RBA Update: Is The Democracy Sausage Still Sizzling? With Robbie Barwick

An important update relating to the Section 11 power at the RBA with Robbie Barwick from the Citizens Party. In some really good news, it appears this change will be resisted in Parliament, so we explore how this came about, and the broader issues which this whole episode represents.

Yes, the democracy sausage is indeed still sizzling, largely thanks to individuals making their views known to our Politicians and the influence of social media on public discourse to positive effect!

See my show A Question Of Democracy! https://youtu.be/R8GNp1hYdq8

https://citizensparty.org.au/

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
RBA Update: Is The Democracy Sausage Still Sizzling? With Robbie Barwick
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RBA Update: Is The Democracy Sausage Still Sizzling? With Robbie Barwick

An important update relating to the Section 11 power at the RBA with Robbie Barwick from the Citizens Party. In some really good news, it appears this change will be resisted in Parliament, so we explore how this came about, and the broader issues which this whole episode represents.

Yes, the democracy sausage is indeed still sizzling, largely thanks to individuals making their views known to our Politicians and the influence of social media on public discourse to positive effect!

See my show A Question Of Democracy! https://youtu.be/R8GNp1hYdq8

https://citizensparty.org.au/

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

A Question Of Democracy!

This week the Senate held hearings into the proposed changes to the way the RBA works. The original review was led by three Technocrats included a recommendation to remove the overrule power. This power specifically, section 11 of the Reserve Bank Act 1959 enables the federal treasurer to “overrule” an action taken by the Reserve Bank in extreme situations, via a clear and determined process, and even though no Australian government had used it in the more than 60 years it is important. It’s supposed to be a democratic fail-safe.

The Technocrats recommended the overrule power should be removed from the act. Their reasoning was that there was a risk that the federal treasurer, and by extension the federal government, might abuse that power. But what if the RBA abuses their power? The proposed change was not supported by the bulk of those who appeared in the Senate hearings, so today we look at the evidence provided.

At the heart of the issue is this. How accountable should the RBA be? And if there is no democratic override from the section 11 power, what happens if the Economists at the RBA set monetary policy in a way that badly impacts ordinary people, bearing in mind that another recommendation was to strike safeguarding the “welfare of all Australians” from their objectives. The focus will be on inflation and employment, only.

Central bankers are not infallible, sometimes makes mistakes, and frankly are already not accountable for their decisions, right or wrong. It’s a question of democracy.

So standing back, it seems it was the Technocrats and Economists who wanted to remove the section 11 power, but those with real lived experience, from both the Central Bank, and Government, as well as many respected observers, all agree.

Democracy would be sacrificed, and the Central Bank would be even less accountable if the power was removed. In other words, it is a question of democracy. And more broadly the idea of unelected Central Banks, being able to impose monetary policy decisions without question should terrify us all.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
A Question Of Democracy!
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A Question Of Democracy!

This week the Senate held hearings into the proposed changes to the way the RBA works. The original review was led by three Technocrats included a recommendation to remove the overrule power. This power specifically, section 11 of the Reserve Bank Act 1959 enables the federal treasurer to “overrule” an action taken by the Reserve Bank in extreme situations, via a clear and determined process, and even though no Australian government had used it in the more than 60 years it is important. It’s supposed to be a democratic fail-safe.

The Technocrats recommended the overrule power should be removed from the act. Their reasoning was that there was a risk that the federal treasurer, and by extension the federal government, might abuse that power. But what if the RBA abuses their power? The proposed change was not supported by the bulk of those who appeared in the Senate hearings, so today we look at the evidence provided.

At the heart of the issue is this. How accountable should the RBA be? And if there is no democratic override from the section 11 power, what happens if the Economists at the RBA set monetary policy in a way that badly impacts ordinary people, bearing in mind that another recommendation was to strike safeguarding the “welfare of all Australians” from their objectives. The focus will be on inflation and employment, only.

Central bankers are not infallible, sometimes makes mistakes, and frankly are already not accountable for their decisions, right or wrong. It’s a question of democracy.

So standing back, it seems it was the Technocrats and Economists who wanted to remove the section 11 power, but those with real lived experience, from both the Central Bank, and Government, as well as many respected observers, all agree.

Democracy would be sacrificed, and the Central Bank would be even less accountable if the power was removed. In other words, it is a question of democracy. And more broadly the idea of unelected Central Banks, being able to impose monetary policy decisions without question should terrify us all.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

The RBA Is Trapped: With Tarric Brooker…

Journalist Tarric Brooker joins me for a Friday review, and this week we look at the RBA and how it is trapped thanks to conflicting data.

He also walks through some important slides on property and China. Here is the link to the slides: https://avidcom.substack.com/p/dfa-chart-pack-16th-february-2024

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Find more at https://digitalfinanceanalytics.com/blog/ where you can subscribe to our research alerts

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
The RBA Is Trapped: With Tarric Brooker...
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The RBA Is Trapped: With Tarric Brooker…

Journalist Tarric Brooker joins me for a Friday review, and this week we look at the RBA and how it is trapped thanks to conflicting data.

