By Leith van Onselen Following on from yesterday’s dubious rebuttal of macroprudential tools by the Reserve Bank of Australia’s (RBA) Head of Financial Stability, Luci Ellis, please find below an interesting Q&A exchange between the former head of research at the Australian Prudential Regulatory Authority (APRA) and Ms Ellis, whereby the former APRA insider questions
The “miracle” Australian economy (with its famous run of 24 years without a recession) is an amalgam of pre-modern and post-modern industries with very little in between.
Most economies run at least partially upon the productivity gains produced out of manufacturing and ‘making things’ but in Australia productive investment is supplanted with commodity exports (which make up half of exports) and the recycling of the resultant income is deployed as cash flow for borrowings offshore to pump house prices.
The former step is basically the selling of dirt, a pre-modern activity. The second step is managed via the sophisticated use of derivative markets and is essentially a post-modern activity.
Not that GDP cares given it is only the mindless measure of whirring widgets.
However, both of these activities systematically reduce economic competitiveness by inflating both input costs and the currency. “Dutch disease” by another name. This continuous “hollowing out” of productive activity means the broader economy relies heavily upon the non-stop import of capital, either in the form of debt or in the form of assets sold to foreigners, to generate ongoing income growth.
So long as the underlying income from dirt keeps flowing then the leveraging into house prices that supports consumption can continue, supported by both tax distortions and government spending.
If, however, the dirt income flow halts the hollowing out of modern industry will leave the Australian economy very exposed to a current account adjustment. We saw this in the global financial crisis but the flow of dirt income was restored sufficiently quickly to prevent any deep adjustment.
A second risk is that the debt accumulation simply becomes overly onerous for the underlying economy to service, also resulting in a current account adjustment. Well north of $1trillion of the debt is owned externally and household debt is a world-beating 186% of GDP so this is a real risk.
It is offset by a relatively clean public balance sheet that deploys fiscal stimulus in times of economic stress. However, in recent years, as both of the two above risks have increased, the public balance sheet has deteriorated as well, setting Australia up for a famous adjustment to end its famous bull run.
MacroBusiness covers all apposite data and wider analysis of these issues daily.
By Leith van Onselen The Queensland Department of Environment and Resource Management (DERM) has released data on housing transfers and mortgage lodgements for the month of September. According to DERM, the number of housing transfers and mortgage lodgements rose by 0.2% and 3.0% respectively in September 2012, and were up 4.6% and 3.3% respectively on
Cross-posted from Mark the Graph. The main statistic we use to measure the size of the economy is Gross Domestic Product. The ABS defines GDP as: The total market value of goods and services produced in Australia after deducting the cost of goods and services used up (intermediate consumption) in the process of production, but before deducting
Bit late to this but it’s a busy day. Some good news. We’re rich. According to the Credit Suisse Global Wealth Report 2012: In US dollar terms, Australia experienced very rapid growth between 2000 and 2011, with a short interruption in 2008. The average annual growth rate was 13%, but half of the increase was
By Leith van Onselen As reported by the Houses & Holes earlier, the Australian Bureau of Statistics (ABS) has released labour force data for the month of September, which reported a seasonally-adjusted increase in the headline unemployment rate to 5.4% from 5.1% in July, but an increase in the total number of jobs across the
Courtesy of ANZ: SEEK also published its internet job ads data for September today. The number of new job ads declined 2.8% m/m and revisions to history now mean that the series has fallen in each month since January. The trend in the SEEK data is consistent with ANZ’s job advertisements series, which has declined for the past
By Leith van Onselen Find below a speech today by Reserve Bank of Australia’s (RBA) Head of Financial Stability, Luci Ellis, on macroprudential policy. In the speech, Ms Ellis essentially plays down the need for macroprudential policy tools in Australia – such as loan-to-valuation (LVR) ratio limits, loan serviceability limits, and the like – arguing
The ABS September Labour Force figures are out and it’s the reverse of last month with jobs created decent at 14.5k but headline unemployment jumping to 5.4%. Full time jobs were strong at 32k created and part time weak at minus 17k. Of course, it is all about trend and on the charts, the unemployment
By Leith van Onselen Missed this on Tuesday, when the ABS released the overseas short-term arrivals and departures figures for August, which showed another record number of departures over the year, again led by the bogan hot spot of Bali. Although short-term visitor arrivals increased by 3.7% in August, whereas short-term resident departures fell by
There’s a well kept secret in the psychology profession about depression. In many orthodox perceptions of depression, the remedy is considered to be to train the sufferer to “think positive”. This approach is called “cognitive behavioral therapy” or CBT. And it works to a degree, helping break the cycle between difficult emotions and negative thoughts. This is
The DEEWR leading employment indicator for October was released today and showed a small rise, which is three on the trot: DEEWR’s Monthly Leading Indicator of Employment (Indicator) has risen for the third consecutive month in October 2012, after falling for seven consecutive months previously. It is still too early to confirm that a renewed quickening in
