Trouble in a carry trade paradise

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Regarding Alan Kohler's assertion – "So does the RBA cut rates to bring down the currency, as some suggest? No, that won''t work. The capital inflow is not investing in cash" – it is clearly wrong (Trouble in a carry trade paradise, February 8). Whether or not the investment is in cash, shares or property, a fall in the value of the Aussie dollar will mean less US dollars, euros, yen, or whatever, when that investment is liquidated and the funds repatriated.
Have the Brazilian policies to stem carry trade capital inflows been effective? (Trouble in a carry trade paradise, February 8).
Great article Alan. I think hospitality has greater troubles than penalty rates (Trouble in a carry trade paradise, February 8). What more can one add to everything else. Perhaps war?
Alan, can the RBA bring down our high Aussie dollar (which surely must be one of the single biggest handbrakes on our economy right now) by selling off large chunks of Aussie dollars, or is it more complicated than that? (Trouble in a carry trade paradise, February 8).
Either way, would have to agree that the RBA cash rate is not much of a tool, in doing anything...especially regulating our dollar in the right direction.
For whatever impact the contributions to Business Spectator have, let's all start banging the drum to demand a lower Aussie dollar.
What an absolute luxury to have some firepower left in monetary policy (Trouble in a carry trade paradise, February 8). In the absence of government policies aimed at reducing our massive private debt levels, yesterday's decision was most responsible. Any cash rate reduction at the behest of the highly indebted middle class with a sense of entitlement will only bring us to the level of those nations with no firepower left. That is not somewhere we want to go.
Good question, Bruce, regarding whether the RBA bring down the high Aussie dollar (February 8, 9.23am). (Trouble in a carry trade paradise, February 8). The Swiss managed it in the latter half of last year when their currency was causing them the same problems as ours. If they can do it, why can't we?
I'm confused. Europe and the US are flooded with cheap QE money which is finding its way into Australia under the carry trade and driving up our dollar but at the same time the cost of funding for our banks is going up? (Trouble in a carry trade paradise, February 8). Surely all this money flowing into Australia would be driving down the cost of funding for our banks? An explanation of how these two things are apparently not interconnected would be greatly appreciated.
Can the Australian dollar be made to fall against all those central bankers who are printing and lending at close to zero interest? (Trouble in a carry trade paradise, February 8).
The only way is if we turn our printer on. But at over four per cent, banks are not in a hurry to borrow. They can get it at a lower rate from another country. At least until Greece defaults and then the CDSs may make the foreign rate too expensive.
So the RBA awaits the end of Greece, pretty much like everyone else. Except they can lower their rate and everyone else has nowhere to go.
This is when our bankers can make a killing. As the Australian dollar falls along with our interest rate, suddenly the banks will be able to lend to foreigners instead of borrow. This has never happened in our history. Our bankers are going to be powerful on the world stage. So clean out that excess staff, bad debt, fix that IT system, open those foreign branches, etc. Ignore the doom and gloom.
I think that a lot of people, and especially the media, credit the RBA with powers that it doesn't actually have (Trouble in a carry trade paradise, February 8).
Sure, the cash rate is a signal and does influence a number of market segments, but capital flows seem to drive the value of the Australian dollar, and not so much interest rate differentials, as was the case previously.
Currency intervention is easy to demand, but look at the way George Soros' hedge fund smashed the pound some years back; the RBA could make a stand to trying to sell down the Aussie dollar but probably would be overcome by the weight of trade and hedge fund money flowing against it. Besides, our beloved government would then face a reduced RBA dividend, which I bet it's banking on to boost its bottom line.
The only obvious effect of RBA policy is increasing unemployment and Aussie borrowers' pain (Trouble in a carry trade paradise, February 8). The stated "real" effect of rate increases (a tool which is tightened or loosened) is to dampen demand. To the general population this is like saying "stop borrowing your home loan" until inflation subsides. Of course, as we all know, mortgage borrowing is pretty inelastic once commenced.
The media generally whinges over the fate of retailers and mortgagees due to "high" interest rates (Trouble in a carry trade paradise, February 8). Lower mortgage rates will not help retailers as the repayments are likely to be maintained in dollar terms to reduce the term of the loan. What about retirees and pensioners who rely on interest income, and who are likely to spend every dollar they earn?
