aussie dollar is anywhere between 91c and 94c as of 20 June 2008.
considering that the US dollar isn't gold backed anymore, it's very nearly worth less than the paper it's written on.
with an economy that's 74% consumer-spending based, with consumers that ain't spending, it's no wonder things are the way they are. monthly "growth" figures last quarter are based on warehoused goods, so while growth figures are "up" it's because manufacturers keep manufacturing but no-one's buying!
sub-prime ; geez where to start?
once upon a time a bank could "create" 9x the amount of money against the amount of gold "in the vault". so that's a 1:10 leverage. full stop.
banks have always been an inverse pyramid (a pyramid standing on it's point, not it's base). a small stock of gold at the bottom supporting a large wad of cash above that is lent out internationally (sometimes locally) and 19% interest paid upon.
the FED don't have to use gold anymore to create capital. they can use debt and what the debt is tied to - an asset. and so the inverse pyramid is built on debt. and since debt can be bought and sold it creates money from creating money - it's an exponential cycle.
trouble is, debt requires to be serviced and gold doesn't. a few people falter with their debt and the inverse pyramid wobbles. a lot of people falter and the inverse pyramid collapses.
why do people falter? banks lend to people who can't afford it. what do they care? if they can't pay we'll take the asset.
but the asset has depreciated.
and there is our problem.
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so, how does one reverse the situation?
easy, raise interest rates in another "free trade" nation (Australia, Canada, UK, Mexico etc) while lowering yours locally to pump money back into value negative assets and keep things stable.
that's the reason we have high rates, the US have low rates. in a nutshell.
