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(generated from captions) sector does. You get a small fleeting benefit with the net

loss over time. Led by China,

we had one of the steepest

recoveries of commodity prices

in any economic downturn

driving Australian optimism,

are commodity prices

sustainable. I think the

difficulty for commodity prices

will be downward pressure over

time. That's a general rule. I

think it's going to be more the

case of those that are tied to

specific consumer and business

needs like energy prices. I

think that as demand remains

stagnant, we will see energy

prices decline, and a lot of

other commodities will be

similarly affected. Rates went

up here largely in response to

the strong prospects of the

Chinese economy and the

Australian housing bubble. If

the US economy is powerful

enough to pull us all down, do

you think China would be

powerful enough to pull us back

up. I personally do not have a

lot of confidence in China,

they enacted a huge stimulus

package of about a trillion

dollars, they have a command in

control economy. Over the very

short run, they have the power

to effect ute change, the issue

is whether they make the

situation better or make it

worse over the longer term. Of

that trillion dollar stimulus

package, which is a huge

proportion of their economy,

40% of it went for the

financing of increased

purchases of Chinese equities,

and also commodities, that has

had a short-term lifting impact

on commodities, but if

commodities don't hold their

gains, which I think economic

activity will undermine in the

time to come, the loans

extended to buy them will

become troublesome. What is

your outlook for the global

equity markets which have been

extraordinarily bullish

recently. Well, if one goes

back and looks at the three

debt deflation s that we have

excellent data on, the excellent data on, the period

in the United States from 1874

to 1894 of the United States

from 1929 to 1941, and also in

Japan in the last 20 years, in

all three case, there were very

excessive debt levels , in all

three cases there was a decline three cases there was a

in the price level. In all

three cases there was a

negative risk premium. In other

words the total return on

Treasury bonds exceeded the

total return on common stocks.

And I think that that will be

the condition. In debt

deflations a risk taking is not

rewarded. It's over the long

term risk taking has to be

rewarded. We can go sometimes

for 20 years, sometimes longer

than 20 year, in that the

normal rules are turned upside

down by the excessive

indebtedness. Sadly there's no

corporate memory or personal

memory on this. No, that's one memory on this. No, that's

of the critical things that was

brought to the attention of

people that studied debt

deflation, the critical work

was done by Yale Professor

Irving Fisher, who wrote the

famous paper 'The Debt

Deplagues Theory of the Great

deprags", and pointed out a

major debt event in the 1820,

and 1830s, with the financing and 1830s, with the

of the canals, turn pikes and

Steamship lines, ushering in a

deflation lasting to almost the

American Civil War, the next

was the financing of the

railroads in the 1860s, and

early 1870s, ushering in a two

decade period of deflation, and

the period of 1920, to early

1940, and one of the points

made by fisher, as well as

other people who extended

Fisher's work is no-one is

basically alive to remember the

prior experience. Dr Lacy Hunt,

thank you for joining us. My pleasure.

Now to the weather, showers

in Hobart and Sydney, fine and

cool in Melbourne, Canberra and

Adelaide. Fine in Brisbane and

fire weather warning is Perth. Dry in Darwin, where a

current. That's all from current. That's all from us,

Lateline Business coming up in

a moment. If you'd like to look

at the interviews with Julie

Bishop or Dr Lacy Hunt, or

review stories or transcripts

visit the web site at

abc.net.au/lateline. abc.net.au/lateline. Now

Lateline Business with Ali

Moore. Tonight - open for

business. Australia's job

market grows, so, too, do the

chances of another rate rise.

