Why does the lunatic RBA keep throwing itself under a bus?

Why does a lunatic RBA keep throwing itself under the bus? It began in H2 last year with a crazily bullish outlook for 2018 GDP growth just as Australia plunged into a per capita recession:

Then it continued through the new year as the economy very obviously stalled with a still crazily bullish outlook for 2019:

Then as data fell apart in January, board member Ian Harper threw himself into the traffic:

The clearest indicators of ongoing momentum of Australia’s economy are strong employment growth and a rapid shift in the federal budget toward surpluses, said Ian Harper, a member of the Reserve Bank of Australia’s policy-setting board.

…“The domestic economy, everything I’ve seen, shows that it is still strong,” Mr Harper told The Wall Street Journal on Thursday.

“So long as jobs growth is strong and unemployment is low, then fears about some sort of collapse in consumption, or inability to be able to pay bills, really have to be put way down the list” of policy concerns, he said.

Prof Harper said his personal view is that the next move in interest rates will be upward.

Phil Lowe then splattered himself across windscreens in early February and again yesterday before the GDP shocker:

Our central forecast is for the Australian economy to expand by around 3 per cent over 2019 and 2¾ per cent over 2020 (Graph 4). For 2018, the outcome is expected to be a bit below 3 per cent. This type of growth should be sufficient to see further gradual progress in lowering unemployment.

Now, with Aussie GDP at 2.3% in 2018 and the March and June 2018 QTR base effects very challenging for 2019 at 1.1% and 0.8%, the lunatic RBA is looking at an annual growth figure deep into the 1% annual range by mid year. Annualised growth has been at 1% for six months!

What end does this suicidal behaviour serve? After all, the practical implication of it is that markets are still mispricing bond yields and holding the Australian dollar higher than it should be, working directly against the RBA’s own mandate of higher inflation and lower unemployment (which should be altered to include underemployment).

First, we could be kind and conclude that the RBA is deliberately holding back rate cuts to force an historic correction in house prices to permanently dent household debt growth. But that goes against everything that the bank has ever stood for, including a more hawkish Phil Lowe.

Second, we might conclude that the bank knows the great correction is upon it and is trying to support confidence as best it can with positive jawboning. Though this is pretty stupid given being perpetually wrong on every forecast hardly bolsters animal spirits.

Third, we can conclude that the bank doesn’t have a clue what it is doing and really believes in its own ridiculous outlook and plan to raise rates to reload the monetary cannon.

A fourth explanation is a little off the wall. We know that the RBA refers to MB as “those MacroBusiness bastards”. Perhaps its recalcitrant defensiveness is a result of our dovish mockery! More seriously, the point goes to an increasingly cloistered board disconnected from reality and stuck in group think born of decades of Australian exceptionalism.

My best guess is that it is a combination of 30% of hoping to support confidence, 60% pure ineptitude and 10% toxic defensiveness.

Whichever it is, it is incumbent upon me to remind the Bank that trashing its own credibility just as the economy is threatening to roll into a long cycle, balance sheet adjustment damages the Australian national interest.

Comments

  1. JspitzerMEMBER

    When does a central bank ever get negative? Never, even if they thought it. I thought it was just that. After yesterdays report into housing I think it’s clear they are just plain clueless.

    • DominicMEMBER

      That’s because they are very clever people and have everything under control. Just relax.

    • kiwikarynMEMBER

      Their models tell them that everything is fine and dandy. And when the Communists take over, they will simply do what China has done for years, fake it to hit the magic number.

      • bolstroodMEMBER

        Are you refering to “our” ALP “communists” or the “real” Chinese variety?
        I think H&H’s option 1, holding back Interest rate cuts to force a housing correction to permanently dent household debt.
        but doing it on Labor’s watch, but the RBA would not be so political, would it ?

  2. “My best guess is that it is a combination of 30% of hoping to support confidence, 60% pure ineptitude and 10% toxic defensiveness.” – QUOTE OF THE DAY !
    #RBA

    #STRAYA

    • In keeping with the theme of tofay’s Other post, someone could construct an RBA-clock. Or at least an RBA pie-chart.

