Pericles, all joking aside, I recommend this book to you and to anyone else interested.

http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf

The problem we face in Australia is that we have an economy dependent on exporting raw materials rather than on adding value to those raw materials to turn them into something that people can use with no further input. That means that we are not competing on the basis of our ability to be productive and innovative, but are dependent on the buyer being unable to source the same stuff elsewhere at a lower price. Iron ore and coal are not uniquely Australian and if Australia stopped digging them up tomorrow the world wouldn't notice much, any more than we would notice if the office cleaner quit and was replaced by another.

That means that our government is no longer able to be in control of our currency, because the relative value of that currency is part of what determines whether someone will want our resources. A higher relative value means higher export prices and lower import prices and vice versa so it is in our national interest to keep it low. However, because of those derivative products which the private sector has been so keen on, a dollar that is too low means that nobody wants to buy those products and the system is in trouble.

It's not the trading of money per se which is bad, because that's based on relative movements in price, which are themselves linked to productive outputs with some fuzziness induced by the traders' reactions. It's the derivative products which concatenate those movements, amplify them and feed them back so that small fluctuations cause enormous changes in value, as the article points out.

If Government was affected it would not be a major problem, but because private enterprise is not using its own currency, it causes great problems for it and us.

Despite the jocularity in our exchange, this is a serious problem.

I'm in complete agreement with you on this, Antiseptic.

>>The problem we face in Australia is that we have an economy dependent on exporting raw materials rather than on adding value to those raw materials to turn them into something that people can use with no further input. That means that we are not competing on the basis of our ability to be productive and innovative<<

This should be chiselled in stone over the entrance to parliament, to remind our legislators that our dream run is coming to an end.

Regrettably, none of them has a horizon further than the next election, and they are only held to account by an opposition that contains precisely the same measure of willful blindness and naked self-interest. Not one individual among them understands basic commerce, it's just the same old mixture of time-serving party apparatchiks and suburban lawyers.

Whatever action they take on interest rates, exchange rates, running a deficit or a surplus etc. is purely cosmetic, and will not conceal for long the inescapable fact that we are living today on income that will not be around tomorrow.

Just as any individual who is approaching retirement without having made any significant provision for the drop in income is bound to feel the fiscal pinch, so are we.

Where you and I differ is here:

>>It's the derivative products which concatenate those movements, amplify them and feed them back so that small fluctuations cause enormous changes in value<<

I don't see any evidence of this in the normal conduct of business, where derivative products are employed for precisely the opposite purpose - to create predictability in the face of changing circumstances - using currency/interest/commodity swaps etc. The packaging of bad loans that triggered the GFC also created derivative products, but these were of a specifically toxic nature, being somewhat fraudulent in their content.

Classifying all derivatives as dangerous is akin to classifying motor cars as lethal weapons. Sure, they can kill people. But...

The question that remains, of course, is what action can we take to mitigate the inevitable impact of our changed circumstances.

Sadly, the political blindness that affects all parliamentarians will ensure that government will have absolutely no part to play in any strategy, for any business, in any industry, that has the potential to make a difference.

The only parliamentarian who has ever had a clue about this was John Button, who was both articulate and determined, particularly where the intellect-driven innovative industries were concerned. But by the time his ideas had been processed by "the party", there was little left bar a few soggy carrots and a brittle stick.

Being smart is elitist, doncherknow.

We will continue to dumb ourselves down relative to the rest of the world, I'm afraid.

But there's hope. Once upon a time, Spain was flat broke, and became the el-cheapo holiday destination for much of Europe's bogans. They parlayed this serving-the-masses indignity into an economy of sorts after a generation or so... then the politicians pissed it up against the wall with stupid fiscal policies. Interestingly, a similar cycle occurred in Ireland. At one point there was a mass exodus of Irish brainpower - a bunch of it came this way. Then they created an economy out of EU handouts and tax breaks, imagined for a while that they had done well, then their own bubble burst.

We could possibly get a temporary reprieve by "doing a Spain" with our tourist industry, so long as we are able rid ourselves of our palpable discomfort with foreigners. We would then have to avoid the governmental hubris that brought it all crashing down again, but hey.

Not an attractive destination, I admit. But I find it difficult to envisage any other. Fortunately, by my reckoning the timing will be such that it will be unlikely to affect me too much, it will be my kids who will have to bear the brunt.

And they will most likely be working overseas anyway.