Last week I offered a few suggestions to Australia’s league of failing economists in the hope that some might escape the mediocrity of debate that is holding the nation back. Paramount was that they should avoid the Australian Financial Review because, frankly, it has no idea what it is talking about when it comes to monetary policy.
The paper has been obsessed with resisting lower interest rates for years for three main reasons.
First, its “businessomics” ideology means national interest benefit always comes second to sectional interests.
Second, it is stuck in the 90s Pitchford thesis worldview in which neither private debt nor economic structure matter.
Third, it loves the banks, one of its largest advertisers and lower rates have not helped their worldbeating, greedy margins.
This combination leads the AFR into a parochial monetary dead-end so complete that it extinguishes the daylight of debate. After week’s epic fail, in which it goaded various numbskulls into declaring that the RBA was about to turn hawkish just hours before it turned the most dovish ever, we had the following on the weekend:
The Reserve Bank of Australia has effectively “green lit” risk-taking on property investment, and the biggest change in policy in 27 years has not only triggered a home loan war but also raised the prospect of another house price bubble.
A day after RBA governor Philip Lowe’s bombshell speech, mortgage lenders were preparing for an intensification of an already “brutal” battle for market share and a resulting sharp increase in home prices.
The respective founders of Aussie Home Loans and Yellow Brick Road, John Symond and Mark Bouris, say the home loan war is firing up and house prices are set to rise as much as 7 per cent from here on.
Tim Toohey, the head of macro and strategy at Yarra Capital Management, said this was the central bank effectively saying “don’t worry about risk”.
…”Why do you give up on forward-looking inflation targeting when the evidence is that COVID-19 hasn’t been the disinflationary event that many feared? In the US for instance, underlying inflation measures from the Cleveland Fed remain close to 2.5 per cent year on year and industrial surveys clearly show price pressures are building again.
Sigh. So…dated. For proper debate, you do not ask blood-sucking mortgage cavaliers. And, if you can’t forecast, and other central banks have given it away as well, then when would you try? Tim Toohey has been just as bad, predicting rate hikes for years since 2016 as he misread an iron ore rebound. He should give it away as well.
Most importantly, why must we persist with this dated notion that the RBA is the regulator of first resort for financial stability? That is a prudential task. Systematically as well as at the individual bank level. The first regulator of that risk today is APRA, not the RBA.
It was APRA that intervened and ended the last cycle of house price inflation and, given the world has become even more currency war aligned since then, it will have to be APRA again. If you are really concerned about a new housing bubble then start talking about APRA.
After all, there are all sorts of unanswered questions about its role. How will APRA and the RBA combine? What will be the triggers for APRA tightening? Why is APRA unchanged following its utter humiliation in the Hayne RC? Why have APRA and RBA not been banged back together like the RBNZ so they can work seamlessly in the low-interest rate world? Why is APRA still in the shadows? Why should responsible lending laws be scrapped if that lands even more responsibility for financial stability at the door of APRA? What is APRA going to do when, inevitably, the RBA is forced to adopt negative interest rates (just as it has adopted all other easings it once condemned and eschewed)?
The AFR is a total monetary bust because it asks none of these questions, instead hectoring the RBA such that it makes both of them perpetually wrong.
Given this failure to grasp the tenets, trends and contemporary debates in global monetary policy, which includes some convergence with government spending, the AFR has now turned retrograde on fiscal policy as well.
The recent budget was a deflationary shocker. A radical experiment in trickle-down economics, I suspect masterminded not by tennis pro-Josh Depressionberg, but by an exiting Mathias Cormann, who is a renowned and formidable supply-side nutter. I have nothing to go on to prove this other than the instinct that Depressionberg has neither the intellect, conviction nor gumption to produce such a radical document, but Cormann has all three, as well as the motivation to produce his swan song.
Clearly, the unstimulus budget was the final straw for the RBA which saw the deflationary shock coming and threw out the monetary rule book in response.
But did the AFR read these facts? Of course not. As usual, it was all about protecting its businessomics mates. And, over the weekend, that, in turn, led to further preposterous notions promulgated by the AFR’s macro lost boys:
Another question is whether QE is money financing. Technically, the Reserve Bank and other central banks only buy bonds from other investors which provide the initial funding to governments.
But there’s no escaping the fact that their activity reduces borrowing costs and frees up funds for the other buyers to finance governments.
In the Australian context, the fact that our long-term bonds were higher than elsewhere allowed the government to raise tens of billions of dollars in the bond market to fund a record deficit with relative ease. It may be slightly harder from here.
So, goes the argument, although it makes borrowing easier for all other governments, it will make it harder for us? Bond rates will rise as investors flee? I mean, come on. They’re going to pile in as they front-run the RBA. That’s the whole point. Borrowing is about to become the easiest ever for the Australian Government, if only it would do something useful with it.
Which brings us finally to MMT, the AFR’s most hated macro notion. “Monopoly money” editor Stutch calls it while ignoring that his favoured banks are already ‘passing go’ to collect their printed billions on a minute-by-minute basis.
Let’s make one thing clear about MMT. The AFR is going to be wrong about it as well. It is coming. It has already started but it will go much, much further. As it should. Why?
Because MMT is the only way out of the debt trap that financialised capitalism is stuck in. It is the only way to deleverage everybody as it also inflates wages and profits, leading ultimately back to rising interest rates and a cost for capital. It will be messy as hell, take decades, and come in fits and starts. But come it will because there is no other way.
Guaranteed under current management, which will abhor the tilt of the playing field from creditors to debtors, the AFR will fight it all the way and be perpetually wrong again.
Doing damage to Australia and investors throughout.