Recessionberg could take down the Government

The rictus Treasurer is copping a lot of flack, via The Australian:

Former Reserve Bank governor Ian Macfarlane has warned that the central bank has reached the limits of its ability to boost the economy through interest rate cuts and further reductions will have “very little power to do anything useful’’.

After the RBA cut official interest rates to a record 0.75 per cent this week, Mr Macfarlane said central banks were facing the “most perplexing and difficult ­period for monetary policy ever’’.

“Too much faith is being placed in the expectation that monetary policy can do things that it can’t do,” Mr Macfarlane said in an interview.

“It’s done everything it can do. Once interest rates are negligible, further cuts would seem to have very little power to do anything useful — although there are some theoreticians in the Reserve Bank and in some other places who have more faith in a purely ­monetary theory of inflation than I have.”

Clearly the RBA’s own consternation with the Government has grown so far that it is unleashing its grey beards. More from Adam Creighton:

“In a way it’s a last desperate gamble … more of the same. And they just hope that it might work,” says William White, former chief ­econ­omist at the Bank for International Settlements in Switzerland and deputy governor of the Bank of Canada.

“We’ve been in a currency war for about a decade,” he says, talking about central banks’ tit for tat cuts in interest rates that have finally pushed the Reserve Bank of Australia over the edge.

“All the central banks want to give the message that they are masters of their own destiny but the honest truth is everyone knows if they step out of the track established by the Fed (US Federal Reserve) and the ECB (European Central Bank), the currency will blow up in their face,” White says, recalling his own difficulty in the 80s trying to lower Canadian ­interest rates.

Exactly. The RBA has no choice. Which is why it is strange that nobody puts any pressure on APRA given it, and not the RBA, is now the crucial monetary lever that will determine where any low interest rate fallout will flow to.

But back to fiscal, which is also clearly to blame. The L-plate Treasurer, Josh Recessionberg, is deliberately holding back spending to force rate cuts for his mad plan to reflate house prices. He declared as much openly last week. Adding salt to this wound, he has also horribly misfired the minor stimulus he did deliver into tax cuts instead of direct spending with a total fail the result, via UBS:

Our deep dive showed if households spent ~½ the tax & rate cuts on retail then growth would lift to ~5% y/y; & another ¼% on non-retail would lift real consumption above 2% y/y in 2H-19. But critically, there has been no material pick-up of Q3 consumer data (so far), after Q2 dropped to the weakest since the GFC. Q3 car sales fell ~1%+ q/q.

Nominal retail values – even assuming an optimistic ¾% m/m lift in Sep – are tracking up only ~¾% q/q, which after higher retail prices (due to drought & AUD depreciation), implies retail volumes up less than ½% q/q; & real consumption under ½%. This is far below our 0.7% forecast (behind our ¾% GDP forecast); & also below the RBA’s implied consumption forecast of ~½% q/q & more bullish GDP view.

The net result is an economy operating at stall speed with climbing unemployment. That is going to get in the way of any house price recovery before long.

Moreover, given where we are in the global business cycle, with an external shock a very obvious possibility in the near future, Recessionberg’s mismanagement represents a clear and present danger to the mythical 29 year recession-free bull run. He’s already plunged the place into per capita recession.

He therefore also represents a clear and presented danger to the Government.

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)


      • ErmingtonPlumbingMEMBER

        Yes 900 Aussie dollar cheques for all of the world’s 7.7 billion people!

        That’s only $6,930,000,000,000.

        Those checks of course would have to be deposited into an Australian bank account

    • Why should foreigners be excluded Jakey? That would be discriminatory, after all.

      Ctrl P. Job done. It’s not like it’s real money. QE, MMT etc.

      Just print it and send it. We’ll all be rich and the economy will be rocking again 😉

      • MMT is only a description of the accounting realities, politics and ideology administering it is a different observation.

        Real money …. sigh …

    • proofreadersMEMBER

      You have nailed it. After the election, ScoMo effectively told the bureaucrats what they were there for – implement government policy etc etc.

