TIP: you may be right, I may be crazy

Let's just step back for a moment and look at this situation


Talk on the economy has been a bit quiet this week in the wake of the Westpac international payments scandal.


(The horribly disgusting details of that issue aside, it has been equally disconcerting to watch how badly the situation has been managed from a shareholder and public relations perspective. Any grace and honour that could have been salvaged in the wake of the Austrac revelations was squandered over a series of increasingly painful days that inevitably culminated in the outcomes Westpac's leadership should have led with in the first place.)


While that's been happening, Reserve Bank governor Philip Lowe (pictured) gave a surprisingly revealing speech yesterday outlining the RBA's plans to keep the economy on-track; you'll find a copy of his speech here. Today, I'm going to break down some of his key points in the context of what this means for those of us living in this country.


Interest rates


The official cash rate is currently sitting at 0.75 per cent. The futures market reckons it's a 50/50 chance they'll drop to 0.5 per cent by February, and an almost certainty that we'll be there by May 2020.


Quantitative easing?


For the uninitiated, the really simple definition of quantitative easing is injection of more money into the economy by the central bank - in our case, the RBA.


Yesterday, Dr Lowe said the RBA would not consider QE unless official interest rates drop to 0.25 per cent - and if that happens, it would do so by buying government bonds. This effectively means the RBA would be loaning the government money.


QE is in play in Japan and parts of Europe, whose economies are in far worse shape than Australia's is right now. In Japan, for example, the official cash rate is zero. Dr Lowe said yesterday that he hopes if our rates get to 0.25 per cent, "...other public policy options were also on the country's agenda."


Government stimulus?


Which once again, leads us back to the push me / pull you going on between the RBA and government over what should be done to get consumers spending again.


We know the Morrison government is preferring maintaining a surplus over economic stimulus right now. In the wake of Dr Lowe's speech, the market renewed calls to government to step up its infrastructure program, and take advantage of low interest rates to borrow and invest faster.


We've been warned previously by the RBA to expect low interest rates for a long time to come. That's not going to change unless people start spending again - which is going to require more jobs, and faster wage growth.


Australia's employment situation


The latest ANZ-Roy Morgan weekly measure of shopper confidence showed consumer confidence is currently at a four-year low.


Last week's latest ABS job figures may have something to do with that. It showed a month-on-month decrease of 19,000 total jobs in Australia. This is not what the Morrison government or the RBA was looking for, after a couple of months where employment numbers had held steady.


Wage growth


Dr Lowe's deputy, Guy Debelle also gave a speech in Canberra on Tuesday, where he warned that wage growth is going to be very low for a long time to come. The RBA's wage growth target range is currently the lowest it has been in two decades.


He described this situation as the "new normal" that we should all start getting used to - which is a tough ask when on one hand, rising fixed costs are driving households down and on the other, government wants us to spend more.


...and so, property


Right now, low supply and high demand at auctions is driving residential property sales and prices north with a quickness. Today, Brickworks is the latest in a string of building and development companies celebrating a return to the good times.


If you're in the business of selling property though, the situation highlighted by yesterday's announcements from the RBA should serve as a caution.