“You’ve come a long way, baby” was the tag line for Virginia Slim cigarettes, back in the days when tobacco companies spent big on full page magazine ads. (Apparently gaining the right to lung cancer and emphysema was seen as progress.) Yet today it’s the rallying cry for the continued appreciation of the Australian dollar. With the Reserve Bank signalling a rate rise in the near term, foreign exchange traders are piling into the Australian dollar. Combine that with a decline in the US dollar and the little Aussie battler is rising and rising. In an interview printed yesterday, Icap senior economist Adam Carr said:
“I think we will get above US90c when the RBA starts to tighten, and depending on the pace of that, we could be at parity next year.”
Parity means one Australian dollar has the same value as one US dollar.
This is a long way away from the days the Australian dollar bought US$0.60. Then our currency was called the “Pacific Peso”. That’s making a comparison between the purchasing power of the US dollar in Mexico with the equivalent power in Australia. Needless to say we had a lot of American tourists here. Sadly we were unable to provide souvenir sombreros or high quality agave tequila. Do an Akubra and Bundy count?
Today further signs of life emerge. Business confidence is at a six year high. Stocks rallied. Gold closed above US$1,000. The Australian Business section has a banner headline nearing screaming confidence:
It’s all up: stocks, gold, dollar
But reminders of past panics are never far behind. Just under the banner headline The Australian Business features a photo of a middle-aged man in T-shirt, jeans and tractor cap. One year later – it’s Dick Fuld, former CEO of Lehman Brothers. And while expects the 15 September anniversary to put him back in the headlines, I believe attention needs to turn to the real villain. US Treasury Secretary Henry M. Paulson Jr. made the decision to let Lehman Brothers go under. In retrospect it was a mistake of global proportions. We’re all familiar with the aftermath:
Last year, as the credit crisis deepened, the US government and the Federal Reserve arranged life-saving mergers for investment banks Bear Stearns and Merrill Lynch, propped up the giant insurer American International Group and bailed out Goldman Sachs and Morgan Stanley.
But on September 15, they let the 158-year-old Lehman die in what was then the biggest bankruptcy in the US history.
The collapse drained what little confidence was left in global financial markets, triggering a meltdown.
Stocks plunged, credit markets froze and governments worldwide were forced into a massive round of bailouts and backstops for companies, particularly banks. (Source: The Australian)
Still, Paulson didn’t receive salary and entitlements exceeding US$500 million. Even if he did or did not get punched in the face at the Lehman Fitness Centre, we still need a scapegoat. His employees all “signed” a portrait of him and added comments that are far from kind
Happy Anniversary Dick Fuld – we’ll buy your gift with Australian dollars are we’re now getting more back for our buck.
