No macroprudential to hose off property this year

As we know, the RBA is on record saying that it won’t raise interest rates before 2024 and that it is quite happy for house prices to rise for the economy to enjoy the economic spillovers.  My own view is that not only will the RBA not raise rates in 2024, but it will also be forced to increase QE and TFF bond-buying before then to lower mortgage interest rates even further than today.

One of the reasons is that MB’s long-term campaign (commencing in 2012) to install macroprudential tools into Australian monetary policy has finally borne fruit. Yesterday:

The Council of Financial Regulators (the Council) held its quarterly meeting on Friday, 26 February. Discussions focused on the financial sector’s role in supporting recovery from the COVID-19 pandemic.

Council members discussed the recovery from the pandemic in Australia, with the pick-up stronger than earlier expected. They welcomed the commencement of Australia’s COVID-19 vaccine program and the positive effect this would have on confidence and economic activity. Members also discussed how the winding down of some temporary support programs would affect the finances of households and businesses over coming months, recognising that many had strengthened financial buffers over the past year. Financial institutions and regulators will need to remain vigilant here.

Members discussed credit conditions. Housing credit has picked up a little and is growing at a moderate pace. Commitments for new owner-occupier housing loans have increased strongly in recent months, consistent with most other indicators of housing market activity. There has been some increased availability of mortgage finance recently, though lending standards are generally being maintained at this stage. The Council places a high emphasis on lending standards remaining sound, particularly in an environment of rising housing prices and low interest rates. It will continue to closely monitor developments and consider possible responses should lending standards deteriorate and financial risks increase.

The Council also considered recent trends in lending to businesses, particularly small and medium-sized enterprises. Lending to businesses has been stable in recent months and is around the level seen before the pandemic. Demand for new business loans has been subdued over the past year due to the pandemic. There are some signs that demand is increasing with the improvement in the economic outlook and it is important that borrowers continue to have access to finance on reasonable terms.

ANZ was out yesterday saying that macroprudential will arrive later this year. It won’t. Household debt growth is barely growing, certainly too slowly to trigger tightening, thanks to accelerating mortgage velocity. And the RBA is still miles behind its inflation targets.

But, the pulse in property is getting stronger and next up will be a wave of property investors chasing first home buyers and prices higher. So, eventually, some kind of MP might come. If it does then you can forget about rate rises even in 2024.

That said, my base is that MP won’t come in 2022, either. The second reason why I see mortgage rates going lower again before 2024 is that I expect a slowing Chinese economy to bust commodity prices in 2022. I include oil, iron ore, coal and base metals in this forecast.

This will demolish today’s little inflation panic, most particularly in Australia, which will see a whole new round of income destruction in the Budget and wages as tumbling terms of trade crush nominal growth.

If that proves right, then macroprudential tightening will also be shelved by the Council as the RBA ramps QE and TFF to fire up house prices even more. Just as it did the last term of trade crashed from 2012 to 2015.

I am not commenting on the wisdom of any of this. If it were up to me I would have already tightened MP ten years ago and left it tight to ensure that every RBA easing since had been channeled into a lower AUD instead of higher house prices. If that had been done in 2012 then the Australian economy today would be in a spectacularly more strong position than it is with deleveraged households, much stronger and diversified tradeable sectors, and no property bubble.

But, hey, house prices only go up.

David Llewellyn-Smith
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Comments

  1. pfh007.comMEMBER

    “.. As we know, the RBA is on record saying that it won’t raise interest rates before 2024 and that it is quite happy for house prices to rise for the economy to enjoy the economic spillovers…”

    Economic spillovers?

    That is a rather generous description of a policy of blowing asset price bubbles that make rich people richer?

    Is the flow of crumbs off the table down to the little people now technically known as a spillover event? 🙂

    ZERO action directed to ensure that credit creation is directed to productive purposes means one thing.

    Productive investment is NOT a priority.

    Which makes the idea that the RBA is targeting the AUD to encourage productive investment little more than wishful thinking or a generous projection.

