What would happen if the A$ was devalued …

June 26, 2011
Title:
What would happen if the A$ was devalued …
– shock horror – would the markets survive …
Thought of the Day …
Political Leaders think they are indespensible – that they are the right person for the job – that their insight is better than everybody else’s – well right now – how much would you offer for the collective value of our Global Political Leaders …

This is a follow-up to the previous EYE-BALL GURU story linked here and titled: The Australian Treasurer – Wayne Swan – a bridesmaid – a jack-in-the=box puppet – or just wickedly incompetent.  This story raised many questions about the Australian Treasurer’s ability to understand the CASH and CARRY trade that has the A$ at its current levels. 

The question has been asked – what would happen if the Australian Government made the decision to  devalued the A$? The answer to this question comes in many forms – for example:

Does the FLOATING Currency still apply?

This comes down to the resolve of the Reserve Bank and its open market operations.  If for example the Government directed a devaluation to say – A$.75c – about where the MEAN average of the A$ has been over the last 30 years – just because the Government announces the devaluation – without any market intervention and additional measures – the market would just buy it again and the exercise ends up being egg on the Government’s face.

Central Banks normally target a level for their currency and its relationship with their major trading partners. In the last 10 years – Australia have handed this responsibility to the markets thinking they knew better.

What a laugh … all the market did when they discovered this free-market opportunity was milk the RESOURCE trade for what it was worth and take ownership of the A$ value – something that should have been the RBA’s responsibility all along.

The ‘FLOATING’ currency has market relevance and does create speculative interest.  The A$ is the fifth largest traded currency in the world – yet if you look at European and American News sites where Financial Information is displayed – the A$ quote is very hard to find – its a professional players currency – small investors don’t know of its existence and so it becomes the game among professional traders and they hunt and trade the currency as packs.

To enforce the devaluation – the RBA would have to stand in the market to sell and quash the aggressive buyers and keep the currency within predetermined ranges close to the set devaluation leve.  After announcing the devaluation – there would be immediate natural selling to cover and squeeze out the trades holding naked long A$ positions who wanted to bail and this would create natural selling.

If the market wanted to buy the currency as some major players would be thinking – and along the lines that the Government and RBA’s decision was against the ‘free-market’ understanding – these speculators would have to be taught a very serious lesson over time – that lesson being – ‘don’t fuck with us or we’ll burn you to oblivion‘.  

It’s time to take the markets back from these speculators and return them to the mould in which they were first launched – that being to add value to genuine users of the markets – natural hedges, suppliers and buyers.

This currency intervention would need G-20 Central Bank support to co-ordinate the Australian Central Bank’s position.  This would be a start to squeeze speculators out of the markets and diminish their influence globally if this worked. 

Somewhere and at sometime – the markets have to be bough back under control of Central Banks – and have the speculative aspect clipped to the point where smart operators are forced to think twice and then a third time before they elect to take on Central Banks.

The Market’s major players would take a few weeks to digest the move and then make their choice – that would either be to unwind the CASH and CARRY trade will massive losses – or again add to their position.  This then becomes the continuing ‘poker game’ between Central Banks and the markets that has been played out several times in the past – i.e. George Soros forcing the Bank of England to ‘blink’ and then back down comes to mind. 

In this scenario – the Central Banks hold the winning hand and the exit strategy of the speculators can be forced if the Central Banks really want ownership of the Markets back in their domain.

Who Owns the Markets?

For too long the Markets have dictated policy to Central Banks and forced Governments to enact policies to appease and attract the off-shore investors. 

Since the GFC fallout and continued inaction by all Governments and Central Banks on Regulatory controls over the Banks and Markets – it is about time the Regulators and Central Banks with coordinated efforts from the G-20 Governments to grow some balls for the better good and take back the ownership of their economies.

It’s time to teach the speculators and Banks playing the ‘greed’ game a monster of a lesson. Sure – shareholders are gonna get burnt – so what – they choose to invest in these ‘carpetbagger’ Banks and the like – they also deserve to get what comes from the ‘taking back’ of the markets and to get rid of the collusive speculators ganging up their portfolios to force positions to the point where Governments and Central Banks fold like cheap tents.

There is no doubt that the market operators are much smarter and well ahead of the Central Banks think-tanks – both in the sense of timing and awareness of the Markets pulse.

The Markets are still recovering from the GFC – no doubt about that at all – the Central Banks recapitalised the Banks during 2009 when these Banks were being naughty boys playing the off-balance sheet leveraged derivatives.

The US Bank recapitalisation was to encourage the US Banks to lend domestically and allow the US economy to recover – this still has not happened – and instead the Banks used the bail-out funds to again go and gamble on global markets to try and keep the ‘bonus’ cycle rotating.

Australia and the A$ is part of this mix and as a good friend highlighted in a comment to the previous post – the high interest rate costs Australian mortgage holders are being forced to pay because of the RBA’s phobia over inflationary pressures – is the reason the US and other Global Banks and off-shore Fund Managers are making so much money from this Cash and Carry trade.

Why should Australian interest rates be higher than the US when there National debt has been downgraded and their economy is in virtual free-fall. Governments have to stand up and take responsibility for their economies and what has transpired – the markets will do what they do and take advantage of gaps within the global trade economy.

It’s time – time to burn the speculators who only have their eye on personal bonus payments and burn them good. 

To do this the RBA needs to hold its nerve for a few months or so after any devaluation and force these CASH and CARRY investors to take their medicine and give Australians Regulators back the control over their economy.

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The EYE-BALL Guru …

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