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EYE-BALL Guru on – Finally – RBA ‘bubble-head’ opens his mouth – He says – $A intervention not needed –

October 31, 2012
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Title:
– Finally – RBA bubble head opens his mouth –
– He says – $A intervention not needed –
| Author: EYE-BALL Guru | 30th Oct 2012 |
The Reserve Bank of Australia deputy governor Philip Lowe, came out and said in an address to the Commonwealth Bank’s Australasian Fixed Income Conference in Sydney that the A$ is not overvalued.  For 10 years the RBA has sat on the fence when it comes to economic management with concern to the rising A$ value, the TWI value, and how the export revenues shipped offshore have resulted in lower export revenues.

The story was reported in ‘The Courier Mail’and is published below …

RBA says $A intervention not needed


| Author: Jason Cadden | Date: Oct, 30th 2012 | Link to On-Line Story. |

THE Reserve Bank of Australia (RBA) says the conditions are not right for it to intervene in currency markets to reduce the value of the Australian dollar.

Reserve Bank of Australia (RBA) deputy governor Philip Lowe told the Commonwealth Bank’s Australasian Fixed Income Conference in Sydney the Australian dollar is not overvalued.

“The major influence on the currency is the terms of trade, the commodity prices,” Dr Lowe said.

“That’s why the exchange rate is high.”

Dr Lowe said in answer to questions at the conference that the current conditions were not right for an intervention.

“While it’s a bit surprising that the currency hasn’t come down – the outlook for the world economy has softened and interest rates have gone down – the currency is still not at a point where I think you can make a strong conclusion that it is fundamentally overvalued,” he said.

“Really you’re talking about whether the Reserve Bank should undertake a very large scale intervention in the currency markets.

“The argument for doing that would arise if we thought the currency was fundamentally overvalued and was having a really adverse affect on the Australian economy.”

A recent case when the RBA intervened in currency markets was in late October 2008, when it spent $3.15 billion propping up the Australian dollar after it fell below 61 US cents as the worst of the global financial crisis was setting in.

“Historically, we’ve been prepared to intervene for short periods of time when there is market dislocation or where the exchange rate has been fundamentally away from where it should be,” Dr Lowe said.

“So that possibility is not ruled out but it would be a very big step moving away from a system that has serve us very well for a very long period of time.”

Dr Lowe said the floating of the Australian dollar in December 1983 was one of the most fundamental economic reforms Australia has made over the past 30 years.

“It has been an incredibly stabilising influence, there have been periods where people may feel very uncomfortable about the movement but if you look back over the history it is difficult to escape the conclusion that a floating exchange rate has been a tremendous benefit to this country,” he said.

“A decision to to intervene by the Reserve Bank would be a very big one.”

The RBA are ‘chicken’ – they fear the ‘hot’ money parked onshore for a decade or so, and here to take advantage of the interest-rate spread,  might exit A$’s given any sustained intevention by the RBA.

It happened in the GFC aftermath – see chart below – and that fall was all related to the unwinding of the ‘resource cash and carry trade’ that was milking the Australian economy to $100’s billions ever year.

From the start of this A$ rise against the US$ – some 10 years ago – see A$ v US$ chart below –

Click on chart to open in a new window – to enlarge click [Crt+]

… the RBA and then Howard Government Treasurer Peter Costello, were asleep at the wheel.   Enter Wayne Swan as Treasurer in 2007 and his ‘duncehat’ understanding of Financial markets continued the three blind-mice acceptance that nothing could or should be done to halt the A$ rise.

The RBA were equally distracted and focused on ‘inflation’ factors where they have been locked away since the early 90’s – neven realising or grasping the economic shift in global trade factors and how markets were now working.

Australia was seen as cheap by the rest of the world – there was a stable democracy – a high interest rate on offer, and investing in Australian resources was a trade that guaranteed monster investor returns given an emerging China, India and the Asian region in general.   As word spread everybody who could borrow at cheap off-shore interest rates jumped into the cash and carry trade.  The RBA abd Government said ‘come one come all, we’d love to have you steal our wealth anytime.’

The Government and RBA were in love with their economic management success thinking the rise in the A$ was a healthy indicator that the world liked us.   What stupid colonials our economic managers were.

Costello sat aloft in his counting house counting the billions in budget surplus’ he rendered,  and then Swan thinking is it was OK for Costello it should be OK for him to do the same thing.   Fuckwits both of them.

The average of the A$ v US$ value since it floated has been just under A$0.75c … the post 9/11 era saw the China explosion in resource demand.  This happened when the US$ was falling due to GW Bush war chant and budget spending,  and poor old Australian miners who were set for a boom period – suddenly had to deal with a rising A$ v US$ and that meant diminished A$ revenues for their exports.