    The RBA is fundamentally broken and it is about time we start talking about that.

    It has a single objective.

    Support the business model of the private banks who enjoy a monopoly on operating deposit accounts at the RBA.

    Only by ending that monopoly do we have any chance of fixing the broken RBA and the debt driven bubble blowing that constitutes economic management in Australia.

    China must be laughing very hard at our willingness to give them a free kick.

      • pfh007.comMEMBER

        Which is why bubbles due to bank credit driven into asset prices should not be an objective of central bank policy but this is clearly currently the fundamental objective of the RBA.

        How much damage to the Australian economy is required before we start talking about ending the private bank monopoly on operating deposit accounts at the RBA?

        Preserving that monopoly is what is driving this mess.

        The monopoly has clearly corrupted the ability to regulate the monopoly so that leaves ONE option.

        End it.

        • Jumping jack flash

          Quite frankly the RBA couldn’t be arsed.

          “Is the flow of crumbs off the table down to the little people now technically known as a spillover event?”

          To be sure, they stopped this flow years ago. The flow is now UP due to wage theft. Trickle down was never that good to begin with but it is surely dead and buried since around 2010, there is just stat manipulation and lag to show otherwise.

          “Productive investment is NOT a priority”

          Hasn’t been since around 2000 or even before. Its all about debt spending now, and for that to work with any kind of longevity they need perpetual debt.

          Their system has failed for the last 13 years, they have their chance again. Will they fail again? It depends on the trio of debt growth, CPI, and wages growth.

          • pfh007.comMEMBER

            “.. Quite frankly the RBA couldn’t be arsed…”

            The RBA staff are doing what they understand their job is and currently that is to support a private bank dominated public monetary system. That is what central bank independence means …..a public monetary system that is independent of democracy…..aka is privatised.

            I am calling for reform of the RBA but I don’t expect the RBA to do the reform….though they could research and discuss the options.

            Reforming the RBA is a political issue.

            What is puzzling is the refusal of so many across all parties and all sections of the media to discuss a dysfunctional privatisation that is clearly not working.

            I suspect it is because most of them simply don’t understand that there has been a privatisation and how it operates.

            The propaganda about banking and money certainly does a good job of obscuring the mechanics.

          • Display NameMEMBER

            The RBA is a follower. We will follow all the other central banks down the negative rates rabbit hole. Any ones guess how we come back from that. The banks will remain “unquestionably strong” naturally through all this and all major parties will cheer this on from the side lines. It feels like we are inside a giant cartoon run by roger rabbit where stupid decisions are applauded and rewarded, globally.

            The ongoing local daily rapes, rorts and corruption are just side shows for the main madness

          • pfh007.comMEMBER

            DN,

            “..It feels like we are inside a giant cartoon run by roger rabbit where stupid decisions are applauded and rewarded, globally…”

            Yep, It feels like some sort of weird episode of Black Mirror where miles and miles of column inches are spent analysing the economy from every single imaginable angle but almost no time is spent talking about the issue that is the core of the problem.

            Running a public monetary system primarily on “debt as money” created by private banks.

            If fixing the problem was technically complicated it might be understandable but the first and most important reform step is nothing more than allowing non-banks and the general public to operate deposit accounts at the RBA.

            That tiny tweak, of allowing wider access to “reserve” accounts, will get the reform ball rolling but even that seems beyond the imagination of our economic / commentary community.

            It is baffling.

          • Cynical snake

            “down the negative rates rabbit hole. Any ones guess how we come back from that. ”
            I see 2 possibilities, nominally positive rates but inflation much higher so essentially the same in practice, or complete collapse.

        • Jumping jack flash

          “I suspect it is because most of them simply don’t understand that there has been a privatisation and how it operates.”

          Nah, they know. This is the plan, the framework of Thatcherism / Neo-Liberalism.

          Governments and politicians are far too busy taking care of the important issues to be bothered taking care of things like the economy and banking. Leave that to the private banks. They certainly wouldn’t do anything that would be detrimental to themselves, would they.

