Slowly but surely the penny is dropping right around the world. The issues that caused the GFC have not been resolved, are not going away and are lurking in the corner ready to pounce.
Despite all the radical actions, by Central Banks and governments, the international economic system remains on life support.
What are the key elements of the system that have demonstrated beyond doubt that it is structurally defective?
- The effective privatisation of most public money creation to private banks. Neoliberal theory argues that most new public money creation should be by private banks in the form of new bank lending. Neoliberals argue fiercely that the public sector should create as little new money as possible – which is what a fiscal deficit amounts to. What we have is an effective “franchise” (click link for a very interesting article on the subject) granted by the public sector to private banks to create new public money. The problem with this is that public money creation in the form of private bank lending is a very unfair and inefficient method of introducing new money into an economy as it is almost inevitably directed to the unproductive activity of pumping up and maintaining the prices of assets that can be pledged as security for the loans.
Yep the closure of Australian Car Manufacturing says everything about the ignorance and stupidity of our politicians and many of our economic commentators.
The Glass Pyramid doesn’t care whether we produce cars or not BUT it does care that a local industry is closing for no other reason than our ‘economic’ commentary class are idiots when it comes to understanding the significance of capital flows in an age of currency warfare.
If the effective tariff on local workers and industry generated by massive unproductive capital inflows was removed, or at least severely restricted, and the car industry was still unable to survive – with or without subsidies – we would be having been a different discussion but the fact is that we are allowing our trade rivals to crush our car and other export or import competing industries with blatant currency warfare in the form of predatory capital flows. Continue reading
Simply amazing what an inflated exchange rate will do !
Gutting export and import competing industries right across the nation.
And there is unlikely to be any improvement on that front whilst both sides of politics give a big thumbs up to APRA allowing our banking sector to guzzle on unproductive capital inflows (ZIRP/NIRP hot money) in order to dish out super low mortgage rates to the speculator class.
In that regard Mr Morrison is a determined cheerleader.
If we are serious about transitioning the economy from a lotus eating wonderland we need to stop kidding ourselves that there is any alternative to directing APRA to require the banks to wind down the unproductive capital inflow guzzling that has been keeping mortgage rates low.
That means specific direction and limits on their off shore borrowing habits to support their mortgage operations. Continue reading
The management/Board of the RBA and APRA must truly be in PM Malcolm Turnbull and Mr Morrison’s good books at the moment.
Governor Glen can expect a triumphant retirement full of flowery speeches and trumpets and parades. Better biscuits for the RBA Board Meetings as well.
Perhaps a new cone of silence for APRA?
Nothing a drifting government likes more than a huge bubble in assets prices bubbling away during an election campaign and the RBA and APRA have delivered a beauty!
The latest “bait rate” cut by the RBA really got the juices flowing in Sydney yesterday with a crackling winter day of auction action. Continue reading
Auction Action is back!
Apologies for the dead air but all Glass Pyramid operatives have been busy storing acorns for winter and throwing beer cans at the TV in unsuccessful attempts to scare away the politicians filling up the horror movie that is the 6.00 o’clock news during the election campaign.
Hopefully the gaps in the data line can be plugged by idle operatives while they celebrate the special Australian birthday of our Australian Queen with some home made fireworks consisting of various combinations of flammable liquids and an inventive use of a second hand Soda Stream filler acquired at a garage sale.
The gaps in the data line have been updated and the comparison for this week has been stretched back 6 years to 2011. Keep in mind that the comparison is by date and not all of those earlier years were long weekends. Continue reading
Macrobusiness turned a bright illuminating spotlight on APRA this morning in an article that raised a series of very important questions about the regulation of the Australian Banking and monetary system and the roles of the RBA and APRA.
The roles of APRA and the RBA would make another excellent paragraph in the Terms of Reference for the forthcoming Banking Royal Commission that Malcolm Turnbull (former banker) and Scott Morrison (former FIRE sector executive) are so desperate to avoid.
A Glass Pyramid operative added their own government issued 2 cents in the comments (sightly modified here) to the article Continue reading
The good thing about all this attention on APRA is that people are slowing starting to understand the significance of APRA as part of our regulatory framework.
Having said that the discussion is still mostly incoherent.
Moody’s talk as though APRA (and other similar prudential regulators) are horse breakers faced with a particularly unruly steed and there is no guarantee that even a very skilled and experienced APRA could hope to control the beast.
What a load of hogwash.
APRA has all the power it needs to stop credit creation DEAD in its tracks.
No death stares, voodoo dolls, smoke signals, cuddles after midnight required.
APRA can direct the banks ANYWAY they want when it comes to credit creation.
They can specify Continue reading
There is a lot of speculation at the moment about what is going on in the Australian credit creation industry and what exactly APRA is trying to achieve.
There is a growing concern that APRA is working to maintain rather than resolve or deflate the massive bubbles in Australian house prices and the related bubbles in household debt and foreign debt.
There is good reason for concern – it all fits a consistent narrative that starts with the ‘unexpected’ end of the mining boom and a search for solutions by the RBA and APRA within the neoliberal post Wallis framework of regulators “independent” from the political process.
If mining and the associated CAPEX could no longer be relied on for economic activity and employment an alternative was required. If the public balance sheet had been neutered by ‘fiscal conservatism’ obsessions that just left the private household balance sheet – the gift that had already been giving for a decade. Continue reading
The RBA/ APRA strategy of filling the unexpected mining bust hole with low interest rate stimulated residential construction and the household debt that goes with it was always misconceived.
Such a strategy could only work for a short time because the ex-mining workforce required to build the housing was always going to be able to fill the housing supply gap quickly in a few years– especially with the very efficient (cheap, fast and nasty) construction methods now available.
Sure population ponzi immigration booms help provide demand for some of this excess housing output but the ponzi population folk need jobs and construction cannot support more than a fraction of them. If it tries it would only build even more housing stock more quickly – and in part that actually happened.
The only thing that has really kept the model going for this long is that much of the excess supply is staying off the market.
If all the new supply was made available for rent or purchase to owner occupiers things might be very ugly already. Continue reading
A story that appears in the AFR today and was noted by Macrobusiness concerns a call by Doug Turek, managing director of Professional Wealth, for more representation, on the Board of the RBA, of the interests of retirement savers who have been suffering as the RBA and APRA desperately try to keep the economy floating on growing private debt – mostly household – by setting ultra low “bait” rates.
It is excellent that we are now seeing some real lobbying for seats on the RBA board as that indicates that finally the political nature of what the RBA does is being understood by the community.
It is not surprising that groups are starting to realise that if they want to influence the Macro-Political activities of the RBA they need a seat at the table. It will not be long before they understand they also need to influence the credit control, allocation and price setting role of APRA.
Even better would be to completely rewrite the charter of the RBA and limit it to the following. Continue reading