"Greenhouse" attack on China bad for Australia

There's a puzzle, a paradox and some amusing, and decidedly instructive, historical intersections in the rise and rise of the Aussie dollar, formerly known as the Little Aussie Bleeder or Pacific Peso. As it now grinds seemingly inexorably towards and past US90c -- and then on even to parity. Parity. Who could ever have imagined we'd see that again in our lifetime. Now, you'd be a brave punter to bet against it.

True, parity with the less-than-mighty greenback. That is of course a key part of the story. The rise of the Aussie is a combination of the falling greenback, against everyone. But also the Aussie's own, albeit more gentle, appreciation aga:nst the "thirds" - the euro, the pound and the yen. And why is the greenback sliding? Any number of factors can be cited, but in essence it comes down to one. The US's huge and entrenched current account deficits. There are only so many US treasury bills you can stuff away in the Great Wall.

But then - the puzzle - our current account deficit is just as large as the US's in relation to GDP. We've had more $50 billion deficits than Peter Costello's had hot - or indeed, cold - dinners at Kirribilli House. And we are going to have more (they stretch as far into the future as Treasury's statistical eye can see) than he now looks likely to have breakfasts at The Lodge.

So why isn't our dollar heading south? Simple answer: there has been more money wanting to come into the country each year than those $50 billion deficits. And in the currency free market the price of the Aussie rises until demand and supply are brought into balance and the market clears. Usually, with a little bit of help from the Reserve Bank, which is happy to sell some Aussies out of its - these days, virtual reality - stockpile.

The somewhat more complex question is why demand for the Aussie has been so strong. Every other time we've had big deficits we've had a weak currency. They were beginning to look endemic - hence those less than flattering terms in the opening paragraph. The answer is, of course, China, with again a little bit of help from the RBA. Not in the currency market but in setting official interest rates in Australia, and hence the bank borrowing rates which have been the principal means of bringing that foreign money into Australia. The combination of higher interest rates, the commodities boom, the strong dollar, rising asset values - property and shares - - has made buying the Aussie a no- brainer. To say nothing of buying, or attempting to buy, Aussie companies.

A $50 billion deficit might be big in our terms, but less than a day's trading in global currency markets. So the puzzle isn't really a puzzle. More of a question: how long does it last? How long can we sustain the unconventional combination of a huge deficit - stuck at 6 per cent of GDP - and a dollar that is rising in real terms against all major currencies?

The answer lies in a combination of what happens to the US economy and to US interest rates. Does it stay strong and rates stay where they are, or go higher? In the process staying the slide in the greenback, but leaving the US deficit destabilisingly high? Or does the US economy weaken, the Fed cuts rates, and the greenback's slide continues? With that wave taking our dollar higher. At least in company with everyone else; and indeed likely more of the recent past where the Aussie strengthens in its own right, on the back of our even more attractive interest rates?

Whatever the outcome by, say, mid- 2008, there is enough all-round momentum to carry our dollar well into the 90s at least. And that points to the single greatest lesson of exchange rate history, ours and everyone else's: you always overshoot.

Enter the paradox. The core driver of our rising dollar - and pretty much everything else in and around our economy - is the explosive growth in China's demand for, and consumption of, commodities. Principally, so far as we are concerned, iron ore to make steel and coal to generate power. Along with pretty much everything else - globally importantly, oil and copper.

In short, not to put too fine a point on it: our dollar is pivoting on a truly momentous eruption of greenhouse gases. Yet we and the world are - at least hypothetically - committed to not just capping that eruption, but reversing it. Let me spell that out a little more specifically. We have a dollar challenging conventional currency gravity; on the promise of pumping more and more commodities into the Chinese "greenhouse gas factory". Yet we want to in effect burn that factory down.

Add on the certainty that even on the assumption that the factory keeps on belching, our dollar will overshoot; what happens if we actually "succeed" in persuading China to please let us leave all the stuff in the ground? We have a rising dollar despite a $50 billion deficit because of the promise of China's exploding future demand.

