The Aussie dollar goes for gold

The hedge fund game to borrow euros and push up the Australian dollar has suddenly captured the attention of small and large traders in the US (Facing off against a jobs raid, January 24; Carried away in an Aussie dollar dance, January 23).

The Australian dollar eased last night but the popular cables, including DailyFX in the US, are claiming our currency as a better alternative to investing in gold and silver. When traders invest in commodities they don't receive interest. DailyFX points out that the Australian and Canadian dollars in some ways are therefore better than gold or silver.

So, if you will allow me to oversimplify, we have most of our trading partners scrambling to lower their currencies – including the US, China and particularly Europe – because they are desperate to employ their people. But the brave Australians have moved to the gold standard in the sure knowledge that our unemployment will rise to 6 per cent and probably go much higher (Why unemployment is heading to 6%, January 20).

The response from our readers to some of the solutions I put forward yesterday was fascinating. It's clear that many of our readers understand that part of our problem is that we have leaders in Canberra who simply do not understand the ramifications of what is taking place. For example, our moves to make our labour less flexible via the industrial relations legislation will make the impact of the higher dollar worse. And in the middle of our currency becoming a gold standard, and at a time when power costs are skyrocketing, we slap a carbon tax on our manufacturers and large employers.

Australia has a second problem because our banks are being forced to pay higher and higher interest rates on their overseas borrowing. I suggested that the government do the borrowing for the banks and that as a result interest rates should come down.

My readers did not like that idea. Many readers equated this plan with printing money. They believe dwelling prices must come down – or certainly not rise – and some believe that lower interest rates mean that retirees are supporting the rest of the community.

I proposed the idea as a question and was told the answer. But I will be raising it again.

The Swiss currency was an effective gold standard for decades until they found that their unemployment was just too hard to bear and so they have had to clamp their currency. It became impossible to perform any task in Switzerland for export.

If our dollar is to be equated with gold, and we pay higher interest rates than falling currencies, then our dollar could rise to enormous levels. We are going to have to start thinking laterally.

Maybe our readers are right and we have to first cleanse our bad practices and waste, and use the higher dollar to do this. It will be very painful.

But in the end we have to be smart enough to create a society that takes advantage of this situation. We have get to find a way to employ the people who live in our capital and regional cities because if we don't, Australia will be a very unpleasant place to live. I will return to this subject.