Tag Archives: currency peg

Paul Howes Is A Right Extremist

12 Apr

Remember when Barnaby Joyce was subjected to a torrent of daily abuse and personal ridicule by everyone – the PM, the Treasurer, the Assistant Treasurer, the Finance Minister, the Treasury Secretary, the RBA Governor, and of course, the mainstream Australian media – for his “extremist” warnings about rising US and Australian debt levels, and his calls for Australia to reduce wasteful spending and prepare a “contingency plan” for further financial turmoil impacting us from abroad?

Double standards alert.

From the SMH:

THE Australian Workers Union wants the government to expand its minerals resources rent tax to slow the mining boom, lower the value of the dollar and alleviate the worsening crisis gripping the steel and manufacturing sectors.

The proposal to embrace the original and more comprehensive resources super profits tax is among several controversial ideas, including pegging the dollar to another currency, aimed at depreciating the dollar contained in a report by the AWU national secretary, Paul Howes.

The proposed ”potential policy options” to lower the value of the dollar also include pressuring the Reserve Bank to cut interest rates by between 0.25 and 0.5 percentage points. This, the AWU argues, would not be large enough to cause an inflation outbreak but would bring the cash rate closer to those of other nations and help depreciate the dollar.

Debatable.

The AWU also argues that by pegging the dollar to another currency, it would ”move up and down relative to the performance of other currencies”.

Our biggest trading partner (China) does it.

That traditional paragon of financial virtue Switzerland has now done it too, when faced with exactly the same problem Australia has (speculator-driven international “hot money” driving up the currency, thanks to endless central bankster money printing in the USA, UK, and EU … which they are doing to prop up their insolvent banks and drive down the value of their currencies!).

The RBA, and our Labor Government, and the Coalition, have all explicitly and steadfastly refused to do the same.

With no serious critical analysis of that entrenched ideological policy position by journalists.

&^#$%@! the lot of them.

In particular, &^#$%@! all of the &^#$%@! in the so-called “Left-leaning” mainstream media, who delight in labelling, criticising, and tearing down so-called “extreme Right” politicians such as self-proclaimed agrarian socialist Barnaby Joyce and Bob Katter for their advocating so-called “protectionist” policies.

Question.

Will the likes of Laura Tingle, Stephen Koukoulas, George Megalogenis et al, and all the “political heavyweight” journalists like Paul Bongiorno and similarly nausea-inducing arrogant imagine-they-know-it-all &^#$%@! now tear strips off the star of the union movement Paul Howes, label him as “extreme Right”, and ridicule his intelligence for daring to advocate a classic form of “protectionism”?

Of course not.

I have a brief message for all the purveyors of rank double standards and exemplars of “extreme” cognitive flaccidity in the Australian Parliament, Treasury, RBA, and especially, the media:

……………………./´./)
………………….,/¯../
…………………/…./
…………./´¯/’…’/´¯¯`¸
………./’/…/…./……/¨¯\
……..(‘(…´…´…. ¯~/’…’)
………\……………..’…../
………..\………….. _.·´
…………\…………..(
…………..\………….\
……………\…………..\
…………….\…………..\
……………..\……………\

Advertisements

Queenslander! This Is Why You Are A Complete Idiot If You Don’t Vote KAP Today

24 Mar

Following is possibly the best, most needed column written by a mainstream journalist that I have read in 2012.

Read it all.

And then, remember that only one (1) politician and political party in the entire nation has pledged to do anything about it.

While all the rest have declared that they will do nothing.

From The Australian (reproduced in full, my bold emphasis added):

DISCUSSION surrounding the importance of the mining tax to government revenue streams is a red herring, a distraction from the biggest issue facing policymakers, arising partly out of the commodities boom, partly out of the global economic downturn.

That issue is the high Australian dollar and its impact on the economy. This is Australia’s most pressing dilemma: prosperity butting up against industries under pressure, and the challenge of a multi-speed economy.

