Yesterday, Alex Erskine pointed out that
Assistant Treasurer Mal Brough was unusually forthright in his recent comments
on the economy. Henry has had a bit to do with Mal when he was Minister
Assisting for Defence, and was impressed with his quick grasp of the issues and willingness to engage in constructive debate. Henry wonders if the recent
statement signals a new approach to disclosure on the part of Cossie’s troops or
if we will see the knuckles rapped and a much more controlled Assistant Cossie
next time around.

We learned from its half yearly statement
yesterday that the Reserve Bank is happy to see the banking sector continuing to
make money and that the Australian Economy is humming along nicely, despite
concerns on the possibility of destabilisation from asset inflation. According
to The Age, CommSec thinks it’s a line ball call for interest rate rises in the
foreseeable future, based on the RBA’s behaviour of

In fine form, Alex Erskine pulls out the
x-ray specs to do some pretty serious reading between the lines from the RBA’s

Banks – so the document shows – have been
reaping as they sow, thriving on the good paddock that is the Lucky Country.
They have imperilled households with cavalier over-lending, to the extent that
the RBA is heavily constrained in its use of the tools of monetary policy …
and the only good news is that the wheels have not fallen off yet.

What caught my eye were charts that
showed the market pricing out the risk of bank earnings ever hitting a tough
patch. Oh dear. How short our memories are. Today is 20 years since foreign
banks were admitted to Australia and, while they failed to make much market
share gain (and according to The Fin today only 3 are represented in Australia today in their original
guise), they did incite a frenzy of competitive behaviour from the domestics
that led directly to ‘the recession we had to have.’

Read Alex Erskine’s full take on the RBA’s
Financial Instability Report

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Peter Fray
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