He also walks through some important slides on property and China. Here is the link to the slides: https://avidcom.substack.com/p/dfa-chart-pack-16th-february-2024

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

RBA Independence Discussed In Senate Committee

RBA Independence or should that be spelt “dance…” was one issue discussed during the Senate Economics Legislation Committee on Thursday 15th February 2024.

Senators Nick McKim and Gerard Rennick quiz RBA Governor Michelle Bullock during the hearings. Highly relevant given the current proposed legislation to remove Government oversight of their activities.

Segments on other issues will follow. Here is the link to the full hearing (1:30:00) https://www.aph.gov.au/News_and_Events/Watch_Read_Listen/ParlView/video/2174307

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
RBA Independence Discussed In Senate Committee
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The Costs Of Higher Interest Rates

Introduction

Using data from various sources including the RBA and APRA, we have estimated the gross and net additional payments households are making to financial institutions in Australia, following the RBA cash rate lifts from May 2022 to date.

We have only included owner occupied and investor loans, as these are the main foci of debt, but of course higher rates have also been applied to SME’s, personal loans and credit cards, but these are excluded from this analysis.  These findings are indicative only.

Approach

We took the loans outstanding data from the RBA monthly series, for both owner occupied and investor loans from their monthly series. We took the average interest rate charged on these loans again from relevant RBA data sources. We also took the total deposit pools held by the banks, using data from APRA (authorised depository institutions) and the typical interest paid from the RBA rate series.

During the period under review, the net value of loans and deposits grew, so we used the average balance each month. We applied the average interest rate charged to each balance, and compared the outcome in May 2022 to December 2023, the period over which interest rates rose.  The different between the May 2022 to December 2023 is the gross increase in payments households were forced to make.

We also provided a net offset calculation because banks in the period also provided higher rates, at least to some extent on deposits, calculated with a similar method. These payments went to different households of course.

Note we have not included any assessment of capital being repaid during this period, as we worked on gross average balances. But this effectively isolates the impact of the higher rates.

Results

On a gross basis, banks received an additional $49.52 billion on an annualised basis between May 2022 and December 2023, on owner occupied loans, and $22.5 billion on investment loans. Together this is worth around $70 billion annualised. This translates to $4.13 billion per month for owner occupied loans and $1.88 billion for investor loans.

Turning to deposits, banks paid out and additional $44.09 billion on an annualised between May 2022 and December 2023, or $3.67 billion per month.

Offsetting the deposit interest paid to the mortgage interest received, Banks received an additional $26.1 billion from households on an annualised basis, or $2.17 billion per month.

We would also make the point that the interest paid by some households are generally returned to asset rich savers, not the same households. So it would be appropriate to cite the gross impact, rather than the net impact if this distinction is made.

This is in addition to returns deposited with the RBA under the Term Funding Facility.

Which Households Are Hurting The Most – According To The RBA?

Reserve Bank governor Michele Bullock was back in front of the bright lights, appearing at a House Economics Committee Hearing on Friday.

I have selected the edited highlights in this show, from the 3 hours of questions, and have included some of her statements. While she didn’t add a whole lot more to what she said at Tuesday’s press conference, she emphasised two points that should give pause to those expecting multiple rate cuts this calendar year.

The first was in response to a question on inflation expectations: by the time inflation gets back to the midpoint of the target band of 2 per cent to 3 per cent, as required by the RBA’s new mandate – which occurs some time beyond the middle of 2026 on the RBA’s latest forecasts – inflation will have been outside the target range for four years, which is right on the edge of what the RBA will tolerate.

The second was on productivity.

But she also touched on the risks in the forecasts, the impact of the Bank of Mum and Dad, and other distributional impact questions across households. Frankly, I found this unconvincing. So the think the RBA has much to do to gain a better set of insights into the current state of play!..

Let me know what you think in the comments!

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Digital Finance Analytics (DFA) Blog
Digital Finance Analytics (DFA) Blog
Which Households Are Hurting The Most - According To The RBA?
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Which Households Are Hurting The Most – According To The RBA?

Reserve Bank governor Michele Bullock was back in front of the bright lights, appearing at a House Economics Committee Hearing on Friday.

I have selected the edited highlights in this show, from the 3 hours of questions, and have included some of her statements. While she didn’t add a whole lot more to what she said at Tuesday’s press conference, she emphasised two points that should give pause to those expecting multiple rate cuts this calendar year.

The first was in response to a question on inflation expectations: by the time inflation gets back to the midpoint of the target band of 2 per cent to 3 per cent, as required by the RBA’s new mandate – which occurs some time beyond the middle of 2026 on the RBA’s latest forecasts – inflation will have been outside the target range for four years, which is right on the edge of what the RBA will tolerate.

The second was on productivity.

But she also touched on the risks in the forecasts, the impact of the Bank of Mum and Dad, and other distributional impact questions across households. Frankly, I found this unconvincing. So the think the RBA has much to do to gain a better set of insights into the current state of play!..

Let me know what you think in the comments!

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/