The Central Bank has been

surprising people in the last

few years, so why won't they

surprise us on returning

rates. The bank rate hike - a

big blow for small business. Up

to half of the rate reductions

were not passed on to the small

and medium business

community. And Australia's run

away currency, how high can it

go. By Christmas we are looking

for low 90, 95 certainly within

the next 6

months. Parity. Still up in the possible. air. Possible. Definitely

First to the markets, and

better than expected jobs

numbers saw the All Ords jump

more than 1.5%, the ASX 200

gained 72 points. In Japan the

Nikkei was up led by shipping

companies, confident of a boost

in demand from China, Hong in demand from

Kong's Hang Seng closed 1%

higher, and the FTSE is up in

morning trade. As you heard on

Lateline, 41,000 jobs were

created in Australia last

month. It was a show of

economic strength no-one

foresaw. The vast majority of

new jobs are full-time

position, and the unemployment

rate has been brought down to

5.7%. Economists and financial

markets are betting the Reserve

Bank will raise interest rates again when it next meets again when it next meets on

Melbourne Cup day. Andrew

Robertson reports. As he lifted

interest rates Tuesday the interest rates Tuesday

Reserve Bank Governor said

unemployment had not risen as

far as had been expected. Even

he probably wouldn't have

expected today's results. The

picture is there, that

unemployed is going to peak

perhaps below 6%, we might see

a spike in the numbers, it's a

volatile series, but, you know,

close to 3 percentage points

below the Government's forecast

back in May, which isn't that

long ago. In seasonally

adjusted terms 41,000 people

found work in September, and in

a sign of increasing confidence

of employers, more than 35,000 of those jobs were full-time. Also showing the

strength of the figures,

unemployment rate fell, more

people were looking for jobs,

and the actual number of hours

worked increased. Tour. Operator

Intrepid Travel is typical of

the return of strength

reflected in the employment

figures, outlets in every state

and overseas, operating in a

discretionary sector intrepid

was hit hard by the slow

down. We asked for voluntary

salary sacrifices between 5%

and 25%. As a result of that,

in January our staff - 70% of

our staff took between a 5% and

25% salary sacrifice. With the

reduced wages bill Intrepid was

forced to make forced to make retrenchments,

but in the last three months

bookings have increased. From

July to September our trading

position is on par with this

time last year, so for us we

have recovered all the ground

in terms of bookings that we

lost going into the GFC. These

are some of the camp sites we

have. Matt Beard says staff who

took pay cuts have been repaid

in full and given a 25% bonus,

with Intrepid not far away from

employing new staff I employing new staff I suspect

it will be soon, it will be

very focussed in the short

term, so we really look at

areas of the business that have

the biggest need for resources.

Then, obviously, as the

recovery continues, and we see

evidence that the recovery is

continuing, then I think we'll

get more into the strong growth

model that we are more

accustomed to. It's that type

of outlook prompting a strong

reaction on financial markets

when the September employment

figures were released.

Short-term market interest

rates spiked sharply on heightened expectations on

further rises in the official

cash rate. At the University of

NSW Nigel Stapledon says a cash

rate of 5% by the middle of

next year is not out of the question. When they wanted to

drop rates they did it quickly,

catching people by surprise,

the Central Bank has surprised

people in the last few years.

Why won't they surprise us on

returning rates. While the

latest employment figures

reinforce the views that

Australia breezed through the

global financial crisis not

everyone is impressed. The head

of Roy Morgan research, Gary

Morgan says the Bureau of Statistics figures don't tell

the whole story. The real level

of unemployment is closer to

1.6 million. That's a figure we

bring out. The Government

brings out a figure, brought

out a figure in August of

859,000 people underemployed,

and they should have brought

out a figure today. Mr Morgan

says if the underemployment

result was released monthly ,

not quarterly, there's an issue

striking at the credibility of

official figures. We have to

realistically measure who is

unemployed a person working one

hour a month classified as

employed is a

nonsense. Whatever the rights

and wrongs, based on the

September job numbers, the next

big surprise is if the Reserve

Bank doesn't lift rates when it

meets on Melbourne Cup

day. Westpac was the last of

the big four banks to bump up

home loan rates, perhaps

because it was too busy dealing

with fallout from the loss of

an 11-year legal battle with

the New Zealand Tax Department,

leaving it with a bill of $753

million. Not surprisingly the

bank says it's considering an

appeal, with the potential loss

well flagged Westpac shares

rose in line with the other

major banks today. Desley

Coleman reports. Political and

customer sensitivity around

lifting mortgage rates accounts

for little when the Reserve

Bank moves on the official

rates. The big four trading

banks all pass said on the increase announced Tuesday by

the RBA. All detailed the

changes for home loan

customers. Three of them have

lifted business lending rates,

while ANZ says it still has

them under review. Industry

groups say businesses have been

propping up the banks' margins

When there was an easing of

the official rates, business

particularly small business

borrowers did not receive the

full value of rate full value of rate reductions.

