rba causing a recession, page-3

Thanks for re-posting mikey as I could not reply because of the daily limit on the politics threads.

I agree that the RBA is partly to blame, they been caught flat footed with monetary on more than one occasion, however it is not an easy lever to wield except in hindsight. They are more often than not reacting to market distortions created by government policy.

The first error was having rates too low over the Asian financial crisis, and later 9/11. These low rates linked with opening up of the house mortgage market, government grants, tax reduction, and a strong NIMBYism feeling towards large housing developments, created a bubble in housing which the RBA is still wrestling with today. Over the 2000/2001 period particularly, house prices rose with phenomenal growth.

The small rise before the GFC was the RBA catching on what was happening, once the SHTF rates were once again dropped Rudd stepped in the guarantee the banks, government backed money was used to ensure liquidity in the mortgage market. Rudd increased housing grants to stop any bubble bursting, the States helped by cutting stamp duty.

Not too long after the RBA had to lift rates again, this time because government spending was causing inflation, the additional stimuli including into housing was working a little too well, or Labor just loves spending depending on your persuasion.

Now we come to the point were the government has spent all cash reserves and getting to the point where we have borrowed more than we ever have before, even based on GDP. That means government has lost or is at least loosing its grip on the fiscal policy lever, that means all the heavy lift needs to be done now by the RBA.

We need sensible policy and sensible approach to interest rates to deal with house price growth and the AUD