So it isn’t too surprising that it got valuable all of a sudden. Being as the money supply is ultimately the supply of AUD.

And you see recently with the USD trouble. This also is likely (I haven’t seen the figures) a result of a restriction in USD money supply on account of recent USD ponzi-money collapse due to these bank problems. But this latter I don’t know for sure.

There is another deal going on with Australia as a commodity exporter. As Terje often points out, excesses of money supply increases overblows the price of commodities. But in this game there are now two players. If both America and China had collapsing money supplies we would see some effect of the AUD via commodity prices. Our dollar would be like a double loser against these two.

This makes AUD commodity companies good investment plays. Because when this bailout inflation hits town there will be two or three things making BHP or Rio shares go up locally and at the same time our dollar go up.

And its going to happen. Because the Treasury and the Fed are run by inflationists and thieves.

Under 100% backed commodity-money we can say that debt creates wealth when you use it to improve your cashflow.

The reason for this is that in a hard money world nobody is foolish enough to ever rely on capital gains. Its a high-yield world and cash-flow is King.

So all this investment in housing is just about all malinvestment, from this point of view. Because housing is a consumer durable and yet we treat it as an investment good. We only treat it as an investment good because of currency debasement.

Now this talk about malinvestment. This term tends to be thrown around as an absolutist term. But its all relative. In the sense that you can make better and better investments. And ones that make no sense.

In an inflationary period people make investments that might make sense from their personal point of view but that make no sense from the point of view of the free market being a sort of rational system.

We all flip houses. We make investments that don’t improve cashflow. But also in the commercial world people make investments that there aren’t the resources for. OR AT LEAST THIS IS HOW IT PANNED OUT UNDER FRACTIONAL-RESERVE-GOLD.

The quality of investments fall, viewed from a Gods-Eye point of view. But there is also an issue about manufacturers making investments that the resources don’t support leading to cost overuns and long-term projects being abandoned mid-way through.

((((((This is what I’ve tried to impress on our young economics grads but so far without success. They seem to think that our trade deficits are all fair and good and that we ought lose our manufacturing. Whereas I’ve tried to explain that our manufacturing is being devastated by these esoteric monetary considerations….)))))))

But this latter phenomenon doesn’t tend to happen these days in the way that Mises described it. Because our floating exchange rate system and the scope of international trade means that the projects do not now tend to get abandoned mid-stream like that.

Instead our manufacturers go broke and our trade deficit blows out. Thats your modern Austrian malinvestment resolution right there.

Under gold-fractional-reserve the malinvestment would lead to projects being abandoned mid-way in such a way as to almost totally mystify the entire community.

But under our floating exchange rate system what happens instead is our manufacturers make horrendous losses and our trade deficity blows out.

The last time you had this Misean breakdown where all these projects just shut down and were abandoned midstream, in traditional fractional-gold-standard fashion…..

…. The last time something like this happened was in Thailand in 1997.

So we have to be a bit careful now when we toss around this “malinvestment” term. We have to know the history of how this idea was formulated and how the phenomenon reveals itself in the modern era.

Strong Economy = Rising Prices
Strong Economy = Strong Currency
But Rising Prices = Weaker Currency

In other words the myth does not entirely add up. You can have a strong economy with a weak currency or a weak economy with a strong currency.

Inflation and Deflation basically happen orthogonally to Expansion and Contraction. The former only feed into the latter because humans make commitments that get confounded by unexpected changes in the value of the unit of account.

Australia’s dollar was strong against the US dollar for quite a while over the last 12 months (I bought a lot cheap on ebay during that period!) But over the last couple of months, the exchange rate has gone crap and the almost 1:1 ratio has dropped back to around 1:0.8

How does this happen? I thought that the Australian economy was still doing better than the US? I thought the exchange rate was essentially a relative measure of the strength of respective economies. Australia’s economic strength relative to America doesn’t seem to have changed, so why has the exchange rate turned so badly against us?

I don’t think the Fed managed to do that. Neither did the RBA. Have you seen Steve Keen’s blog?

I don’t much like Steve Keen’s idea of a solution – inflation. Sounds like you have much the same idea. Wouldn’t that persecute savers, retirees and renters?