RBA Watch: The Wizard loves the curtain

Governor Glenn delivered a speech yesterday to the ASIC Annual Forum 2016 that included the following – emphasis added.

“…On the topic of loan quality, the strengthening of lending standards for housing that has resulted from the actions of both APRA and ASIC was timely. So often over the years, tighter standards tended to come too late and reinforced a downturn after it had begun. These measures have occurred ahead, so far as one can tell, of the point in the cycle when measures of asset quality start to deteriorate. Some moderation in house prices in some of the locations where they had been rising most rapidly, while not the direct objective of the supervisory measures , is also, in my judgement, helpful…”

TGP operative PFH007 made the following comment – below the coverage of the speech at Macrobusiness

Governor Glenn really works hard to avoid using the naughty word – macruprudential – or the truly potty mouth ones – capital controls and credit controls.

Instead we get the vague ‘supervisory measures’ and ‘lending standards’.

Bull dust detectors go off when the Governor denies that the purpose of APRA telling banks to ration credit to investors borrowing for residential housing investment was not to target the rate of house price growth.

It does not help the cause of an informed debate for the RBA to obsfucate about the powers of the RBA and APRA to control the price and access to credit – aka bank created money – and the significance of those powers for

1 The prices of particular assets classes

2. The level of foreign liabilities incurred in supporting those prices.

The wizard does love his curtain.

Another reader responded to this with

I read the fact that there are two organiations as systemic obfuscation. NZ doesn’t need a central bank then another guy called APRA. Its like a national version of middle managers passing the buck amongst each other.

To which PFH007 responded

Yes – This is a very interesting book on the subject of regulating the price of credit and the creation of credit.

The author discusses the bun fight that took place in Japan between the Ministry of Finance and the BOJ in the 1990s and how control of ‘credit creation’ was often more important than control over setting the target interest rate. In other words setting a low interest rate is not the end of the story. His argument is when those two organisations were battling for power – the BOJ actively undermined MoF low interest rate policy (and other MoF policies) by working to restrict credit creation.

Too little attention is given to the “choices” that APRA makes and the very real impact of those choices on what asset prices, industries and people receive the benefit of credit creation (new bank money).

If APRA is able to direct the banks to ration new credit to investors in residential real estate to 10% growth per year, it is quite capable of directing the ‘rationing’ or supply of credit to particular lending purposes and particular borrowers.

Considering the importance of where credit is directed (aka new Bank Money) there is nothing to stop APRA directing Banks to ration credit to specific categories of borrowers

1. Seeking to borrow money to purchase existing housing assets.

2. Seeking to borrow money to purchase new housing assets.

And the capital requirements for each of those loans categories.

That of course leads to the observations that those choices are very political and should be left in the hands of the politicians that are responsible to the voters.


Setting the price of money, controlling the creation of credit, controlling the use of foreign capital by the banking system ARE inherently political and the current model of “independence” is not only unhelpful but has at its core the deliberate attempt to put political decisions in the hands of a secretive bunch of technocrats who as we can see administer the system to maximise the growth and ‘stability’ of the financial sector. How many industries have two secretive regulators working full time to support their growth and health. Nice if you can get it.

If we want to control the FIRE sector takeover and domination of the economy the first step is to rip away the “curtain” of concealment that is created by the so-called independence of APRA and the RBA.

Stop pretending that they are ‘above politics’ and the consequences of their ‘choices’ are just the operation of some invisible hand that is ‘beyond their control’.

Categories: Macrobusiness

2 replies »

    • You should try and get a copy of that Princes of the Yen book – really interesting read on what went on in Japan and how important is the control of ‘credit creation’ and the significance of the APRA and RBA split of responsibilities.

      The bit about the post war period in Japan is interesting as well – having regard to Donald Trump’s claims that he is going to make the US great again. Possibly some clues to what he might be thinking of doing if he is serious and not just mugging for the cameras.


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