In fact, up to half of the rate

reductions were not passed reductions were not passed on

to the small and medium

business community. At this

week's release of week's release of Fujitsu JP

Morgan Banking report Scott

Manning said business loans

from a soft target for

banks. You may see as an

alternative to rising mortgage

rates, to aggressively reprise

the business side of the

equation to offset

that. Westpac's move to raise

lending rates comes as it

condemn plates defeat in an 11 year battle with the New

Zealand tax office, the High

Court ordered Australia's

biggest bank to pay $753

million in backtaxes and

interest charges. The issue

revolves around nine complex

structured finance tractions by

Westpac between 1998 and

2002. The funds raised from the

transactions were used in convoluted lending arrangements

the They certainly had some tax

advantages to the banks by

offering these transactions offering these transactions in

New Zealand. They haven't

occurred for a few years, they

shut down that type of transaction quite a few years

ago. The IRD said in a statement:

Westpac challenged the

assessments by the New Zealand

tax authority, based on a prior

ruling which the bank took to

mean the transactions were

legitimate. In a statement Westpac said:

It shouldn't have any

bearing on Westpac's underlying

business going forward. It will

obviously, if they do pay the

charge in the end, it will

obviously have an impact on

their capital base, about a

quarter of a percent reduction,

but it won't have an impact on

the forward business. It's not

the only major bank chased by

the New Zealand Tax Department.

ANZ, National Australia Bank,

and the Commonwealth say they

have made provisions for their

exposurures. The threat of a

looming tax bill didn't Dent investors enthusiasm for the

sector today. The CBA and

Westpac were around 3%, the Westpac were around 3%, the ANZ

gained nearly 4%, and gained nearly 4%, and the

National Australia Bank added

nearly 5%. BHP Billiton nearly 5%. BHP Billiton says

investigations into brokenen

hauling equipment at hauling equipment at the

Olympic Dam uranium operations

will take two weeks to

complete. The company is

mining, but a piece of haulage

equipment taking ore from

underground to the surface for

processing isn't working. A

second haulage shaft is being

used. BHP Billiton says it

doesn't know what impact the

closure will have on mine

production and Budget. Well,

for a look at what is happening

in offshore markets I'm joined

from London by Tom Houggaard, a

market analyst with Saxobank. Tom Houggaard,

Australia may raise interest

rates, but there's no hope, I

guess of the European Central Bank or the United Bank or the United Kingdom

Central Bank following suit,

they announced the rates are on

hold. That is correct. Story is

that ECB is probably not going

to raise rates until third

quarter 2010, and the way

things are progressing in the economic landscape in economic landscape in the United Kingdom, I don't think

there's prospect of a rate rise

for the next 3-6 months in for the next 3-6 months in the

United Kingdom either, really

there's no surprise. The only

thing that we are keeping on

eye on when it comes to the ECB

and the BOE is the rhetoric, we

expect quanttive easing, are we

going to see them take a foot

off the pedal in terms of

quanttive easing, that's quanttive easing, that's what

we are paying attention to now.

