Lunatic RBA leaps into “policy error”

Via the AFR comes the lunatic RBA’s latest propaganda spill:

…Reserve Bank of Australia Governor Philip Lowe is calling for solutions to a puzzle where employment is growing but GDP is softening.

But one of Australia’s more experienced economists, former ANZ chief economist Warren Hogan, said it was time for economists to consider employment data with more weight than GDP figures when determining the outlook.

…HSBC chief economist Paul Bloxham, who thinks interest rates are more likely to be lifted than cut, also supports the idea that strong employment numbers are a better indicator of economic direction than GDP figures.

Poppycock as usual. The lunatic RBA is more adept at bureaucratic arse covering than it is macroeconomics.

One reason why is its mates in the media, which very rarely hold it to account, hooked on their diet of special access and monetary policy leaks. At Domain is Ross Gittins:

Time for a reality check: why is it that the r-word strikes fear into the minds of ordinary people? Because they know that genuine recessions involve falling employment and rapidly rising unemployment. Businesses fail, people lose their jobs, and the rest of us fear we’ll be next.

Any sign of that happening? No. The reverse, in fact. Using the bureau’s “trend” (smoothed) figures, over the six months to December, employment increased by 175,000, with 87 per cent of the extra jobs being full-time, and the ratio of people aged 15 and over with jobs at a record 62.4 per cent.

…That’s how terrible a per capita recession is.

At the Herald Sun is Tezza McCrann:

Growth may have slowed in the second half of last year but we’re not seeing conditions go backwards in any significant or sustained way.

Thankfully, not all economic voices are so easily swayed. Shane Oliver destroyed the academic obfuscation with a single sentence at Domain:

He said there’s an 80 per cent chance of two rate cuts this year with a third cut a “50-50 proposition”.

According to Dr Oliver, the longer the Reserve Bank takes to move the greater the chance it will be forced into a third rate cut.

“The Reserve is focused on the jobs market but the unemployment rate is historically a lagging indicator and, as we’ve seen with the ANZ’s measure of job ads which has turned negative, unemployment might be about to start heading up,” he said.

UBS’ George Tharenou is equally perspicacious at The Australian:

“The disconnect between economic growth and jobs is just a simple lag, as it has always been.”

If so it could be risky for policy makers to wait for unemployment to start to rise before adjusting policy.

“The problem with that framework is that by the time unemployment rises, you’re probably already 12 months into an economic downturn,” Tharenou says.

Quite right. Expecting such complex data to match some procedural trend line is the very obtuseness that got us here in the first place. The data will align over time, resolved by the underlying driver’s of growth. That’s where sensible economic minds look to the broader context to create a narrative which offers insight into future trends. “Nowcasting” if you like. That narrative is painfully obvious:

  • a house price crash is weakening consumption;
  • a (so far) 30% crash in dwelling construction lies dead ahead;
  • public investment has plateaued;
  • private investment will very likely follow the first three.

That’s roughly three quarters of the economy entering a stall. Sure there are offsets in mass immigration, the offshore boom and public consumption. But it does not take Albert Einstein to see that in time the net balance of forces today will deliver fewer jobs and higher unemployment in the near future.

Yet even that does not cover the real kicker for the lunatic RBA and its scantily clad cheer leaders. The most important observation to make is that this is not in any way a typical end of cycle shock for Australia. Our external accounts are roaring and the stall is happening despite the cash rate being at record lows. The shock is an historically atypical housing bust born of many idiosyncratic headwinds that show no sign of abating: macroprudential; Hayne RC credit tightening; massive unaffordability; oversupply; peak debt; housing tax reform; BBSW stress; infrastructure lumpiness and Chinese capital outflow.

Any uncompromised risk assessment must conclude that dithering while a probable unemployment spike rolls towards tumbling house prices will threaten turning a cyclical correction into a structural adjustment that is more severe than it needs to be.

In the common tongue this is called “policy error”.


  1. who would have ever guessed that faking employment data would be easier than faking GDP numbers

  2. Maybe the RBA realised that fiscal stimulus not monetary is required

    Maybe they are waiting for a labor government to provide that

    Decent plan to be honest : better than what you’re suggesting if they have some inside word

    • Sure, crashnic, let’s kick the can with a higher dollar and deflate wages some more. Just because you want lower house prices does not mean households should be gutted.

      This country will never recover until the AUD is at 50 cents.

      • proofreadersMEMBER

        And at 50 cents, Chinamen can finish off buying what they don’t already own of us?

      • ErmingtonPlumbingMEMBER

        Whether we are at parity with the US dollar or at 25c the enormous economic power of China with 1.4 billion people and designs on our region will guarantee their continued accumulation of our productive assets while we allow them to be sold off.
        Same goes for their citizens buying up residential realestate and residency/citizenship here.
        The numbers may fluctuate at times but as long as we keep the doors open the flow will never cease,…not for Generations anyway.

