It was as neat a job as you would every hope to see. Reserve Bank governor Glenn Stevens yesterday used his annual speech to a Sydney charity lunch (The Anika Foundation) to refute the current crop of shibboleths held by forecasters, hedge funds, gloomy economists, members of the federal opposition, excitable members of the media and anyone else who has burst into print in the past five years chanting “we’ll be rooned”.
Some of the reports this morning in The Australian got parts of the message as did The Australian Financial Review, although it focused on its pet subject of a budget surpluses. The Sydney Morning Herald focused on home prices and missed the other important bits, while The Age also focused on home prices, but from a completely different slant to The SMH, and also missed the other points in the speech.
But there was more in the speech, from slowing China, to over-priced housing, to bank funding from offshore, the strength of the resources boom and the health of our banks if house prices fall, Stevens took ’em all on and disposed of them one by one, coolly and calmly. While not ruling out the possibility of the worst happening, he pointed out that Australia was in fact well prepared for the worst. Stevens reminded his readers and listeners at the lunch of some of the problems that had occurred in the GFC, and how we had survived the crunch such as the shut off in bank borrowing from overseas in late 2008 and early 2009.
And he also nicely pondered what could happen if the worst happened again: slump in China, a shut-off in funding from offshore, a fall in housing prices and a euro crisis. And, in doing that he also pointed out that far from hurting Australia, they could actually help protect and boost the economy. For example, many worryworts point out that if China has problems, or we have a euro crisis, commodities might fall, along with the dollar.
There was nary a mention of a multi-speed, patchwork economy, nor a hint of manufacturing/jobs in crisis.
Stevens said that any fall in the dollar flowing from a crisis in the euro, or a slump in China, would cushion the economy and could actually boost export income, as it did in 2008-09 when, combined with still high commodity prices, our terms of trade enjoyed a peak that was only topped late last year. And he said that far from hurting the dollar, any crisis in Europe and the global financial system could see the Australian dollar rise as investors sought the protection and returns available in Australia.
And Mr Stevens made another significant point that has all but escaped the doomsayers:
“Interestingly enough, while we have been told over the years how Australian banks were doing the country a favour by arranging the funding of the current account, they have stopped doing this over the past year without, apparently, any dramatic effects. As measured in the capital account statistics, there has been a net outflow of private debt funding over the past two years, offset roughly by increased inflow of foreign capital into government obligations. This has occurred with a net decline in government debt yields and a net rise in the exchange rate. The current account deficit has, in other words, been easily ‘funded’ without the assistance of banks borrowing abroad — in fact, while they have been net re-payers of funds borrowed earlier.”
The speech was entitled the Lucky Country, that now clichéd phrase first popularised by Donald Horne years ago in a book of the same name that was in reality an attack on what Horne believed was Australia’s smugness. Stevens took aim at the Lucky Country idea and shot quite a few holes in it. It came a month after he made his “glass half full” speech in which he bemoaned the moaning in Australia about how bad we were doing, while the moaners ignored reality and the contrary evidence around them.
It wasn’t a Pollyanna-ish speech: Stevens acknowledged Australia could do better, that shit (not his word) could happen. He told his audience:
“It is unlikely we will ever be able to change definitively the views of all the sceptics. And — let us be clear — we should welcome the sceptics. Perhaps some of their concerns are valid. The Reserve Bank gives a lot of thought to these issues; we certainly do not dismiss them. We should always be wary of the conventional wisdom being too easily accepted. We should never, ever, assume that ‘it couldn’t happen here’.”
“Most Australians I encounter who return from overseas remark how good it is to be living and working here. We are indeed ‘lucky’ in so many ways, relative economic stability being only one of them.
“But what matters more is what we do with what we have. Not every good aspect about recent performance is down to luck. By the same token there are things we can do to improve our prospects — or, if you will, to make a bit of our own future luck. Some of the adjustments we have been seeing, as awkward as they might seem, are actually strengthening resilience to possible future shocks. Higher — more normal — rates of household saving, a more sober attitude towards debt, a re-orientation of banks’ funding, and a period of dwelling prices not moving much, come into this category.”
They are points you rarely, if ever see from the sceptics and headline-chasing media commentaries on the economy.