RBA holds off playing with fire

April 7, 2015 admin Australian Economy, Australian Housing, Monetary Policy 17

Today’s decision by the Reserve Bank of Australia (RBA) to leave interest rates unchanged is likely to indicate APRA’s crackdown on the banks (‘APRA to keep banking crackdown secret‘) has not been fully executed. Without these crucial measures in place, the central bank can’t take the risk of further fueling the Sydney and Melbourne property bubbles.

Last month, Reserve Bank statistics indicated household debt in Australia has reached a record high of 153.8 per cent of household disposable income. Barclay’s research shows Australian households now have the highest level of household debt in the Advanced world. Further leveraging at a time when the rest of the Australian economy is slowing, leaves households particularity vulnerable.

Today’s statement on the monetary policy decision included the common paragraph with a few minor changes:

Credit is recording moderate growth overall. Growth in lending to investors in housing assets is stronger than to owner-occupiers, though neither appears to be picking up further at present. [RBA ought to be happy] Lending to businesses, on the other hand, has been strengthening recently. [Another positive..] Dwelling prices continue to rise strongly in Sydney, though trends have been more varied in a number of other cities. The Bank is working with other regulators to assess and contain risks that may arise from the housing market. In other asset markets, prices for equities and commercial property have risen, in part as a result of declining long-term interest rates.

The last sentence could indicate the RBA is sensitive to creating bubbles in other markets from an abnormally low cash setting. Cutting interest rates could/has force some savers to seek out higher yields in the share market, creating new asset bubbles. Equity markets are already fully priced. The RBA raised concern about the commercial property market in last month’s Financial Stability Report (‘Risks increase in Australian commercial property‘.)

» Statement by Glenn Stevens, Governor: Monetary Policy Decision – Reserve Bank of Australia, 7th April 2015.
» Housing bubble compels RBA to hold – Australian Financial Review, 7th April 2015.




17 Comments

  2. Wow just wow is about I ll can say. Its going to take a MASSIVE crash for people and the Chinese to wake up to stop taking on so much debt. I just cant believe people are still piling it on. I dont think its stupidity anymore. I think its pure arrogance and alot of Australians have gotten extremely arrogant about the economy. I guess they figure the govt will bail them all out but soon they wont be able to bail anyone out and shouldnt.

  3. So true LBS. It looks to me like the entitlement complex has moved from middle class welfare to emergency low interest rates. Was watching the news tonight and they said the rate cut was “as safe as houses” and home owners were “deprived”.

  4. Classic Tulip-mania.

    I notice that Negative Gearing is getting mentioned a lot more on Q&A.

  6. Corruption as far as the eye can see as the RBA decision yesterday was released 7 seconds early to the High Frequency Traders who instantly filled their boots. The game is rigged, the tables are tilted and the goal posts have been stolen. When the bribery becomes clearly visible the bubbles are ready to collapse so get out of the game. It’s over.

    http://www.zerohedge.com/news/2015-04-07/australia-regulator-furious-central-bank-decision-leaked-hfts-third-time

  8. The name RBA is a contradiction. How can a private, not public, institution have anything to do with the Australian Government? It is an organization that is run by a committee that represents the top 1% that owns over 80% of Australia’s wealth. Money is simply created by typing any figure onto a computer, with no Gold equivalent, printed into currency and then lent to the Australian Government and Banks and charged at an interest rate. It is the biggest con job in History. This same 1% group pays for the election campaigns of all politicians. They decide the candidates, not the voter. The concept and system of voting is an illusion. The RBA is the most corrupt, hypocritical and sinister organization that is currently operating, with no mandate from the people of Australia and runs the daily lives of all of us. The RBA is grateful there are always the ‘sheep’ or the voters, to continue the ‘con’.

  9. @ Theo

    Yes: In reality, the only thing of value in the fiat system is the “interest” the government pays on the bonds…. Which is simply a promise to tax the public on their labour. Of course, as the fiat works it’s way through the economy, banks, investors etc. all end up with interest, while the government has to continually grow it’s revenue base to pay the banks their ‘interest’ on fake money.

    It’s a shocking, shocking system that has been used hundreds of times through out history with the end result ALWAYS the same:

    Public and governments become indebted to breaking point, purchasing items of no REAL value and often blowing bubbles in ZERO SUM equations (stocks, houses, art etc)…. All the while the 1% earn interest for running a printing press and purchase real assets (profitable businesses-often unlisted privately owned, precious metals, resource mining companies and licences).

    The 99% think they’re rich, while the 1% build real wealth: Then the system fails, the 99% fight each other for survival while the 1% are richer than ever:

    I hate the system, but play buy the rules: There has never been a better time to be debt free!

