Macrobusiness today noted that the “property industry” whinging has started as APRA finally emerges from hibernation and attempts to throw some macroprudential water on the crackling and sizzling property markets in Sydney and Melbourne.
Macro-prudential measures – if they achieve their objective – which is to reduce the supply of credit to particular groups and thereby reduce the level of demand for particular assets and thereby slow the rate of increase in the price of those assets – are ultimately a form of capital control – just messy, easily criticsed and not very effective.
Because they are selective and because they put sand in the gears of a Debt Machine economy (without actually addressing that the Debt Machine model is the problem), it is not surprising that they are the subject of a lot of criticism.
It is like living in Never Never Land and then arbitrarily deciding that Tinkerbell will be limited to 50% spell power. Don’t expect Wendy and Peter to thank you!
Macroprudential policies rely on the theory that you can switch a Debt Machine, that is dependent on ZIRP already, to run on a wholemeal blend of nice innocent fresh debtor flesh (FHB taste sweetest). Why anyone would think that is a good idea, even if it were to work, is hard to explain.
Rather than have uglies in white shoes prop up inflated asset prices with manipulated interest rates we will get new young families to do so.
The macroprudential strategy is a risky exercise because there is a good chance that a Debt Machine running on ZIRP and very inflated asset prices will shudder to a halt and slide into reverse when the knobs are twiddled and the uglies in white shoes are forced to take a seat. One would not want to be standing next to the macroprudential lever if that happened – yanking it back suddenly in the opposite direction may not re-start the Debt Machines forward motion.
A much better approach is to be upfront and regulate the worst forms of unproductive investment directly and that means slowly fixing the broken price signals (interest rates) that are driving the mal-investment. And that involves nothing more than slowly restricting the hot money inflows that make the artificial interest rates possible.
Did I mention that running an economy on interest rates supported by hot money inflows inflates the exchange rate and thereby undermines the competitiveness of the economy?
Well that too!
PS: Before you all stamp your feet are call me a crash-nik, that is where QE for the People will come in to help make sure that while the deleveraging takes place (and the money supply is shrivelling) there is plenty of fresh dollars being injected to the system via tax cuts.
A “Golden Kanga 0% Save the Nation” bond is just what the doctor ordered.
As natural as Weet-bix.