From Crikey today:
So, the reasons Hockey advanced last year for boosting the Reserve Bank’s reserve fund have been entirely contradicted by events since then. And the volatility in emerging markets is not going to hurt Australia, despite some silly reporting in the past fortnight. On top of all that, the Aussie dollar has fallen from around 95 US cents in mid-October to around 87 cents this week — a fall of roughly 9%, which in turn is a big positive for the wider economy. In fact, the dollar is now very close to the 85 US cent level targeted by RBA governor Glenn Stevens late last year.
That fall should, along with inflation creeping up a little, be a big positive for Joe’s budget in May.
On top of this, the European economy is improving faster than expected; the Japanese economy is more solid; and the Chinese economy has not slid into the widely expected disaster area that many Western investors still believe will happen (again, despite silly commentary on the flash reports on the country’s manufacturing sector that suggested China was contracting, rather than just growing at a slower rate). The IMF has now boosted its estimates for world economic growth for 2014 and 2015, starting with the US, reversing the cuts by the fund to its forecasts when our newbie Treasurer was in Washington.
…In its 2012-13 annual report, the bank said “measured on the basis of accounting standards, which bring to profit and loss both realised and unrealised valuation changes, the Bank recorded a profit of $4.3 billion, the highest for four years”. The bank is heading for another big profit this year, particularly if the dollar falls further — some analysts suggest US80 cents.
…On top of that, the rise in market rates on official government assets, such as US Treasuries, since May last year, will lift the income the RBA books from holding the reserves in these AAA-rated assets. In fact, the reserve fund could top $16 billion by the end of June, which at this rate might be around the time Hockey get his $8.8 billion legislation through Parliament. That holds out the absurd possibility that the RBA will give some of that $8.8 billion — say, $5 billion — back to Joe by way of a dividend straight away, to boost his 2014-15 budget outcome.
You’re not allowed to play these sort of financial shell games in the private sector. In politics, however, it’s a different story.
Err…not allowed in the private sector? Can I suggest a moment’s glance beyond the Crikey pulpit might reveal that shell games are just about all that markets do?
And that’s the point that Crikey misses while is exhausts itself in a new snow job. The dollar has fallen in part owing to the RBA’s jawboning campaign, which has involved explicit threats to wade into markets where $8.8 billion could do all sorts of damage to longs if used cleverly. Nor does it matter if they don’t have it yet. Markets anticipate.
Sure it’s a minor factor in the dollar’s decline but the dough likely contributed and therefore helped bring about the big profits at the RBA that Crikey argues are a reason it should never have happened which is pretty circular reasoning. Not to mention the huge benefits brought by the lower dollar to growth and the Budget, the magnitude of which completely dwarf the interest that’s yet to paid on the $8.8billion
I’m sure Joe Hockey had political motivations as well but so long as it was in the national interest – and lowering the dollar remains a vital economic project despite the Crikey assessment of a raging global recovery – then it was a good move.
We need look no further than this effort for “silly commentary”.
