Philip Lowe's days are numbered?

[over9k]

Hmm Damn him. Damned if he does and damned if he dosn't. But does he really know that the real world people are suffering.

Politicians could solve that overnight but they don't.

He's becoming a scapegoat very quickly.

 

[farmerge]

Politicians could solve that overnight but they don't.

He's becoming a scapegoat very quickly.

Bum polishers only have to worry about the next election, their extremely attractive salaries and pension fund, not much else.

 

[over9k]

My point was that they aren't and there's a very "good" reason why and it isn't a good one.

This game was rigged by Howard & co the better part of 30 years ago. It is no exaggeration to say we are at the endpoint of a 25 year long artificial inflation (bubble) of house prices and this is literally the first time in an entire generation where someone, anyone, is even beginning to do something about it and it's not even a direct action against it, it's actually a side effect of actions against something else.

The fact that the general public are pointing the finger at lowe is an excellent demonstration of just how powerful the media/just how easily misled the general public actually is.

Lowe undoubtedly also knows all of this and knows that the politicians' donors do NOT want him raising rates and this is undoubtedly the only reason they aren't significantly higher already.

The only way it will change is if he starts getting crucified for letting inflation run too hot and with the media in the hands of the real estate lobby we all know that will never happen.

Combine this with the politicians being in the hands of the real estate lobby too and all we need is a few political donations to get the inflation numbers fudged (as if they aren't being fudged already) and this will then solve the "inflation" and therefore interest rates rising problem and so asset (house) prices can then continue on their merry way.

Plot aus house prices over the cpi since 1996 and see them arrive in two very different places

 

[Warr87]

Hmm Damn him. Damned if he does and damned if he dosn't. But does he really know that the real world people are suffering.

I think he understands the economics and its effect on society more than the current politicians. I also think inflation damages everyone and rising cash rate means better return on deposits for those saving cash. Our society is more than just a minority of people owning houses. I think the argument by some that he shouldn't raise rates because he 'doesn't know the people and their suffering' isn't solving the issue of inflation. I understand their pain--I'd be full of anxiety if my bills raised by that much in such a sort amount of time. But their angry shouldn't mean he suffering of the Australian economy writ-large.

 

[JohnDe]

I think he understands the economics and its effect on society more than the current politicians. I also think inflation damages everyone and rising cash rate means better return on deposits for those saving cash. Our society is more than just a minority of people owning houses. I think the argument by some that he shouldn't raise rates because he 'doesn't know the people and their suffering' isn't solving the issue of inflation. I understand their pain--I'd be full of anxiety if my bills raised by that much in such a sort amount of time. But their angry shouldn't mean he suffering of the Australian economy writ-large.

Agreed.

I doubt that Philip Lowe will have his contract renewed, only because he showed his naivety by promising the Australian public that interest rates would not rise until 2024.

A decent article on the RBA, worth a read -

Independent RBA must be accountable as well

First, the governor of the Reserve Bank promised that rock-bottom interest rates were here to stay. Sure, the fine print contained more caveats than a Microsoft licence; but even without saying “read my lips”, Philip Lowe’s message could not have been clearer.

Then, all bets were off. And now, with further rate rises looming, the millions of Australians who took the message seriously – and put their money where the RBA’s mouth was – may well wonder if the bank’s governance arrangements are quite right.

At the heart of those arrangements, which are being examined in a review due to report next month, is the RBA’s independence: that is, the bank’s freedom to determine how it will achieve the inflation target set out in the government’s Statement on the Conduct of Monetary Policy.

That independence has it benefits; the question is whether it has been accompanied by the accountability the exercise of great public powers demands.

First put in place by treasurer Peter Costello in 1996, the delegation to the RBA of control over the substance, if not the objectives, of monetary policy formed part of a worldwide reaction to the “great inflation” that began in the early 1970s.

Almost everywhere, ending that outbreak proved enormously costly in terms of slow growth and high unemployment; one of the lessons drawn from the experience was the importance of decisively tightening monetary policy as soon as inflationary pressures emerged.

Ensuring price stability therefore required the determination to “take the punch bowl away just when the party is getting going”, in the memorable phrase of William McChesney Martin, who chaired the US Federal Reserve Board from 1951 to 1970.

But politicians seemed likely to baulk at lifting rates at the very first sign of rising prices. Far better then to shift that responsibility to the central bank, which could wear the opprobrium without fearing an electoral backlash.

Transferring responsibility would not only quell inflationary pressures; it would also bolster public confidence in price stability, dampening expectations of future price rises.

That would reduce the “inflation premium” built into pricing and wage-setting decisions, decreasing the likelihood of inflationary spirals getting under way.

Central bank independence was consequently hailed as a free lunch: the credible threat of a decisive response would prevent inflation occurring, so avoiding the costs of clamping down.