What happens to the dollar if the deficit increases dramatically because export prices and/or volumes fall and the China promise evaporates? For some guidance, go to the history. If we do reach parity with the greenback, it will be the first time in the PK era. PK era? Post-Keating. The last time a dollar bought a dollar was when hardly anyone out there even knew Keating existed. In the wake of the week's events - rather amusingly when John Howard was treasurer - back in the early 1980s.

It did approach parity in the PK era, just after "his Howard", Bob Hawke, ended the drought, when in early 1984 it approached US97c. The last time it was flirting with today's levels was in early 1989 when it peaked just shy of that figure. Between those two peaks came "banana republic", when after Keating's famous exhortation in mid-1986 it dropped to US60c and below 50 on the TWI (trade weighed index). It's now, incidentally, at just over 70 on the TWI - the measure of its overall value against the currencies of our major trading partners.

Those dates and peaks and troughs are instructive on two counts. They indicate just exactly how the currency does overshoot - going too high and too low. And how quickly that can happen. In little more than two years the Aussie dropped 38 per cent against the greenback and 41 per cent in TWI terms. And then in less than three years jumped 49 per cent against the greenback and 34 per cent in TWI terms. This time it's supposed to be different.

What China is doing to commodities and the global economy is unprecedented. What really would be different is if we quite deliberately set out to destroy the foundation on which our contemporary prosperity is built. To say nothing of what it would do to a dollar that had, as always, overshot on the high side.

The above article by financial journalist Terry McCrann appeared in "The Australian" on July 21, 2007







Shallow breaths, save planet

By Tim Blair

IN A wonderful act of subversion, the Sydney Morning Herald's splendidly-named Stephanie Peatling this week managed to sneak a comic gem past her vigilant editors: "The greenhouse gas cuts Australia must achieve to prevent dangerous climate change may be substantially higher than thought, with modelling to be released today suggesting it should be as much as 95 per cent by 2020." That modelling was the work of a leftist panic hive called the Australia Institute, presided over by director Clive Hamilton.

I called Clive on Thursday to discuss how we might achieve this reduction, which essentially would require that Australians stop doing everything, including breathing. I also wanted to know how even a 100 per cent cut in Australia's carbon output could influence the global climate, given that we only generate about 1.5 per cent of all global emissions. And there's the matter of Chinese economic expansion, which easily counters any local reductions.

Let's say Labor's mighty Kevin Ruddernaut storms to power at the next election and adopts the Australia Institute's plans (not likely, but we're imagining a worst-case scenario here - after all, it's a tactic approved by the environmental Left). While Australia diligently spends the next 13 years closing down mines, factories, offices, hospitals, roads and anything else capable of killing the planet with carbon, the Chinese will have - if they continue at current rates - built about 670 new coal-fired power plants over the same time. (And lost about 78,000 workers in coal-mining accidents. The one-child policy isn't China's only means of population control.)

Alas, Hamilton wasn't at the institute's Canberra hut. He was on a break to do some writing, a helper told me, so had headed north to get away from Canberra's freezing weather. I hope he took his coat; it's barely any warmer in Sydney and Brisbane airport this week recorded its first sub-zero temperature. These sure are trying times for the warmenist crowd. (By the way, we know Hamilton owns a coat because last year he mentioned on the ABC that he felt tremendous guilt over buying one. It was too lavish, apparently, and Clive worried that his materialism set a poor example.)

Anyway, Australia's whole nationwide cold snap has been a beautifully-timed climatic accompaniment to the ABC's recent broadcast of The Great Global Warming Swindle. (Incidentally, Nine had first rights to the documentary, but instead handed it over to the ABC - where it became the broadcaster's second most-watched show of that week).

Radio National broadcaster Michael Duffy made one of the saner points in an otherwise weird post-show counselling session for traumatised viewers. Why, he asked, didn't the ABC put as much effort into challenging the claims made by the likes of Al Gore and Sir Nicholas Stern? Host Tony Snow's reaction was to dismiss the likelihood of having Gore appear but it really doesn't take much; the ABC could probably book him for $US100,000, Gore's asking price for his never-changing climate change speech.