      • Gutting households is the surest way to get the dollar to below 50. Interest rates alone won’t do it, because commodities.

        The real trick will be to set sensible policy after the households are gutted and the dollar is below 50.
        Get it right and we slowly recover. Get it wrong (like EP and proofreaders refer to above – fail to keep Charlie out, say) and we build an even-worse plutocracy/oligopoly with permanently-guttted households. Like the Philippines or Indonesia.

      • Huh?

        Is lowering the AUD the point of even more rate cuts ?

        LOLOLOLOL !

        Really ?

        That trick never works Bullwinkle especially when we are rocking fat trade surpluses.

        If you want a softer AUD we need to be exporting capital and blocking capital imports like demons. Just like our mercantilist
        Trade partners do.

        Cutting interest rates is a waste of time.

        All they produce are asset price bubbles like the doozies we already have.

        Let go of your neoliberal beliefs regarding deregulated capital flows – that stuff is fit for museums.

      • pfh
        Exactly!!! Why the hell is this damned incoming capital deluge that has, already, pretty much destroyed everything in the nation not even discussed??

        It’s insanity writ large!

        P.S. Cheaper rates? To achieve what?

      • Flawse,

        It is very strange.

        Bearing in mind that just about every other bit of sensible reform is up for discussion it is very strange that regulating some capital flows is considered simply unmentionable.

        And it is not as though regulating the worst of the capital flows is that hard anyway.

        Restricting sale of capital assets and land to foreigners is exactly what China, Japan and other countries do (even if they do it via administrative processes rather than outright bans)

        Restricting the sale of existing housing and land is not difficult either

        Restricting sale of government securities offshore is hardly difficult either.

        Restricting the banking sector from borrowing offshore for unproductive purposes is also not hard.

        Yet all of those practical and sensible options are considered impossible and too difficult.

        Instead we are going to try to drive down the AUD by cutting the target rate!!!!!

        Hasn’t that worked out just brilliantly.

        And how is supposed to work now that we are running trade surpluses which drive up the AUD regardless of what the interest rates are.

  3. Does have one asking one’s self questions along the lines of
    What sorts of Inventory correction “aka Business cycle” would one expect in largely Service economy.
    So nursing homes will buy half as many wet-wipes or will individuals buy half as many morning coffees…what happens if people change nothing about their lives can we still have a recession.
    If you ask me the figures are already trending badly for Housing, new car sales and consumer whitegoods / furnishings as well as building materials.
    If the trend is your friend than we’re well on our way to a recession yet strange one one with full employment (at least initially) Kinda has me wondering if this Full employment is all a numberwang arising out of the Gig economy replacing traditional full time single jobs. Maybe those that can see the writing on the wall get a second gig driving Uber’s so they’re not technically unemployed. I don’t know.

    • St JacquesMEMBER

      At the place I have my early morning coffee I overheard a brickie say they had been suddenly laid off but he has been able to get some small jobs. A middle aged painter turned up uninvited looking for painting work. Tradies looking for gigs? Dunno but not a good sign for a ponzi town like Melbourne.

      • Mining BoganMEMBER

        If my workplace is anything to go by then the employment figures are beyond numberwang. Lots of part-timers, I’m the only one not sneaking into the office asking for full-time hours.

        And to be honest, the depressed stories I’m hearing from my street talk research is making me consider it as well.

      • Bogan this is your last gig
        But it does not take Albert Einstein to see that in time the net balance of forces today will deliver fewer jobs and higher unemployment in the near future.
        Same goes for heaps of others
        CSIRO says 40% on the footpath, shortly.

      • A chippy mate tells me the outer estate building has all but stopped. Their company get a flood of tradies after work now. When I hear these stories I wonder, but if you drove around those areas you might get a better picture. There is no denying the number of sale boards up every Saturday now. In my burb it’s up a lot.

      • Mining BoganMEMBER

        Yep WW, was aware of that when I threw myself into space. I was prepared to never work again. But a simple lifestyle was preferable to a miserable one.

      • St JacquesMEMBER

        Even the lady who serves me my early morning cuppa has told me things were quiet this year, and I live in a well off suburb in the inner east. Might be time to fire up your street talk?

      • You guys aren’t tempted to buy your own machine? Even with a ~$500 machine you can make decent coffee with the $11/kg Aldi beans, with practice it’s better than 90% of café purchased coffee and you’re pocketing the savings.

      • You guys aren’t tempted to buy your own machine?
        Heretic, Heretic, Heretic, …Do you have any idea what would happen to our economy if everyone simply bought their own Coffee Machine?
        In a Back Scratch (aka Circle Jerk) economy it only takes one selfish individual scratching their own back for the whole charade of full employment and GDP growth and and and to well just collapse.
        My goodness, how inconsiderate of you to even suggest such a personal optimization, when the social costs of such an action are simply astronomical/incalculable ….and it all started with one selfish individual believing they’d be better off if they could just save the cost of a cup of coffee.

