More money, more money for everyone.
So the RBA announced last week that they had another lazy $100bn to throw at the market.
Interest rates were on hold. No surprises there. At 0.1% they’ve got nowhere to go, especially since Phil Lowe reckons they’re unlikely to rise until 2024 at the earliest.
So with interest rates out of the picture for now, the focus becomes centred on what the RBA is doing with its Quantitative Easing (aka money printing) program.
And just what they’re doing shocked everyone. No one saw it coming. They’re going to print another $100bn, on top of the first $100bn program which ends in April.
Yep. $5bn a week, just gushing on in to the economy.
As I said, this took people off guard. I don’t know anyone who saw it coming.
If anything, people thought the RBA might be trying to dial things back a bit.
Because the truth is, on pretty much every metric that matters, the Australian economy is doing a lot better than expected.
The RBA were well aware of this. Take a look at this chart, which compares their earlier forecasts for unemployment, with what actually happened.
That’s the public policy equivalent of smashing it out of the park.
The unemployment rate was expected to get to double-digits. In the end it looks like topping out at 7.5%.
And this isn’t an isolated case. Across the economy, things were doing much, much better than expected.
And yet, the RBA decided to double down, and let the money printing presses go Brrrr for another six months.
Their thinking must be, or seems to be, that to generate enough inflation, they have to run the economy hot until the labour market gets tight enough to generate wage inflation.
(It’s a long way off.)
The Governor has said he reckons we need to get the unemployment rate down to “4-point something”.
When you compare how long it took to bring unemployment down a comparable distance (from 6.8% now to 4-point something – so like 3 percentage points) it normally takes years.
Like, 3 to 4 years on that clock.
So does that mean the printing press stays on for all that time? That’s massive.
Because if we’re talking about running the economy hot, it’s already looking a bit over-revved, especially when it comes to the property market.
I mean, auction clearance rates are at boom time levels:
Housing finance is exploding:
Household incomes are booming:
And households are sitting on a stack of cash thanks to government support packages.
So what happens if you run an economy hot when asset markets are already this tight and primed for growth.
That’s what happens.