MyRBA

MyRBA: How to avoid a property bust or to survive and thrive if there is one.

While the COVID-19 pandemic has caused disruption, to some it remains a minor concern, compared to their true horror, “a property bust”, that they believe is lurking and waiting to pounce and devour the Australian economy.

This tweet by Stephen Koukoulas is fairly typical of the genre, containing a warning of “smashed” household wealth and a “knee capped” economy.

And the linked article by Koukoulas talks of the government “pummelling” house prices.

Pump priming is needed now to lift the performance of the economy and help jobs right now, but should spill over well into 2021 when the house prices risks are most acute.

The flood of risks on the economy broadly and housing in particular are overwhelmingly to the downside. 

Policy makers – do something now.

Shocking stuff but unfortunately the concern is well founded as our “deregulated” private banks have been allowed, over the last 40 years, to expand their loan books enormously by extending more and more credit secured by nothing more than residential land prices that have themselves been inflated by earlier bank credit creation.

Yep, the value of the land which is the security for new loans was inflated by earlier loans. As those earlier loans made the land more valuable it could now be used to secure larger loans which were then used to bid up and inflate the land values even more.

Australian Banks had invented perpetual wealth creation.

As long as they kept making larger loans to more and more people, the value of the land securing those loans would keep rising.

How brilliant is that!

There was just one small catch. Aussie household incomes in this era of disorganised labour were only rising slowly and eventually they became a limiting factor on how much credit (aka money) the banks could create.

To solve this problem the banks started lowering their lending standards (i.e. not asking too many questions or double checking the fibs) and the RBA started cutting interest rates as lower interest rates allow for larger loans for a given level of household income. The RBA euphemism for this asset price fluffing with ever cheaper credit is “providing support” to the economy.

Nothing was allowed to stand in the way of the great Aussie wealth perpetual motion machine. As Aussie households ran out of aspirational enthusiasm for more debt to chase inflated property assets the government opened access to local residential property markets to hot money from foreign speculators eager to get rich on the Aussie property perpetual motion machine and if we had to offer them a fast track to a residential visa to seal the deal we did that too.

How brilliant is that?

Keeping a housing a banker / property developer / real estate agent / tax dodger housing bubble alive by selling residency to foreigners.

Only a #Nazi #racist #xenophobe could be opposed to that!

So having built this steaming mountain of inflated residential property prices with a steaming mountain of bank credit and having stood by as the domestic economy was twisted and warped by asset price fluffing ponzinomics, keeping the perpetual wealth creation machine marching forward remained of critical importance and yet very hard to do when COVID-19 has shut the borders and is crushing household incomes that even before COVID-19 had been stretched to breaking point servicing the existing mountain of household debt (2nd highest in the world).

What are the options?

If we fool ourselves, that the existing model of pumping land values higher with debt so they can support even more debt remains viable, then there are no good options. The evidence for this can be seen in the increasingly desperate pleas, by the industry insiders, lobbyists, rent seekers, journalist promoters of the existing model, that the government simply must:

  • Ignore the risks of COVID-19 and open the doors as soon as possible to more immigrants who can jump on the lower rungs of the debt / house price ponzi ladder.
  • Offer larger incentives to induce Australians to enter the housing market and take on debt to help maintain upward pressure on house prices.
  • Offer tax benefits to induce Australian to continue to over invest / over capitalise existing housing … e.g. a renovation bonus
  • Relax restrictions on foreign speculators betting on Australian house prices.

And if anyone questions whether any of these demands make sense or are in the interests of the Australian public or even environmental sustainability the response of the promoters is simple.

Do it or the economy will get it. In other words do it or the economy will collapse because we have built the economy around the great Aussie property perpetual motion machine!

How can MyRBA help? For some details on MyRBA see recent posts.

MyRBA can help because it ends the dependence of the public monetary system on the money / credit creation by the private banks which for the last 40 years has been directed to the unproductive pumping up of prices of existing assets rather than investment in productive new economic capacity.

Fully reserving the near $2 trillion worth of private bank deposits on the RBA balance sheet and allowing the general public and non-banks to operate MyRBA deposit accounts at the RBA means that there is no longer any need to bend so much public policy to the single objective of increasing demand for household debt that is to be directed to driving up the prices of existing housing.

In other words the reliance on “trickle down” economics, whereby money created by private banks and given to those they deem “credit worthy” is believed to eventually trickle down to the little people as the “credit worthy” borrowers spend their fresh bank credits on new splashbacks and European applicances, will end.

