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EYE-BALL Guru on – Another reason the Australian Treasurer deserves his DUNCE-HAT!!!

August 22, 2011
The-EYE-BALL-GURU
Title:
Another reason the Australian Treasurer deserves his DUNCE-HAT!!!
The Australian A$ has been the pin-ball in a continuing global investment challenge that has and continues to cost Australian Industry and Business $10’s billions in lost export revenues.The current Australian Treasurer– Mr Wayne Swan – has presided over the bulk of this neglect since 2007 – for that performance he earns the right to wear the GLOBAL DUNCE-HAT of all G20 Treasurers.

To paint the historical picture of how the Australian public have been short changed – it is necessary to qualify some of the data presented hereto.

The Australian Dollar came into being in Feb 1966 when the old Pounds Shilling and Pence became the Australian Dollar. When the Dollar became the recognised currency it was ‘pegged’ or ‘fixed’ in value to the US$ and its value against other traded currencies Australian traded with via a Trade Weighted Index  or – TWI.

This can be best explained via this linked Wikipedia source which states in part:

Value of the Australian dollar

In 1966, when the Australian dollar was introduced, the international currency relationships were maintained under the Bretton Woods system, a fixed exchange rate system using a U.S. dollar standard. The Australian dollar, however, was effectively pegged to the British pound at an equivalent value of approximately 1 gram of gold.

The highest valuation of the Australian dollar relative to the U.S. dollar was during the period of the peg to the U.S. dollar. On 9 September 1973, the peg was adjusted to US$1.4875, the fluctuation limits being changed to US$1.485 – US$1.490; on both 7 December 1973 and 10 December 1973, the noon buying rate in New York City for cable transfers payable in foreign currencies reached its highest point of 1.4885 U.S. dollars to one Australian dollar.

On Monday 12 December 1983, the Australian dollar was floated, allowing its value to fluctuate dependent on supply and demand on international money markets. The decision was made on 8 December 1983 and announced on 9 December 1983 … [continues] …

Since 1972 when the Gold Standard was abolished – the US$ has become the Globe’s Reserve Currency – i.e. all International contracts were mostly written in US$.  The current crisis in World markets is focused on a sell-down of the US$ and as an export Nation – a rising A$ against the US$ hurts all Australian Business and particularly the Miners and Farmers.

Presented below is a chart showing the A$ v US$ since 1969 –

BOP4

The Mean Average since 1969 as shown on the above chart as a red line – has a value of A$0.8866 – the Mean Average – shown as a green line and since the A$ float in Dec 1983 – is $0.7362.  The floating of the A$ in Dec 1983 was seen as a reform that has been largely successful.  However – the World has changed and with several emerging Asian Nations pegging their currency to the US$ – as Australia once did – the competitive trade edge is now with the pegged currencies – this hurts Australia and several other Export Nations – yet Australia stands alone in its stubbornness not to intervene in currency markets to prevent to rise of the A$ .

The chart above only paints a part picture of the Australian economy during the period – the next chart below represents the Exports verses Imports gap during the same period – negative numbers represent a trade deficit and positive numbers means Trade surplus.  Please pay particular attention to the period since 1998 – it has been this period where Australia’s Balance of trade has deteriorated marketedly and there are very connective reasons why this has happened.

All data in the Charts presented have been extracted from the Reserve Bank’s Statistical database.

BOP4

This chart in isolation has to be compared with the value of the previous A$ Chart and its portrayal of the appreciation of the A$ during the same period – i.e 2001 onwards.

When the A$ was trading at A$0.50c – the A$ has appreciated unchecked except for the early 2009 reversal of the Resource ‘cash and carry’ trade.  The Chart shows a volatile response during the worst of the GFC fallout where it fell from almost parity to A$0.60c.

Once the markets stabilised – the A$ again began appreciating rapidly to make new highs above A$1.10c during May 2011.  Since then is has traded well above parity with a brief half day spike where it traded under parity two weeks ago during the US debt downgrade response when equity markets around the world again went into freefall.

The chart clearly shows how Australia’s terms of trade depreciated all during this period – with the exception when the A$ hell to A$0.60 in early 2009.  This data draws a direct correlation between the value of the A$ and the performance of our terms or trade.   This is common knowledge – low A$ means exporters receive higher A$’s for their exports – high A$ has the reverse effect.   You would think that this base level economics would have the Treasurer primed to do something about it if it became a serious problem and was hurting Australian Business.   Well it has not so far.

