Global hedge funds and the capital markets are engaged in a two-pronged game to skyrocket Australian unemployment. The planned retrenchments at Toyota are merely the tip of this deadly game, which will cause great suffering around the country. Remember, these are not normal market forces. We are seeing an artificial game designed to make money for hedge funds at the expense of Australian jobs.
We can sit back and be battered by the profit-hungry hedge funds or we can do something about it. Most commentators and economists will say “let the markets rip” because high unemployment will be good for the nation, as it curbs unions and inflation, and we can all fly north or west to the mines.
I say that’s rubbish, but as Canberra lurches from refugees to poker machines I am not sure they have the knowledge or strength to know what to do.
First, let’s explain how the game works. Essential reading is Alan Kohler’s description of how the hedge funds borrow about 1% in Europe and invest in Australian bonds at, say, 3%. The Australian currency is underwritten by the mining boom and with unlimited European cash available and euro rates likely to fall further, it is a sure-fire winner. Accordingly, the Australian dollar is pushed higher and higher, making Australian vehicle manufacturing uneconomic, slashing tourist and overseas student numbers and forcing bankers, large accountants and other service providers to source as much activity as they can offshore. And of course, wherever possible we save huge sums buying goods online from overseas rather than using Australian retailers.
But the global capital markets’ attack on Australian employment has a nasty second front. When our banks go overseas to borrow they gain none of this 1% money. They are being forced to pay higher and higher rates and offer more and more security. The latest so-called cover loans, which are prime security, are so costly that banks will not pass on Reserve Bank rate cuts in full. Our banks are now nervous about lending so we almost have a mini credit squeeze, although in fairness demand for loans is low.
The only reaction from the government has been to help protect the car makers from this dastardly hedge fund raid of our jobs — and to cop a blasting from commentators and Tony Abbott. The only validity in that criticism was the question: “why should the motor industry be helped when there are so many other victims of this overseas raid on Australian employment?” At least the government did something.
The Swiss faced a similar problem and effectively clamped their currency. The Chinese are too smart to allow themselves to be raided by hedge funds.
In the end we may be forced by the community into radical action but how about this for an interim measure that may curb the effects of the two-pronged raid? The Commonwealth should issue billions in new paper to satisfy the hedge funds and then deposit the money with our banks. The banks will not need overseas money and will be able to lower rates even faster than the Reserve Bank moves.
At least that will remove one squeeze on the economy and will get the housing industry moving. Remember, these are not normal market forces at work. This is an organised raid on our jobs. It requires an organised response.
*This article first appeared on Business Spectator