    • Comment of the year. Replace the definition of the 30% to ‘blind faith/ business as usual ‘and you define all facets of official decision making in this cess pit

  3. There’s another possibility here. The Bank is actually collapsing house prices intentionally.

    They’ve spoken many times about the negative impact of high valuation and they may have decided privately that the low unemployment rate and low nominal rates can act as a shock absorber, they may be deluding themselves on the unemployment rate and they may also be thinking the banking system can handle a collapse in prices of 20-25%?

    Just suggesting – Lowe seems to be so convicted

    • CaptainFeatherSwordsGhost-TheHaunting3

      I think you would be mistaken for thinking anyone in Canberra or the RBA don’t know exactly what is about to unfold. You can already see Turdenburg and MorrisonTheMolesta trying to blame Labor – but secretly they are all positioning themselves to blame shift onto anyone but themselves whilst pretending it couldn’t have been forseen.
      Most importantly – there is NO political advantage to preventing what is going to happen, because people would say ‘maybe it was never going to happen anyway’. On the other hand there is an immense amount of Political Capital in allowing the STHTF and then go after and punish a few patsy’s and say “Look – we got the Bastards aren’t we great”.

  4. We know employment is a lagging indicator. And contrary to their reliance on dodgy ABS vacancy data, the NAB survey, PMIs and job ads suggest employment growth is slowing.

    Likewise, the fall in wage inflation has been driven largely by a fall in inflation expectations and wages de-trended have actually been quite strong recently in line with labour indicators. I’m guessing as the labour market softens, wage growth slows …

    • wages de-trended have actually been quite strong recently

      Could you please explain what you mean by this, Peter?

      When you say “de-trended”, does that mean holding the chart upside down?

      • The decline in wages growth since 2011 is highly correlated with the decline in the one year inflation swap. Essentially, the decline in the trend in wages can be explained by falling inflation expectations. I’f you take a simple linear trend through wages from 2008 and then take the percentage above and below the trend it correlates really well with a composite of the wages PMI series and other indicators of labour market strength.

        So, essentially, the declining trend in wages has been explained by falling inflation expectations and the deviation around that downtrend is cyclical and recently it’s actually been quite strong. Don’t have the charts here but they are really something…

        If I’m right, then as the labour market softens, wage pressure eases in H2 2019 and 2020, contrary to Dr Phil view

      • Thanks Pete. Understand what you’re saying now.

        To translate for everyone else – growth in wages is currently slowing less quickly than previously. This now counts as “wage pressure” in RBA-land.

    • That was near enough until yesterday
      Now everyone knows we are in (official) recession
      its time to cut wages even further
      who can argue with that.

    • Would the increasing migration from full time to part-time/casual change the sensitivity of this correlation? maybe its a false signal?

  5. They’re pretty hung up on the low unemployment, but doesn’t Australia have the highest part time\casual workforce percentage in the world?

    • Not sure about that but the labour market doesn’t work like it did back in the 1980s and 90’s. Lower benefits and tighter testing to qualify for unemployment benefits mean more people don’t go from employment to unemployment but go from employment to out of the labour force (so the participation rate takes a shock). Then they’ve lowered the requirement for working part time to be classified as part time and you’re right there’s a lot of part time employment now. That acts as another shock absorber. Then they’ve removed constraints on unionisation and wage bargaining so wage bargaining is more flexible and finally the migration figures are more sensitive.

      Bring it together and it means that unemployment simply doesn’t move around like it did and the labour market is a much more complex beast to analyse.

    • Yes. Chart was in Weekend Charts by Gunna.

      A shocking 30% of the jobs in AUS are part time jobs.

      The foreign “students” who came here in 2000 are still working in entry level positions today.

      • +1
        We are closing in on a million international students in this country all of which are allowed to work part time. Why would an employer create a single full time job when he can create 2-3 part time jobs filled by international students?