      • St JacquesMEMBER


        When I wake ;up in the morning, usually way too early, I just want to maim, kill and destroy everything within in sight. That morning walk and a nice relaxing cuppa is the most wonderful thing in my day. I’m very happy to pay somebody a few bucks a day doing an honest job that gives me such pleasure. Having it at home misses the whole point and I’d also overdose on the stuff for sure.. And it’s a great excuse for getting away from the fking house!

  4. Lowe’s obviously waiting for unemployment to tick up before making a move, but I wonder if they’ll look through the initial deterioration or whether they’ll act at the first sign of danger in the jobs market?

  5. St JacquesMEMBER

    The poor million dollar a year dear is puzzled. How out of touch with reality can you get. Eight years of failed RBA predictions and still they don’t get it, but everybody else does. Sack the overpaid, useless bastards! They only work for the big end of town. Tools.

    • proofreadersMEMBER

      A one-trick pony, beholden to the private banksters, determined to destroy any sense of monetary policy responsibility. Screw merchants extraordinaire.

    • Rain When I Die

      I wouldn’t choose The Verve for a party band.

      Me First and the Gimme Gimmes, more like.

  6. I still don’t understand, if they drop rates which is the opposite to what every other advanced economy is doing what will this achieve? It likely won’t be passed on to us and will ruin our currency and considering we import everything today how will this get us out of recession? How does MB think dropping the rates will avoid recession?

    • This. It’s totally mental. Australian exceptionalism at it’s worst.

      People still think a little cruddy trade exposed nation on the far side of the world can somehow set its monetary policy on its own. Um, no, not when that monetary pilicy makes the country look like a bad/risky investment. No way the differential on the negative can be that great and growing.

    • +1. Disappointing that MB is now the chief cheerleader of ‘cut teh rates fix thing!’ nonsense, when that’s what got us into this mess. May as well install Reusa as RBA gov.

      • MB have cheered the ‘lower teh rates thing’ for years dating way back to before the big housing boom. A few commenters in here warned what was going to happen as a result but they were brusquely brushed aside.

      • Lowering the rates would be the dumbest thing to do, it’s like giving a heroin addict more heroin to fix their addiction … !

    • MountainGuinMEMBER

      The RBA should enable factual debate rather than just sticking to their jawboning mantra. Tell us punters what would happen based on RBA models to actual borrowing costs if RBA cut official rates but the resulting falling aussie dollar jacked up the international borrowing costs of banks for their non domestically sourced finance. How much would banks cut rates and for how long?
      Then be honest that RBA models have been shown to be overly optimistic over many years.
      I can only imagine the answer, as per MB analysis, is dollar getting smashed and repeated RBA cuts needed to stay ahead of the curve until either we choose to take a large hit or we reach negative real interest rates where I have no idea how people will act.
      Yes the government and many citizens and business leaders won’t like the message that pain cannot be avoided by RBA tricks, but this is the only way to force state and fed govt to treat the economic condition seriously and to inform the very taxpayers who pay RBA and govt officials for leadership and action.
      Truth not propaganda please

      • Im just making a guess based on the fact that us interest rates are rising and are alreay higher than ours so if we drop interest rates even lower who would park money here? Theyd be running for the exit. Therefore I agree that aud gets smashed. MBs argument is sound in an environment where our interest rates are higher than the US but we are in the reverse scenario of which I have never seen before. This is unchartered territory.

      • Charlie
        We’ve been heading down this road for 60 years. As we’ve headed on, the road has got narrower and narrower. Obviously, as the road gets even narrower, we are about to run off the cliff, on one side or the other, sometime soon. Unfortunately it is now impossible to turn around without going off the cliff.
        The answers lie back in time.

    • Like a lot of commentators here I don’t understand the obsession with rate cuts that MB (or more accurately HnH) has been pushing. It has never any intuitive sense to me and I think it’s too naive to think that this won’t just reinflate the housing bubble. Assuming cuts are passed on by banks, it will just make it easier for borrowers to pay down debt, so wider effect in stimulating the economy will be limited.

      I also don’t see how dropping the AUD to 50c will help a “recovery,” because we still haven’t hit rock bottom yet when it comes to house prices as well as all the standard implications regarding imported goods and fuel. I really don’t want to see any rate cuts until the housing market is completely crushed. Just like how Keating’s “Recession we had to have” statement torched inflationary expectations, for today’s housing market inflationary expectations must also be completely obliterated to the point where it is burned so deeply into the Australian psyche that it is never repeated again.