Instead we can pursue “trickle up” economics whereby any amounts of new money that are considered necessary to maintain currency stability as the economy grows (or to counteract the deflationary effects of COVID-19) are to distributed on a democratic and equal basis via the MyRBA accounts and allowed to flow out from those MyRBA accounts to those who are best able to persuade the owners of those accounts to part with some of their MyRBA balances.

Allowing ALL of the general public the opportunity to decide what goods or services they spend the distributions on, or whether to pay down debt or to invest, is far superior to the current model where only those deemed “credit worthy” (aka existing asset owners) by a private bank are given access to newly created money and even then for the limited purposes of punting on house prices.

Giving the general public the power to choose what goods and services are of value to them is critical when COVID-19 is likely to fundamentally change the patterns of economic activity and demand for different goods and services. We simply have no idea what businesses will survive and what businesses will spring up to serve the public in the COVID-19 era. Maximum flexibility is required and that is why the general public should be picking the winners by making spending decisions with their own money and not pork barrelling politicians, know all public servants or worst of all bonus hunting bankers.

And before anyone shrieks Weimar, Zimbabwe etc they should keep in mind that the track record of the RBA in avoiding the massive asset price inflation, that resulted from the recklessly unproductive bank money creation over the last 40 years, has been woeful and that form of inflation is much less likely under the MyRBA approach as banks cannot simply create “credit” out of thin air they have to actually persuade an investor to part with their MyRBA deposits before they can make a loan.

As for CPI inflation, does anyone seriously suggest that after a 40 year obsession with the eradication of CPI inflation and the various drivers of it, including the union movement, that the obsession is suddenly going to evaporate?

In the event that from time to time, new money creation is considered necessary and is distributed to the public via their MyRBA accounts (or their fully reserved accounts at banks) the impact of those distributions on CPI inflation will be watched hawk like by all those bank loving types who will be desperate to regain control over public money creation.

CPI inflation will be the least of our concerns.

Bankers suffering relevant deprivation syndrome and moaning endlessly and loudly in the AFR about the loss of their money creation powers is much more likely to be a source of ongoing concern and public irritation. They will not go quietly into the night. Expect the parasites to fight with everything they have.

Categories: MyRBA

10 replies »

  1. This is a good piece. But, looking at it through a class-aware prism, I’d say that there is a huge risk that the myRBA money creation model that you suggest will tend to “trickle up” in the worst possible way.

    That is from ordinary households, to landlords, grocery oligopolistic and other assorted rent seekers who have already captured the positions goods and infrastructure.

    Political and social reform is needed before any fiscal or monetary reforms. Other ways any monetary and fiscal reforms will be subverted to serve the purposes of the elite (already wealthy/well connected/etc). That’s what I reckon. Personally, I can’t see how the social/political reforms are feasible unless brought on involuntarily by a mighty crash.

    (….Maybe I should hang out here more, given that the MB kids like to ban me for getting in the way of historical revisionism…)

    Liked by 1 person

    • Hi Peachy,

      MyRBA will not fix every problem under the sun (though the common cold will be vanquished) and certainly the assorted rent seekers, market manipulators and ticket clippers will be keen for a taste of any transfers from a MyRBA account.

      But they will have to work a lot harder than the asset price joy riders do now where they can wrap their laughing gear around great gobs of loot spraying from the asset price inflation and capital gains resulting from credit creation decisions of banker algorithms.

      There will be much less interest in tilting the table towards banking / finance and asset prices when money creation and destruction is no longer a banker privilege. There will be no magic money for asset price pumping. Every dollar will need to be extracted from someone’s MyRBA account and that will involve real sweat.

      And all that is required to drive this reform is to convince the general public that it is an outrageous fraud that they are not permitted to operate a deposit account at the RBA.

      MyRBA accounts for the public is a simple and compelling reform that is hard to counter.

      As I noted in the post on essential banker bootcamp equipment, giving effect to something as simple and unassuming as a deposits account at the RBA involves a fundamental reform of the role of banks in our economy and all the parasites and sucker fish that depend on that role.

      https://theglass-pyramid.com/2020/07/26/bank-watch-essential-bootcamp-equipment/

      If you want a reform that will subvert the dominant paradigm. giving the general public and non banks access to MyRBA deposit accounts at the RBA is a good place to start.

      Like

  2. Hi Glass Pyramid. I’ve love the idea of MyRBA and it makes a lot of sense that a public institution should serve public.

