RBA Says Australian household debt is not high enough

The RBA has just come out with their new motto:

If you are in a hole, stop digging.  If you are in a bubble don’t dare stop blowing.

Apparently, the RBA reckons that Australians are not sufficiently indebted.  Having expressed concerns last year about the levels of house hold debt, watching it grow higher, it seems now that it is not a problem

It seems not sufficient that Australia has one of the highest levels of household debt to GDP in the developed world (the only ones higher have or had negative interest rates).  The RBA it seems wants Australian to borrow more.

Reserve Bank assistant governor Michele Bullock has urged the nation’s “stingy” banks to “loosen up” their lending practices amid the slowdown in Australian housing and credit markets.

Translated into more common parlance, the RBA Assistant Governor is saying to Australian banks.

Loosen up.  Chill out.  Just lend willy nilly.  And don’t worry if all the loans turn to crap.  The Australian tax payers will bail you out.  And those people who borrowed too much who are now suing you for lending them what they asked for, well, just price that in to what everyone else pays.

The eco-clerics of Martin Place have spoken.  After all.  The data and history is on their side because this time it is different.

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36 Responses to RBA Says Australian household debt is not high enough

  1. teamv

    They need more spending because consumer spending through debt is the only thing keeping the economy going at the moment.

  2. Long and Wrong

    This RBA jaw boning, whilst a fair tactic at this stage, needs some genuine follow up sooner rather than latter. I think we can get to 200% on the chart with rates at 0% but if they are serious about this then negative interest rates must surely follow. I assume that they are already working on plans to get rid of ‘paper’ money so we can’t get it out of the banks when we start paying to save.

    What do we want? Death to savers!

    What do we want? ….

  3. John Constantine

    This is the whole point of the population Ponzi scheme, mass importation of the world’s poorest and emotionally explosive people to be consumption machines of property developed by billionaire Landsharks.

    Giving an enraged third world peasant two interest only housing loans to buy dogbox apartment developments, then foreclosing on him when the market reverts to mean.

    What could possibly go wrong?.

    We saw riots in the streets over taxi drivers hysterics as they demanded payouts for uber competition.

    Australia’s craven submission and compliance class paid up with other people’s money.

    Imagine the property riots.

    Comrades..

  4. John A

    teamv #2965514, posted on March 21, 2019 at 9:25 am

    They need more spending because consumer spending through debt is the only thing keeping the economy going at the moment.

    Which is because investment funds have dried up for lack of yield in the banking system, given the parlous interest rates and abysmal returns available. Conversely, almost any investment project with a potential return above bank interest can be funded, which results in massive misallocation of funds on trivial projects.

  5. Pyrmonter

    @ JohnA

    Because ‘irresponsible lending’ and the defaults to which it leads when a shock hits is the path to economic prosperity? Or, is it that there is too much competition among banks, so there are no monopoly profits to be had?

    There is something up in the rate of credit growth; but ‘low interest rates’ seems unlikely to be the problem.

  6. RobK

    To a banker money is a commodity and loans are a product.

  7. Pyrmonter

    @ TAFKAS

    What is magical about a Debt/Income ratio of 1, or 1.5? It’s easy enough to plot a trend, but why assume the initial point is some nirvana from which we’ve deviated, rather than a hole out of which we’ve risen?

  8. Bruce of Newcastle

    Reserve Bank assistant governor Michele Bullock has urged the nation’s “stingy” banks to “loosen up” their lending practices amid the slowdown in Australian housing and credit markets.

    So after APRA and ASIC castigated the banks, then the Royal Commission gave them a collective colonoscopy with a drain eel, and pollies of every stripe bashed them incessantly, now the Reserve Bank is concerned they are being too risk adverse in their lending practices?

    Oh.

  9. Mark M

    Doesn’t sound like anyone at the RBA is doomsday taking global warming seriously …

    “The “12 years” date you’ve heard comes from a special report requested by the United Nations, which looks at the impacts of global warming at 1.5°C above pre-industrial levels.”

    https://theconversation.com/climate-change-a-climate-scientist-answers-questions-from-teenagers-113530

  10. Judith Sloan

    It’s not just stop digging, stop talking should be the new RBA motto.

