A guest contributor with great insights has tapped out this very interesting account of why our currency keeps falling through the floor.

So the myth about a political spiv making some momentous decision is just that. It was a no- brainer and there was no choice. So with that ultimatum the A$ was allowed to float. Then it proceeded from US$1.20 to US90c. Based on these fundamentals and the success, would the global FX consensus be likely to agree with Mr Eslake’s equivalent, claiming 10 -15 cents should be recovered. Fine, but not at the expense of the global FX consensus. Stay short they would decide. The RBA is more than welcome to support that view, we won’t because it would obviously be too costly. Go long the RBA would decide and consistently has.

So at US80c the same claims would be made by more of Mr Eslake’s cohort and of course the FX market would be saying, no way after this decline are we going to risk going against a trend that is the consensus. So at US70c the same claims are made and the same rejection is enforced. (The RBA though still denying the trend and the reasons for its existence. And apparently Mr Eslake with the view traditional fundamentals are still the highest priority.) At US60c the same scenario plays out and so on. No surprise at US50c we now hear the same claim that it should be 10-15c higher.

If according to history the FX consensus has over 30 years held up then why should now be any different? In spite of the hubris the fundamentals are still in place. Once again the claim is being made by the status quo, (having created the fundamentals underlying the decline and been responsible for maintaining them, the status quo can’t exactly change their spiel now, especially as they are systemic as the Corporate Welfare dependence with a string of other equivalents proves), that the A$ is really worth 10-15c more. Really!? The global FX cohort would be once again asking as they set up their short strategies. Betting against a culture not a currency. As soon as they see it’s the status quo making the claims it’s as good as confirmed the potential for profits.

By the way, and what have you been doing lately that would convince us to remove our shorts and go long ? And no the GST doesn’t qualify. Innovation and as importantly, its commercialisation, requires incentives for it to flourish not disincentives. Although public and private bureaucracy will profiteer and prosper. Not only have we got it right for 30 years we have also made some easy money out of it. Of course the RBA can believe it’s worth 10-15c or more. In fact great, but that’s your problem (and our profits). But what else could the “official” family say and do. And they have gotten away with it for 30 years without being accountable. Most if not all have made careers out of it, underwritten by the rest of Australia and now in such equivalent activities (including the lack of transparency and accountability) now mainly dominating the equally “productive” allocation of superannuation funds. Another nice correlation with the A$’s decline. Building Australia for future generations! For a nice fat fee.

Pulling the trigger using someone else’s money is always easy especially when it’s the Australian taxpayers’. Perhaps also apathy is another fundamental the FX consensus relies on as their strongest indicator to keep shorting the currency. It’s been reliable so far for 30 years. Reinforced by the attention paid to sport over the past 30 years. Another correlation? One suspects this dominant national focus is really a form of cop-out compared to the alternative of having to confront the reality that in the hardest game around – ie creating new industry and successfully competing in global markets – Australia isn’t exactly a medal winner. Fixing on sport is the preferred escape. (A lot of the younger folk it seems see through the hypocrisy and its perpetuation and fix on harder stuff. But for the status quo careers can also be made out of this spinoff.)

Of course to maintain the delusions the status quo needs a powerful tool and that comes in the form of an electronic and print media status quo that has profiteered off 30 years of a nation’s decline and never reinvested in R&D and so forth for the future. (Ironically devaluing their own currency.) Then coincidentally demanding and receiving $3 billion plus worth of public assets in the form of DTV spectrum, a secret taxpayer funding of their digital conversion, prevention of competition by making it law to exclude new entrants into FTA, and manipulating DTV to the point datacasting is now so restricted its value to the public as an asset has been reduced to the extent the FTA associates can buy the spectrum at below true value.

The FTA monopoly is retained and the political status quo retains control over the minds of the masses. Incredibly the government insists on claiming Australia can lead the region in the Internet industries evolution while it stifles the most important mass consumer delivery platform available: DTV. This in turn dramatically slows the development of a range of other technologies with current and more importantly, future global export markets, unless FTA chooses to take a lead. History shows they have never made any investments in R&D as one of many other indicators so this is highly unlikely and they have always been technology importers.

So the A$ has some unusual cause and effect relationships that in fact compound its weakness and reinforce the global FX consensus. (They seem to be confident they can see it but it’s curious why the locals can’t. Too focused on sport, which is great for the status quo and perhaps all of this high quality FTA TV?) Not to mention the value to the status quo of the perpetuation of an undiversified media ownership and their intolerance of diversified opinion. And in the final analysis perhaps the question might be asked, not only what price has been paid by the public for FTA and now DTV, but what price democracy?

By insisting the traditional fundamentals suggest the A$ is worth US10-15c more the implication is that it’s important that the FX consensus back history and its perpetuation and that logically means not backing the declining trend they have for 30 years backed. Pick a loser not a winner! But they might ask, give us an equally or more powerful and compelling reason to back the future and we will stop going short and reverse our consensus. Now for an indicator, naturally enough, they would do a status quo check and then some of their handiwork over the past 30 years but more importantly its “initiatives” over the past 5-15 years in IT. (Not the only indicator but one of the most obvious. To most of the rest of the world anyway.). The most public would be the activities displayed on the ASX. Telstra / PCCW, LibertyOne, Eisa and stifling just about every potentially valuable aspect of DTV and digitisation possible. (The CEO of Eisa was awarded some sort of gong by the Prime Minister no less. Before changing his domicile. So the government has set a benchmark for what it thinks is the necessary and appropriate vision to back, along with its other visions. Plenty of innovation in this regard but like kicking an own goal – or two or three or- in a final.

Obviously based on these public domain benchmarks and history the FX crowd doesn’t have such a difficult choice. Again they can be expected to stick with the trend than go long on the basis of the “initiatives” of the status quo as globally irrelevant digital dilettantes. The failed old economy attempting to reinvent itself as the new. Guaranteed to bring prosperity to the status quo but little else and otherwise known as wealth transfer not wealth creation, which the A$ reflects.

Given the global FX markets – US$1.5 trillion per day, plus M&A activity and so on – have now well and truly become a profitable priority for the money industry, it’s obviously an incentive for banks to overlook investments in new productive business creation and opportunities and instead indulge in the short term opportunities in the financial markets. Would ANZ lend to an FX trader speculating against the A$, or an M&A (or a recycled GBE)? Probably, and first off the rank in about that order, and at a higher short-term return than risking it on most other businesses particularly new. Unless the status quo denies history and its outcomes, which is the main value, if nothing else, of corporate memory and its usefulness in governments.

Now with all this expertise on the loose and populating the landscape – the leafy suburbs anyway and most underwritten by the nation over 30 years – the penny still hasn’t dropped (it has and it hasn’t) but Mr Eslake comes closer than anyone (in the public domain anyway and as an insider) to exposing the source of the problem and therefore its solution and therefore probably how to steer clear of it and its politically incorrect implications.

Will the negative sum game remain in the lead or will the positive sum game make a comeback? It seems the global FX crowd is the only one trying to keep a reasonable transparent score, in spite of the home-side crowd always fudging the boundary lines, shifting the goal posts and hogging the PA system. And calling it vision, leadership and management.

Peter Fray

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