Martin Place is standing in full view with its pants down

John Kehoe is close to the RBA and writes just now:

The Reserve Bank of Australia may be forced into an emergency monetary policy easing after central banks in the United States and New Zealand slashed interest rates to almost zero overnight.

…The RBA may soon resort to an unscheduled rate cut and unconventional stimulus measures according to market economists and investors.

That does not sound like it is based upon any inside information. Hopefully it is right.

It must have known about the Fed’s co-ordinated action. And if it didn’t why didn’t it? The RBNZ obviously did.

Martin Place is standing in full view with its pants down.

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


  1. happy valleyMEMBER

    “Martin Place is standing in full view with its pants down.”

    They’ve been giving it up the to savers for years, so it’s a belated welcome to savers to be able to give them one in return.

  2. GunnamattaMEMBER

    Posted on saturday but fits here even better now the RBA has been given another couple of morning reamings….

    Just think about the Australian economy at the moment……

    The RBA should have gone weeks ago but have been frozen in the spotlight. They knew the consumer had stalled back in October, they knew the bushfires had crashed the summer spend, they knew retailers were dropping like flies. The dropped 25bps a few weeks ago, the AUD rose, market pissed themselves laughing, and the following day they were bent over by the US Fed and given a reaming. What they’ve been concerned about is blowing their last two remaining rate cuts before going ‘unconventional’ trying to get a batch of ideologues to start spending from government, and holding off on cut for fear a bond ‘event’ such as we have seen this week drops a grenade down the pants of Australia’s banks.

    The currency has lost more than 10% in less than 10 weeks – I think it will likely go below 0.50 US. I think (I know this is tin foil hat stuff) that Australia will lose a big four bank in the coming economic shakeout – maybe not straight away, but down the track. The Mortgage insurers will go first, the credit markets will dry right up to Australian banks (which have borrowed short to lend long – for mortgages – 2/3 of their loan books – for a generation) and they will be in a position of either having to jack up rates on their mortgages, or wearing a hit to their balance sheets – they will have issues, and my guess is they will see an inordinately large spike in Non Performing Loans in the coming months). The RBA can backstop them to a large extent, but not entirely. I suspect the days of people building up property ‘portfolios’ while leveraged to the gills will end amidst the possibility of a housing market implosion and the need to ensure that someone or something holds properties which cant be serviced – I think a big four bank may get the role of holding lots of toxic assets which are real estate assets nobody wants, and the loans attributed to them. There will be a load of commercial real estate to go with that, and – sorry to add to the gloom – I suspect a lot of small businesses will take the amortization schedule/business ‘investment’ giveaways Frydenburg came out with, buy a new home computer or car for their ‘business’, close due to the virus, initially for a couple of weeks, and then simply send an email at some point down the track to announce closure, or simply never open the doors again.

    I reckon that in turn will see a load of underpaid/unpaid circumstances float to the surface.

    It isnt just the Australian credit market which is being strangled – and has been in recent weeks, which the RBA should have started seeing and acting on a month or so back. It is Australia, which is being strangled.

    The RBA will soon become the lender of last resort for an outfit which finances sweet FA except real estate speculation and tax avoidance.

    Our entire economic substance is underpinned by

    Iron ore – the world largest consumer has a years supply sitting on docks, the worlds consumer is shuttering, we as the major beneficiary of a major supply disruption in Brazil are about to see Brazil return and Africa start to enter the global market.
    coal – the world is getting out of this, and the costs of using it (in a global warming sense) are about to sheeted home to users and producers alike
    gas – the global market was already swamped and with Australian producers at the higher end of the cost curve we already have buyers looking at force majeure. The global energy market is now seeing the Russians and the Sauds floor the crude market, crashing the price pf crude and gas.
    foreign students – These have been used to garnish demand for Australian residence for 15-20 years, which has had the effect of inflating Australian education costs and subordinating product quality to volume maintenance needs, and have unwittingly become a significant conduit for the coronavirus to enter Australia – shamefully funded by the Universities themselves and encouraged by the Australian body politic. Despite this their numbers have crashed, Universities are already paring back course offerings, presumably to start telling loads of temporarily employed academics and teaching staff, to stay home.
    tourists – another key conduit for bringing the virus to Australia, with a special mention for the Victorian State government and its carpetbagging approach to risk management all the way through January and February vis the Formula 1 Grand Prix, the sector now faces major global pandemic exclusions and shutdowns. Motels, Hotels, Tour Companies and Restaurants around Australia will currently be laying off their mainly casual workforces.

