Life sure can throw some unexpected curveballs.
Just ask yourself this: How on earth did a mild mannered, softly spoken, incredibly polite intellectual with a permanently fixed boyish grin become an object of derision?
That's the incredible, true life tale of the transformation of Philip Lowe.
Once the celebrated governor of the Reserve Bank of Australia, he's now regularly portrayed as the evil mastermind behind our impending economic downfall, steering a generation of young Australians towards financial doom.
He's not entirely blameless for his situation, given the mistakes and missteps he has made. Not the least of them was putting a date (yes, with qualifications in place, but a date, nonetheless) before rates finally would rise.
And there have been numerous other failings within the RBA over a long period of time.
Its forecasting has been abysmal for years and, prior to the pandemic, it failed to lift inflation into its target band, leaving the economy running too cold. Then, in the aftermath of the shutdowns, it under-reacted to the inflation spike.
Worst of all, it allowed its reputation to be shredded by an ill-fated attempt to muscle interest rates lower — an episode that backfired spectacularly.
But if there is something even more remarkable about all this, it is that Dr Lowe is in very good company. The RBA isn't an outlier in this department as almost every other central bank around the world has been almost as bad.
That raises some important questions. Is the era of all powerful, unelected central banks drawing to a close? Has monetary policy dominance run its course and will governments work their way back into the frame when it comes to economic management?
They're questions unlikely to be answered, or even asked, by the federal government's inquiry into the running of the RBA — to be handed to the Treasurer next month — which is being run by a, you guessed it, central banker.
Why pick on me?
Once upon a time — not too long ago — Reserve Bank governors were neither seen nor heard.
Apart from Bernie Fraser — who only grabbed the limelight in his television advertisements for superannuation and an uncanny resemblance to comedian Steve Abbott's alter ego The Sandman — most Australians would have been blissfully unaware of who was pulling the economic strings.
Not so now. Across the globe, central bankers are nursing bruised egos. Their reputations — from Jerome Powell, the chairman of the US Federal Reserve down — are in tatters.
When inflation began to soar in late 2001, they all sang in unison. They even used the same lyrics. Inflation was transitory, they said, a natural reaction to the sudden reopening of the economy.
By the time they realised inflation was entrenched, it was almost too late and they were forced to act with undue haste with a monetary wrecking ball that now is wreaking havoc across the developed world.
None of them, however, are enduring the kind of attack being meted out on Dr Lowe. But there are good reasons for that.
Rate hikes hurt. We know that. We also know they're unfair, hitting the most vulnerable.
But nowhere is the pain likely to be quite so severe as Australia. A lethal combination of insane levels of household debt — most of it in mortgages that, unlike the rest of the world, are either variable rate loans or fixed for only a short time — magnifies the impact of rate hikes here on homeowners, particularly new ones.
Under financial pressure, they rein in the spending, which then quickly flows through to the broader economy.
This table from AMP Capital's Diana Mousina neatly sums up why we are unique. It measures the percentage of home loans written after 2020 across the developed world that are vulnerable to rate changes.
Source: AMP, Bloomberg
In the US, most housing loans are fixed for up to 30 years. So, unlike here, pushing through a rate hike has little impact on American households or their spending.
It is a key difference that seems to have eluded many economists, money markets and the RBA, which now appears determined to ape its global counterparts and keep on hiking in a bid to avoid the "even worse effects of inflation".
What if the RBA once again is wrong, just as it has been so consistently for the past decade?
The governor drops a bombshell
The speed and severity of the RBA's rate hikes is unprecedented. From zero to 3.35 per cent in under a year.
According to Dr Lowe, at least 75 per cent of our inflation problem is from external forces: supply issues we can't do anything about and that rate hikes won't fix.
Then, last Friday, under questioning before a Parliamentary Committee, the governor dropped this bombshell.
"Our models are not well suited for supply shocks," Dr Lowe said.
"It just can't deal with supply shocks."
That's hardly comforting. Essentially, the RBA governor has admitted he is flying blind. And the RBA, in an effort to restore professional credibility, is being goaded into ever more action by money markets and other central banks.
Given the delayed reaction to interest rate movements, the danger of overdoing it — going too hard and too quickly — is high and rising.
Already, worrying signs are emerging.
Westpac warned on Friday that almost half its home loans were written using mortgage rate stress tests that soon will be exceeded.
ANZ chief executive Shane Elliott had a similar warning, that the buffers his bank had built in were being breached and that we now "were at a very difficult pivot point".
Until now, home loan defaults have been low. But that may change once an estimated 880,000 households suddenly find themselves paying massively more for their mortgage in the next few months.
All up, 1.2 million Australian households will find themselves in this predicament during the next two years.
Forget our record
Shortly before he became deputy governor a decade ago, Dr Lowe addressed a room full of economists eager to discover just what the candidate most likely was all about.
He didn't mince words.
"The unfortunate reality is that in the area of forecasting, it is normal for forecasts of economic activity to be wide of the mark," Dr Lowe said.
They thought it was pretty funny. As it turned out, he was entirely on point.
From that moment on, the RBA forecasts about Australia's economy ended up so wide of the mark that it really wasn't funny at all.
Each year, year after year, wages were going to rise. But they didn't. Inflation, lagging below the RBA's 2 per cent target, would recover. That didn't happen either.
To its credit, it owned up to the errors. The coloured lines in the graph below are the RBA's annual forecasts on wages. The black line is what really happened.
Source: Reserve Bank of Australia
The RBA wasn’t alone in this. Treasury was just as bad. So were the private economists.
So, let’s just take stock of where we are. With a shocking record on forecasting, the RBA has just admitted its models are ill-equipped to handle the kind of inflation crisis we are enduring.
Close to one million households are facing peril in the next few months as their loan repayments double in the wake of an unprecedented rise in interest rates. But the RBA now is warning of even more tough action in the months to come.
A double or nothing bet? Or a time for thought and caution?
Dr Lowe’s legacy, and the reputation of the institution he runs rests on the decision.