In an attempt to qualify what the A$ appreciation has cost all Australians and Australian Business – the following Table has also been compiled from RBA data.

This Table shows past and current Prime Ministers of Australia and the serving Treasurers at the time – and how the Balance of Trade performed under their Governance.

BOP5

The Table has been compiled using the Mean Average of the A$ since the float in Dec 1983 – i.e. A$0.7362 – as compared with quarterly exchange rates as reported by the RBA under each Prime Minister.  Against this fixed data – and using the value of the Non-Rural Export revenues – i.e. Resources – a calculation has been made as to what the trade surplus/deficit would have been it the currency had of remained at the Mean Average – as opposed to the quarterly floating rate exchange.

The resultant numbers presented in the Table above under the heading – ‘Balance of Payments Record ($M):’ – is charted below – and shows the Balance of Trade applicable to each Prime Ministerial term:

BOP2

The immediate view when looking at the above chart is to see to record Trade Deficits under both the Rudd and Gillard Governments as compared with all previous Governments.  It has to be remembered that these deficits have been accumulated in four short years – as opposed to the near $70 billion surplus during the 11 years of the Howard Government – the near neutral 13 years of Hawke/Keating and the $30 + billion deficit during the 7 years of Fraser.

Gillard has only just completed a year in Government and she and her Treasurer has already accumulated $50 billion in trade losses – and Mr Rudd served 31 months for a $60 billion trade deficit.

It has been during these last four (4) years that the A$ has maintained its record value against the US$. Except for the early 2009 freefall which was quickly regained – this single high A$ v US$ trigger has had the most severe impact on the value of export revenues and the stability of Australia’s economy.

It is also a fact that our current Treasurer – Mr Wayne Swan – has presided as Treasurer for all of those four years.  During his tenure – he and the RBA have continually advised the markets that their only concern and charter – is to keep inflation with targeted bands and their only method of enacting that charter has been with the use of high interest rates.

It is only in recent weeks that the RBA Governor – Glen Stevens – has stopped talking up the threat of higher interest rates – and as a result the A$ v US$ value fell below parity – it was a sharp correction that has regained almost all of its freefall.

More recently when the Swiss Franc (CHF) appreciated sharply – Swiss Government and Central Bankers were all out and about threatening the market  with heavy duty intervention to bring down the value if the CHF.  It had the immediate effect of reducing the currency from 1.46 levels to 1.25 levels against the US$.

The Japanese have been doing the same thing tying to stop the appreciation of their currency against the US$ as has the EURO Central Bankers.

Yet the Australian Treasurer remains steadfast as he wears his DUNCE-HAT where ever he goes because he has never thought of intervention – or a reduction in interest rates – or trade tariffs to offset currency levels to offset loss of export trade revenues.   The man is a frozen statue as he keeps saying – jobs, jobs, jobs , that is all he cares about.

The Mean average of the A$ v US$ during each Prime Minister’s term is reflected in the chart below.

BOP3

As can be seen via the chart above – in the second half of PM Howard’s term – the A$ appreciated sharply – the then Liberal Coalition Treasurer Mr Costello also did nothing to try and prevent the commencement of the A$ appreciation – at the time the US property bubble was underway and being fuelled by very low-interest rates – against this the US$ was weakening against all un-pegged currencies.

The Resource boom was still a year or two away and China’s emergence was commencing.  The Japanese had been investing offshore since the early 90’s and were already heavily invested in A$ assets.

The trade of the day for Japanese investors was to borrow domestically at close to zero interest rates and invest offshore.  Since the A$ float where the Yen v A$ value was ¥216 – the A$ has appreciated to ¥84 in June 2011.  Any Japanese investment in Australia during that time has created a fortune for Japanese investors just on currency appreciation alone.

The Chart below represents Australian Non-Rural export revenues.  The level of trade this Resource sector represents has grown from 48% of all export trade in 1969 – to 88% of all exports in 2011.  The high A$ hurts all Australian industry – Tourism is hurt both ways – to expensive to travel to Australia – and cheap to travel overseas – but the mining and agriculture sector is hardest hit and has been since mid 2000’s.

BOP1

You would think as a byproduct of the high A$ and the current lower oil prices as compared to pre GFC – that A$ petrol prices would be cheaper.

