From Business Spectator, September 20, 2010:
According to a recent report by Goldman Sachs chief economist, Tim Toohey, household debt levels in Australia now stand at an elevated level, both in relation to historic norms, and compared to other countries. For instance, Australia’s debt to household income ratio is higher than in the United States and Spain, and stands at a similar level to the United Kingdom.
Toohey has written a perceptive report on the Australian housing market, in which he argues that housing prices are between 25-35 per cent overvalued. As a result, he says, we run the risk that Australia’s house prices could drop sharply if a sharp decline in Chinese growth prompted a steep drop in our export earnings.
Interestingly, it appears that Reserve Bank officials are the keenest investors in rental properties. “We are not sure whether to be relieved or concerned that of the five central bankers who were brave enough to note their occupation on their tax form, all five had an investment property!”, the report says. “Of the 200 occupations classified by the Australian Tax Office, the employees at the Reserve Bank topped the list with respect to their investment property exposure.”
There’s more than one way to look at this very interesting revelation.
1. The “independent” RBA has a vested interest in fuelling Australia’s property bubble – which helps to explain the low interest rate policies of the early 2000’s that so helped to encourage excessive borrowing and real estate speculation.
2. The “independent” RBA has a vested interest in keeping the property bubble afloat – so that RBA officials do not suffer capital losses on their existing property portfolios.
3. My favourite. The “independent” RBA has a vested interest in first fuelling a property bubble with low interest rates – meaning officials make profits on the way up – and then, collapsing the property bubble at a time of their choosing (by raising interest rates), so that officials can buy in to the property market again (and buy up even more), after prices have fallen dramatically.
One can only wonder about the investments of “independent” RBA Governor, Glenn “$234k Pay Rise At GFC Peak” Stevens. Has he profited from his Board’s decisions on interest rates? Will he personally profit by (again) raising interest rates into the teeth of an onrushing GFC 2.0?
Next time you hear an RBA official like Stevens talking about interest rates, or the housing market, just remember this article.
And remember that, whatever happens to the housing market, it is those same “independent” RBA officials who know what is going to happen… before you do.