Little wonder then that governments worldwide delegated the conduct of monetary policy to their central bank, in a rush to “inflation targeting” that began with New Zealand and Chile in 1989. But as so often happens, scant attention was paid to history.

After all, central bank independence was hardly a new idea. Already in 1873, English polymath Walter Bagehot – who regarded the newly enfranchised working class as “narrow-minded and unintelligent” – had proposed it as a way of protecting “sound money” from meddling by “chance majorities and untrained rulers”.

Enthusiastically adopted by Montagu Norman – the vastly influential governor of the Bank of England from 1920 to 1944 who shared Bagehot’s dislike of democratic politics – central bank independence became an article of faith in the economic chaos that followed World War I. Endorsed by the League of Nations in 1922, it was imposed on the defeated powers, as well as on the growing number of countries that sought international financial assistance.

Yet it soon became apparent that it was no panacea. To begin with, despite Norman’s boundless confidence in the capacity of hand-picked “specialists in financial disease” to administer “the appropriate treatment”, central bankers proved neither omniscient nor omnipotent.

Nowhere was that clearer than in Weimar Germany, where the newly independent central bank, facing a fiscal disaster, underwrote soaring budget deficits, helping to unleash a ruinous hyper-inflation.

And as the world slid into depression, the errors accumulated, with the US Federal Reserve’s adamant refusal to act in the 1930-32 banking panics being only the most famous example.

Additional difficulties emerged after World War II, when the problem arose of coordinating monetary and fiscal policy. Even in Germany, where the allies once again insisted on central bank independence, the importance of policy coordination led to the inclusion in the Bundesbank’s charter of a statutory obligation to “support the government’s overall economic policy” – an obligation the Bundesbank scrupulously observed in subsequent decades.

But that obligation, and similar requirements elsewhere, naturally vanished as central banks regained their independence. Norman blithely assumed that independence would “strengthen the bank’s hand in exerting influence on the government to pursue a policy of financial prudence”, promoting fiscal rectitude. Ignored was the possibility that governments, once freed of political responsibility for interest rate rises, would be even more spendthrift, creating inflationary pressures monetary policy could not realistically control.

Far from being solved, all those issues remain acute. Entirely unsurprisingly, central banks still err, sometimes grievously. No less importantly, they also still make decisions that stretch their political legitimacy to its utmost limits.

Thus, the inflation target was meant to tightly constrain the RBA’s discretion and ensure its accountability: in practice it did neither, as the target fell very far short of carefully defining the goals the bank was expected to pursue.

As a result, the RBA could, without breaching its target, fuel unprecedented asset price rises, increasing inequality, distorting housing markets and creating the danger of a meltdown as interest rates returned to more normal levels.

To make things worse, while its officials freelanced on issues that seemed remote from the bank’s core duties, such as climate change, there were no mechanisms in place to effectively monitor whether the RBA discharged those core duties satisfactorily.

For example, it was not subject to periodic, transparent and independent reviews of its performance; yet that performance was becoming increasingly hard to assess as it utilised ever more instruments in pursuit of ever more objectives. It was, in other words, answerable, in that it sought to explain its decisions, but not genuinely accountable, for its far-reaching powers.

None of that implies the RBA bears undivided responsibility for today’s inflation: there is no doubt that adverse supply shocks and high levels of deficit spending have played an important role, just as it was the beneficial shocks associated with globalisation, micro-economic reform and fiscal consolidation – rather than any magic arising from central bank independence – that accounted for the inflation rate’s precipitous decline in the 1990s.

But while good monetary policy is not an assured road to paradise, poor monetary policy remains a guaranteed highway to hell. And if recent experience shows anything, it is that the RBA, to ensure price stability, needs the legitimacy and credibility that come from having clear, carefully specified objectives, sticking to those objectives, and being not just answerable but accountable for outcomes.

Whether the current review will satisfactorily address those conditions remains to be seen. What is certain is that until they are met, the RBA may hit the target but it will continue to miss the point.

HENRY ERGAS COLUMNIST

 

[sptrawler]

Agreed.

I doubt that Philip Lowe will have his contract renewed, only because he showed his naivety by promising the Australian public that interest rates would not rise until 2024.

A decent article on the RBA, worth a read -

At the time he said that the Russia/Ukraine issue wasn't happening and to the economic models everything pointed to more of the same.

I suppose he should have said "I don't know", when asked that question, then the media would have attacked him for not knowing.

Now he finds himself fighting the inflation fight for the Government and being criticised for it by them, while they sit back and do nothing other than continue with their personal tax cuts and try to import skilled workers while our youth go to uni to become baristas.

I suppose Lowe is the diversion that's needed, while our governments continue on our downward spiral, go figure. ?

WA’s audacious bid to lure 31,000 workers Down Under, and the Brits aren’t happy

‘We need more people to call Western Australia home.’

