Mining industry "sharing the wealth" says report - but Mitch Hooke says "laggards" need to do better

The mining industry's chief lobbyist says there are still corporate "laggards" when it comes to ensuring that mining communities get a fair share of benefits from the resources boom.

The comments by the Minerals Council's chief executive Mitch Hooke come as a study shows the resources industry spent $35 billion on community infrastructure, indigenous contractors and local suppliers in the 2011 - 2012 financial year.

That is $14 billion more that the $21 billion dollars the the industry is estimated to have paid in company tax and royalty payments in the same year.

The research by the corporate social responsibility consultants Banarra has been released as the political debate over the proposed repeal of the Mineral Resource Rent Tax (MRRT) hots up.

Mitch Hooke told AM that despite the massive spending there are still gaps in communities that need to be filled where the mining industry needs to do a better job.

"Yeah, I think so. Communities are voting with their feet. And they're actually picking on the companies, and identifying the companies that they'd like to be a part of their community. So if you extrapolate that across the industry as a whole, you'd come to the conclusion that we've got some laggards and they need to pick up their act if they're going to be part of the new equation," Mr Hooke said.

The Banarra study, based on a survey of 25 Australian mining companies, found that $34.7 billion was spent on community infrastructure, Indigenous contractors and local suppliers.

According to research by Deloitte Access Economics, the spending exceeds the projected returns from the MRRT and company tax and royalty payments from mining companies.

Infrastructure projects funded by mining companies include health care centres, education and training, sporting clubs, swimming pools and transport services.

But Mitch Hooke said the spending was not a "philanthropic exercise" to appease critics of the mining industry.

"There still has to be a business case to it. But the benefits of that community investment and that community contribution, they extend beyond the direct benefits of the company. And so therefore there's knock on effect to the community as a whole," Mr Hooke said.

And Mr Hooke said the mining industy was committed to assessing infrastructure spending despite concerns that the investment phase of the mining boom is peaking.

"There's a correlation between the extent of economic activity and the level of investment. But it's not going to fall off the edge of a cliff.  It's coming off down the other side

"I think you've got to have the social license. You've got to have the confidence of the communities in which you're operating and the business case for investing in those communities, not only as a source of skills and as a source of goods and services and supplies,  but also confidence that the mining industry is part of their local community and therefore part of their quality of life."

Mr Hooke also had a sharp response to critics who believe spending on social infrastructure is something the mining industry should be doing anyway.

"Well I agree. We agree wholeheartedly. The argument is, from the former government, was that we weren't doing it. So we agree that we should be investing in those communities. We agree that a social license to operate is a fundamental platform for the manner of our business. And we agree there's a very strong business case for having vibrant and strong communities."

And Mr Hooke agreed that attitudes to community spending had changed in mining company boardroom during the resources boom.

"Yes. It's been a transformation. It's almost been a renaissance over the last decade or so. They had a bit of an epiphany. Even our harshest critics will tell you that there's been a massive transformation in the way the industry operates. The cheer squad of enthusiasts will always keep prompting us to do better and that's a good thing."

The Labor Party and the Greens have pledged to oppose the repeal of the MRRT which replaced the more controversial Super Mining Profits Tax introduced by the former Prime Minister Kevin Rudd.

Stop the presses. Industry super to bankroll The New Daily

Stop the presses. From this morning, there's a new player in Australia's cut throat news media industry.

But as traditional hard copy newspapers struggle to survive in the digital world, there's not a media magnate in sight.

Instead, The New Daily will be bankrolled by three Australian industry superannuation funds - Australian Super, Cbus and Industry Super Holdings.

And unlike the online mastheads from Fairfax and News Corporation such as The Age, The Sydney Morning Herald and The Australian, The New Daily won't have a pay wall.

Like The Guardian and The Global Mail, the new online entrant is offering a quality product at a time when hard copy newspapers are hurting from dwindling sales and advertising revenue.

Bruce Guthrie, a former editor of The Age and the Herald Sun, is The New Daily's managing editor and witness to the dramatic decline of traditional news outlets.