The notion of the two-speed economy suggests a fast lane and a slow lane. But evidence this week from retailer David Jones and ongoing problems with domestic industries removed from the mining boom makes the slow lane look more like oncoming traffic.

There are many problems with Labor’s mining tax, including the concept behind the tax itself. But we should not let the debate distract from how domestic industries, including manufacturing and tourism, are able to cope with a high dollar. The government needs to give serious attention to what, if anything, can be done to put downward pressure on the dollar, albeit while being wary of too much market interference.

Currencies do not trade in a vacuum. Our dollar is trading against currencies such as the US dollar, the euro and the British pound, where their value is being deliberately distorted downwards (by printing money) to stimulate economic growth and inflate state debt away.

The debate over the mining tax is a red herring because even if Treasury is right, it still will reap only between $3 billion to $4bn each year for government coffers. That’s in its watered-down form, representing less than 1 per cent of annual government revenue. And the miners say on their figures they expect to pay far less tax anyway. It is hardly the panacea for structural deficits caused by too much spending on middle-class welfare, for example.

If we continue to toss money into domestic industries in a piecemeal fashion because they are struggling with a high dollar (such as the $275 million handout to Holden announced on Thursday), mining tax revenue will quickly evaporate.

The Holden handout was poor public policy if ever I have seen it. What makes Holden worthier than services industries across the land – especially in the tourism sector – which are struggling to attract clientele?

Labor likes to compare the number of Australians employed in the (often unionised) manufacturing sector to the (increasingly deunionised) resources sector. But what about the services industry? It employs more Australians than any other sector and the tourism component is its most important sub-grouping.

How the government can justify propping up an industry with no track record of innovation and no proven edge in a competitive global market is beyond me.

Unfortunately the intense nature of the partisan debate in this country makes it very hard for the main parties to float ideas (especially innovative ones) without being lampooned by their opponents. This is a bipartisan criticism, and with the demise of the Australian Democrats we don’t have a centrist third force in Australian politics capable of positing new mainstream ideas either.

In the months to come, politicians and policy leaders on all sides are going to be forced to debate what, if anything, can be done to address the fallout from the high dollar. While it may help keep a lid on petrol prices, and imported flat-screen TVs are cheaper than ever, the consumer upsides to cheaper imports matter little when domestic industries employing most Australians become uncompetitive, costing people their jobs. A cheaper holiday to Europe is relevant only when you still have a job.

Perhaps the two easiest ways downward pressure can be put on the dollar are for governments to borrow less and interest rates to be lowered. Both make the dollar more expensive when countries such as the US and Britain are printing money to stimulate their economies, free of the fear that doing so will jack up rates.

Government borrowing less is something the opposition has long been calling for, such as winding up the still ongoing stimulus spending from the global financial crisis.

A government borrowing $100m a day is distorting the price of the Australian dollar. It is already a disproportionately traded currency (the fifth most traded in the world) courtesy of our resources sector, meaning that in currency terms it gets treated like a proxy for commodities trading. With the boom expected to last for the foreseeable future, the dollar is set to remain high unless steps are taken to keep it down.

Lowering interest rates is a decision for the Reserve Bank of Australia. It is worried that dropping rates would put too much pressure on inflation. But West Australian Treasurer Christian Porter, for one, thinks the time has come for the RBA to act, despite the booming sectors in his home state and in Queensland. He told me higher interest rates in this country were attracting too much overseas capital looking for a good return, thus pushing the dollar north.

The Australian economy is not built for a currency trading at between $US1.05 and $US1.10. And large chunks of the economy right now are not able to operate profitably with interest costs of 7 per cent to 12 per cent. If you believe in the free market, the myriad more off-beat ideas to take the heat out of the dollar may seem more than a little unappealing; for example, removing the float altogether, capping the dollar, using superannuation incentives to push investments abroad, printing money or the Reserve Bank buying up overseas currencies. Many of these possible mechanisms for halting the dollar’s climb create their own unintended consequences, such as pushing up inflation, regulatory complications and regressive micro-economic policy, just for starters.

