Australia has often been treated abominably by its regulators, politicians and the supposed financial backstops meant to ensure good financial practice, the Reserve Bank Board. It seems to mirror the same mindset seen in the USA which has also crippled it recently but, worse than that, all the worst elements of the policy mindset that made for hardly any changes after the Global Financial Crisis still seem to be in place
Reserve Bank of Australia has form for mistakes with its interest rate policy.
Adam Creighton of the Australian summed it up in his article on 6 December Reserve Bank paves way for further cuts in official interest rates” :-
The Reserve Bank has paved the way for further cuts to the official interest rate and could even resort to quantitative easing — “printing money” to buy government bonds — to ward off a potential downturn.
In a major speech last night, RBA deputy governor Guy Debelle ….also warned that a lending slowdown could hurt the economy, in a sign the bank is fretting about the potential fallout from an emerging slump in house prices. “There is a risk that a reduced appetite to lend will overly curtail borrowing with consequent effects for the Australian economy,” Dr Debelle said.
Yet another negligent Reserve Bank Board has acted incompetently and will cost the Australian public (& economy dearly). In the Keating years, many of us (myself included, then having a new mortgage) blamed Keating for the horrendous rises in interest rates which crippled us but the then-Board of the Reserve Bank later took its share of the blame for also keeping to back the tunnel-vision of backing the steep rises in interest rates for far too long ,- until it crippled us in fact. Soon afterwards we had the Keating “recession we had to have”. Those mistakes cost many of us dearly and made us forever wary and to look to overall benefits and not to cripple the economy.
Now we have seen the same negligence unfold for some years, directly led by the Reserve Bank itself. This time it sunk interest rates for years to lower the exchange rate of the dollar and, time after time, as the value stayed high or barely moved, they kept doing it. The by-product of artificially low interest rates – raging speculation in the housing market – was as obvious to all as was the stress felt by self-funded retirees as their interest rates on savings plummeted.
Now the bank board is prisoner to the housing bubble created by the RB policies and the bank (& government) are scared stiff of allowing the natural correction that should occur. When you have encouraged so many people to get in on the bubble, to shove money at them and allow people with hardly any assets to own multiple homes on the basis of a capital gain in a short while, the obvious danger in this will lead to a crash in the market as they overreach. It is a natural phenomenon that the market will correct and remove that person or entity from the market by bankrupting or otherwise removing it from the now-corrupted market. Reserve Bank policy has made the housing sector and its participants virtually exempt from the normal processes of risk and bankruptcy. Seemingly without fear of failure, these participants can and do take excessive risks.
Just like the abominable Too Big to Fail politics that ruined the world at the GFC, this housing mess has been allowed to get out of hand. They won’t correct it and allow the speculators to fail, be weeded out, the normal processes of bankruptcy and creative destruction, because of the immediate damage flowing from it and the usual multiple trade jobs in the construction industry.
Just as those incompetent, Too Big to Fail banks were allowed to become Even Bigger and not go out of business to fix the market again, and lapsed into the same old practices which led to the GFC in the first place, so do our failures see their lifeline as being the policies of the Reserve Bank and government wishes of every kind. Now we see the ludicrous idea that state governments should be protected by regulators from suffering the consequences of their own policies! (See WA Treasurer calls on APRA to tailor policy to regional conditions as property woes weigh on economy).
It’s about time somebody called out the Reserve Bank and didn’t just put up with its mistakes.Follow