He's confident that The New Daily can make a point of difference by being an unashamed online offering in the business of providing hard news that is also free of charge.

Listen to my interview with Bruce Guthrie from this morning's AM.

View The New Daily promotional video here.

" I think first and foremost, it's a true digital-only product. It hasn't been a newspaper in the past that was dragged kicking and screaming into the digital age. It wasn't a TV station. We've created this from the ground up to be digital and only digital," Mr Guthrie told AM.

"In a sense we're not realty competing with those players. To me, they put a lot of material up there every day. It's almost journalism by the yard, as I call it. They throw a lot of stories up there in the hope that some get traction and if they don't they take them down and they'll put up another story and just kind of an endless search for clicks.

"But significantly, and I think it is becoming even more significant, it's free and it always will be free."

The New Daily will be headquartered in Melbourne and will have a staff of eleven journalists plus a network of contributors. The site will also use content from the Australian Associated Press and the ABC.

While the three super fund backers are providing two million dollars each, the strategy is to have The New Daily self funded through advertising revenue.

"I think their expectations are realistic. Garry Weaven, who is the chairman of The New Daily Propriety Limited, has said that eventually in the medium term, and we're probably talking somewhere between three and five years, this should pay for itself at least and then move into profit."

Mr Guthrie says the commitment from the industry superannuation backers is "open-ended" and designed to engage the five million Australians who have their retirement saving in industry superannuation.

       

But Mr Guthrie says the backers will not have a say in the editorial direction of The New Daily and have agreed to a charter of editorial independence.

"That sets out how we will cover stories and it's made clear that whether it's superannuation, politics, industrial relations, we'll cover it without fear or favour, we'll give everyone their side, their side of the story, but we won't be slanting stories."

Bruce Guthrie says The New Daily has been set "eminently achievable targets" based on attracting unique browsers over the next three to five years.

And he is confident the site will still be alive in a year's time.

"Well I'd like to think so.  And look, the audience ultimately will decide that and the traffic is already beginning to come to the site and they ultimately will decide whether we stand or fall, but we're very, very confident that we can deliver a daily package that's going to be compelling."

The launch of the New Daily comes after News Corporation reported a revenue decline of 22 percent for the most recent quarter.

Rupert Murdoch in tightly controlled Lowy Lecture as phone hacking trial plays out

Media mogul Rupert Murdoch has used Tony Abbott's elevation as Prime Minister to highlight Australia's emergence from a nation once riddled with "stuffy, narrow-minded elitism".

Speaking at the annual Lowy Lecture, Mr Murdoch pointed to the Prime Minister's open Catholicism to highlight how "class pretensions" in Australia once discriminated against Catholics.

Listen to Brendan Trembath's report from this morning's "AM".

Watch the address here from ABC News 24

"Thankfully, Australia has emerged from its inauspicious colonial beginnings to become a proud nation, a nation that overcame those primeval prejudices," Mr Murdoch told an exclusive audience in Sydney's town hall.

"We have a perfect example: Many of you will remember a day when a Catholic was rare in a Liberal cabinet.

"Those days are now behind us. And Prime Minister Tony Abbott is part of the proof."

Rupert Murdoch with Frank Lowy                                                                Photo: Peter Ryan

In a wide ranging address, Mr Murdoch said Mr Abbott was "assuredly right" to nominate Indonesia as one of Australia's most important relationships because if its proximity and size.

And he urged "a friendly and open relationship" with China but signalled concerns about a possible economic contraction in the world's second biggest economy.

Mr Murdoch's most passionate comments were about the need for greater education for all Australians.

"You can't have a competitive, egalitarian meritocracy if only some of your citizens have the opportunity for a good education," Mr Murdoch said.

"In a world as competitive as ours, the child who does not get a decent education is condemned to the fringes of society.

"I think all Australians agree that this is intolerable.

"So we must demand as much of our schools as we do of our sports teams – and ensure that they keep the Australian dream alive for every child."