Capping (or “pegging”) the Aussie dollar is the preferred solution frequently advocated by your humble blogger. That is what Switzerland has done, when faced with exactly the same problem – “hot money” from international currency speculators pushing up the Swiss Franc, wiping out local industry. And China has a pegged currency too.

Manipulating the currency market is complicated and requires serious thought before doing so. Nevertheless, the time is upon us to think outside the square about our high dollar, and lift the importance of the debate about what, if anything, can be done ahead of the high-profile partisan fights we see now over the mining tax and the carbon tax.

This truly is the great debate our nation has to have.

Peter van Onselen is right.

And only Katter’s Australian Party has pledged to act on the AUD.

Even if that means disbanding the RBA, or taking away their “independence”, if they refuse to cooperate.

Vote 1 KAP.

UPDATE:

The excellent Tim Colebatch in today’s The Age (my bold added):

THE high dollar is ravaging the competitiveness of Australian business. Global consulting firm KPMG reports that Australia has become the second most expensive place to do business among the major economies, behind Japan.

In its survey of global business costs, Competitive Alternatives, KPMG finds that since 2010, costs have risen more in Australia than in any other country. Most of that is due to the sharp rise of the Australian dollar against the US dollar, which has pushed up costs in every area.

Read it all.

Put on your thinking KAP.

And vote with your head.

The Single Biggest Reason Why I Will Vote For Bob Katter’s Australian Party

18 Feb

The Australian Dollar.

It is way too high relative to all our major trading partners’ currencies.

About 30% too high, in fact.

No Malcolm Farr, it does not prove that the Aussie Dollar is a “safe haven”.

No Wayne Swan, it is not because we have an economy that is “the envy of the world”.

Yes Alan Kohler, it is because speculators are borrowing billions in Zero Interest Rate Policy (ZIRP) money in the USA, UK, EU et al, and using it to gamble on the relatively high interest rate Aussie Dollar. To make easy, fast profits.

It is called the “carry trade”.

Or “hot money”.

And it seems that no one … repeat NO ONE … in Australian politics has the brains to recognise that fact. Or, the balls to do anything about it.

Except Bob Katter.

Now, let me be the first to say that I do not agree with how Bob wants to weaken the currency.

He advocates forcing the RBA to slash interest rates to 2%.

I think we should follow the lead of China … and Switzerland … and introduce a currency peg.

Nevertheless, despite this difference in preferred method, the simple fact that Bob has loudly proclaimed that he wants to weaken the dollar, and, that he is prepared to dismantle the RBA if necessary in order to do so, places him a country mile ahead of any other politician in the nation.

(Yes, including my beloved debt-warning prophet Barnaby Joyce, whose office has to date not even responded to my communications on this matter. He has been very busy with a drowned home town though, so we shall wait and see…)

A little historical background on our present currency dilemma.

Remember the year prior to the GFC crescendo in September-October 2008?

Remember how the AUD turned sharply down in July 2007, falling 9c (10%) in less than a month, when the warning signs began in the USA with the collapse of two Bear Stearns’ hedge funds? And remember how the AUD turned sharply up again, when the RBA lifted interest rates for the first time in 9 months, in August 2007?

GFC begins July 2007 in USA | Click to enlarge

Remember how the RBA kept raising interest rates into the teeth of the oncoming storm, and the AUD climbed from less than 80c US in August 2007, to nearly 98c US in July 2008 … a 21% appreciation in less than a year?

Remember how the AUD fell off a cliff when the GFC peaked? Indeed, it fell so far so fast – a near 40% collapse from 98c to 60c in just a few months – that the RBA intervened in foreign exchange markets to prop up the dollar:

Click to enlarge

“Safe haven” currency, you say (Malcolm Farr)?

Utter ignorant nonsense!

The Aussie Dollar is a “speculative play”.

A profit-seekers’ gamble.

That rushing tide of “hot money” driving up the AUD exchange rate is just as likely to race out again, exactly as it did in the GFC.

