Tag: Martin Place
There’s a big garage door very close to the corner of Martin Place and Phillip Street in Sydney’s CBD.
If you stand on the other side of the street long enough you’ll see an armoured truck, with a large police escort, pulling into the driveway.
It’s like a scene out of the Italian Job, but it’s actually a pretty standard Reserve Bank procedure — the truck is delivering cold hard cash to the central bank.
That’s the image you might summon when you think of the Reserve Bank printing money: a truck chock-full of cash arriving from the Mint with brand new money, the Reserve Bank unloading it and then pushing that money out into the economy.
But now the Reserve Bank is creating money out of thin air instead.
It’s literally creating the money on computer screens.
In recent weeks the Reserve Bank has been buying government bonds. It may do this via an agreement with one of the big four banks, or maybe with a fund manager — anyone that has been holding the bonds in bulk.
It’s been doing this by “expanding its balance sheet”.
It sounds technical but it’s actually really simple.
Most households have a budget. And if you wanted to, you could create your own balance sheet. Your car would be listed as an asset and your credit card debt would be a liability.
The thing is, your cash is fixed. You have income coming in every fortnight or every month and, unless you get a pay rise, it doesn’t change.
What if, however, you could create money? You’d just sit at home, go to your balance sheet and change your $10,000 in the bank to $100,000. Easy. You could buy more stuff then using your debit card — no need to print your own money.
This is what the Reserve Bank has now done.
In its explainer on Unconventional Monetary Policy the Reserve Bank says:
“Asset purchases — also known as quantitative easing (QE) — involves the outright purchase of assets by the central bank from the private sector with the central bank paying for these assets by creating ‘central bank reserves’.
“This has been popularly referred to as ‘printing money’.”
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Reserve Bank wrestling all interest rates onto the floor
Now that the Reserve Bank has a licence to print money, it is going into the three-year bond market and buying up bonds.
I understand this might sound incredibly dull and irrelevant, but it’s actually quite interesting.
You see the Reserve Bank is now buying billions of dollars of government bonds from the commercial banks.
This is what’s known as buying bonds in the secondary market.
If the RBA bought bonds directly from the Government it would, in effect, be directly funding the Government. And that’s clearly not on.
So how does this affect me?
As the Reserve Bank buys up government bonds their price goes up and the yield, or interest rate, on those bonds goes down.
This means the Reserve Bank can influence the interest rates on three-year government bonds. This in turn lowers the interest rates on other debt securities.
The Reserve Bank has said it is targeting three-year bonds in the hope of lowering the entire regime. But it has said it will buy across the spectrum of bonds too.
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The 10-year rate is the common benchmark or risk-free rate. That’s still elevated, but about half what it was midway through March.
The Reserve Bank has already bought tens of billions of dollars of bonds, but by the time it’s finished, both variable and fixed rate mortgages, as well as business loans of all shapes and sizes, should all be even lower than they are today, and, most importantly, will remain low for years.
It will have also give the Federal Government a once-in-a-generation opportunity to splurge on the economy at obscenely low interest rates, to help pay of things like the JobKeeper payments.
This is because it’s government debt that the Reserve Bank is ultimately making cheaper by buying its bonds.
Reserve Bank’s cash rate setting becoming tricky
There’s also another highly unusual phenomenon taking place right now.
RBA slashes interest rates to 0.25pc
The Reserve Bank cuts interest rates to a record low and announces a quantitative easing program for the first time in its history to help prevent a coronavirus-driven recession.
The Reserve Bank meets every month (apart from January) to announce the rate at which it’s going to set the cash rate “target”.
Reserve Bank representatives literally buy and sell securities at the bank’s headquarters in Martin Place on a daily basis to ensure the cash rate, or overnight money rate, sits at roughly 0.25 percentage points (where the cash rate currently stands).
But HSBC has told the ABC that on several days in the past few weeks, the cash rate has actually dropped much lower than that.
This won’t lead to a drop in your mortgage repayments, but it does give you a sense of the rough and tumble in the money markets right now.