                                                                                                                          Photo: Peter Ryan

Mr Murdoch's comments about his media interests were brief given the high profile phone-hacking trial playing out in London.

"You can't have a free democracy if you don't have a free media that can provide vital and independent information to the people," Mr Murdoch said.

He described himself as a "disruptive influence" and that he had "always been a firm believer in providing the public with choice and access to quality content".

Mr Murdoch singled out "disruption" as a driving force in the creation of Sky News, Fox News and The Australian which he established in the mid-1960s.

                                                                                                                              Photo: Peter Ryan

Mr Murdoch also had his self-deprecating moments.

"In this country, I have a reputation as a man who occasionally likes to jawbone," he said.

Mr Murdoch revealed he wears a "jawbone" bracelet to electronically keep track of how he sleeps, moves and eats.

Journalists were restricted to covering Mr Murdoch's speech only and were denied access to guests attending the event.

Lone protester  Peter Knox                                   Photo: Peter Ryan

Claims of rent gouging in Blue Mountains fires - NSW Fair Trade to name and shame

The New South Wales Department of Fair Trading is investigating claims of price gouging in the state's rental market in the wake of the bushfires, and says it will name and shame offenders.

The loss of hundreds of properties is putting increased pressure on an already very tight rental market in Sydney and surrounding areas.

NSW Fair Trading Minister Anthony Roberts has told AM that landlords are on notice for any unethical behaviour during a time of distress for so many people.

"We've had one case where the landlord went to their agent and said I want you to put up the price as much as possible because of the lack of availability of homes following 200 homes being burnt down," Mr Roberts said.

"The real estate agent was very cooperative and of course contacted the authorities, and we'll be running a zero tolerance policy on this."

Mr Roberts said another home listed for $350 a week "not two weeks ago" is now priced at $420 a week.

"What we're seeing is when someone loses their home the insurance companies have been very proactive in this area finding homes for people.

He called the actions "white collar looting" and said the department would investigate and prosecute if necessary.

"There are serious financial penalties for unconscionable conduct and those fines are $220,000 for an individual or $1.1 million for a corporation," he said.

"What I can also do under the Fair Trading Act is name and shame individuals and we will not hesitate to name and shame individuals who are profiteering from this crisis."

Mr Roberts says his department has officers in the field inspecting rental arrangements.

"We have agents in the field at the moment, visiting real estate agents, informing them that whilst it's okay within a market place to charge a fair rate, if we find any instances of what we consider unconscionable conduct with respect to price gouging, people taking advantage of this crisis to make money, we will again use the full force of the law to prosecute them."

Inflation revival puts RBA rate cuts party on hold

Could the era of benign inflation that has been unpinning the Reserve Bank's rate cutting cycle be nearing an end?

That is the key question from today's consumer inflation data, which posted an unexpectedly high reading of 1.2 per cent in the three months to September.

It is the biggest quarterly inflation rise in a year.

Here's my analysis from The World Today broadcast just after the inflation data hit.

Economists were wrong-footed after many bet that the Australian Bureau of Statistics would print 0.6 per cent in the quarter after a decidedly soft result of 0.4 per cent in June.

While the annualised headline rate of 2.2 per cent is at the bottom end of the Reserve Bank's two per cent to three percent target band, the mild resurgence of the inflation dragon might be ringing alarm bells in the RBA's headquarters in Sydney's Martin Place.

It is now a safe bet that the RBA board will leave the cash rate steady at the 50 year low of 2.5 per cent it next meets on the first Tuesday of November - Melbourne Cup day.

The race that stops the nation has been a key day for rate movements over the past decade with five rate rises, two rate cuts and three "on hold" outcomes.

But the steady economic environment coupled with the outlook for slowing rising inflation is raising expectations that the next move for the RBA could be up.

The RBA will also be quietly monitoring the steady rise in housing prices in Sydney, although a senior official recently described fears of a housing bubble as "excessively alarmist".

A key indicator of the changing mood is the Australian dollar, which peaked at 97.55 US cents after the quarterly inflation news hit.

