Did “those MacroBusiness bastards” disrupt the RBA’s sanity?

Weeoo, weeoo, weeoo. Via The Pascometer:

The RBA has been predicting higher wages growth ever since before it started weakening. Year after year after year, wages have been about to run higher, according to the RBA – but they haven’t. That the governor is reduced to a wan “some pick-up” might indicate how confidence in that permanent forecast is fading.

The bank’s commentary keeps clutching at hints of green shoots on the wages front, only to find they’re straws.

The harsh and undeniable reality is that two of our three biggest employers – construction and retail – are getting weaker and there’s no reason to believe it’s about to change. Yes, infrastructure overwhelmingly financed by the states is strong, but housing approvals are continuing to slide.

…Governor Lowe’s statement is perplexing is that it contradicts itself.

In his concluding paragraph, Dr Lowe reports that the board recognised “there was still spare capacity in the economy and that a further improvement in the labour market was likely to be needed for inflation to be consistent with the target”.

But earlier in the piece: “The unemployment rate has been broadly steady at around 5 per cent over this time and is expected to remain around this level over the next year or so, before declining a little to 4¾ per cent in 2021.”

So there you have the biggest mystery. After our inflation rate collapsed in the March quarter, the RBA says we have to have a stronger labour market to get inflation up, but then predicts no improvement in the labour market until some time in 2021, and then not much at all.

The present evidence is that the unemployment rate would need to be at least 4.5 per cent or less before it could be expected to produce anything like inflationary pressure.

I’ve never seen the Reserve Bank produce a document with such obvious internal inconsistency.

Congratulations RBA. When you have sunk this low it is truly game over for your credibility.

Pascoe is spot on. The one thing the RBA has always done well is follow the data. If its forecasts were proven wrong it always shifted position.

Yet the last statement was so begrudging in its easing bias that it appears that the Bank is now being run on soured emotion instead of data. It has given up on every single indicator bar one lagging point, a manifestly stupid position:

The Board judged that it was appropriate to hold the stance of policy unchanged at this meeting. In doing so, it recognised that there was still spare capacity in the economy and that a further improvement in the labour market was likely to be needed for inflation to be consistent with the target. Given this assessment, the Board will be paying close attention to developments in the labour market at its upcoming meetings.

Can it be that the Bank just can’t let go of its pride? Each new forecasting humiliation only makes it hold tighter to failed supposition. That is fatal in markets and to the country.

Should we blame MB for the Bank’s crazy defensiveness? We have brought a new glare of accountability to an institution traditionally surrounded by sycophants. We know that the Bank hates “those MacroBusiness bastards”. That won’t have been helped as we kept getting more right as they kept getting more wrong.

Surely not. The governors can’t be that pathetic.

No matter. The RBA has failed. It must be reformed and cleaned out. It is a matter urgency for Labor because no government can operate effectively with a broken central bank. The RBA and APRA must be spliced back together and new leadership injected, though that is obviously very difficult amid a busy reform agenda.

The easiest quick fix is to have a debate about how the RBA’s mandate should be changed. Most of that discussion has so far focused on lowering the inflation target, but that is just a way for its mates to protect the bank’s failures.

A far better idea is to force the RBA to pay attention to underemployment in its charter.

Comments

  1. the_bystander

    >We know that the Bank hates “those MacroBusiness bastards”

    Go on, tell us all the gossip from behind the scenes…

    • The Traveling Wilbur

      “The RBA has been predicting higher wages growth ever since before it started weakening. Year after year after year, wages have been about to run higher, according to the RBA – but they haven’t.”

      I suspect the Fey (irony) detector of those aforementioned macrobusiness bastards must be a tiny bit broken if that’s the copy and paste segment they choose to lead with. Glass-Stegal? Glass-houses?

      Wages will go up eventually. About 18 months after the visa rorts are fixed. Or China is nuked by Trump.

  2. Tying the RBA in with the previous article on MMT, is there a reason the RBA couldn’t implement MMT via something as simple as partially funding centrelink? Let’s say the dole or pensions.

    Pensions might be a bit problematic since they would continue to rise even as conditions improve, but the dole would raise when conditions worsen, and lower when they improve – almost a shock-absorber like the AUD.

    One thing you can virtually guarantee with either is that it will all be spent into the economy almost immediately.

    Could that have some merit?

  3. The RBA failed Australia. Didn’t even tap the brakes in a once-in-a-century land bubble. It knew liar loans were everywhere. Didn’t provide ‘fearless advice’ to government. Forecasting is tough, but to consistently and staggeringly err to excessive optimism became a structural flaw.

    Sorry about your careers, kiddies, but the proper conduct of the economy is way more important.

    • Ronin8317MEMBER

      They did ‘tap the breaks’ : by letting the AUD go to the moon and kill off the non-mining export sector, to make way for ‘Futureboom’.

    • You know what the funniest part is? They got nothing for it, at a personal, or institutional level. Suckers.

      Did some people working at the RBA get rich? A tiny number are probably well off now, upper middle class, but rich – none of them got rich. At best, they got to play courtiers to power, for a short period of time. If I had to guess, many of them used their temporary windfalls to buy (wait for it) … property.

      A fool and his money are soon parted.

      Did they do anything for the RBA? Absolutely not – in fact, we are probably looking down the barrel of the biggest pull back of institutional power that the central banks have ever had to deal with. The moment MMT (or Q Infinity or money printing or whatever) happens, its off to the races for other currencies (whose central banks don’t engage in same), and then as eventually every central bank prints to defend their own export sectors, everyone goes to gold.

