Australian disease will be one for the text books

While the nation continues to debate whether we should let this business go or bail out that business, the real issue continues to be ignored. Indeed it is so far off the radar that cheap shot commentators like Michael Pascoe can make wise cracks about it while the economy burns.

But it’s not funny. It’s not even a little bit amusing. Australians are being slaughtered by emerging markets; gutted by the Japanese; truncated by the Americans and butchered by the Europeans.

I am talking about the global currency war that we are comprehensively losing while having our backs turned.

Qantas, Graincorp, Holden, Electrolux. These are all iconic Australian businesses that have absolutely no reason to fail. Two are virtual monopolies that should be making money on a conveyor belt. The third and fourth are high tech industries that should be tailor made for a smart, developed economy.

But instead all four are failing  because they can’t compete with leaner and meaner foreign operations.

Qantas can’t get cheap enough finance and has no access to cheap fuel the way Middle Eastern airlines do. Graincorp is saddled with out-dated infrastructure and can’t seem to raise the capital to renovate itself despite a supposed “dining boom”. Detroit has confessed that Holden is being pulled out owing to a structurally higher dollar and labour costs. Electrolux is the same.

Metals refining, surely an area in which we should have a distinct advantage, is also failing, with last week’s Gove refinery the latest casualty. Processed food exports haven’t grown since 2005 while raw agricultural foodstuffs have jumped. We’ve already lost half of our petrol refining capacity. The Productivity Commission nails all three for dragging down productivity growth owing to high wages, low investment and idle capacity (read the dollar):

dfbsbd

As these various businesses pack up their kits, our manufacturing sector is headed for an unbelievable 5% of GDP, by far the lowest in the OECD (making Luxembourg look like an industrial powerhouse) and approaching or past a point at which the inability to produce material for ourselves is also a strategic risk.

Most disconcerting of all is that this is transpiring as we head into a great reckoning in the wider economy. The mining boom is ending, its fabulous capital wave is subsiding, its huge ramp up in employment is ebbing, and over the next three years it will recede as fast as any business investment correction in the last one hundred years. We’ve plenty more gas but are too expensive to extract it. Perth’s Magnolia LNG is headed to Louisiana to produce gas there instead.

The plan to build more unproductive houses to fill the void is a classic kick of the can, adding to capex briefly but adding nothing to productive capacity.  In the mean time it keeps our wages and interest rate structure temporarily high and makes the underlying problem worse.

The prospects for productive Australian industry are waning daily. Yet the dollar is still sitting at 90 cents, boosted by the same countries’ central banks that are feasting on our production, and pouring Dutch disease into our ears while we sit back and debate which business is worth saving.

The issue is not who do we bail out. It is how do we reverse the trend of uncompetitiveness that is sweeping everything offshore that is not buried in, or cemented into, the ground. The currency must be actively lowered or it will only drop when the economy does, leaving us bereft of a rebound.

Australian disease is entering its terminal phase, and boy, is it going to be one for the text books.

104 Responses to “ “Australian disease will be one for the text books”

  1. Opinion8red says:

    Superb. This is why I read (and share) MB.

      • interested party says:

        You know what pisses me off?
        The fact that the only thing we can do is give HnH a passing grandstand clap on the most prescient article I have read here. The fact that we can do SFA to change the tide really worries me on what ills come our way. And it is too damn trite to say we deserve everything that is coming as most of us are just oblivious passengers on the bus or innocent bystanders in the way of the wreck. Christ, what a mess!
        Great work HnH, don’t drink to much.

      • rich42 says:

        When the dollar comes down, won’t it make it cheaper for foreigners to buy Australian assets (as well as the limited goods)? Will that put us in a death spiral?

      • Mav says:

        IP, As HnH would say.. Enjoy the ride, but don’t believe it will end well. ;)

    • PolarBear says:

      H&H,

      I love your work and am a regular reader of MB.

      Is our strong currency a clear-cut issue?

      I have a friend who works at Treasury and apparently there are many (highly educated) people there who think that a strong currency is, on balance, a good thing for the economy.

      I also bought Jim Rickards’ book and he argues that a strong currency is better than entering currency wars.

      I understand a strong currency makes our exports less price competitive. But I am guessing the flip side is that there are many sectors of the economy that benefit from higher buying power.

      Is there anywhere that you analyse all sectors of the Australian economy and then draw the conclusion that a strong currency is bad?

      Cheers
      PB

  2. Janet says:

    I can not imagine how bad the underlying situation must be! Those ‘in charge’ aren’t stupid; they must see what you see, and reckon that the best alternative we have is…what we are being given, as any other optional avenue is worse. Hoping for ‘something to come along’ to rescue us – all of us – is all that we have left. As I often lament “when all that there is left is hope, there’s no hope….”

    • flawse says:

      Janet…have a listen to some of the stupidity coming from Professors of Economics in this country and abroad. Read the stupidity that comes from Krugman et al. We make up fairy tale endings, with no basis, and then we think everything is dreamland is just fine!

