The money will be created at a rate of about $75 billion per month. This represents over US$500 created a month for each American taxpayer.

Meanwhile, continued growth in the Australian economy means the Australian Central Bank is undertaking “reverse Quantitative Easing,” increasing the cost of money by hiking interest rates this week again to 4.75%

The Australian dollar is trading at its highest level against the US since it floated in 1983.

Prime Minister Julia Gillard saw both advantages and drawbacks coming from the rising Aussie dollar.

“It’s good for some industries and bad for others,” she told Nine Network.

“If you rely on imported components to do what you do, then it makes a good difference. But if you’re competing for things like tourism, international education, it makes it really tough.”

For example, the cost of education for Chinese students in Australia has risen 50 per cent compared with the start of 2009.

Currently 130,000 Chinese students are in Australia, making up 25 one quarter of of the country’s international students.

One of the main results of the Fed’s previous money printing adventures has been to drive up the price of commodities, which benefits Australia’s commodity exports.

In this, they parallel the recently expressed thoughts of Glenn Stevens, Governor of Australia’s Reserve Bank.

Mr. Steven’s summarised his current view of Australia’s economy as follows:

1. Political stability remains assured – something becoming a bit less common.

2. The Government does not own, and has not had to give direct financial support to, the banking system. Australia will be free of the difficult governance and exit strategy issues that such support is raising in a number of countries.

3. Public finances remain in very sound shape, with modest debt levels and a medium-term path for the budget back towards balance.

4. Sensible policy frameworks – both macroeconomic and microeconomic – remain in place; the financial regulatory system is strong and tested.

5. Australia remains open for trade and investment.

6. There is an exposure to, and an engagement with, an Asian region that still has the most dynamic growth potential in the world, where hundreds of millions of people will for decades to come be seeking rising living standards.

There are rather few countries, said Mr. Stevens, which have the potential to offer so attractive a proposition to international capital.

Reflecting Mr. Steven’s views, 7,500 businesspeople from 24 countries were asked to identify which countries they believe are surviving the crisis the best. Australia headed the list, followed by China, India and Singapore.

Results were obtained from the Servcorp International Business Confidence Survey.

Countries best placed
to weather the financial crisis

Countries best placed
to weather the financial crisis -
Votes only from Australian businesspeople

Particular Concerns of Australian Businesspeople

* The survey was commissioned to understand the current mood, business morale and impact the economic downturn has had on businesses around the world. As part of the survey, Servcorp asked 7,500 international businesspeople from more than 24 nations to identify which countries they believe are surviving the crisis the best.

In seasonally adjusted terms, all of Australia’s retail industries had an increase in March 2009 – Food retailing (+0.4%), Department stores (+13.2%), Clothing and soft good retailing (+6.4%), Household good retailing (+1.3%), Other retailing (+1.5%) and Cafes, restaurants and takeaway food services (+1.4%) rose, according to the Bureau of Statistics.

The country’s trade surplus rose to $2.49 billion, the second highest on record, as exports maintained their strength and imports fell.

Yesterday, the central bank announced it was leaving Australia’s key interest rate, the cash rate, unchanged at 3.0 percent, noting:

“While the near-term outlook remains weak, there are further signs of stabilisation in several countries. The Chinese economy in particular has picked up speed in recent months and many commodity prices have firmed a little. The considerable economic policy stimulus in train in most countries should help contain the downturn and support an eventual recovery.

“Borrowing for housing is picking up, particularly among first-home buyers. Monetary policy has been eased significantly. Market and mortgage rates are at very low levels by historical standards and business loan rates are below average, reducing debt servicing burdens considerably. Much of the effect of these changes is yet to be observed.”

The country’s big banks, however, are feeling the pain of increasing bad loans on their books.

Accountancy firm PricewaterhouseCoopers reports that bad debts at Australia’s four big banks – Australia and New Zealand Banking Group, Commonwealth Bank of Australia, National Australia Bank and Westpac Banking Corporation have hit a 16 year high.

PWC complemented the banks for delivering a very creditable set of half-year earnings amidst deteriorating economic conditions, scarcity of capital and rising unemployment. PWC noted the banks’ underlying cash earnings were $8.4 billion – a six percent reduction over the previous corresponding period.

“Compared to the extraordinary losses experienced by banks across the UK, US and Europe, Australia’s majors have fared extremely well.”

The gloss was taken off the banks’ results, however, by a near-trebling of bad debt expenses to $6.5 billion – a 16 year high – up 178 percent. Over the same period total bad debt provisions doubled to $16.3 billion.

Mike Codling, PricewaterhouseCoopers Banking and Capital Markets Leader said,

“The significant rise in bad debt expenses has not been surprising. We’ve seen the collapse of some large highly-geared corporate borrowers and now we’re starting to see the broader impacts of the economic recession, with some pain coming through the small to medium size business exposures.

“Clearly the level of write offs is going to increase considerably. But given the level of balance sheet provisioning now in place, it remains an open question as to whether the level of expenses will rise again.

“Over the new few periods a key determinant will be the extent to which unemployment, and underemployment, will continue to rise.”

Today, for the first time, Prime Minister Kevin Rudd has conceded that a recession is now inevitable in Australia. The cut in skilled migrant numbers announced earlier this year indicated the direction the economy was moving in.

Last week, finance minister Wayne Swan said the economy’s prospects had taken a turn for the worse after China’s growth fell from its customary double digit rate to 6.1 per cent. (Much of Australia’s huge mining output is exported to China.)

American financial commentator John Mauldin noted that this was not the whole story because China’s nominal growth was just 3.7%. The other 2.4% of apparent growth resulted from deflation. To get real (after-inflation) growth you subtract inflation and/or add deflation.

