lolstralia

[Humodour]

http://www.nytimes.com/reuters/2009/09/02/...onomy.html?_r=1

 

I can't help but laugh.

[Aristes]

Wouldn't it be funny if the Dollar was the prime currency for the foreseeable future... the Australian Dollar? hehe Good for you guys! :haksthumbsup:

[Walsingham]

I'd consider the Oz dollar more inheently stable than the euro. Simple economy, central authority, unlikely to go to war with anyone major unexpectedly...

[Enoch]

I'd consider the Oz dollar more inheently stable than the euro. Simple economy, central authority, unlikely to go to war with anyone major unexpectedly...

It's stable because a relatively large percentage of the economy is based on extraction of raw resources. (The Canadian Dollar is similar in this regard, although it is more tied to the USD due to the interconnectedness of the US-CAN economies.)

 

This is spillover from China's stimulus. The Chinese government poured a huge amount of money and credit into their economy to keep their people at work in the face of a 20% decline in exports. A lot of this money went to purchase of raw materials from abroad, and Australia is a major source.

 

Of course, when this blows up in the Chinese government's face, the Aussie economy is going to stumble. As with central planning in any economy, the risk is that when capital allocation is decided by politics and bureaucracy instead of by rationally projected returns on investment, bad decisions get made. (And there is a reason why the reaction of rational profit-seeking companies to a sharp decline in demand for exports isn't to go about building more export capacity.) If Chinese exports don't bounce back quickly, recovering the 20% year-to-year drop and then some, so that the all the new capacity the government stimulus is building has something to do, a lot of loans are going to go bad, a lot of plants are going to close down, and a lot of unemployed citizens are going to be out on the streets, ready to riot. And, of course, a recovery in Chinese exports depends mostly on a recovery in American consumer confidence. The news reports all try to be sunny (e.g., spinning a reduction in the rate of decline as if it were the same as actual growth), but consumer confidence tends to lag things like foreclosures (still high), bank failures (still high), and unemployment (still high).

[Humodour]

I'd consider the Oz dollar more inheently stable than the euro. Simple economy, central authority, unlikely to go to war with anyone major unexpectedly...

It's stable because a relatively large percentage of the economy is based on extraction of raw resources. (The Canadian Dollar is similar in this regard, although it is more tied to the USD due to the interconnectedness of the US-CAN economies.)

 

Indeed. The Aussie dollar almost exclusively follows the direction of the price of oil. Interestingly it's always about 10 US cents lower than the CAD.

 

This is spillover from China's stimulus. The Chinese government poured a huge amount of money and credit into their economy to keep their people at work in the face of a 20% decline in exports. A lot of this money went to purchase of raw materials from abroad, and Australia is a major source.

 

I thought so too at first, but Australian exports experienced an unexpectedly large decline in that quarter causing a far higher trade deficit than expected. The 0.6% growth (Which translates to something like 3% GDP growth if it were for the year) was in spite of it (fuelled mostly by consumer and business demand, and public sector spending).

 

Of course, when this blows up in the Chinese government's face, the Aussie economy is going to stumble.

 

Hmm. It'd certainly be nasty. Natural resources only make up 5% of GDP though, and of that China only consumes perhaps 20% of our raw commodities exports, which is nothing to sneeze at.

 

I'm not sure what to make of it. I tend to think people overestimate the importance of Chinese appetite and commodities in general to Australia's economy.

[Walsingham]

Interesting.