Also, a lower dollar will wipe out Harvey Norman, et al, because everything they sell is imported.
I would expect the sustained inflow of foreign capital in Australia would overwhelm the RBA's capacity to artificially lower the dollar for long (Trouble in a carry trade paradise, February 8). The alternative would be for them to print like mad to devalue us that way ... at which point we would have runaway inflation and need higher interest rates! I think there's a good reason they're talking about the need for a "structural change" during the mining boom, as opposed to opposing it.
Interesting article, Alan (Trouble in a carry trade paradise, February 8).
I personally don't think penalty rates are the real issue affecting many businesses. I have some other more important issues such as customers not spending as much money, business having to pay high rents and percentages of turnover to landlords and poor management decisions (for example, missing the online boom). Zombie businesses are struggling to survive because they are a zombie business. Many businesses are, in most respects, tax dodgers or set up to avoid a tax of some kind. Whether the business was truly profitable in the first place is moot. It is much easier to blame a cleaner getting paid double time on a Sunday for the downfall of the business.
I, however, blame poor management or very high costs for land and buildings to help support an out of control real estate and banking sector as the real cause. I fear that the political, business and social intelligentsia wish to establish a lower social class in this country. It is already very evident in many suburbs. If penalty rates are killed, the incentive to work for many evaporates. This will still leave the underlying problems I have mentioned that will see, in time, many suburbs in Australian cities become ghettos.
The tax system needs to be overhauled. Our finance system needs to be checked. But good luck getting those things changed – far easier to get people to work for nothing like slaves as they do in the US.
Peter Driscoll (February 8, 11.37am) would seem to imply some people go into business not to make money but to avoid tax? (Trouble in a carry trade paradise, February 8). What a novel approach. Most business people think they are going into business to (may I suggest) make money. It turns out some seem to be hoping to go broke and get tax credits against the loss!
Good article, Alan (Trouble in a carry trade paradise, February 8). When will these clowns in Canberra and the dinosaurs at the RBA wake up to what is going on in exports? In case they are not aware, we do more than dig holes in this country and export coal and iron ore.
The effects of the high Australian dollar and the GFC in Europe and North America have been catastrophic for export marketing by Australian companies. A seminar for EMDG Consultants and the NSW State Manager held yesterday provided an update on the 2010/11 claims.
The number of year one applications has dived 33.7 per cent from 1,322 to 910. For year two and beyond, numbers have also reduced but to a lesser degree. So there has been a huge drop in new exporters registering for EMDG.
The overall value of claims has dropped by more than one third. Exports on their rear end, manufacturing collapsing and hospitality and tourism industries shot to pieces as well as unemployment set to escalate – I just wonder if our mental monoliths in Canberra are paying the slightest bit of attention to this?
As an exporter 98 per cent of my revenues are in US dollars. A year ago I was converting dollars at US85 cents and today it is $US1.08. So, to produce the same bottom line in 2012 I need a 27 per cent increase in income simply to tread water – and that is ignoring any increments in my Australian dollar operating costs!
Wake up guys and see reality!
We're head-in-the-sand stuck in classical capitalist economics here and – surprise, surprise – all solutions lead to bad outcomes (Trouble in a carry trade paradise, February 8). The Chinese have shown how vulnerable these worn out laissez faire theories are to a command economy and are laughing all the way to the bank with barrows full of US dollars. Then they are using those dollars to buy out Western owned food and mineral resources.
Australia is so beholden to multi-national corporations with budgets bigger than its own that it doesn't dare upset them by actually trying to control this wholesale assets for consumption swap. One day our nation will own nothing of our own except a bunch of old TVs, iPhones and whitegoods.
Wake up and smell the coffee! You've got to control capital investment and excess profit repatriation in the interests of the state, not the corporation.
Ours is no longer a country in which you can get a house built, a renovation done, or an appliance repaired in a reasonable time and for a reasonable price (Trouble in a carry trade paradise, February 8). House building, renovation and repair costs (housing land is still in abundance) are extortionate because real demand far, far exceeds supply. Compare building costs in the US with those in Australia.
Greater immigration is needed now to ease supply and increase demand. Also, lower interest rates to reduce the value of the Australian dollar to ease speculative capital inflows – the most obvious cause of uncontrolled dollar appreciation.
