Via Morgan Stanley on the last of the global housing bubbles:
These economies now face a crucial juncture as housing markets weaken, forcing a reappraisal of leverage and wealth, and global financial conditions tighten, increasing the consumption drag from debt service and rising savings.
The increasingly proactive use of macroprudential tools and greater inflation-target flexibility in some countries will lead to more gradual rate-hiking cycles, with lower neutral rates in the medium term.
MS still thinks the deleveraging will be “benign” owing to high commodity prices and infrastructure spending. A better word might be “manageable” so long as those conditions hold. I still think that the RBA will have to cut rates to prevent it turning disorderly and when the next external shock comes it will turn thoroughly ‘malign’.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