    • Opinion8red says:

      The most effective lies are often concealed behind a measure of truth.

      Paul Keating got it half right yesterday, when he argued that “the world’s central banks have taken over running the global economy in a ‘leaderless world’”:

      “Mr Keating said the major central banks had saved the economy from near depression in the wake of the global financial crisis and were now the effective economic powerbrokers in a world where there was little real political leadership.”

      http://www.theaustralian.com.au/national-affairs/policy/keating-warns-coalition-about-reducing-deficit/story-fn59nsif-1226778264183#

      Where he gets it wrong, of course, is in making the case that central banks are some kind of benevolent shining white guardian angels, materialising out of their supernatural background into our selfish and sordid little world to work their magic and save the day.

      The truth, of course, is that most all of what we see is just as intended.

      The f*ckers who are really in charge of a world now completely dominated by “money” are not stupid. Nor are they benevolent.

      And they don’t meet up every 2 months to discuss how to improve your life and mine.

      http://www.bis.org/about/functions.htm

    • disco stu says:

      Janet, in regards to our politicians Donald Horne’s quote, “Australia is a lucky country, run by second-rate people who share its luck” is still by far the most appropriate summation of our situation.

      This extends from our politicians, who with barely one or two exceptions, are a collection of miscreants pandering to various interest groups, that are hell bent on extracting as much rent from the economy as possible,while resisting all change and reform.

      It also extends to our mandarins at the RBA who are at best so caught up in conventional economic dogma, that they’re blinded to what really ails the economy, or at worst have been intellectually captured by the same interest groups to intend on maintain the status quo.

      Finally we have a populous, where the main demographic segment, having finally achieved ultimate control over the economy, and consequently largely shaped it as much to their benefit as possible, are now highly resistant to any reform. In the same way as commercial rent seekers are opposed to the loss of any of their cushy kick backs or closed markets.

    • fitzroy says:

      Those in charge are stupid. Look at what they have achieved.

  3. flawse says:

    Good stuff! There is no policy of any kind no m,atter how ill thought out that could be worse for our nation than we are now doing.

    “The issue is not who do we bail out. It is how do we reverse the trend of uncompetitiveness that is sweeping everything offshore that is not buried in, or cemented into, the ground.”

    Correction! It IS saweeping EVERYTHING offshore including what is buried in and cemented into the ground.
    Every major industry is foreign owned. our Banks are foreign dominated. We have sold off most of our m,ines (86%) and now we are busy flogging off our farmland to ensure we have no future Australian ‘sons of the land’
    What an absolute disgrace and yet we have absolute silence from teh likes of Evans, Stevens, Parkinson, Henry, MCkay, Eslake et al Not a single one with enough princilples to stand up and say “Enough of this BS’
    Can we hear from one of them anywhere anytime? We hear from Evans sprouting his pro-Bank profits BS all the time. Can we hear from him just once on this stuff? Can just one of these clowns give the politicians the support they need to get the real situation across to the Aus public?

    • Janet says:

      Spot on! ..and why I see The End as an unavoidable deflationary collapse. It’s so close that even our NZ press is starting to get some sort of a conversation going on the subject. Sure, it’s only a select few views….but that’s how all events unfold!
      “.. There are some immensely powerful structural forces driving down consumer prices and bearing down on wages for the majority all around the world. The coming globalisation of services into the cloud has yet to really hit, the ageing of populations in the developed world is bearing down economic growth rates and an epic shift in the income share from wages to profits in the Northern Hemisphere are all sucking any heat out of prices.”
      http://www.hivenews.co.nz/articles/277-my-full-herald-on-sunday-column

      • aj. says:

        Totally agree with this, I see no real evidence the bridge to asset values in western countries is being achieved, in actual fact the loose monetary policy from the big global economies is exacerbating the problem as they buy out our productivity.

        Deflation, followed by extreme re-inflation measures.

        (but i’m having a few bets that we will go straight to zero moral hazard if they do bridge the asset gulf)

    • netti says:

      Yep, all true. Imagine a one month,day-in day-out, MSM front page scrutiny of this issue. The great Aussie sell-off of productive assets/land, assisted and even encouraged by both political parties, back-stopped by RBA hacks who seem not to give a flying fig for the future other than how it effects them personally.
      Imagine a MSM that gave a stuff.

    • notsofast says:

      It might be worth asking what is Australia’s $1.7 Trillion investment in Superannuation doing right?

      Given the experiences of Australians investing overseas often finding themselves stripped of their investment, one way or the other, you would have thought that much of this investment was focused on Australia and making sure Australia’s productive assets stayed in Australian hands.

      • netti says:

        Good question. I am guessing Super Funds, with their captive tax payer base, are taking their advice from pro-FIRE reps. Super investments end up in things like toll roads, or in over-priced luxury apartment blocks mushrooming up in CBDs of all major cities.
        A Landline program on the weekend showed the wash-up of forestry Managed Investment Scheme (Timbercorp?) post GFC. The MIS was sold to a Singaporean company that installed a USA manager and is now on track to make a profit.
        Super Funds could surely do something similar.
        It appears they just take advice from FIRE.