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The bottom line
The point of all this is to ensure the Federal Government can borrow more than $200 billion as cheaply as possible, and that businesses can pay back money with more ease.
It’ll also ensure mortgage repayments, for those who are not on a repayments break, are as low as they can feasibly be.
One constant in all of this though is that the Reserve Bank hasn’t changed the rule of when it will start raising rates. That will happen when Australia reaches full employment (set at roughly 4.5 per cent).
You can see why EY, AMP Capital, the NAB and HSBC all think record low interest rates are now likely to be with us for a considerable period of time.
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In our booming cities, one construction project rolls into the next and those living through them are left asking: will we ever get ahead?
It’s lunchtime. City workers — most with headphones firmly secured — zigzag around each other, searching for food or somewhere to sit.
The streets are buzzing, but the usual drone of traffic and city sound is drowned out. Something else has taken over: the relentless ra-ta-ta-ta-ta of an industrial drill.
Banging a hole under the watchful eye of hi-vis-clad construction workers, the drill is so loud it drowns out the beeps telling the city’s pedestrians it’s safe to cross the road.
Yet for 82-year-old Moses Srour, the noise is irrelevant.
“I’m half deaf,” he told the ABC. “I only hear what I want to hear.”
The shoe repairman’s hearing may be failing, but his vision is just fine.
And he’s seen it all.
Gaping holes where buildings once loomed above him.
Barriers where he used to walk.
And new buildings emerging where there were none before.
“Of course it’s changed,” Mr Srour told the ABC. “That’s what happens in the city.”
In Sydney’s CBD, where Mr Srour’s business is based, change has been the only constant.
He’s experienced it — and the disruption it brings — himself.
His shoe repair and key-cutting business, which has been operating for 64 years, was forced to relocate because of that incessant drill — the one helping build Sydney’s new train station as part of the $16.8 billion Metro line, Australia’s largest public transport infrastructure project.
A huge chunk of Sydney’s famous Martin Place, where Mr Srour’s shop used to be, has been dug out for the project, which last week was hit with an almost $3 billion cost blowout.
In posters plastered across the site, the NSW Government proudly asserts it will make “Tomorrow’s Sydney”.
But what about the cities of today? Experts say when it comes to construction projects, Australia will always be “chasing a ball down a hill”.
Across the country, our capital cities are in the middle of an unprecedented infrastructure spend.
In Melbourne, the $11 billion Metro Tunnel project is flagged to wrap up by 2025, while the $6.7 billion West Gate Tunnel project — which was originally due for completion in 2022 — will come in 2023.
Perth’s Metronet train line project will transform the city, but has also suffered delays and controversies. Meantime, the Cross River Rail, an underground railway through central Brisbane, is set to cost $5.4 billion with a 2024 finish date.
In Sydney, the ongoing $17 billon WestConnex project — billed as the biggest road project in the world — is still four years away from completion.
“Our main cities, our metropolises, have been going through major surgery,” University of Melbourne urban policy professor Brendan Gleeson said.
“Particularly in the past decade, there’s been unprecedented growth, both in population and the built environment.
“But state governments across the nation recognise there’s been a severe infrastructure lag.”
Today, independent advisory body Infrastructure Australia will launch its 2020 Infrastructure Priority List at Parliament House in Canberra.
The list is produced every year, and aims to address Australia’s “unprecedented infrastructure demand” by advising governments across the country which types of projects they should be focusing on.
Under this year’s theme of “resilience”, it identified 25 new projects, including four country-wide “high-priority projects” focusing on roads, water security, waste management and coastal protection.
These recommendations though are often ignored and experts have long criticised governments of pork-barrelling, lacking foresight and using infrastructure investment as a fall-back option to stimulate the economy.
Playing catch up
The population debate, and its impact on the country’s infrastructure needs, remains a political football.
In NSW, Premier Gladys Berejiklian recently called for a breather on immigration, while the Prime Minister Scott Morrison introduced legislation encouraging skilled migrants to live and work in country towns in a bid to ease congestion.