7news.com.au

 

[sptrawler]

Yes I think Lowe is understating how nervous he is about the wage/price spiral, with unemployment so low wages can easily be forced up, I guess the 200,000 skilled workers will be fast tracked. Check for Gday adverts overseas, should be a good bellwether.

I thought I had mentioned it before, it certainly didn't take long. ?

WA’s audacious bid to lure 31,000 workers Down Under, and the Brits aren’t happy

‘We need more people to call Western Australia home.’

7news.com.au

Western Australia’s relaxed lifestyle, beaches and abundant sunshine will be a key selling point when the state government heads to the UK and Ireland to lure workers down under.

Premier Mark McGowan says there are about 31,000 jobs that need filling across WA, including roles for teachers, police officers, nurses, doctors, dentists, mechanics, builders, plumbers and miners.

 

[JohnDe]

At the time he said that the Russia/Ukraine issue wasn't happening and to the economic models everything pointed to more of the same.

I suppose he should have said "I don't know", when asked that question, then the media would have attacked him for not knowing.

Now he finds himself fighting the inflation fight for the Government and being criticised for it by them, while they sit back and do nothing other than continue with their personal tax cuts and try to import skilled workers while our youth become baristas.

I suppose Lowe is the diversion that's needed, while our governments continue on our downward spiral, go figure. ?

That’s the issue, no one can see the future and anyone in control of the purse strings should promise payment years into the future.

However, I do think that anyone that gets caught out by believing predictions and stretching themselves to thin only have themselves to blame.

My son took out a mortgage to buy his first home, but he understood that interest rates could change at anytime, and he and his partner left themselves a lot of breathing room. I hope that all or most other mortgage holders did the same.

 

[bsnews]

The RBA is a scared failure, Sack them all.
They have created the housing bubble and now run scared to increase the rate needed.
On top of that they made the comment on no rate increase until 2024 roping in even more punters does not matter what happened after this call it was made.
But wait have no fear more inept decision are still to come.

 

[sptrawler]

That’s the issue, no one can see the future and anyone in control of the purse strings should promise payment years into the future.

However, I do think that anyone that gets caught out by believing predictions and stretching themselves to thin only have themselves to blame.

My son took out a mortgage to buy his first home, but he understood that interest rates could change at anytime, and he and his partner left themselves a lot of breathing room. I hope that all or most other mortgage holders did the same.

As investors I would assume most of us would think that a countries financial fundamentals return to somewhere around the long term norm, we aren't there yet IMO, so if everyone wants to blame one person it is a diversion tactic.
Unfortunately it is the new media norm in Australia, much like the British press has been renowned for, give everyone someone to hate while you pedal your agenda.

 

[sptrawler]

The RBA is a scared failure, Sack them all.
They have created the housing bubble and now run scared to increase the rate needed.
On top of that they made the comment on no rate increase until 2024 roping in even more punters does not matter what happened after this call it was made.
But wait have no fear more inept decision are still to come.

How did the RBA create a housing bubble? Dragging people kicking and screaming into banks to take out loans.?
Everyone today is looking for someone to blame for their own pizz poor decisions IMO.?
Your last statement is so true, more inept decisions to come, they will go to the pub to get the mortgage payment out of the pokies.
Are you trying to honestly say that someone borrowing to the hilt at 0% interest isn't gambling? What should the RBA do leave interest rates at 0%, so that inflation can crank up to 20% again, because money cost nothing.

 

[bsnews]

no rate increase until 2024

 

[againsthegrain]

"according to immigration expert and former Immigration Department deputy secretary, Abul Rizvi, a figure of 300,000 was more likely for 2022-23. If this scenario is to be realised, it would mark the largest increase in Australian history."

ill just leave this here, no comments needed

 

[over9k]

How did the RBA create a housing bubble?

Interest rates too low

 

[againsthegrain]

Interest rates too low

too long too lowe

 

[sptrawler]

no rate increase until 2024

So go and borrow up to the eyeballs on the hope in 2024 you can sell it at a profit and when that idea falls on its ar$e look for someone to blame for your gamble.
BOM says that it looks like el nina is over:
Australia could swing from three years of La Niña to hot and dry El Niño in 2023. Australia could swing from three years of above-average rainfall to one of the hottest, driest El Niño periods on record, as models show an increasing likelihood the climate driver may form in the Pacific in 2023.
So if we have a wet summer and floods its the CEO of BOMS fault, the house I bought on a flood plane gets inundated and I was going to flip it and make a motza, now I've got a house in a swimming pool. Its BOMS fault for saying we were going to have dry weather.

Lowe made the prediction on the information that was available at the time, circumstances changed due to Putin, inflation took off.
Dick wits borrowed to the hilt at 0.5% interest, when the long term average in Australia is 5-7%, now its someone else's fault when they are returning to the long term average. They are in for a real shock if a real tragedy happens IMO.

