McKibbin forgives and forgets

Warwick McKibbin appears at the AFR today to address yesterday’s rate cut:

There are two major considerations facing the RBA in its deliberation over interest rates. These are expected conditions in the global economy and in the Australian economy over the next several years.

The international economy is fragile…The decline in commodity prices has significantly reduced Australia’s national income but so far without the major economic dislocation that many pessimists predicted. Melbourne house prices rose 2.7 per cent in January which suggests that the historically low interest rates are putting upper pressure on asset prices. The February cut in interest rates will accentuate this problem –hence the RBA Governor’s appeal to other regulators in his policy statement.

…The RBA made a tough call that history will ultimately judge.

No, no major dislocation. But where would we be right now if the RBA had followed Mr McKibbin’s advice of the past two years or so and not cut rates at all, and even hiked (though he was one of the few with some useful alternative suggestions about how to contain the currency).

Even so, had rates been higher, it’s fair to we’d have been at much greater risk of a “major dislocation”.

History will judge that the RBA was behind the curve all the way down.

Latest posts by David Llewellyn-Smith (see all)


  1. Hang on that’s exactly what the crashniks here want innit?

    House prices crashed so they can clean up, and the greedy mongrels who deigned to buy a house at all bankrupted or worse, strong dollar to make buying from O/S just cheap as a mofo, and all those nasty greedy debtees and businesses made subject to creative disruption.

    I.e. a nice big “clean up”

    • I am happy to buy a house with reasonable debt and for a fair price, which by all the affordability measurements means a 40-50% nominal fall from today for a new entrant to a starter house. Doing otherwise is merely signing up for excessive risk to oneself and their family, and therefore completely irresponsible.

      And just to clarify, my morals about “cleaning up” from a bankrupt are equal to that same bankrupt out bidding me at auction (“winning” ha) and taking on too much debt to do so (proven by subsequent bankruptcy). Both situations deny the other a house, one is sustainable and prudent, the other is reckless and risky.

      • Lots of subjective judgements there.

        Moreover, lots of comments on this site make (often heroic) assumptions about what people are getting themselves in for.

        I don’t disagree with what you’re saying, I’m saying we oughtn’t assume everyone buying a house is doing so recklessly.

      • flyingfoxMEMBER


        Moreover, lots of comments on this site make (often heroic) assumptions about what people are getting themselves in for.

        Usually it is backed by evidence, anecdotal as it maybe.

      • @ FF
        Usually made up BS anecdotal evidence. The real evidence is that homebuyers are killing it with ever reducing interest rates, lower fuel prices, and lower prices for household items giving them ever increasing dollars available to pay down debt, which is what they are doing.

      • flyingfoxMEMBER


        Those that got on the ladder early. Sure. How many now can afford to get in or stay there if one partner loses a job? How long will it take them to pay down the mortgage even at an increased rate?

        Rate cuts are meant to spur spending. They will do nothing for the economy if they used to pay down debt.

      • @PF well that’s only true for those that got in early. New entrants must pay record prices which require commensurate record debt…

      • tm,

        And you shouldn’t assume those like Andy! want to bankrupt people to get their house cheap. His points are more valid than yours, imo. An assumption, I agree, just as yours are.

    • Ah, the politics of envy!

      That’s also how I see much of the commentary on here Mr Marsh. There is a lot of greed and envy going on.

      Yes there are a lot of investors who negatively gear – but is that inherently evil and greedy as suggested by some? Or a simple logical decision based on the conditions in the market at the time, which includes tax benefits, increasing property values (in the long run) and so on.

      And yes we all know of extreme examples of “specufestor behaviour”.

      The crashniks on here seem to think that the specufestors need to pay for their evilness, and are quite happy to see the rest of us go down at the same time.

      Who’s been smarter – those whole jumped in 5 years ago and are now sitting on a large equity (or have realised a large capital gain) – or those who followed Steve Keen’s lead and got out of property (or did not get in) and are now lamenting that they cant afford to buy?

