Grenville smashes Joye

Via monetary curdudgeon Stephen Grenville:

Australian proponents of QE have noted that bond-purchases might not have much impact here, as long-end borrowing is mainly confined to the public sector.

Never despair, they say: the RBA should buy shorter-term bank debt and mortgage-backed securities (MBS), or make loans to banks earmarked for on-lending, especially for housing…This is a market that doesn’t need stimulation. And Australia is already among the highest in global rankings of household debt and house unaffordability.

…The essence of deregulation was that financial markets should be allowed to find their own equilibrium, deciding interest rates along the yield curve and allocating credit without either direction or help from the authorities.

In other words, shut up Chris Joye. Amen to that.

That said, Grenville is a little behind the times vis the equilibrium of private markets. That was based on the efficient market hypothesis, a joke of a notion today.

We need QE but it should be targeted at long bonds here and abroad to sink the Australian dollar.

That, and productivity reform, are the only ways out of Australia’s burgeoning secular stagnation.

David Llewellyn-Smith
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