The Reserve Bank has cut the cash rate by 2.25 per cent since late 2011 firstly in response to the euro zone debt crisis, which was threatening social and political unrest across the continent.

But then the stubbornly high Australian dollar, which surpassed 110 US cents in July 2011, posed a real and present danger to Australian exporters.

While the RBA has noted in recent months that the dollar has fallen in part because of rate cuts (to below 89 cents in August) cuts to the cash rate can only have limited impact.

At the very least, today's inflation result gives the RBA board a big reason to access the changing environment.

Any fresh commentary from the RBA governor Glenn Stevens will be scrutinised for signals on if, or when, the rate cutting cycle is exhausted.

David Jones boss Paul Zahra to quit. DJs announces "succession plan" but no successor revealed.

It appears that Paul Zahra's decision to resign as David Jones chief executive caught the  retailer's board by surprise.

The timing of the announcement is less than helpful in a tough retail atmosphere a few months out from Christmas as online sales continue to erode the traditional consumer base.

So this afternoon, after trading had closed on the ASX, David Jones was put in the predicament of announcing  "a succession plan" with no clear successor in sight.

As the market announcement makes clear, the succession process "could take some time".

Mr Zahra's apparently sudden decision, exposes the lack of succession planning by the David Jones board.

Mr Zahra was appointed in June 2010 when he replaced Mark McInnes who was forced to step down over allegations of sexual harassment.

While Mr Zahra had been in the role for more than three years, it is long enough for a board to begin to consider succession candidates to ensure a smooth transition.

The murky circumstances in which Mr McInnes left the company should have provided plenty of lessons on how boards need to expect the unexpected.

The most recent case study of succession planning came earlier this year when Marius Kloppers joined BHP Billiton chairman Jac Nasser in announcing Andrew Mackenzie as his replacement as chief executive.

Investors are unlikely to welcome the new uncertainty, despite assurances from DJs chairman Peter Mason that Mr Zahra leaves the company "in a solid financial position."

Any prolonged search could put a cloud over Mr Zahra's ability to take major decisions on the direction of the company.

David Jones spindoctors are being cautious about today's surprise announcement and have declined the ABC's requests for interviews.

David Jones shares closed 0.7 per cent higher today $2.85 which is below the year's high set in April of $3.15.

US debt timebomb defused - for now. But US reputation tarnished as China eyes opportunity.

The political brinkmanship in Washington might be over, but it seems the reputation of the United States as a global economic power has been damaged.

US Treasury bills, regarded as the world's safest investment, have been hurt by the uncertainty with interest rates rising in recent days.

AUDIO: US reputation damaged by debt ceiling impasse (AM)

The director of the Institute of Global Finance at the New South Wales University, Fariborz Moshirian, believes the damage could also be exploited by China.

The world's second biggest economy has been positioning its currency as an alternative to the US dollar, which for now remains the world's reserve currency.

"I think in the medium term the damage to the US as an economy is quite severe simply because the US currency is used as a major world currency," he said.

"And now other countries, particularly China, will think that their currency could emerge over time as a competitor to the US dollar."

Dr Moshirian says the crisis has provided with an opportunity China to deepen its capital market, attract foreign investors and ensure that its banks are more competitive with those in Europe and the US.

"China's economy has not been affected," he said.

"China didn't need to rescue her banking system, and they are sitting on massive amount of foreign exchange reserves and so Chinese financial market is very strong.

"During the Great Depression the UK was the largest creditor and US basically took over that. And now in this new era we are seeing that the US becoming the largest debtor and yet China is becoming almost a larger creditor in the world."

Dr Moshirian says there is little that central banks around the world, including the Reserve Bank Australia, could do in the event of a US debt default.

"I think if the US defaults, the Fed in US becomes a weak central bank," he said.

"And unlike during the GFC when the US Fed led a massive coordination amongst other central banks to provide financial liquidity in the system, I'm afraid this time around in the wake of any default by the US, the US Fed might not be able to provide the same leadership.

