RBA Archives - Page 4 of 4 - the patient investor %

October 17, 2011

The Platypus blues – macrobusiness.com.au

Ms Luci Ellis, RBA Head of the Financial Stability Department:

Indeed, credit booms are very often part of the story in the lead-up to a period of financial instability. We published that assessment in the March and September Reviews. In the wake of that, we have sometimes been asked: how fast is too fast? Do we have a target for credit growth? Or for the ratio of credit to GDP? Or, perhaps, for housing and other asset prices? I can tell you quite plainly that we do not have numerical targets for any of these things. A target for credit growth, or any of these other variables, is not analogous to the RBA’s inflation target……….The distinction is simply that price stability is about inflation. So it can be defined as keeping inflation at an acceptably low rate. Financial stability is harder to define, but in essence it is about avoiding episodes when the financial system significantly harms the real economy.

My interpretation of this series of statements is that a fundamental flaw is at the heart of the RBA’s view of financial stability management. The RBA has specific targets for inflation and that is the single price (including assets) stability tool but has no targets or model parameters to govern financial stability. A big mistake not just of policy but market knowledge

via The Platypus blues – macrobusiness.com.au | macrobusiness.com.au.

Alarm bells should ring if household debt starts growing at 8pc to 10pc a year.

September 22, 2011

Westpac–ACCI Survey of Industrial Trends

The Westpac–ACCI Survey of Industrial Trends reports that:

• The fall in general business conditions is sharper than in 2008/09
• Labor demand softened and availability of labor increased appreciably
• Firms’ profit expectations slumped further — the weakest since 2009.

It concludes with the following statement:

This is a survey which is sending a very clear message. It is time for the authorities to ease financial conditions. Inflation pressures are weak; labor markets are soft; and investment and export plans have softened. Westpac predicted that the Reserve Bank would cut rates in December back in mid July. The case for lower rates is now strong.

September 18, 2011

Rate cuts are coming – macrobusiness.com.au

The recent seasonal adjustments to the CPI and the reduction in the level of underlying inflation blunts the force of the RBA’s recent argument about inflationary pressures. But, absent an offshore catalysing event, that alone won’t make them cut rates.

Rather I think that household retrenchment and saving will lower economic activity in the economy and that the RBA has overplayed the extent that the mining boom induced income will wash through the Australian economy.

Increasingly, we are getting confirmation of this theory. Unfortunately, we are seeing Australians lose jobs at an increasing rate. Data released yesterday by Westpac on consumer unemployment expectations suggests this is going to get worse.

via Rate cuts are coming – macrobusiness.com.au

September 4, 2011

The Rolex economy – macrobusiness.com.au | macrobusiness.com.au

My main concern is that frighteningly, the RBA, and probably much of the government, sees Australia’s future as a single bet on mining, and is willing to sacrifice much of the remaining economy for this to happen……. Remember, the minerals will be in the ground if we don’t mine them now, but the decades of production chains elsewhere in the economy are easily destroyed and slow to rebuild.

I acknowledge that the RBA has a single tool in its toolbox, but surely the message we should be hearing is that a strong and stable economy is a diverse economy. Quarry Australia is a very volatile and risky place to want to be.

via The Rolex economy – macrobusiness.com.au | macrobusiness.com.au.