One of the nice aspects of Australia’s reputation for liking a drink is that too much cheer can play havoc with our short-term memory. Lack of short-term memory can favour those like the governors of the Reserve Bank, who’ve made a few mistakes in their time when it has come to the cutting and raising of interest rates. There was one called Dr Phil…something, but for the life of me I can’t recall his name!

I remembered lots of this when the AFR’s Lucas Baird and James Eyres revealed that the Australian Prudential Regulation Authority (APRA) tells us that there are 35,000 households behind on their home loan repayments and are “in deep financial difficulty”.

And there are $23 billion worth of loans in the distressed household category. This has forced John Lonsdale, chairman of APRA to use this to quieten down politicians and industry representatives who want a smaller loan serviceability buffer.

He says current mortgage stress is double that of 2016.

This buffer is used by lenders to see how a borrower would cope with a stiff sequence of interest rate rises. The buffer is now set at 3 percentage points worth of hikes. So, if I borrow at 5%, the lender needs to be confident that I can keep on paying if the loan goes to 8%, thanks to RBA changes to its cash rate.

Lonsdale makes the point that the buffer not only protects the borrower, but it also prevents mortgage stress hitting the economy, with a serious jump in unemployment as well.

And Lonsdale has shown that no one is safe from the results of the US election, with the top regulator arguing if Donald Trump’s tariffs spike inflation up then rates could rise. This underlines the benefit of a big buffer, which the abovementioned 3% is.

He also quite rightly points out that the buffer makes the banking system safer. Earlier this year, the CBA’s boss Matt Comyn backed the buffer while his ANZ rival, Shayne Elliott argued the case for a lower buffer because home loans were becoming affordable only for the rich.

The big buffer became more acceptable after interest rates fell as low as 2% or 3% and borrowers needed to be assessed on the basis that these low rates couldn’t last. Of course, some inexperienced borrowers believed the RBA, which backed Dr Phil Lowe’s ‘rates won’t rise until 2024’ message, and that has left a lot of over-borrowers deep in the you know what!

And you can bet APRA’s mortgage stress numbers are out-of-date. The problem is undoubtedly worse now as the rate cut date keeps getting pushed out by the guess merchants (i.e. banking economists and money market players) who have got it wrong for all of 2024.

While that includes me, unlike many of my mates, I have a good long-term memory, writing, reporting and broadcasting on the RBA for over three decades. I recall them waiting too long to move on rates.

I’m not sure if central bank economists have worked out whether mortgage stress indicators are useful for guessing how weak the economy is becoming, but I reckon they should know this.

It’s not that the RBA is dopey on rates. No, it’s more that it’s hard to get the timing of rate rises and cuts right. Given that and given the nature of public servants generally, who are historically risk-averse, it means central bankers wait until they see a real economic slowdown before they say: “It’s time to cut!”

Next week we see the Consumer Price Index (CPI) for October. It needs to show that core inflation is falling towards the 2-3% band. The last reading was 3.5% and it dropped by 0.5% between June and September. This was a big drop and could be a sign that our economy of spenders is weakening.

The next big data drop will be the National Accounts that tell us how the economy is growing. If this a weak number, then a February cut will gain supporters again.

The RBA meets on December 10, and we’ll need a great inflation result and a weak economic growth number to even get the RBA board close to thinking about a cut for Christmas.

I’m not arguing the RBA is wrong right now as the lack of rising of the jobless rate is surprising, but there are lags with interest rate policy and how it hits the economy first and then unemployment.

It’s why Paul Keating has slammed the RBA in the past for “coming late to the party”. I’m hoping we’re not living through another case of the RBA being too risk averse and therefore making the lives of too many borrowers riskier than they need to be.

If this is the case, we could see a slower economy next year than economists are predicting and rates could fall quicker than expected as unemployment really jumps.

A cut in time just might save nine!