Find “the courage to act” immediately RBA

Ben Bernanke’s famous memoir of the GFC is aptly titled. When the western banking system was at the brink of disaster, Bernanke did what was necessary to prevent it.

This involved tearing up the rule book.  Meeting schedules were abandoned. Traditional principles set aside. Worries about everyday central bank indicators were dumped.

In their place was put a spirit of bold innovation and the commitment to do whatever it took to prevent the catastrophe.

At the end of the day, that’s what a central bank must do. It is the lender of last resort. And when the last resort comes it must find a way to lend. This will vary based upon the nature of each crisis. Hence the need for courage and willingness to step into the unknown.

That time is at hand for Australia.

Markets need as much support as is available. Otherwise the virus paralysis is going to make this equity and credit crash into a new great depression.

The Australian yield curve is buckling under the weight. The ultimate safe haven asset, soverign bonds, is beginning to sell into the disaster and the yield curve steepen when it should be flat as a pancake. This is lifting the risk free rate and feeding back into equity market selling.

This will also pressure bank funding costs all the more, when RMBS and term debt markets are already shut. Not to mention threaten corporate debt, the lifeblood of daily funding flows for the largest employers in the economy.

Such a circumstance must not be allowed to develop. The virus is still spreading and major blows to profits are ahead. Markets must be calm enough to absorb those losses over time or the virus will kill off the entire global economy with it.

The RBA must call an emergency meeting today. It must cut its last 25bps and announce its new yield control quantitative easing measures.

Find the courage to act fellas, this is your moment. The only real reason you are employed at all. Don’t look to the media or banks or parliament house or anywhere else for advice.

Only the RBA can bring calm to credit and equity markets when they dislocate and it must do so now.

David Llewellyn-Smith
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Comments

  1. Scotty was taking one for the team and showing us it’s ok to not shake hands, long before anyone else. Dude was way out in front.

  2. The silence from the RBA is mysteriously alarming. What is their tipping point to coming out with an announcement? Are they waiting for a bank to throw in the towel? Will it take something like Virgin tanking to tip the domino?

    • happy valleyMEMBER

      They’d be spending even more time in the toilets from now on, having seen overnight that the QE4 announcement from the Fed did nothing to prop up the markets and our RBA is the ultimate mini-me. Hope the RBA happy clappies have lots of TP.

      • Yep. All their ammo is out. The only thing that they could do is jawbone the government into a decent fiscal response. That should be secondary to jawboning them into the proper medical response.

      • You’re right Dom. For the Gov’t and RBA it would be like standing in front of a tidal wave asserting they can protect the country using a kitchen sponge.
        Just got to let it roll.
        Key as I see if is the willingness of financial creditors, mainly the Aussie banks, to act rationally as borrower breach covenants and even miss payments. The cashflow impact of nCoV-19 will be only a year or so and most/many productive assets and businesses will return to something like normal next year.
        Hopefully the banks don’t panic and start calling in debts. If that happens equity is gone and assets will re-price in the most horrible way.

        • The payments issue is huge though as, how long can each entity survive? Banks will likely extend credit to large businesses knowing that their survival prospects will put them in the pound seat when everything gets back on its feet, but the SMEs face an exceedingly uncertain future.

          And here’s the kicker: for mine, I don’t see people just picking themselves up and getting on with life they way it was before. It will be a slow process and the shock of it all will lead to a fundamental reassessment of priorities. I really don’t see a return to those manic debt-fuelled spending days – not for years, if ever.

          • Good points Dom. Big businesses will survive, small ones will be eviscerated.
            Banks won’t keep credit open (post non-payment) to say a Gloria Jeans franchisee with a home securing a business loan – esp. if no one’s coming to the cafe and house prices are softening / falling.

    • Lowering interest rates punishes people for saving, thus encouraging consumers and businesses to spend every penny they make. This may give the economy a short-term boost. But, it inhibits long-term economic growth by depleting the savings necessary for investments in businesses and jobs.
      This site has encouraged the RBA to continually reduce interest rates to the detriment of normal commerce.

    • Well there is a lag on the Corelogic index. So they are waiting on the all important data. I heard house prices are still rising, so how bad could it be out there?

    • Don’t really have the time right now for that, but here’s the vague list I’ve got in my head right now.
      * Antivirals – any and all have been used. HIV drugs, flu drugs, whatever. From what I understand, they all work similarly by messing with RNA copying.
      * Choloquine (spelling) – an ancient anti-malarial drug
      * Tocilizumab – an arthritis drug that reduces immune response to combat the cytokine storm some people get (cytokine storm = picture B52s over Laos carpetbombing the forest to get the Vietcong. Not so good for the forest (your lungs))

      • Myne, the spelling you are looking for is ‘quinine’. It is the juice of a citrus and found in tonic water. Gin is optional
        You are right though about its reputation for having anti-malarial properties

  3. Mining BoganMEMBER

    The Hungarian went there!!! Said a couple of weeks ago the impact of WuFlu was “unpredicted”.