      Within Australia, concern will give way to anger, and finally contempt as the economy falls apart. The days of RBA ‘independence’ will be long gone, with politicians relishing the chance to take the bureaucrats down a peg, and citizens looking to blame someone. Even the mortgage brokers, who everyone despises, will be held in higher regard than the RBA. To mangle Rick James, schadenfreude is a hell of a drug.

      Globally, I think there is no chance the economics profession survives the next few decades. As it becomes more obvious that economics is a bunch of superstitious nonsense, best described as a cargo cult, and its prescriptions and predictions are nothing more than some witchdoctor killing a chicken and examining its entrails. Between big data and AI/ML, these guys are done.

      Did they do anything for the banks? The banks are now incompetent in the primary activity – working out how much credit to provide businesses in the economy. Do you think there is one banker out there who understands financing manufacturing, or logistics or heavy industry any more?

      Sure I can get two dozen bankers who can structure me a mezz for financing a dodgy tower in the Gold Coast for stupid Chinese investors, but does anyone actually know how to finance a fab, or cutting edge pharma production line. lols. There is not one apex technology our banks (what happened to your $100b valuation CBA?) have exposure to firms in, and there is a very good reason for that. All they know how to do is securitize dodgy stuff and sell it to grannies by lying a lot. Past performance is not an indicator of future … indeed.

      Did they do anything for the economy? bahahahaha… They created structural flaws by overpricing structural advantages (in Oz, land, gas etc) and making the population pay for it. The RBA is directly responsible for the banana republic Australia has become. And I can assure you, the citizenry will work it out in short order when the bread and circuses stop.

      So why did they do it? Because it was nice to be popular. They liked the attention, and the bought and paid for media was oh so obliging. Rich people were nice to them, and that feels nice, doesn’t it. Fancy sales guys took them out to fancy dinners, and sell side conferences extolled their virtues. Its nice to feel important after all.

      They did it all for pats on the head, like an obedient spaniel. I hope it was it worth it, you gormless worms…

    • I put most of the blame on the RBA (not on immigration, NG or anything else). The last interest rate lowering cycle in approx 2014-2015 they kept lowering rates stoking house prices and arguably the economy was doing much better than it is now. Yet now they won’t lower rates holding on to a forecast that common sense dictates won’t happen. Now the most if not all the leading statistics are telling us that everything is about to blow up they are doing nothing. To be honest I’m not sure what they are thinking.

  4. Well, I agree on focus on underemployment – as the unemployment rate has been gamed to death by the authorities so that people end up working part time or dropping out of The labour force rather than be unemployed.

    But as the RBNZ has showed, you can introduce a clear ‘maximum employment’ objective and the Central Bank doesn’t change its spots. It keeps talking rubbish about being at maximum employment. If that’s so Mr Orr, then why are wages ex-minimum wage hikes, so low and not rising…???

  5. delusionalinvesting

    Whilst we’re pointing fingers at the RBA, are we not also in this mess because “house prices” (ie, land prices) are not part of the CPI?

    • yes, the cost of living is not in the CPI, and the out of work are not counted in the unemployment rate.

  6. Dazza197MEMBER

    the panglossian optimism of the RBA over a decade can mean one of two things
    either structural problems with their forecasting methodology,
    or their forecasts are finessed for more political than economic reasons, and their “independance” is broken

    my moneys on 2

  7. A far better idea is to force the RBA to pay attention to underemployment in its charter.

    Agreed, central banks the world over have failed to adjust their systems that have been skewed by the gig economy.

  8. It’s all RBA confidence fairy stuff…they are just trying to keep people from panicking…I think they know better than they are actually saying, hence, Propoganda.

  9. Jumping jack flash

    Come on, a couple of rate cuts is all they’ve got left in the magazine, and when they finally loose those rounds, they’ll backfire.

    Better to wave the gun around and talk it up. The only interest rate the RBA controls is going to have hardly any effect on the everyday experiences and disposable incomes of Australia’s population of debt slaves. Their masters are their retail banks, not the RBA.

    The RBA know this, but they need to find credible excuses not to cut as the economy is squashed by debt.

    the solution to the problem is out of their hands. The problem is the debt, and more specifically the massive interest bill on the trillions of debt dollars attached to property – this is nonproductive debt that only looks productive as more debt is added.

    the problem with nonproductive debt is that it doesn’t repay itself so (all things being equal and the principal of the debt remains in the domestic economy) the interest needs to be found from somewhere else. From something that does generate money.

    A house doesn’t inherently generate goods or services that can be exchanged for money, in almost all cases.
    Not many people in suburbia have gardens and grow food to sell – the water is too expensive. Solar feed-in is probably the best that most do to generate money from their house, but does this cover the interest of the debt? Maybe. Maybe not.

    A house usually only “generates” money when some other sucker finds an even larger pile of debt to attach to it.
    If there’s no larger pile of debt, there’s no “generation” but the original debt remains and it and its interest must be repaid.

    • It’s weird that people think expensive houses is a good thing. Every dollar of interest paid to our oversized leech banks is a dollar that doesn’t get spent in the real economy. When will people wake up to the fact that we have basically turned our economy into a great big parasitic bank that sucks the life out of every other industry? Yet everyone cheers this on?

  10. It dumbfounds me that our employment rate is calculated by phoning a few people up every month. The ATO knows exactly how many people pay tax every month. Use that data. Anyone earning under 15K a year can basically be counted as unemployed. Using phone polls is utterly ridiculous when the ATO has this data at it’s fingertips.