      • General Disarray says:

        +1

    • Crocodile Chuck says:

      @ flaws: “Our banks are foreign dominated”

      Prove it.

      • Jason says:

        The top shareholders of all our major banks are foreign-owned banks.

        http://www.spankyourbank.com.au/the-big-four-top-twenty-shareholders

      • flawse says:

        Thanks Jason. Work is a bit busy around here.

        Chuck…what’s your interest that you took such an aggressive stance on that little topic?

      • Crocodile Chuck says:

        @ Jason @ 9:24 am; @ flawse

        Gentlemen,

        These ‘foreign owned’ banks you point to on this website are nominee companies:

        An entity formed by a bank or other fiduciary organization to hold and administer securities or other assets as a custodian (registered owner) on behalf of an actual owner (beneficial owner) under a custodial agreement.

        ‘Foreign owned’: Rookie error.

        @ flawse: splendidly monikered!

      • fitzroy says:

        Good point CC. But given what deep T has said about megabank and the equity in them they might as well be foreign owned.

      • Jason says:

        Okay, so we have no concerted way of knowing who the beneficial owners of the shares are, except that they nominated a custodian(s) that is a subsidiary of a large foreign owned bank.

        You can try asking ASIC, but I get the feeling that they wouldn’t be very co-operative.

      • sbinder says:

        As a follow up to a number of points above and below. You can find out who the big shareholders are.

        But it isn’t overly easy. The biggest Australian industry fund, for instance, will be holding their shares through JP Morgan (as custodian), which is publicly available. The actual top 20 holdings are disclosed below, with some familiar names.

        http://www.australiansuper.com/investments-and-performance/approach-and-holdings/our-share-holdings.aspx

        As to asset allocation, these funds are weighted to Australian and global equities, over fixed income and infrastructure, private equity etc. A whole different debate, that has taken up many months of several lives.

      • flawse says:

        Yes Chuck…I note you can’t spell either!

    • rob barratt says:

      I think it might be too late in the short term. The sickness can be blamed on a number of causes, but the cure requires a paradigm shift in the way politics and the media work.
      When I see the profoundly worthless condition of our state media (The Advertiser, The Courier Mail come strongly to mind,which many of the public limit themselves to reading) with it’s endless ‘mums’, ‘diggers’, Dutchesses of Cambridge, then I think of Tony Blair’s master spin doctor, Alastair Campbell.

      Campbell used to define upsets to the government in terms of anger at some revelation or other purely in the number of media-days they had to sit it out before the media returned to munchmallow mode.

      Currently, there’s no hope.

    • China-Bob says:

      Flawse, I’m not sure what you want.

      It seems to me that the sale of our assets is the only path available if we ever hope to be a globally competitive nation.

      Take Taiwan as an example: the island has about 23M people and practically no natural resources, yet it has one of the worlds highest per capita CAS’s. This trade and capital surplus is all created by the collective efficiency of the Taiwanese people. They had nothing yet built a thriving economy, they literally pulled themselves up by their boot straps, they’ve built a successful economy based solely on the capabilities of their people not the wealth of their land..

      I’m slowly coming to the conclusion that Australian’s will not prosper until they’ve personally experienced economic desperation and material poverty. As a rural person you know the truth about a farms finances is never revealed until the last block of farm land has been disposed of and that’s exactly how it’ll proceed with Australia as a country.

      • migtronix says:

        Always a great source of moderation and contrary analysis, thanks CB!

        Taking nothing away from the general thrust of criticism, the Taiwanese considering themselves Chinese, Australians don’t consider themselves English. The Taiwanese have options we don’t. Land supply reform is desperately needed but investment and motivation of the population is paramount.
        P.S. Selling farm land is stupid. The US don’t do it. The Chinese don’t do it. The Russians don’t do I.

      • interested party says:

        “Selling farm land is stupid. The US don’t do it. The Chinese don’t do it. The Russians don’t do It.”

        It’s a bloody “going out of business sale”!!!!!

      • China-Bob says:

        “Selling farm land is stupid. The US don’t do it. The Chinese don’t do it. The Russians don’t do It.”

        It’s a bloody “going out of business sale”!!!!!

        Never though of it that way but there’s no arguing with the logic that’s exactly what we are doing when we replace externally productive industry with internal money shuffling. GDP might go up but so what! You sold the farm.

