Our Neo-liberal “lefties” and Macroprudential

Below are a couple of comments made under the following article at Macrobusiness. click this link. (link may be locked – but there is a free trial available)

crack

First this 

PFH007

Yep – and you only need to hear so called lefties like Penny Wong peddling rubbish on QandA about, how Handy Andy Robb and the LNP are correct and Australia cannot ‘develop’ unless we agree to sell it off bit by bit, to know that neo-liberal stupid still runs very deep in the party.

With $2T in super and hundreds of billions of foreign debt invested in Caesar stone and electric pineapple splashbacks the idea that we need foreign capital is not just confused and moronic it is an outright lie.

For all his many faults Alan Jones understands it is a lie – even if he is not clear on exactly why.

Unproductive capital inflows are serving one purpose – funding the consumption of the current generation with a massive sale of assets and IOUs to be paid for by future generations (aka your kids) who will not own the capital assets required to make the repayments.

The foreign input Australia needs are good ideas and people willing to work hard.

Let the right people in and the first comes free of charge. Let in crooks and charletans and snake oil merchants trying to hide ill gotten gains and we will only add to our present over supply in those areas.

Then this

PFH007

It is happening already – hearing plenty of stories of ‘restructuring’ going on at the banks and the merging of sections – redundancy etc.

The only thing that is delaying the inevitable is the farce that is known as Macroprudential. A fancy way of saying capital controls directed to ‘selecting’ who gets their paws on a pile of bank created money in exchange for a 30 year interest accruing debt contract.

While it has had some impact, for the most part it has just encouraged people and brokers to do exactly what was predicted.

Find some way of ‘creating’ the impression they are one of the ‘worthy or good’ borrowers and not one of the ‘bad’ or undeserving applicants for private bank created money.  Investors become owner occupiers with a wave of a creative application form.

As a result there is still plenty of bank money/deposit creation going on and being channeled to speculators to bid on residential housing assets.

The fundamental flaw in Macroprudential is that is seeks to limit the supply of cheap debt to certain customers and thereby maintain the asset price bubble.

In other words it seeks to maintain the bubble – not with white shoe wearing speculators – but instead with owner occupiers and young families induced to sign a 30 year debt contract when interest rates are at record lows.

Madness.

If there is a concern about the misallocation of resources into existing housing as a result of excessively cheap debt for borrowing for that purpose the solution is to increase the price of debt for that purpose.

A rise in the price will kill the demand for debt for that purpose as surely as night follows day. The proof is in the way the RBA stimulates and supports the demand for debt by influencing the price by cutting the target rate.

No need to try and pick and choose between existing residential borrowers like King Solomon – let the price of debt select its victims.

Just direct APRA to stop/restrict banks from relying on ZIRP/NIRP off shore hot money to support their mortgage operations and/or increase the capital requirements for those loans and that will put gentle upward pressure on residential mortgage rates.

The RBA does not have to do a thing.

As rates for residential mortgage lending rise as the cost of supporting those operations rise the RBA can simply say it is the result of market forces not deliberate action.  APRA can rightly claim it is seeking to reduce our dependence and addiction to NIRP/ZIRP unproductive capital inflows.

Plus limiting the bank’s reliance on off shore hot money will put gentle downward pressure on the $AUD.

Letting air out of the residential housing debt bubble is not only essential but it would assist the rebalancing of the economy as it would help encourage more exporting and import competition.

Just like that nice Mr Pascoe recommended this morning in the Sydney Morning Herald

 

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