    With that said, I’m interested in hearing your thoughts about what you covered in the first part of your article. I’m pretty well verse in how we got ourselves into this mess. What seems far less clear is what might happen now.

    Now, I’m not expecting conclusive predictions here.- but I would like to hear someone who is clearly more of an expert than me on the following:

    1. What are the present perceptions that international lenders have towards the retail banking sector in Australia?

    2. What is the international sentiment about holding Australian Gov bonds? I know in your article last week, you quoted the RBA chair saying they were going to pay for the stimulation by selling bonds and there are relatively good rates for Australia. I suppose there is a lot of money around at the moment internationally.

    3. What is driving up the Aussie currency? Is it the RBA policy above?

    4. Do you think there be some version of MMT that is funded by central bank debt? If so, is this at all sustainable? Won’t there be a point where the international lenders call BS on Australia?

    5. If some of the retail banks became insolvent, would the RBA take on all the outstanding loans? Is that at all on the cards?

    6. How much longer can they keep a shutdown Aus economy going, where credit is less available and people can’t pay the interest on the debt? Could there be a sovereign default here?

    Okay, so that’s a lot of questions! Didn’t expect to write so many. Shows how out of touch even a relatively curious Aussie like me is on the state of things.

    Liked by 1 person

    • Thanks Brett,

      Some quick notes.

      1. I don’t know what the perception of international lender are but the rates paid by our retail banks to borrow from them are probably the best indication. Some might argue that those rates reflect an understanding that our large retail banks are effectively guaranteed by the public.

      2. Not sure about the international sentiment about Australian government bonds but the AOFM does not appear to have had too much trouble selling bucket loads of them so far to the local primary dealers. Given the RBA is happily buying up bonds in the secondary market from the primary dealers I doubt the AOFM will have much trouble selling them to primary dealers in the future.

      3. The AUD is holding up because despite the war of words with China they and other countries are still buying up boatloads of raw materials and the government is happily allowing foreigners to buy whatever they want and our banks / non banks to borrow offshore if they wish to. All of that puts upward pressure on the AUD in an environment where many of our trading partners are keen to see their exchange rates fall.

      4. MMT would argue that it is describing the current system so from that perspective we already have MMT. I think it unlikely that the RBA is going to do what some MMT supporters argue that it should do which is buy up bonds issued for nation building projects etc or directly buy bonds issued by the government for similar purposes. However, the Governor of the RBA made it clear that the government should happily sell bonds to the banks and use the money for wholesome purposes and it is clear that the RBA will happily buy up some of those extra bonds if necessary to keep bond prices and yields low.

      5. The big retail banks are unlikely to become insolvent as the RBA will offer swimming pool loads of “liquidity” (buy buying up the bank assets) and any small ones that get into trouble will be forced/encouraged to merge with the big ones.

      6. The Australian economy is not shut down (at least outside of some parts of Victoria it isn’t). It is just that businesses that are not compatible with infection control are operating on a limited basis or not at all. The government can keep on supplying those businesses and the employees of those businesses with cash but the really big question is whether the economy can adapt and produce services and goods that ARE compatible with medium term infection control. I don’t know the answer to that but we are going to need to try and find out as sitting around with nothing to do is not much of a strategy even if the government is giving you a ration of $750 per week. We need to start thinking about what we are going to do if significant infection control is permanent way of life (by that I don’t mean lockdowns but things like serious ongoing quarantine and lots of work from home etc)

      And there definitely will not be a sovereign default as I don’t think the government nor our banks and other businesses owe a lot of money in other currencies.

      The first sign we really have a problem is when the AUD starts falling as that will make all the imported gadgets really pricey and there is no sign of that at the moment.

      If any anything the AUD is pushing upwards.

      Like

  3. Nailed it again pfH.
    Tis a pity you’re not
    (1) RBA governor
    (2) Permanent Head @ Treasury
    (3) Curriculum Czar for Australian University Economic faculties
    (4) All of the above
    Keep typing!

    Liked by 1 person

    • All the deposits generated by the perpetual motion wealth machine credit creation process have to go somewhere.

      Generally into the bank accounts of the vendors of inflating asset prices.

      The fragile nature of the wealth machine is reflected in the rising panic levels of which Koukoulas’ tweet is just one example.

      Our real estate brochures, The AFR, the Australian and the SMH are full of them day in day out.

      Reopen the borders

      Relax our already flimsy restrictions on foreign speculation in residential land

      Boost subsidies, grant and tax lurks for property punters

      And the message is always the same “Give us what we want or the hostage (the economy) gets it”

      Like

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