By any benchmark measure you want to use – the A$ value of petrol is a good 25-35c per litre above where it should be if the TAPIS price, and the value of the A$ can be used to compare where petrol prices were in Jun/July 2008.  The Table below further illustrates this –

GFC: Jun/July 2008 10-Mar ’11 19-Apr ’11
21-Aug ’11
Oil Price:TAPIS (US$) $145 $105.00 $128.00 $115.00
$A/$US $0.9650 $1.0010 $1.0500 $1.0500
Converted Oil Price (A$) $150 $105 $122 $110
Comparable Bowser Price: $1.53 $1.07 $1.24 $1.12
Actual Bowser Price: $1.30 $1.53 $1.45
PRICE creep: $0.23 $0.29 $0.33

The ACCC watchdog no longer watch petrol pricing – its been that way since the late 90’s – and during that time successive Governments refuse to investigate fully the way petrol prices are set and managed around the Nation.  The ‘creep’ factor earns refiners $10’s billions in additional revenues every year and yet – Governments are reluctant to get involved and find out why there is such price disparity.

Now to get to the real point of all this data –

  • Mr SWAN has presided over the Australian economy where the appreciating A$ has cost exporters in excess of A$100 billion in lost revenue.
  • He claimed in his budget speech that the $* billion ‘black hole’ was due to lost revenues – reduced tax receipts – at no time did he blame or state the high A$ was responsible – That makes hin a DUNCE.
  • He oversaw the introduction of the Mining Rent Resource Tax – MRRT – a Mining tax of some $40 Billion to be introduced against the A$ value responsibility for $100 billion of lost revenues – not only have the miners lost out on the $100 billion due to the Treasurers inaction on the A$ value – but he wants to slug them a $40 billion MRRT – That makes him a double DUNCE.
  • Australian Interest Rates are very high relative to our major trading partners – deliberately held there because of inflation fears.  This has hurt the Australian home owner and and given wealth transference from the mortgage holder to all the overseas investors buying A$ because of the hight interest rates compared with their own levels – and the safety provided by the Treasurer talking up Interest Rates – this is hurting Australia no end – This makes him a triple DUNCE and earns him the DUNCE-HAT awarded to the dumbest Treasurer in the G20.

The WORLD is in a meltdown – debt driven and likely to be in recovery and recession type conditions for decades – Japan has been there for two decades already – yet the current Australian Labour Government have no idea just how much they policies are hurting the Australian economy.

They are ignorant of the damage the high dollar is causing – and as for the RBA and their no-brain stance that inflation is their only concern – well hanging their hat on that tunnel visioned Government induced charter is like having professional advisors that only come to the table after a crisis has occurred and there is no way to fix the problem.

We get what we deserve when we elect our Leaders … but then what is the alternative – the current crop of Opposition Leaders can’t make any hay out of this Government’s current policy because their either just as dumb – or want to see things get so bad before they try to step in the fix the problem – if that be so – then they have no interest in Australia – just their own political ambitions.  Exactly the same as the American procrastination over their debt-ceiling decision a few weeks ago.

Why would you have faith in Government Leadership around the Globe – none of them have a bloody clue …

Previous posts on this same issue can be read using the links below:

________________________________________

The EYE-BALL GURU …

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  1. Firecracker
    August 22, 2011 at 8:24 am

    Fully agree – SWAN’s an idiot yet nobody anywhere calls him on his ignorance …

    Keep on his back and perhaps many more will join the fray … put a cracker under his ass!!!

    Firecracker.

  2. Cowboy
    August 22, 2011 at 8:26 am

    You guys sure got some dumbfu_k’s down there … I thought we had all the idiot politicians over here.

    Your site gives me something to read and night and catching up will all your previous posts takes a stretch … go getem partner …

    Cowboy.

  3. August 22, 2011 at 8:27 am

    Guru,

    You hang your balls out there taking on a guy like SWAN – spank his ass …

    EYE-BALL

  4. Long-John
    August 22, 2011 at 8:31 am

    Something you might be aware of is that under previous Governments the RBA was an active player in currency markets – playing both sides to try and smooth the capital flows … are they still active?

    The RBA used to report massive profits from its market related currency transactions – what happened to those contributions to the RBA botom line?

    Long-John.

  5. Hissy-Fit
    August 22, 2011 at 8:33 am

    Loved you post Guru …

    Don’t it feel great to bounce an idiot around the room … particullarly when he’s wearing a DUNCE-HAT.