    • ++++++

      The visit to Lowe on day 1 with the invisible sledgehammer said it all. Meddling, interfering, bullying are all trademarks of these turkeys. Any wonder Kenneth Hayne looked like he swallowed a lemon five minutes before his presser with him?

  1. No disagreement on Frydenberg, every bit as destructive as Treasurers Hockey and Morrison, and then some. But I don’t quite agree that Lowe has “no choice” on rates. He could stop being a lapdog for once, earn his $1m for once.

    Will the Frydenberg Recession take them down? That too must remain in some doubt for now. Smirking Morrison is up against the lapdog of all lapdogs.

  2. Phil Lowe is an egghead who has never had a job outside the rba and doesnt it show

    He thinks that syd housing exploding in value has nothing to do with .75 rates but is about poor planning ffs

    Do yourself and us s favour phil and go far away and do the honourable thing and resign

    • I note with interest that there has been an open revolt by former European Central bankers to Draghi’s insane policies. Letter to the FT etc.

      Tards like Draghi are playing with fire but, like religious zealots, they remain convinced of their powers and the sanctity of their ‘models’.

      One day, when the global economy is a smoldering ruin, ‘the people’ will come for these clowns.

      • Draghi will trash the Euro and in turn the German banks to force Germany to bail out the bottom half of Europe whose Target 2 balances will be wiped clean in a debt jubilee and the Germans will suck it up – they have to. After all, a huge chunk of their GDP is exports within Europe.

      • proofreadersMEMBER

        Captain Phil, his mentor Captain Glenn and all the other central bankers – the angels of death for savers?

        • I dare any one of these c0cks to come out and tell it like it is:

          Savers are bailing out debtors — they are literally paying their hard earned wages over to debtors to keep the ship afloat. It is a situation so immoral it makes a room full of pedos and young boys look virtuous. But, as a central banker would no doubt say: collateral damage, what can you do.

    • It doesn’t matter, he’ll be replaced with another lap dog. Look at the PM, look at the composition of the Board of the RBA. You don’t comply in that role you get boned.

  3. proofreadersMEMBER

    “He therefore also represents a clear and presented danger to the Government.”

    Nah, he’ll be fine – as long as, every time he opens his mouth he trots out the mantra that everything is the fault of the Labor Party, global headwinds, the dog eating his homework etc. All the LNP pollies are doing it. They must have been programmed thus the day after the election. The great unwashed will lap it up.

    • ErmingtonPlumbingMEMBER

      Yes and the best tbe mainstream media can do is complain about how the ALP isn’t doing a better job of holding the LNP to account.

      May be if they were doing their fvcking jobs better it wouldn’t be such a hard job for labour to offer alternatives

  4. Jumping jack flash

    The solution is to stop the debt party and then properly and skillfully manage the 30-year hangover that the last 20 years of debt party caused, but nobody wants to even think about that possibility.

    Nobody in the current political and governmental sphere has the skills either. We’re all governed by lawyers and bankers.

    It’s more likely for a brewer or cigarette manufacturer to take responsibility for warning about the problems their products cause than a bank to admit the catastrophic dangers of their debt.

    • While admirable, your solution has zero chance of seeing the light of day. The debt party will continue until the venue has burnt to the ground with most patrons still inside. Our elected reps have know no other way.

      • And the reps aren’t evil. Nor even stupid.

        They have inherited a model that has worked well in delivering good headline results for 30 years.

        It would be lunacy to expect them to do anything except continue with the model, while fiddling at the edges with some levers.

        Seriously, how could you expect anything else???

        Who would be the guy that takes the responsibility for scrapping it and replacing it with something new and untested. Whoever that guy is, we have a whole system (Westminster) to prevent him from becoming the PM. it’s not happening. No real reform before crisis.

        • Jumping jack flash

          Wouldn’t need to scrap the game just the players. The bunch we have are not suited to the job.

          • No. You’re missing the point.

            Anyone in those jobs would do the same thing. Except for an outright social revolutionary. But we have a system that keeps those people out of power.

        • Yes, won’t somebody think of the children?!

          Youse all think that you’re so enlightened here. But you’re exactly the same as the politicians and public servants you would pillory.