    • Dave_Comments says:

      @migtronix

      Of course we shouldn’t consider ourselves as being English. Thats just some ancient history. Macau doesn’t still consider itself as Portuguese. Its actually becoming increasingly pointless to even consider ourselves as ‘Australian’. We should rather consider ourselves as the money markets do, as being Chinese.
      Let’s face it, we already are an unofficial Chinese SAR. HK does finance, Macau does casinos and we do the iron-ore, coal and clean-air accommodation for the ruling class mainlanders. Like any SAR, there are perks for all the locals manning those positions, but lets’s not forget who the real boss is. We’d fare about as well in this world as Macau if we attempted to engineer economic independence now.
      As we’ve all recently witnessed, the AUD is much more responsive to potential mainland demand for iron-ore than it is to our own faltering GDP. The HKD has far greater autonomy from Chinese activity than the AUD does.
      Sell the farm, keep the farm, capex cliffs, residential construction booms, none of that stuff matters.
      We should just drop this sovereignty charade and become an official SAR. With some real grown-ups in charge, we’d at least get some roads and train lines built.

      • China-Bob says:

        Interesting comment Dave,

        I’ve suggested, tongue in cheek, on several occasions that NSW should outsource New city creation to China. Get them to build us a completely new city of say 1M or 2M people. (they do this regularly in China so they’re good at it) The Chinese could even fund and build the whole thing while guaranteeing to use ONLY Aussie sourced Iron Ore that’ll keep the pollies happy. But why hurry to affirm where real control lies when there are profits to be made from data-mining the Aussie misinformation media.

      • Dave_Comments says:

        @China-Bob

        Why the tongue in cheek?
        China has long harboured plans to build cities in Africa, why not here? Really, whats easier to stir-fry? Lion or Kangaroo?
        We’re closer, we’ve already been partially assimilated and the prospect of an armed uprising has been minimised so it’s inherently safer. Chi-stralia, total no-brainer.

        These housing bulls want bears to capitulate, let’s do it properly.

      • netti says:

        Aust as a SAR of China, sounds plausible. Fits with everything else happening. Labor & Libs have failed to steer the economy properly.
        The cartel – the banks, RE groups and major political parties seem happiest in selling off chunks of the nation to anyone other than local business. Easier to control renters.

      • migtronix says:

        Dave and Bob, as an ancestral Portuguese (mig = Miguel: tronix = electronix old cyberpunk handle dating back to ’90), born in Mozambique shortly before the war and fleeing back to Portugal (I was 6 months old) I find both comments equally endearing and dismal! I lost nothing because I never had it but my parents and grandparents lost mines, hotels, ships, and railroad interests. Everything but precious metals, jewellery and Swiss bank accounts. Am I complaining? Fuck no that paid for my and my sister’s education. But I actually want to do something with that education worthy of my grandfather not my father

    • interested party says:

      Flawse, what sucks about this is that our nation has been bought and paid for by printed currencies. The bastards who are closest to the printing spigot are using the cash to buy us out, be it chinese, european, japanese or american money……..and we let em do it!
      I don’t pretend to understand the finer details of economics but the blokes we have calling the shots bloody-well should. Sack the lot and start again.

  4. RDO says:

    Excellent HnH. A great call to arms.

    This piece needs to be poked under the noses of as many people as possible.

  5. Exactly. We delegate macro economics to government and trust it to make quality decisions – just as we leave bridge design to engineers.

    I don’t have to pray the bridge will last long enough for me to get to the other side every time I drive above water.

    Australia is wildly uncompetitive. Government cannot erect manufacturing industry with new laws. But it can fix the tax system – a matter entirely within its control. It can take on and bust up the monopolies. And it can give citizens back access to land.

  6. Rhett Morson says:

    what are we going to do? print money?

    • notsofast says:

      Rhett,

      Hence the $380 Billion Committed Liquidity Facility. I suspect the Australian Banks will be using this RBA facility soon rather than later.

  7. Jumping jack flash says:

    Brilliant, simply brilliant.

  8. moderate mouse says:

    ‘…our manufacturing sector is headed for an unbelievable 5% of GDP, by far the lowest in the OECD.’

    That really is amazing. Goes to show the article by UE a little while back about ‘Bullsh*t Jobs’ is pretty much where we are at.

    No products, just houses and holes (and superannuation) with a nation of ticket clippers out to get theirs.

  9. GJHILL66 says:

    I agree 100% that it is the twin issue of a high dollar and the uncompetitive ness of Australian companies. I say companies because labour efficiency is already quite high relative to many companies; ( there are opportunities here, but improvements will be incremental). The real underlying cause of Australia disease is our chronic risk aversion. Electrolux could have/needed to reinvent itself; it could have been a Dyson. Holden too could have become a technology leader. The reason why Qantas is failing is that we are so scared of what foreign ownership might do to our national carrier (otherwise known as irrational fear). The secret to company success is being able to take a risk, but being able to manage that risk better that competitors. I see a litany of Australian companies (particularly large businesses) that see all risks as bad, and have replaced entrepreneurship with bureaucracy. This risk aversion drives investment behaviour too. If nothing else the GFC has reinforced with mum and dad investors that the share market is gambling and there is safety in housing investment and banks. If this were not the case we would have a much higher market and not have many good companies with moderate debt levels trading at PE ratios of 3 and 4. There is almost no investment in junior companies. So what to to do? I agree that we need to fight currency war with vigour to reduce relative wage rates. We also need to eliminate negative gearing on investment properties to help stem the inevitable tide of housing investment this will cause. Lastly the government needs to take the money it would have spent on bailing out Qantas, Holden, and others, and directly support/stimulate small and medium enterprises. Many countries have government run investment banks that provide low cost loans to SME’s. There are many ways to better support, subsidise train business leaders. But it must be done at the small, upstart, risky end of the spectrum.