Or they could just show his stupid movie. The good news is, for Tone and anyone else looking for flaws in Gore's Inconvenient Truth (and in arguments put forward by Stern, sometimes described as "the world's leading economist on climate change"), that you don't need any scientific training at all to realise these two aren't exactly expert researchers. For example, back in March Sir Nicholas told the SMH: "You can't export an American car to China: it does not satisfy the emissions standards." What a very odd claim. You'd think if China was so concerned about the health of its people, it would do something first about those 6000 coal miners it's offing every year rather than fuss over imported vehicle emissions. In fact, Stern was completely wrong. Cadillac, DaimlerChrysler, and Ford all sell US models in China. This has been going on for years.

However, a number of Chinese manufacturers are unable to sell their cars in the US. Reason? They do not satisfy US emissions standards. Stern believes the opposite is the case and actually repeated that line when addressing Australia's National Press Club earlier this year. Not a single journalist challenged him. Well, one tried but was unable to get a word in due to - and I quote the text message exactly - "left-wing wankers pandering to Stern". Which might explain why this Stern-like line from Gore's film has dodged any criticism: "We can't sell our cars in China today because we don't meet the Chinese emissions standards." Begs a question: If these guys can't get simple trade stories right, how can we trust them on complex scientific issues?

Speaking of getting things wrong, Tim Flannery wasn't amused by NSW Treasurer Michael Costa's recent labelling of him as an idiot. "My reaction is just lofty disdain," Flannery said at the time, although it wasn't really for him to rate the quality of his own reaction. This week Flannery revealed he may have been angered more than he let on by Costa's criticism (one of the few barbs ever publicly directed towards St Timothy the Bearded, who normally receives only loving praise - see above line re "pandering"). Speaking to AAP, Flannery upgraded those who question global warming theories from "sceptics" and "deniers" to . . . hey, let Flannery tell you himself:

"In 2005 the liars about climate change were winning. Today they've been vanquished . . . once and for all." So, liars are we? Flannery needs to take a holiday. Maybe Clive Hamilton has a spare bunk in his writing cave.

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Leftist policies pave kids' road to hell

By black activist Noel Pearson -- who sees "progressives" as the enemies of changes that Aborigines badly need

THE Calvinist conception of predestination (whether you end up in heaven is predestined and nothing you can do can alter whether you are chosen or not) is analogous to life outcomes for the indigenous children of Cape York. You can bet that a child from our community will end up poorly educated, semi-literate and ill-equipped for equitable participation in Australian society and the economy. The few who succeed are the exception. They defy predestination, but they are few and far between.

This predestination is not just about what kind of education our children receive. It is about the place they will occupy in society and the economy. They are predestined to not improve on the position of their parents or to deteriorate in their position. If we accept anthropologist Jared Diamond's thesis that Aborigines have the capacity to be rocket scientists and neurosurgeons, then strong forces must be at work to prevent social progress on the part of our children.

I do not think social progress comes naturally. Otherwise providing education for Aborigines should result in progress. Education is the principal ladder that allows unprivileged individuals to advance in capitalist societies. But obtaining a quality education does not come easily or naturally. While we hope that education would transcend our material imperatives and realise abstract ideals about human fulfilment, it still principally serves the economy of the day. In the old industrial economy, the education system responded to the need for an army of workers with basic education and skills. The economy and the influential classes had an interest in workers being trained so the labour force could be productive.

The system also allowed for the advancement of some talented working-class children. The heyday of working-class advancement produced a meritocracy that advanced into the middle class in large numbers; witness Leon Davis, working-class boy from Whyalla, South Australia, former chief executive of Rio Tinto and chairman of Westpac.

The rise of the old working-class meritocracy was almost a mass movement. Today, for the lowest classes, such advancement is not a mass movement; it is increasingly sporadic and isolated. Several decades ago, almost all Australian families were integrated in working life. The modern economy does not seem to guarantee comprehensive inclusion.

We have record low unemployment, but the number of people who depend on welfare has increased. We have an underclass of people who pass on their outcast status to their children. There have always been class divisions and underprivileged people. One of the original leftist ideas is that much of our culture serves class interests.