The rise in iron-ore, and coal prices in US$ terms more than off-set the A$ currency rise – but it truly could have been a golden age if Australian Leaders had a goddamn clue.  Australia was set for a 30-40 year mining boom if the A$ value stayed at 2001 levels.

Meanwhile China had pegged their currency [Yuan] to the US$ after a 50% devaluation in 1995.  As the US$ fell that made the Yuan cheaper still and made their exports cheap to overseas buyers, and their imports more expensive for China. See Yuan chart below:

Click on chart to open in a new window – to enlarge click [Crt+]

The US$ weakened across the board against all major currencies – and China had hit the motherload as they say.   See chart below:

Click on chart to open in a new window – to enlarge click [Crt+]

China’s exports exploded and their need for iron-ore and coal was a windfall for Australian miners. As the A$ rose, China began to look for cheaper iron-ore and began to invest in Sth America [Brazil], and Africa as a future source for their resources. When these markets come on-line – Australian miners will be priced out of the market – high labour costs and a high A$ value will make them uncompetitive in a global market place.

This stupid Government and the RBA have their heads so far up their arse’s patting themselves on the back and the one in front over how they handled the GFC crisis – they have no idea what is around the corner and about to hit them smack full in the face.

The MRRT is the dumbest tax ever invented and sums up Swans credentials – a tax that raised no money in its first three active months.  Maxine McKew gave us insight into Swans absolute cock-up over the MRRT and how he turned to Gillard to save his own ass … what a dickhead.  This MRRT was revised down from $40 billion over 5 years – it now stands at $9 billion over the same time frame – and some $2 billion for the 2012-13 year.

This crowd of over-achievers could not manage a budget for a school reunion … and to think the World Finance Ministers nominated Mr Swan as Treasurer of the year a year ago – they were so thrilled that he helped let them rip a A$ trillion out of the Australian economy over the last 10 years – they felt Mr Swan deserved their praise. The stupid fool still does not know it was a ‘Clayton’s’ nomination.

Now I hear you repeat the RBA Deputy Governor’s comments –

“The major influence on the currency is the terms of trade, the commodity prices,” Dr Lowe said.

About three months ago Russia placed an excise increase on oil exports to help cover the exchange revaluation. About a year ago the Swiss Government stepped into the market and said enough – they pegged the Swiss Franc at 120SF to the Euro and stood in the market to hold the value. It remains there today.  See Chart below:

Click on chart to open in a new window – to enlarge click [Crt+]

You get the picture – the Swiss take no prisoners when it comes to fuckin’ with their terms of trade … but then they can afford to stand in the market with all that non claimed Nazi money and the billions that Dictators and drug dealers leave unclaimed when they met their maker …

What is strikingly dumb is that neither the Australian miners, not the agriculture exporters lobbied to have the A$ capped – yet the floating in 1983 was a decision for the time – and done by a Treasurer [Keating] with vision and the guts to make a decision.  Both Costello and Swan could not lick Keating’s boots as Treasurers.

Costello sits back and thinks the ‘Future Fund’ was his big gift to Australia, the ‘Future fund’ was set up from proceeds from the Telstra sale – there was Telstra an Australian owned asset – every Australian owned a piece – the Government sold it off and put the funds into funding the underfunded portion of the Public Service Superannuation.

Did you get your piece of Telstra – you needed $2000 at the time for T1 and if you could not afford it you forfeited your stake and it went to some fat-cat who dipped his wick more then once and multiplied up on applications. Remember the three Howard Ministers who were reprimanded for getting their snouts dirty in their over subscriptions, Moore, Parer and another who’s name escapes me.

I digress … sorry … but Costello and Swan sat back and watched the A$ sail away up north never knowing or suspecting that the rest of the world had plugged a syphon into the Australian economy stripping billions from Australian mortgage payers, all  paying higher interest rates than needed.  Off-shore investors took advantage of those returns and then won super big on the A$ currency appreciation.

Why the farmers and miners did not tell the Government what was happening is a mystery that escapes me – perhaps they were dumb as well.

I’ve had numerous discussions with RBA staff on these matters and many others – they don’t like my style of debate – they have no response and I can never get high enough up the food chain to engage with anyone who can give any sensible debate to the questions raised hereto.   I’ve even interfaced with Ministers over this and they are equally challenged – for mine – they just don’t think anyone can be as smart as they think they are and that helps explains why we are in the mess we are.

