RBA boffin: Ain’t no asset price bubbles here!

The RBA has never directly acknowledged a single asset bubble that I can recall. So it’s not going to start now. The regime of Phil Lowe did spend the better part of five years keeping monetary policy too tight worrying about bubbles but all that achieved was structural lowflation.

It is no surprise, therefore, today, to see RBA board member Ian Harper on the hustings declaring that:

  • Unemployment is too high.
  • Economic activity is too low.
  • The output gap is far too wide.
  • Asset prices should be rising to boost investment. Bubbles are “way off”.
  • It has scope to increase QE for as long as it likes.
  • The Fed has endorsed the RBA’s position of seeking inflation across the cycle.
  • Sometimes the RBA board disagrees.

The RBA is doing a bang-up job this cycle after years of undershooting its targets. Sure, Australia is one giant asset bubble, and it’s going to get worse, but when it does reach levels that threaten financial stability again, the RBA still won’t raise interest rates unless we have inflation. It will use macroprudential, just as the RBNZ has done.

Enough inflation to rouse actual rate cuts is still very unlikely. If COVID restrictions remain in place then the wide output gap will crush wages and inflation. If COVID is whipped then both political parties are determined to crush wages with a resumption of mass immigration.

In short, it’s party time for asset prices which will mean that all of the cheaper debt currently on offer thanks to the RBA will grow the already heavily indebted areas of the economy – households in particular – and that will spell the end of rate hikes anyway.

Honestly, I think the RBA is much more likely to loosen via a variety of QEs for years yet.

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


    • Asset price bubble = asset inflation.
      There is no inflation of any sort in Australia = RBA official line.

  1. So:

    The RBA is reactive and not that proactive
    They intend to own the entire Govt Debt current issuance
    They won’t intervene in the currency (sell a few billion)
    They don’t believe there will be any inflation of any substance for years – it’s starting to happen right now
    They say there aren’t any asset “bubbles” or likely to be so – must be on something everyone else isn’t
    Unbelievable shambles

    • Thanks for that.
      ““We are in a blow-off top in all things,” Burry continued, referring to a chart pattern that shows a steep increase in an asset’s price and trading volume, followed by a rapid price decline.
      “Markets have now bubbled over in a dangerous way,” he said in an earlier tweet.
      Burry hinted in yet another tweet that he expects a market crash in the coming months.”
      He’s definitely not one to ignore lightly.

  2. Hi David – would be interested to hear your views on…

    Iron Ore repricing to $80mt..
    $A getting smoked as the world appreciates that’s all Australia has…
    Doesnt Australia start importing a truck load of inflation ? And that’s something the Feds and RBA can do nothing about (apart from lifting rates). Then its all over.

    Thank you

    • Government/RBA is already on to it, by having another refinery shutdown they believe that the truckload of inflation you mention will have to pull over somewhere ( they are hopeing in rural communities)

  3. Professor DemographyMEMBER

    For years many thought there would be some sort of debt reckoning. Perhaps this was based on the way banks and regulators etc. used to treat people struggling to pay and arrears etc. For now it is acknowledged that we’re all in this debt game together and there is explicit acknowledgement and policy support for the notion that this is what keeps everything going. What that means maybe is that we will allow a system where people are allowed and even encouraged to push themselves to the edges of their debt servicing abilities and the banks and policy will go lightly on difficulties because it is important that we do so. Does anyone older have any anecdata or thoughts on whether we treat debt arrears etc differently these days?

    • The only argument against this really is bank profits. Everything else is true. Free rides cannot continue forever when shareholder demand a return.

      The flipside of this is no bank wants to go bust so will do what it has to save itself – including no loan pay periods during difficult times. RBA can also backstop with 0% bonds, no one makes money but no one goes bust.

      Strange times.

      • Professor DemographyMEMBER

        Perhaps they are choosing from the lesser of evils given the options available to them within the time frames the executives are rewarded within. In any given period the best option is to keep business/credit ticking over and not have a housing crash on your watch as a banker or a politician. It’s also a determined ethos of capitalism needing to find the outer limits of individual greed/desperation and that is somehow the best way to progress.

