Kohler: RBA “shambles” will deliver “an almighty bust”

Alan Kohler has delivered a stinging attack on the Reserve Bank of Australia (RBA), claiming “monetary policy over the past decade has been a shambles” and that its aggressive monetary tightening will end “with an almighty bust”:

The RBA’s big mistake is hiding in plain sight: Effectively using housing as the main tool to stimulate the economy and in the process generating a debt-fuelled property boom that vastly worsened inequality and is likely to be in the process of ending with an almighty bust.

The RBA is not the only government body responsible for this: APRA applies a generous risk-weighting to banks’ real estate lending, which turbocharges the effect of low interest rates, funnelling cash into higher land prices.

Neither the RBA nor APRA takes any responsibility for the distortions the combination of these policies has caused. The inequality and a dire lack of housing affordability – not their problem.

Meanwhile, Philip Lowe has now pulled the rug from under borrowers who joined the housing frenzy of 2021…

The RBA has never started a rate hiking cycle with consumer confidence already at recessionary levels:

Long-run confidence

Consumer confidence is already in the toilet.

Household consumption is by far the economy’s engine room, driving around 55% of the nation’s growth on average. Therefore, where household consumption goes, the economy typically follows:

Consumption versus growth

Household consumption drives the economy’s growth.

Australians are among the most indebted in the world. Thus, with mortgage repayments tipped to soar on the back of the RBA’s aggressive monetary tightening, households will have much less money to spending on discretionary items, in turn slashing household consumption and growth.

Falling house prices will also make Australians feel poorer and less likely to spend, which will also drag down household consumption.

The RBA must, therefore, proceed carefully with rate hikes. If it abides by the economists’ or futures market’s hawkish interest rate forecasts, and hikes rates too aggressively, then the RBA will likely drive the economy into an unnecessary recession.

It would be “the recession we don’t have to have”.

Unconventional Economist
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  1. DingwallMEMBER

    Household consumption is so wedded to house prices and the associated leeches on the pulse of real estate, what do they expect. Blaming the RBA solely for decades of governments driving the real estate economy is a bit rich.

    • Exactly. Almost every single sector of the economy has gleefully pumped house prices. From local, state and federal government. To lobbiests, the rea industry, the banks, the developers, baby boomers, the construction industry, the superannuation industry etc etc etc. It MUST come to an end at somw point. Its insane fkn!

  2. C.M.BurnsMEMBER

    where were all these johnny come latelys screaming about a decade of ultra low interest rates and their impact on housing, during the decade they were progressively being lowered, and lowered, and lowered.

  3. Has Alan Kohler been consistent in his criticism of the RBA over that decade? I don’t recall him bitterly complaining about rates being too low. That might have helped avoid where we are now..

    • I think someone has told Allan that the value of his property portfolio is going down.

    • Spot on. Still waiting for him to answer my Twitter question on whether I should be buying 12 investment properties over the next year, in light of his rate slashing calls.

    • He’s a cockroach, just like the rest of the economic commentariat, and most of the Aussie population.

  4. Jumping jack flash

    “Effectively using housing as the main tool to stimulate the economy and in the process generating a debt-fuelled property boom that vastly worsened inequality and is likely to be in the process of ending with an almighty bust.”

    Oho! Houses are certainly the sluice that was used to funnel all the debt into the economy. But it isn’t really about the houses. The houses are just the first thing that gets affected by all this.

    He stops short of saying that the past decade of poor management was only possible thanks to Greenspan – may he forever be in the hearts and minds of our glorious banking elite.

    Once Greenspan pulled the trigger on interest rates he created a layer of false demand for *everything* on top of the actual baseline demand created by prevailing economic conditions. He also cemented the banks firmly in charge of the economy, and made debt and the control of that debt using simple interest rates, absolutely essential for everything. A truly inspired move that bankers everywhere should pay homage to him for. “Thank you, Greenspan, blessed be you and your enormous glasses”

    Everyone loved this layer of false demand though. I didn’t hear too many people complaining about having jobs when in fact there was no need for them to work at all if all we had to do was service the baseline level of demand. The very fact that we still have “full employment” in an age of automation and all the other fantastic labour/cost-saving technologies invented over the past decade, and not to forget the wonder of globalisation and outsourcing, is definitely a direct result of the debt-induced layer of fake demand.

