Call it the MIT Mafia, but there are now three senior officials at the Reserve Bank, including two leading candidates for the governorship (whenever Glenn Stevens steps down), who all obtained their PhDs at the MIT (Massachusetts Institute of Technology) in the US.
Yesterday, the bank announced the appointment of Dr Jonathon Kearns to head its Economic Research Department. He is currently deputy head of Domestic Markets Department, having previously held the position of deputy head of Economic Analysis Department. According to the bank’s statement Dr Kearns’ research has focused particularly on financial market issues.
The assistant governor overseeing the economics work at the bank, Phil Lowe got his doctorate from MIT in 1991, while the assistant governor in charge of financial markets, Guy Debelle, got his in 1994. Both also did time at the Bank of International Settlements, the so-called central bankers central bank based in Basel, Switzerland.
Only the top-flight central bankers are sent there for experience and exposure to global issues. Dr Debelle also had a stint at the IMF. Dr Lowe is a RBA lifer, except for his time at the BIS.
Dr Debelle started in federal treasury (which is not held against him) and then switched to the RBA. He has also done time as a visiting professor at MIT. Dr Debelle has had the busier time of the two in the past three years, overseeing the way the bank handled the enormous impact of the credit crunch and GFC on the Australian financial markets and system especially the banks.
He was at the forefront in dealing with the loss of international liquidity that hit Australia in late 2008 after the Lehman brothers’ failure and the collapse of other banks in the US, Germany, UK and Europe, along with the bank’s stability department, which was led by Dr Lowe and then Dr Malcolm Edey during the tough months of late 2008.
Dr Kearns’ work on financial markets issues makes him a future contender for Debelle’s gig, along with Luci Ellis, who heads the financial stability department, which is finishing off the second financial stability review for the year. That will be released next week on September 30. Ellis was recruited from the Bank of International Settlements a couple of years ago to become head of the financial stability department. While at the BIS she wrote an important paper explaining why the American housing market collapsed. But she is probably more of a future successor to Dr Malcolm Edey, who presently oversees the Australian Financial System for the bank.
Dr Lowe swapped roles with Dr Edey in December 2008 (just before Christmas). That was seen as giving Dr Lowe more exposure the major economic decisions at the bank. The assistant governorship of the RBA (economic), is described by the bank as being “chief economic adviser to the governor and the board.” The Consigliere of the RBA, perhaps, to extend the mafia metaphor a little too far?
Dr Lowe and Dr Debelle have headed the bank’s economic analysis department. Dr Lower headed up the financial stability, research and domestic markets departments as well and Dr Debelle, the international department. Dr Debelle followed deputy governor Ric Battellino into the role of assistant governor in charge of financial markets.
Dr Lowe has had to grapple with uncharted waters in that he was overseeing an economy that wouldn’t lay down and die, when many though it would because of the impact of the GFC and the global recession.
Thanks to record interest rate cuts (overseeing the analysis on that was a big part of his gig) and the the stimulus from the federal government, Australia escaped. China has kicked in, along with India and Japan in its own way and now Dr Lowe is overseeing the basis for the next rate rise, which is coming after the latest RBA board minutes made that clear yesterday, except for the timing.
This is not to say that Stevens and Battellino are absent, or not involved. They are, heavily. But except when Paul Keating parachuted Bernie Fraser into the RBA from Treasury, the central bank has looked inside for its leaders.
Dr Lowe made a major speech in Sydney last week that set up the context for Stevens’ speech in Shepparton on Monday and then the release of the September board meeting minutes yesterday.
All this is designed to lead the debate towards an interest rate rise either at the October meeting, or the Melbourne Cup day meeting in November.
Led by the work of Dr Lowe and others, with input from other departments, the bank now sees an inevitability about the inflationary pressures starting to re-emerge because of the unprecedented strength of the resources boom and the enormous surge in investment that’s feeding off it. Mining industry investment alone is expected to reach an estimated 6.5% of GDP at its peak in 2012 and then continue around that level for several more years as the huge LNG projects in Queensland and WA replace iron ore ands coal spending.