But until it does, and the AUD returns to a reasonable and sustainable level, vital sectors of the Australian economy are rapidly being white-anted … and jobs destroyed in the process.

Manufacturing. Tourism. Retail. Education (ie, foreign students). To name but a few.

Many of those industries and the jobs they provide, once lost, will never come back.

And despite this disaster occurring all around us right now, both “sides” of Australian politics have done a Pontius Pilate impersonation, washing their hands of the problem, proclaiming that there’s “nothing we can do” about the dollar. That’s up to the “independent” RBA, you see. And woe betide anyone daring to question the sanctity of the RBA’s “independence”. So instead, we have an escalating, puerile argument over whether or not (and how much) to financially support affected industries.

With more borrowed money, of course.

Idiots. Invertebrates. Sans testicles.

In stark demonstration of the clueless eunuch status of both “sides” of Australian politics – and indeed, of the “independent” Reserve Bank of Australia – on the matter of dealing with a speculator-driven appreciation in your national currency, let us examine a favourite example of mine.

Norway.

Unlike the RBA’s Glenn Stevens, the Norwegian central bank governor recognises the dangers of a government over-relying on the nation’s commodities wealth, spending too much money, and putting its manufacturing industry at risk (sound familiar?):

Feb. 16 (Bloomberg) — Norway’s central bank Governor Oeystein Olsen told the government to spend less of the country’s oil money and avoid an over-reliance on its commodities wealth or risk killing manufacturing jobs.

The government should tighten its fiscal policy guidelines and limit the use of petroleum revenue to 3 percent of Norway’s sovereign wealth fund from the current 4 percent, Olsen said today in the text of his annual speech on the economy and monetary policy.

“Even though petroleum revenues are phased in gradually, a phasing out of manufacturing and other private industries may not be as smooth,” he said. “Entire industries could be lost. If spending proves to be excessive, such structural changes may be difficult, or impossible, to reverse.”

The world’s seventh-largest oil exporter, which boasts the biggest budget surplus of any AAA rated nation, has largely been shielded from the global financial crisis, in part after spending a record amount of its oil money.

Witness the stark contrast to our own Reserve Bank board of governors.

They have repeatedly indicated that they believe in crowding out (ie, screwing) the rest of the economy, to “make room” for the mining boom. Your non-mining industry and job be damned.

The high Australian dollar is actually great news to the RBA. It is helping their goal of hollowing out the rest of the economy, to “make room” for more mining.

And the high dollar is also great news to the village idiot of our national government, Treasurer Wayne Swan. With little else of substance to boast of, he proudly and deceitfully points to the high dollar as somehow representing “proof” of his own wonderful economic management!

But it is not just concerns about how the government is running the country, short-sightedly squandering its natural advantages, that show parallels between Australia and Norway.

The Norwegians too, have been faced with the problem of speculator-driven “hot money” driving up the value of their currency.

Thanks to the ongoing European debt crisis, in 2010-11 “investors” (read also, “speculators”) had been selling (borrowing) the near zero-interest-rate Euro currency, and investing (speculating) in the traditional “safe haven” currency, the Swiss Franc.  As a result, the Swiss Franc had been rising precipitously, causing problems for their economy. So, in September last year, the Swiss central bank acted to protect their economy, by pegging the value of the Franc to the Euro.

Result?

With the Swiss central bank effectively having put a cap on their potential profits, the European “hot money” went looking for profits elsewhere. They turned to Norway, with their strong economy, budget surpluses, vast nationalised commodities wealth, and AAA rating.

Now, witness the contrast between Norway’s central bank response to “hot money” flowing their way, and our RBA’s response to exactly the same situation:

Feb. 17 (Bloomberg) — Norway’s central bank is monitoring the krone after its recent gains and remains ready to act should the currency’s appreciation warrant a response, Governor Oeystein Olsen said.

“We follow closely the krone developments,” he said yesterday in an interview in Oslo. “We have observed, of course, the recent development of the krone, we’re close to the level” in September, when it touched an eight-year high, he said.

