The $A and a Double D election

What has struck me almost daily when in Canada and the United States was how strong the Australian dollar is compared with the local currencies. We are not so productive relative to them that things should look so cheap to me. I think the $A is heading for a fall, and so does Glenn Stevens:

RESERVE Bank governor Glenn Stevens has warned investors to brace for a slump in the Australian dollar when the US Federal Reserve starts to lift interest rates and questioned whether ultra-loose monetary policy was fostering the right kind of risk-taking.

There are so many ways the Australian economy might unravel. I watch from this distance the Opposition and non-Coalition Senators playing Russian roulette with the Australian economy. It’s one thing to have a different policy view but to let the many economic problems Australia has fester so that they can take over an economy that has been devastated by the fiscal measures they introduced is no small worry.

There will almost surely be a double dissolution in which the question will be whether the country wishes to live in a fool’s paradise or whether it wishes to deal with the problems that are clearly visible. I think Australia may still be able to work it through and come to the right decision in a vote. Or perhaps not, but that will likely be the kind of election we will be having in the next year or two. Because whatever else, things cannot go on as they are.

“Cheap money is not the sustainable path to prosperity”

How fortunate this country is to have Glenn Stevens running the RBA. From todays Australian:

THE government should focus on productivity-boosting reforms rather than rushing to bring the budget to surplus, Reserve Bank governor Glenn Stevens said yesterday.

At the second of his twice-yearly appearances before the House of Representatives economics committee, Mr Stevens suggested further interest rate cuts were unlikely to help lift economic growth.

Mr Stevens said monetary policy was stimulating activity outside the mining industry but weak confidence, the lacklustre pace of reform and a high currency were retarding the growth rate.

‘There are few serious claims that the cost of borrowing per se is holding back growth … monetary policy can’t force spending to occur,” he said in Canberra.

‘Cheap money is not the sustainable path to prosperity.’

Not only is it not the path to prosperity, it is the road to ruin. But like so much else with economic policy, unless one understands how and why these policies work, others won’t be able to repeat them. Just the same with Peter Costello and his near-immaculate management of the Australian economy, 1996-2007, years that coincide with sustained prosperity, rising real incomes and an almost continuous fall in unemployment.

And funny enough, this self same Peter Costello was in the news today as he is about to take on the Chairmanship of the Future Fund, at the moment on a temporary basis. Of course, a great appointment, but this in particular caught my eye:

But Mr Costello . . . said the fund should only pursue investments that deliver a return, playing down suggestions it could be used for nation-building projects.

“Nation-building” projects apparently mean “loss-making” projects, and that’s by definition! You know, the kinds of things Labor specialises in. That is, projects that lose money, make us poorer but give themselves a warm inner glow as they spend our money even faster than we can earn it.

It’s a great pleasure to see a return to sanity, and if it really turns out that both the Paid Parental Scheme and renewable energy targets are to be wound back, things might really start to look up.