The buck must not stop with the RBA

And what about Australians that rely on interest payments ( The buck must not stop with the RBA, August 13)? They've already taken a hammering due to the RBA. And what about the risk of reinflating the property bubble? That's the problem with analysis by economists like Kirchner. It's always myopic.

Spot on, Stephen (The buck must not stop with the RBA, August 13). Why do so many so-called informed commentators not understand this?

Stephen (The buck must not stop with the RBA, August 13),
It seems you are missing an important piece of the puzzle, namely the current account deficit. It's most unusual for a country to run a current account deficit for so long and still have an appreciating currency. The whole point of a floating exchange rate regime is that currencies can adjust to take account of whether a country is in surplus or deficit. Unfortunately, that mechanism is no longer working due to the ability of surplus countries to recycle surpluses back into the global market, thus avoiding upwards adjustments in their own exchange rates.
Thus Australia (and New Zealand) find themselves beneficiaries of overseas capital, attracted by higher interest rates, commodity backing and an open economy. This reliance on overseas capital for investment and consumption has long term implications. The drain from interest charges and dividend withdrawals impacts the real economy and requires every increasing debt to finance it. Overseas ownership will increase further and more funds will flow out.
At some point, the country is completely drained through overseas ownership and debt financing. This outcome was thoroughly discussed, and ignored, at Bretton Woods. Whilst your description of the situation may look rosy at the moment, when it reverses, as it must (the current account funding requirement never sleeps), it will be a painful adjustment. Successive governments have ignored the problem, leaving it to the "market" to sort out. The fickleness of global capital is not to be underestimated, as we have seen time and time again.
The only way for the current account to adjust is for a much lower exchange rate to be in place. Standing idly by is a recipe for further disaster.
Regards
Raf

You need to know history Stephen to avoid making the same mistakes (The buck must not stop with the RBA, August 10).
It was the desire of the Liberals to obtain cheap overseas money in the 70's that started the ball rolling.
The RBA found that with this money rolling in and out that they could no longer manage the exchange rate and that then became rigid law within the RBA.
Since Australia started allowing foreign capital flows into our country they have done far more damage than good.
You wouldn't give control of your army to any foreigner yet we have rolled over and given control of our currency.
Singapore an economic basket case got wealthy by demanding its population save through its super funds.
China is a productive power house because and only because it does not let foreigners invest in its currency and by doing so keeps the exchange rate low for trading purposes.
Two simple bits of lateral thinking that seem beyond the powers of either the RBA or government to comprehend.

I agree with Raf (August 13, 10.13am). What is the point of discussing what influence the RBA can have over our exchange rate, if the RBA doesn't see it as a problem? (The buck must not stop with the RBA, August 13.)
It is a big, big problem and until the RBA view it as such, we will continue to suffer.

Yeah, we actually need some policies (The buck must not stop with the RBA, August 10), so it could be a problem for this Government and the next one becasue both have zero economic credibility.

One would disagree (The buck must not stop with the RBA, August 13) because aside from fundamentals the capital flight was also due to artificial money printing by US, Europe and China (as a response) on a scale never seen before. The inherent fundamentals of our country does appear trivial against the scale of these economies and their QE's.
We do require a corresponding (but well controlled) version of QE (such as that suggested by McKibbin) to at least partially mitigate such flows. Since this is done with printed money our small central bank reserve would not matter.
This article also failed to address the implications of interest rate on other aspects of the economy. It may have more ground on the narrow context of currency considerations however due to the wide impact of interest rates this is not an instrument that should be tempered with lightly.
If our currency is merely reflecting our inherent economic strength then interest rate interventions should also be just as unnecessary.