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Our Don Bradman: Dollar hits 99.94

15/10/2010

Andrew Robb is screaming for a mini budget! The sky is falling he cries. I assume he doesn’t want treasury to do it as he doesn’t trust their assumptions.

In his piece in The Australian today he writes:

A PRE-CHRISTMAS mini-budget is necessary to reverse the reform malaise that has gripped the Gillard government.

SOURCE:http://www.theaustralian.com.au/news/opinion/rising-dollar-makes-a-mini-budget-essential/story-e6frg6zo-1225938881268

Oh! Malaise! He must have flicked through the thesaurus for hours to find that word!

Malaise (pronounced /məˈleɪz/, mal-aze) is a feeling of general discomfort or uneasiness, an “out of sorts” feeling, often the first indication of an infection or other disease. Malaise is often defined in medicinal research as a “general feeling of being unwell”. This word is originally a French word existing since the 12th century.

The term is also often used figuratively in other contexts; for example, “economic malaise” refers to an economy that is stagnant or in recession; compare depression.

Wow! We are in an economic recession are we Mr Robb? Err no.

This is a boom. Not a recession. The rest of the world is in recession. What you seem to be saying is we have to force a recession so we can be the equal of the rest of the world. You fool. You big black hole making fool.

Let’s go back to hear the great man whine some more about his assumptions shall we?

The new government is already asleep at the wheel. It is simply sitting back letting higher and higher interest rates, and a record high exchange rate, do all the heavy lifting in taking the inflationary steam out of the Australian economy. And industry and mortgage holders are paying for it.

Oh Mr Robb! You must have missed the news. Interest rates did not go up at the last round of Reserve Bank talks. Neither have banks raised their interest rates like you predicted after they did not. Are you now saying you do not trust those in the banking industry?

The Coalition is not suggesting that Australia moves away from, or intervenes in, our market-based exchange rate. But there are policy actions that can help if there is political will.

Instead of Wayne Swan trumpeting that our high exchange rate is simply a by-product of a strong resources sector, Australia’s Treasurer needs to understand that our dollar has reached its highest level in 27 years not only because of very strong coal and iron ore prices but also in response to the currency war, and in response to Australia’s relatively high interest rates, exacerbated by loose fiscal policy.

While there are things the government can’t influence, there are things the government can do, and now. Swan could significantly reduce some of the cost-price pressures confronting Australian businesses and households.

Cutting their reckless spending and $100 million-a-day government borrowings and pushing ahead with critical productivity reforms would take some pressure off interest rates and the exchange rate. Yet this government appears to lack the political courage to act.

The director of Access Economics Chris Richardson said this week: “The rough rule of thumb in economic models is that you have to cut by about $13 billion a year to achieve maybe a 1 per cent reduction in interest rates, which might, in turn, make maybe a cent or two difference to the level of the Australian dollar.”

Well Mr Robb it seems the Coalition is not advising anything. You seem to be relying on Access Economics to do it for you.

So let me get this straight. By cutting spending by $13 billion a year, you force interest rates down. Maybe. And this will drop the dollar by one or two cents. Maybe.

Hmm. Lets look at the latest predictions in the business world re our dollar.

The chief currency strategist at Westpac, Robert Rennie, said a speech from Fed governor Ben Bernanke late tonight would probably give more details on the central bank’s plans. Mr Rennie said any such news was likely to boost the Aussie by dragging further on the greenback.

”I would be surprised if we have not seen parity by next week,” Mr Rennie said.

”I think the foreign exchange markets are really gunning for that point and I think the risks are pretty high.”

Chief currency strategist at National Australia Bank John Kyriakopoulos forecast the currency could even climb to $US1.10 in the next six months, with the Aussie staying ”stronger for longer”.

Based on a ”triple whammy” of higher interest rates, Chinese growth and higher US dollar supply, he forecast the currency would trade at or above parity until the September quarter of next year.

While the news is good for travellers and shoppers, export industries are already suffering under a surging dollar, which cuts foreign earnings.

Mr Kyriakopoulos said an exchange rate between $US1.10 and $US1.20 would act as a ”significant drag” on the economy because it would detract from the income boost coming from high commodity prices.

SOURCE: http://www.theage.com.au/business/surging-dollar-hits-new-peak-20101014-16lxk.html?autostart=1

Wow! So the dollar is looking at $1.10 and maybe somewhere between $1.10 and $1.20.

Lets use the ‘assumptions’ you give us Mr Robb. Apparently cutting $13 billion will drop interest rates and lower the dollar by one cent. So to drop the dollar from its possible projection of $1.15 say, we then need to cut government spending by say 18 times $13 billion a year! Or cut spending by $234 billion a year. This will keep the dollar at around 98.00 cents and drop the interest rates to around -3%?

Is this what your policy would have been Mr Robb? To not only slow the boom but drive the country into deep recession? Are you really that irresponsible? No need to answer that last one mate. It was a rhetorical question.

We finally get to your closing statements:

Labor must stop living off the fat of new taxes and borrowings by stopping its reckless spending, ending the waste, repaying its $90bn debt and urgently introducing productivity improvements.

Ah! You are still in election mode. You need to accept the fact that Australians do not want you anywhere near the economy. And nowhere near government. Get used to it.

Now I am not an expert in finances and I may have made my own black holes interpreting the data you seem to be saying. So I will add this piece penned by Ian Verrender on October the 12th this year.

Trying to stem dollar’s rise is asking for trouble

Here we go again. As the Australian dollar prepares to punch through parity, the usual howls of protest about the damaging effects on our rural exports already have begun.

The worry, however, is that the misinformed howls are emanating from the alternative government and, given the tenuous political position of the Gillard government, from those who could soon be running the nation.

Yesterday Andrew Robb, the opposition finance spokesman, made the extraordinary claim that the rising dollar was a result of economic mismanagement and let fly that the government should take action to keep the dollar down.

It is a comment that defies logic. For in normal circumstances, a strong currency is a reflection of a nation’s economic health. And the simple story behind our soaring currency is that our mineral exports are booming – in terms of volume and value – and our economy is powering ahead with unemployment and inflation in check.

But to understand his outburst, you need to realise that Robb cut his political teeth in the hurly burly world of rural politics. Clearly he hasn’t forgotten his roots.

Each time Australia has enjoyed the fruits of a resources boom in the past half century, the rural lobby has mounted a campaign to hold the dollar at artificially low levels.

Each time it has been successful. And each time Australia has squandered the bounty that should have been delivered through that boom as an artificially weakened currency resulted in massive capital inflows, surging domestic demand and eventually, rampant inflation followed by the inevitable recession.

SOURCE: http://www.businessday.com.au/business/trying-to-stem-dollars-rise-is-asking-for-trouble-20101011-16fzd.html

See Mr Robb. I am not the only one that thinks you are a clown.

 

A. Ghebranious 2010 All Rights Reserved

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6 Comments
  1. I have to admit that I am not the most knowledgable on the whole finance system.

    I was having a chat with a local guy here in Malaysia and he was talking about China deliberately keeping their currency artificially low to benefit their export industry and that the US is deliberately trying to emulate this with their currency to help promote their export industry and essentially revive their economy.

    Either way, I like the fact that the AUD is performing so well. I have been travelling with my family through South East Asia for the past 9 months and it means I can keep doing it for even longer 🙂

    Cheers,
    Colin

  2. hello I was luck to approach your subject in yahoo
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