Thursday, December 2, 2010


There's a war going on in Canberra.

It's being fought between the Reserve Bank of Australia on one side and the Treasury allied with the government on the other.

This blogger has no special leak to offer, nor insight from the generals that are directing the battle, but the war is now out in the open in respective policy formulations.

The Reserve Bank is using aggressive interest rates and moral suasion to shift Australians from their debt-addled addiction to house prices and over-consumption. As was made clear by Glenn Stevens last Friday

As of today, the government is using the Budget to boost mortgage credit and house prices to fire up the addiction.

The RBA is engaged in an historic undertaking. And one that is without prior success, to this blogger's knowledge. It is attempting to backfill an enormous bubble, to grow beyond it, instead of suffering the calamitous deleveraging that is afflicting the rest of the Western world.

It has been granted the opportunity by a moment of historic serendipity; that China just happens to need an awful lot of Australian exports right now.

This gives the economy the external demand it needs to shift its drivers of growth from unproductive mortgage-led investment to productive business investment in mining and associated industries.

Regular readers will know that this blogger has issues with the RBA's faith in mining. It believes greater effort should be put into other export sectors. After all, mining will flourish anyway.

However, it is full of admiration for the manner in which the RBA is disregarding the pleas of housing and consumption related interests, allowing both to deflate whilst productive business investment catches up to the offshore borrowing that has underpinned our overblown lifestyles.

And so far, it's working. As yesterday's quarterly growth figures showed, much of the economy is not much above stall speed. Today we get the news that retail sales fell in October. Earlier in the week, it was obvious that housing has plateaued and is deflating in some areas, so far slowly and manageably. Yet employment is still strong and we're saving more.

This is eminently sensible policy in a post-GFC world that is governed by an inherently unstable global capital market system.

The government should be looking for ways to support this project. Finding ways to take the pressure off the dollar and boost exports outside of the resources sectors.

Who knows, a coordinated effort might even pull it off.

But as of today's leaked policy targeting greater availability of mortgage credit, the government is doing precisely the opposite. It has aimed up at the RBA's audacious project. And is wantonly deploying the one asset that has kept the nation from harm during the last several years of global turmoil: the Budget.

Bearing the burden of guarantees for bank liabilities big and small as well as the products of our most unstable credit providers, the Budget is being sent to struggle with the RBA over the personal balance sheets of Australians.

The Budget has been ordered into the trenches to shoot at its own.


PeterJB said...

It would be acceptable, that in this war, both sides could get the arguments of the fundamentals that holistically create their ideologies in order, whereas, at the moment, both sides are way off-base scientifically, technically and systematically.

The outcome, from where it is at today, continued systemic collapse and unnecessary pain and hardship for the productive entities of the Nation, ie, the taxpayers.

Anonymous said...

Forgive me while I go off-topic for a moment: tonight, I witnessed PM Julia Gillard declaring that Australian Julian Assange and Wikileaks was "illegally" posting documents so as to be available to the World public.

Too bad that judgement, "illegal", doesn't appear to be legally founded , valid and /or correct - as suggested and validated by numerous lawyers around the Globe who are involved and knowledgeable on the matter of concern. This includes at least one Australian Lawyer.

This guy Assange is an Australian Hero as he leads the new massive trend for true democracy by informed public involvement which demands accountability and competence by the "leadership" which obviously is not acceptable today.

Threat? Indeed, and not before time. I assume he will be subjected to a wet conclusion, and soon. A sad day!

Telstra (from 7:30) doesn't seem to get it - it's their scamming the Australian public, over charging and never delivering the pipe.

Australian Telstra victims (customers) are sending a message and it says - short Telstra along with all the Banks, and if they had any competent management, they would have known this more than a few years ago.

we live in exciting times and the long term future looks very bright, after we rid ourselves of those of Hanlon's Razor, ie, current "leadership".


Stewart said...

It makes me laugh a bit, actually, how clueless pollies can be about market/entrepreneurial activity.

Forcing down rates by forcing/introducing more competition will, largely, have the following free-market consequences:

- banks will get less funds, as people will be less willing to lend to them, as the bank cannot afford to pay them as high a yield --> less funds to lend to the real economy

- the banks will re-pursue volume-based lending practices: making up for reduced profit margins by increasing the amount of debt issued --> tendency to form credit bubbles

- share prices will reduce, and will not as-high plateaus even again: the banks simply won't be able to make the same amount of money, as their margins are smaller

Anyhow, just some musings - but these type of govt interventions "for the better", in the interest of protecting the status quo, so often being for the worst and damaging the status quo badly...mostly because of misunderstanding how the rational investor/entrepreneur/free-marketeer thinks and operates.

My 2c

Harquebus said...

All sides are aware of the "peak oil" dilemma but, none are admitting it. Treasury and the government are in complete denial.