"That means we might have massive liquidity crisis in the banking system as well as in non-bank corporations."

This means there could be a big change in "in international financial architecture".

"The US currency as a global currency may no longer remain as the key currency," he said.

"And also capital market in the world will become much deeper so that they don't need to rely only on the US bond market as a way of financing their activities."

ASX boss warns of "dramatic consequences" of US default

By Business editor Peter Ryan

The chief executive of the Australian Securities Exchange has warned of "dramatic consequences" if the United States defaults on its debt obligations.

While Elmer Funke Kupper believes President Obama will strike a last minute deal with US republicans, he says the deadlock over raising America's US$16.7 debt ceiling has already damaged America's international standing.

Mr Funke Kupper has echoed predictions from other heavyweight investors that the US Congress understands the potentially catastrophic consequences of a US debt default.

"The ongoing assumption must be that it won't happen. I would still be hopeful that the US parties would know that would have very dramatic consequences for the world economy," Mr Funke Kupper told the ABC's AM program.

"I think it's fair to say that even if it's just theatre the US will have done damage to its international standing irrespective because we cannot have the number one economy in the world going through this every year."

As the debt ceiling impasse remains unresolved, Wall Street investors have started to factor in the likelihood of steep losses if the deadline passes without a deal.

The Dow Jones Industrial Average ended 0.87 percent or 133 points weaker after the Democrat Senator Diane Feinstein said talks had broken down.

In a sign of growing risk, yields on 10-year Treasury notes added four basis points to 2.72 percent after touching a three- week high.

Mr Funke Kupper says the perceived safety of US Treasury bills is coming under renewed pressure because of the deadlock and signals that a US default is looming without a deal.

"In the definition of what's safe, US Treasuries are considered safe and have been for the last 50 years," Mr Funke Kupper said.

"So if that gets shaken other things might get shaken too and I think that would be damaging not just for the US but for the world economy."

"I think all investors would like stability and certainty in the long run and I think in the western world we continue to stumble from minor crisis to minor crisis."

China holds approximately US$1.5 trillion of US debt with around US$5.7 trillion of Treasury notes held offshore around the world.

"They fund the United States so one of the consequences of this going wrong is that it will become more expensive to fund the United States and that will only make the problem worse.

"This is why it is so unimaginable that they (the US Congress) would allow this to go so wrong."

The Australian sharemarket is set to open weaker in the wake of the Wall Street falls.

The Australian dollar has backed away from yesterday's four month high after the Reserve Bank signalled that interest could remain on hold for the rest of the year.

But as hopes for a debt deal fade the local currency is lower at 95.1 US cents.

Janet Yellen Fed nomination no "rubber stamp" for US Senate

United States president Barack Obama has formally nominated Harvard economics professor Janet Yellen as the next chair of the Federal Reserve.

Mr Obama described the nomination as one of the most important economic decisions he would make as president.

Listen to my analysis from this morning's edition of AM.

Dr Yellen, a Brooklyn native, has been vice chair of the Fed since 2010.

Ben Bernanke's eight-year term as chairman ends in January.

If confirmed by the US Senate, Dr Yellen would be the first woman to hold the post in the Reserve's 100-year history.

Mr Obama said that would make her a role model for many.

The announcement appears to have been brought forward, as Mr Obama tries to calm financial markets amid concerns the US government will default on its debts if it fails to raise the debt ceiling by October 17.

Dr Yellen has pledged to promote maximum employment, stabilise prices and create a strong and stable financial system.

She says the US has made progress in recovering from the Great Recession, but more needs to be done.

AUDIO: Business editor Peter Ryan on Dr Yellen's nomination(AM)

"Too many Americans still can't find a job and worry how they'll pay their bills and provide for their families," Dr Yellen said.

"The Federal Reserve can help if it does its job effectively."

Dr Yellen is highly regarded by other central bankers around the world and like Dr Bernanke, she seen as a steady hand five years after the collapse of Wall Street.