There is a war going on right now that very few can understand.  It’s a trade war and China are whipping the rest of the world, and they are not prepared to let their grip loosen for the rest of the World to get a start in the game.  The ‘Yuan’ chart above has shown some small adjustment to the US$ peg in a post GFC market – China’s labour cost are forcing the rest of the world to match them and to do so means everybody has to take massive pay cuts.

When Australia imports from the world – the largest portion of those imports are labor cost transference … don’t the Government get that?   I’m sure they do … it’s just that they don’t have an answer and that means incompetence from the Government and the bureaucrats standing the post – just like this RBA Deputy Director – who need Leadership … or just a willingness to hire people who are smarter then themselves …

This economic war has been brewing for decades and the Western world saw no end to their prosperity – all the while China and other Asian Nations were all too willing to fund their wanton borrowings.   Johnny come lately Mr Swan and after the initial GFC stimulus package, and then after the ‘Red Witch’ took charge with her socialist agenda, Australia’s spending continued for another $200 billion.

Now we are in the crapper as well,  and this Ponce of a RBA Deputy Director comes out with some lame comment about currency intervention being not the right time.

Australians markets have already been priced out of the global Tourism, Manufacturing, and Retail markets.   Our resources and agriculture will soon follow suit.   Where then will the offshore funds come from to keep funding our National debt levels?

Swan as Treasurer has invited as all to a delayed GFC party – all that bragging about us being a lucky Nation to have avoided what Europe and the Nth Americas went through will be arriving just in time to join our housing bubble crash, and Australia’s debt rating slide down to junk bond status.

It will happen quickly and Australian Banks will be looking for more Federal Government guarantees to keep their foreign borrowings from leaving – the interest rate cost will be the killer though.

And all this because a dunce like Swan, a ‘Red Witch’ PM, and a Cabinet full of idiots have no idea about global markets.  But never mind – these Politicians will retire on fully funded A$250k a year pensions that we taxpayers will continue to pay.

The slide in the US$ v the major currencies of the world has always been a tell-tale sign – see charts below …

USD v ¥

Click on chart to open in a new window – to enlarge click [Crt+]

USD v Swiss Franc

Click on chart to open in a new window – to enlarge click [Crt+]

USD v £

Click on chart to open in a new window – to enlarge click [Crt+]

USD v €

Click on chart to open in a new window – to enlarge click [Crt+]

Three of these charts, the US$ v Yen, SF, Cable, all point to those markets becoming uncompetitive in an increasingly competitive market place for trade.   The Euro since the GFC,  has reversed its strength against the USD and now is probably the weakest currency in the Western world.

Given the economic woes they have endured over the last 3-4 years i.e. P.I.G.S. and the like – the rest of the world has a glimpse of what might be coming their way unless China releases the trade breaks and allows its currency to trade on the open market.   Chances of that hapening are very slim … would any of us swap our trade poistion … hello Australia did when it just stood back and let the A$ appreciate 150% in the last 10 years.

And again – there is the little Aussie battler – pegged out like a shag on a rock thinking the ‘free trade’ market chatter was where the rest of the world was playing at.   Stupid Australia … stupid RBA … and stupid stupid Treasurer Swan and his comport of political speak … honestly he makes it up as he goes along …

So when that RBA Deuty Director boofhead sticks his head up again in public  – please give him a serve and challenge him on all that has been written here.

Be assured he might think he is smart – but he and all his workmates haven’t got a friggin’ clue – they still think inflation is the key to Australia’s economic management – so does the Government and the Opposition according to the RBA charter signed by both political parties back in the 90’s and not updated since.

Mediocrity breeds mediocrity … fools tolerating bigger fools …

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Have your say where it counts: – contact your Local Federal Representative via the links below and let them know how you feel about this, or any other topic that you feel strongly about – or you can just post a comment below and let off some steam.


The EYE-BALL Guru …

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  1. Gerry Hatrick
    October 31, 2012 at 7:41 am

    Here is Philip Lowe’s bio cut and pasted from RBA website
    Education The University of New South Wales (BComm Hons 1985)
    Massachusetts Institute of Technology (PhD 1991)
    1980–97 Reserve Bank of Australia; various positions in International Department and Economic Group.
    1997–98 Head of Economic Research Department
    1999–2000 Head of Financial Stability Department
    2000–02 Bank for International Settlements; Head of Financial Institutions and Infrastructure Division
    2002–03 Head of Domestic Markets Department
    2003–04 Head of Economic Analysis Department
    2004–09 Assistant Governor (Financial System)
    2009–12 Assistant Governor (Economic)

    He has never worked in commerce. He is a career bureaucrat. That is Australia’s problem with their bureaucracy. Does Philip Lowe have any knowledge of dislocation caused by industries closing due to currency problems. He is not afraid to bold proposition only from the research perspective.

