Macrobusiness reported today that yields on Australian Government Bonds were sinking and therefore bond prices were rising. No surprise that a TGP operative immediately dropped the Kale and Quinoa pie that HoR packed in the lunch box and tapped away!

Who could be driving up demand for our Aussie Bonds?

Better hope that it is not off shore demand, from our currency manipulating trade rivals, as off shore demand will put upward pressure on the Australian Dollar.

When we depend on hot money capital inflows from the mercantilists for our low interest rates and high prices for government bonds, there is a price to be paid. Namely, an Australian dollar that is trading higher than our trade performance warrants.

Another way of putting that is the price of those low low interest rates and bond yields is an effective tariff on all Australian industry and workers – goods AND services.

Thank goodness we have all those houses and holes to rely on ! Continue reading →

Glass Pyramid Head of Research slipped a cold and flu tablet in one of the TGP operatives cup of bonox this morning.  The result was a flurry of comments on the economic blog Macrobusiness.

When it comes to the exchange rate the article in the DomainFax is deeply confused but then there is a lot of that about.

The exchange rate reflects little more than our enthusiasm for flogging off claims on our future income or flogging off assets and the consequential impact of that on our trade performance.

Generally, people confuse the issue by talking about capital imports funding the trade deficit. The funding comes first.

The banks issue IOUs to foreigners and the govt facilitates the sale of assets off shore – that process puts upward pressure on the $AUS.

The higher $AUS then shapes our trade performance as imports are cheaper than they otherwise would be and exports more expensive.

So when DomainFax ponders the path of the $AUS as though it is some magical spirit they should be looking at some of the key determinants.

1. The attitude of APRA and the RBA to the sale of IOUs off shore by our banks to support mortgage operations. All systems go.
2. The attitude of Mr Robb and the govt to flogging off assets like land and industry – All systems go
3. The enthusiams of our trading rivals to export capital to Australia and devalue their currencies by doing so – All systems go.

Whatever our exchange rate will be – the ALL SYSTEMS ARE GO attitudes above will ensure that it is much higher than our trade performance warrants.

In short our lifestyle will continue to be supported by eating our children’s future.

In democratic terms it is called giving the voters a soft option.

So keep that in mind if you applaud or support any of 1. 2 or 3 above. Continue reading →

Macrobusiness today noted that the “property industry” whinging has started as APRA finally emerges from hibernation and attempts to throw some macroprudential water on the crackling and sizzling property markets in Sydney and Melbourne.

Macro-prudential measures – if they achieve their objective – which is to reduce the supply of credit to particular groups and thereby reduce the level of demand for particular assets and thereby slow the rate of increase in the price of those assets – are ultimately a form of capital control – just messy, easily criticsed and not very effective.

Because they are selective and because they put sand in the gears of a Debt Machine economy (without actually addressing that the Debt Machine model is the problem), it is not surprising that they are the subject of a lot of criticism.

It is like living in Never Never Land and then arbitrarily deciding that Tinkerbell will be limited to 50% spell power.  Don’t expect Wendy and Peter to thank you!   Continue reading →

There is a lot of excitement about recent changes in the approach of the Chinese government to the ‘peg’ between the $US and the Yuan.

The question is simple:

1. How much of an undervaluation of the Yuan, if any, does China wish to maintain?

2. How does it plan to achieve the capital exports required to achieve it?

Whatever their “goal” it can be achieved with or without a peg.

In fact the ‘politics’ of doing it are much better if you don’t use a peg and simply encourage the export of capital to any sap who will take it – e.g. Australia. If you can do it in a highly distributed fashion  – lots of small individual exports – even better – and if you can do it to a country that has rule of law and will not just grab the capital if they feel like it – even better still! Continue reading →