If things are really grim, it helps to have an indefatigable nature, and there’s no doubt that RBA Deputy Governor Ric Battellino has that in spades — at least in the speeches he makes at public conferences. Were I being crucified, I’d like to have Ric up there with me, singing “Cheer up Brian!…”, to take my mind off the nails.
But were I still in the Garden of Gethsemane, and actually trying to avoid the Romans (and an extended Pilates session the next day), I think I’d want someone else on lookout duty.
Last month, in his address to ITSA’s 7th National Bankruptcy Congress in Sydney, Battellino looked at the data on Australian house pricing, and saw no reason to expect them to fall all that much.
Curiously, he argued that the Australian market was actually ahead of the US — that we’d already peaked in 2003, three years before the US market hit the peak from which it is still precipitously falling:
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First, the cycle in the Australian housing market, rather than following the US market, is in fact at a more advanced stage; it is probably leading the US market by three years or so. The Australian housing market was at its hottest in 2003, whereas the US market peaked in 2006.
Strange then that the ABS data put the index of Australian house prices at 101.5 at the end of 2003, versus 130.7 in June of this year. So, Australian house prices fell minus 27% from their peak? We indeed live in a Lucky Country, if house prices rise when the market cools.
In fact, the index did reached a mini-peak at the end of 2003, and fell 1.5% in 2004. But it then regained momentum, and rose another 30% above the tiny dip in 2004.
Battellino’s consideration of other data was not so obviously Orwellian. He noted the shortage of supply here versus an oversupply in the USA, and that is clearly the case.
But he also ignored other readily available data when presenting what he described as “an objective look at the state of household finances.”
How about the objective data, as recorded in the Demographia survey, that Australia’s median house price, at 7.1 times median income, is the most unaffordable in the OECD? Or the RBA’s own data that which shows that, relative to household disposable income, mortgage debt in Australia is actually slightly larger than in the USA?
Clearly our economic managers are torn between not wanting to spook the market, and wanting to present objective guidance-so much so that debating whether economic projections reflect scientific foresight, or politically inspired spin, has become the contest du jour in Question Time.
In this, both sides of our House are missing the point. If Treasury and the RBA had got it right, we wouldn’t be in the Garden of Gethsemane in the first place — we’d be in the Garden of Eden instead.
The US Congress’s Oversight Committee got closer to the mark, when it forced Greenspan into the admission that the economic philosophy he’d been following for the previous 40 years was wrong.
This philosophy led him to not merely ignore asset bubbles, but to renew Wall and Main Streets’ speculative manias after each bubble burst, by rekinding the growth of private debt until it hit the unsustainable levels that have precipitated this crisis.
At least Greenspan — though admittedly in retirement — had the gumption to admit fault. Our economic managers, caught in a crisis they didn’t see coming, are still using the same models that didn’t anticipate this mess, and still looking for the glimmers of brightness amidst the statistical gloom.
Days after Battellino’s speech, the ABS released its update to the house price index, which showed that prices had fallen 1.84% in the September quarter.