          Last week someone said they hoped that the young tradie worrying about his job wasn’t a recent home buyer. And I said I hoped he was. And because of that I was a nasty piece of work and a cvnt.

          Well, enjoy your victimless non-solutions, you softc0cks.

          • The Traveling Wilbur


            Non-victimless Solutions Incorporated™, is now taken. I expect some problems registering* in the German-speaking markets, but should be a winner everywhere else.

            *Will get Uber’s lawyers on to that, Always deliver that lot.

          • TailorTrashMEMBER

            That was me peachy …….he was an innocent Strayan kid lacking in any understanding of the currents he was swimming in …….so yes I hoped he had not been sucked in like many of his “stolen generation “ …..( to borrow a phrase ) ……..
            but on the other hand his boss ….a top dog tradie …..owns a pile of houses he told me …( and geared to the eyeballs one suspects ) ……yes …..let him burn ………..the thing was dog tradie was not even a baby boomer ……..but the son of one ……..this cancer runs deep in Straya …..

  5. Ideological madness in all of its glory.

    “.. Central banks have been using easy money for such a long period of time, they can hardly now say, ‘Oops we made a mistake’, and the unintended consequences are doing more harm than lower rates are doing good,” White says….”

    Who is they?

    Central Banks? Well as they are merely public servants performing a role in a legal framework it is probably a bit much to expect them to enter the political debate about the dysfunction of that role. Turkeys might vote for Christmas but they don’t vote for the spotlights to be turned off.

    But what is the excuse for the political class and most of the commentariat remain silent?

    It is their job to criticise the broken and dysfunctional model and call for reform and they are shrugging their shoulders as much as the public servants.

    Ideological blinkers bigger than ones on the Carlton Clydesdales!

    All we ever hear is how there are NO alternatives because a public / private monetary monopoly cartel is policy perfection and all solutions must preserve the sacred splendour of that policy choice.

    All hail the theory of international free capital flow even as it is ignored.

    All hail the theory of monetary policy perfect even as economies grow asset price tumours and drift into comas.

    Exchange rates floats must be dirtied. William White acknowledged that Central Banks have been trying to manipulate them with competitive interest rates so should be clear by now that pretending that ANY currency ever freely floats is just a LIE. They are ALL dirty. It is time to start admitting that and talking about capital flow regulation to reduce unproductive, manipulative and predatory capital flows between countries.

    Helicopter drops by the RBA? Before we starting coming up with dumb ideas about giving unelected public servants even more political power why not do something simple and completely legal albeit a bit unconventional.

    Have the RBA buy a small number of 0% bonds issued by the AOFM to allow the government to conduct an experiment in zero interest bearing fiscal policy. Call it what it is. A democratic issuance of new public money to citizens of Australia.

    A larger Central Bank balance sheet representing more money in the control of little people is what we need. Democracy in money would be a nice change.

    Preferably it would be distributed via new individual public accounts for each citizen at the RBA.

    Whenever you hear people claim that it would better if the politicians spend a fiscal “experiment” on worthy ‘projects’ what they mean is that they don’t think little people should be allowed to make decisions on whether to spend, save or invest. But if giving little people new public money is too frightening some political project pork will have to do. The very last thing we should do is allow the RBA any role in distributing money directly to the public.

    • Yes to all this. But not now.

      After the calamity, I reckon that there is a 5%-7% chance of reforms along these lines happening.

      Before the calamity – 0%

      • Jumping jack flash

        Certainly, the solution to the great depression was the last one they tried, but what a solution it turned out to be!

      • Peachy,

        The only reason it is not already happening in Australia is the self interested groupthink of the upper middle classes who infest mainstream western politics on both sides. Left and right apparatchiks hate the idea that more economic power might be handed to those at the bottom. Trickle down is favoured by left and right. The net result is both sides for different reasons continue to support the current model.

        But there is a threat to that status quo and we are seeing it right now. Other countries are not as lucky as Australia and are much more desperate to resolve the impass. They are the ones who have been desperately manipulating their exchange rates since the GFC or the ones suffering the manipulations of others.

        The biggest one is China who, as our newly minted public enemy number 1, now has no interest in playing along with the western monetary model.

