What does this mean for interest rates in May?
Within the logic of the current debt driven economic model and a heavily over indebted household sector the tractor beam of ZIRP is almost inescapable so further cuts are just a matter of time.
Especially when the government is still deep in Clockwork Orange-style deprogramming of its mania for fiscal conservatism and the treatment is not showing signs of success – yet.
Having said that it is clear the RBA are getting worried about the frequency with which more and more people are pointing out that the Household Debt Machine is blowing smoke and dripping oil. Normal people are just not borrowing and the Household Debt Machine is now running on an unstable and volatile mix of the “white shoe brigade” and that newly discovered (but last resort) source of debt demand the First Home Investor “FHI”.
The FHI is often found lurking in granny flats behind mum and dad’s place, simmering while their dear parents supervise all their expenditures and latte consumption
” Son do you really need to go out this weekend, you know your mother and I are worried about you…..and that guarantee we gave the bank”.
We know the FHI will never get to live in their tiny investment flat unless they are prepared to make some sacrifices just like their parents did when they selflessly strapped themselves (and their residential assets) into the asset price rocket ship launched by the RBA in the late 1990s.
Plus “Bubbles” Hockey insists he is not going to “chase down the mining bust” as revenues dry up which may mean he reckons he can blow the budget deficit and still find some way of fingering the ALP for it (or perhaps that smug Mr Costello). Those eyeball dilators featured in Clockwork Orange might start to gain traction if “Bubbles” is shown endless reels of smiling babies juxtaposed with fiscal deficit graphs.
It was so much easier for the RBA when the great mass of the economic commentary industry was repeating the predictable mantras of the orthodox school and falling on their knees to bless the sublime beauty of an economy run on monetary policy, private debt and an “independent” central bank. No one was asking questions… everything was just sweeeet.
You know the drill …..private debt does not matter…it is mostly just rich people who are levering up on asset price speculation….. rich people debts don’t go bad…….unregulated capital inflows are great….why not gorge on the savings of foreigners……a nation can be built on the wealth effect elf and asset prices……… the confidence fairy has made an unbreakable vow to never leave our side ……..etc etc.
Sadly for the RBA and Governor Glenn the economic policy rebels are now whizzing all about the interwebs in their X-wings and shooting soft Central Bank rationales like wamp rats on Tatooine.
Shockingly, the limits of monetary policy are now being discussed in mixed company and over fine china and silverware in the Big Apple.
What does this mean for an interest rate cut in May?
Maybe yes and maybe no.