Total investment from all sectors will be 10% or more of GDP at its peak, despite the impact of the stronger dollar on some areas, such as manufacturing. That’s what’s driving the bank’s thinking on interest rates. And why, when they see consumer spending stronger than expected in the second quarter accounts and since then in retail sales and other figures, the bank has advanced its rate rise timing.
Footnote: Glenn Stevens’ appointment is up in September 2013, so it will have to be dealt with by the government before the 2013 federal election. Assuming the current arrangements in Canberra do not collapse, that’s something for Prime Minister Gillard and Treasurer Swan.
I would like to comment on the following passage:
“Dr Lowe has had to grapple with uncharted waters in that he was overseeing an economy that wouldn’t lay down and die, when many though it would because of
the impact of the GFC and the global recession.
Thanks to record interest rate cuts (overseeing the analysis on that was a big part of his gig) and the the stimulus from the federal government, Australia
escaped. China has kicked in, along with India and Japan in its own way and now Dr Lowe is overseeing the basis for the next rate rise, which is coming after
the latest RBA board minutes made that clear yesterday, except for the timing.”
The following is a cut and paste of what I wrote on another blog prior to the recent election. The following I believe addresses the point of why we have
not had a recession in quite a period of time. The recent GFC is no exception, so I would like to comment on the above paragrapghs which pretty well give an
economists point of view of pulling a few levers helped us stay out of recession. I think this is too narrow an interpretation and there are other factors
at work keeping Australia out of recession.
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“I read somewhere in the past that both political parties have their own pet economic theories as to why Australia’s economy has not gone into recession since
1991. that is nearly 20 years of the economy not having two or three quarters of -ve growth in a row.
The liberal party subscribes to the view that their economic management :
a) created an industrial relation environment that helped small business flourish;
b) implemented reforms to increase productivity & realloccation wealth for a more productive economy
c) other measures around stable government etc blah, blah
The labour party responds with :
a) economic reforms of Bob Hawke & Paul Keating
b) mining boom after 2001
c) anything else that has nothing to do with liberal party, such as harsh recession under Bob Hawke & Paul Keating meant that a leaner economy could better compete on world stage..
I would like to put forward an alternative view which I believe has nothing to do actions taken by either political party.
1) Mining boom started when commodity prices bottomed about 2001. It is still going now and will continue a long time as it takes some mines/infrastructure
> 10 years to reach completion. Hence mining boom cannot fully account for Australia’s long term economic performance in missing out on a recession.
2) Australia has industrialized to such an extent that when industry/consumers get on the internet or use e commerce to compare prices to buy goods the
productivity advantage goes to Australia.
3) The internet took off about 1991. Is it such a coincidence that Australia stopped having recessions during period internet gained significant market penetration as a piece of infrastructure.
4) Immigration only provides for economic benefits up to point where infrastructure limitations does not create diseconomies of scale rather than economies of scale. Immigration is only part of Australia’s economic success story.
5) I propose it was Australia’s unique strategic fit of its internal capabilities to the global economy which was impacted by long term trend of increased usage of internet to lower costs & improve productivity. Australia as a exporter of primary products & importer of finished goods is in the unique position
of not having its local manufacturing being cannibalised when consumers get onto internet to compare prices. In Gold mining industry cyanide may be an imported raw material which disinter-mediation( squeezed margins of suppliers) allows for lower prices for gold mining companies who get benefits of using internet to procure & quickly get advantages of lower prices. This is just an example.
6) The political party willing to champion infrastructure which facilitates Australia’s strategic position in the global economy is the political party who should govern Australia.
7) I believe Julia Gillard should win if voters understand the above points. The NBN is important for future ecommerce, especially real time support services by voice & image. For example technical difficulties of cyanide in CIL could be resolved by voice & image without waiting two weeks for a meeting.
This is just one example.”
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The above narrative emphasizes there is more to Australia’s economic performance than pulling a few macro economic levers. I conjecture those social factors and infrastructure issues play a more prominant role in enabling Australia to match its unique internal capabilities to Australia’s unique position in the global economy as the internet took off and continues to play its role in society. I apologize if I am not clear on these rather abstract notions of strategic fit etc.
wbddrss