If Joe Hockey was smart … a tight budget = low interest rates = low Aussie dollar

Tue, 29 Apr 2014  |  

If Treasurer Joe Hockey was smart, he would be starting to link the fiscal tightening that seems to be in store in the budget to the current low interest rate environment and he would suggest the fiscal austerity about to be unleashed is a deliberate policy effort to try to drive the Australian dollar lower.

There is no doubt that there is a trade off between fiscal and monetary policy. Whenever fiscal settings are tightened, interest rates can be held lower than they would otherwise be and vice versa. The current low level of interest rates owes something to the tightening in budget policy over the last couple of years.

With this starting point rule of thumb, any significant net withdrawal of cash from the economy by the Abbott government via the budget will lead to slower growth and a lower level of employment than would otherwise be the case. That part is simple.

The effect on inflation from fiscal tightening is more difficult to fully articulate but it is clearly restrictive and as a result, a very tight budget could have the same effect on the real economy as an interest rate hike, or two, but without interest rates going up - obviously.

For the Australian dollar, the maintenance of low interest rates when there has been growing speculation about interest rate increases, would mean a moderate dampening bias to the recent uptrend. While the Aussie dollar and all currencies are driven by a lot more thinks than interest rate settings, a lower interest rate structure in Australia would take a little gloss off an otherwise upbeat view.

Of course a fiscal tightening would likely reinforce Australia's triple-A credit rating which might act to increase demand for Australian dollar denominated assets, but given that the triple-A rating is already in place, this effect is likely to be less dramatic than, say, an interest rate hike.

Mr Hockey is smart and while he doesn't want to fire off too many shots before the fine detail of the budget is finalised, if in fact we do see a decent fiscal tightening on budget night on 13 May, expect Mr Hockey to come out and say that the tight budget will keep downward pressure on interest rates. He will link this to his jawboning of the dollar and with a little bit of good luck, this might take some shine off the Australian dollar.

comments powered by Disqus



Wed, 29 Jul 2020



Covid19 has opened a door for Australians to positively accept significant changes that will lead to a shared good. This rare opportunity enables us to achieve sustainable economic and social goals that create a new ‘normal’ as our way of life.

These Ten Steps are presented as non-partisan recommendations to the Australian Parliament in the firm belief that, if they embrace them, the Australian economy and society will be greatly enhanced after the Covid19 pandemic has passed.

*A job for you if you want one.
A significant increase in part time and casual employment can be created that will enable you to enjoy a more creative and peaceful lifestyle and to live longer and better. The traditional age at which you would have been expected to retire will become obsolete as a result. An access age for pension and superannuation will become your choice. This will enable you to remain in paid work for as long as you want to, on a basis that you choose, while boosting the productivity and growth of Australia.

*You will get wage increases that will be greater than your cost of living.
A demand for enhanced innovative skills at all levels of employment will be created as the economy grows in strength, thereby enhancing your stature in the workforce and enabling executive salaries and bonuses to drop to levels that are accepted as justifiable by employees, shareholders and customers.

The misplaced objective of the government of delivering a surplus, come hell or high water, has gone up in smoke

Tue, 07 Jan 2020

This article first appeared on the Yahoo Finance web site at this link: https://au.finance.yahoo.com/news/the-governments-test-in-2020-220310427.html   


The misplaced objective of the government of delivering a surplus, come hell or high water, has gone up in smoke

For many people, the cost of the fires is immeasurable. 

Or irrelevant. 

They have lost loved ones, precious possessions, businesses and dreams and for these people, what lies ahead is bleak.

Life has changed forever.

As the fires continue to ravage through huge tracts of land, destroying yet more houses, more property, incinerating livestock herds, hundreds of millions of wildlife, birds and burning millions of hectares of forests, it is important to think about the plans for what lies ahead.

The rebuilding task will be huge.

Several thousands of houses, commercial buildings and infrastructure will require billions of dollars and thousands of workers to rebuild. Then there are the furniture and fittings for these buildings – carpets, fridges, washing machines, clothes, lounges, dining tables, TVs and the like will be purchased to restock.

Then there are the thousands of cars and other machinery and equipment that will need to be replaced.