    And he’s absolutely correct, to remove that layer of fake, debt-induced demand for everything, now that it very likely dwarfs the layer of actual baseline demand, is going to be rather catastrophic for everyone, depending on how much they’re willing to chip off.

    • Greenspan was a coward masquerading as a genius. He just traded one bubble for a more leveraged one. And then he stepped away to take speaking fees.

  5. Paul TuckerMEMBER

    Governments of both stripes have been happy to turn the Australian economy into a life support system for the property market-with a side hustle in mining.
    Mostly notably through relentless mass immigration but also via taxation.
    Politicians of both stripes (thrown in the virtue signalling Greens as well) wear responsibility for the current mess.
    And we all know what they plan on doing about it.
    Precisely nothing.

    • And they have done it with the full support of the public. There are no innocent parties here.

  6. Hill Billy 55MEMBER

    I guess that all that needs to be done is the creation of a people’s bank through the Australia Post retail system. Once people realise that this will back stop any chance of their money being bailed in, they’ll flock to the People’s Bank and leave the Big Four dry of funds. See them squeal :).
    The people’s Bank will fund infrastructure that we need, not houses. Problem solved!

    • We do have to have it. Otherwise the world economy is like The Old Man of Crete. With the clay feet liquefying. It’s just kicking the can to a bigger collapse, unless cold fusion…

  7. Personally I often wonder if anyone at the RBA has done any courses in Control Systems theory.
    When you attempt to control any dynamic system it is easy to get it wrong and actually make the system less stable than it was in the “uncontrolled” mode.
    Generally (and this is a huge generalization) dynamic systems are controlled by creating what’s called a “Dominant pole”. This dominant pole is usually realized as some sort of rate limiting stage controlled by the system feedback.
    The RBA attempts to limit the maximum rate of change in the economy by controlling Interest Rates. But here’s the thing, if you twist this control know slowly it acts like any dominant pole and limits the rate at which the system can accelerate. But start twisting this know quickly and in phase (synchronous) with the systems movement into unwanted area of operation, and you shift the control system from being a relatively simple “Dominant pole” to a system where you are trying to achieve Pole/Zero cancelation.
    Most experienced Control systems engineers would immediately abandon any plans that required Pole/Zero cancelation because they’re very difficult to get right and almost always have gotcha cases where the system goes completely unstable.
    Considering the speed / force with which the RBA is twisting the IR lever, I’m left to wonder if anyone at the RBA has taken any control systems courses.

      • Arthur's Poodle

        🙂 Goodness! Lech Wałęsa was a great at tearing things down, and the right man for that job. However, he was not very good at re-building Poland after the wall fell.

        Demolition and Building are very different skillsets.

        • The Traveling Wilbur

          I couldn’t imagine anyone better suited myself. I mean, if you’re looking for a Dominant Pole…

          • I guess in that sense Hitler’s pact with Stalin was an example of Pole/Zero splitting

    • Control systems? They’re finance types, not engineers. Or to put it another way, while thinking they’re geniuses, they actually have no fvcking clue whatsoever about what they’re doing, and everything you just wrote would be gibberish to them.

      Think of a guy towing his caravan down a windy road. The caravan catches a big gust and wobbles, the driver overcorrects, and gets a bigger wobble the other way, so he overcorrects again…and so on until the inevitable jackknife and terrible crash. Well, that’s the RBA, and that’s what they’re doing to the economy.

      • call me ArtieMEMBER

        Reminds me of when I was last at Uni. I was studying a course that included three full years of pure Logic as a requirement.
        In first year (i.e. Logic 101) we had the pleasure of including Law students as an introduction to Logic was a requirement for them. They were truly obnoxiously smug. But not very good at actual Logic, when it came down to exams…

        • The Traveling Wilbur

          Thanks for that PTSD inducing flashback…

          So, ditto. But two years. And the first year was full of… you couldn’t make this up… Econ students. Bunch of muppets all.

          And now they’re all being sequestered by the RBA!
          (all the good ones being from NZ)

      • Unfortunately, the number of people from engineering, science and medical disciplines involved in finance – instead of doing something useful and productive with their lives – is significant. So I suspect a material number would know what is being talked about, but when your remuneration is based on not implementing solid solutions, to [email protected] Sinclair: “don’t fix something if your bonus depends on it not being fixed”.