Australian National University demographer Liz Allen said investment in the physical infrastructure of Australia’s major cities had been “financially and strategically inadequate for the last two decades at least”.
She said Australia did not need to take a breath on population growth from immigration, but instead leaders needed to “get a grip”.
“We don’t have cities and people spring up overnight,” Dr Allen said.
“The trouble for Australia, and its major cities, has been that political short-termism has prevented investments in major infrastructure because they extend beyond a couple of years.”
Now, it seems, we’re attempting to catch up.
Marcus Spiller, an economist and urban planning expert for SGS Economics and Planning, has worked as an independent consultant for governments and private companies for 30 years.
He said before any major project was approved, it required a “cost-benefit analysis” to assess the external costs borne by all parties, its value and projected benefit.
However, he said that companies and governments tended to downplay the disruption costs and promote long-term benefits — a concept known as “optimism bias” in the industry.
“Lots of planners and developers will tend to note the disruption that’s suffered but assume in the long run the city is going to be better off,” he said.
“Is it all worth it? Well, it depends on the prize.”
This cost-benefit equation was put under the microscope during the construction of Sydney’s $3 billion light rail project.
For more than four years, large chunks of Sydney’s CBD and parts of its eastern suburbs became a construction zone.
Footpaths became roads.
Roads became more like mazes.
Pavements turned a different colour.
Businesses along the route were reassured about “the prize” that would come.
Three years before construction started, a NSW Government document talked about “a quieter and less chaotic environment with more space to move around” once the project was finished and a “more attractive, accessible environment for visitors, businesses and workers”.
After substantial cost blowouts, a parliamentary inquiry and significant disruption for residents and businesses along the route — resulting in a $40 million class action suit — the line finally opened in December, nine months later than projected.
But some commentators questioned whether the disruption was all worth it, as technical difficulties dogged its opening.
The slow speed of the route and passenger numbers have also come under scrutiny.
The NSW Government has since talked up the project being a catalyst for urban renewal and a development boom along its corridor.
A Transport NSW spokeswoman said there had been “around 39,000 trips each day”, but December and January were typically the “quietest months” of the year for public transport usage.
Planning and infrastructure experts are in almost universal agreement on one thing: Australia needs continual major infrastructure investment to catch up to population growth.
But they’re calling for greater scrutiny of the long-term cost benefits of these major infrastructure projects, known as a “post-completion review”.
Reviews have long been a recommendation from independent body Infrastructure Australia, but governments — federal, state and local — are not mandated to complete them.
A post-completion review of the Sydney project has not yet been conducted.
Grattan Institute transport and cities program director Marion Terrill said because they were not mandated, the reviews were rarely delivered.
“It costs money to go back to assess how well it went,” she said.
“No-one involved in the project has an incentive to do it — why would they want to highlight the problems?
“But as a population we have a great interest in that. It’s how we learn from mistakes.”
Will we ever get ahead?
With Australia’s population predicted to hit 30 million as soon as 2029, major infrastructure projects will continue to define our cities and disrupt our lives.
For Professor Gleeson, the cost benefit of most “city-shaping projects” is a no-brainer.
But he said: “We’re never going to catch up in Australia, we’re just staying on the tail of need.
“We just need to be smarter with the projects we choose, and when we do them.”
It’s a view also shared by both Dr Spiller and Ms Terrill, who deem the concept of “getting ahead” on infrastructure in Australia a “pipe dream”.
Yet, despite all the disruption these projects caused, for some it’s all just part of progress.
Within the four walls of his new shop in an underground arcade near the entrance to Martin Place station, Mr Srour is largely oblivious to the noise above him.
“I don’t go up there much,” he said. “I like it better down here.
“For me, thank god, everyday here in this city is better than the next.”
- Reporting and digital production: The Specialist Reporting Team’s Nick Sas
- Photography: The Specialist Reporting Team’s Brendan Esposito
- Editor: Paige Mackenzie