    *Free tip for today: With interest being as low as it is, you’re being given a get out free jail card in disguise: Pay down your debts, don’t increase them!

  10. THEO…..spot on……..
    Most people in this country are too caught up with Masterchef, The Block, or Friday night football to know any better. They think they are free and would laugh at this idea. People put a bean bag in the corner of a room in their house and class it as an entertainment room and expect 50 grand more for their property. This is what we are dealing with today…most have no hope let alone no idea. Glad to see some do though 🙂

  11. No LBS, the government and RBA won’t bail out everybody.

    They will bail out the banks sure. They will create an asset entry in the RBA ledger called “bad commercial bank loan and mortgages” and walla! All the banks problems are gone.

    They won’t bail out the mortgage holders though. Under water mortgagees will be butthurt for a long time paying those hundred thousand to a million $ and more loans on their homes that will be worth half of what they paid for.

    Nobody ever bailed out mortgage holders from the EU to Japan to US. Banks yes, people no.

  12. Why is every body so surprised at the ever increasing size of the property bubble.
    Morale Hazard occurs when the banks can’t lose. Consequently it is in their interest to pump up the housing market with money they create from nothing. The idea being to attract real money created by your labour (Deposit and Interest) Then when the RE market collapses it gets even better as they profit big time by taking your real asset. It doesn’t matter if it is worth half of what you paid for it, as they still get it for nothing and keep your payments. They prefer bankrupting you within the first 6 years of a 20 yr loan as not much capital has been paid (mainly interest)so you are on the hook for almost the full amount. As a mafia hitman once said “Don’t be upset by what I do, its only business”

  13. The comments by Theo and others remind me of the themes in Currency War. Australia is another zombie economy.

  14. MAX … I think you are pretty much on the money there.

    However, I would think the folk who frequent this site are by now well aware of the story and the folk who bought into the story would rather not hear it.

    Everything around us is suggesting this illusion is coming to an end. However nobody really knows exactly when we will go over the edge. And IMO you will see a handful of false ledges intended to pull you back into the game well before we really go over the edge.

    If you can, better to sit back at the edge of the fire, waiting till there is little more than ashes. With a growing awareness in the general public, pretty soon you might see early jumpers, cutting their losses. I would say DON’T buy in, unless you have the cash to pay in full.

    It really is a ‘systemic’ thing and for this monster the fall, it will require multiple organ failure. Iron ore demand, cement, shipping, unemployment, lose of social services, fall in wages, rise of interest rates (?), wars waged, etc, etc. You will then have a moment of stillness where you will have to wait for that last breath of air to pass.

    If you want to do well in the coming few years get out of debt NOW, however you can!!! Play dumb for a while and let the sheeple laugh at you. Sell your house, sell your car, take a bus, ride your bike, live with the grandparents or share a house, etc. A few years won’t kill you. And if you have kids, years down the track, they will look back with delight and thank you for it.

    Just an opinion of course.:-)

    Glenn

    “Collapse Now and Avoid the Rush” – John Michael Greer

  15. @ Glenn

    Interesting that you say sell everything. Where do you put the funds, keeping in mind the possibility of currency collapse and Bail-Ins?

  16. Max D … Yep whatever it is folk may be paying off and don’t look like owning outright sometime soonish, I would say SELL IT. After all Max, whatever asset someone is paying off is a potentially liability until it is payed off – especially at this point in the story.

    As for where to put your funds in the mean time? That’s a tough one. The trick to prospering in times of potential collapse is to diversify in very low risk options. And in the doing, you may still get hit, but by not losing it all in one swift blow, as many do, comparatively puts you ahead of the game. The name of the game for now, is not so much to make money, but simply to not lose it.

    When the bubble finally does pop, I would rather have 100,000k to my name than a very average ‘so called’ asset borrowed for 900,000k that may well depreciate for a very long time. In doing so I still have my life, my soul, and my wits.

    If you look at the big picture the party is over. Fracking for one, was the last, hardest, dirties, most energy intensive, least profitable (hugely speculative)fast moving bubble and may soon be on it’s last legs. What comes next? Why do you think the USA is picking a fight with Russia? They supply Europe with gas!

    My guess is the very rich are patiently sitting on their hands, waiting one last time, for the last of the suckers to buy-in, and when the mother of all crashes does finally come, they will clean up. If you consider the number of Aussies deep in debt, it might give you an idea of the potential inequalities soon to come. I suppose our governemnt wouldn’t let that happen, right?

    As for the bail-ins? If we kick the can that far down the track, we are all up shite creek without a paddle. To be honest, I really don’t know much bout this particular issue.

    If anyone has any more concrete suggestions, please do let me know?

    Again, just an opinion.

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