Holy cash cow, Batman!

Oh yes, ladies and gentleman, fresh from the RBA, that’s another monthly moonshot in Australia’s terms of trade for January. That means:

Over the past year, the index has risen by 49 per cent in SDR terms. Much of this rise has been due to increases in iron ore, coking coal and thermal coal export prices. With the appreciation of the exchange rate over the year, the index rose by 35 per cent in Australian dollar terms.

And now that rates are on hold, the Aussie may languish for a while, passing the cash gush through uninhibited.

However, with this amount of dough hitting the economy over the next few months, it isn’t going to fall too far, barring some ‘risk awwwf’ calamity overseas.

With the combination of the commodities cash gush and held rates, it will be very interesting to see if the default position of Australian psychology reasserts itself and housing credit revs up in the next few months.

David Llewellyn-Smith

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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  1. Aussie terms of trade go up forever, just like our house prices!

    I dunno why we ever bothered with that clever country stuff. We are, and always will be, the lucky country.

    I think I’m gonna puke.

    • Well, ToT and house prices do track very closely.

      As with 2008 the correction is on. But this could be a puff of air into the bubble which rescues the housing market – yet again!

      If so my Wife is gonna scream because I told her 12 months ago to hold off because prices in Brisbane would fall, and thus far they have.

  2. Meanwhile Julia’s got this crazy idea we’re gonna be a “high-tech, high-skill, clean energy economy” (!)

    PUTTING a price on carbon is crucial to ensure the nation prospers beyond the latest mining boom, Julia Gillard has declared in a major economic speech today.

    The Prime Minister said she was determined to create a “high-tech, high-skill, clean energy economy”, fuelled by strong public and private savings.

    Earth to Julia: The mining boom is destroying whatever high-tech industries we had. Skills in anything apart from mining are not valued, and Australia just happens to be the world’s biggest exporter of the world’s dirtiest fossil fuel!

    • Lorax,

      You are correct, Australia is an odd place, it actually costs more to pay someone to dig a hole, nail some wood together, or pour some cement than to have someone design a circuit board or write embedded software for that board regardless of the tasks being far more difficult and requiring many years of education. This situation was mentioned by a prominent economist overseas recently, just can’t remember the article else I’d post a link.

  3. We could also become the the biggest exporter of that carbon free fuel uranium, so we’ve got a shift away from coal covered as well…

    Still, I fail to see why the money from exporting coal and other rocks means a house should cost so damn much here, even the graph shows that. House prices had boomed well before the commodity index went ballistic.

    • “Still, I fail to see why the money from exporting coal and other rocks means a house should cost so damn much here, even the graph shows that. House prices had boomed well before the commodity index went ballistic.”

      Hamish, that would be the origin of the bubble. Lower than necessary interest rates (see http://housesandholes.blogspot.com/2010/09/bubbles-macfarlane.html for an explanation) the original First Home Owners Boost, increasing participation by non-bank lenders offering no-doc and low-doc loans and baby boomers flocking to load up on investment properties caused the market to go silly in 2001/02. In late 2002 The Weekend Australian ran “House prices about to fall nationwide” across the front page and in 2003 there were early signs of the market turning. I’m of the view that 2003/04 was supposed to be a correction for the entire Australian property market but the unprecedented boost to our terms of trade rescued the housing bubble and has kept it inflated for the better part of a decade.

      • Torchwood, that’s pretty much my exact read on the situation as well. The huge income boost from the resources boom reflated the nascent housing bubble that was due to correct around 2003.

  4. i am becoming more convinced by the day that another leg up is on the horizon, Oz RE bears will be squashed, the world will go about its recovery. When GFC is declared officially over, OZ economy will crash, hard, as will egos when clever Australian GFC dodgers realize just how “clever” they really are.

    • And if housing crashes and burns due to a crisis in China or somesuch, what then?

      Can the RBA do ZIRP and QE? Will we see yet another FHOG, and similar bribes?

      Seems to me housing and construction are always the first sectors to be protected when there’s a crisis. The only way it won’t be protected is if we simply can’t afford to.