  11. Overburdened

    Had lunch the other day with an associate who is also my bank manager.
    No friends in business I can assuredly say.
    A topic we often discuss is the fantasy land of people who tell anyone listening that they own x number of houses and all the toys.
    What such people do not or refuse to recognise is that it is a mirage unless they in fact own the stuff they claim.
    Generally, behind the glitz, people have debt to the level that they are under water breathing through a straw and the slightest change upwards in the water level would see them drown.
    Most are working on the best case scenario that cash flow will keep the debt serviced so they can ‘keep’ their ‘assets’, even if it means the family is eating party pies.
    Even the ones that may in fact own some stuff outright would be jarred back to reality with even a slight shift regarding their capacity to repay.

    At this point the big payday arrives for the financial institution, after taking cream from the punter from day one.

    The situation for businesses using the same model of debt to create wealth is not so bad for having to accept individual impacts for the result of dumb thinking or bad luck.

  12. Rafe Champion

    What is the target that we should strive to achieve?

  13. Dr Fred Lenin

    Wasnt indiscriminate lending the cause of the GFC of 2007 ?
    Was any grasping con man banker ever jailed for their criminal actions ?
    Did Western taxpayers have to bail out the corrupt banking system?
    Did any banks fold because of this scam?
    Are the directors of the folded banks still working in the banking industry?
    Have any of these experts and politicians ever had a job in the real world ?
    The whole thing is like that film “Wall Street “ complete with immoral greed .
    They should be in a strict regime gulag for life ,with no parole .
    Pour encourager les autres .

  14. Again these are just statistics and ones that don’t explain the full story. What is the actual breakdown of all the various elements that bring about these consolidated or averaged figures? Which groups are most at risk etc?

  15. sabena

    Time to take an axe to the RBA which has lost whatever control of the economy it has had.

  16. Pyrmonter

    @ DFA

    In short, no, it wasn’t the bankers. It was the central bankers.

    https://www.themoneyillusion.com/mike-konczal-on-2008/

  17. W Hogg

    Not mentioned, but it’s not like savings rates are going through the roof, which some “economists” might think was indicative of overly tight credit conditions needing a policy reaction. Personally I’m relaxed with individuals deciding to live within their means, even if that means a period of substandard growth, but I’m paid less than the RBA.

    But in fact people are spending bigly. Saving rate of 2.5% compares to historical averages around 9-10%.

    So this is actually about as fast as it’s possible to run the economy. Possibly something to do with electricity quadrupling, the shutdown of energy-intensive industries, disincentives to create new ones, the waste of $50bn in what are now toy windmills generating almost nothing at $300/MWh, driving out the car industry by doubling FBT on the eve of the 2013 election campaign, the threat of $200bn of new taxes, and soaring corruption as well as a large part of the working age population requiring housing but not even able to speak enough English to ask for it.

  18. W Hogg

    Actually the term “working age” is probably obsolete. It should be “peak bludging age” now. I don’t count children being schooled as bludging per se, and people of age pension age generally aren’t getting 9 lots of child support payments for their dependants.

  19. stackja

    Dr Fred – Some ‘bankers’ got jail time.
    Probably not all that should have.

  20. stackja

    Overburdened – Yes, part equity, to me is not ownership.

  21. duncanm

    Not sure she was quite so bullish last year.

    ..Over the past few years in Australia, regulators have been concerned that lending standards have erred on the more relaxed side. An exuberant housing market in some parts of the country and strong competition among lenders raised the question of whether financial institutions had been appropriately prudent in assessing a household’s ability to meet repayments.

    In response, a number of measures were implemented by APRA and ASIC to strengthen mortgage lending standards. These measures have helped improve the quality of lending over the past couple of years. But there is still a large stock of housing debt out there, some of which probably would not meet the more conservative lending standards currently being imposed. ..

  22. Biota

    So the RBA has been captured by Modern Monetary Theory?

  23. Dr Fred Lenin

    If the RBA is forced to raise interest rates Will the entire house of cards crash in a screaming heap ?
    John constantines ponzi scheme theory is looking good .
    Watched ponzi story on you tube even when he was exposed as a fraud people were lining up to give him more money ,my gast was flabbered , surely people are not that stupid ? But on reflection a surprising number are ,look at the climate fraud , resurgent communism ,re named fairness and socialism .
    Ole Barnum wasnt wrong about mugs ,probably even more of them these days than in those more practical days .

  24. Peter Greagg

    Of course this just highlights how clueless the RBA is. Judith recently wrote an article hammering the stupidity of the RBA approach to monetary policy (not that she used that description), and how it had led to the skyrocketing levels of debt.

