Value of Australian currency

Policy Options

Under the Australian Constitution, the Commonwealth Government has all the powers it requires to manage external policy, fiscal policy and monetary policy. Since 1983 though, national governments have abnegated their formal responsibilities and handed external policy to asset speculators. Monetary policy has been handed to an independent Reserve Bank. Only fiscal policy remains an arm of macroeconomic policy setting in most western economies. This has to change. For elected government to be accountable to the people, they must exercise authority across the three arms of economic policy setting: monetary, external, fiscal. Government accountability across all arms of economic management should be a right of any electorate in a modern democratic economy

Those who call for a simplistic lowering of nominal or real interest rates must provide policy solutions to these difficult policy questions discussed above. Because Australia pursues free trade policies, overseas investors in rural Australia provide an important source of capital inflow needed to cross subsidize a chronic current account deficit. It matters not why the money flows in, so long as it "plugs" the current account deficit and feeds the net income deficit "habit". To manage this will require tougher Foreign Investment Review Legislation and a change in economic philosophy

Policies to overcome the chronic current account deficit are well understood. They will be politically unpalatable in the contemporary free trade political environment. Such policies would have to be sold on a number of fronts:

• Governments accountable to the people across all three arms of economic management
• Monetary policy direction reclaimed by Treasurer and Parliament
• RBA administer monetary policy on daily basis only
• Cease cross subsidization of balance of payments accounts that distort resource allocation
• Reduce import flows in the national defence interest to build a broad industrial base.
• Reduce import flows to return Australia to historic full employment levels.
• Reduce contemporary inefficient underutilisation of labour in Australia

Policy Instruments

Fiscal Policy

• Tariffs as a revenue instrument to reduce PAYE and company taxes
• Quotas and prohibitions used sparingly
• By Laws reintroduced to exempt imports from duty that are not made in Australia
• Penalty taxation on dividends flowing off shore directed to sovereign fund
•  Fiscal policy to actively support rebuilding a broader industrial base

Monetary Policy

• Monetary policy settings returned to Legislated RBA Charter
• Percentage capital inflow deposited in Government sovereign fund
•  Sovereign Fund used to purchase existing foreign owned assets
• Quantitative easing program to fund major infrastructure.

The GFC changed the financial world that was structured during the 1980's and beyond ; and, with it the belief in independent central banking. Deregulated financial markets fed greed and encouraged the structuring of "shonky"financial systems. International central banks that oversaw financial system expansion now appear morally bankrupt. On the pretext of growth policy, they support public sector ponzi schemes that keep world financial markets living in the manner to which they became accustomed. Once quantitative easing stops, then financial markets become unstable again; and, the world stares down another 2008.

The difficulty is that contemporary political parties and business leaders are still dominated by those who earned their spurs during the deregulation frenzy of post 1983. These people stubbornly believe that a return to the policies of the 1980's will restore stability and prosperity. They are sadly misguided.