Mutual assured destruction

[Jonril]

Back in the cold war era we had Mutual assured destruction.

As a species it looks like we have evolved into a currency war era. With a lot of rhetoric going back and forth among the super powers about currency valuations can we look forward to mutual assured currency destruction?

What will our currency explosion fallout shelters be built out of gold, mining and energy resources, property or cheap consumer electronics?

tl;dr In my opinion we can look forward to even greater eyebrow raising monetary policies coming from US/EU/China/Japan as they slug it out to be free market competitive manufacturing economies.

 

[Ausprop]

i like a strong AUD

 

[Sunfish]

In my opinion we can look forward to even greater eyebrow raising monetary policies coming from US/EU/China as they slug it out to be free market competitive manufacturing economies.

You must add Japan to that list. The hostility between them and China will add some nitro to the fuel in the fire.

This week they dropped their cash rate to zero, thus firing up the price of gold. There are many ways to ride the gold bull but well chosen miners have shown stellar appreciation over recent years and I think that will continue. That is where all my new investment goes.

 

[spark]

my very long term prediction: 1 AUD = 1 CNY = 1 EUR = 2 USD

 

[HomeBuyerStrike]

How does a strong AUD bode for overseas sale of AUD bank bonds keeping 25% of the property market going?

 

[Aaron Sice]

it's a mutual destruction alright, for a push to regional currencies and then a global currency.

call it conspiracy, debt consolidation, bringing the world's poor out of destitute poverty, communism, stable econmic markets - whatever.

but it's coming - all via the riduculous games we see being played out now.

the upsides for a global currency are well known, but i fear that we aren't fully versed on the downsides of one currency.

 

[spark]

How does a strong AUD bode for overseas sale of AUD bank bonds keeping 25% of the property market going?

1) To the best of my understanding for the banks to keep on lending at least the same amount of "stronger" AUDs they need to get a larger amount of foreign (weaker currencies) funds.

2) Seeing where you're coming from, the answer is "yes". Strong currency is a negative impact on assets denominated in that currency.

 

[Deltaberry]

What's so good about a strong A$?

No one comes to study or invest due to high A$ and the risk of it crashing (note it is a 'speculative' currency so when *** hits the fan it'll nose dive like you wouldn't believe).

For as long as it's high, our miners and farmers who sell more inelastic goods will still be less profitable as they sell and price their commodities in US$ or Chinese Yuan. So when you revert back to A$ that means less profits for the companies... so less money to flow around the economy once again.

The only good thing is for all Australians to go overseas and blow their money on other economies. Oh and if I may add, given how lazy and unprogressive people here are these days, you'd suspect most people will be blowing their money overseas via credit (eg credit cards, defer paying down their mortgages or better still draw down their mortgages etc). Perfect storm coming...?

 

[HomeBuyerStrike]

I don't think anything about a strong AUD is good for the Aussie economy in the medium to long term. It's going to put pressure on mining and property market as well as the less significant markets (by external income) like agriculture, tourism and education. People may enjoy cheap plasmas, lcds and fine italian marble but where are they going to get the money to pay for it / pay it off?

 

[Dazz]

After the tax changes a few years ago and this parity thing, all those Ozzie expats formerly working overseas on big USD tax free packages must surely be all home by now.

 

[Ausprop]

the goal of an economy is to maximise consumption. This is achieved by having the currency as strong as possible. If somone is stupid enough to sell me a car for $10,000 insted of $20,000 then I am better off. It's as simple as that.

unified currencies don't work and has taken europe to the brink. Indeed australia may be better off when the resoures boom hits if the south east and the north west operated different monetray policy/currencies. Sydney will be the spain of australia the way things are looking.

extending the logic of the respect tax and MRRT or whatver cloak it trades under, the logic is that costs have no impact on final demand. readign an article from Kohler last night he believes that in a nutshell we have it and they will have to pay whatever for it, so the value of the currency is irrelevant.

cheap energy to fuel our economy will be a huge upside for us also

 

[HiEquity]

cheap energy to fuel our economy will be a huge upside for us also

Well it certainly has been to date. The fact that for the last half century at least, we have had some of the cheapest and most reliable power in the world is one of the factors responsible for where we are today.

Of course, that has also made us (mostly those in industry I might add) lazy, as there is very little penalty in wasting it either. Hopefully we can lift our game before this strength turns into a weakness. At some point we are going to have to start building power stations again...

