a high risk mortgage? Does a bank/home owner allowing/using his security/home as collateral and rehypothecated so that he can buy three other homes on 105% leverage on interest only count as high risk
    Because we have around $385B of such loans

    Or is this aimed at the FHB trying to put a roof over his head ?

    I think its the FHB because to go after the former risks collapse.

    To me using your primary residence as collateral to buy further homes interest only on 100% leverage seems to be insane from both the lender and bankers point of view.

    • Macroprudential has everything to do with financial stability and maintaining the status quo, nothing to do with First Home Buyers or improving affordability.

      They’ve already let speculators gorge on the underbelly of families trying to afford a home, but now want to ensure they don’t drive prices to a level from which they rush for the exits at the peak, putting our banks and financial system at risk.

      MP should have been introduced some time ago and in such a way that didn’t disadvantage those with smaller deposits.

      Introducing macroprudential now is just a lifebuoy for those who want a continuation of the FIRE industry rent seeking.

      • There is a better way to target investors with MP. Prevent equity to be completely used as collateral. If we are implementing 80% LVR, then all need cash for the 20%.

      • @flyingfox, updated my post slightly. Agree there are ways that it could be introduced to avoid furthering the speculators position… but show me where anyone is campaigning for such introduction of MP?

        I haven’t seen DLS or UE champion a use of the tools like this…

        Your suggestion would likely worsen financial stability so would not work in favour of the IMF goals.

  3. What ev’s IMF, Glen is paid a million bucks to know best. Look at his track record, decisions to act and to not act. Do not doubt or question the world’s greatest central banker.

  4. I hope they do not do it now because it lessens the possibility of that massive crash which we badly need.

      • Sorry, lazy I guess..

        “If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered…I believe that banking institutions are more dangerous to our liberties than standing armies… The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”

        — Thomas Jefferson

      • on the continent their Fathers conquered

        But the lefties say it’s not our country so awesome sauce.

        Morons they are.

  5. Boyd: Treasurer, there are rising risks in our housing market because of low interest rates and I think also an attempt to bring the dollar down. When do you think Australia will take on the macroprudential limits that are being introduced by countries like New Zealand?

    Hockey: Well that is a matter for the Reserve Bank and the Australian Prudential Regulation Authority. I am naturally hesitant to have government in any way interfere in the market, but of course we are in some challenging times when it comes to monetary policy. There are different currents around the world: you can see tapering continuing in the United States but they’re still printing money in Japan; you’re seeing very interesting actions by the [People’s] Bank of China in recent days, and also you’re seeing continuing action by the European Central Bank. So there are a number of cross-currents at the moment. We’ve got to deal with those cross-currents and at the same time the Reserve Bank needs to be mindful of some of the domestic challenges and the quite limited massive growth in real estate prices in part of Australia. I say that because it is primarily in pockets of Sydney, pockets of Melbourne and to a lesser degree in Brisbane, but in other parts of Australia there is no significant increase in property prices. So from that perspective, any action needs to be specific, it needs to be very targeted and it needs to have some capacity to be time-limited.

    What the Bariatric one means ……………

    Hockey: Well that is a matter for the Reserve Bank and the Australian Prudential Regulation Authority.

    I am responsible for the Treasury and the macroeconomic policy setting of this nation to the parliament, and when I have two thoroughly impotent organisations in my pocket I can bring out and wave around for the benefit of anyone asking about my responsibilities I like to do that.

    In this particular case I don’t want to be associated with anything – and I mean anything – that could be in any way associated with house prices not continuing to rise into the stratosphere for eternity, and I am of the suspicion that macroprudential may fall under that category. So instead of me espousing a view on whether eternally rising house prices are good for the economy or not I would much prefer to point in the direction of two organisations – one charged by law with ensuring that aggregate demand rises and with only monetary policy to ensure that occurs, the other to ensure financial system stability by crafting an environment where banks feel no concern whatsoever about a system which lends two thirds for non-productive purposes and borrows offshore to push this on some of the most heavily privately indebted people on the planet. As I dare say you would be aware both the monetary policy crowd and the stable mortgages fraternity would like to see something on the fiscal side to support their efforts, and that is likely to come at some point, but at the moment we don’t actually have the wherewithal to provide that fiscal support unless we would like a rating agency remove an A from the way they see our banks and thereby render our monetary policy framework an earthy shade of faecal brown.

    I am naturally hesitant to have government in any way interfere in the market, but of course we are in some challenging times when it comes to monetary policy.

    I am very resistant to getting in the way of people with the means to do so speculating in social goods for their profit whenever and wherever they feel like, regardless of how highly leveraged they are the implications this has for the financial system, and, more generally speaking, regardless of the implications this speculation has for the economy of our nation moving forward.

