In the US, there is a lot of talk about Australia devaluing its currency in response to a US-China trade deal. But with the result of the recent Federal Reserve meeting, many are skeptical whether Australia will maintain its target of maintaining an annual inflation rate of 2%.
The United States is weakening its currency and creates a new depression that is going to push down the dollar value of everything. The value of commodities and the savings of many people in the US are at risk. If the markets can break down, there could be a lot of trouble ahead.
Maybe the world economy can avoid a full depression by allowing prices to rise above the level that the markets can bear. It may be hard to enforce this, especially in a world of trillions of dollars in trade.
When oil prices started rising, producers who sell their output in a bid to earn higher profits started feeling the pinch. They realized that prices were soaring due to global demand. Eventually, this demand is going to be met by supply from some major exporters.
If prices remain high, it may force many producers to start selling their commodities. That is not a good thing for producers because they have large amounts of inventories to fill.
In a situation where commodity price movements are so unpredictable, it is difficult to predict which way they will go. But in the short term, producers do not want to cut back production, even if they are barely making enough to meet the expenses.
If they try to close their factories, they may suffer a global recession. Even if the oil price starts dropping, producers can still profit.
So what should they do? Australia’s history in the past has been to look after consumers, as part of the monetary policy of the Federal Reserve.
The first thing that the government should do is to buy up as much of the goods as it can afford to buy and sell it off in the open market. Then it should stop trading its own currency.
This would allow more liquidity into the markets. This would help the Australian dollar, as it is currently trading at a low level.
So if the government wants to get more capital into the financial markets, it should get in and out of the markets on an equal basis. The same goes for the government of China.