Wednesday, December 14, 2011
“I will be completely open with you,” he told the Sydney Institute last night. “Anybody who thinks you talk down the dollar or talk up the dollar is a fool.”
“I mean what drives the dollar? What’s driven it up is the rising terms of trade. The world is trying to give us a massive amount of wealth.”
“If I tried to lower the dollar I would be really saying I am going to take part of that wealth, pour petrol on it, and I’m going to burn it.”
“If you want to live in that world, that’s fine, but I don’t think it’s sensible for the long-term living standards of the Australian people.”
The Treasury secretary also took a swipe at ratings agencies who he said were trying to overcompensate for past mistakes...
“They are becoming mechanistic and excessively simplistic, running the risk of moving from excessive optimism to excessive pessimism every time they look at a country or firm. If you’ve got a small check list of indicators and you bang through it, you never really understand the circumstances.”
China was succeeding in slowing its economy without a hard landing. “I am not worried about it,” Dr Parkinson said. “The more we can get them to start to using proper instruments of monetary policy rather than direct lending controls the better we will all be.”
Europe would almost certainly enter recession next year. The only question was about how deep it would be and how long it would last.
“Our assessment is that if everything goes well the recession could be shallow and over soon,” he said. “ If it doesn’t it could be protracted indeed.”
Greece in particular was in a vicious circle. Every time it reassessed its economic situation it revised down growth and wound back its budget, pushing down economic growth further.
Its economy was now expected to sink 8 per cent over two years and the budget would need to shrink almost 25 per cent over three years.
Fortunes in the United States appear to have turned, but the failure of the Congressional committee tasked with finding budget savings has triggered automatic spending cuts that were likely to cut US GDP by up to 0.75 percentage points in 2013, “a potentially significant shock to what was still likely to be only a still modest recovery”.
Published in today's SMH and Age
A Year in Retrospect, A Decade in Prospect - Dr Martin Parkinson
. Learn to love the higher dollar
. That was a blip, this is a slow motion train wreck - McKibbin
. Now its a global trade war. Soon. Modelling.