Mr Obama says Dr Yellen ticks all the boxes he wants in a Fed chief.

"She is a proven leader and she's tough, not just because she's from Brooklyn," he said.

"Janet is exceptionally well qualified for this role. She has served in leadership positions at the Fed for more than a decade.

"Janet is renowned for her good judgement. She sounded the alarm early about the housing bubble, about excesses in the financial sector and about the risks of a major recession."

Dr Yellen joined Mr Obama in praising Dr Bernanke, who was present at the event, saying he was the epitome of calm, serenity and courage during the worst financial crisis since the Great Depression.

It is possible she will meet Republican resistance during Senate confirmation, but Dr Yellen sent a very clear message that she was more than up to the job.

Dr Yellen is considered to be "dovish" on policy, concerned more with job creation than the risk of inflation.

Thomson Reuters senior analyst John Noonan says that stance and the debt debacle in Washington will keep the Fed's aggressive bond-buying program in place for now.

"I don't think it's fair to typecast her as somebody who's always going to be taking easy monetary policy," Mr Noonan said.

"In her past she has warned about inflation, so I think until she sees the inflation pressures she is going to focus on improving the employment situation in the US.

"There's less likelihood of bond tapering also because of the damage that's been done to the economy from this latest episode."

Like Dr Bernanke, she will be trying her best to demystify the craft of monetary policy and cut the jargon.

Janet Yellen to be nominated as Ben Bernanke's successor at US Federal Reserve

With financial markets so concerned about the prospect a US debt default, President Obama has moved to temper the jitters by nominating a replacement for Ben Bernanke who's retiring as chairman of the US Federal Reserve.

Dr Bernanke's successor will be his deputy Janet Yellen who is set to become the first woman to lead the world's most powerful central bank.

Listen to my analysis from today's edition of The World Today.

It will be a hard act to follow.

Ben Bernanke is a veteran of sleepless nights after inheriting the Wall Street collapse in 2008 and is still managing the fallout of the global financial crisis which remains far from over.

Financial markets will see Janet Yellen as a safe bet and perhaps a short term antidote to the anxiety being caused by the partial US government shutdown and the fast approaching debt ceiling deadline.

Ms Yellen is not such a big departure from Ben Bernanke's dovish economic mantra.

She is seen as likely to keep official US rates close to zero for as long as necessary and will be cautious about when - or if - to wind back the Fed's economic stimulus program which is currently buying $85 billion in bonds every month.

The official announcement of Ms Yellen's nomination is scheduled for 3pm tomorrow in Washington (6am eastern time Australia) and already investors are welcoming a morsel of certainty in an increasingly volatile world.

A former member of the US Federal Reserve Randy Kroszner told Bloomberg Ms Yellen will be welcomed as someone who has been "battle tested" having made it through the worst of the financial crisis.

Ms Yellen is also expected to make it through the congressional confirmation process with little drama despite being President Obama's third choice.

Former Treasury Secretary Timothy Geithner couldn't be tempted to leave the corporate world and Larry Summers - a former Treasury Secretary to President Bill Clinton - withdrew after it became clear his nomination would be blocked.

Dr Summers' candidacy was damaged by perceptions by congressional heavyweights that he was responsible for weaker lending standards that contributed to the subprime mortgage crisis.

Investors were also worried that Dr Summers was regarded as a monetary policy "hawk" and might have cut back the Fed's economic stimulus faster than expected.

But the bigger immediate question is if news of Janet Yellen's nomination will temper nerves as the debt ceiling deadline approaches.

The futures market is showing Wall Street will open in positive territory this evening for the first time in two sessions.

But global investors are skeptical on whether the earlier than expected nomination of Janet Yellen will be enough to be considered as any circuit breaker.

Industry superannuation funds bracing for gov't battle over trade union influence

Industry superannuation funds are preparing to a fight government proposal to reduce the influence of trade unions on boards that manage retirement savings.

The government is considering a change to the current 50-50 arrangement, where boards positions are split between employer and employee representatives who are tied to unions.