    Cheers, Greg

    • flyingfox says:

      Well said.

    • Jake Gittes says:

      Interesting argument and I would broadly agree with it. Keynes talked about future investment based on uncertainty not risk which was a different entity altogether but in Australia uncertainty may be too high.

      I see this in work where executives like to use the language of entrepreneurship but all I do is offer risk management solutions, how to avoid failure, how to succeed in a bureaucratic management capitalism. It’s why I never read business media, its a fantasy for people who actually don’t want uncertainty, or any risk

    • Mav says:

      Its not risk aversion at the company level. Its the IBGYBG mentality.. i.e. I’ll be Gone You’ll Be Gone, so lets maximize risks that’ll blow up the company later, but in the mean time, maximizes profits and bonuses.

      Remember that Lehman Bros was very profitable before it blew up.

  10. flyingfox says:

    Bravo! Great job. Everyone email your MP with a link to this and share it around.

  11. The Lorax says:

    I understand the great man will address caucus for the first time since 1996 on Thursday. Hopefully he gives them a good kicking.

  12. Janet says:

    There ya go! It was only a matter of time:
    “The Reserve Bank (of NZ) has bowed to the inevitable today by exempting new builds from its Loan to Value Ratio lending limits…”
    Now. To get stuck into getting rid of them altogether…..Graeme Wheelers spine didn’t keep its strenght for long, did it!

      • interested party says:

        the debt peddlers will cram their product down out necks until we choke as it’s the only way to keep the music playing.

    • netti says:

      What FIRE wants, is what FIRE gets.
      Major lenders are in the feedback loop of BIS.
      BIS tells Central Banks, including RBNZ, what to buy/sell/print – how high to jump.
      There appears to be no independance of action on the part of soverign nations.
      We are all captive of the process of financialisation of shelter, internationalisation of labor and public asset disposal.
      Govt understands well, yet does nothing intelligent.
      Future generations will pay the cost as they find themselves living in an increasingly dysfunctional society.

      • Opinion8red says:

        “There appears to be no independance of action on the part of soverign nations.”

        That’s because, when it comes to the great master of modern humanity (“money”), there are now almost no sovereign nations left, in anything other than name.

        The handful that are (were), such as Iraq, Libya, Syria, Iran etc, are … surprise surprise … labelled as “evil”, repeatedly presented by our bankster-puppeteered politicians and the MSM as being a “threat to democracy”, and no stone left unturned in seeking to overthrow their leadership.

        Far too many in the West need to expand their reading and research.

  13. terrymcf says:

    HnH- we all agree on the disease-it’s the medicine where the debate needs to focus. How does the RBA “actively lower the currency” as you put it?. Jawboning has had limited success, and active intervention has unclear outcomes given the modest size of the credit card. Lowering rates has clear dangers too for housing.So what does that leave-capital controls?

    • Janet says:

      Yes. But domestic capital controls. Get domestic debt provision ( where it’s sourced – make it local) and who get’s what ( make it go into real business not property speculation) and there’s one answer.

    • flawse says:

      terry As you might have noticed we do get into hot debate about remedies around here. However for this post the point is we need someone other than MB to even recognise that we have a problem. Everyone else is believing the fairy tale!

    • melbourneguy says:

      terry – a consistent theme of HnH’s articles is reasons why RBA should lower interest rates .

      I disagree and so do a lot of others, clearly, just as you have pointed out.

      I really like MB (due respect to authors) and the vigorous debates …. I learn a lot …. and it sharpens my skills.

      The interest rate thing does sort of annoy me though.

  14. Sool says:

    If a country or business dumps their products into an economy they are sometimes taken to task with anti dumping rules under WTO’s etc. What is the difference if countries are really doing the same by manually forcing their currencies to devalue? I can’t see how that is not effectively a breach of anti dumping rules.

    • rob101 says:

      Because the state in question frames it in terms of Solving internal economic issues ( to stimulate inflation for example) , not as competitive devaluation.

  15. China-Bob says:

    I’m not sure what you’all want.

    When I look at these Aussie manufacturing changes, all see is a small local snap-shot which in truth forms a minuscule part of a much larger dynamic global moving picture. No amount of local navel gazing will help you to understand the path that’s dictated by the Globalization of manufacturing. This statement is as true for Brazil as it is for Belgium and believe me there is absolutely no exception clause for Australia or Australians.

