By Peter Switzer

Yesterday I lost half of my TV program on Sky Business to the Reserve Bank boss, Glenn Stevens, who spoke at the CEDA conference in Melbourne last night. Just in case he finished early I listened to every word but I really wished he had said what he should have said.

Unfortunately Glenn is a very decent, measured man and it’s difficult for him to say it the way it really is. So, let me ramp up and de-politicise his largely unflashy speech.

The helping hand of China

One of the first points he made was that Australia did well to cope with the GFC aftermath and he explained what a “big deal”, as he said, the terms of trade spike was. This was code for China being a big part of the rescue of our economy with its demand for iron ore and coal. And don’t forget that the greatest communist country of all time rode to the rescue of modern capitalism, being the first to spend big when the GFC hit.

The terms of trade is falling but our mining exports are still high and it is helping our country to grow, albeit under our long-term trend rate of 3.25%.

And unfortunately Glenn thinks we will stay under trend next year but the good news is we should see a surge in 2016.

Of course, if the dollar drops significantly we could grow faster, he hinted.
He said he was happy with the rise in residential construction and he wants to sustain that while trying to avoid a big boom and a quick bust.

He’s watching house price rises but he is not too worried – my interpretation – although he is a little concerned about the rise of investors in the property market. That said, he is not sure if it is necessarily a problem, economically speaking, though I guess he implied it could be a social development that excludes first homebuyers more than we want as a country.

(By the way, I think the Murray Inquiry will advise the Government to KO borrowing in an SMSF, which would slow down some of the investor-buying but a hell of a lot of investors would just buy property outside of their SMSF.)

He indicated he wants to see more business investment and that the RBA’s extensive contact with business suggests there is some improvement in train but he’d like to see more.

Unfortunately Glenn is a very laid back guy and his job does not lend itself to colourful and inspirational language but we need it. It would have been great if we heard him say, Mario Draghi-style that: “I will do whatever it takes to get the economy growing!”

Sure, our economy does not have the problems of Europe, where Draghi is the central bank boss, but local consumers and business are in an economic limbo and, as a consequence, we are growing slowly, unemployment is rising and our stock market is not moving up like Wall Street. Yep, last night the Dow, S&P 500 and Nasdaq were all up on homebuilder confidence, spiking more than expected. Gotta love those positive Yanks.

The confidence snowball is rolling in the US and lower gasoline prices will keep it bowling along, as will the positive vibes out of Wall Street. And that’s what we need and fast!

The what if speech

If Glenn wasn’t Glenn and the typical RBA Governor he could have said the following:

  • I was too cautious on interest rates and waited too long to cut rates. We did it in mid-2012 and the stock market went from 4,000 to where it is today around 5,400 but we were above 5,600 in September.
  • This slow rates action kept the dollar too high and made it hard for many businesses, though it was good for holidaying Aussies overseas but that helped other economies!
  • I did this because our terms of trade was high but I underestimated how quickly business investment in mining would fall. Furthermore, Wayne Swan and I had not done enough to build up consumer confidence to help other parts of the economy replace the mining sector for growth.
  • Of course the Labor team was disappointing in the last couple of years, after getting it right in the early GFC repair years. Swan should not have gone for a surplus too early as it slowed the economy, hurt growth, hit tax collections and meant that Government had to spend more on the unemployed.
  • Joe Hockey made the same mistake, talking tough for political purposes on the deficit but all he did was scare consumers, and some businesses, about our economic predicament. 
  • I’m here tonight to say that we get it now. I heard Joe last week talk about how he had to raise confidence so he was not going to talk about more spending cuts despite the fact that the deficit is still growing. This is partly due to Clive Palmer, Jacqui Lambie and the other PUPS, and partly due to the fact that your key policymakers — the RBA and Treasury — have done an ordinary job but not bad job. It was just ordinary.
  • Why did we do this? We’re very cautious people. We’re economists and public servants – not entrepreneurs – and so we’re not good at encouraging animal spirits. We’re definitely not animals!

To conclude, I’d like to say that we now get it and so the RBA will tell you that interest rates are on hold until this place rocks! And if that dollar does not fall to 80 US cents by Christmas, then we will cut rates until it does and put in lending controls to keep a lid on house prices.

Joe is going to stop talking tough, even if it was for the most responsible debt-reducing reasons, and we’re going to do everything in our power to get this place growing.

Go Australia!

The only thing I can finish with is: “In your dreams Switz. In your dreams!”
And P.S. I think Glenn is the second best central banker of the modern era behind Ben Bernanke, who deserves a Nobel Prize.

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