    • DominicMEMBER

      Ah, yes. The Phillips Curve!

      They’re beginning to resemble Monty Python, this mob. Worth every cent of my tax contribution. In fact, I wish they’d award themselves a pay-rise.

    • It’s not part time work we need to be worried about – it’s involuntary part time work. Otherwise known as underemployment. Since 1978 employment has about doubled (matched population growth). Underemployment on the other hand has septupled (7x), with half of that growth happening since the GFC (which we escaped, of course).

  6. ” (a) plan to raise rates to reload the monetary cannon.”

    Not cutting, is a defacto reloading of the cannon? Yes, the ammo will be needed, so wait until you see the whites of their eyes etc…

  7. reusachtigeMEMBER

    We need to force everyone by law to believe that only Lower teh interest rates, that will fix thing! It just does. Because.

    • We should re-introduce corporal punishment to help enforce that law.

      10 lashes initial transgression. More for repeat offenders.

      • Agree. With the offender wearing a gimp suit.
        I mean, anyone who does not understand why lower the rates was, is and always will be the best strategy is clearly stoopids.

      • @Melbourneguy Careful now – Peachy has a hydraulic hose, with metal end-fittings and all, and she’s not afraid to use it

      • Oh yes. “Lashes” is code for “hosing”.

        Rub the LowerTehRates lotion on your skin….

  8. Point Fout. Simple self interest. How are these guys going to feather their nests if they don’t behave in accordance with the wishes of future employers, as well as associate with their cohort. This issue is accentuated these days in a hyper neoliberal environment.

  9. ChristopherJMEMBER

    None of us here can quite believe the goings on of the Neocons and Neolibs in the LNP, which is so far right of centre and so lacking in policies which reflect the wishes of Australians, and which was highlighted by the shenanigans of Morrisson on Christmas Island yesterday – when the majority of Australians want this whole detainment and interception charade to just end as we all know that boat people are not the biggest issue we face as a nation.
    So, we cannot be surprised that the dicks in the RBA have a different world view than the rest of us. They sit on the fence until the ‘correct’ way forward becomes clearer. Independence? pfffftttt!

    • Someone once posted that MB was blocked by Treasury’s internet filter too… anyone know? can that be true?! 😂

      • It doesn’t matter. People have phones.

        When people have phones, they never even get to find out what is blocked by their employer’s filter. Right right?

      • It’s more just that it would be hilarious if Treasury management had made that a rule.

      • ChristopherJMEMBER

        Staff in the APS are watched very closely at work by AI.
        Before surveillance, you could macrobusiness, facebook, youtube as much as you could get away with.
        Now, not so, and it doesn’t take much to get on asio’s watch list. Plenty of us are on one

  10. “The clearest indicator of ongoing momentum of Australia’s economy is a rapid shift in the federal budget toward surpluses”

    Is it really any surprise they keep getting it wrong, when they obviously have no understanding of causality or how money works

    • proofreadersMEMBER

      Having been criminal in dropping rates too far and creating the most almighty property bubble in conjunction with the equally inept other regulators and their morally bankrupt private bankster mates, the RBA prayer group wants to have a couple of last shots at destroying savers.

  11. “..My best guess is that it is a combination of 30% of hoping to support confidence, 60% pure ineptitude and 10% toxic defensiveness….”

    Having regard to the Unifying Principle of Public Service “Cover thy Butt” there is another possibility.

    It would suit the RBA if there was a general perception that the decline in housing prices was due to reckless credit approval by private banks (supervised in that regard by APRA) rather than reckless rate cuts by the RBA.

    Accordingly the very last thing the RBA would want to do right now is cut rates and risk people connecting the dots and blaming the RBA for the house price and household debts bubbles.

    An asset price deflation they can dodge responsibility for is what they prefer.

    Does that mean throwing the economy under the bus?

    Nope.

    But it does mean telling everyone that the economy is strong and will be stronger with sound confidence building government.