    If you actually want a manufacturing base you’ll dedicate the resources required to really understand the globalization problem, and positively influence the outcome. For all others there’s half a century of solid macroeconomic theory to fall back on and be certain that you’ve covered your ass.

    Personally I just hope I live long enough to see for myself the real material value that future generations assigns to our feeble Aussie excuses.

    • interested party says:

      True Bob, it is in reality just noise in the bigger picture, as unpleasant as it is. I remember not that long ago that we embraced globalization with open arms, we were happily buying the cheapest korean car, and buying the next investment property and thinking we were bloody geniuses. In hindsight all we managed to really do was effectively plant the seeds for the problems that many of us here are up in arms over. The damage has been done. It cannot be undone. And as you stated above, we are not alone in this…….we are just the latest to be added to the list.

  16. Jono says:

    I’m not as panicked about the loss of manufacturing. Just about every economy in the world has seen manufacturing as a share of GDP slowly decline over the last 30 years.

    The dollar should return to trend, at some point. Most manufacturers and exporters who are slightly competitive should be able to survive at least 5 years with an unusually strong AUD anyway.

    Despite the visible problems of the status quo, any economic intervention would have far worse consequences.

    We shouldn’t engage in competitive currency devaluations and inflation is a huge punishment on all savers. We shouldn’t engage in industry policy where Canberra and the media gallery pick out the winners and losers.

    • flawse says:

      “The dollar should return to trend”

      Jono The whole trend of the A$ is false. It’s valuation has been dependent on the sale of assets to foreign interests to pay for current consumption for 50 odd years. As a result you never get a REAL value.

  17. Liu Mianzhi says:

    Good article. But (genuine question) if our currency is so high relative to others and the capacity to productively exploit assets here is so poor, why would anyone with foreign currency want to use it to buy assets here (Graincorp, Warrnambool C&B, etc)?

    • interested party says:

      Offshore buyers with their home currency need to change to AUD to procure asset. The change requires them to sell their local currency ( puts downward pressure on value) and then buy AUD ( puts upward pressure on AUD) then asset is purchased. Do this many times = high AUD and no assets.

      • melbourneguy says:

        works in reverse too when they have to sell loss-making assets (property bubble bursts) or for profit-taking.

      • interested party says:

        or we become cattle to be milked. Australia…..home of the foreign landlord. I don’t know if they will sell up quickly, I reckon it’s a long term trojan horse play myself.

  18. Annie Oakley says:

    Another great article

  19. TheJoneses says:

    Good article except for the predictable “strategic risk” red herring.

    Manufacturing capacity has little or no relationship to a nation’s ability to defend itself in a 21st century conflict.
    All the best weapons are produced by a handfull of companies in Europe and USA.
    As long as we have the money to buy them our shores are secure. Whether we earn the money from manufacturing or not is irrelevant.

    • JohnsonM says:

      I’m no expert, but I’d think 21st century warfare is still highly dependent on a lot of ‘low-tech’ equipment as well, particularly for logistics. I’d be certain that manufacturing and its related services (maintenance, engineering, design etc.) would still be invaluable in a 21st century conflict, even though the big ticket items would still never be produced here.

  20. PhilBest says:

    I am still trying to “get” the use of the famous painting of Franz Liszt, Richard Wagner, George Sand etc as the picto for this thread…..

    Please enlighten me…….

  21. rich42 says:

    Macrobusiness wasn’t working on my android….

    Very simple fix. No downloads, just settings. It’s all about making the browser act like a PC browser and not a mini version phone browser,……

    https://developers.google.com/chrome-developer-tools/docs/remote-debugging

    • Mav says:

      Even more simple.. On Android’s browers, Menu>>Request desktop site

      • rich42 says:

        Ahhhh…Thanks Mav…I’d rather that because I don’t want it for all sites; just MB atm….

        and…..your way has given me the full site. Thanks again.

        Most other times I’ve found an option on the site itself on say the SMH, that says “full site”

    • nqdave says:

      Install Chrome browser on your Android device and use it instead of the default browser and MB works great. I especially like the big visible comment count on the post headings.

  22. Dave_Comments says:

    Thanks for this Houses and Holes!

  23. GJHILL66 says:

    Hi Mav, I dont quite agree with your IBGYBG idea. Its more of a YCPIOM (you cant pin it on me) approach that is driving executive behaviour, and yes maximise short term bonuses at the expense of long term company health. I have traveled for business to many countries around the world and the clear diffierence I see is that we are very, very risk averse iin Australia even though our labour productivity is quite high. We also have a very high relative cost base.

    • Jason says:

      Yup.. in the engineering construction space it takes a rare breed with courage in order to really drive even the smallest deviation from ‘the way things are done’..

  24. rich42 says:

    SOLUTIONS……….
    SOLUTIONS……….

    Bipartisan acknowledgement of what’s going on with bipartisan solutions…..or…….Australia goes broke.

    How do we make it happen?

  25. dumpling says:

    Solution?

