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Looking for the villian..

⊰ 2022-07-09 by ShaunO ⊱

"Aussie consumers are now being hammered by the fastest interest rate increases in a quarter of a century that are crushing disposable incomes; a massive reduction in real wage growth as a result of a huge, one-off increase in inflation; the spectre of a record decline in the value of their largest asset; the biggest fall in superannuation savings since the GFC; and the prospect of higher unemployment as rate hikes crush demand." Christopher Joye, AFR

That's a pretty shrill hand-wringing quote.

I think blaming the RBA is simplistic. Although it's easy to agree with Joye's assertions that 'messaging' from the RBA has been pretty abysmal, it seems to me that many things the article talks about were systemic problems (i.e. already there in long term trends) way before covid, or the extraordinary dive to .1% interest rates that the RBA took in 2020.

Bemoaning a falling house market after a short-term 20+% lift is disingenuous - it looks more like 'return to trend', and apart from a small proportion of people who borrowed and bought at the peak, everybody else is just losing some 'paper thousands', whilst in reality still maintaining pretty large 'capital gains on paper'. What's more systemic is Australian's running up of ever increasing proportions of debt over the past two decades - and then the corollary question which that begs.. why?

Anaemic wage growth isn't an RBA problem, and has also been with us for a couple of decades. Does the RBA manage enterprise bargaining? the gig economy? and seriously weakened statutory protections for workers? Nope, none of that is in the RBA's bailiwick.

Inflation certainly is a problem too, and even more so in Australia because almost everything we rely on is either imported, or underpinned by imported critical support supplies (i.e. fuel, fertilisers, high-tech..). So we have spent 50 years by design off-shoring everything and therefore it should come as no surprise that when there's a worldwide supply shock we are very exposed, and it has a large impact.

Likewise a 3% financial year fall on super earnings, whilst neglecting to mention the previous FY gain of 20% hardly seems a balanced view - normal long term calculations use 6-7% as an annual average expectation on super returns, and Australian superannuation funds returns are still well above that on 3-7-10 or even 15 year horizons.

What's more important than 'hand-wringing' about the short term 'financial pain' is to get some balance back, and 'heat out of', the overall financial situation we find ourselves in. But, to repeat, that situation itself is not short-term, it has been building up to these unsustainable trends over a long period of time. Unless something is done to address the inherent imbalances and skewed incentives within our housing, employment, and corporate markets then we're just sticking a band-aid over an air-sucking chest wound..

We spend far too much time talking about the symptoms, rather than looking for root causes, and exploring what solutions to fixing those causes might look like.

buggered if I know 😛

How the RBA duped Aussie households


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