The educated middle class includes two groups with different societal roles. Education provides the skills and knowledge to contribute to wealth creation or to produce and disseminate ideologies and cultures. The middle-class producers of culture and ideology often see themselves as the Left. My texts have often been perceived as attacks on the Left. But I support key policies of the Left. In many areas, Aborigines can agree with the Left, including the people who have felt most hit by my criticism. I agree with them on land rights and conservation, trade unions, redistribution and the role of government in guaranteeing equitable health care and education.

The contention of mine that has caused most consternation when I have challenged the Left during the past eight years is that the result of progressive policies can be at odds with the good intentions that inspired them. My aim has been, as Dennis Glover wrote in The Australian yesterday, to "set higher standards for the Left" by critically examining the outcomes of ostensibly leftist policies. It is appropriate to set high standards because the Left's claim to the right to govern rests on its promise to lift the living standard and prospects of the lowest classes. The challenge of education facing our children should be understood as a class challenge. There are strong class forces at work that are barriers to social advancement.

The main means by which class stratification is maintained and social progress impeded is not by direct and conscious oppressive behaviour by privileged classes. Rather, the forces of class operate culturally. They are embedded in the prevailing ideologies and intellectual currents, popular and niche cultures. Their effect is to cause confusion in the minds of lower-class people about social progress and how it may be achieved, and cause them to behave in ways that are contrary to their interests.

I developed a (provocative) rule of thumb when it comes to examining the nostrums and prescriptions of the middle-class culture producers, who often come from the progressive cultural Left: whatever they say our people should do, we should look at the opposite of what they say because that will usually be the right thing to do. Therefore:

* They say substance abuse is a health issue and should be approached with tolerance. We say it is a behavioural and social order issue and we need to rebuild intolerance.

* They say education should be culturally appropriate. We say this should not be an alibi for anti-intellectualism, romantic indigenism and a justification for substandard achievement.

* They say we should respect Aboriginal English as a real language. We say we should speak our traditional languages and the Queen's English fluently.

* They say our people need to be defended in a hostile criminal justice system. We say we need more policing to restore law and order.

* They say our people are victims and must not be blamed. We say our people are victimised but we are not victims.

* They say we have a right to passive welfare. We say we do not have a right to dependency and, indeed, we have a greater right to take up a fair place in the real economy.

* They say economic integration is antithetical to our identity. We say our culture cannot and will not survive as long as we live in the social dysfunction caused by economic dependency.

* They say poverty is our main problem. We say passivity is our main problem because it prevents us from taking advantage of opportunities to get out of poverty and the resources we get are squandered.

The striking thing about this stark disagreement about what is really progressive is that we are at odds with so-called progressive thinking across vast tracts of policy. For me it is not personal antagonism that explains the gulf between me and most national indigenous leaders and intelligentsia; it is this fundamental analytical and policy gulf about what is progress and what is not. Glover is right when he says that I am a man of the Left because my fidelity is to the lot of the underclass, of whom my people are its most miserable members. It is that I believe liberal and conservative policies have more to contribute to indigenous uplift than outdated progressive thinking.

It became clear to me that some elements of leftist ideology contribute to the barriers that keep our people down. The key to understanding this is to recognise the profound change in the role of leftist theory. When the theories of the Left were originally formulated, the Left was a revolutionary force. However, the Left has merged with power and government. Leftist ideology is integral to the political and intellectual structure of our society.

The challenge for the Left today is to stop assuming that leftist policy by definition is policy that will help the most oppressed. The most obvious example that this is not the case is the rise of a political and intellectual industry that explains, defends and facilitates behaviours that keep people in the underclass. A young Aborigine today who follows the conventional leftist recipes of the past four decades is destined to stay at the bottom of society.

Of course the Left has consistently been a strong supporter of indigenous rights and indigenous people also have reason to support social democratic policy. There are encouraging signs that the Left is reconsidering its reflexive support for progressive policies. If leftist thinkers such as Glover don't effect fundamental shifts of the kind that Christopher Hitchens and the authors of the Euston Manifesto are seeking in Britain, then the Left in Australia will continue to be divided between its political wing and its cultural wing, which will seek to maintain a baleful influence on social policy.