As the economy picks up steam again, following these measures, raise interest rates and lower taxes on imports to control inflationary pressures.
Australian employees do not realise how good they have it (Trouble in a carry trade paradise, February 8). Basically, and I am generalising, they are overpaid and underworked. The real problem with our service industries is that there is no service. Employees just doing the minimum because they know whether they give good service or not they still receive a comparatively high wage. This is tarnishing our image as a tourist destination, especially with the Americans who are used to good service levels. On our recent travels, many Americans loved our country but were very disappointed in our lack of customer service.
Alan, other than the Greens you are the first person I have heard complain about tax cuts (Trouble in a carry trade paradise, February 8). Tax cuts are essential to keep our top people in Australia instead of moving with their skills to lower taxed countries. We need a competitive tax system and thank God Howard and Costello went a long way in decreasing our taxes. They should be applauded.
Good article (Trouble in a carry trade paradise, February 8). I am not sure whether the European Central Bank will print money with as much ease as others, but the trend is there in increasingly delocalised industries. And with uncertainties in the stock exchange and banks looking more and more like facades for derivative punting, the asset inflation/bubble is becoming the real pain (predicted by Paul Keating a long, long time ago).
Mining is helping our economy but we will have to compete more and more with Africa and South America, so there will be adjustments also, but later on.
Regarding unemployment our figures are out of sync. If we were to pay pensions/Centrelink safety net on a time basis with mandatory recording when looking for work, and if we were paying unemployment regardless of other income including spouse income, our figures would look closer to other OECD countries.
The participation rate and the number of people paying tax are a better indication of economic trends.
I'm confused, too (Trouble in a carry trade paradise, February 8). Can anyone (perhaps Alan) answer Michael Vinodolac (February 8, 9.45am)? Cheap QE money is flooding the market but our banks' overseas borrowing costs are rising.
Is it that, despite QE, there won't be enough money soon to refinance the $US7.6-8 trillion that governments around the world need to refinance this year, according to Satyajit Das in The Independent this week (he didn't mention corporate needs).
So is the idea that while money is "cheap" now, it won't be for long? Or will we we need more QE to stop the world tipping over financially. If so, won't money remain cheap? Can anyone explain our banks' contradictory logic?
Because, David Pierson (February 8, 9.36am), every head of the separated powers of that nation serves one nation only (Trouble in a carry trade paradise, February 9). One day Australia might have its own Henry VIII.
Hi Charlie Wilkie (February 8, 1.02pm). It may be every business owner's intention to make a profit when they start a business but the reality is very different. The vast majority of businesses that start up are in receivership and wound up within three years. Business is not for the faint of heart and a competitor isn't going to help you get established.
I have respect and admiration for those whom have a crack at starting their business, as I did once. I, however, made many mistakes and paid for them. My main mistake was confusing turnover with profit and the allure of tax deductions. Foolhardy yes, but all too common. As further support for my statements I would point you to the massive losses posted each year by landlords whom negatively gear their properties in the hope of one day making money on the capital gain when they sell. They offset the losses against income earned in the meantime.
This is hardly a healthy state of affairs and an excellent example of how many taxes create imbalances by those nimble enough to exploit them. I would politely suggest that you won't have to dig too far to find examples of many companies set up for reasons very similar to the main example I just gave. Just speak to your accountant.
Thanks Alan, I love to hear a person talk objectively (Trouble in a carry trade paradise, February 8). In my view the dollar is the greatest problem facing Australia, at the moment.
Some of the responses to your article are valuable comments. If we look at China, the US and Germany and try to see commonality in their currency valuation, we see one thing in common – manipulation. Oh, let's add one of our major minerals competitors, Brazil.
Selling currency is something each of these countries has in common. Bernanke has stated that he is prepared to print whatever (amount of dollars) it takes, to make US products valuable in export terms. China blatantly holds its currency down. Germany created a new currency to lower it's manufacturing export prices. Brazil sells reals, to lower the value of the real.
What does Australia do? We sit around and abuse those countries for manipulating their currency. We watch established businesses shed jobs, as our mining industry tells us that the dollar's value will create a new economy. If the RBA does not sell Australian dollars, then what is the point of having it?
If the head of Treasury recommends that the RBA should not touch the currency, then he is displaying a conflict of interest and perhaps should not be in the RBA. Just a thought.