The central bank, which in December lowered its main rate by half a percentage point to 1.75 percent, will respond to krone swings to the extent that they affect inflation. The currency this week touched the highest level since Sept. 8, when the Swiss National Bank’s decision to peg the franc to the euro prompted investors to seek alternative havens…

The exchange rate continues to be a “challenge” for the government, Trade Minister Trond Giske said Feb. 13. The central bank in September signaled it was ready to take steps to curb the krone’s appreciation. Those comments helped weaken the exchange rate, triggering a 4.8 percent decline from a Sept. 8 peak through a trough two weeks later.

The Norwegian central bank acted promptly, to “talk down” the Krone back in September. It worked, for a little while.  Then they slashed interest rates by an effective 22.2% (2.25 to 1.75) in one hit in December. And now that their currency is appreciating again, they are attempting to “talk down” their currency, by reminding markets that they stand ready to act again, to protect local jobs and industry.

Our central bank is doing nothing.

Indeed, they are happy that we have an over-valued dollar that is squeezing (ie, wiping out) the “old economy” sectors.

Because it wants the non-mining sectors of the economy to shrink (ie, die), in order to “make room” for mining, which the RBA mistakenly believes will enjoy a multi-decade boom.

This is your rapidly approaching future, dear reader.

Gillard’s “New Economy”.

Australia. “Poor white trash” quarry to the world.

There are some in the Australian (alternative) financial media who have written on this problem.

The estimable “Houses and Holes” – whose clever nom de plume sardonically depicts the long-running economic policy/vision of both “sides” of Australian politics – and his team at Macro Business is a standout example.

Unfortunately, it is apparent to this humble blogger that few if any in the mainstream financial commentariat have any greater “vision” than the clueless eunuchs in Canberra for whom they act as Press agents.

So if anything is going to be done about the Aussie Dollar, it will only happen if you, dear reader, are concerned enough about the future of this country (and your job) to take action yourself.

You can start by doing as I have been doing.

Contact the invertebrates in Canberra.

Educate.

Inform.

Complain.

Harass.

Abuse.

Point out to the self-interested, overpaid, trough swilling imbeciles on both “sides” of Australian politics that there is no excuse … none … for Australia’s government and Reserve Bank deliberately failing to act to address the root of the problem – a speculator-driven AUD exchange rate.

Other “safe havens” have done it.

Switzerland has done it.

Norway has done it.

Indeed, one of the keys to China’s economic success story, has been its use of an adjustable currency peg, which has allowed their industries time to adapt to changing economic and market conditions:

Click to enlarge

You see, dear reader, our politicians, Treasury bureaucrats (looking at you, Martin “Mini-me” Parkinson!), and Reserve Bank governors are simply too beholden to flawed and failed economic ideologies.

Neo-Keynesianism.

Laissez faire capitalism.

“Free trade”.

“Free markets”.

Globalisation.

“Government debts don’t matter, if you have your own currency … you can just print, and inflate your debts away”.

They fail to recognise that the world has fundamentally changed since 2008.

Thirty-plus years of global debt-binging is over.

The masses have had their long overdue big fright … and have begun to wake up.

Debt is not the new black. It is the old red.©

And as a result, an over-leveraged debt-laden world economy, is now de-leveraging.

And in the inevitable race to the bottom, “currency wars” (ie, devaluing your currency) are a key factor.

Australia’s major trading partners are Japan and China. Both protect local industry, with a weak currency. Zero Interest Rate Policy (ZIRP) for Japan. A currency peg for China.

The USA, UK, and the European Union are all trying to protect their economies, to support and restore their manufacturing sectors, by weakening their currencies through ZIRP, QE (Quantitative Easing ie, printing money), and similar schemes via their central banks.

As usual, Australia is roughly 3 years behind the rest of the world.

But the currency wars is not a game that one can win by coming from way way behind.

Accept no excuses from our political “servants”.

Every other major “developed economy” on the planet is supporting local industry and jobs, by acting to ensure and maintain a weak currency.

Only Australia is doing nothing.

