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ONE of world’s most vocal economists today warned Chinese currency revaluation and political pressures will impact on Australia’s resources boom.
Former US Federal Reserve chairman Alan Greenspan (pictured) predicts a higher valued Chinese RMB will intensify economic contraction and political unrest.
“China is being pressured to allow the RMB to rise, but the Communist leadership fears it will bring significant contraction in job creation,” he says.
“The allure of party ideology is long gone, leaving the leadership with only prosperity to offer the people. Unemployment often creates political instability.”
Such developments would reduce demand for Australian iron ore, forcing producers to sell at more competitive prices.
However, Greenspan’s outlook is not entirely bad for the broader mining sector.
“Australia has an extraordinary advantage in delivering resources and is experiencing a very aggressive mining boom,” he told an Australia-Israel Chamber of Commerce breakfast via satellite video-link.
“The danger lies in how there is no way to sterilise adverse effects such as rising interest rates. Norway successfully avoided this scenario despite continued oil production in the North Sea by channelling proceeds into a sovereign wealth fund (SWF).”
Proceeds from SWFs can be used to fund better health services for the ageing population, natural disaster-proofing, Indigenous Australian initiatives and offsetting the new carbon tax.
Greenspan believes downturns are inevitable due to the cyclical nature of market economies.
“In 2008 we had an international lockdown of the stock market, money, mutual funds and global trade credits. We have not experienced such a breakdown of financial institutions since 1907. The global financial crisis was the worst the US had ever faced,” he says.
“However, unless you can change human nature this will continue to happen when dealing with a market economy.”
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