RBA - time to question conventional wisdom on mining

On Insiders yesterday Alan Kohler interviewed the new Chief Economist for HSBC Australia. We can't remember his name but he has spent the last 12 years at the RBA in reasonably senior roles toward the end of his tenure. The reason Kohler had him on was that his first call last week in his new job was that rates will be raised 1.25% over the next year because the RBA needs to make way for the mining boom.

So far we have not seen any questioning of the new orthodoxy that says average Australians, particularly with mortgages, should suffer so that miners can unbalance the Australian economy. BUT we think it is time!

Conventional wisdom says that mining will have a positive waterfall impact on the rest of the economy driving incomes higher, increasing spending and aggregate demand and putting upward pressure on inflation. All of this is probably true, at least that's what recent history suggests. But is it right?

Does the fact that one of the big miners can pay a cook a massive wage in Karrarther or Gladstone a reason mum and dad in Western Sydney or Outer Melbourne should pay more for their mortgage. Is it right that 20 somethings earning 100,000 plus incomes live the life of larry while average people are pushed down to make way for these kids.
Recently we heard anecdotal evidence of the changes in the Mackay region of Queensland and the roaming packs of young guys with money to burn spending up large like a plague of locusts.

There should be a more general debate in the community about the social costs of letting miners run wild in our economy unchecked by anything other than the company tax rate.

Households are labouring under a debt burden that was self induced but behavioural traits appear to be changing with retail sales slow, savings up and aggregate spending down. All the arguments the RBA and pundits are making about what "might" happen to inflation and capacity in the economy are right. But they rest on not making the same mistakes of 2006-7 and letting inflation surge. The world is in a very different spot now, we think Australian households may have learnt a lesson or two as well. The RBA risks putting the consumption side of the economy into recession for the sake of the miners.

Is that fair or right? We don't think so. Perhaps there was something to Treasuries RSPT idea after all.