Meanwhile, as unemployment rises, Commonwealth Bank of Australia (CBA) chief executive Ralph Norris has taken a 10 per cent wage cut and has pledged there will be no more exports of Australian jobs to offshore centres for the next three years. The Finance Sector Union has called on the country’s other banks to take similar actions.

It’s not all good news from the CBA, however, as they have moved to increase interest rates on their fixed rate mortgages by 0.2 to 0.45 per cent. Although the next interest rate move from the Reserve Bank is expected to be downwards, the Commonwealth Bank says recent increases in the wholesale interest rates are pushing up their costs. Today a 5 year fixed mortgage from the CBA has an interest rate of 6.39% but this will increase to 6.84% tomorrow. The interest rate charged for a variable rate mortgage will continue to be 5.64%.

Australia’s Treasury and Reserve Bank believe the country is well prepared to weather the downturn because the amount of debt consumers have taken on compared with the assets they own has not grown significantly in recent years. The ratio of consumer debt to assets in Australia grew from 23 to 24 per cent between 2001 and 2006. By way of contrast, in America the ratio of mortgage debt to housing assets rose from 30 per cent to 45 per cent in 2006.

The Economist Intelligence Unit says the relative cost of living depends on two factors – local prices and exchange rates. The global economic crisis has seen some currencies, such as the US dollar and the Japanese yen strengthen, while others such as the pound sterling and the Australian dollar have weakened.

Sydney, which was the 17th most expensive most city in the list last year has moved to 35th place and Melbourne has dropped from 24th to 39th place.

Brisbane and Perth have moved from 35th equal to 57th equal while Adelaide has fallen from 48th to 72nd.

The most dramatic example of a weakening currency has been observed in Iceland, whose collapsed banks have brought the country’s economy to its knees. Iceland’s capital, Reykjavik, was the fifth most expensive city last year. Now it has fallen to 67th place.

A weaker pound sterling has lowered the relative cost of living in Britain with the result that London has dropped from eighth to 27th most expensive city.

Jon Copestake, editor of the report, comments: “Two factors drive the relative cost of living: local prices and exchange rates. Normally our ranking of cities by cost of living is relatively stable, but in the current global climate changes in exchange rates have significantly altered our assessment of the most and least expensive cities.”

Note: The Worldwide Cost of Living survey compares the cost of living in 140 cities worldwide. In each city field researchers gather and return a range of prices for over 160 items, from a loaf of bread to a luxury car.

Relative Cost of Living In Selected Cities:

Justifying the cut, the bank said that world financial markets have remained turbulent over the past month. Recent reductions in borrowing rates, the depreciation of the exchange rate and the fiscal stimulus announced in October will work to assist growth in the period ahead, but deteriorating international conditions and falling commodity prices will have a dampening influence. On balance, it appears likely that spending and activity will be weaker than earlier expected.

Today’s cut brings the total interest rate cuts to 2 percentage points since the reserve bank started cutting rates.

As was the case with the previous 1 percent cut, it does not look likely that Australia’s retail banks will pass on the full cut to their customers.

The Commonwealth Bank was the first bank to respond, lowering its variable home loan rate by 0.58 percent rather than the full 0.75 percent.

The Legatum Institute’s Prosperity Index measures prosperity in 104 nations, with an emphasis on wealth and quality of life.

Australia led the 2008 index ahead of Austria, Finland, Germany, Singapore and the USA. The average Australian is richer than the average citizen of Britain, France or Germany.

The Institute’s comments on Australia touched on the negatives it had identified as well as the positives:

“Since market deregulation in the 1980s, the ‘Lucky Country’ has reinvented itself as a wealthy service-oriented economy, currently benefiting from the rise of China and the global boom in commodities.

“Consistently strong drivers of prosperity, particularly education and government effectiveness, place Australia at the top of the overall Index, ranking 10th on Comparative Liveability and 6th on Economic Competitiveness.

“Australia’s expansion has created labour shortages and led to increased immigration levels, with one in four of the population born overseas.

“Australians have the highest sport participation rates in the world, complemented by good environmental indicators, particularly air quality and land area devoted to nature.

“However, rising prosperity has not included much of Australia’s indigenous population, and the nation faces long-term environmental challenges.

“Natural assets such as the Great Barrier Reef are at risk of severe deterioration, and in 2008 the country faced its worst drought in recorded history.”

In terms of prosperity, Australia’s five top features were:

• Capital per worker
• Education
• Quality of regulation
• Patents
• Research in R&D

And for quality of life, Australia’s five top features were:

• Income
• Healthy life expectancy
• Government effectiveness
• Charitable giving
• Control of corruption

Justifying the cut, the bank said that conditions in financial markets world-wide took a significant turn for the worse in September and financial failures in several major countries have been accompanied by heightened instability in the markets.

The ongoing credit crunch means financing is likely to be difficult around the world for some time to come. This is also affecting Australia, albeit less than in many other countries, given the relative strength of Australia’s banking system.

Economic activity in major economies is also weakening, and it looks as if growth may be slowing in Australia’s Asian trading partners. Also, many of Australia’s commodity export prices have declined from their peaks. This, combined with below-trend growth in the global economy, suggests that global inflation will ease in 2009.

Australia’s next inflation figure, at around 5 per cent, is likely to be well above the Bank’s target but the Bank remains of the view that inflation will start to decline in 2009.

The recent deterioration in prospects for global growth, together with much more difficult market conditions even for creditworthy borrowers, now present the risk that demand and output could be significantly weaker than earlier expected. Should that occur, inflation would most likely fall faster than earlier forecast.

It does not look likely that Australia’s retail banks will pass on the full one percent cut to their customers. Westpac was the first bank to respond, lowering its variable home loan rate by 0.8 percent rather than the full one percent. Commonwealth Bank, National Australia Bank, ANZ and St George then followed suit.