With the decision or

non-decision today, I should

say both are committed to

quantatative easing, aren't

they They are, very much they

have to. The risk that we are

now running is that if they

take the foot off the pedal too

soon, we could very well find

ourselves in the environment

that Japan found themselves in

in the early 1990s, one of the

results of that is they slid

into a 10-year long recession

taking the Nikkei from 40,000

down to below 10,000. You talk

about the risk of taking the

foot off the pedal too soon, if

you look at the latest

production figures out

overnight in Germany, they

point to a V-shape recovery, is

anyone believing those numbers. You stole the words

out of my mouth, we are seeing

a V recovery the problem is we

don't believe the numbers, we

are the men in the street, we

are feeling the pinch, but

economic figures suggest a

V-shaped recovery is under way

and we should have means for

celebrating, when you begin to

dig underneath the surface,

very few people have anything

to celebrate about, and the

suspicion here is that the only

reason why we are seeing this

kind of V-shaped recovery in

the numbers is because of the

Government stimulus pumped into

the system and flooding the

system with capital. Even

esteemed economists are

doubtful about the

sustainability of this

sustainability of this recovery

we are seeing. We see goad and

silver, gold to record levels,

and silver is leaping ahead as

well. Yes. What is driving

that, is it concerns about

stimulus and inflation. Yes,

the two stories go hand in

hand. People are worried, hege

fund are worried about

inflation, inflation will come,

whether we like it or not you

can't put that amount of liquid

capital into the system without

seeing inflation turn up in six

months or a year down the line.

What hedge funds are doing,

funds across the board is they are hoarding where they are seeing the movement, the

movement is where gold is

sitting, we need to get used to

gold being quoted in four

digits, rather than three, gold

is going to continue to soar in

the years to come, but right

now we'll have to get used it

it sitting around the four

digits, it wouldn't surprise me

that we'll stay in this range

for 3-6 months, gold as an

investment objective is investment objective

something that most people see

as a safe bet, that's what

people want now. We talked on

this program during the week

about the third quarter

reporting season out of the US,

pep sicko reported higher than

expected numbers off the back

of that, how is the Dow looking

for its opening in an hour or

so's time. It's looking good. It's quoted up somewhere

between 70-80 points, and the

equity mark in Europe and the equity mark in Europe and

United Kingdom are doing very

well on the back of

well on the back of the

anticipated rise. Tom

Houggaard, lovely to talk to

you again. Thank you. Thank

you. To the major movers on our

market. GrainCorp plunged 14%,

after completing a half a

billion capital raising,

Newcrest up after poaching Newcrest up after

Stephen Creese, from Rio

Tinto. Alumina Limited rose 5%

after Alcoa orpd a third

quarter profit. And Paladin

Energy, uranium miner jumped

5%, expected to benefit from a

disruption to production at disruption to production at the

Olympic Dam mine. On currency:

As we just heard the

Australian dollar is continuing

its extraordinary run, breaking

through the 9 US cent mark, a

key technical level. For a look

at how far it might go and the

factors behind the surge I was

joined in the studio by two

executives with Barclays

Capital, Wensheng Peng, the Capital, Wensheng Peng,

Head of China Research,

visiting Australia from his

base in Hong Kong and David

Forrester, Vice-President in Forrester, Vice-President

Foreign Exchange Strategy, visiting from

Singapore. Gentlemen, welcome to Lateline Business. David

Forrester, to you first, the

Australian dollar is having a

very big run, where is it

going? Well, we think it that

is a shot at party, our

forecasts for six months out,

it's 95 at the moment, the key

factor is how long it takes the

Fed and other Central Banks,

such as the ECP to reign in

liquidity. We think this is a

liquidity driven market, the

high yield is helping that. We are the only ones putting

interest rates up. We are the

first so far amongst the G-20. first so far amongst the

We are likely to see other

commodity Central Banks putting

interest rates up soon.

Nordwest may do so, we may see

the Reserve Bank of New

Zealand, so we are the only

ones putting them up for now, ones putting them up for

there are expectations of

more. Chances then of parity

once that interest rate environment and liquidity

environment changes. If the

liquidity environment changes,

the Aussie will top out coming

out quickly, if the Central

Banks, the Fed, the ECB, BOJ

likely former rather than the

latter, they'll start to step

on the neck of the global

economy, worrying about

inflation, it will reign in

Rick widity. Give me your

prediction. By Christmas we are

looking for low 90, 95 within looking for low 90, 95

of the next six months.

Parity. Up in the air. Possible. Definitely

possible. Peng r of course,

interest rates in Australia are

going up in part because of

China's growth, and the fact

that it's dragging Australia

along with it, because our

outlook is better, can China

keep up its current growth

rates. Well, our current

forecast for this year growth

is 8.3%, and next year we are

forecasting 9.% growth. So it's

a pick up. Now, we know that

the growth recovery is easier

in China, led mainly by the

policy stimulus, but we have

also seen positive signs of

more balanced and more

sustainable growth, for example

we see private spending has

been picking up, property

consumption of durable goods constructions, private

has picked up. There's an issue

with consumption, there's

massive Government stimulus and

a massive increase in loans. Is

that - I suppose the risk of

the bubble is what I want to

ask you about, is consumption

sustainable consumption. I

would say a lot of people talk

about the bank credit expansion

and significant amount of that.