Anyway, back on topic, with unemployment levels as low as they have ever been and economic growth the envy of the developed world, if this is the result of a strong currency, then it can't be all bad!

Here's a chance to import some of the world's best infrastructure and equipment at bargain basement prices... sure it hurts exporters but it's great for importers and the rate only reflects the balance point so if exporters were getting hurt too much it would drop because people would no longer be buying our AUD denominated assets. So they can't be hurting too badly or the rate wouldn't be where it is... pretty simple really.

 

[alexlee]

the goal of an economy is to maximise consumption. This is achieved by having the currency as strong as possible. If somone is stupid enough to sell me a car for $10,000 insted of $20,000 then I am better off. It's as simple as that.

If the whole economy was about consuming imports, that would be true.

However, in reality we export stuff. If you export stuff overseas, with a stronger aussie you're receiving less AUD, meaning lower profits, lower wages, etc.

 

[HomeBuyerStrike]

If the whole economy was about consuming imports, that would be true.

However, in reality we export stuff. If you export stuff overseas, with a stronger aussie you're receiving less AUD, meaning lower profits, lower wages, etc.

A parallel to personal finances would be living off credit card debt constantly spending more than you earn because everything is cheap.

 

[alexlee]

A parallel to personal finances would be living off credit card debt constantly spending more than you earn because everything is cheap.

No, I would say the parallel is only looking at the fact that consumer goods are getting cheaper but ignoring the fact that your wages are dropping.

 

[HomeBuyerStrike]

No, I would say the parallel is only looking at the fact that consumer goods are getting cheaper but ignoring the fact that your wages are dropping.

While ramping up spending on your credit card.

 

[alexlee]

Whether a rising currency is good or not has no direct relationship to debt or implies whether debt is taken out or not.

I could be making 50k before and spending 40k. Saying a rising currency is only good would imply I'm feeling good because spending is now 35k because prices have fallen, while ignoring the fact that my wages have gone down to 40k because my employer makes less from exporting. In both scenarios, I'm saving money and not taking out debt.

Debt does not enter into any of this.

 

[Jonril]

the upsides for a global currency are well known, but i fear that we aren't fully versed on the downsides of one currency.

Single Global Currency note of exchange?

The Stirling-green-yen-rimbi-euro-ruble?

The IMF-Dollar?

The UN-dollar? lol

As logical as it may sound I can't rap my head around a global currency.

In Regards to how Australia is fairing, in my opinion we have nothing to complain about. Our AUD is high because we do not need to rely on currency hocus pocus to try and stimulate the economy. In Australia almost everyone that wants a job can get one. Credit is given reasonably for the most part and if not it can be raised through the markets without much fuss. Our democratically elected government, relatively speaking, isn't absolutely inept and corrupt. What's there to complain about apart from house prices and the footy?

What is worrying to me is instability caused by foreign currency manipulations that are disturbing the global equilibrium, or more worryingly the global equilibrium we thought existed was a big fat Ponzi scheme that is about to unravel.

Realistically I suspect the human race will muddle through with lies, damned lies and statistics as per usual with maybe a lit less power going to the Anglo-Saxon Hegemony in the fallout.

 

[HomeBuyerStrike]

Whether a rising currency is good or not has no direct relationship to debt or implies whether debt is taken out or not.

I could be making 50k before and spending 40k. Saying a rising currency is only good would imply I'm feeling good because spending is now 35k because prices have fallen, while ignoring the fact that my wages have gone down to 40k because my employer makes less from exporting. In both scenarios, I'm saving money and not taking out debt.

Debt does not enter into any of this.

Except Australia is not making more than it's spending. Australia has been running as trade deficit for decades and been running up massive private sector debts overseas. The strong Aussie dollar exacerbates this situation by further reducing income while encouraging people to ramp up (private sector) expenditure.

 

[HomeBuyerStrike]

In Regards to how Australia is fairing, in my opinion we have nothing to complain about. Our AUD is high because we do not need to rely on currency hocus pocus to try and stimulate the economy. In Australia almost everyone that wants a job can get one. Credit is given reasonably for the most part and if not it can be raised through the markets without much fuss. Our democratically elected government, relatively speaking, isn't absolutely inept and corrupt. What's there to complain about apart from house prices and the footy?

That's because Australia is generating hundreds of billions of dollars in housing investment. Yet, 12% (underestimated?) of the work force is underemployed? Hardly rude health.