    1 AUD = 0.1 USD

    • migtronix says:

      Dumpling: Thats not a solution that’s rearranging deck chairs.

      How about 1 AUD = 1 troy onze of Silver or = 1 bushel of wheat or = 1 bail of marino wool?

      • dumpling says:

        Well, depends on what you mean by “solution”. My earlier comment was for the short-term currency war context (which is the subject of the HnH’s article).

        A “real” long-term solution would require some sort of comprehensive overhaul / transformation in the entire social / cultural / political system.

      • migtronix says:

        Dumpling: I see what you mean. We’re not going to get the deckchairs arranged the way we want (currency war) but we might have figured out a way to construct a lifeboat with our Australian designated deck chairs (pardon the hopelessly tortured analogy), ignoring all the other Australians saying there’s no way but nevertheless giving the techs the material they had at hand! Australians can survive this IN SPITE OF not because of our politicians/corporate executives. And in this I give much respect and thanks, ceteris paribus (I had to throw that in there, you know who you are), to Australian farmers and primary industrialists who despite little appreciation from the household consumer sector have nonetheless provided ALL the gains of the last 10 years! (As a geek I know this won’t end well, but, give a f**k, I can work anywhere)

      • interested party says:

        Mig/Dumpling, they can still buy us out with printed fiat……how can we defend that without closing the damn borders………stop the boats????lol…how about stop the bucks!

      • dumpling says:

        @interested party

        “they can still buy us out with printed fiat”

        Are you talking about RE? Then, as PhilBest has been pointing out, the solution is obvious; increase supply.

        When the Chinese bought up all the minerals from iron ore to coal, and caused the mining boom, BHP, RIO, FMG and the like, happily invested to increase supply. Maybe my memory is fading, but I cannot recall anybody here complaining about it.

        Somehow, when the same Chinese did essentially the same thing to the residential properties, it is suddenly a big problem. The solution is obvious – just do the same as what the mining companies did – plain & simple.

        By examining what is preventing that solution – the problem also becomes obvious.

        I am not stating that it is easy, given the amount of vested interest, but the solution is simple enough if we really wish to solve the problem.

        Oh, before I forget, it goes without saying that we need to be much wiser about what to do with the proceeds.

      • interested party says:

        Dumpling, I am not referring to RE in general but on the fact that foreign countries are printing massive amounts of paper and some of this is ending up on our shores, gutting the industries that we hold dear ( or used to, seems the prices are too good to ignore). I commented more out of frustration with the powers that be are so quick to sell the joint out from under us for no measurable benefit to society.
        Our forefathers have fought for our flag and country, hell, my oldest son has done time in afganistan as a digger, so to see the place get sold is hard to swallow.
        Increasing supply is a local issue on housing from my perspective and not part of the big picture….a bit like bread and circuses. The damage is done when the industries get sold, not the housing.

  26. Mark Out West says:

    +100 H&H

    Lets sheet home the blame to the most incompetent Gov to preside over Aust. the present LNP.

    Simplified the debate into debt and Carbon Tax ably supported by the MSM.

    They didn’t back the mining tax which could have underpinned the manufacturing sector. (Compensation for forcing up dollar and paying extraordinary wages to steal staff from other sectors. Also pushing up rental prices so that it cost an $2,500.00 a week to house public servants in mining area)
    They stated that there was NO GFC to speak of and as such there should have been no readjustment to the fiscal settings or Upperclass welfare.

    I can see no way they the LNP can re-adjust the conversation to address the real issues cause once the carbon tax is gone everything will be honky dory, they haven’t got a clue.

    All the while the Banks that caused the problems are held up as our saviors and we shouldn’t bother them too much as they may get angry.

    For all the right wingers name one paper that covers the real issue like H&H.

    The lets not talk about climate change mitigation and the money that it will cost the driest continent on earth to battle the worst effects.

    • migtronix says:

      This is the #1 outstanding bar all else issue I have with the “Climate change” crowd (incidentally climate change is a constant, and how about looking at whats happening with the surface temperatures of Venus or Mars, where nasty humans don’t pollute the atmosphere with 0.0004% of C02!) — you people blame “free markets” but are 100% ok with instituting a market based solution (carbon pricing either as credits or taxes) to solve the problem. MORNONS! WAKE UP AND SMELL THE TECHNICALS!!
      If you’re problem is the market how the f**k does artificially setting a price makes things better. Idiots.

      I know whats coming, it’ll be a Green war to supplant both the War on Drugs and the War on Terror with predictable (more drugs more terrorism) results (more derivates!) to come. Urgh! I don’t know wether to resign myself to it or vainly attempt to corral those bright and incisive enough to know this is going on. I can’t remember how I discovered MacroBusiness but I remember why I became a subscriber!

      • Mark Out West says:

        @ Migtronix

        I will not debate the technical issues but I ask you this question, name one other issue where 98% of experts in the field agree one an position and you have taken the opposite position and won.

        Please exclude the market as there are social issues (HERD MENTALITY etc) at play.