    All the rest of us – the highest paid politicians in the world, the highest paid public service senior executives in the world, the doctors, the teachers, the lawyers the tradies and the lollipop ladies, not to mention barpersons, guitar players, and baristas – are all living one way or another off the above.

    And the RBA (with monetary policy) and the government (with fiscal policy) are the core of how that is achieved, and who achieves it the mostest. And their problem is that those who have been living the mostest – those favoured by the RBA and the government with their settings – have been the ones preventing the economy from diversifying efficiently into an economy which has some form of resilience to economic shocks of the type we are now in.

    The RBA should – as HnH has previously indicated, been acting ages ago. Even if they go on Sunday night for Monday, there would have to be the risk they will be reamed by any other central bank acting faster or more aggressively (so that would be the ECB, the BoJ and the Fed for starters)

    The chickens of a generations worth of neo Liberal ideology – global exposure where we give up the fixed capital investment end of the equation to replace it with ‘services’ and the casual low wage jobs these embed and soaking the consumer in debt for housing, combined with the financialisation of education, health and telecoms/utilities, against a backdrop of increasingly precarious employment circumstance for those people – is coming home to roost.

    The RBA has been core to that agenda for more than a generation, they will for sure go down with the ship, and they will be slow about it every time they act – because they need to check with vested interest serving, ideologically driven politicos, and cater to global 1% controlled global capital interests every time they act. It is time for Australia to go right back to some sound economic fundamentals and monetary policy settings which have the national economic interest at their core.

    It is time for economic revolution. By all means laugh now, but with what Australia will see in coming months I reckon it will be a mounting call for some time to come.

    • GunnamattaMEMBER

      The way I see it is like this

      Australian banking is running an unreconstructed post 2008 shell game. They have borrowed short and lent long. They have lent long for mortgages. The mortgages are (as the Banking RC demonstrated) often given out on flimsy evidence/job security, and often on a very high multiple of the claimed earned income.

      By any global comparison Australian real estate is humongously expensive
      By any global comparison Australian employees are humungously expensive

      The employees have been shielded from the effect of their globally uncompetitive position by the government redistributions from the tax take of the above (mining/tourism/students) and deliberate government policy. In addition to redistribute tax take the government has deliberately (over more than 15 years or so) inflated house prices to get the wealth effect happening (to support aggregate demand) and run the population ponzi (to support house prices mainly, and also add to aggregate demand).

      At the same time the banks – shielded from the meltdown in 2008 by the deposit guarantee and RBA and US Fed ‘window’ interventions – have continued to pump money into Australian mortgages, making Australian housing the most eye glazingly expensive on the planet. For the whole time they have been able to say (if asked) to the people they are borrowing the money from (the bond issuance) ‘safe as houses, lifetime income streams, bricks and mortar, blah blah blah’ – as long as they were getting their money back, the global investors didnt really care.

      That game is now over. The RBA can cut rates and even send some house prices stratospheric again, but it doesnt get much aggregate demand traction – the coronavirus, the energy shock/our LNG ineptitude, China and the worlds lessened need for steel means there is less revenues to redistribute by the government, and the export of our manufacturing means there is precious little fixed capital investment to take advantage of better competitiveness when the AUD does finally sink beneath the waves.

      More importantly every time the RBA cuts rates, they cut the risk premia that global investors (of whom 85% are 1% of the population) see in Australia in relation to that seen elsewhere. Every rate cut means those global investor look a touch more closely at what their lending to Australia is actually all about.

      Anyone lending money to Australian banks in 2020 is seeing straightened employees with stagnant incomes, in largely casualised/temporary employment situations, as being the ‘income stream’ enabling the banks to make payments on the bond issuance they have out there. They are seeing risk, and they are charging more for that.

      Right at the moment the moves in the bond markets over the last week, smell to me of something not far from funds repatriation. Sure I get that in the first instance the RBA provides liquidity, but if a general economic downturn leading to recession (now baked in – and something Australians havent seen in nearly thirty years) means that Australian banks had ongoing funding issues then the question arises of at what point the RBA or government says

      ‘the system integrity and public & investor confidence in that system is best served by a Japan style ‘zombie bank’ system – largely held in place by JGBs – to last a generation or two of economic stagnation’


      ‘the system integrity and public & investor confidence in that system is best served by a US/UK style ‘crash and burn and create a ‘bad bank’ approach – which can be largely funded and engineered in the short term by the central bank – to enable the banking system to get back on an even keel’

      and try to work through which response entails less risk/cost to the sovereign rating, and long term Commonwealth budgetary position.

