With Crikey presently travelling in America, we’ll run anyone dumping on the people responsible for our dud dollar. Former BRW journalist Tim Watts is our man in Boston and this is his take on the droopy dollar and our straight-jacket Treasurer.
Costello has a great story to tell about the prospects of the Australian economy. We have a highly skilled, English-speaking workforce with strong ties to Asia, advanced technological infrastructure, four years of world-beating growth in productivity and output, low inflation and low unemployment.
Yet according to The Economist we have the most undervalued currency in the developed world. Ian Macfarlane, that one trick pony down at the Reserve Bank, is getting antsy because he knows a low dollar leads to inflation and keeps pulling his one trick: increasing interest rates. Unfortunately, hikes in interest rates have no real track record of boosting the currency and they hurt small business, stifle household spending and put people out of work. If the dollar doldrums continue, the repercussions will not be pleasant.
Costello is being advised that the currency trading teams in investment firms across the globe look for “fundamentals” in an economy: they want to see strong growth, low inflation and fiscal discipline from government. Yeah, right. These people are part of the crew which has driven the US stockmarket to record highs by buying stock in internet businesses with one characteristic in common: a glaring lack of “fundamentals”.
Your average high-tech start-up company has no profit history and huge debts, but oodles of something economists like to call “expected future demand”. The executives running the most successful of these companies are brilliant at creating a perception that the future holds amazing profits for their businesses. Investors support them, they get access to the funds to build their businesses and they surf to success on a wave of self-generated optimism. Expected demand leads to real demand and real growth. Hype matters.
In his bestselling biography of Silicon Valley billionaire Jim Clark (founder of Silicon Graphics, Netscape and Healtheon), Michael Lewis describes Clark as more “conceptual artist” than business man. He says Clark’s most remarkable trait is his ability to imagine what the future of industry could look like and to generate excitement about this future in the investment community.
Peter Costello isn’t running a start-up company. But he’s in thrall to the global investment community as much as the next dot-com entrepreneur. Building a picture of the future of the Australian economy and getting the markets to buy into his vision is a one of the keys to his job. Right now, there’s no buzz. Costello is failing the hype-test miserably.
When currency traders are asked about Australia we typically hear the old line trotted out about how Australia is perceived as an “old” economy, reliant on mining and agriculture. This is why our currency is undervalued.
This perception is about 15 years out of date. The Australian economy is not a backwater. Exports from the manufacturing and services sectors are growing faster than any other category, including mining and agriculture. We’re a young, vibrant, innovative nation with more than our fair share of high-tech success stories.
As Treasurer, Costello has the markets’ ear. From his haranguing performances in parliament, we know he’s capable of speaking passionately about issues he cares deeply about. But whenever he makes public statements on the economy he gets caught up in technical gravitas and party politics.
The currency crisis is serious. It’s time for the Treasurer to stand up and make the global financial community pay attention. The Australian economy is worth getting excited about.
(Tim Watts reports on US business and politics for BRW and The Age from Boston.)