RBA/APRA Watch: The Puppet Masters still hold the strings

“….both Sydney and Melbourne are primed for a painful correction as soon as the domestic and foreign specufestor interest wanes….”

That raises the question of when does the interest of a specufestor wane?

If a specufestor’s interest is not really driven by fundamentals (and years of sensible commentary on Macrobusiness has demonstrated this beyond doubt) that leaves the availability of credit as the key motivating force. That suggests that their interest is unlikely to wane while they perceive that the RBA and APRA remain committed to adjusting the price of credit downwards and facilitating its supply.

In other words, specufestors are chasing capital gains and they see those as mostly the product of the amount of credit available to be pumped into the asset class.

Therefore specufestors are mostly the creation of and directed by the RBA and APRA – and other issues relating to fundamentals (yield, negative gearing, population ponzi, land planning, tax) are important but secondary when they are drowned out by the intensity of the ‘credit’ price and credit supply signalling from the RBA and APRA to the specufestors.

The RBA and APRA have made it clear they do not believe monetary policy is spent AND they have said nothing that suggests that they believe a reliance on monetary policy (and debt-onomics) is now unwise and should be reconsidered. Nor have ANY members of the political class said anything that questions the role, charter and approach of RBA and APRA and the overall reliance on monetary policy (and household debt) as a tool of economic management.

That means they all remain firm believers in the “Debt Machine” model of economic management and the RBA and APRA remain the puppet masters of the specufestors and the bubble prices that result from their activities.

While the RBA and APRA are holding their strings steady at the moment and allowing their ‘toys’ to rest they have given no indications they intend to draw the curtain on the performance.

Plus it is still only a very small minority that are calling for the RBA and APRA string pulling powers to be heavily restricted or removed (no more debt driven asset price pumping). Most are still calling for their powers (ZIRP) to be encouraged (more rate cuts please sir) perhaps with a bit more direction as to which puppets get to dance.

So we should not assume it is the right time to clap.

Take a bow RBA and APRA you own this mess.

Take a bow the political class and the mainstream economic commentary you are not doing your job!

To read the original version of this comment in the original context at Macrobusiness.com.au click this link. (link maybe locked – but there is a free trial available).

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