June 11, 2020 by Dymphna

The panic building in Australia’s money elite

We’re rushing at a cliff, and our money elite don’t know what we’re going to do…

There’s a growing sense of panic in Australia’s money elite.

They’re looking at the same data I’m looking at, and are starting to worry about the same things.

Because right now we’ve primed our policy settings for a ‘Black October’. That’s when a lot of the key support programs are set to be unwound, potentially pulling the rug out from under a fledgling recovery.

First up is Reserve Bank Governor Phil Lowe, who is a little concerned about Scomo et al’s determination to wind JobKeeper up in September.

“Australia’s Reserve Bank Governor Phil Lowe has warned ending the $1500 JobKeeper’s wage subsidy too early would be a “mistake” and it may need to be extended beyond September.

Breaking with the Prime Minister’s rhetoric that the scheme needs to be phased out as soon as possible, the RBA chief has warned the premature withdrawal of stimulus could damage the economy.

But he’s proposed that any extension would likely to be more targeted, for example for the tourism industry hit by international border closures, an option the Prime Minister has previously flagged.

“My main point here is we’ve got to keep the fiscal stimulus going until the recovery is assured.”

The RBA chief said record low-interest rates meant Australia could borrow to fund the stimulus.

“It would be a mistake to withdraw the fiscal stimulus too quickly. The level of public debt in Australia, while it’s rising, is still low.”

Could you ever have imagined that this is what you would have been hearing from the RBA ever in your life time?

“Hey guys, don’t worry about it. We’ve got lots of money. Go crazy. Keep spending til the cows come home.”

Crazy times.

But Lowe sees the writing on the wall. Given the devastation Covid has inflicted, September is just too early to be winding these support measures back.

At the same time as Lowe is getting nervous, Banking Boss Wayne Byers is also worried about what he sees happening with mortgage holidays:

A Senate committee has been told that businesses and households have now deferred around $250 billion worth of loan repayments due to the coronavirus pandemic.

However, Australian Prudential Regulation Authority (APRA) chairman Wayne Byres conceded that some customers will not be able to repay their loans when they are required to resume repayments:

“We don’t want to put pressure on a large group of customers at the wrong point of the cycle”…

“We often talk of the cliff, which is when everything ends in six months’ time. No one has an interest in going off the cliff, so we have to work out what the next phase is going to be and that will be dependent on the economic situation at the time.”

Yep, it’s a cliff. And you can’t just a drop a nation over the edge without serious consequences.

But what will the government do? What can the government do? It can’t keep spending forever. It can’t increase taxes.

So far we’ve been determined to spare the entire economy from pain. But that can’t continue. It’s got to be wound back.

The best the government can do is be a bit selective about who it abandons to the cliff.

But there’s no dodging it.