Does the Opposition even understand macro economics? From the AFR today:
The federal opposition has signalled it opposes the Reserve Bank of Australia intervening in currency markets to weaken the dollar, preferring to let market forces determine its value.
Former RBA board member Warwick McKibbin wrote in yesterday’s Australian Financial Review that the central bank should consider printing money to stem demand from foreign central banks for Australian dollars.
Shadow treasurer Joe Hockey said last night: “I respect Professor McKibbin, but I don’t necessarily agree with everything he says.”
His comments coincide with more evidence of foreign appetite for the Australian dollar, as a new set of wealthy central bank buyers emerges and the currency moves close to $US1.06. The Financial Reviewhas learnt that Abu Dhabi, Qatar and Kuwait have invested in Australian dollar-denominated assets through their sovereign wealth funds and foreign exchange reserves.
According to one trader familiar with the region, the three states have accelerated purchases of alternative assets such as the Australian dollar since the European sovereign debt crisis began. Australian government bonds were popular because of their relatively high yield compared with other developed nations.
Let’s recall for a moment the Opposition’s stand against foreign governments buying Australian businesses. Yet buying the currency, which they’re in favour of, is effectively the same thing.
A wee lesson in macro-economics might help. A higher dollar makes Australian businesses more uncompetitive, especially against those nation’s doing the buying.
So, any foreign government considering an investment now has to consider two problems posed by the Opposition: the possibility that FIRB cronies will squash any investment and that the dollar will make any planned investment uncompetitive sooner rather than later.
In effect, the Opposition is doing its best to direct foreign investment elsewhere.
For a current account deficit nation, this is pretty dumb.
