RBA will need to go negative

Thursday, 19 August 2021

The Australian economy is a simple machine that runs on two motors. The two engines are commodities and household debt. We might call these miners and banks. Or, iron ore and house prices.

The machine is fuelled by commodity income derived offshore. This is then leveraged up in global markets via bank borrowing. The debt is channelled into rising house prices that drive consumption.

At least, that’s how it used to work. Since the pandemic began, the machine has instead leveraged commodity income via bank borrowing from the Reserve Bank of Australia

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About the author

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.