To read the original version of this comment in the original context at Macrobusiness.com.au click this link. (link maybe locked – but there is a free trial available)
Wednesday morning after a refreshing sleep following Mr Hockey’s 2nd Budget speech, the Australian dollar celebrated by leaping over the US80c barrier briefly.
Update: The battler has now bounded over $0.81 (H/T @mektronik 14 May 2015)
For all of those who believe that the RBA is setting interest rates to manipulate the Oz currency against the manipulations of our allies and trading partners, what has become fondly regarded by the TGP as “Operation Pea Shooter” is proving a bit of a wet cracker on the Queen’s birthday long weekend.
That the mostly mythical (mythical because it is really about the Debt Machine) RBA ZIRP currency strategy “Operation Pea Shooter” is not proving to be a rip roaring success at resisting the predatory capital that is being unleashed by the ZIRP policies of foreign central banks is not news to the Glass Pyramid.
Managing exchange rates (without de-floating the dollar) is best done with no half measures
It is time to plug the worst holes in our capital inflow dykes.
1. Restrict government bonds being sold off shore
2. Restrict private Bank IOUs (which due to the taxpayer guarantee are effectively government bonds) being sold off shore
3. Restrict mere transfer of ownership overseas of major capital assets including land.
These may not be a complete solution but they can be introduced gradually and taking hundreds of billions of predatory capital entry points (that drive up the $AUS) off the table cannot hurt.
Using these measures the dollar can be managed down to a level that reflects our trade performance rather than the capacity of our government and our government (in the form of private bank guaranteed IOUs) to sell out the future of the country.
Our trading rivals and exchange rate manipulating buddies are waiting at their computer terminals ready and willing to acquire the next tranches of Australian Government bonds that Joe will be printing at a great rate over the next few months as the cost of his cash splash “belly flop” start to clock up.
Throwing Head of Research a bone here.
Click to access rdp2015-07.pdf
Light on marrow but good fun to gnaw at. Highlights:
“Firms in the non-tradeable, non-resource tradeable and
imports sectors are imperfectly competitive, so that individual firms have some
pricing power” — so that’s how you model entrenched rent seeking.
“In particular, we introduce price stickiness in the non-
tradeable, non-resource tradeable and imports sectors in the form of sector-specific
quadratic adjustment costs that firms must pay when changing their prices.” — so… more rent-seeking? Side-splitting stuff when you get to the maths, if you’re into terrible interpretation of quadratics….
“These include consumption preference shocks, government spending
shocks, investment technology shocks, resource price shocks, sector-specific and
aggregate technology shocks and mark-up shocks as well as shocks to ouput,
inflation and interest rates in overseas economies” — but no real estate shocks naturally, why bother modelling that?!? Bwaahahahahhaha!
is a mark-up shock that increases marginal costs in the non-tradeable
sector for reasons unrelated to changes in wages, rates of return on capital or
resource prices and
is the domestic-currency price of resources”
Who comes up with this stuff!
The Head of Research ran outside and barked at a bat when I requested his response to this gem.
“….The model is part of a set of macroeconomic models maintained by the Economic Research Department at the RBA. These models complement, but do not substitute for, the more detailed sectoral analysis and judgement-based projections. While it is often the case that many identified inconsistencies between model-based and judgemental analysis can be justified with information from outside the model, the process of reconciling the two can be informative…..”
I assume he finds barking at bats equally informative.