Faltering. Slumped. Dive. Plunging. Free fall. Plunged.

All words to describe the recent decline in the value of the dollar by the media and commentators.

They’re just the blander ones. We’ve also had pummelled. And plummets. And smashed. We’ve had collapse. Yesterday smh.com.au gave us massacred. It’s been like reading a comic book.

The capacity of Australian media and business economist groups to report dispassionately on economic policy, and especially the value of the Australian dollar, appears to have been lost — or perhaps it’s been smashed. Or pummelled. Or it’s in free fall.

Despite over a year of discussion about the impact of a high dollar on the economy, with the currency blamed for every economic ill besetting us (of which, by international standards, there are very few), the dollar plunging for a couple of months suddenly sees it transformed into a kind of national symbol of economic manhood.

In fact the dollar’s fall (now almost 11% from its January peak of just under $US1.06 (and also against other key currencies, although the media don’t mention that) has, if the Reserve Bank, Treasury, and some reasonable market economists are anything to go by, been too slow, despite export prices weakening (sorry, slumping), our terms of trade falling (um, being smashed) and national income faltering.

But what to say about the rise in the Aussie overnight? The currency bounced from well under 95 US cents to a day’s high of 96.74 US cents — a rise of two cents in a matter of hours. It later retreated to trade just under 96 US cents for a gain of about 1.25 cents in less than half a day’s trading. But you’ll probably search fruitlessly for “dollar skyrockets” rhetoric.

The violent rise wasn’t due to anything to do with what had happened in Australia — the strength of the economy, the budget deficit, interest rates or whatever reason the market race callers mention in their absurd reports — it was down to a sudden and unexplained drop in the value of the US dollar ahead of the May jobs report tonight as those investors who were ‘long’ the greenback sold in fear of the jobs report tonight. That’s a pretty prosaic explanation compared with the hyperbole we got yesterday and in the past month. The fall also saw the yen and the euro rise sharply. Another factor was the news that the European Central Bank had ruled out any further monetary policy easing for a while.

But a lower dollar for an extended period will be good news for the federal budget (Joe Hockey will be delighted to see the dollar down, and will be fervently hoping it will continue to remain so) and large sections of business (tourism, exporters, manufacturing, retailing) as the dollar’s weakening value boosts export returns and makes exports more competitive (Australian companies can cut prices and compete without too much of an impact, as there was when the currency was above parity).

No one seems to remember what happened in 2008, when, using the rhetorical scale currently in place, the Aussie dollar was annihilated or maybe exterminated. Reserve Bank records show the dollar fell from around 97.50 US cents in July 2008, to around 61.20 US cents in October of the same year — and it remained in the range of 61 to 70 US cents until April 2009, when it rose over that level and started its long climb towards parity, and over that level starting in November 2010 and becoming more common in February 2011.

The value of Australian exports jumped from $22.864 billion in July 2008 to $27.531 billion in October of that year, according to data from the ABS. The driver was principally the 30% plus fall in the value of the dollar in the same time. Our trade account went from a deficit in July 2008 of $985 million to a surplus of $2.541 billion in October 2008 (there were quite a few surpluses above $2 billion from then until well into 2010).

Incidentally the impact of the high dollar can be seen in how little our exports have moved from 2008 to this year — the value of our exports in April was $25.419 billion according to preliminary figures from the ABS this week. The peak was just over $28 billion in August 2011, after global coal and iron ore prices soared to record levels thanks to the floods in Queensland and the bad weather and cyclones in WA and Brazil at the start of the year.

The 2008 surge in export income is what the RBA and Federal Treasury have been forecasting will happen this time around, but the strong dollar has prevented it. Of course the value of imports will rise, as will the cost of products such as oil and petrol (which is going to rise as a proportion of our import bill, as the refineries in Sydney and Geelong close and imports increase).

But the strong dollar illustrated an intriguing feature of sections of the Australian commentariat and business community.

For decades the community and politicians have been lectured by commentators and business leaders about the need for a massive program of reform and economic rigour. Lee Kuan Yew was right, we were told in the 1980s, we were in danger of falling behind Asia, becoming “poor white trash” unless we embraced hardline reforms. Even as we embraced such reforms — at huge cost to our social fabric during the 1990s recession — the lectures kept up, and have continued right through until now, when business and the commentariat are complaining that we stopped reforming way too soon and needed to get back to reducing wages, lifting productivity and slashing welfare spending.

But what happened when the fruits of nearly 20 years of Hawke, Keating and Howard reforms combined with an historic mining boom generated by the rise of China, and the Rudd government kept us going through the global financial crisis? What happened when Australia became an economic safe haven with a triple A credit rating from all and sundry? The Aussie dollar, once derided as the “Pacific peso” and reflective of the wimpy state of our unreformed economy, became Aussiesaurus Rex. And many of those who’d lectured us on reform couldn’t handle it or were unprepared for the realities of life as a successful economy. The demands for assistance and the pleas for help against the evil foreigners who were competing with us became deafening.

The Liberal/National Party has never ruled Australia when the dollar was over parity and we had the highest credit rating. Hockey has been quick to dismiss the impact of the strong dollar on the budget as an excuse by Wayne Swan.

It’s going to be quite a shock to him if the dollar returns to parity later this year or in 2014, as some thoughtful economists believe it will.

Peter Fray

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