Went into financial market

speculative activities, I take

a different view, with such a

significant easing of monetary

policy, any country, you would

see as the markets react. As we

have observed in the urks the

other major markets, so if we

in China - if we ease by a

larger degree and outside

markets did not rak, I would be

worried. So no bubble,

sustainable growth. I say talk

about a bubble, too early,

equity market correct by some

significant extent a degree in

recent amounts. The property

market - some major cities,

housing prices returned to the

previous peak level, for the

major part of the country, I

would say still in the

situation. David Forrester,

China is under pressure to

revalue the currency, to

revalue it up. It's providing a subsidy to producers at the

moment, can you see that happening? Well, I'll happening? Well, I'll let

Wensheng Peng handle that. It's

a complicated issue, it has

domestic and external

pressures, if we look at it

from the external side, China's

current account balance

declined, we are projecting

5-6% of GDP this year, a lot -

about 10% in the earlier

period. From that angle, I

think pressure coming from the

US should be declining, US should be declining, but

over the weekend, we see the

communique from G7 saying the

Chinese currency should

appreciate in effective terms, appreciate in effective

that is because in my view the

US dollar has been a lot weaker

against other currencies, and

therefore the Chinese currency

has been depreciating in

effective terms against a

basket of currencies. I see as

stakeholders, like your area of

Japan may not be happy to see

that. They want to see Chinese currency appreciate not only

against the US, but a basket of

currencies. Domestically, if

that happens, I think it's too

earlier to say that. Growth has

recovered, I think we need to

see growth remain at a higher

level for sustained

period. What about the US

dollar, because, of course

there's pressure on Barack

Obama at the moment and the

dollar has been depreciating

for some time, how much further

can it go, what is driving

that. The dollar isn't offering

a yield. There's a lot of

pressure on G 3 currencies to

depreciate. The euro hasn't

been really weakening that much

against - it's been strength

line abaing the Rann MB.

Amongst the G-20 Amongst the G-20 countries,

they are offering little yield,

interest rates are low, the

dollar has that factor against

it, and the fiscal deficit in

the urks increasing the risk

premium on - in the US. That

must be putting pressure on the

US at the same time we get talk

from countries like China,

about the greenback no longer

being the global reserve

currency, that must make it

difficult for the US to argue

its case, when the US dollar is

going iffiun direction. The US

dollar has been a global

currency, allowing the US to

get cheep funding for current

account deficits, this is a

weight on the US dollar. We

don't have a yield we have a

higher risk funding. There's a

lot of pressure on the US

dollar, and quietly the US

authorities are not too upset

about a weaker US dollar, they

may talk about a stronger US policy, quietly it will help

the economy move out of

recession, the last thing they

want is to stand out $and say,

"We like a weaker US dollar, it

could start competitive

competitive devaluations of

currency." Weng peping, how

shears is Channel Nine shears is Channel Nine -

Wensheng Peng, how serious is

China pushing not having the US

as a global reserve currency,

having a basket currency, more representative. We have seen

significant efforts by significant efforts by the

Chinese Government, the recent

initiative of allowing the

international trade for China's

own foreign trade in the

Chinese currency, we

Chinese currency, we saw

Chinese Government, extirnal

debt in Hong Kong for the first

time in history in the Chinese currency, they are significant

initiatives, starting from zero

to become a significant reserve

currency takes time,

particularly because of the

Chinese currencies, not fully

convertible yet. Do you get a

sense that we are heading

towards a new currency

paradigm, is that going too

far, we looked at different

liquidity and interest rates liquidity and interest rates at

the moment. We are in a

different environment. We have

come through a heavy crisis,

global policy officials see

that we don't want a repeat of

that, to avoid that there'll

have to be some new currency

arrangement: it's tough to get

away from the existing one. We

have a lack of flexibility in

several currencies, including

Asia, and that may have

contributed to the blow-up in

global imbalances, but at the

same time, who is going to

adjust. We are not seeing the

adjustment in Asian currencies,

where does the burden of

adjustment go, that's a big

question facing policymakers,

the Europeans don't want a

stronger currency, the US don't

want a stronger currency,

there's push and pull. Some.

