Fire the RBA Governor
Guest observation
Even Jessica Simpson could have done his job.
In my book Australia: Boom to Bust I argue that since 2008, the Reserve Bank of Australia (RBA) and Australia's politicians have been managing a credit fuelled property bubble– not an economy.
Here are the simple facts:
- Interest rates are at record lows
- Speculation (lending/negative gearing) on property is at an all-time high
- Property prices; particularly in Sydney and Melbourne (37% of Australia's population) are at an all-time high
Under the watch of RBA Governor Glenn Stevens, this is what Australia's economic reality is. In recent time, the RBA has maintained record low interest rates on the bet that the housing sector would pick up the slack as investment in the mining sector declines.
What is clear is that the RBA governors' bet has paid off only to leave the heart of Australian household wealth and liabilities 100% dependant on property price growth.
Australian households have not only bet on house prices only rising. But their retirement & superannuation funds have also bet the banking system will forever be able to lend more to homebuyers than the previous year. That is what the Australian banking system relies on. Any changes break-down the flow of money in the form of debt to new homebuyers.
As Bubble Economics authors Philip Soos and Paul Egan rightly point out, property investors today are chasing net-yields comparable to the tech bubble of the late 90's. In a nutshell, when there is such heavy demand to invest in a market that secures incredibly lousy yields, history tells us the particular market is in a heavy state of speculation.
Furthermore, it also overshadows the oversupply of toxic debt, which is the real reason property prices are where they are today.
First time home buyers (FHBs) are (without the help of parents lifesavings) utterly priced out of home ownership. With the strong possibility that macroprudential tools may be implemented in an attempt to cool the housing market, it is clear that whatever tools are used, FHBs will make up an even smaller proportion of property buyers.
Pushing FHBs to the sideline for an immediate period of time might actually help protect this segment of the property buyers out there from getting themselves into too much debt. But negate their fair chance to own a home like their previous generations have– for a much lower cost. Where does this leave us? With the real risk a generation of retirees, self-managed super fund investors and other recent property buyers holding large sums of debt that will become underwater mortgages when the property market turns south.
The RBA has had six years to make housing more affordable for all Australian's and to not let the property bubble grow. In this instance, the RBA has chronically failed by successfully keeping the property bubble inflated at the cost of the rest of the domestic economy. On top of this there is a chronic oversupply of toxic debt which has been successfully overshadowed by the banking and real estate pundits.
They argue that there is an apparent shortage of housing stock, but never question or mention an oversupply of debt. This is Australia's reality today. This was also America and Ireland's reality back in 2006. It did not end well for those two nations, and it will end no better for Australia.
It's time Australia's central bankers and politicians were actually held accountable for the decisions (or lack thereof) they have made. They must be challenged by our local mainstream media on the facts, not the talk. If our powerful media dives deeper into the decision making process of the RBA board, they will find that they are truly living in Disneyland. Because that's what the maths tell us.
If you think the RBA would not have been better managed under another leader, just think of this simple fact.
Even if Jessica Simpson was the RBA governor between 2008-2012, the Australian economy would have continuously grown.
Why?
Because a country 5,000 miles away called China made a once in a lifetime investment into an iron ore intensive construction binge.
It was almost mathematically impossible for the Australian economy to fail, or enter recession between late 2008 and late 2012.
Now this binge seems en-route to end. And Australia is now a country with absolutely nothing to fall back on but an overseas banker's willingness to lend more wholesale debt to the Australian banking system - and from the Australian banking system to households.
A failed RBA lead by a failed Governor.
Lindsay David is a co-founder of clean technology company GreenRigCo and a former strategy and business development consultant. You can read his blog here.