Australian Prime Minister Kevin Rudd today told the nation that aside from super (401ks in American) taking a massive hit, everything else was a.o.k. Our banks are solid he says. We’ll weather the storm etc…
So why did the dollar hit 67cents exactly?
News.com.au says its because London hedge funds think they’ll be a downturn in commodities, the bread and butter of Australia’s exports. And yet, does that really fully explain a drop from near parity at the beginning of the year, to 67c? (at the time of writing, it had gone back to 69c). It was around the 85-89c range when I was in the US late August.
What am I missing in Australia’s financials that our politicians aren’t telling us, probably to prevent panic locally? Something the market knows about, but the media either hasn’t picked up on yet, or isn’t in the loop.
Could it be debt exposure? True that Australian banks are more reliant on depositor funds for lending than those outside Australia, but from a figure I saw earlier this week (possibly in Crikey) 30% of lending capacity comes from inter-bank lending, most of it external, and the big four all have serious roll over issues ahead of them for existing credit lines (roll overs that simply won’t happen because they won’t be able to borrow more money), that will likely restrict their ability to lend. Could this be the pandora’s box we’re not hearing about, but the market is factoring in? that not only could our banks end up in some strife (maybe not terminal), but with a serious reduction in their capacity to lend that will result in a massive decrease in growth in this country, worst still perhaps a recession?
I’m not qualified to answer this question, but she who must be obeyed, who despite working in PR actually has a degree in economics can’t work it out either. It’s like a jigsaw puzzle where you don’t have all the pieces, and without those pieces, you cant work out what the real picture is.
But I do know something: we definitely aren’t being told everything. If things are as great and rosy compared to the US that the media and Government is saying, explain the dollar. Surely if we were in such a great position, and the US was as screwed as everyone is saying it is, then our dollar wouldn’t be plummeting against the greenback, at least as much as it is.