Thought-Factory.net Philosophical Conversations Public Opinion philosophy.com Junk for code
parliament house.gif
RECENT ENTRIES
SEARCH
ARCHIVES
Commentary
Media
Think Tanks
Oz Blogs
Economic Blogs
Foreign Policy Blogs
International Blogs
Media Blogs
South Australian Weblogs
Economic Resources
Environment Links
Political Resources
Cartoons
South Australian Links
Other
www.thought-factory.net
"...public opinion deserves to be respected as well as despised" G.W.F. Hegel, 'Philosophy of Right'

global economy: 'hot money' « Previous | |Next »
December 20, 2010

The US Federal Reserve sees the international economy’s role as a deus ex machina to rescue the US economy. Foreign countries are to serve as markets for a resurgence of U.S. industrial exports and most of all as financial markets for U.S. banks and speculators to make money at the expense of foreign central banks trying to stabilize their currencies. The way to achieve this is to depreciate the dollar.

RowsonMCluedo.jpg Martin Rowson

Michael Hudson in U.S. “quantitative easing” is fracturing the Global Economy in Real-World Economics Review (no. 55) says that the Federal Reserve low interest rate policy and pumping dollars into the global economy has two unfortunate side effects for Australia – but a free lunch for foreign speculators.

First of all, high interest rates raise the cost of borrowing across the board for doing business and for consumer finances. Second – even more important for the present discussion – high rates attract foreign “hot money” as speculators borrow at low interest in the United States (or Japan, for that matter) and buy high-yielding Australian government bonds.The effect is to increase the Australian dollar’s exchange rate, which recently has achieved parity with the U.S. dollar. This upward valuation makes its industrial sector less competitive, and also squeezes profits in its mining sector. So on top of Australia’s rising raw- materials exports, its policy to counter its real estate bubble is attracting foreign financial inflows, providing a free ride for international arbitrageurs.
This foreign-currency play is where most of the speculative action is today as speculators watching these purchases have turned the currencies and bonds of other raw- materials exporters into speculative vehicles.
| Posted by Gary Sauer-Thompson at 8:38 AM | | Comments (1)
Comments

Comments

And here was me thinking it was just about a leisurely punt up the Thames.
Brigandage 101?