          I reiterate, RBA couldn’t be arsed because as you rightly point out, they’re too busy doing what they do, which is as little as possible. Softly, softly and feather touch and all of that.

          Regulation is a dirty word. It also stymies growth.

      • Jamal Trulove

        So now it’s a bubble again. Seriously you are just making it up as you go along.

    • SweeperMEMBER

      If it’s sole objective is to “support the business model of the banks” then it isn’t doing a very good job.

      Zero or lower policy rates are not favourable for bank margins. See Europe, see US, see Japan or see Australia over past 12 months.

      You just refuse to abandon your partial equilibrium model of banking don’t you?

      • pfh007.comMEMBER

        Sweeper,

        I was wondering when you would turn up for some deflections and obsfucations.

        The banking business model involves a lot more than bank ‘margins’. They can always hand back their licenses or campaign to end their monopoly over central bank deposits if they think the RBA is not being supportive enough.

        Bankers are rarely quiet when the actions of the RBA, APRA or the government negatively affect their bottom lines.

        They seem to be very quiet at the moment regarding the RBA policies.

        “You just refuse to abandon your partial equilibrium model of banking don’t you?”

        Go ahead, tell us again about how cutting interest rates reduces the supply of ‘savings’.

      • Cynical snake

        “Zero or lower policy rates are not favourable for bank margins. ”
        No, but they are great for volume…

  2. Jumping jack flash

    Good analysis. The subsidisation of the banks using TFF and QE will continue now that it has been set up, and for an economy that produces debt, thats quite expected.

    If we produced cars or specialised equipment then it wouldn’t be unexpected that those would also be subsidised.

    To turn things up we certainly need more credit growth, and faster, and some CPI to feed back into wages. No wage theft. Thats economic poison in this kind of economy.

    Come on COVID stimulus, do the thing you were required to do!

      • Jumping jack flash

        High house prices are a symptom of the debt economy. Banks like attaching debt to houses.

        Also if you want to fill an economy with debt, you use the biggest container available. Not many quiet Australians will take on more debt than what is needed to buy a house, than for any other single thing.

        Never forget that in a properly functioning economy where money is earned through skillful transformation of raw materials into useful things that are sold to the world for profit, there is absolutely no need for debt, except to increase the capacity for production! This naturally takes care of the principal and interest repayments using the increased sales from increased production.

        Consequently adjusting interest rates would do absolutely nothing.
        How can banks control an economy like that?

  3. reusachtigeMEMBER

    Gotta say, this blog has been a great promoter of higher house prices with their incessant calls for lower interest rates. It’s been a beautiful thing!

    And MP, yeah whatever, LOLOLOL!

    • The Travelling Albatross

      I second that! They are part of the big plan, using reverse psychology to convince the bears about lowering the rates , MP lol lol lol

      • Problem is Reusa is long all the way up and all the way down too
        From peacock to feather duster

        • Cynical snake

          better than being out of the market all the way up and down…

          especially when the down isn’t here yet and may never appear.

          • They have squeezed this bubble to insane levels.
            The concern is that the down is now going to be vertical, it’s going to happen, from a collapse of the global
            banking system, I think mortgage lending will be frozen until they can restructure… I don’t know what they’ll do. How many banks just disappear, I think some will just close the door…. my concern is what happens to interest rates, longer term interest rates are going to rise but do they blow out to 10% as the global financial system just melts down.
            You need to have some liquidity in the crisis
            The down is going to be so fast that if you do want to get out you cant.
            unemployment could reach btw 30 & 50% in this crisis.
            Maybe higher depending how bad it is
            Just make sure you pull a little out of your offset in cash because bank accounts will be frozen over night

    • Reusa
      I thought a very broad and open minded person, like yourself would be interested

      You can’t deny people have gone insane … buying anything at any price….. I’ve said this is a blow off in everything but