      So the large majority who own a single property – their home – must be sacrificed so that the crashniks gain some emotional release because a few specufestors have paid for their evil ways! And of course so they can feel good about their decision not to buy previously.

      Seriously people, if you feel property is overpriced, don’t buy. You will be either right or wrong and will benefit or pay depending on the outcome. This is what millions of owner-occupiers have done over the years. But don’t demonise those who have done well.

  2. “where would we be right now if the RBA had followed Mr McKibbin’s advice of the past two years or so and not cut rates at all, and even hiked?”

    Maybe here?

    “Christchurch’s largest real estate agency has reported a sharp drop in the average price of homes it sold in January, compared with a year earlier….(the largest Chch RE agency said the) average selling price last month was $402,752, a 13% drop on the average selling price of $462,581 in January last year. The number of homes it sold in Christchurch declined by 3% over the same period..”

    But maybe not….given that Auckland is still yet to see the light.
    The NZ economy confounds many that it is “doing so well compared to Australia” Whilst I don’t necessarily concur with that statement, perhaps those who are confused may see that raising interest rates might be part of the answer?
    That 13% fall in prices? Where did it go? Into either better allocation of debt or…heaven forbid….less borrowing that ultimately is foreign sourced, and so our NZ$ has fallen against the US$ and the Yen ( the two big funding currencies) as well. Who could have thought…….

      • I do! I have never looked at Houses. I’ve never consciously owned an ‘investment’ property, nor do I ever intend do. In fact if I own anything again I expect it to have 4 sides and a lid!
        It’s because everyone else looks at Houses that we have this problem….everywhere!
        But what I do look at is a 25 year old ‘boomerang’ child; with 4 years of tertiary education..and survival work in a hotel, and a huge student loan and other debts foisted upon her by the consumer society.And I look at the 16 year old, and wonder where she goes in a way that I never had to worry about.
        It’s not Houses that I need to look beyond. But most people do…..And that used to include you…..

    • We’d be in a far better position that’s a near certainty. The pretty specufestors might be a bit angry needing to go back to work instead of sipping lattes, signing up another section 32 / rental agreement / loan.

  3. “History will judge that the RBA was behind the curve all the way down.”

    So having championed rate cuts along the way, once we reach zero bound (or close as Australia can get), will MacroBusiness then be calling for the RBA to start buying government debt and mortgage backed securities (expanding their balance sheet, following the lead of others engaging in QE)?

    What’s your proposed Plan B once Plan A fails to achieve the desired economic outcomes?

    • MB cheered rate cuts coupled with aggressive macroprudential.

      Don’t distort the MB position to endorse your own biases.

      Oz can’t do QE. The currency would collapse. I don’t think we can go below 1% rates but you never know.

      What do you suggest? A unilateral gold standard for Australia and an economy with zero production?

      • No one saw more clearly than you, David, years ago, what was going to happen. Go back and re-read some of your own writings ( not literally!) and ask yourself “What did I think would happen if we do not take my suggested actions, now?” And when you’ve reminded yourself of that answer, superimpose that over the botched, belated attempts at ‘reform’we now get, and tell me if you think the end-game will be different to what you’d envisaged back then…..

      • A couple of years ago you said Oz zero bound was around 2.5%.

        I didn’t distort the MB position, I asked what you will be calling for once we hit zero bound if the economy still “needs” further easing, are you not prepared to answer?

        Have you ever seen me suggest a return to a Gold standard?

        I don’t mind further easing provided Australians have the opportunity to protect their savings in other monetary assets that are capital gains tax exempt.

      • MB cheered rate cuts coupled with aggressive macroprudential.

        Well we’re stuck with lettuce-leaf macroprudential.

      • By the way “aggressive macroprudential” is a distortion of what you called for. For a very long while you refused to define what MP you wanted to see & don’t recall you ever using the word aggressive.

      • People criticise others for being right. I just don’t get that.

        BB if you had the information what did you deduce from that information and what steps did you take because of it?

