Boomer retirement to cause AUD to drop below 50c?

SpacePete · Feb 4, 2015

I remembered something I had read a long time ago about the consequences of the global boomer generation retiring. I found it again today.

This article is from 2006. Is the point below still relevant today?

Should the Australian dollar fall below US 40 cents . . .
by Patrick J. Byrne
Chronic policy neglect by Australian governments could see our dollar plummet in value, writes Pat Byrne.
...

Sixth, around 2010, the baby-boomers will begin retiring in big numbers around the world. This means countries like Japan and Germany, that have been investing their big retirement savings funds overseas, will no longer be looking to invest in places like the US stock and bond market, and in Australia. In fact, they will be looking to cash in their investments so as to fund their ageing retirees. This will further restrict the ability of foreign lenders to fund our foreign debt.

Australia's retiring baby-boomers will probably force the Federal Government to incur deficit budgets, as the huge number of retirees puts mounting pressure on the health and social security budgets.

This means the Federal Government could go into permanent budget deficit, forcing it to borrow domestically and overseas.

The combination of these short- to medium-term changes in the international and domestic economies is likely to mean that the international financial markets will curb their funding to Australia, while our worsening trade balance will be accelerating the growth of our foreign debt. That will spell crunch time for Australia.

The first likely effect will be a fall in the Australian dollar. Its long-term trend line since the late 1970s shows a downward decline, with each low point being significantly lower that the previous low. The trend suggests that this time the Australia dollar could fall well below US40.

As indicated above, economic theory suggests that a large fall in the value of the Australian dollar should greatly boost exports by making manufactures and commodity exports cheaper on world markets. Theory assumes that companies only have to gear up production to ride the export boom.

However, the structural problem facing Australia is that large parts of its manufacturing industry have shut down or moved offshore into low-wage Asian countries. Many manufacturing companies that once would have benefited from a low Australia dollar are no longer present in Australia.

A further problem is that even if the Australian dollar halves in value, it still won't make many local industries competitive with China, where wage rates are one-fifteenth of Australian wages. Unlike Japan and Germany, that geared their industries to lead the world in high-tech industries and machine-tool production, Australia has chosen, by policy default, to have its manufacturing sector compete with low-wage countries. But competing with low-wage countries is a mug's game.

http://newsweekly.com.au/article.php?id=2430
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spannermonkey · Feb 4, 2015

I place "ALL FORECASTERS" in the same basket as politicians

boston · Feb 4, 2015

What if the US$ also falls precipitously?

Currency wars, here we come.

petey · Feb 5, 2015

No worries mate, she'll be right, we'll just import some immigrants.

JulieW · Feb 5, 2015

At 40 cents perhaps Wool will reign supreme again.

Jislizard · Feb 5, 2015

petey said:

No worries mate, she'll be right, we'll just import some immigrants.
Click to expand...

Might have to, or just raise the retirement age

http://mccrindle.com.au/ResearchSummaries/Australia-in-2020-A-Snapshot-of-the-Future.pdf

Big A.D. · Feb 5, 2015

spannermonkey said:

I place "ALL FORECASTERS" in the same basket as politicians
Click to expand...

Saying that people get old is "forecasting"?

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Boomer retirement to cause AUD to drop below 50c?

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