07 Feb Should Australia Start Printing Money
America has undoubtedly conquered the world since World War II by a simple yet effective strategy particularly since the gold standard was removed thus enabling America to print money with which it could buy up assets around the world.
But how can a country simply print money without causing inflation?
That’s a good question.
When Zimbabwe President Mugabe came into power, he did exactly that and destroyed their currency which used to be equal to the USD.
Now they require billion dollar notes to buy a loaf of bread.
What’s the difference?
The difference is that the US dollar is a reserve currency used by countries around the world whereas the Zimbabwean dollars isn’t in demand overseas or even in Zimbabwe as a matter of fact.
The Federal Reserve in America (which isn’t actually federal but a profit making business) can print US dollars knowing it won’t cause rampant inflation since there is massive demand for the US dollar all over the world.
Eventually it will create inflation overtime but they can effectively export that inflation to the rest of the world and buy their way out of trouble (or they at least hope to).
A lot of people are afraid of the US dollar crashing and have consequently avoided buying US Property at the bottom of the market because of this misinformed idea.
However, the US dollar is unlikely to crash in the short term
Rome did not fall overnight- it was decades of decline. Similarly, the US isn’t going to crash overnight either.
Unfortunately, a lot of people have stopped investing because of this irrational fear even though action takers including myself have made a fortune from US Property.
Also, America actually wants to devalue their dollar to make their exports more competitive by printing even more money (called quantitative easing).
By doing so they can export inflation overseas and therefore unlike Zimbabwe they can continue printing even more money without increasing significant inflation in the short to medium term.
Even though China and the European Union is not happy about it, there is little they can do as there is no other reserve currency at this stage and it will be years before there is one.
Nevertheless, in the short term, countries are looking for some alternative less risky currencies from countries that have well performing economies.
This is where Australia comes in:
We are seen as an interim reserve currency and largely because of foreign demand chasing the so called safe havens (or safer than other riskier currencies at least), it explains why our dollar is so high.
Due to the large demand for our currency from buyers of our major exports such as commodities and also from Governments and Central banks overseas, the demand for the Australian dollar has been boosted to an extent that despite falling interest rates our dollar is rising.
This indicates that our wealth is increasing on Global standards due to what our dollar can buy overseas; however, in Australia you may not feel that wealthy (unless you travel overseas) due to our high cost of living.
For instance those who earn in Australia and travel to America will realise how wealthy they actually are.
Clothes for example are very cheap and labour costs roughly $7 an hour unlike the minimum wage in Australia, which is $17.55 an hour.
Therefore you can often hire well educated Americans for one third of what Australian employees cost.
Not only is it cheaper, it is also a larger market and a more business friendly country.
This explains why many of my entrepreneurial friends are hiring in the US.
Personally I am considering hiring from the US as well to attract quality talent at a fraction of Australian prices.
In the year 2000 I remember shopping in Las Vegas and our dollar was 47 cents whereas now it is almost $1.06. That is a big difference in buying power especially in Real Estate because houses in most cities are cheaper than what they were in the year 2000.
This leads me to the question:
Why doesn’t Australia start printing money?
Australia can do so without causing domestic inflation since there is more than sufficient demand for our currency.
We can effectively print free money (at least in the short term) and it can help lower our dollar to make our export more competitive.
Food for thought
Either way- Will you profit from our high dollar in 2013 or be a victim?
I suggest you get educated and profit.