RBA Watch: The RBA likes asset bubbles not a weak AUD.

Macrobusiness posed the question today of whether the RBA will hike rates and concluded that it was very unlikely that the RBA will increase rates before 2024 “Why the RBA will NOT hike rates before 2024”

It noted that some market players were arguing that a rate hike before 2024 was possible because long term rates were rising and the differences in yields between the US and Australia remained low.

The article concluded that the RBA will be keen to try to keep the AUD as low as possible, to support tourism and education, and it was unlikely that the RBA’s hand would be forced by inflationary pressures resulting from holding down the AUD. The article also argued that if house prices rise too strongly as a result of the near zero interest rates the RBA and APRA would use macroprudential policies to control house prices and allow the RBA to hold interest rates lower for longer.

The problem with this thesis is that there is almost no evidence that either the RBA or APRA or the government are thinking along those lines.

Apart from some recent comments in passing, the RBA have never outlined a policy of attempting to manipulate the AUD with interest rate policy. The RBA have always been very clear. They use interest rate policy to provide “stimulus” and “support” economic activity and in Australia that means ONE thing. The demand for bank credit by Australian households to punt on housing.

To the extent that the lower rates required to stimulate demand for bank credit do put downward pressure on the AUD the RBA sees that as just a cost of doing business. If the AUD holds up while the RBA drives households deeper into debt all the better as it gives the RBA more room to move and drive credit creation with lower rates.

The last thing the RBA wants is for the AUD to crash and it be forced to increase rates to support the AUD. Lucky for the RBA, China’s demand for our exports is so great that we are currently running a trade surplus and current account surplus even as we were forced by China to eat our own lobster over summer. China is what is holding up the AUD and allowing the RBA to play with the fire of ZIRP and NIRP and endless QE and TFF and start driving house prices to the moon even as the border remains shut.

Photo by Rachel Xiao on

So let’s not pretend that the RBA is trying to save the Australian economy by driving down the AUD to stimulate local production – whether it be in widgets, educating the kids of the revolution or allowing them to pat a koala when the borders eventually open. All the RBA wants is solid demand for the product lines of our debt peddlers and that means scads of cheap credit for the great Aussie housing bubble.

But, given all that, is the conclusion that the RBA will do nearly anything to avoid lifting rates wrong?

No. The RBA has never been a fan of the idea that you can spot an asset price bubble and even less of a fan of the idea that anyone should do anything to stop or pop one. The RBA mocked the idea of macroprudential policies for years and there is no evidence that they are keen on the concept now. It has been truly bizarre how some well meaning folks keep imagining that the RBA has suddenly got on board with the macroprudential revolution. A revolution that was snuffed out in the cradle long ago with wagyu and shiraz.

The RBA will happily keep rates super low, and when people point at red hot housing prices the RBA will tell them they are imagining things and they see no cause for concern. The only thing that might wake up the RBA eventually are signs of CPI inflation and there is little chance of that with the government eager to get their wage depressing open boarders guest worker labour program back to full speed.

As for the government, does ANYBODY seriously believe that Scott Morrison and his team of economic carpet baggers get anything other than pure unadulterated joy from house prices frothing and foaming and crazy FOMO scenes playing out across the suburbs? As for a running a weak AUD policy? No way would that pass Scott from Marketing.

So when the Macrobusiness article concluded “..Fight it (the RBA) if you dare!..” it was on the money.

One would have to be crazy to fight the RBA. There could not be a more predictable, uninteresting and thoroughly captured Central Bank than our bunch of fossils up in Martin Place.

Donald Horne nailed them back in 1960

“..Australia is a lucky country run mainly by second rate people who share its luck. It lives on other people’s ideas, and, although its ordinary people are adaptable, most of its leaders (in all fields) so lack curiosity about the events that surround them that they are often taken by surprise…”

But the real issue is not whether the RBA will do anything interesting or novel or in the national interest (which dear readers is not the same thing as the interests of the private banks) but whether they are taken by surprise.

So what might be the surprises?

A few come to mind.

1. China deciding to give us a serious trade smack and put us back in to Trade deficit and CAD land. Thereby forcing us to once again borrow from the world rather than lend to the world as we are doing now for the first time in a couple of generations. Commodity booms rarely run forever. Especially when the driver of the boom is getting more irritated by the day by our cheeky insubordination.

2. Foreign Central banks realising that the only way to really kill off demand for private money in the form of crypto is to allow the general public access to Central Bank digital currency in the form of Central Bank deposit accounts. And in doing so end or severely limit the monopoly and resulting privileges of private banks and their publicly backed private money. China might very well set the pace in this area as it has no private banks of any substance to corrupt its policy makers.

What is really disappointing is that there are so few Australians who actually seem interested in driving the RBA towards serious monetary reform despite their excited agitations on a gaggle of minor woke/progressive/trigger issues that do not really amount to much.

If the woke really want to shake things up and “give to the man (white and privileged of course)” all they need do is demand that the banker monopoly over deposit accounts at the RBA end…right now.

That is very simple war cry and there is no decent argument against ending such a blatant corporate welfarist monopoly and allowing all Australians access to the safest and most secure deposit accounts in the land.

Unfortunately while the RBA may have sold out to the interests of private bankers to most Australian in the finance / banking field and the general public it remains a sacred and vernerable cloister full of disinterested monks and pointy heads and completely beyond serious questioning.

And NO – begging the RBA to engage in more QE and more TFF does not amount to radical reform.

It is nothing more than demanding that the RBA do what it really wanted to do but felt a bit guilty about doing as it was so shamelessly not in the public interest to be driving up the assets of rich people and supplying the ‘credit worthy’ (mostly people in the top 20-30% ) with cheap credit to buy more existing assets.

Categories: Macrobusiness

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