    There is little doubt in my mind that the national economy is so far up external debt creek without a globally competitive paddle, and that it has weighted down the national canoe with an awful lot of earth moving gear, that it is only a matter of time before someone gets wet. Monetary policy would be a good way to improve the situation if you look at the classical texts. But judging from the large number of pages washing into our canoe from other people having ripped up their classical texts, and floating off our national assets and liens on productive endeavours into the future I would say something is amiss somewhere. More pertinently I am reliably informed that if lowering interest rates to stimulate housing construction is the national game plan, then it would be true to say that this only works as long as housing speculators are paid off first – and that is what we are doing. To be honest I think it only a matter of time before someone, somewhere cottons on and starts to look for people to be held accountable. But until that point it is essential that I am able to help people speculate with such means as they have and for those displaying the right behaviours and attitudes to be able to prosper at the expense of those who either don’t have the means or have something attitudinally amiss. Hopefully I will be able to continue pointing at the RBA and APRA for quite some time yet, but that when that point occurs I will be safely out of parliament and possibly living in a nice apartment somewhere in the world where they appreciate people who sacrifice national interest for the interests of those interested in making lots and lots of money at the expense of their fellow man.

    There are different currents around the world: you can see tapering continuing in the United States but they’re still printing money in Japan; you’re seeing very interesting actions by the [People’s] Bank of China in recent days, and also you’re seeing continuing action by the European Central Bank. So there are a number of cross-currents at the moment.

    Incredible numbers of currents. I often get confused. Indeed it is only with a room full of advisors to dissuade me from the notion, that I am able to set aside the idea that maybe they are all manipulating their currency lower while I look for something gusset enhanced to display the size and prowess of our national currency. Of course those currents come from a completely different perspective too. Like I mean they are trying to retain globally competitive industries and explain to billions of people how they are going to get out of the disastrous straits they are in, or fend off the disastrous straits they may seem to be heading for, when our government is, in fact, primarily concerned with enabling those with the asset base and appropriate behaviours to benefit from speculation in a social good as long as possible, and to constrict to the greatest extent possible any wider contemplation of what is going on with our national economy, until the local population experiences the national ten watts come on and starts asking questions. That makes our prime focus the continued bribing of the FIRE sector and the media outlets they own, whereas their prime focus is on getting their hands on our assets and globally competitive industries. Luckily we don’t have too many left, so there aren’t many instances of these being purloined to attract attention….

    We’ve got to deal with those cross-currents and at the same time the Reserve Bank needs to be mindful of some of the domestic challenges and the quite limited massive growth in real estate prices in part of Australia.

    If the Reserve Bank of Australia is going to feel so informed with the map of the environment that it so much as utters a word of any inclination to restrict asset price growth for those with the assets and circumstances, not to mention the behaviours to speculate effectively in Australian real estate, then I am going to get on the phone and start accusing people of being bullshitters. The economy is in deep and unquantifiable amounts of the shit. Off the top of my head I cannot think of a national economic sector which would be said to be doing well at the moment apart from the limited number of people involved in sending massive volumes of ore to China. The consumer, the retail, the research and development, education, and any services apart from part time aged care bottom wiping are all in dire trouble. The only thing enabling a large number of people in that economy to maintain hope is the idea that real estate only ever goes up and that they have leveraged themselves to the eyeballs in order to have a stake in that uplift.

    Lets face it, that real estate market experiencing significant price growth is limited. In the global context the number of houses existing for about 23 million people in the context of about every government on the planet apart from us printing lots of money is always going to be pretty limited. That’s why the growth is quite massive. And I mean some of my own family members have noted how one lucky speculator managed to pocket a lazy 500K from an hour on the market is giving you a sighter on how massive that is. But let’s not forget that the whole of Australia has been living in this parallel universe where a place in some of the most god forsaken shitholes known to man can set you back five times the amount it would cost to put a roof over your head in some of the world’s great quality of life locations and everyone thinks it normal..

    I say that because it is primarily in pockets of Sydney, pockets of Melbourne and to a lesser degree in Brisbane, but in other parts of Australia there is no significant increase in property prices.

    I say that because it is only in places where about 75% of Australians live that prices have risen massively and that in places – apart from those affected by the mining boom – where the other 25% live, real estate prices are only about treble what it would cost elsewhere in the world. There isn’t really a bubble because insane price growth is only happening where most Australians live. ..

    So from that perspective, any action needs to be specific, it needs to be very targeted and it needs to have some capacity to be time-limited.

    You heard me, Specific. I want every last measure aimed at prevent price growth to nominate the intended speculator needing toning down, so that I can get FIRB or whoever to warn them personally, and it should be so limited in in a time sense that if that investor wants to buy a place – for example – at 6PM instead of maybe 10AM – then this could still enable a sale to proceed……..