    For monetary policy ( if we must have such a thing), I very much favour a rules based approach that removes discretion from over-entitled bureaucrats that infest Martin Place. Such an approach has been suggested by John Taylor (the “Taylor Rule”).

    Btw, did you notice that I don’t think central bankers are much use. IMO, they are a solution in search of a problem (think hammers and nails etc).

  25. Percy Popinjay

    Reserve Bank assistant governor Michele Bullock has urged the nation’s “stingy” banks to “loosen up” their lending practices amid the slowdown in Australian housing and credit markets.

    That property ponzi ain’t going to indefinitely sustain itself, peasants!

  26. Percy Popinjay

    monetary policy ( if we must have such a thing)

    Pete, the correct term is actually “Money Tree Policy”.

  27. It looks like household debt lags Housing Prices by about 3 years (just eyeballing).
    So it seems Household debt may start trending down later this or next year. Maybe that’s what this sheila is on about.

    I’d like to see a graph of numbers of immigrants per year (including temporary visa holders who also must be housed) to see how it relates to housing prices.

    Also, it’s instructive that almost everything in life has gotten cheaper, except education (can’t be scaled up at mo), health (being ripped off by mountains of govt interventions) and housing (due to State Govts not releasing enough land). The prices of the buildings are much cheaper today than 30 years ago).

  28. Pyrmonter

    @ Dr Fred

    What is going to ‘force’ the RBA to raise interest rates? The conventional interpretation of what is going on at present is a shortage of aggregate expenditure at the current price level. There is little, if any, sign of an increase in inflation. We’ve had a floating exchange rate since 1983, and in the past decade and a half the price of the AUD expressed in USD has varied from below 50c to above a dollar, so there is no evidence of a ‘need’ to use monetary policy to target the external exchange rate.

  29. Peter Greagg

    If there is any legitimate role for monetary policy, it is to target inflation only!

  30. John Bayley

    There is little, if any, sign of an increase in inflation.

    Yes, if you use CPI – which attempts to measure what is inherently unmeasurable and is subject to all sorts of statistical chicanery.
    If, however, one utilises the ‘classical’ measure of money & credit in circulation (i.e. the various Mx), then there has been plentiful inflation over the past 10 years
    https://tradingeconomics.com/australia/money-supply-m3
    Much of that has, like overseas, gone into asset prices.
    Hence the bubbles all over the place, about to deflate.

  31. John Bayley

    If there is any legitimate role for monetary policy, it is to target inflation only!

    Inflation should be zero, or even mildly negative, which would appropriately reflect better productivity over time.
    The entirely fanciful ‘2% target’ which the moronic central bankers all keep droning about, without *any* empirical justification, is a fraud on the working public, who stand to lose half of their savings over their working lives as a result.

  32. Pyrmonter

    @ John Bayley

    As a matter of tax efficiency and fairness, there’s a case for targeting price stability; I think a good one. But as you suggest, compiling price indices is hard – the Rothbardian (etc) critics are right when they point to technical difficulty. It’s quite likely that those difficulties under-account for product improvement: the modern SUV is a completely different beast to the Leyland P76 of Pyrmonter’s childhood; and completely different again to a Ford Model T.

    What we have is a target of 2 -3 per cent. The RBA has generally stayed well within that band over the past 25 years. There is simply no evidence of the sort of inflatoin that bedevilled Australia (and most of the West) from c. 1965 to c 1990.

    https://www.rba.gov.au/inflation/measures-cpi.html#year_ended

  33. Squirrel

    Australia is like a punter who has won one of those art union/lottery prizes where you get a nice amount of money every year for 20 years, gets used to living large and wants more and more – all the while forgetting that the annual cheques will stop one day.

    As I watch the current multi, multi-billion dollar sideshow about “congestion busting infrastructure”, I often ask myself what all of this infrastructure will do to help Australia pay its way in the world and, eventually, start to repay all the money we have borrowed from foreigners.

    Here we are ranked at No.86 in the world on Harvard’s Atlas of Economic Complexity –

    http://atlas.cid.harvard.edu/rankings/

    clearly we need to sink even more money into residential real estate, imported consumer goods, and overseas travel – that’ll get us up that ranking.

  34. Elderly White Man From Skipton

    Even more scary is the post 1992 hike in securitisations. This was the year mortgage broking took off. And I suspect the credit tightening today is caused by the tightening of liquidity in the securitisation market. Big chance we have a collision of poor credit standards and rate pressure.

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