    In other words lining up Chris Bowen for responsibility for the forthcoming recession.

    Don’t trust the RBA.

    They are ‘independent’ for a reason. They look after No 1.

    They have been pulling your legs for the last decade.

    • Wrong
      the banks have not been reckless with their credit
      the punters have been reckless with their borrowings
      No bank will fail, the punters will repay everything they owe.
      However many overextended punters will ruin the balance of their lives and that for their next generation/s
      in repaying that debt.

      • WW,

        What part of that can be attributed to the RBA?

        Nothing.

        Will the RBA wade into the swamp and throw them a lifeline?

        Nope.

        You are reinforcing my point.

      • Even StevenMEMBER

        Basically agree with WW on this one. I seem to recall over the years that various MB posters have had grave concerns Aus banks would fail. We still get regular inquiries from fly-ins (and sometimes Members) on ‘where should I put my cash?’.

        Fact of the matter is that there isn’t any serious evidence of the banks being under pressure. Bank earnings? Sure. Bank failure? Not even close.

        There never was that much risk to the banks from lending. Money, once printed/pumped into economy, is difficult to just disappear. What it does lead to however is financial stability risks: over-extended household, large risk of sharp drops in consumption.

        The regulators should have been all over the financial stability aspect. RBA foremost amongst them. They weren’t.

        PFH: cant see where you give RBA a free pass on this aspect.

      • Even Steven,

        I am struggling to follow WW’s explanation of why my theory on why the RBA are doing nothing at this point in time is wrong.

        There is a very weird idea around that the RBA can be trusted, even though there is abundant evidence that their interpretation of their charter is very simple.

        “..What is good for the Australian Banking industry is good for Australia…”

        Time and time again people seem stunned and surprised that what the RBA says or does appears not to be in the general interests of most Australians.

        The RBA provides public support to banks to allow them to provide very cheap debts contracts and yet some want to put all the blame on the borrowers for being “fooled” by the price manipulation.

        Who said any banks would go broke?

        The RBA will look after them if the need arises. Which is why their lending became so reckless.

        Borrowers will be left to beg for scraps from the government which will pit them against the taxpayers.

        RBA priorities

        1. The RBA
        2. The banks
        3. Keeping the public and pollies looking elsewhere.

      • Rain When I Die

        I hope you are both right and lots of people get financially ruined.

        Um, why would you want that?
        A 40% fall could ruin a lot of people. You may say they are not innocent but that’s being a bit simple.

        There’s wanting to see affordable housing on one hand but wishing misery on another is not all that nice

        What would Jesus say Peachy?

      • PF, it is not the role of the RBA to protect the punters. From my notes>
        RBA > Debelle, admitted in December 18 that 10 years after the global financial crisis
        “nobody had any reliable idea of how much debt was too much.”
        it’s not about debt, “it’s about what high levels of debt in an environment of low wages growth, high utility prices and falling house prices will do to the consumer’s willingness to spend”.
        “The main triggers for turning household debt into a problem are
        higher unemployment and
        higher mortgage rates.
        “The risks come from a combination of high debt levels at a time of very weak growth in household income.”
        “It’s difficult to say how much debt is too much for households,
        but historical experience probably suggests that debt-to-income ratios in excess of 150% are consistent with more vulnerability in the household sector/broader economy,”
        “Regulators are attempting to engineer a gentle deleveraging of the household sector in order to manage the risk, but progress on this has been slow.”
        The household debt-to-income ratio appears to have stabilised at elevated levels of about 190%, .
        “More time (and stable economic conditions) will be required to bring this ratio to less risky levels,”
        For debt levels to be sustainable, households need at least to be able to service their loans from income without borrowing to meet interest payments, QIC’s Matthew Peter said.
        “With debt accruing at a rate of 4% plus on interest payments alone and growth in household disposable income of less than 3%, households’ savings rates must be rising, not falling,
        for debt levels to be on a sustainable path.” (how about the cost of goods with the lower AUD)
        That means debt levels are rising too rapidly and at an unsustainable rate.
        “If income growth fails to pick up, Some say we are in “uncharted territory”, because
        “This risk isn’t being managed at all.
        there are no policies to address record owner-occupier debt levels,”.
        Macquarie’s Ric Deverell said it was not that useful to settle on an aggregate household debt-to-income figure that was “too high”.
        Other countries and their banking systems have run into problems with household debt ratios at vastly different levels prior to the issues emerging,”
        “Some reduction in the aggregate household debt-to-income ratio, however, would be a good thing.”
        In an imprecise sense, when households are borrowing significantly to purchase multiple investment properties, and using equity release to finance luxury purchases, “they have too much debt”,
        “Back [in 2016] we said this was all unproductive and will end in tears. Some are now weeping