Call, write, or email our politicians now.

And if they give you the same (indeed, any) pathetic, close-minded, imbecilic excuses for not acting on the over-valued, speculator-driven Aussie dollar?

KAP the useless bastards.

Vote 1 Bob Katter.

Vote 1 Katter’s Australian Party.

If the “old” parties won’t act on the most urgent issues facing the nation … I will vote for someone who will.

And will loudly proclaim my intent, all the way to the next election.

UPDATE:

By the way … do not fall for the Coalition’s line, that job losses and business shutdowns are due to businesses preparing for the carbon “tax”. Regular readers know that I have been and remain a vehement opponent of the banksters’ CO2 derivatives scam … and even I don’t buy that bullshit.

Sure, job losses will inevitably mount when the derivatives scam launches.

But right now, job losses and business shutdowns are primarily a result of the speculator-driven AUD:

Death knell looms for Caltex jobs

The global dance of death could come quickly to Caltex’s two refineries after it slashed the value of its refining assets by $1.5 billion due to a confluence of factors strangling profits in this part of its business.

It is another example of Australia’s manufacturing going to the wall due to the strong Australian dollar, rising costs and stiff competition from Asia.

The rise of big Asian refineries with an overcapacity of product is turning the screws for local operators and has prompted Caltex management to announce a strategic review of two key refineries of its own – the Kurnell plant in Sydney and Lytton in Brisbane.

And this comes on the heels of Caltex closing one of its petrol-making units at Kurnell last year.

The review was instigated six months ago and is expected to take another six months before investors and customers know the verdict, which could include the sale, closure or further investment in the business.

Given today’s writedown of $1.5 billion of assets due to expectations of a prolonged period of pain, the market is expecting the review will recommend closure of at least one of these two plants which convert oil into petrol and diesel.

Indeed, Caltex supplies one third of Australia’s transport fuels, so the review will need to make sure it does not adversely impact its customers.

Soon, we will not only have given up our food security, by selling the farm to foreigners.

We will not only have sold off our mineral wealth and sent the profits abroad, thanks to a disaster-in-waiting “mining tax” that will actually help the Big 3 multi-national miners to grow their oligopoly.

Soon, we will have given up fuel security too.

And with no manufacturing sector left either, well, any future war would be fun, wouldn’t it?

Carbon permit face-slapping, anyone?  To the death?

Oh wait … they’re not even paper.

They’re just electronic digits.

Exactly like your “cash” in the bank.

UPDATE 2:

Lighthouse Securities’ Greg McKenna, aka “Deus Forex Machina” at Macro Business, has written an excellent overview on this problem too:

The Australian Dollar is higher than it has been in decades. Indeed it is more than 30 cents higher than the average since it was floated in December 1983. Yet while we see businesses constantly in the news contemplating or actualising job losses and off shoring the arms of government and policy makers here in Australia can’t, won’t or don’t want to do anything about it.

This is at a time when most countries in the globe seem intent on manipulating there currency to the best advantage that they can.

I still call the Aussie Dollar “the battler” – its a legacy of it past when it always caught pneumonia at the first signs of the slightest global cold. But back then we didn’t have China, a mining boom and a central bank, our beloved RBA, with a structural bias to tighten in a world necessitating the exact opposite for most countries ( if you are interested why here’s a blog I did last April which explains why the RBA has a bias to tighten ).

It doesn’t battle much anymore though does it, well except for supremacy.

But what to do?

We know the RBA and Australian Treasury are on Board with a multi-decade China boom but do they really want to napalm the rest of the economy and just leave us with an economy full of houses and holes.

I hope not but I fear so.

Please read his article. Greg agrees that action to alleviate the impacts of the high AUD is vital. He also has some important insights on the views expressed by Treasury Secretary Martin “Mini-me” Parkinson. But (unlike myself) Greg does not favour a currency peg, and instead prefers and explains an alternative solution.

This is a debate that must be had. And urgently.

I thank Greg for his contributions to stoking the fires of that discussion.

%d bloggers like this: