(continued)

"That is wonderful in theory, but in reality we have few manufacturing industries left, so import less because we cannot afford things. We still need cars, medicines, oil and a host of other products which we import as we don't make them anymore. Our current account is still running at very high negative rates and total debts of about a trillion will continue to cost us a fortune to service it."
In reality there is still lots of manufacturing in Australia, but it has been hit hard by the dollar being much higher than our balance of trade justifies. This is partly because Australia's very good at attracting foreign investment, and there's much more foreign investment in Australia than Australian investment overseas

But there's a lot more to it than that: when you refer to "total debts of about a trillion", that's not government debt, that's the amount of foreign debt of Australia and Australians. We've made it far too difficult for Australian banks to source money domestically, so they're having to borrow overseas instead. And our interest rates are much higher than the rest of the world. Though the high dollar damaged our industries (particularly manufacturing) the RBA declined to intervene because they regarded doing so as anti-market – seemingly unaware that RBA decisions were the main reason why the markets had pushed our dollar so high.

Policies that maximise our dollar's short term value do so at the expense of its long term value, and that's harmful to Australia's economic interest.

http://www.afr.com/news/policy/budget/aaa-threat-as-bad-as-banana-republic-days-jpmorgan-20160413-go58t5

No need to appeal to authority Jaidan, but certainly an appeal to common sense. Bankers know how the banking market works, that is their job. It is their job to know what affects their cost of money.
So when it comes to how these things affect the banking market, it is their opinion and experience which clearly matters, as distinct from the economic theory which you read in some text books.

Now if I was about to have brain surgery, I would also respect the opinions of experienced brain surgeons, as distict to those who have read some books on the subject, even if they claimed to be well informed.

*IMO the government should make it easier for banks to access funds on the domestic market.*

You mean for the RBA to just create more? No wonder we have to keep our RBA at a foot length from politics, they would devalue the currency by printing money, at every turn. The banks are free to attract more money by paying higher interest rates, so that people who deposit and save money, are not actually losing it through inflation and taxation.

*pay rates for petrol station workers are shown on page 22 (for example).*

Now the same place might also employ people who don't pump petrol but who flip burgers or serve behind the counter. That is another award again, which clearly is confusing to many small business owners, or they would not have to hire a business consultant to sort out their compliance issues.

Yabby,

Knowing what affects the cost of money is one thing; common sense is quite another. It is entirely plausible that many bankers are dumb enough to take the word of an incompetent ratings agency; were that not so, we probably wouldn't've had the GFC. But governments should try to do what's best for the economy, not what incompetent ratings agencies want them to do. And if any credit ratings agency dares to downgrade Australia, our government should try suing it for libel!

Bankers are not brain surgeons. The most difficult thing bankers do is hedging; that's not in the same league as brain surgery (or indeed any surgery) in terms of knowledge required, let alone the manual dexterity which surgeons also require.

I was once under the illusion that borrowing from the central bank could cause a currency to collapse. I deduce you still are. I suggest you have a closer look at what actually causes currencies to collapse, as there's always another factor: usually the currency being fixed above market value and/or the government needing to make a foreign currency loan repayment.

The RBA creating more money is already an everyday occurrence. I'm not saying we should try to immediately become self sufficient with money creation, but having our banks rely more on the RBA and less on foreign money markets would dampen the wide fluctuations in our dollar's value that we've had since the GFC.

Tell me: do you think it was a good thing that during the Gillard years our dollar was so high that it made our manufacturers uncompetitive?

"The banks are free to attract more money by paying higher interest rates, so that people who deposit and save money, are not actually losing it through inflation and taxation."
Indeed they are, but high interest rates are bad for business.

BTW do any petrol station workers still pump petrol? It's all self service in my state.

Aidan, I was rather amused last night, when Mr Bowan of the Labor Party appeared on the news, stating much what bankers are saying. Sounds like your Labor party are confused as well :)

If banking were so simple, we would not have seen the dramatic differences which appeared during the GFC. Well managed banks like Wells Fargo, sailed through the whole thing, whilst Citibank were just about broke. As with any profession, things might look easy, but the devil is always in the details.