 

[qldfrog]

I think he understands the economics and its effect on society more than the current politicians. I also think inflation damages everyone and rising cash rate means better return on deposits for those saving cash. Our society is more than just a minority of people owning houses. I think the argument by some that he shouldn't raise rates because he 'doesn't know the people and their suffering' isn't solving the issue of inflation. I understand their pain--I'd be full of anxiety if my bills raised by that much in such a sort amount of time. But their angry shouldn't mean he suffering of the Australian economy writ-large.

Minority of people owning house?
In Australia I think it is more than a minority or has this changed drastically?
Having a mortgage is still owning a house/unit in my view

 

[sptrawler]

Interest rates too low

Says who? Apart from people who borrowed beyond their means and the media playing on it.

The XAO is a reflection of the state of our economy, take a look at the historic chart and compare the hit of the GFC to the covid effect, where the country and most the world were put into shutdown.

Now obviously to anyone with any understanding of economics, there will be overshoots as equilibrium in the financial markets are re established, but to make a glib one line comment when the overall achievement is put in context just shows a gross lack of understanding IMO.

But hey I don't profess to be an expert, just someone who started work in 1970 and has lived through many once in a lifetime events and on the scale of things the current interest rates don't rate high in an historic sense.

Maybe in a few years time that could be said, but at the moment the handling of the economy through a complete shutdown, has been pretty impressive IMO.

Did the money printing have an effect, obviously, did it stop us going into a 10 year slumber as happened with the GFC, absolutely, will people who borrow more than they can afford find themselves in difficulty, usually.
Will the recovery take 10 years as happened after the GFC, I think not.






If I was borrowing $750k I would be checking out this chart, hey maybe I'm just over cautious, but I wouldn't be borrowing to the hilt on the say so of anyone .

 

[Warr87]

Agreed.

I doubt that Philip Lowe will have his contract renewed, only because he showed his naivety by promising the Australian public that interest rates would not rise until 2024.

A decent article on the RBA, worth a read -

At the time he said that the Russia/Ukraine issue wasn't happening and to the economic models everything pointed to more of the same.

I suppose he should have said "I don't know", when asked that question, then the media would have attacked him for not knowing.

Now he finds himself fighting the inflation fight for the Government and being criticised for it by them, while they sit back and do nothing other than continue with their personal tax cuts and try to import skilled workers while our youth go to uni to become baristas.

I suppose Lowe is the diversion that's needed, while our governments continue on our downward spiral, go figure. ?

WA’s audacious bid to lure 31,000 workers Down Under, and the Brits aren’t happy

‘We need more people to call Western Australia home.’

7news.com.au

He's a economist ... that was with information he had at the time. when things changed, his assessment changed. That's how things work, lol. if someone wants to point out the error in his assessment with the information he had available at the time, then go ahead. but so far, no one that I've seen has. Just with hindsight pointing the finger because of where things have gone. He's not the only pony in this race ... the RBA is but one piece.

The RBA is a scared failure, Sack them all.
They have created the housing bubble and now run scared to increase the rate needed.
On top of that they made the comment on no rate increase until 2024 roping in even more punters does not matter what happened after this call it was made.
But wait have no fear more inept decision are still to come.

How did the RBA create a housing bubble? Dragging people kicking and screaming into banks to take out loans.?
Everyone today is looking for someone to blame for their own pizz poor decisions IMO.?
Your last statement is so true, more inept decisions to come, they will go to the pub to get the mortgage payment out of the pokies.
Are you trying to honestly say that someone borrowing to the hilt at 0% interest isn't gambling? What should the RBA do leave interest rates at 0%, so that inflation can crank up to 20% again, because money cost nothing.

Mate, the RBA did not cause the bubble. People taking out huge loans on the assumption of historical lows were going to stay there indefinite, and stretching themselves at such a low point. Add in the banks who profit off this. This isn't the RBA's doing at all. Think you should take more accountability for your actions. No one had a gun to peoples heads to take out a loan they wouldn't be able to service if things weren't in perfect conditions.

no rate increase until 2024

Cool story. What does that have to do with a bubble? Someone has already pointed out the math of it all--if it was the case for rates to increase from 2024 it wouldn't have made much difference. supply had something to do with it. ease of lending. predatory mortgage brokers. poor policy. But sure, it was 1 act of a single person during a conference that has caused the runaway market for the past decade or so, this checks out. i wonder if lowe also single handedly caused the bubble overseas as well. it's all him, right?

 

[Warr87]

Minority of people owning house?
In Australia I think it is more than a minority or has this changed drastically?
Having a mortgage is still owning a house/unit in my view

Well 35% of homes in australia have a mortgage on them, and obviously some people have more than 1 mortgage.