        If the answer is “nothing” then it’s hardly someone else’s fault.

      • Peter, the initial question, was literally just that, a question, not a criticism. Asking what easing measures MacroBusiness would support if rate cuts fail to spur economic growth seems like a reasonable one to me.

        Amongst the ironic distortion of my own position (that I want a Gold standard) David answered the question (for the most part), “Oz can’t do QE. The currency would collapse.”

        As I said yesterday, I agree MB can take a victory lap for being ahead of the curve on rates & MP. But let’s not allow people to rewrite history either.

      • “…and an economy with zero production?”

        What do you think interest rates too close to or below inflation will achieve if not this? What’s the point in working when someone else can make more money borrowing and speculating with it than you can working?

      • BB, you did not mention that we campaigned MP. That’s distortion.

        We made it quite clear that MP should be big and dumb.

        Yes, my definition of Oz ZIRP is falling as global deflation takes hold. No, I’m not Nostradamous.

        What to do when ZIRP is reached. Cut MP back as house prices fall.

        Delveraging will take a decade at least. I’d contemplate some of Steven Keen’s measures of debt jubilee as well, why not?

        I didn’t create the credit bubble. I fought it all the way up, long before there was a BB at all.

        But I’m not going to recommend public policy based upon crashnic thinking.


      • SupernovaMEMBER

        Errrrr…..checked our “gold-production” lately? Aussie & South African banks should be included in the “gold-fix”….after all how much gold did the Brits dig up last year?

    • flyingfoxMEMBER

      There is no plan B. Plan A has to work or fail miserably.

      Anyways bravo to DLS and MB for getting closer than almost everyone else.

      • Yep. They did not underestimate RBA stupidity.
        Edit: With the excellent data and analysis to support of course!

  4. H’n’H
    I still don’t understand that you are not worried that we are following Japan down the same disastrous trail of deflation with gradually falling interest rates down to zero and more and more debt?

  5. Exactly. And it was only a tough call, because consensus was so against the cut; not because the data was.

  6. HnH

    “Even so, had rates been higher, it’s fair to we’d have been at much greater risk of a “major dislocation”.

    History will judge that the RBA was behind the curve all the way down.”

    Australia is a tiny speck compared to the rest of the world.

    If the “world’s” policies this far haven’t been able to create demand, create growth and so create an “appropriate” need for Australia’s products – how do we expect demand to lift by dropping already low interest rates.

    Given Australia’s size, we should have felt something by now from the world economy with rates at zero.

  7. So MB, all your critics of FED policy turns out to be BS! Because now you support the IR cuts. Thank for this enlightment. As I said, once one workd for FIRE sector, one never forget what is good for him. No offense, just realization that earning by writing what people are angry about do not make you different when it is about your personal interests.

  8. flyingfoxMEMBER

    So much negativity. I think people forget that

    Australia is a tiny speck compared to the rest of the world.

    We have to cut because the rest of the world is. There is very little else we can do. The currency war is bad policy but staying out of it is suicide unless you are the Swiss.

    We are running a CAD and with our main exports falling, the dollar has to fall to accommodate this. This is how it has and always will work.

    Either we cut or we head quicker into the next recession. Will this avoid the recession? Probably not but the dollar was doomed as soon as the commodity super cycle started bursting.

    Atleast we can try and reduce the pain of the downturn.

    • Cutting rates helps only the top 1%, everyone knows, you know it. There is much more to be done without cutting IR, if the government would want to save jobs and ensure demand growth, but it is not in the interest of the FIRE. If anyone believes that cutting rates is done in the interest of the nation, s/he is stupid or dellusional.

      • flyingfoxMEMBER

        Errr no. Most people in the 1% (excluding specufestors) are neutrally or negatively affected. They don’t have debts. Many would have AUD denominated assests and fixed income assests, which will get negatively affected.

        The stock market will go up, but not long lived if the economy goes.

  9. McKibbin is one of the few coherent economic analysts remaining that has not captured by the Big Australia/FIRE brigade.