Well do you think that a sharply depreciating currency would not reduce purchasing power for a nation of consumers who import practically everything? The demand might still be there but it would be notional demand rather than effective demand as Marx would have said - people might demand things but if it isn't backed by spending power then they can't buy them.
Have you been watching wage growth decelerate to the slowest pace on the official record? Why do you think it will take off in response to hikes in the cost of living via the tradable sector? This isn't the 1970's where labour union power was at it's zenith as they represented over half the workforce - they are a pale shadow of their former selves representing only about 13% last I looked and just don't have the power to engage in anything resembling a 70'-style wage-price spiral.
My concerns about the CAD are different to those expressed by flawse - I am not concerned about the existence of the CAD per se but rather by the situation it represents in the context of what is beginning to happen now. "Growth is flowing out through the current account" are not originally my words but those of Australia's foremost MMT proponent, Bill Mitchell. The fact that in order to consume most of what we do, the bulk of that spending must flow out the external sector is not a problem as long as the lost spending is replaced. We have long been running on one of two sources - net government spending or increasing private sector borrowing. Net government spending is out of vogue and austerity is in - and how much scope does the private sector have to increase it's borrowing? It's been going sideways since the GFC and interest rates are at half-century lows with not a great amount of ammo left.
Have you been wondering why the situation that has caused the Kouk's backflip even exists? We have the biggest resource investment boom in history and interest rates at half-century lows - the economy should be absolutely red-hot. Yet domestic demand remains too sluggish for employment to grow - did you see this situation emerge once the stimulus was withdrawn? Net government spending is not going to be a source of growth unless they change their stance.
Government won't supply growth and the central bank can't supply much more in the form of lower interest rates - what are the possible scenarios once the tidal wave of investment spending being injected into the economy goes dry?
Surely we will adapt to whatever comes but I'm not yet convinced of a smooth, quick baton change given the facts above. Is that not a reasonable position?
I'm not clever enough to speculate on exactly what might happen if our sales of iron ore collapsed and our dollar followed it down, but I do know that a whole lot of industries have suffered badly because of our high dollar so it's not hard to accept that if we reverse that with a lower dollar those industries will get an unexpected kick along and start to perform well again.
BTW the miners would also gain if our dollar fell. The share price would fall as dividends for overseas investors fell in their currency, but the income in AUD would be helped.
I know that there will be negatives with a lower dollar but there will be positives as well.
Any expressed market opinion is my own and is not to be taken as financial advice
The crux of my whole line of questioning is: what will the drivers of growth be once the current gigantic wave of investment spending flowing into and through the economy ends?
A few short years ago, it was pretty much consensus that anyone who thought that the economy might struggle to perform once the stimulus was withdrawn was an idiot. That consensus has now been whittled down to Adam Carr and Mike and a few others - even the Kouk has had to face reality.
Were governments of an expansionary mindset and were it obvious that there was plenty of fuel left in the private sector credit expansion fuel tank, the answer would be easy.
Like buying fur burgers if you can find better, cheaper fur burgers closer to home??? The fur burger providers further from home may have to shut up shop and find a good man to marry and settle down. The iron ore will be needed for a time. Then the demand slows, you know the rest.
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