Wake up to Fed currency warfare

Overnight, the Fed has stepped up measures that will keep the US dollar low. For Australia to survive the currency war intact, the Reserve Bank must fight back.

When you are at war then you must use all weapons legally available.

Australia is at war with the US over our currency. But while the US knows exactly what it is doing we slumber on.

And unless we wake up we will be killed. As Alan Kohler reported from New York, the US is engaged in a surreptitious currency war, using quantitative easing to depreciate the US dollar (What to do about the US currency war, December 10).

Last night the US brought in more firepower and further depreciated their currency, sending the Australian dollar dangerously close to 106 US cents – it peaked at 1.0589.

The Federal Reserve plans to keep its rate settings at record lows until inflation comes down below 2.5 per cent and the unemployment rate falls below 6.5 per cent. It will also step up its purchase of long-term bonds by $US45 billion a month, in addition to the current $US40 billion monthly purchase of mortgage backed securities.

But as Kohler said yesterday, the Federal Reserve is effectively giving other countries two options: either allow your currencies to appreciate against the US dollar and thus make your economies less competitive and crunch your export (and employment) industries, or print money with us and risk (or perhaps guarantee) inflation.

Australia is going to be hit twice by the US. Not only does the US have a low currency and interest rates but it has low cost labour and enormous new oil and gas reserves.

This will reduce the price of our energy exports and transfer jobs from our big customer China to the US.

Glenn Stevens, you now have no choice. You must engage in the battle and must plummet interest rates or our employment levels are going to be seriously damaged.

Fortunately, there are steps we can take to strengthen our position. And the banks and housing market are the first place to act. You can avoid a housing bubble by really working on the banks and making them require larger deposits.

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