      • YUP!!! I’ve opined in these pages for years “If you want this thing dead – you gotta KILL it”

      • Yes, flawse. It’s not about a stern taking to, in order to curb the excesses (aka rate cuts with macroprudential wizardry).

        It’s about a shotgun to the face, to kill it really dead. And beyond resurrection. (Higher borrowing rates, less credit)

      • Two barrels in the head at short range are required. We are first trying one barrel – tighter credit – to minimise splatter. The trigger on the other barrel, higher interest rates, will be pulled by foreign bond holders at a time of their choosing.

        Don’t Buy Now!

  7. Reserve Bank of Australia Governor Philip Lowe is calling for solutions to a puzzle where employment is growing but GDP is softening.
    WW, cos productivity is going through the floor.
    The more employees >the faster the drop in productivity.
    So how about that.

      • So, if you are a student of Coriolis forces
        the more it develops, the faster it goes
        LH or RH all the same
        the plug hole wins in the end

  8. Must be amusing inside the heads of top RBA officials. Everywhere the same whispers, from the fringes. The models are not working. And its implications? The populists are getting emboldened, politicians are less deferential, citizenry – ordinary people – are questioning their once revered betters.

    Where once the word of a central banker was gold, today that lustre is dulled. The shine is gone. The rituals, the models, the academic literature that once made sense, no longer work.

    Even worse, the strength that was once there is … missing. Going into work everyday is harder, putting on the face is way harder. Ignoring the snickers is more of an effort. Did you believe your superiors and invest in housing yourself? Stupid stupid decision – but the missus was so keen, and she really made an effort, didn’t she. Put in the work, in a manner of speaking.

    Know you pharsee’s, know that the magic no longer works – did it ever? Silly little progressive cult that could. And its little priesthood that could, the economists. All your numbers are lies, and you never knew squat. Much like witchdoctors, the dot plots, the data, the entrails of the wild boar, or maybe the entrails of some hapless chicken – no longer work. Heretic priests are defecting in ever larger number, and your enemies smell blood. Agree with the heretics? But that way lies oblivion.

    Worse, other cults sensing weakness are sniffing around. If printing money is good enough for the banks – your favoured fiefdom, why isn’t it good enough for their fiefdoms? Green New Deal. Of course it won’t work. But if they get their way, we all know what that means don’t we. Exile, a loss of influence, a fall in social status. Will the missus work as hard?

    And in the distance, far away, oh so far away, but getting closer, drums. Your enemies are forming up, and what can you do? Rogue AI’s, dapps, online hive minds, satanic cults, pre sentient algorithms, hft apex intelligences, rumours of a sentient machine intelligence – clown world beckons. Keep that stiff upper lip – there is a good chap.

    If only the other cults understood, feminists, teachers, the various academic cults, don’t they understand what you are fighting against each day? Don’t they understand the stakes? Go on, tell them – talk to your media contacts, why don’t they tell the truth?

    Its an information war out there. What defence is there against this madness?

    Après nous, le déluge?

    • Yep makes you wonder how many years before we find out the these RBA “high priests” with all their Pomp and Ceremony and of course Models, have also been buggering little boys behind the alter.
      There was a time in my youth when the word of a Catholic Priest was pretty much golden and the word of an Archbishop was pretty much Godly now they’re both probably sharing a cell and being instructed by the guards to only communicate in English, none of the Latin stuff.
      Yep that only took 20 odd years to go from Holier than thou ,to wholly unwelcome in polite company, makes you wonder if The high priests of Economics will suffer the same fate.

  9. What I think people don’t really appreciate is there’s two economies – the regional mining economy (productive) and the city side service economy (mostly derived from housing/financial debt and instruments). This means most of the few positives in this article IMO don’t matter to most people. Even with the trade surplus in the real economy that doesn’t feed into the city economy unless the government transfers the money that way by actually taxing the mining sector and sending it back out through government spending. That makes the picture more bleak for the city economies as the main driver (housing) is now gone; the current account surplus and lower dollar don’t really help the majority of the economy right now.

    On a side note on this page there is an REA ad encouraging me to unlock my equity on my house lol.

    • Exactly AK…however
      Re Trade surpluses – Please note everybody this is actually a pretty irrelevant figure as far as the true state of the nation is concerned. We are still running substantial Current Account Deficits that have been continuous for the last 60 years (bar 1971).
      Note that some 90 odd percent of our mining resources are foreign owned. So repatriation of dividends becomes an issue in the Current Account.

      • I mean you could tax mining revenues and that means less dividends/profits flow overseas. But yeah that’s not happening. Our best hope is the struggling farmers IMO – a lower dollar may mean agriculture booms.

      • I never thought it was a good idea – to be honest I don’t think withdrawing house equity for consumption was ever a good idea. I was just amused that the ad actually appeared on this site.

    • Yes, things are picking up in mining and in Perth. Time to buy another investment property in Perth because prices are so low…never to be repeated!