AUDIO: Industry funds brace for Govt stoush on union (AM)

The Coalition is looking at a three-way split to dilute the role of unions and provide more room for independent directors, who tend to be closer to retail funds.

But the chief executive of Industry Super Australia, David Whiteley, says there is no room for political ideology when it comes to delivering super returns.

"We've had several years now of significant change, regulatory change and changes to the taxation system of super, and I think consensus within the community is very much that a period of stability and certainty would be welcomed by some members," he said.

"And I think that applies to both regulatory governance and taxation elements of superannuation."

Prime Minister Tony Abbott said during the election campaign that he would not support any detrimental changes to super.

And Mr Whitely expects Mr Abbott to fulfil that promise.

"I think that the Government will obviously be cautious and consultative in looking at any changes they will be making to the governance arrangements of any superannuation fund and, of course, be very careful and very circumspect in looking at governance changes which might reduce member return," he said.

But he says there is little evidence to show that unions have too much influence on the boards of industry super funds.

"Industry super funds are jointly governed by employer associations and by unions," he said.

"They're a function of consensus and, in fact, in many respects, could be regarded as a very consistent and enduring consensus over the last 20 years."

Mr Whitely warns against any politicisation of super fund boards.

"The most important thing that any government has got in mind will be: what are the long-term net returns to members?" he said.

"The industry super funds, according to the latest data that I've seen, have shown that they've outperformed the retail fund sector, over one, three, five, seven and 10-years.

"So what would be front-of-mind for any government would be making sure that the changes they make are beneficial to members' long-term net returns."

The Cooper Review into superannuation in 2010 recommended more independent directors on the boards of industry super funds.

Mr Whitley says it is unclear whether that would be the case.

"It's hypothetical, of course," he said.

"I think one thing that is clear is that the governance of industry super funds has been central to their outperformance."

"There's a number of reasons for that, of course. One has been the preparedness to invest directly in infrastructure. One has been that industry super funds do not pay sales commission to financial planners.

"But of course, also it has been the governance of those funds themselves and this is something which there has been numerous reports about, numerous evidence presented about, both in Australia and overseas."

Mr Whitey expects to be consulted about any changes to superannuation fund boards.

"I mean, our expectation would be that any government which was seeking to introduce significant change to any part of our industry would be consulting with industry super funds," he said.

Medibank Private boss says selloff in first Coaltion term "likely"

The anticipated multi-billion sale of Medibank Private could take place in the Coalition government's first term.

The publicly owned insurer's managing director George Savvides has told The World Today the selloff remains a key Coalition goal.

"I think it is designed that way and certainly we will respond in a manner required to meet the expectations of the owner," Mr Savvides said.

"But I suspect it will be in the first term."

Listen to my exclusive interview with George Savvides.

The sale speculation was ramped up as Medibank Private announced a 83.8 percent increase in full year profit to $233 million.

Membership rose to 3.8 million members during last financial year, and the company says it has 29.5 per cent market share.

Medibank was valued at more than $4 billion during the Howard Government in 2006.

But with today's price thought to be around half that, the government appears to be waiting for the the right time and a better price tag.

Leighton facing class action over Iraq bribery, corruption claims

Construction giant Leighton Holdings has vowed to vigorously defend itself against a shareholder class action relating to allegations of bribery and corruption in Iraq.

Leighton has been notified that Melbourne solicitor Mark Elliott filed a writ against the company in the Supreme Court of Victoria late last week.

LISTEN: Business editor Peter Ryan speaks with class action lawyer Mark Elliott

The writ alleges Leighton breached its continuous disclosure obligations under the Corporations Act by failing to reveal allegations of bribery and corruption against senior officers responsible for a $750 million oil pipeline contract in Iraq.

It also alleges the company failed to disclose an investigation of "misbehaviour" involving senior officers, including "misbehaviour the subject of a claim by Leighton against a former employee for $5.6 million", relating to the construction of a barge in Indonesia.