    Keep up the good work.

    Hissy-Fit.

  6. Budda-Balls
    August 22, 2011 at 8:38 am

    Well when I read this post I though you went too far. Where is the respect for our elected Leaders – oh I forgot – they are not really Leaders are they. Their there because we could not make up our mind who we wanted to lead this Nation.

    Well soon enough this Thompson affair – excuse the pun – is going to force the PM to call a by-election and that means the next step will be a Federal election.

    Keep up the good work Guru – love your posts and the way you hang your targets …

    Budda-Balls.

  7. Lucifer
    August 22, 2011 at 8:46 am

    Hi Guru,

    Down here we are patient and await the new arrivals with baited breath … Mr SWAN is already on our future arrivals list – he is obviously preparing himself for heat over what you have exposed in this post.

    Oh by the way and just a heads up, one of your past commentators – YODA – well he paid us a visit recently – he too did not like the heat and resserected himself as Ghost of Yoda – the visit to this world scared the bejesus’s out of him . I think he prefers the other side. Whether he makes it that far depends on the many good deeds he needs to do to make up the leeway …

    That bald head of his sure would make a nice shinny shrine for me to polish every day …

    Lucifer …

  8. August 22, 2011 at 8:49 am

    Hi commentators,

    Want to thank you for the feedback – much appreciated.

    Guru.

  9. August 22, 2011 at 9:01 am

    Hi Long-John,

    Yes I am aware of the RBA’s previous market activities and interventions – with volatility dictating terms – many Central Banks play the cards very close to their chest these days – it used to be in the past that they only had to ring a few dealers and ask for prices and that would give the market indications they thought they were a little overheated one way or the other …

    These days if Central Bankers are in the market it is usually seen afte rthe fact. As for the Australian Central Bank – they are trapped between a bipartisan agreement between both sides of Parliament that inflation is the only concern and dictates their charter to maintain inflation between bands. Sadly, they only use Interest Rates to control this charter.

    The point of th epost and all previous posts on this matter has been to expose how stupid this policy is and how it is hurting Australian business.

    Thanks again … GURU.

  10. Herman
    August 22, 2011 at 9:41 am

    Generally there is this concept of letting the inflation genie out of the bottle. I really can not fathom it.

    It runs that high inflation like 1980’s spirals and undermines jobs (employment oportunities/business confidence). In the late 80’s interest rates were taken to 17% to crush the inflation genie, and since then employment has flourished. That hurt mortgage holders and the housing sector. From 1996 onwards housing prices have skewed in a different direction – low inflation (real growth – but not necessarily a great one, as opposed to inflated growth – consider Amsterdam real estate prices over 500 years, can you sustain 3% real growth).

    We had in Dec 1998 currency at 48c and today more like $1.05. I think that any business exposed to currency would prefer inflation to currency uncertainty. The price makers in the currency markets love this. Retail spreads at 10 to 15%, and wholesale spreads af say 1% of all international trading in goods and services. It has caused companies like BHP to employ Entreprise Wide Risk Management, rather than individual profits centres to do isolated hedging. Sad part is the system cost a fortune to implement and was rolled out over 5 years, and simply is not available to Small to Medium Entreprises. They are forced to deal with the devils (the banks).

    It is this inability to see where the currency volatility is crushing us that hurts the most. It all adds to the argument that the banks oligopoly should not be so openly endorsed by government. The Greens advocate for the banks, a “Too big to Fail policy” and therefore a “super Profits (license) tax be applied to banks. I go back here to fundamental capitalism. Failure is the only anecdote. The banks should not be allowed to become too big to fail. Remove any hint of government guarantee. Separate retail deposits from wholesale. There are lots of paths to be explored. Most of them were part of the NEW Deal, under FDR in the Great depression.

    That is the hardest part. That is what it will take (a full scale depression, with 25% uneployment) before the dopes who are controlling the various treasury benches around the world to wake up.

    If you go back to Tourism and Tertiary Education 20 to 30 years of energy is going down the gurgler because of currency volatility. Australia wanted to back these “winners” and is now complacent about failure. Aussies are holidaying in the USA, and foreign student enrolments are down 40% and we get this farce of mining boom, jobs, and foreign holidays. Regional unemployment, is that what they mean by 2 speeds. One speed for 4571 visas, and another speed for the youth in the regional areas.

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