RBA and APRA protection racket epicentre of Australian decline

Via the AFR comes a second sane dude today:

The Reserve Bank’s recasting of the narrative on quantitative easing is part of a pattern of backflipping on policy statements, says bond fund manager Charlie Jamieson, that he and the market agree will lead to a rate cut on Melbourne Cup day.

“The RBA are a tremendously reactionary central bank. And if you follow the commentary over the years, they couldn’t have done a worse job at predicting what might occur,” the Jamieson Coote Bonds chief investment officer said on Thursday.

“It wasn’t so long ago they were telling us the neutral rate of interest rates in Australia was 3 per cent,” Mr Jamieson said, adding that the central bank “seems to be in a parallel universe when you look around the globe”.

The Reserve Bank kept the cash rate at 1.5 per cent for three years and telegraphed to the markets that it would not move below that level, “and then here we are”.

“They told us they didn’t want to do quantitative easing. We have an active quantitative easing program. They’re telling us they don’t want to do negative rates. But you wouldn’t bet against it, would you, looking at their history?”

Yep. The RBA is a major national interest health hazard. Hopelessly lost intellectually leading to total embarrassment in forecasting; structurally divided from APRA and macroprudential tools; unable to innovate; far behind all other countries, and costing us dearly in the tradeables sector as the bank endlessly defends its adored property bubble.

The problem is, the bank itself has become an economic rent-seeker with enormous salaries that it seeks to protect with allies in the media that constantly let it off the hook. To wit, Ian MacFarlane today:

With a budget deficit forecast to hit 11 per cent of GDP this year, fiscal policy has become comparably as stretched as the Reserve Bank’s monetary policy. Surprisingly, the central bank this week flagged “additional monetary easing” to support job growth as COVID-19 restrictions are relaxed.

…Please say it isn’t so. Former Reserve Bank governor Ian Macfarlane says that both ultra-cheap money and the central bank’s foray into quantitative easing “haven’t done any good” and, to the contrary, will actually have “very big costs”. Monetary policy has “used up all its power and there isn’t any more room,” he says. The Australian Financial Review agrees.

Yet, as Mr Macfarlane argues, slicing a further fraction of a per cent off what are already the lowest interest rates in history surely won’t do much – if anything at all – to juice up the economy. There is no lack of cheap money that would prevent the economy from recovering as the health restrictions are eased.

Amid the resulting large increase in the size of the central bank’s balance sheet, Dr Lowe at least has all but ruled out European-style negative interest rates.

…And, has history has shown, trying to hold down the exchange rate through cheap money tends to spill over into asset price inflation that ends up undermining the jobs recovery that the central bank is supposed to encourage.

So, let’s do nothing then. Let a shockingly deflationary budget focussed far too much on the supply-side trash households and push the currency higher to boot, annihilating inflation, shake out balance sheets and thrust us into another economic lost decade. I mean, seriously Ian, that’s garbage.

What needs to happen is this:

  • Phil Lowe should be sacked.
  • The RBA and APRA should be slammed back together and a modern central banker imposed to burn the deadwood.
  • Then you can go deeply negative on interest rates while you tighten macroprudential policy through widening the APRA lending buffer.
  • That will smash the currency to smithereens and prevent any credit blowout.
  • That reboots the tradable sector in an almighty hurry (notwithstanding the China decoupling), allows the ponzi-economy to deflate at a manageable pace, and delivers huge budget repair.

This should have been done ten years ago. We’ve already had one lost decade of economic activity despite ever-increasing public and private debt because it wasn’t.  It has also damn near destroyed our politics as PMs fell one after another owing to missed expectations for living standards.

Now we face an even worse decade ahead as immigration collapses, oversupply in the ponzi-economy implodes, China goes ex-growth and commodity price dive plus we seek to decouple all non-commodity China links.

Do we really want another even worse lost decade just to protect a few wankers in Martin Place?

David Llewellyn-Smith

Comments

  1. Pity the poor self-funded retirees living on their interest income if rates are ‘smashed to smithereens’.

    • Savers have been abandoned in favour of higher asset prices. TLS returns 6%, Latrobe 4.5 on Annual deposit. Savers are compelled to take more risk if they wish to eat. It is a transfer of wealth from the poor to the rich. It is very common amongst the crowd who run things. I saw them when I was in Geneva. They often are bankers and love trading schemes where they can ticket clip.

      • Stewie GriffinMEMBER

        It is the crime against honest sound money that is the issue, not its particular impact against any one group of individuals.

        Sound money is neutral, it rewards correct risk taking behavior and punishes the flagrant and careless. No one deserves to have interest or a rate of return, they only deserve to have a market where the rate of return is set freely and openly by the interaction of market forces and the cost of sound money.

        Self-funded retirees certainly aren’t getting a free and fair market when it is set by leviathan central banks, but that is the extent of my sympathy towards them, which btw is universal and does not favor one social identity, such as the aged, over any another that is impacted by policies of unsound money.

        Edit: Opps meant in reply to TBW, but you’re right too.

        • How can you have a central bank that has as its KPI the debasement of the currency at 2% per year? One is forced to invest when that is the default position .Not a bad thing if you already own the asset. Money is not sound, but then again, neither are the markets. They are usually rigged to boost the value of the currency via derivatives. Sound money isn’t neutral when it brings to an end these shenanigans. I just wonder how long this rubbish will be accepted by the sheep.

    • Self-funded retirees will be fine. They can plant some oxymoron seeds and eat the fruit.

      I’m off to fill up the petrol tank in my self-powered car.

  2. I wonder if it’s more important that the Board is spilled rather than dumping Phil The Dill ?

  3. happy valleyMEMBER

    Our technically insolvent and corrupt banks have now been risk priced by the RBA as if they are the safest banks in the world, but with a figleaf worthless government guarantee.
    Even DL-S can’t see that.

  4. call me ArtieMEMBER

    As well as using APRA to suppress asset inflation, I think you need to add to the list a “ring of steel” preventing overseas purchases of Australian assets of all kinds. Without that, a very low AUD will just result in even more of the country being bought up by OS interests

    • This – many, many times.

      All those who play in AUD get stuffed while those who play in USD, GBP or RMB make out like bandits. Crap idea unless we deal with all the other issues at the same time. If anything, we need to make Australia less attractive and more expensive while there is an “open door” policy to all foreign investment.

  5. ““It wasn’t so long ago they were telling us the neutral rate of interest rates in Australia was 3 per cent,” Mr Jamieson said, adding that the central bank “seems to be in a parallel universe when you look around the globe””

    Yeah…you can’t talk about problems and deflation, as that will spook people from loading up on property, Australia’s golden goose.

    The RBA, like whoever is the Federal government at the time, are just apologists and sales-people, for Australia property and protectors of the Australian Property Bubble – for me, this explains basically everything in fiscal and monetary policy over the last 20 years.