A petition to Glenn Stevens

Rumoured at one point to be the highest paid central banker in the world, Glenn Stevens, has been reappointed as governor of the RBA.  As his second three year term commences, we would like to petition Governor Stevens in respect of the following items which we believe must be addressed urgently:

1. The mining boom is over.  Stop twisting monetary policy to suit this bloated sector and start to focus on the ailing real economy.

2.  Admit the obvious and stop ignoring the currency war.  It is foolish to maintain one's head above the parapet.  All central banks are engaged in debasing their currencies.  The textbook has been ripped up and it is now beggar-thy-neighbour policies.  Ignore this at your peril - the high AUD is hollowing out the economy.

3. Accept that Australia is flooded in hot money which will withdraw in a hurry when yields return to normal.  Reread point 2 in respect of the high AUD.

4. Prepare for vaporisation of the banking system.  The safety in conservatism of the banking system is a myth (and that means the liquidity facility will be used for solvency).

5. Taking account of conditions in Australia and observing overseas, true inflation is much higher than official figures and should be dealt with accordingly.  Australian's purchasing power is soon to erode and quickly.

That's five big points to tackle Glenn.  If you have others, please comment or send an email to feedbackformhere@googlemail.com

The one eyed central banker

Interesting statements from Deputy RBA governor Phillip Lowe that high AUD has been a boon for Australia.  In classical theory a high currency slows imports and curbs inflation.  But this analysis ignores hot money flows and asset bubbles....

..."Had we not experienced the sizeable appreciation (in the value of the Australian dollar) over recent years, it is highly likely that the economy would have overheated and that we would have had substantially higher inflation and substantially higher interest rates," he told an economics forum in Sydney on Tuesday...

Well possibly, but globally inflation is low and interest rates are at rock bottom and the rest of the world...

...."At the moment though, the available evidence does suggest that lower interest rates are doing their work broadly as expected." (here)

This is a very narrow analysis.  Will Dr Lowe agree with this analysis when the hot money recedes, the currency drops and low interest rates fail to stimulate as is occurring elsewhere?

Australia avoids the currency war at its peril

Terry McCrann has put it best in a refreshing piece in the Sun-Herald:

....AUSTRALIA is caught smack in the middle of a real live shooting war. Even if it's not bullets and bombs that are being fired.The overwhelming majority of Australians don't know it's going on. And if they did, they'd probably think it was good news for them....And up to a point, they'd be right. Trouble is, "that point" was reached some time last year. Until then, we were beneficiaries. Now we're at risk of becoming - serious - collateral damage....It's the global currency war. Everybody has been trying to weaken their currency to boost their own economy. In echoes of the trade wars of the 1930s - stuff everybody else...

...So how it plays out from here, is critical to everything that impacts on your financial and economic wellbeing. Property prices. Interest rates. Inflation. The stock market. Superannuation. Whether you have a job. Which businesses thrive, which ones shrivel....In recent weeks, the Aussie dollar has drifted in something of a backwater around $US1.03....  The RBA might not seem too fussed. But it is very, very fussed. (here).

Alan Kohler had a good piece looking at the role of Japan and the inability of the Australian government to do anything meaningful.  Are you paying attention Wayne?

...In this context, the Labor Government's "industry and innovation" plan this week is a drop in the ocean, not that anyone expects a big dollop of deficit spending to support manufacturing, or expects the Reserve Bank of Australia to join the currency wars and target higher inflation....

The RBA and the ALP have done what they can. The cash rate is now as low as it's been for 40 years and despite some problems with unionised construction, wage costs overall are not really a problem.....But despite record low interest rates, monetary conditions for Australian businesses are at a record high.....That's because the transmission mechanism between interest rates and the exchange rate has broken down, in turn because of three waves of quantitative easing by first the US, then Europe and now Japan....Japan, straw, camel's back (here).