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.