Major beneficiaries

Major beneficiaries is more

money going into small

currencies, we could see a

regime shift. That's the thing

that could get the Aussie to

parity. Wensheng parity. Wensheng Peng, and

David Forrester, many thanks

for joining us. Canadian asset

investor Brookfield came to the

rescue of Babcock & Brown

Infrastructure agreeing to

inject $1.1 billion into the

business. Brookfield will buy

$635 million worth of new BBI

shares and spend $265 million

buying its assets including a

ports business in north-east

England and a 50% stake in

Australia's biggest coal

terminal Dalrymple Bay. Without

the deal BBI faced

bankruptcy. Treasury Secretary

Ken Henry to appear at a meeting.

Before we go a look at what's

making news in the business

sections of tomorrow's sections of tomorrow's paps,

The Herald Sun says a fall in

the unemployment rate sent

financial markets into

financial markets into

overdrive. The Australian looks

at the same story, at the same story, and The

Financial Review says senior Liberals closed ranks Liberals closed ranks behind

Malcolm Turnbull to promote a

debt reduction plan, that's all

for foont. The FTSE trading up

36 points. The FTSE showing an

opening on the futures up 66

points or 0.7 of 1%. I'm Ali Moore, goodnight. Closed Captions by CSI

I'm gonna say, man, we've had an absolute ball in Australia. Man, it's so nice to be able to come back. Thank you for coming out to all our gigs

and making us feel so welcome. It's a long, long way to come from New Orleans, but we relish every opportunity to come over here, it's really great. We're all kind of blown away by the level of musicianship out here. We always have a lot of musicians come to our gigs, make lots of friends out here, and where we're staying at the Mac is great. Every night we come out to do our gigs

and there's a band playing downstairs and every night we all sort of go, "Damn. You guys are amazing." I think it might arguably be, to a large degree, creditable to Jackie Orzasky. I just want to dedicate this gig tonight to the memory of Jackie. He's a source of inspiration as much to us

as he is to you guys, I know. So we're going to dedicate tonight's gig to Jackie, wherever he is, he's listening in. Just getting the guitar plugged up. All right, this next song we'd like to play for you is a song I wrote.

Songs come to you in all kinds of different places. This song I wrote on the back of a cigarette packet on the top of a double-decker bus in London when I was feeling homesick for New Orleans. And then we ended up recording it with Bonnie Raitt on her last record. And it's been a staple of the Monster Gentlemen set for quite a while so we're going to play this thing for you. This one's called Fool's Game. Hope you enjoy it. # Well it's bad mistake it's a crying shame # To get caught playing a damn fool's game # A bad mistake, a crying shame # To get caught playing the damn fool's game

# A bad mistake, a crying shame the damn fool's game # A bad mistake, a crying shame the damn fool's game # Been thinking about what you gonna do # Take a good look at what's looking good to you # Think real hard about what it is you see

# Is it really where you want to be? # Come on, look real hard and long # See what's going on # It's a fool's game # There's run down feeling out on the street # Oh, money, soul ain't in your feet

# Got to free brother choose it if you can

# Don't allow yourself to be dragged down by the man # It's a long journey # There's the law of the land

# You're caught up in the middle trying to make it the best you can

# It's a fool's game # Fool's game # It's a damn fool's game # It's a fool's game # It's a damn fool's game # It's a fool's game # It's a damn fool's game # It's a fool's game # It's a damn fool's game PIANO SOLO

# Whoo

# Look out Are you all ready? # I feel like a king

# Cos I just kissed my baby # Your money don't mean a thing to me # Cos I just kissed my baby # And it felt so damn good # Cos I just kissed my baby # I knew that I would # Cos I just kissed my baby # Well oh well # I know I can't go wrong