        • “In any given period the best option is to keep business/credit ticking over and not have a housing crash on your watch as a banker or a politician. ”
          And that, my friends, is how you end up with a 30+ year housing bubble without anyone ever intending to create one.
          Unfortunately at some point you reach the point of no return and must keep going at all costs or it explodes spectacularly. I’m sure we are well and truly at that point now.

    • The future is beginning to look like, you rent from the bank until you’re near death and then the house is sold to pay out the mortgage and put down a deposit for aged care.

  4. Luke Groman was discussing US Fed this week and said something along the lines of the Fed not being able to see the bubbles it has created, but there will come a day after all different classes of asset prices have all risen to the moon, that the Fed are unable to prevent bond prices falling, and they will finally realise that money was the bubble.

  5. Goldstandard1MEMBER

    Cool, let’s test it.

    Responsible lending laws stay
    Stress test with interest rates @ 4% (still record lows)-that will make ppl stop going balls deep in debt
    Businesses and household CAN actually default

    The only reason they are saying there is no bubble is because risk of defaulting has been deemed non existant.
    That simply can’t and won’t, continue.

    • If the last 12 months proved anything, it is that this can continue, and the government and RBA is willing to do whatever it takes to ensure that it does.

      • Goldstandard1MEMBER

        It proves they have less ammo to keep the ponzi going than they had 12 months ago. We always knew they were willing. That’s all.

      • I think this assumption that the government is all powerful in markets will eventually prove to be catastrophically false as it already has in so many ways in the rest of the world through the last few decades. People can say as much as they like that it hasn’t happened this year, it won’t happen next year, the 18 months trope, whatever…. The clear facts are is that they are running out of ammunition. If they had any sense of responsibility they would be trying to reform it.

        • They have literally infinite ammunition if they desire. There is no limit to the AUD that can be printed and given to the banks to lend out at negative rates if so desired. It doesn’t even require the paper to print it on. Or plastic for the pedants.

          • You’re assuming that money printing will work forever when we can already see it’s starting to cause disruptions in the market.

          • You are assuming the disruptions will cause them to stop.
            The problem is stopping will cause more immediate disruptions.
            Give a politician a choice between something bad now, or something bad later when they are likely to not be in office any more and guess what they choose.

          • Jumping jack flash


            Plus it isn’t just AUS that’s up the creek. Everyone is at the same time. Everything is relative, and what isn’t can be manipulated.
            A coordinated and simultaneous bout of debt hyperinflation will fix it, and nobody would actually notice anything.

            In fact everyone would love it.
            Imagine getting paid 100k as a minimum wage. Sure, a coffee might be $40, but, whatevs.
            Your house would be “worth” 10 million, and median house prices need to be around 10 million by 2050 anyway. Nobody wonders what would need to occur for that to happen.

            If the required inflation happened at the same time due to some kind of, oh, I don’t know, multi trillion dollar stimulus to counter a “cataclysmic” pandemic perhaps, then who would actually care?

        • Ironic because people have been saying “The clear facts are is that they are running out of ammunition.” for at least the last decade. Yet every time something looks like bursting the bubble they come up with a new way to tweak it and will continue to do so. If high unemployment and no immigration didn’t put an end to this madness then what is the new housing bear mantra?

          • Look, I don’t care personally. Go invest in housing, if that’s what you want. You might even end up winning. I’m just a random on the internet. There’s no reason why you should pay attention to anything I say.

          • Meh. Can’t say I’ve noticed your comments on here before. I only paid attention because the bears have got it wrong for previous decade and look to get it wrong again for the next one. I’ve said it before and will say it again, just because people think (want) property should go down because the RBA/govt shouldn’t do something or it’s morally wrong, doesn’t mean they will act in that way. We’ve seen it time and time again, the government and banks will find whatever they can to keep this going up. I suggest more levers incl. printing more money, letting people further raid their super and longer mortgage periods. I’m genuinely asking what people think will turn this around in the next few years?

          • There is still cricket to play on the consumer and housing equation – jobs still have a way to go until they reach pre pandemic proportions. Their are still eviction moratoriums and much rent that will never be recovered. The banks got their way and moved the at risk mortgage stories to a non story. The govt is hoping the stimulus measures and cheap debt are enough to stimulate the wealth cycle and get people spending, employing and manufacturing. The banks have played there part in providing payment gaps and lower rates.