Below find a Westpac’s quarterly assessment of the progress of mining investment, which shows the first fall in the investment pipeline since 2010, though obviously still strong coincident growth. The Australian infrastructure construction sector continued to show strength in the middle of 2012. There were a number of notable features apparent in the June quarter update. Commencements
Two recent political exchanges in Australia and the US have thrown up some unlikely prospects. Yesterday we had Julia Gillard napalming Tony Abbot in Parliament, which has kind of gone global (at least according to the MSM). I dare anyone to watch the video below and maintain that Tony Abbott isn’t going to struggle with
Westpac-Melbourne Institute Consumer Confidence is out and we’ve had an infinitesimal rise on the back of the RBA cut: This is another disappointing result. There were a number of reasons to have expected the Sentiment Index to have increased by more than only 1%. Firstly, and most importantly, the Reserve Bank cut its overnight cash rate by 0.25% from 3.5% to
Whilst my colleague Michael Feller was yesterday concerned with our cosmic wellbeing in a philosophical treatise on the usefulness of GDP as a measure of economic health, I am focussed on a problem much closer to home. Whether we’d like to live in a Panglossian country of verdant forests dotted with proud antelope grazing rich soils shared
Deputy Governor of the RBA, Phil Lowe, has today delivered a nice speech in which outlines why it is that the labour market is softer than it appears. This will no doubt fail to silence those commentators that prefer to see the cup as half-full but most importantly, Lowe finishes on what amounts to a
By Leith van Onselen In yesterday’s post, Stamp duty slump to continue, I showed how the state and territory governments’ stamp duty receipts are unlikely to recover as expected over the forward budget estimates due to the ongoing slump in housing transactions (see below charts). The article concluded by arguing that the ongoing slump in
ANZ jobs ads for September are out and fell another 2.8% on the month: Here’s the total ads chart: And the growth chart: And from ANZ: The trend in newspaper and internet job advertisements is a signal of a softening labour market. Total advertisements have fallen for the past six months, and in more recent times
Regular readers will know that for a about a year, basically since the 2011 iron ore crash, I have been maintaining a base case that the mining boom is going to be much shorter and less spectacular than commonly thought. More recently I have been posting some excellent ANZ charts that illustrate just how quickly
Find below an enormously long speech from Treasury Secretary Martin Parkinson delivered today. It’s got some good bits and some guff, especially the stuff about there being no mining boom (or bust). On the whole, though, I agree with the thrust of it. We are not pre-destined to benefit from Asia’s rise. I give you,
By Leith van Onselen As noted by Houses & Holes earlier today, the Australian Bureau of Statistics this morning released the retail trade data for the month of August, which registered a seasonally-adjusted 0.2% increase over the month, half the consensus forecast of 0.4% growth. Over the year, retail sales increased by 3.2%. There were
Courtesy of Mark the Graph. I came across an interesting observation yesterday. I was looking at the number of hours worked per worker (and whether it changed during periods of economic downturns). Not surprisingly, the long term trend has been down (we all know more people are working part-time). What caught my eye was hours worked
August building approval are out and managed to retrace some of the awful falls of July (which were revised down from 17.3% to 21.2%) up 6.4%, beating consensus of 4.7%. Year on year, they are down 15.4%: Here are the internals: Not much joy here. Aussie dollar fell 30 pips on this and retail, below
August retail sales out and the result is pretty lousy at 0.2% growth, half consensus: Here are the internals: A bounce back for department stores, though over the past several months life sucks, more sadness for Gerry Harvey and food gallops on. Nothing but cautious consumer here.
By Leith van Onselen Tim Colebatch last week published an interesting article in The Age comparing the economic recovery following the 2008 slowdown versus the recessions of the 1970s, 1980s and the 1990s: THE recession we didn’t have during the GFC is starting to hurt more than the earlier ones we did have. Official figures
MB has a good record of predicting “unexpected” trade deficits and today is no exception. But one really does have to wonder why it’s so difficult for the MSM, not to mention other economists, to get trade data right. Here is the AFR’s take on today’s trade shocker: Australia’s trade balance has unexpectedly swung to
By Leith van Onselen The Australian Bureau of Statistics (ABS) has just released trade data for the month of August, with Australia recording a big seasonally-adjusted increase in its trade deficit to -$2,027 million, from -$1,530 million in July. June and July’s trade balances were also revised down heavily, from -$227 million to -$791 million
From Stephen Koukoulas this morning comes the RBA piece of the day: The about face from the Reserve Bank is good news and is further evidence of its pragmatism and flexibility. When it gets it wrong, the bank has acknowledged its errors with sudden and often unexpected interest rate moves. In addition to yesterday’s rate
The AiG Performance of Services Index for September is out and shows a small further fall to 41.9: Activity in the services sector ended the September quarter on a low note with the latest seasonally adjusted Australian Industry Group/ Commonwealth Bank Australian Performance of Services Index (Australian PSI®) down 0.5 points to 41.9 (readings below 50 indicate a