Why is the Reserve Bank of Australia (RBA) more interested in shoring up banks than looking after Australians?*
Interest rate cuts will now slow the decline in home prices. Lower interest rates will help keep capitalisation rates ridiculously low, rather than letting them return to their more reasonable long term trend.
The RBA’s action will tend to choke off foreign arbitrage money into Australia, and the dollar will decline in value.
This, in turn, will make imports more expensive.
So, Australian budgets will be squeezed in order to keep housing prices high – and still unaffordable to many prospective first home buyers.
If we understand the RBA’s brief * is to maintain:
– stable prices (which obviously should exclude bubble-inflated land prices)
– full employment and prosperity for all Australians
then the RBA is clearly about to fail its job in a big way. The good of the banks is no longer the good of the Australian people–nor has it been for some time– and the RBA must acknowledge the point.
The bank can no longer continue gifting banks their incredible super profits via uncaptured land rents.
If the rental value of land remains almost untaxed, it will become capitalised into bank loans and paid back with interest for decades by families caught in an RBA-generated debt squeeze.
The Australian central bank needs to advise Treasurer Wayne Swan of the alternative to interest rate policy. An all-in land tax accords with the the Henry Tax Review recommendations.
Explained properly to the Australian people—and used as a revenue-neutral means of abolishing stamp duty on real estate conveyances and a number of other taxes—there remains a slim chance of economic sanity in Australia.
Proceeding as the RBA is at the moment will set us up for a greater financial bust than is necessary, or has been experienced elsewhere. [Our household debt levels are impossible.]
RBA governors obviously fail to understand there’s only the one way to resolve Australia’s knife-edge financial situation.
Australia must manage its debt deflation properly, and so far there’s no sign of the RBA, Treasury nor the government coming within a bull’s roar of doing so.
One thought on “RBA NEEDS TO HELP MANAGE THE DEBT DEFLATION TAKING ITS COURSE”
The deeper question that should be asked – and here Steven Keen is probably the go to person – is whether there remains any path along which that deflation can successfully be managed.
Something that may be of interest to you is the changes being introduced in Singapore to manage this problem. Limintations on loan length, increased capitalisation rates etc.