Yabby, you seem to be under the impression that nothing changed when our dollar was floated. But everything changed! We no longer try to keep the dollar up when the market expects it to fall; instead we let it fall.

Instead of raising interest rates to cover the hedge costs of a falling A Dollar, we now do nothing. Consequently Australian businesses borrow less from overseas and more locally, which drags it down so the expectation it will fall further goes away.

I don't know whether or not the government is technically still able to borrow in foreign currencies, but the point is it doesn't.

Greece's problems stem from it surrendering its financial sovereignty to the ECB. Now not only is the market unable to correct its trade imbalances, but it has limited credit, and the ECB are denying it the credit it needs to function efficiently.

Argentina's problems are quite different: rather than sticking with the sensible policy of having a freely floating currency, it tied its currency to the US dollar. This eventually led to hyperinflation when it was unable to keep up, and their economy is still overreliant on the US dollar.

"When currencies go down, costs of imports go up, the standard of living goes down accordingly"
This much is true, though it's not as bad as it may seem, as the decline in the standard of living is much less than the decline in the value of the currency, and the effect could be cancelled out by rises in the standard of living from other sources. It's certainly preferable to the much bigger decline in the standard of living that stems from cutting wages.

Keating's high interest rates were the result of his trying to stop a boom that was causing high inflation. But it was bad policy; the more sensible course of action would've been to temporarily lift the top rate of income tax.

*We no longer try to keep the dollar up when the market expects it to fall; instead we let it fall.*

Well of course! As Britain found out the hard way, they could not beat the hedge funds and the market. The point is however, that regular large current account deficits lead to drops in the value of the currency which lead to rise in the relative borrowing costs in that currency. Our large companies hedge their currency exposure and so do our banks, they pass that on to the customer. Which is why interest rates have been higher in Australia in the past and will rise again, as our current account deficit increases. There is no magic fairy to carry risk, the market prices it in, the end user pays. If inflation starts to move due to wage demands, interest rates will shoot up and home borrowers of all these expensive homes will be crying big time, as they are crucified.

Anything to do with foreign currency, is done for the Govt by the RBA, which is technically a separate entity.

Greece had a choice. Go back to the Drachma, let it collapse, pay huge interest, or accept EU rules. They voted to accept EU rules. Perhaps sitting at the beach drinking coffee, was not enough to pay their accounts and reality has now hit home. They can only blame themselves, nobody else.

Fact is that some wages are quite ridiculous, when compared to our trading partners, brought on by unions whose mentality is still in the 60s. The labour market finally needs freeing up. I don't blame any company for going off shore.

Yabby,

I suggest you have a look at a chart of our current account and interest rate figures; there is not the relationship between them that you seem to think there is.

Hedging foreign currency loans reduces the effect of currency movements that you're so worried about. The reason why interest rates have been higher in Australia in the past and will rise again is that the RBA set them higher because of concerns about inflation.

Your fears about wage demands are unfounded; currently they're very low despite our dollar having fallen substantially this year.

The RBA technically being a separate entity doesn't change my point: it does not borrow in foreign currencies.

Greece did have a choice, and despite a referendum showing the people were prepared to stand up to Europe, their politicians betrayed them by capitulating to unreasonable European demands that will further weaken the Greek economy. Enforced austerity removes the opportunity to make money, so sitting on the beach drinking coffee was the only option many Greeks have! They should've returned to the Drachma; the fact that Greece was running a trade surplus shows it would not have collapsed.

Our wages are high mainly because our productivity is high. When other countries reach our level of productivity, they're likely to match our wage levels.

Aiden, you need to understand interest rates in comparative terms, as interest rates in other parts of the world matter, when determining ours. Our interest rates have nearly always beeen comparatively high, except recently, when the mining boom improved our poor current account figures, which gave the world a bit of confidence in Australia's future. It did not last too long, as we'll see when our current account figures start to climb again.

The people of Greece voted not to return to the Drachma, but to stay in the EU. Their choice. Greece runs a current account deficit of around-2.33%, but as Greeks don't bother to pay tax, their Govt is basically bankrupt. So some hospitals cannot even afford medicines and things go downhill for Greeks, drinking coffee is not going to fix it.

If Australians were so productive at work, it would not cost twice as much to kill and process a cow in Australia, as it does elsewhere. So farmers carry everyone, by being forced to accept much less for their cattle than farmers elsewhere in the world, or by putting them on a ship as fast as possible and processing them offshore, where costs are more reasonable. Our mollycoddled union system has passed its use by date

Yabby, where the objective is to influence short term currency movements, the comparative interest rate is what counts. But when the objective is to influence the amount of private sector borrowing, there is no reason for the RBA to keep our rates higher than any other country or group of countries.

Current account figures do not drive interest rates. If anything, the causation's the other way round, but the correlation is weak.

The people of Greece did not vote on whether to stay within the EU. They did not threaten to quit the EU, and the EU did not threaten to expel them.

What the people of Greece voted on is whether to accept the EU's bailout deal. They knew that a NO vote might mean they'd have to reintroduce the Drachma. They still voted NO. Yet the government ended up accepting a deal that was not substantially different to what was on offer before.

Of course drinking coffee's not going to fix the Greek economy. Fixing it requires investment. But the Greek government is being denied credit so they can't invest, and that also depresses local demand so the private sector has less opportunity to invest profitably.

Greece's current account deficit is mainly due to the cost of interest on their loans. If they returned to the Drachma it wouldn't collapse, but their creditors would take longer to get their Euros back.

It's true that our greater productivity does not extend to every single activity. Some things we just have t accept as costs of doing business here. But economies of scale mean we're still more efficient overall.

*there is no reason for the RBA to keep our rates higher than any other country or group of countries* That is up to the RBA and it's charter to decide. They may for instance, want to avoid a housing bubble, which would not be in the long term interest of our economy.

*Current account figures do not drive interest rates.* Nobody said that they do. They are however, an important component in foreign lenders judging the health and risk of lending to to a country and the higher the risk, the more they will charge, as they are not going to risk the devaluation of a currency at their expense. So people in healthy, wealthy, low risk economies, such as Germany, Switerland, Singapore or Norway, will be able to borrow money at cheaper rates than those like South Africa, Australia, Brazil, etc.

The Greek people never voted for parties whose stated agenda was to leave the EU and return to the Drachma. They had the choice but rejected it. Greece can only blame itself for the mess it is in, nobody else.

If we were so efficient here, our companies would not need to leave the country and go elsewhere. Few countries still hold on to such backward union regulations as we have. So we land up importing even more and complaining about jobs. Ah well, we shall learn the hard way.