        Household debt is an interface issue with the punters and the banks. Nothing to do with the RBA

      • Hey RWID. I don’t know what Jesus would say. Something about how it’s a good idea to smash money-changers (I.e. speculators)? Dunno. Don’t care.

        People getting smashed and ruined is the best way forward. Because it means future people will probably not make the same mistake for a couple of decades.

        After a couple of decades, there will be need for another smashing.

      • WW,

        “..Household debt is an interface issue with the punters and the banks. Nothing to do with the RBA”

        Tell me again how the RBA sets the target rate and uses that as a lever of economic management.

        Work through the transmission of movement in that lever to the economy.

        You will find something called the household, household debt and residential housing.

        Quoting obsfucations from Central Bankers will not assist your analysis.

      • PF, the notes illustrate, the domestic bankers and the reserve bankers, do not know how much dept is too much
        thus they are throttle down to maximise return to shareholders for the domestic banks
        the RBA can only advise. that they advise the joint is in an emergency, is paid no heed
        irrespective of what the rba does or indicates
        the domestic banks go their own way, all know that
        the next major role for the rba is to keep the aud at 72 and nothing else
        the major role for the domestic banks is to maximise profits
        the major role for the punters is to deleverage as quickly as possible
        given we are in day 2 of a recession.

      • Even StevenMEMBER

        @PFH

        I agree your logic is sound on why RBA would like to cast blame elsewhere. A few points though:
        1. I don’t think the RBA will be able to sit on their hands. They will need to cut rates.
        2. individuals need to take responsibility for their actions. If they default on their own loan, that’s on them. No one is in a better position to understand their own personal circumstances than themselves.
        3. if a bank fails due to poor aggregate credit lending practices, that’s on the bank. And on APRA.
        4. if the economy fails because households tighten up consumption due to excessive household debt (at an aggregate, but not necessarily individual level), that’s on the RBA.

        When you ask what part of RBA’s actions contributed to the present situation, my response was specifically around the last point – the RBA’s apparent lack of concern around financial stability risk. This (point 4) is a far greater risk at present than (point 3) risk of a bank failing.

        WW seems to be more forgiving of RBA on this point. I am not.

  12. Perhaps the RBA indicators are inadequate? My personal highly scientific indicator is the distance from the station that I can find a parking spot when travelling to work. It is premised on the more people travelling to work means a stronger economy. For a decade it has been getting progressively longer, from 750 metres to double that. But since Christmas I have been able to park closer. Hasn’t happened in a decade, so my real-life indicator tells me something is changing in the economy. Straw in the wind?

    • And from outa left field comes electric scooters and skateboards
      starting to see em everywhere, and they are fast.

      • I think Oswald and your response goes to the heart of the matter. Institutions look at indicators, if they are good they change their minds with fresh ideas and set up internal HR controls to avoid group think. It is hard to do this as institutions gain respect for being constant, consistent and immovable. Seeing the “scooters and bikes” coming is hard for an institution. These new things seem ridiculous in a conservative world view and no one ‘at lunches’ seems to talk our care about these factors either. If they are the straw in an already strained ideological and modelling framework like US style mortgage resets, the RBA has about zero chance theoretically, culturally or creatively to see them coming. Some argue so it goes with their current world view and debt and wage growth. Their recent comments on the latter certainly seem to suggest this is the case. What happens when an unstoppable force collides with an immovable object? I don’t know but i’d rather not be in Australia when this happens.