    • call me ArtieMEMBER

      Another interesting comment Dodgy. Reading your words, however, I suspect that control systems theory must be an engineering discipline, not an economics one? Perhaps it should be more widely taught for a semester across different disciplines

      • Arthur's Poodle

        Artie, I’m not sure complex systems theory is taught in Economics. At least not in a form any Engineer or Ecologist would recognise.

        Vale James Lovelock. Died overnight at the ripe old age of 103.

      • It is interesting that for very complex systems engineers use a method like Bayesian Inference and implement the Control system using something like Kalman filters or Particle Filters.
        In Economics there’s actually a lot of overlap whereby Economists also use Bayesian Inference as a tool and measure / predict the system response with models like DSGE (Dynamic Stochastic General Equilibrium).
        The RBA used to have a modelling department that was very familiar with these methods but Capitan Phil didn’t need that sort of mathematical mumbo jumbo because he’s more of a seat-of-the-pants pilot. It’s going to be interesting to see how Capitan Phil deals with the upcoming instability.

        • Arthur's Poodle

          Dodgy, much of Australia’s upper echelon work on the principle, “it was a good idea at the time”. Best not to overthink it! 😉

          Phil really doesn’t have any leaver other than interest rates. Not a complex control system.

          • Jumping jack flash

            And due to the magic of total debt saturation, that lever actually has some effect, too!

            Like some macabre economic magnetic fluid that’s able to be remotely controlled.
            Or possibly like one of those zombie-ants with brain fungus?

        • Jumping jack flash

          I’m no expert on control systems but I have studied them. Vision systems and AI is my specialty at the moment, but AI shares a lot of maths with control systems because essentially it just tries to reduce a system to equilibrium. AI also shares a lot of maths with statistics.

          Economics probably leans more towards the statistics side of that particular flavour of maths than the control system side.

          • That’s probably because if you’re going to think about controlling a system you have to know (and therefore state) what you are controlling it for. The consequences of doing that in a democracy could be dire.

    • Good comment. I do wonder what would happen if CB’s just stayed the hell out of the whole thing, would it really be that bad or would it self correct in due course.

    • OK but aren’t we just arguing about the precision by which deckchairs are rearranged on the Titanic?

  8. pfh007.comMEMBER

    “..The RBA must, therefore, proceed carefully with rate hikes…”


    The RBA has no choice but to ramp up rates while the ideological nuts continue to insist that credit creation should be unregulated.

    What the RBA should do is to recommend to the Federal Government that it should bring back regulation of credit creation in a major way.

    Seriously restrict credit creation (volume) where the security is an existing property and also regulate the price of credit for loans involving such security. In effect ramp up the interest rates on existing property mortgages.

    That way the RBA may set the target rate confident that cheap credit will not pump up existing property prices but instead will be available for new housing construction.

    It is one thing to insist that the economy should be managed primarily using monetary policy rather than fiscal policy (the democratic arm of economic policy) but that does not mean that the creation of credit cannot be regulated by reference to price and volume having regard to the character of the security for the loan.

    Oh and forget about APRA doing this job as APRA is NOT authorised to have regard to anything other than prudential issues.

    The ideological nuts quite rightly insisted that it is not APRA’s job to determine what sort of credit creation is in the national interest.

    That is Albo’s job and he needs to do it.

    • Jumping jack flash

      Nah, the fact they created central banks all over the world and then privatised banking, (and privatised *everything* at around the same time) was because politicians no longer wanted to be held accountable for anything of any consequence.

      It was pure Thatcherism. And the politicians loved it, so that’s what we got.

      Of course once the need for possessing any kind of actual skills related to anything apart from flapping arms and talking (simultaneously!?) was removed, we got all manner of fantastic and colourful people becoming politicians… people that had no business being there… and please don’t judge me, but what the heck is Jackie Lambie doing anywhere near a position of power and influence?

      • Arthur's Poodle

        Neither Jackie Lambie or any other Independent has a Cabinet position. Her Job is to ask the dumb questions that the media won’t, so as to shine a considerable amount of sunlight on the rorting.

        She does a pretty good job at it!

    • I get the argument but it’s not currently unregulated. Hold your mirth but there is still liquidity, capital adequacy and (sorry but I must) APRA. And a borrower of course. It’s really under-regulated, chiefly under-APRA’d. Agree, if the issue at hand is about new dwelling supply (and price of all dwellings) then, yes, it’s political.