    My son now works part time at the RBA as a risk analyst, while completing his honours year.
    His interview consisted of being shown the RBA balance sheet and identify the major areas of risk. Derr, Interest rates, exchange rates, therefore inflation and currency volatility. His job pays substantially more than graduate entry to the major accounting firms. How about what can grow the Australian economic pie?

    Public Service routinely declines high calibre mature workers because they don’t have specific experience in bureaucracy.

    What does that mean? We fear alternative thinking. Philip Lowe pull your head.

    How sad is it that he is now a candidate to replace Glenn Stevens. Glenn Stevens who has blatantly lied to parliament over Securency.

  2. The Parable
    October 31, 2012 at 8:09 am

    Any barrier to entry under the concept of a level playing field, is abhorrently wrong.

    How can anyone advocating free and floating currency be a party to barriers to entry in their workplace?

    This is nepotism of the worst kind, and undermines productivity.

  3. November 1, 2012 at 11:48 am

    Released today is a report that Tax debt owing jumped from $2+ billion to $16+billion at the end of 2011-12 – read story here …

    http://www.smartcompany.com.au/entrepreneur-watch/now-comes-the-tax-bill.html

    More evidence that no Government worries about ‘revenues’ until it is too late ….

    Swan’s ‘magician surplus’ the one guaranteed by all … is now locked in a creditability debate …

    If ther Government came out six months ago and said that now is not the right time to return to surplus this would be a non event because that was what everybody saw as the reposnsible thing to do … now Gillard and Swan have waltzed themselves into a minefield and we all hope they blow themselves up in the process to save us all a bloodletting some time in the near future …

  4. November 1, 2012 at 1:27 pm

    Question Time today – 1st Nov 2012 – the PM arose in response to a question from the Opposition Leader re a story in the Wall Street Journal abouty the MRRT –

    The PM in response spoke in a randon fashion about commodity prices rising and falling – never mentioning the impact the high A$ has on mitigating the flucuations of base commodity prices … she does not understand and nobody in the House understands either …

    Question time is of no value to anybody – when a yes or no answer would be honest – the PM and her Ministers deliver speeches to fill up the time allocated … most often are off-topic – and then the interjections take over and the process is lost … it is a complete waste of taxpayers funds …

    Nothing gives me greater frustration than watching Politicians ask dumb questions and then the other side making fun at those opposite … nothing is learnt …

  5. gratis bacon
    November 6, 2012 at 8:53 pm

    U have a very nice website over here. I just wanna thank you for all the interesting information on it. I’ll follow your weblog if you keep up the good work!

  6. Gerry Hatrick
    November 7, 2012 at 8:50 am

    If yesterdays surge in the AUD after 2.30pm when the RBA announced an unchanged targeted cash rate of 3.25% is not proof enough to these buffoons that interest rate differential is not a major determinant of currency then what?

    Jobs are exported because RBA was worried about seasonally high vegetable prices in Sept possibly being a worrisome sign for inflationary forces. This site exposed and explained the cash and carry trade on currency at least 2 years ago. As of yesterday most of those vegetable prices have returned to normal. Yet these fools need to wait until the ABS stats confirm this in late January. Meanwhile Christmas Retail sales will be therefore lower, business confidence and consumer confidence will be retarded, and a merry Christmas to you too.

    Do they even start to consider that QE is an attempt by Euro and USA to inflate their economy and therefore over inflate our currency and steal our manufacturing sector>

  7. Budda Balls
    November 7, 2012 at 9:00 am

    Damn straight Gerry – and the the admission that Treasury leaked the Opposition’s policy costings under aproval from Wayne Swan for political gain. The Opposition responded saying that the offsets from the abandoment of the MRRT and Carbon tax were not factored in.

    Barry Cassidy weigh in this morning on News 24 waving his ‘I Love Julia’ flag and gave the Treasury a tick for releasing the data. Cassidy has lost all creditability.

    What a wank of a Government … could not get there in the end …

  8. Gerry Hatrick
    November 7, 2012 at 2:50 pm

    Poor Julia can’t get it right. She has now said It is “common” regarding the dept of Finance leaking. Common, being cheap. Common being beneath respect. Common being everyday.

    Public Servants are servants of democracy. In this case they are sycophantic to the ruling elite. This division between appointed bureaucracy and elected rulers is to be respected no matter what. Julia has trashed it by supporting Swan trashing it. But the consequence here is not good. Little oversights are soon forgotten, evil is not so soon forgotten. Trust is hard to win, but so easily trashed.

    Well Done PM.

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