      I dont think Australia has the wherewithal of Japan to keep a zombie bank system in play for long at all. My guess is that what would happen – similar to UK and US in 2008 is that all the really bad mortgages would be slapped into one entity, the government may fund/run/oversee the winding down of that entity (to prevent a flood of toxic real estate sales from stinking up the market). At that point the rest of the banks get told to move along and be a bit careful from there on in.

      In Australia we havent seen anything particularly savvy out of banking in yonks, apart from cutting edge senior executive psychopathy and remuneration. We havent seen anything particularly intelligent out of the RBA or monetary policy world in yonks either. And we have a body politic which has us with an elected leader incapable of not patting on the back or taking the other hand of a firefighter who has told him he doesnt want to shake his hand.

      In 2008 nobody in their right mind thought New Century Financial or Bear Stearns or Morgan Stanley was at the slightest risk, and nobody thought Bank of Scotland or Northern Rock or Fannie May, Freddy Mac or ABN AMRO or Anglo-Irish or Lloyds TSB were going under either.

      I was a business journalist back then and recall thinking myself it was all a touch overblown initially, then one day a few banking mates and I went on a bender in a holiday house in Russia, and I got it through my thick head – what often appeared to be a venerable wall of stability was often a house of cards.

      • The Traveling Wilbur

        Epic portrayal of past meets future vis stupid just doesn’t learn.
        Plus it’s a virus. And viruses don’t read press releases.

        Thank you.
        (PS you can steal that one if you like)

  3. So you blow your wad now, then what? Dont expect to get any tissues in this country for the cleanup.

  4. Fed cuts to zero, $700 billion in new QE and relaxed reserve ratio requirements….. futures open -4%. They better hope the markets don’t close red tomorrow. We haven’t even had the mass shutdown stage of corona in the US yet. Nor the follow through of bad data from recession.

    If markets close red tomorrow, guaranteed market closures. Let’s hope they haven’t just unloaded their whole mag before the target was even in range. Keep an eye on FRA-OIS

  5. what’s really funny is that central banks and governments around the world are trying to stimulate economy with cheap money basically pretending that the cause of the economic trouble is lack of money not physical limitations on economic activity

    How would giving even $100bn of cheap credit dollars to a airline help the airline to lift its activity, revenue, employment, ..

    What economists are not getting is that this is neither demand nor supply side issue, this is physical inability to conduct the economic activity
    whatever they are trying now with cheap money will not help now and it will make things worse later

    What governments need to do is create moratorium on all debt (suspend repayments and freeze principals and interest), close stock-markets, declare universal basic income, take over or put under control companies that ensure basic supply of food etc are available to everyone … until this is over

    Basically freeze everything, provide basic services to people and when all over just continue like it was a lunch break on Tokyo Stock exchange

    • Elites (and the voters who enable them) have been putting all our eggs in one basket for too long and creating a single point of failure.

      It makes sense to have backups and redundancy built in to a system.

      Our entire food supply system depends on money. We need money to buy our food, money to buy fuel to drive to the supermarket, etc. If the banking system fails we starve.

      Instead one idea is to have an alternative that works apart from money. For example if 20% of our bread, milk and eggs were done without money.
      Imagine if a govt truck delivered 20% of them direct to us. The driver was a govt employee provided with a govt truck and a govt house. He does not need money to keep doing his job.
      The fuel for his truck comes from a govt oil well, or a govt gas well, or a govt solar battery or whatever. If the banking system fails, this truck still goes.

      Neoliberals would scream with rage that my suggestion is not efficient. Its not supposed to be efficient. It is supposed to be resilient. It is supposed to be a valuable backup that can help avoid a panic in a crisis.

      • boom is smart heading north. Mangos, bananas, avos, nuts.

        We have our pecans covered.
        20kg of frozen Bowen flesh in deep freeze
        Avos covered
        Bananas same
        Citrus same
        Paddocks -10ac – super lush for cows, sheep

        Locals around us roadside stalls everywhere – honey, eggs, etc, friends who fish, dragonfruit, etcetcetc

        [Remind me again why we’re selling?!]