      • Yes, they should spend at least the same amount as they spend on staffing reactive plunge protection teams on Black Swan teams. However, like paying to hire a ‘difficult’ economist to assess your mining project it may be culturally unpalatable for the RBA to hire a crack team of seemingly disfunctiomal propeller heads who are useless 99.99999% of the time and keep telling Phil and Glenn they are doing it wrong. Haha

  13. they must somehow justify inaction

    that’s where fake ABS employment data comes handy

  14. It may be that some RBA board members don’t want RE prices to fall quickly. That seems fair enough but I’d like to know how many of them have investment properties currently on the market. That may be influencing their forecasts.

  15. I think it comes down to the “60% pure ineptitude”. The RBA now knows it should have followed the Fed’s lead by slowly raising rates over the past few years, so as to give them some ammunition to use, if and when the economy goes through its next major downturn. Either (a) They didnt because they are asleep at the wheel, or (b) they knew but didnt want to take away the punch bowl that the banks have been partying on. So, they are either incompetent, or corrupt. Which is it?

    Now they find themselves going into a war zone and they have 1, maybe 2 bullets left. They are not going to use them until they absolutely need too. You and I both know that by then, its too late.

    • Yep they should have been tightening to get ready for the next business cycle downturn, instead it was foot the floor inflating that RE bubble for what? 2-3% GDP growth, pathetic.

  16. Jumping jack flash

    Most things are very simple, at least at the beginning, and then due to something small and completely innocuous at the time, everything turns to the proverbial quite quickly.

    This time is not much different. The main problem is their reports and models need calibration back to how things really are, not how they would like them to be. In short they need to take a real hard look at what is actually happening and then put that in their models.

    The problem is the entire system, and the models and reports are all geared for infinite debt. Infinite debt is bar none the easiest way for everyone to get absolutely stonking rich in the shortest amount of time possible. And who doesn’t like instant riches? And by gum, the RBA is here to help everyone achieve that!

    The reports and models are structured to cheerfully report that everything is a-ok when in actual fact infinite debt is an impossibility, and it will never be ok. The fact that it was ever conceived that infinite debt could be ok was a sure sign that the ancient and mystical runes they must have consulted that affirmed that infinite debt was ok, and a really good thing to attach an entire economy to, were fundamentally incorrect.

    So as the enormous non-productive wad of debt created from turning the infinite debt switch to “on” destroys the system, their reports and models drift further from reality, as is clearly seen.

    But they’re pretty smart, with brains the size of planets, so they should be able to rejig the statistics to report on reality.

    • Good analysis
      As I set out for PFH, no one knows the real limit to debt
      and so as to not leave any money on the table, nor any squeal left in the pig, money is, was being offered to all as as much as you can take (punters estimation)
      but as someone wrote the other day, the other side of the transaction , the economy, is the punters.
      punters are expected to be knowledgeable about their limits. They signed the documents
      cos they are going to have be effective in paying back any debt, in a huge down turn.

      • ‘As I set out for PFH, no one knows the real limit to debt’

        For the workers, probably the limit, is when house price gets to ten times annual median income.
        We reached that point mid to late 2016.

        For the ‘elite’, it’s more and moar immigrants and debt and deficient.
        Until, an outside event causes massive unemployment or great interest rate hikes.

        Then the root cause of most economic problems, the massive Third World immigration intake, should be addressed.
        A net zero immigration policy put in place.

  17. How are these guys appointed. I just assume they put out good news to favour which ever party they are tight with. Have to make sure they can keep getting gigs. are they appointed by politicians scum ?

  18. A 5th option is they are not really independent and want the economy to be heading south so the Libs get kicked out of office.