            Watch the savings rates

  6. “.. Honestly, I think the RBA is much more likely to loosen via a variety of QEs for years yet…”

    At some point people will wake up and realise that long term unproductive allocations of capital are fatal to economic health.

    At the moment we are getting away with it because of China but we are ignoring the warnings China is giving us.

    I know few like to hear this but we cannot delay addressing this problem and the only way of doing that with manageable pain is via monetary reform.

    • Or we could keep printing money to bandaid the situation.

      Which path do you think the powers that be are gonna take?

      • They will keep blowing bubbles until the Chinese government have their ducks lined up and decides to pop them with extreme prejudice.

        It must be driving Beijing nuts that we are not toeing the line and they will be working overtime on payback as we speak.

        The ones I have no time for are the chumps calling for (i.e not just predicting) more QE and TFF.

        • ‘The ones I have no time for are the chumps calling for (i.e not just predicting) more QE and TFF.’
          many. Especially ones talking out of both sides of their mouth.

  7. It’s kinda hard.

    Financial assets are clearly priced at very high levels; uncomfortably high.

    And yet, there’s genuine tailwinds, the greatest of which is Central bank and government support for liquidity, ultra-cheap money, as well as genuinely productive investment in infrastructure and things like renewables; there’s also money coming out of people’s pockets post-Covid, as economies open back up somewhat, facilitated by vaccines, belief in vaccines, government money, wealth effect, etc, people wanting to buy a home, move house, etc; throw deflationary techs in there, too, of which there are plenty; then throw in deferrals rents, mortgages, insolvencies as well…there’s a lot going on…!!

    Surely it’s the above mix, or something like it, that is keeping the financial edifice alive somewhat alive and afloat?

    Of course, if the funny money slows down, then there’s an ugly cascade – watch the Fed, I guess – surely it’s a taper tantrum that will crash stocks, bonds and property all at once?

  8. Jumping jack flash

    “the RBA still won’t raise interest rates unless we have inflation”

    For certain. They wisely decoupled interest rates from inflation a while back. In my opinion the reason for the GFC was because in their eagerness to implement the New Economy the world’s bankers forgot about inflation feedbacks, so inflation rose a little too much too quickly (as it must in a properly functioning debt economy) and everyone had to jump on it by raising interest rates. The result is history.

    It has taken them over 10 years to finally have an opportunity to have another crack at kicking off the perpetual debt economy again, after that entire period of limping it along with back to back interest rate cuts and wage theft to try and grow the debt by the minimum amount to prevent collapse.

    Wage theft is completely unnecessary, and if they implement it again it will probably doom everything to a slow but assured failure again. Then all of this stimulus will be required again, and furthermore, if they do beat COVID they simply won’t have a good excuse to pump trillions into the economy again.

    And by that time instead of a few trillion it will probably require 10s of trillions to get it going.

  9. happy valleyMEMBER

    “It is no surprise, therefore, today, to see RBA board member Ian Harper on the hustings declaring …”

    Isn’t Harper a LP favourite?

  10. happy valleyMEMBER

    “It will use macroprudential, just as the RBNZ has done.”

    I doubt that the RBA will do any such thing. Since Howard spun the supervisory aspects of the banking industry out of the RBA in to plod APRA in the late 1990s (?), the RBA basically has nothing to do with MP, other than any indirect comments it might have at the Council of Financial Regulators. That’s why the RBA is more than happy (and very self-interested) to goose up asset prices to the moon, because it knows that it will never raise the cash rate in many people’s lifetimes and because it will be plod APRA who has to try and do MP in the context of Josh Rainbowberg’s hell-bent drive for irresponsible lending. Good luck with that.

    At least the RBNZ still has responsibility for monetary policy and bank supervision, so have cratered interest rates last year and fueled the hottest price housing market in the world, it now knows it has to put a lid on it.

  11. happy valleyMEMBER

    So, just to state the obvious. Under Josh Rainbowberg’s totally irresponsible lending regime, if I am a depositor with a bank, there’s basically no protection for me against the bank lending whatever it likes to some dodgy borrower, who trumps up their loan application. F.ck that for a joke.