The political wing led by Kevin Rudd and Julia Gillard (who told the Sydney Institute last week that "the old days of passive welfare for those able to contribute are gone") are not at all wedded to the outdated aspects of progressive thinking, attuned as they are to the expectations of the Australian community, but the cultural wing is still a strong force for stasis and, dare I say it, conservatism.

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Crooked NSW cops again

SEVERAL police officers are under investigation for allegedly using the so-called "Einfeld defence" to avoid paying traffic fines. The Police Integrity Commission will today launch its investigation into claims some officers had signed false statutory declarations to challenge the fines. It claims to have already identified "a number of serving and former NSW Police officers and other persons it believes have supplied false particulars in relation to traffic fines". "The commission is investigating whether any serving or former NSW Police officers have been involved in police misconduct or criminal activity by making false statutory declarations or providing false information to avoid traffic fines," the PIC said.

It is understood there are several current and former officers under investigation. The investigation is believed to revolve around allegations that officers provided false statutory declarations after being issued with infringement notices by the State Government's Office of State Revenue (OSR). These statements allegedly falsely implicated people such as the person's partner for being responsible for offences captured on fixed RTA cameras.

Former Federal Court Marcus Einfeld is currently facing 14 charges - including perjury, perverting the course of justice and making and using a false instrument - after allegedly falsely nominating another driver on a statutory declaration. He alleged in court last year that US Professor Teresa Brennan was driving his Lexus when it was clocked speeding at Mosman. The Daily Telegraph exclusively revealed the woman had died three years earlier. Mr Einfeld is vigorously fighting the charges.

If the allegations against the police officers stack up, they could face charges of perverting the course of justice, obtaining benefit by deception, or making a false statutory declaration. Anyone whose car is snapped on a speed or red light camera - and who believed they were not the driver at the time of the offence - can challenge the fine by providing a statutory declaration to the State Debt Recovery Office. The OSR then redirects the infringement notice to the driver nominated in the statutory declarations. An OSR spokesman said if the statutory declaration was later found to be false, criminal charges could be pursued against the person who lodged it.

A public notice from the PIC published in today's Saturday Daily Telegraph calls on police officers and members of the public with any information on the matter to contact them. PIC spokesman John Renshaw said the investigation did not stem from the Einfeld enquiry.

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Totally irresponsible Leftist policy-making

PLANS to pipe water from northern NSW to ease water shortages in southeast Queensland will be scrapped under a Rudd Labor government. On a pre-election visit to the northern NSW town of Grafton in the marginal electorate of Page, Kevin Rudd yesterday ruled out any new dam for the Clarence River that would be required to allow water to be piped from NSW into drought-ravaged southeast Queensland. Mr Rudd claimed the proposed dam would harm local fisheries and cause unquantified environmental harm to the area.

A report by the Snowy Mountains Engineering Corporation released just after the NSW state election in March supported the proposal to integrate the two regions. Most options recommended a dam on the Clarence River to deliver up to 100,000 megalitres across the border each year.

Environment Minister Malcolm Turnbull rounded on Mr Rudd, accusing him of putting political expediency ahead of the nation's strategic water interests. "In one flying visit to Grafton and a beer in the pub, Kevin Rudd has decreed that there will never be any sharing of water between the Clarence River and Queensland," Mr Turnbull said. "Mr Rudd has done no environmental study, no hydrological study, no engineering study - but he has now categorically ruled out the option of establishing an integrated water supply serving northern NSW and southeast Queensland."

Mr Turnbull said the Howard Government had not backed any specific infrastructure proposal and has no authority to approve dams or other infrastructure without state Government backing. He said he had sought to do no more than encourage the consideration and debate of all water options.

Mr Rudd said the Snowy Mountains Engineering Corporation report was full of "sweeping assumptions" that failed to consider the broader impacts of such a proposal. "When Mr Turnbull made this statement about damming the Clarence back in April, we, as the alternative government of Australia, couldn't believe that a responsible minister could make this sort of decision-making on the run," Mr Rudd said. "From the point of view of this local economy and the future of commercial fishing, it doesn't make economic sense."

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