Is the Aussie dollar about to fall?
I’ve spent a lot of time talking about money.
How to keep it…
How to grow it…
How gold is money despite the propaganda campaign to demonise the precious metal.
How the changes in the US dollar affect the value of currencies around the world…
And how those simple changes in the greenback can inadvertently have a catastrophic effect on another country’s ability to pay its own bills.
I’ve warned of currency devaluations happening in the euro and the yen because of low rates.
I’ve written about currency crises in Turkey and Argentina…
But never before have I written to you and said that Australians may have their own currency crisis…
Lies, damned lies and statistics
In the middle of last week, Aussies got the latest round of inflation numbers.
If the numbers were true, you and I should be thrilled.
However, central bankers and governments would’ve been disappointed…which is amusing. Both have manipulated these figures so much for so long that they no longer reflect reality — and yet the figures still don’t tell the story they want to hear.
For the March 2019 quarter, the Consumer Price Index recorded a growth of 0.0%.
That’s right. A big fat zero for inflation.
The lack of growth brings our year-on-year inflation tally down 1.3%. Supposedly, this means that the cost of goods aren’t particularly expensive.
Of course, the devil is in the detail.
You see, the cost of fruit and vegetables rose 7.7% in the quarter. The cost of secondary education also rose (4.2%), while the price of cars jumped 2.4%.
Given the Aussie dollar is falling in value against the euro, Japanese yen and US dollar, it makes sense that car prices in Australia are rising. A weaker Aussie dollar means we need more of them to buy the same thing.
The increase in food and vegetable prices is the reaction to the droughts and floods that have impacted our growers this summer. The large rise in secondary education costs may come from the fact that Australia’s private schools increased their rates by 2-5.3% this year.
What’s really telling is where the CPI dropped.
Fuel costs were down (-8.7%), while local travel and accommodation costs dropped 3.8%. The number of Aussies planning international trips also fell.
The problem with the inflation data is that it reconfirms essential costs are rising and luxury purchases are falling.
You don’t plan a holiday when money is tight. Instead, you leave it in the bank ‘just in case’.
Slowly but surely, the consumer is disappearing from Australia.
And it’s becoming a major problem for the Reserve Bank of Australia…
Where is everyone?
‘Where was everyone last night?’ John Adams, Chief Economist for As Good As Gold Australia, asked me on Sunday morning.
We met on Saturday at a conference hosted by the bullion dealer. After a flurry of emails, John was kind enough to grant me an exclusive interview before flying back to Sydney early Sunday morning.
What I didn’t know is that John is a bit of a night owl. After having dinner with his team, John took himself off to party at the Crown casino and entertainment precinct.
After spending the early-morning hours in a few of Crown’s bars, John said it’s obvious that people are spending less.
Not so, I countered. Most Melburnians hate the Crown precinct.
Melbourne is a city full of laneway eateries next to dumpsters, and bars hidden behind blank doors and located on the third level of a decrepit building.
Only tourists go to Crown, I told him.
For now, the nightlife in the Melbourne CBD holds up.
My issue with the Crown precinct being quiet is that it proves the tourist has gone missing.
Think about it.
The last two weeks of April had three nationwide public holidays. Smart cookies took three days of annual leave and ended up with a 10-day weekend.
However, the Southbank area’s lack of tourists means Australians aren’t travelling. Certainly not to Melbourne for overpriced coffee and cocktails.
The thing is, Crown and the other restaurants around Southbank are always busy. And people had the very rare chance to maximise their annual leave and go somewhere. But they didn’t.
Suddenly, there is a noticeable drop-off of people in the area.
And it’s just one more nail in the coffin for the Aussie economy…
The coming Aussie dollar currency crisis
So, how does this exactly fit in with an Aussie dollar crisis? Or was that just a sneaky lead to get you to keep reading?
Well, you caught me. I wanted your attention.
The thing is, an Aussie dollar currency crisis will be caused by several events…not just one thing.
That’s why consumption counts.
Australia is a consumerist society.
The buying and selling of things, and charging prices for doing services for others, contributes around 55% towards the country’s total gross domestic product.
So when people stop spending money, the government has a problem. It means that GDP may fall.
To prop up GDP and keep people in the business of buying things, there’s a chance some government boffin will propose a stimulus package of sorts. Tax cuts, perhaps. Or some sort of ill-conceived, government-funded cash bonus.
It also means the RBA is forced into ‘action’.
That action is cutting rates.
For two years, I’ve said the next move from the RBA will be down, not up.
And that consumer behaviour will drive rate cuts.
Not falling wages. Not house prices. Not any other metric you hear quoted.
What the consumer does matters almost more than anything.
The latest CPI figures demonstrate once again that people are spending less.
This will have catastrophic consequences for the Aussie economy.
And the recent CPI data could be the rocket that causes the RBA to cut rates next week.
But there is a much bigger problem that comes with the rate drop.
There are long-term consequences.
And the bigger the rate cut, the worse the outcome is for you.
Tune in tomorrow, and I’ll reveal more about my chat with John Adams.
The RBA is getting ready to destroy the Aussie dollar…and you need to know how to plan for it.
If you can’t wait until tomorrow, you can start here.
Until next time,