        China has a lot of options when it comes to rattling our cage.

        There is a possibility that external pressure will give our self satisfied political class no alternative but reform.

        • Well, what you’re really saying, is that if China sh!ts itself or just decides to take a sh!t on us directly – the we will be in trouble, together with our “model”.

          Well, yes. But I call that a “calamity”. so I guess we agree, although we use different nomenclature. I like that.

          • The other ones to watch are the non Eurozone Europeans and countries that are keen for alternatives to US monetary hegemony.

            Brexit should also prove to be an even better cage rattler when it actually happens. The last thing the EU needs is an independent major Anglo economy right next door trying to jailbreak its inmates.

    • What the heck? I’ve been saying the RBA has been targeting the exchange rate for years and you always denied it. Now you admit it.

      • Sweeper,

        For years you have certainly struggled with the difference between targeting the exchange rate and monetary policy having consequences for the exchange rate. You have never been able to point to ANY evidence that the RBA has been targeting the exchange rate as against supporting demand, providing stimulation etc with lower rates which ALSO, everything else being equal, puts downward pressure on the exchange rate.

        Even now with the RBA closing in on ZIRP the RBA do not state they are targeting the exchange rate. If the RBA were targeting the exchange rate they would say that so as to get some jawbone assistance. Who would bet against a depreciation minded Central Bank.

        As for foreign Central Banks and their early resort to ZIRP and NIRP, QE and mercantalism I think a much stronger case of deliberation manipulation of exchange rates can be made but even there there are no confessions.

        The key point is that capital flows should be reregulated to restrict clearly unproductive and speculative flows and on that I think we are agreed.

      • “for years you have certainly struggled with the difference between targeting the exchange rate and monetary policy having consequences for the exchange rate”

        No actually I haven’t. You have just taken a few years to cotton on.
        The RBA’s operates monetary policy as follows:
        1. Instrument – short term interest rate
        2. Intermediate target (transmission mechanism) – TWI or yield curve differential (which they forecast and monitor closely)
        3. final target – consumer price inflation (this is for public consumption as it’s easy to understand) – in reality their final target is nominal GDP growth. Check the data if you don’t believe me nominal GDP growth has been more stable than CPI inflation and has clearly been targeted as the final objective at between roughly 5-7% since inflation targeting commenced in the early 90s..

        How do they do it? By managing the differential in the yield curve to keep the TWI at a level which holds up export prices in aussie dollars maintaining stable demand for Australian produced goods and services -in order to hit nominal GDP growth between roughly 5-7%..

        Now you know.
        And all this time you’ve been banging on about credit. which has zero effect on demand.

  6. The Traveling Wilbur

    with climbing unemployment. That is going to get in the way of any house price recovery before long.

    Ummmm…. to the average observer it would appear that the unemployment rate is the ONE thing that seems to have had absolutely no effect on house prices in the last 15 years (at least). With foreign buyers on the way back(?) why would the UE rate matter now?

    • Unemployment, via redundancy seems to have the opposite effect! Cashed up, infinite time to spare for the hunt, worried about financial future, have a heartbeat therefore qualify for a loan ———–>>>>>>>>> buy property. At least for the last decade.

      • Yes. The recent closure of our auto assemblers was a massive shot in the arm for the property game.


    Frightenberg’s conviction that another 29 years of ‘you beauty’ eco expansion is inversely proportional to the scary developments all around.

    • Jumping jack flash

      It will require an additional 7 trillion debt dollars.
      They may indeed get it.

      If the banks and “policy” is able to inject 7 trillion new debt dollars into the economy up to 2030, then we’ll have another 1996-2008 boom.

      All other things being equal.

      Everyone will need to do their part, though, throw caution to the wind, borrow up as much as possible, and pass it all up the pyramid.

    • That’s an a pretty clickbaity description jimbo.

      But you’re a fellow feral, so I’ll follow.

      • Western Suburbs born and bred. You have to admit Peach, if he’s saying this crap publicly, we’ve gone beyond shameless now.

    • I was aghast when he said it, but like Peachy, I should just be more cynical, then nothing is a surprise anymore.