      • pfh007.comMEMBER


        Underregulated, badly regulated, unregulated.

        Amounts to the same end point.

        Unproductive credit creation / money creation by a private bank cartel.

        Importantly the first step is not a fruitless debate over what sort of regulation is best (though there are some juicy long hanging fruit to be picked) but instead the first step is to end the private bank monopoly over 0% interest reserve accounts at the RBA.

        Once non-banks and the general public have a genuine ‘savings’ option the guarantee (taxpayer protection) of bank’s unsecured investors (depositors) can be removed.

        That alone will operate as a giant enema and start the process of clearing the constipation in our financial system as no longer will the banks be able to use their monopoly over reserve accounts to hold everyone hostage to their fraudulent business model.

        • Curious, is there an example of developed economy doing so as a model or is this still theoretical? Iceland was toying with something like this a few years ago but I don’t know where it ended up.

          • pfh007.comMEMBER

            Not yet but it is only a matter of time. Whenever you read an analysis of central bank digital currencies you can see how close that concept comes to allowing the public to operate a reserve account.


            At some point some government in some country is going to get sufficiently fed up with this crazy boom bust state / private cartel model that they try something different.

            The idea of allowing non-banks and the general public to operate zero interest ‘reserve accounts’ is not rocket science and logistically is not difficult given how few people now need or use an actual bank branch.

            It would allow a nice simple distinction between saving and investment and avoid all of the mess that arises from trying to regulate an unsecured investment in a private bank as a form of ‘saving’.

            If you want to save = accumulate coins, banks notes or reserves in a central bank account and receive no interest for no risk.

            If you want to invest – make loans, buy shares, buy bonds, buy any of the multitude of investment products that are out there. Take risk and receive a return.

            And there is no need for the transistion to cause ‘chaos’.

            For one thing – there is unlikely to be a run from bank deposits paying x% to a reserve account paying 0% and we could initially cap the maximum reserve balance size and gradually increase it as people start to understand how a 0% reserve account fits into their asset allocation preferences. We could even cap the number of transactions in and out of the accounts per month so that people who want a ‘transaction’ service are encouraged to use a commercial supplier of those services.

            It would be preferrable that banks lose their “credit creation as money” privilege as they inherently encourage fraud. i.e. Promising someone their investment is “available at call” and then immediately using that investment in a way which means that only a fraction of the investments can ever be honoured at one time.

          • ta, very well explained and I should have remembered to sit under the pyramid for enlightenment.

    • hareebaMEMBER

      007. I am a novice with regards all this stuff.
      What was catalyst/tipping point for this recent rapid % hikes in the USA?

      • pfh007.comMEMBER

        Just the usual.

        Loads of monetary and fiscal stimulus during covid combined with supply bottlenecks etc as the world started to emerge from lockdowns plus China’s attemtps to smash covid.

        And very low unemployment in the US means that the supply spikes are more likely to induce inflationary expectations.

        Faced with that mess the Fed is tightening monetary policy as fast as possible.

        It could have been worse had Biden’s fiscal stimulus not been knee capped in the senate.

  9. “It would be “the recession we don’t have to have”. Nope.
    It’s the recession we tried one too many times to kick down the road. Bring it on.

  10. – The RBA FOLLOWS what a force called “Mr. Market” does and nothing else. so, blame Mr. Market and NOT the RBA for raising rates.

  11. – Don’t forget all the “actions” of the government in the past Things like: 1) Negatuive gearing 2) Capital Gains Discount 3) Home Builder program 4) the First Time Home buyer program 5) ………………

  12. the evil weasels worked wonders…

    5) SMSF hybrid low-recourse loans to help increase the ever-widening gap between the have-many-houses and have-not-even-one-house

    6) Joshie rolling back the responsible lending laws and Hayne doing all he can to not vomit on nervous Josh’s outstretched sweaty “shake my hand for this fake photo opp or I will look like a greasy slimy politician”

    6) The home owner/renovator $25000 covid home improver bonus (courtesy of yet another stinky brain fart from marketing, that smirky motherclusterdunderflop of PM for Property and DinosaurFuel thievery)

    6) Mortgage brokers massaging the figures to get loans approved no matter what the reality of the barely serviceable mega-remortgage, acting like a fraud blast radius buffer for banks plausible deniability for writing approximately 33% liar loans