Friday, June 8, 2012

Australia on Avoiding Asset Bubbles


An article from Bloomberg BusinessWeek today had some quotes and commentary from Australia. I have to say, they seem to be putting the U.S. and Europe to shame, at least in their grasp of the many potential effects of government monetary policy.

From the article:
[Reserve Bank of Australia Governor Glenn] Stevens, in his address, sought to reconcile the divergence between Australia’s weak consumer sentiment and disquiet among households, with one of the fastest-growing economies and best performing labor markets among major developed nations....
“One thing we should not do, in my judgment, is to try to engineer a return to the boom,” Stevens said, referring to conditions before 2007. “Many people say that we need more ‘confidence’ in the economy among both households and businesses. We do, but it has to be the right sort of confidence.
‘‘The kind of confidence based on nothing more than expectations of ever-increasing housing prices, with the associated willingness to continue increasing leverage, on the assumption that this is a sure way to wealth, would not be the right kind,’’ he said.
If only Bernanke were taking such a long-run view. Of course, Australia has the luxury of low unemployment and a stable economy while coasting on China's boom, but even so their moderation in policy is admirable.

Meanwhile, in the U.S.A., there's talk of a new housing bubble in rental properties, and the ever-looming threat of nearly a trillion in student loans outstanding.

Australian officials recognize that low interest rates are no free lunch. They also have distributional effects, particularly on seniors or others living on fixed income. The article continues:
The governor also said the central bank shouldn’t neglect retirees and others who live on income from their savings. ‘‘Popular discussion of interest rates routinely ignores this element, focusing almost exclusively on the minority of the population -- just over one-third -- who occupy a dwelling they have mortgaged,’’ he said.
Bravo, Australia!

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