1.) Many experts are expressing anxiety and concerns as the price of the Australian dollar remains high, which places Australia at a great disadvantage in trading with other countries. What this means is that goods are being imported into the country at far lower prices than Australia could produce the goods locally. A member from the Federal Chamber of Automotive Industries, Tony Weber, stated, "If we cannot get market access to other countries because of the value of our dollar or we cannot compete in our domestic market because of the value of our dollar, we have grave concerns that there could be a hollowing out of the economy. And when the dollar depreciates, when the resources boom drops off in the future, we will not have the industry structure that we have today." The automotive industry has been affected especially hard by the high dollar value. European and Asian cars are still controlling the automotive market in Australian because of the low values of their currencies. If the auto industry continues to reduce its collapse appears certain. Jac Nasser, BHP Chairmain, said, "It would be a very sad day for Australia but unfortunately it looks like it could be inevitable." Weber warned that if the auto industry left Australia it would most likely never return.
2.) This article relates to the idea of the national income equation, GDP = Consumption + Investment + Government + Net Exports, that was discussed in class. Other factors set aside, if imports exceed exports then the net exports category would be negative and cause a decrease in GDP. Not to mention that the cost of living in Australia is already extremely expensive. Also, since the price of foreign cars is lower and more affordable than cars produced in Australia, the demand for these locally produced cars will decrease and the price and quantity will also decrease. Due to Australia's economic strength, somewhat high interest rates, lots of foreign investment due to the resources boom, and the "currency war" the value of the Australian dollar is being inflated. A currency war is when trading partners such as Japan, China, Europe, and the United States print large amounts of money in an attempt to stimulate their economies.
3.) The inflation of the Australian dollar is due to multiple different factors such as economic success, high interest rates, and large amounts of foreign investment in order to fund infrastructure for the resources boom. Australia is also involved in a "currency war" with Japan, China, Europe, and the United States. The inflation of the Australian dollar is causing the import of cheap goods to increase dramatically, and may cause the demise of the Australian auto industry. Some economic experts, such as Professor Ross Garnaut, are suggesting that the Reserve Bank cap the dollar. Garnaut said, "This would involve cutting interest rates and buying large quantities of foreign currency to deflate our own." Many others, however, disagree with this proposed solution. Economists who disagree believe that capping the dollar and cutting interest rates would only temporarily lower the value of the dollar and risk hurting the housing market. Others think that when the mining and investment boom falls in a few years, the inflation will also fall. For now, the solution to this problem remains in debate.
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