An Aussie Dollar Crash

In today’s episode of As the World Burns, we’ll look at why certain central bankers and politicians have the brains of un-evolved reptiles. It’s also time to be honest and direct about what Australia needs right now: a dollar crash. We’ll show you why, and what to do ahead of time.

Australia, has manufacturing problems. The April manufacturing index fell 7.7 points to 36.7, according to the Australian Industry Group. The Group reported that, ‘This is the lowest level the Australian PMI has recorded since May 2009, with many of the key sub-indexes also dropping to levels not seen since 2009…Contractions in activity were recorded in seven out of the eight manufacturing sub-sectors.

The wood and paper products sub-index did not contract in April. But the report showed ‘significant’ contractions in food, beverage, and tobacco products, along with non-metallic mineral products, metal products, machinery and equipment. Exports contracted for the ninth consecutive month and the exports sub-index fell to 24.5, the lowest reading in the history of that sub-index.

Yes, with a horror report like that, there are only two options from here. Sound Money Sound Investments editor Greg Canavan suggested the first yesterday:  ‘This is just ugly. We need to work out if banks can manufacture mortgages for export…it’s the only way we’ll restore competitiveness.’ That’s one option.

Barring that, an Aussie dollar crash should do the trick. The government budget now has more holes blown in it than a respectable slice of Swiss cheese. With the shock API report and the new era of budget deficits as far as the eye can see, the dollar ought to fall. And if it doesn’t the Reserve Bank of Australia ought to take a hacksaw to interest rates.

Not that we’re a big fan of manipulating interest rates. But it looks more and more likely to happen. A report from Deloitte Access Economics concludes that more than $30 billion of planned investment projects in the mining sector were scrapped in April. That was part of the big investment boom the RBA has previously said should tide the economy over until…some other investment boom comes along to drive growth.

The reptiles in the political sphere are beginning to understand that the old days of riding the back of the mining boom to record spending are over. The Finance Minister calls it a ‘New Reality’. But there’s nothing new about it really. Booms end. You can’t expect them to last forever.

By the way, the government still talks about ‘savings’ within the budget to accommodate a new era of slower revenue growth. This is more of the language trickery we mentioned earlier in the week. The only way someone could call new taxes savings is if they were treating your money as if it where their own.

That’s what all governments — left, right, and centre — do. They act on behalf of a government that has a self-interest which may very well be in conflict with yours. To keep their budget ticking over, they need to ‘save’ money by taxing you. In their mind, preserving their spending priorities is a perfectly legitimate thing to do, even at your expense.

Only in the brain of a reptile is this kind of logic possible. Mammalian brains have larger frontal lobes than other animals. Although this is metabolically expensive — it takes a lot of calories to carry around a big brain — those extra brain cells are worth their weight in empathy. The frontal lobe is the seat of many of our emotions. And it’s why human beings are capable of sympathy and empathy, recognising that each of us is like the other in some way, and is not prey to be eaten or attacked.

Contrast that with the reptiles. The dominant feature of the reptilian brain is the medulla oblongata. It sits at the bridge of the spinal cord and the brain and is kind of like the nerve centre for critical functions that guarantee self-preservation. It controls involuntary functions like breathing, heart rate, and blood pressure.

We mean no disrespect to crocodiles, lizards, and alligators. Quite the contrary. These animals are perfect, in evolutionary terms. They don’t need to paint, make music, or write treatises on moral action. They have brains perfectly evolved for staying alive and killing efficiently. They don’t need to think.

Are all politicians reptiles? Probably. They make convincing sounds about doing things for the ‘greater good’. But in their menacing reptile brains, you can sense they’re always moving in for the kill. That’s not a new reality either.

But back to investing. What will happen in an Aussie dollar crash? Well, it ought to be bad news for banks and good news for manufacturers. That’s a simple pair trade. And the banks are looking quite bubbly as it is. We’ll consult with the Slipstream Trader again this afternoon and get back to you tomorrow on the technical picture. Until then.

Dan Denning
for Markets and Money

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From the Archives…

Gold Demand: The Great Disconnect Between Paper and Bullion
26-04-13 – Greg Canavan

Lest We Forget
25-04-13 – Greg Canavan

Praying for Government Incompetence
24-04-13 ­– Bill Bonner

The Cracks in Solidarity at the Recent G20 Gabfest
23-04-13 – Greg Canavan

How Central Planners are Committed to Ruining the Economy
22-04-13 – Joel Bowman

Dan Denning

Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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5 Comments on "An Aussie Dollar Crash"

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slewie the pi-rat

myself a minimalist [except for anything i need for my “kitchen sink”; and/or pursuit of happiness], i tend to “opt out” of many of the important things in a poor finacial editor’s POV.

to pi-rats, the most evolutionary FACTs we KNOW?
1) we each get to/must evolve from our personal aspects as well as the collective, and
2) we do not evolve thusly (see 1) as a collective mass, but small groups or projects may be useful at times to the individual.
9) i am my own guru.

slewie the pi-rat
ya know, with this As The World Goes UP IN SMOKE theme, i just finished reading on of tyler’s more superior rants about this very subject, along with at least 5 centerfolds of “keeper” zH chart-porn, too, depending on color preferences. however, this in no quick-ey trick-ey, dickey. it is at least at the level of a good detective novel and it isn’t short [L0L!], since the plot, itself, is sickeningly thickening right now.. however, screw tyler: the bankster did it. in your pocket. with a hooker. and the checks are in the mail, too. enjoy! so! about that… Read more »

but who owns Australia’s public and private debt? Remember Appendix G with the thick black line through it?

What happens if the AUD crashes and the burden of repayment of that debt rises?


Hi i have had a commsec account for some time, i am not a big trader nor do i have a lot of shares, but i do like to have the ready access to my own trading account if i want to buy something and i don’t have to worry about dealing with a stock broker. My question is how do i trade on silver commodities, i know EPTMAG, but commsec doesn’t recognise that code. can anyone give me some guidance on this?

The $US is the benchmark for commodity prices as we know… Because most things are written in $us this is the only reason it is ” perceived as worth something “…. However with vast ammount of $Us dollars ” printed” to finance US wares in the Middle East ….and. Gold price up over the last 8 years …correction due to problems with Euro debtor countries… Maybe explaining holds ” adjustment down”… The long term trend overall is still up for the Gold price … Now paper money has ” no intrinsic value ” is it’s just an uou ink on… Read more »
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