How the RBA killed Australian wages | MacroBusiness

Good summary of Australia’s predicament from David Llewellyn-Smith:

…..A lot of this is to be expected in a post-mining boom environment. I mean, we seriously overdid it:

This is why I obsess over lowering the dollar. It absorbs an huge amount of the deflationary pain in repairing one’s competitiveness rather than doing it internally vis-a-vis Europe’s PIIGS.

That is also why authorities have made such a hash of the adjustment by at first denying the mining bust was happening and then inflating debt and asset prices to offset it when they found themselves behind the curve.

They thus levitated the dollar throughout, hammering tradable wages harder than otherwise and spilling it out more widely now. Worse, we now have the debt overhang to deal with and another adjustment to face in non-tradable sectors related to households once the post-mining boom adjustment abates.

Pity we didn’t listen to Prof. Warwick McKibbin in 2012 when he warned: “…the central bank should ‘lean against the wind’, that is intervene to slow down the extent of appreciation of the exchange rate.”

Source: How the RBA killed Australian wages – MacroBusiness

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