If the polls are anything to go by, Joe Hockey is still treasurer-in-waiting, but (real Treasurer) Chris Bowen has pushed in ahead of him to have a go at the job first, and that appears to have unsettled Hockey. That’s the only plausible explanation for why Hockey, the opposition’s treasury spokesman, who in recent months had kicked clear of Wayne Swan as preferred treasurer, has had such a shocking week.
First there was his hostile reaction to the revelation that Treasury’s Jim Murphy would be the Prime Minister’s chief-of-staff, which he declared was “wrong on so many fronts” without revealing what any of those fronts were.
That was nothing compared to his efforts yesterday on the dollar. The fall in the Australian dollar will have “an immediate negative impact” on business confidence, he declared. Business has just spent two years complaining about the high dollar, Joe. A weaker dollar is what manufacturing, tourism and other import-exposed sectors have been clamouring for. And now that they’ve got it, it’s going to hurt confidence?
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But wait, “it is good that the Australian dollar comes down for business, particularly for business that is involved in exports,” Hockey admitted. It was instead “the speed with which it comes down” that “adds to the volatility of the Australian economy. There is no doubt about that,” he concluded.
So, business would prefer the dollar to take its time coming down? It’s like that Seinfeld routine where he complains about “quick-acting” versus “long-lasting” pain relief , as if you’d want to wait a while before feeling better.
And then there was Hockey’s absurd claim that the “volatility we are seeing in the economy today is in many ways linked to the instability in Canberra”. That is really silly stuff. If anything, the volatility we have seen this week in the value of the dollar was linked to Bloomberg stuffing up the reporting of an ironic comment RBA governor Glenn Stevens made at a Brisbane lunch about the length of time the bank’s board had taken at the board meeting on Tuesday to discuss interest rates.
As his deputy Phil Lowe made clear yesterday in Canberra, it was a joke, but don’t tell a humourless Bloomberg reporter desperate to get the drop on his rivals from Reuters and AP Dow Jones.
Hockey denied attributing the dollar’s fall to events in Canberra, instead pointing to the low RBA cash rate as his preferred indicator of volatility.
Remember “interest rates will always be lower under a Coalition government”? Now that they’re demonstrably lower under a Labor government, low rates are no longer a good thing but evidence of “volatility”.
Volatility is the last word you’d hear used about the real Australian economy currently. “Below trend” is the most accurate one. For example, Glenn Stevens has used the phrase “somewhat below trend” or “below trend” in recent post-board-meeting statements to discuss the sluggish way the economy is growing. Hardly “volatile”.
There’s volatility in the sharemarket, of course — and that has been driven by the US Fed, the Japanese quantitative easing and the slowdown in China. Many offshore investors regard Australian shares and the Australian dollar as a proxy for what happens in China because of our very close trading relationship. When offshore investors go gloomy on Australia and become more upbeat about the US, they sell Australia and move into the US. That has nothing to do with what is happening in Australia — it’s volatility directly caused by offshore factors.
And Joe better keep some sedation handy, because there’s more to come. We saw two more reasons overnight why the dollar will continue to be volatile, and there’s another one popping up tonight to make Joe’s weekend a nightmare. Firstly, the European Central Bank and the Bank of England overnight sent the strongest messages so far that monetary policy will become very loose for some time.
Remember the Fed is now telling the world at some stage this year or next it will start tightening its very loose monetary policy by reducing the $US85 billion it is spending each month on Treasury and mortgage securities. And if that happens, then the Aussie dollar will fall, and continue falling, probably heading under 90 US cents. According to Joe, if that happens on Bowen’s watch, it will presumably be more bad news for business. If it happens on Joe’s watch, it will of course be good for business.
Hockey has the potential to be a good treasurer. But he has to curb his tendency to run off at the mouth. In opposition, it merely makes him look silly. But if he starts doing it when he’s treasurer, the markets will move in response. The result will be more … you guessed it, volatility.
This story has been updated.