Does the RBA and the Government know what they are doing?

This comment was made this week at http://www.macrobusiness.com.au  (link may be locked)

http://www.macrobusiness.com.au/2015/02/canberra-awakes-economic-nightmare/#comment-1060580

Very good but lets believe it when we see it.

The government has said nothing that suggests it has started to comprehend that its brand of ‘budget austerity’ is demented.

If anything nothing has changed.

The government remains in its ideological bunker and the RBA is doing same old same old.

Using monetary policy to keep house prices rising and goose household debt. While the govt sticks to its household budget analogies for public finance.

If there really was a recognition that a fundamental change to the economic model of the last 20 years was required we would have heard about it by now.

At best we are getting speculation that, even though it said nothing about it, the RBA is suddenly now using monetary policy to manipulate the exchange rate.

IF the RBA and the government really understood the problem and were determined to act we would not be talking about unstated and unconfirmed RBA strategies to drive down the exchange rate with interest rates.

But we will as the poo distributing fan is starting to rotate faster and faster in preparation, along with

“But nobody saw this coming”

And it will be true so far as govt, RBA and the main stream financial press are concerned with some honourable exceptions.

Along with http://www.macrobusiness.com.au/2015/02/canberra-awakes-economic-nightmare/#comment-1060842

That is correct but only if assets sales off shore (our secret export that keeps the dollar up) continue AND are successful.

The prices we get for our financial IOUs will crunch as our rating falls.

That leaves flogging off our minerals and other hard assets.

Certainly Mr Robb and his ALP fan club (Penny Wong and Ed ‘race card’ Husic) are keen on that plan but the mood is shifting.

People are getting fed up with flogging off assets as QLD showed and Abbotts comments on FIRB confirmed.

Yes that means the dollar will fall faster and further if our asset selling program ceases or slows but that is what has to happen.

The good answers may be back in time but the tough ones are always on offer.

Who knows in a few years you may be telling us about the new local factory booming with the $AUS at $0.40US.

Along with http://www.macrobusiness.com.au/2015/02/canberra-awakes-economic-nightmare/#comment-1060865

Yes – they do not understand the relationship between the $AUS and export of claims on a public (govt bonds) and private income (banks borrowing off shore) but that cuts both ways.

You are assuming that when politicians cede to sensible demands that we limit the sale of govt bonds and big bank IOUs off shore and the exchange rate falls as a result that people will demand that the government continue to sell off the farm (actual and financial).

I don’t believe that is the case.

The decision to sell off the farm (actual and more important – financial) was made without reference to the public and I am pretty sure most would be horrified if they understood what has been fuelling our lifestyle.

I don’t think too many pollies would be keen to come out and say

“I propose that in order to increase the exchange rate and get cheap goodies on the table we restart the process of selling off the nations land, factories, bank IOUS and government bonds (debt) to foreigners”

You are assuming that people approve of the current policy when they don’t even understand it.

Considering the general attitude of normal people (ie outside of ticket clipping and FIRE industries) to the whole idea of flogging off assets to foreigners it is unlikely that there would be much support for an explicit policy to do so just to make imported TVs cheaper.

Chances are people will suddenly clue on to why we have no manufacturing industry and their kids can’t get jobs.

A bunch of shiny suited spivs were selling off the nation.

Mostly to our trade competitors who wished to maintain an exchange rate competitive advantage.

Along with http://www.macrobusiness.com.au/2015/02/canberra-awakes-economic-nightmare/#comment-1060942

I have found that when I have explained to people how we got here they are astonished and horrified.

I rarely meet anyone who believes that the country should continue to pursue policies that encourage funding current lifestyles with sales of capital assets or debt.

They simply don’t understand all the mechanisms how it is happening.

It is a bit like staying with friends in a big house and eating top food and grog and then finding out afterwards they are broke and it was all on their credit card.

No one feels good about that and that is the reaction I get when I explain how that has been happening at a national level. Except we are the ones who have been having the party.

Along with http://www.macrobusiness.com.au/2015/02/canberra-awakes-economic-nightmare/#comment-1063478

I try to limit it to two simple propositions.

1. It is embarassing that Australians cannot save the capital to build their own homes. Our banks protected by the RBA and govt should be banned from running up debts to build houses. If nothing else Australians should be responsible for putting a roof over their heads.

2. If we are serious about limiting wasteful government they must be limited to borrowing money from Australians. If Australians refuse to lend that will limit govt spending. Easy to do – each bond is like a certificate of title to Torrens land and ownership is limited to locals.

2 simple propositions will cut approx $750B+ out of the demand for $AUS by foreigners.

Both of course would need to be introduced gradually – say over 5 – 10 years

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