The RBA have to look at the big picture, not just one sector of the economy. They would have been well aware of the risks of a housing bubble and increased inflation, had they lowered interest rates. As it was, things were pretty well out of control in Western Australia, with wage expectations that had gone through the roof, due to the mining boom. It was much the same in Queensland. So decreasing interest rates in overall terms, would have been quite foolish.

Yes, manufacturing industry was hurt by the value of the Dollar, so was agriculture. Agriculture was forced to adapt. We do have a two speed economy, one which services local needs and has a monopoly, the other which has to be globally competitive to exist in the real world.
The costs of those who have a monopoly are simply passed on to those who have to compete globally, without much thought to the long term damage that they are doing, to make them less competitive. So when we are told that it costs 30% extra to build a building in Australia than it should, due to unruly unions, those of us who have to compete globally have to wear it, move overseas or shut down. If our local economy was a bit more efficient, industries like agriculture and manufacturing, could better deal with the vagaries of a floating Dollar.

Yabby,

The Labor party do indeed misunderstand the situation. As do the Liberals, the Nationals, the Greens, Family First etc.

Many banks lost huge amounts of money in the GFC because they'd relied on incompetent ratings agencies. 'Tis much better to highlight that incompetence than to suck up to those agencies.

I agree the RBA has to look at the big picture. And for everything except mining, our dollar was overvalued – you only have to look at our balance of trade for proof. But inflation was at the bottom of the target range, and interest rates had been put up unnecessarily. However wage inflation never reached pre-GFC levels. And with hindsight, probably the most sensible way to cut interest rates while avoiding a housing bubble would've been to restrict negative gearing!

And had the RBA actually made it easier (rather than merely cheaper) for banks to borrow on the domestic market, our dollar wouldn't have got up quite so high even if interest rates had.

You seem to think that a more efficient economy is one where the profit share is higher and the wage share lower. I disagree; I only regard it as more efficient if the benefits are passed on to the customers, and that's not something that makes us more resilient to currency fluctuations.

I'd rather see our dollar on a slow and steady rising trajectory, so that businesses can continually improve their efficiency rather than being suddenly forced to, and so that we don't get a lot of businesses failing at once. Of course there will always be fluctuations, but the government and RBA should try to avoid inducing a situation where our dollar's far above the level our balance of trade justifies.

*The Labor party do indeed misunderstand the situation. As do the Liberals, the Nationals, the Greens, Family First etc.*

Fair enough Aidan, I can't argue with such a classic OLO argument! It seems that all the politicians have it wrong, all the journalists have it wrong, all the bankers have it wrong, the overseas lenders have it wrong too, only Aidan has it right :)

*And for everything except mining, our dollar was overvalued* You forget that mining was affecting everything, in places like WA. Fox claimed that they had to pay an extra 50K, to hire a truck driver. When I went to visit an engineering works, the apprentice had left as the miners were offering 6 figures. When I tried to place an order with a Qld manufacturer, he could not fill it as his workers had gone to the mines and he had no staff. The list goes on. The RBA had to consider all these things. Now these workers are busy losing their jobs, many having still to learn that they can't earn 150k anymore. There are jobs, but more realistically at maybe 60k.

*And had the RBA actually made it easier (rather than merely cheaper) for banks to borrow on the domestic market* Why should the RBA do that, when there is plenty of money to be borrowed on international money markets, or from domestic investors? Why should they subsidise interest rates which are below the inflation rate?

*You seem to think that a more efficient economy is one where the profit share is higher and the wage share lower.*

Both need to be catered for. Workers have 2 trillion$ in Super, that needs a return on investment, not be a subsidy of low interest for some kind of job creation scheme or subsidise artificially high wages. Grey nomads have the most savings. They need a return on their investment, or they will have no reason to save, but simply pee it up against the wall on gambling, as already happens to 20 billion a year, when people clearly think that is a better option-than-saving.