    Expect to hear more of that. Lots more.

    • Ronin8317MEMBER

      Funny because that’s exactly what they said about house price crashing in the last GFC. There were many people who predicted it, but somehow the authorities still say it’s ‘unexpected’..

    • Looking at his features I suspect he suffers, at least partially, from the genetic disorder that causes Down syndrome. I imagine his parents had quite a scare when he popped out with those strange eyes. Unfortunately he was never diagnosed as such; he would have been able to do a lot less damage. 1 Million a year, not bad for a mongoloid.

  4. C.M.BurnsMEMBER

    Just because they can, doesn’t mean they should (h/t to Jurassic Park)

    Is the world really a better place now because Bernanke threw the whole book out the window and unleashed QE, removed mora hazard, gave the world NIRP and ZIRP etc ?

    • Bernanke is not a hero — he is a complete c0ck who will go down in history as the architect of the current fiasco that’s unfolding, because all he did was ‘kick the can’ down the road thus ensuring that the adjustment we’d be making was not from the 10 metre board but from a 25 metre board. I can deliver 20 quotes from this worthless grub that proves he’s an intellectual pygmy – or a colossal liar.

  5. “… At the end of the day, that’s what a central bank must do. It is the lender of last resort. …”

    I think you have been watching too many midday movies.

    The RBA does not “lend” in the sense you imply.

    The question is simple:

    1. What assets, if any, should it buy? Aus govt bonds, other govt bonds, RMBS, corporate bonds, old corollas, investment properties and shares held by coughing boomers ?

    2. From whom should it buy them? Banks, companies, individuals? Will they use the proceeds productively or just sit on the proceeds?

    3. How much should it pay for those assets? How much of a discount should it demand.

    4. In what circumstances would it resell those assets ?

    Unless you have clear answers for each there is little point in the exercise.

    The idea that the RBA should start lending money is bizarre.

    First they will need some loan approval officers.

  6. Ahahahahahah!!!!
    Those stuffy grey droids. Looking at dot plots and mathematical formulas and graphs to steer the financial system, have lost total control. They forgot about human emotions, like fear and greed.
    Of course this was the plan al along, for Central Banks to become ‘Lender and Buyer of Last Resort’.
    We are all owned by the banks now. You will have nothing! Your kids and their kids for generations will be paying back the debt.
    I wish you all good luck.

  7. What is the surprise here? RBA fired the air for way too long…waste all his bullets. When you really need it, you have nothing left…

  8. It should be:

    Unlimited medical support and funding.

    Bridging loans for business, but must be paid back in 2 years, plus interest, minus staff costs. If your business can’t survive with that, then it was badly managed and deserves to go down. If you take the loans you must retain all staff including casuals.

    Forget about GDP for Q2 and Q3. Probably the rest of 2020 actually.

    Once it’s all over, modest stimulus and compensation to return confidence, and repair anything that was unjustly overlooked in the maelstrom.

    It’s just like how they did tourism ads while the bushfires were still burning. Punters were like, “you’re kiddin’ aren’t ya!?!”.

  9. A fundie earlier in the week shared some details of his meeting with a senior exec from one of the big four banks where the banker described the bank’s intention to ration credit including to housing and to cull staff big time.
    The bank is expecting housing to take a belting, unemployment to rise and the bank to take advantage of the tough ‘times’ to dump some more staff – when in Rome and all that.
    Bcnich might yet be right.

    • I suspect (but will probably be proven wrong) we will see large swathes of good housing transfer to cashed up buyers/those with credit access….compounding the FHB /those early in ownership issue further

      • What banks will be facing is the uncertainty of the employment of borrower applicants.
        If banks are intending to retrench thousands of their own employees they know other businesses will be planning for the same.
        Further business and institutional bankers in these crisis times are meeting with clients and priming them to make cuts so the borrower can keep servicing their debts.
        At a resit level it makes the banks’ job of sorting out the wheat (borrowers that manage to keep their jobs) from the chaff (those that loose their jobs) very hard. In particular because the lending decision is taken ahead of the job loss/retention event.

  10. After hearing nothing for weeks, we will break through the penthouse boardroom door at Martin Place only to find a perpetual drinking bird and a self destructing tape message saying “So long and thanks for all the fish.”