      What has caused in part this insanity is on DEC 21 a couple of months back we had a huge astrological even called the GREAT CONJUNCTION, Jupiter met Saturn at zero degrees in Aquarius. This happens every 800 years. We’ve moved on DEC 21 from earth sign into air sign. We’ve moved into the true age of Aquarius right now.
      Earth is stable and grounded and air is very hard to contain
      Aquarius is about truth and innovation.
      But on top of that we currently have Taurus squaring with Uranus with Saturn and Jupiter zero degrees Aquarius, this is huge
      The energy is so powerful that people can’t cope with the change from these alignments
      Taurus is money & land, and Uranus is a huge disrupter
      This is in part why people are going nuts in everything
      Property speculation, tech shares speculation crypto etc all about getting rich quick. We are headed into very different times in Aquarius… this is for 200 years…. happy to teach you more, but honestly this is true. I’ve been studying for several years solar system affect on the world. This is going to be a very confusing time for everyone
      But further I said last year that as we head up low into solar cycle 25, the virus will be gone
      We haven’t yet had the after effects, that’s coming this year, the global financial system is going to meltdown.. nothing can stop it. In Aquarius the asset will be knowledge, we’ve been in Earth which is associated with possession. Over the years to come the obsession with accumulating wealth won’t be as important… billionaires etc hiding money in tax havens etc will be gone, not necessary. This is a period of much more fairness and sharing. The age of Aquarius is going to be huge
      The crisis coming is going to strip many of much wealth especially the rich

      The crisis coming as this everything debt bubble biggest in history bursts will be frightening beyond belief, everyone will need to help each other to get through it

      • The Travelling Albatross

        How ever Jupiter is in the ( finance/money) astrological house of Oz if you consider Oz modern birthday is 1/1 federation day
        And that gives Oz massive income and inflation in its
        assets. Having the planet of luck in your money house is very promising. Oz passed the stress financially after Saturn moved from Capricorn

          • The Travelling Albatross

            Was hoping you’ll give me a different astrological view point to my analysis!

          • I don’t even need to, this whole thing has become laughable
            I’m up in QLD, Rockhampton for a few days visiting friends and then to Brisbane for long weekend
            I have booked a really nice place in Milton
            Heard it’s a good area
            Ahy suggestions for restaurants in Brisbane???
            Off for breakfast

      • Goldstandard1MEMBER

        I sold in east inner Melbourne in October 2019 with no regrets and since then property in the area has gone down 10-15% and probably back to same level. I have no interest in buying at the moment as renting a $2.6m place for 950 a week. It makes no sense jumping in now whilst people are speculating on future higher prices with cheap bank money against other ‘savvy’ buyers. Everything is telling me something is about to break but it will be ‘unexpected’ and certainly not from any proactive action or forecasting from the gov or reserve bank.
        Saying what exactly will break first is the tough one.

  4. boomengineeringMEMBER

    This talk about post offices being the conduit of a new gov’t owned bank brought the ire of wifey as we sit here at Flowe Power Cafe. She just reminded me of the PO owner at Curlie who put his super in and now being a slave to the govts pathetic payment system

  5. MathiasMEMBER

    Sounds like Australias about to trash its own Currency.

    So it sounds like the Boomers are going to fight this all the way until Australia ends up in Socialism.

    • Jumping jack flash

      Depending on who you listen to we are being prepared for socialism on a massive scale.
      We are destined to become classless and stateless, maybe not in my lifetime but it is certainly the direction we are headed.

      Once achieved, liberalism is just a few steps away from socialism.

      • drsmithyMEMBER

        I think you need to define what you mean by “Socialism”, because it doesn’t appear to be what political scientists would call “Socialism”.

  6. Application of Murphy’s law to investing.

    Going long human idiocy and stupidity always pays off – never let you down.

    Going long human ingenuity and excellence is fraught with danger.

    • pfh007.comMEMBER

      I think he is but he thinks it is APRA’s fault if that results in a raging house price bubble.

      Very strange.