        If you don’t have a significant issue then why are you so certain of the position you take.

        Climate science is not a fundamental law of nature it is interpretation and extrapolation of facts but those opposed seem certain, why???

      • migtronix says:

        Climate change (note the words) as opposed to Global Warming, is a given. I call it Summer, Autumn, Winter, Spring — although here in Melbourne you’d be forgiven for thinking Dec 10th is mid Autumn! – nonetheless I’ll glibly remark that the Ptolemaic/Geocentric system was accept fact by the vast majority of scientists for many many more centuries than Anthropogenic Global Warming caused by C02 expulsion!

        I know where you’re coming from man, I bought all that until mid 2001 when I reevaluated everything I thought I was being told was true because I couldn’t ignore the BS and contortions (the hijackers were Saudi not ***** Afghani!) I was bombarded with and decided to re-learn everything from a does this make sense or doesn’t it point of view. And 0.004% of atmospheric make doesn’t!!

      • drsmithy says:

        Climate change (note the words) as opposed to Global Warming, is a given.
        http://www.skepticalscience.com/climate-change-global-warming.htm

        I call it Summer, Autumn, Winter, Spring — although here in Melbourne you’d be forgiven for thinking Dec 10th is mid Autumn! – nonetheless I’ll glibly remark that the Ptolemaic/Geocentric system was accept fact by the vastmajority of scientists for many many more centuries than Anthropogenic Global Warming caused by C02 expulsion!
        So let’s get this straight. You think the historical common acceptance of a religious viewpoint in a religious society, in the absence of widespread access to scientific instruments capable of demonstrating otherwise, is some analogous to a contemporary consensus on climate change.

        And you want us to take you seriously ?

        By your logic we should all believe in the devil, since nearly 60% of Americans do.

      • drsmithy says:

        incidentally climate change is a constant
        No, it’s not. Indeed, that’s the reason scientists are concerned.

        and how about looking at whats happening with the surface temperatures of Venus or Mars
        http://www.skepticalscience.com/global-warming-on-mars.htm

        you people blame “free markets” but are 100% ok with instituting a market based solution (carbon pricing either as credits or taxes) to solve the problem.
        Actually I think you’ll find a lot of people are not at all ok with a market based solution, they just think that has a slightly increased likelihood of getting anything done over the alternative which would undoubtedly be denounced by people like you as a communist conspiracy.

        I know whats coming, it’ll be a Green war to supplant both the War on Drugs and the War on Terror with predictable (more drugs more terrorism) results (more derivates!) to come.
        W.T.F.

    • migtronix says:

      BTW MarkOutWest everything you said, because I know well enough what disingenuous pricks the LNP are on this issue (they’ll burn the the bushies at the drop of hat) , is spot on!!! It will all come to pass, including this Carbon Tax fiasco because with the Libs at the helm the traders will finally get their credits! It’s not good. I hear you. With these idiots “running” things it doesn’t matter if a problem is real or fixable or whatever they’ll spin in their interests. How do you deal with the fact that the major oil companies now want to bring in a Carbon trading system? And that great Liberal saviour, Obama the first black president in the USA and he doesn’t have a drop of slave blood in him?!?!, will bring it all in with everyone conveniently forgetting he gave BP a free pass and washed his hands of devastating the Gulf Coast fisheries/wildlife!

      Believe me I know there are problems!!!

      • PolarBear says:

        Where is the science in your rantings? Maybe you’ve had too many drinks at this hour. I can’t deny that myself. I can’t work out why all these deniers think they know better than the global body of science.

        Or maybe most scientists are all green, lentil eating conspirators.

      • migtronix says:

        @PB: What part those ramblings need science as a justification? Simple observation will provide you with all the evidence requisite to establish my prior statement as correct (Obama gave BP a free pass, he has not slave ancestrry, Carbon/Energy Credits trading is the goal has been since Enron concocted the idea using Al Gore as then Senate majority leader to endorse the scheme).

  27. timwightman says:

    Devaluation of the currency is not a good idea.

    http://mises.org/daily/6606/Currency-War-Means-Currency-Suicide

    • dumpling says:

      There are a few separate issues here.

      (1) Currency war is nothing other than a form of protectionism. It is a race toward the bottom, with potentially disastrous consequences (remember the 1930s?). Having said that, I do not think it is a good idea to surrender without fighting a currency war.

      (2) Debasement of the currency will bring inflation, which will lessen the debt burden of the indebted governments (as long as the debt is denominated in their own fiat currency). In fact, inflating away existing debts is the primary motive of the currency war.

      (3) Increased exports will lead to a higher currency. Forget about the currency war for the moment. Consider export receipts and import bills. A local corporation that exports goods in a foreign market will exchange the proceeds back to the home currency. Likewise, a foreign corporation that imports goods here will exchange their proceeds back to their home currency. If the former is increased, there would be greater demand for the home currency than before, and hence the home currency will appreciate.