We have spent the past four months telling ourselves a simple story about the world economy. War in the Middle East pushed oil up, the US-Iran agreement brought it down, and central banks everywhere are wrestling with the inflation left in between. It is a tidy narrative. It is also, if Michael Howell is right, largely beside the point.
Howell, the CrossBorder Capital founder who has spent three decades tracking the flow of money through the global financial system, made his case again this week in an interview with David Lin. His argument is disarmingly simple: forget the headlines and follow the money. “Economics is downstream of liquidity and geopolitics is downstream of economics,” he said. Markets are not priced by wars or elections or even earnings. They are priced by the pool of money available to buy assets at the margin, and that pool, he says, is now shrinking in relative terms.
“Liquidity has been slowing down,” Howell said. “I’m not going to say that liquidity is falling in absolute dollar terms. That clearly is incorrect, but it’s slowing down and that really matters in markets because liquidity is the marginal price of assets.”
The distinction matters. Liquidity does not have to collapse to hurt markets. It only has to slow at the margin, especially after years in which asset prices everywhere, from the Nasdaq to a three-bedroom house in Tarneit, have been supported by cheap and abundant money. Howell believes global liquidity peaked in late 2025 and has been decelerating since. If he is right, Australia is about to discover how much of its recent economic story was really its own.
Howell did not mention Australia once in that interview. But Australia is one of the most liquidity-sensitive economies in the developed world: a housing market built on leverage, a banking system funded partly offshore, a currency that trades as a proxy for Chinese demand, and a budget that rises and falls with commodity prices. When the global money tide moves, we move with it, whether the Reserve Bank likes it or not.
Consider what has happened in a single fortnight. The Bank of Japan lifted rates 25 basis points to 1 per cent, their highest level since 1995, ending three decades in which Japan supplied the world with near-free capital. The US and Iran signed a memorandum of understanding that reopened the Strait of Hormuz and dropped oil back below where it traded before the war. And at home, Cotality’s auction data showed the combined capital city clearance rate closing June at 45 per cent, a fifth straight week below 50, while its June Home Value Index recorded the largest monthly fall since December 2022, with Sydney down 1.2 per cent and Melbourne down 1.0 per cent.
The temptation is to treat each of these as a separate story: a Japanese story, an oil story, a housing story. Howell’s framework says they are one story. Money is getting scarcer at the margin, and the assets that ran hardest on cheap money are giving ground first.
The most striking part of Howell’s analysis concerns China, which matters to Australia more than to almost anyone else. Beijing had been steadily injecting liquidity into its economy since early 2023. Then, abruptly, it stopped. “What happened on March 2nd was a surprise,” Howell said. “China has turned off the money tap. That is extraordinary.” His theory is that Beijing deliberately cooled its own economy to cut oil demand during the Hormuz crisis: “they’re trying to slow the economy deliberately to reduce oil demand.” He believes China is now stabilising liquidity again, but the interruption rippled through commodities and gold, and for a country that sells iron ore, coal and LNG to China, the lesson is uncomfortable. Our export income now depends not just on Chinese growth but on the tactical decisions of the People’s Bank of China, made for reasons that may have nothing to do with us.
The price of every Australian asset is set at the margin by a pool of global money that peaked months ago and is now ebbing. Howell’s framework will be tested over the coming year, and the Australian housing market may be one of the cleanest tests anywhere
Set against this global backdrop, the Reserve Bank’s position looks less like a policy choice and more like a corridor. The cash rate sits at 4.35 per cent after three increases this year, and the RBA has not ruled out more. Bendigo Bank’s chief economist David Robertson expects a hold in August but warns the pressure has not lifted. “Our view remains the tightening bias will continue throughout the new financial year, with the risk of one more hike around year-end, with recent talk of rate cuts next year appearing premature,” he said. The May inflation data explains why: headline CPI eased to 4 per cent as oil retreated, but core inflation rose to 3.6 per cent and, in Robertson’s words, “appears likely to remain above target for at least another 12 months.”
This is where Howell’s observation about central banks bites hardest. “When you look outside of the Fed, most central banks have pure inflation remits,” he said. “As inflation picks up, they’re more or less compelled to tighten.” The RBA cannot cut into a core inflation problem, and it cannot ease while the Bank of Japan is raising the global cost of capital and unwinding the yen carry trades that have quietly subsidised borrowers everywhere. Add Howell’s warning about the US currency — “if the dollar goes up, that’s clearly a wrecking ball for the world economy” — and the space for Australian rate relief narrows to a sliver.
So what should we expect over the next six months? On Howell’s logic, more of what June delivered. Housing is the most leveraged asset Australians own, which makes it the first place a liquidity slowdown shows up. Robertson’s forecasts point the same way: “Our forecasts see national dwelling prices much flatter over the next twelve months with risks to the downside as the impact of tax changes becomes evident, but supply is still struggling to keep up with demand.” Expect clearance rates to stay soft, Sydney and Melbourne prices to keep drifting lower, and the slowdown to test the smaller capitals. Expect the Australian dollar and mining stocks to trade on the PBoC’s next move as much as the RBA’s. And expect the political conversation to keep blaming local villains — tax changes, migration, the Reserve Bank — for a tide that is mostly global.
None of this means Australia follows the world off a cliff. The labour market is still strong, the population is still growing, and housing supply remains chronically short, all of which put a floor under the local cycle that other economies lack. Robertson notes household spending is holding up. Rate cuts will come eventually, but on his numbers they need core inflation near 2.5 per cent and an economy that plainly needs help — conditions that look like 2027 stories, not 2026 ones.
The deeper point is about how we read our own economy. We flatter ourselves that Australia’s fortunes are decided in Martin Place and Canberra. They are shaped there, certainly. But the price of every Australian asset is set at the margin by a pool of global money that peaked months ago and is now ebbing. Howell’s framework will be tested over the coming year, and the Australian housing market may be one of the cleanest tests anywhere. If the tide keeps going out, we are about to learn who has been swimming on borrowed water.
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