EYE-BALL on – The Australian Parliamentary Process – Part II – Monetary Policy arrangements between the Government and the Reserve Bank
Title: The Australian Parliamentary Process – Part II – Monetary Policy arrangements between the Government and the Reserve Bank of Australia (RBA) … |
The Governor of the RBA today made a speech to the Chamber of Commerce and Industry (Western Australia) and the Chamber of Minerals and Energy (Western Australia) during a Corporate Breakfast. In this address he highlighted current market conditions and their impact on the Australian Economy. The full text of the speech can be read using this link: The story within this story is about the relationship between the Government and the RBA.
Mr Stevens made reference to the formalised policy that has existed between the Government and the RBA since 1990. He even provided the link to where this policy is documented and it is to this policy and the arrangements contained within that this post wants to debate hereto. A statement by the Treasurer and the RBA Governor given in Sept 2010 on the existing policy arrangements between both parties is reproduced below – and can be read online using this link.
The summation comment from above highlights the ignorance – and non-acknowledgement at the cost the high value of the A$ has caused … ‘Served Australia well’ – this statement is also a false perception – Australia’s relative high interest rates compared with the US and Europe – has placed extreme pressure on Australia’s home mortgage sector – cracks are appearing with arrears and delinquencies rising to levels that have Banks concerned – and about what might happen if the property market bubble really burst here as it did in the US and across Europe.
Using the A$vUS$ chart above – the rise in the A$ does not reflect the policy of a stable currency – in fact the A$ currency has become the play thing of global investors and the wealth they are stripping from Australia runs into the A$100’s billions Neither the Government or the RBA have visibly stepped into the markets to try and stop the rise of the A$vUS$. Exceptions can be made for the GFC correction – however since early 2009 – the value of the A$ has appreciated some 80% off the A$.60c lows – and 60% above the ‘mean average’ since when the currency was first floated in 1983. [see chart above] This does not represent currency stability. The Treasurer Mr Swan spoke on the release of the National Account figures today and gave his assessment of how the Australian economy is performing. The 1.2% growth he used to promote good Governance and sound policies could only convince the naive. Just imagine how much better those numbers would be if Tourism and the export revenues were still receiving the benefits of a much lower currency. Dropping Interest Rates would discourage the offshore investors and bring some uncertainty lessen the predictability of the RBA’s targeted policy toward inflation. Since 1990 when this formal arrangement was first developed – ‘INFLATION’ was a global problem. It is not so now. The GFC impact is creating massive disparity within developed economies. The glaring cause of this is the pegged value of the Chinese Renminbi – and no matter what pressure is bought to bear on the Chinese officials – they refuse to yield to any part of their advantage against other and more developed Nations. This single issue has the potential to bring the whole ‘house of cards’ tumbling down. History plays a big role here – has the West treated China with more respect and dignity in the past – perhaps they would not now be so unrepentant about their advantage as it stands. Then again – China must decide if it wants to become a Global Leader in every sense of what that responsibility carries. Post WWII – America stepped up and spent US$Trillions in modern day value to rebuild and be the Global police force – they did it willingly and with good intent. Unless China begin to realise the importance they play in the global economy – trade embargos will be considered. Can you imagine China having sanctions placed on its import of resources it desperately needs – it should not come to this – but with the amount of vacant space in global Leadership – wars have been fought with similar Leadership were holding the keys … I suggest that the RBA and the Treasurer read their charter in more precise terms and reconsider the ‘INFLATION” priority and focus on what is good for the Australian economy – a stable A$ v US$ relationship that is more in line with the average value over the last 40 odd years. [For reference purposes the Trade Weighted Index (TWI) – the basket value of currencies of Australia’s major trading partners – does not reflect the same volatility as the A$ v US$ chart avove – nevertheless – most export contracts are based in US$’s as the global reserve currency.] Link to PART 1 in this series: ________________________________________ The EYE-BALL GURU … |
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