Lunatic RBA sees no recession coming. Panic!

From Captain Phil Lowe yesterday:

“I don’t see a recession on the horizon here,” Dr Lowe told an event in Sydney this morning.

“At the moment the unemployment rate is the lowest in 50 years. The participation rate is the highest ever. There are more working Australians who have jobs than ever before. Households have strong balance sheets. Our terms of trade are at the highest ever, which is really boosting our national income,” he said.

“But if the last two years have taught us anything, it’s that you can’t rule anything out. Our fundamentals are strong and firms are trying to hire people at record rates. It doesn’t feel like a precursor to a recession.”

Central bankers can’t be honest but perhaps Dr Lowe is being so. In that case he will be wrong again, which would be consistent with his past forecasting form.

When unemployment is so low and inflation high, that is precisely when you should expect a recession as the central bank tightens.

The US is roughly one quarter ahead of Australia in the business cycle and the recession bell is clanging wildly there now. In my view, the Australian version will follow.

The major difference is that it likely be worse than those that transpire overseas because our household debt is so much higher and a historic house price crash is underway even before rates rise.

In other words, precisely because Dr Lowe doesn’t see a recession coming, it is.

Houses and Holes
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Comments

  1. Ronin8317MEMBER

    Is the guy flat out lying or is he really deluded? If it’s the former he’s a very bad liar, if it’s the later then he should seek professional help. If MARTIN(or whatever it’s called now) is predicting no recession, then the AI has turned sentinel and is messing with it’s maker.

    • Go back and look at the Leigh Sales interview from a couple of weeks ago. He has an interesting eyebrow tic, makes me think he is peddling really hard inside during the tough questions.

      Especially with his previous claim that interest rates won’t rise until 2024 (exhibit, 6 July 21 statement). He claims it was always dependent upon the economy, yet the actual statements only talk about the “central scenario”. Average Mum and Dads making decisions about house purchase decision can’t decode that.

      Leigh Sales interview: Reserve Bank Governor Philip Lowe speaks on interest rates and inflationary challenges | official RBA transcript

      • Isn’t that same justification for Howard’s 90 years suppression order on W00dys Royal commission into institutional c s a? Folk would get scared (lose faith in government etc were closer to commissioners words) if they knew what authority folk get up to to get their rocks off???

    • Maybe you should start your analysis off by asking yourself some possibly pertinent questions
      What happened to the technical economists and engineers that built the Martin economic model?
      What happened to the entire economic modelling department at the RBA?
      What’s the future of Aussie DSGE (or any of its relatives / descendants) ?
      Will Bayesian Inference play any future role in shaping Aussie Economic policy?
      Lots of good questions, I’d suggest you ask Capitan Phil if you can corner him sometime.

  2. chuckmuscleMEMBER

    honestly cannot understand the households have strong balance sheets mantra. relative to history, no. relative to 99% of the rest of the planet, no. relative to nz, ok yes, fine. for a guy who rose through the ranks banging on about financial stability, he is a complete f^&k up when it comes to walking the walk

  3. elasticMEMBER

    It’s difficult to see nominal GDP to be high enough to surpass inflation if it gets to 7% so almost guaranteed recession later in the year

  4. The Travelling PhantomMEMBER

    Nah! He’s a visionary and has way more information to make a call than the rest… highly qualified and top achiever, why else he got to this position?
    😉

    ALSO he called to keep the wages lower than inflation
    That deserves to be noted too

  5. The RBA jacking up rates to something representing normal while blowing asset prices and debt obligations to the moon means consumption is going to flame out and a recession is locked in. On his metrics the claim of no recession makes sense, that’s why his metrics are so wrong and need to change.

    GDP per capita – down
    Workers shares of profit – down
    Debt obligations – highest in history
    Inflation – well above stated metrics because it doesn’t correctly measure housing impacts

  6. kiwikarynMEMBER

    First they say no recession. Then the recession will be transitory or “merely technical” . Finally they will admit we are in a genuine recession. By that time it will have devolved into another Great Depression.

    • C.M.BurnsMEMBER

      that is only their mandate under Liberal governments, being the superior economic managers TM and all

      under Labor, I’m backing the RBA to act as if they are on the pyromaniac spectrum

    • Jumping jack flash

      An economy based on debt can’t “sit still” it needs to grow constantly or it deflates.

      The reason for that is very simple, some of the growth is required to service a percentage of the existing debt’s interest so demand can remain contant at worst, or grows at best.

  7. Finance MessiahMEMBER

    Phillip Lowe, the messiah of truth. People learned to stop listening to what this guy was saying years ago. For such an important institution, they sure make some questionable decisions and seem to be behind even some of the armchair economists that work in the Macro Business comments section. It sounds like Lowe thinks jacking up interest rates will be this magic band aid that fixes everything. Don’t be surprised if they announce in another month or two that they were wrong about inflation again, and we’re heading to 10%.

    We are talking about a guy who recently said that most of Australia’s inflation isn’t imported, which we all know is an outright lie.

    Conversely, can we expect Phil to tell the truth? Nothing would tank the ASX and cause ATMs to run out of money faster than the captain of the RBA telling people that we’re heading for recession and things are worse than they have been telling us. Captain Lowe is flying the RBA Boeing 747 with leveraged Australians inside of it. You think we’re flying the normal course, but the plane is descending so slowly, you can barely feel it until the lights start flashing and you hear, “BRACE! BRACE! BRACE!” as the plane heads for the ocean surface. When you’re told to prepare for impact, it’s too late.

    • Jumping jack flash

      In a properly functioning economy that is based on sound fundamentals of turning raw materials into useful items to sell to the world for profit, banks’ debt and interest rates have little bearing on anything. In fact a properly functioning economy can get by without needing banks and without needing debt very easily.

      To make interest rates a thing, an economy must be first saturated with debt, because interest rates are essentially the price of debt.

      To fill an economy with debt is easy, just use the largest container you can find to place debt inside. Houses were chosen, the economy is now saturated with debt, and debt and debt spending is used for *everything*. Manufacturing is a side gig and getting less all the time, in favour of nice, clean, carbon neutral, debt.

      But the effect of that is now the banks have total control over the economy using interest rates.

    • Phil only thinks he’s flying a 747, whereas in reality it’s an il-96 running on two sputtering engines with possible landing gear problems.
      psst don’t tell Phil the shock could kill him

  8. Jumping jack flash

    Dont spook the horses, aye, Phil?
    Global recession by the end of the year if they can’t sort out the situation in Ukraine by, say, August. October at the latest. Huge inflation spike in food and energy, and then all the central bankers will raise interest rates like mindless zombies to counter it.

    “But the book says to raise interest rates when inflation occurs… look… right there on page 2 of the central bankers’ handbook”

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