Mr Elliott, who is also a Leighton shareholder, told PM he launched the class action because he was concerned shareholders still did not know the full story about the alleged incident in Iraq.

The company denies there is a "proper basis for the alleged claim" and says it will vigorously defend itself.

Leighton voluntarily reported the incident to Australian Federal Police in 2011, describing it as a possible breach of its code of ethics, and notified the market in February 2012.

"The initial disclosure in February of last year had no impact on the share price and that's probably because the announcement was very innocuous - it talked about breaches of codes of ethics and similar wording," Mr Elliott said.

"I think you can see from activity in the share market on the 3rd and 4th of October last week that the share market was quite surprised by the most recent round of announcements and decided it was a billion-dollar problem now and marked the shares down accordingly."

Leighton has also attacked "sweeping criticisms" of its governance structures, processes and integrity in ongoing coverage of the allegations, revealed last week as part of a six-month investigation by Fairfax Media.

The reports revealed hundreds of confidential documents that Fairfax says show corruption was widespread, and in some cases approved, across Leighton's international businesses.

The documents include a handwritten note from November 2010 that allegedly shows former chief executive Wal King, who led the company for 23 years, approved $42 million in kickbacks to "a firm in Monaco nominated by Iraqi officials".

The investigation also exposed alleged plans to pay multi-million dollar kickbacks to win contracts to build a barge in Indonesia and a dam-building project in Malaysia.

Mr King has emphatically denied all allegations.

Today, Leighton issued a statement saying its board and management "condemn any form of corrupt or fraudulent behavior".

"Media coverage of the possible employee fraud concerning the construction of a barge has deflected the fact that this issue was investigated on more than one occasion and ultimately by external auditors, engineers and lawyers," Leighton said in the statement.

"The investigations have led to court proceedings being brought against the ex-employee, with Leighton seeking the recovery of $5.6 million.

"These steps were taken before media reporting on the matter, not in reaction to it. The attempt by some media, or their sources, to characterise this issue as a foreign bribery matter is misguided and incorrect."

When Leighton reported the Iraq incident to AFP in 2011, the company said it was not known whether there had been any "wrongful or illegal conduct".

The company says it is cooperating with the federal police investigation.

Raining on the parade or wakeup call? Republican movement slaps PM's monarchist comment

The Australian Republican Movement has criticised yesterday's comments by Prime Minister Tony Abbott that "today everyone feels like a monarchist."

The comments to Prince Harry at the Fleet Review came as Mr Abbott said he regretted that not everyone is a monarchist.

So is the ARM being overly sensitive to the PM's well known monarchist stance? Or is Australia mature enough to celebrate such a significant event without feeling tied to the monarchy?

The question was put to Malcolm Turnbull on this morning's Insiders program on the ABC.

"I NEVER feel like a monarchist".

Photo by Peter Ryan

Media Release from Australian Republican Movement

Photo by Peter Ryan

Hockey extends deadline for ADM's $3 billion Graincorp bid

By Business editor Peter Ryan

Treasurer Joe Hockey has delayed a final decision on a controversial bid by the US agricultural giant Archer Daniels Midland for Australia’s Graincorp.

In a statement released this afternoon, Mr Hockey said the deadline for a decision on the $3 billion proposal had been extended to December 17.

Mr Hockey’s decision is seen as the government’s first major policy test of foreign investment amid pre-election speculation about revised guidelines for the Foreign Investment Review Board.

“Given the size of this transaction and the complex nature of the issues involved, I have decided to extend the statutory time period,” Mr Hockey said.

“This will allow sufficient time for the new government to carefully consider all the relevant issues and advice from the Foreign Investment Review Board before making a decision.”

A decision on ADM’s bid for Graincorp had been expected earlier this year but was put on hold when the Labor government moved into caretaker mode before the election.

Today Mr Hockey used powers under the Foreign Acquisitions and Takeovers Act to extend the deliberation period.

“Australia’s foreign investment review framework allows the Government to examine foreign investment applications on a case-by-case basis to ensure they are not contrary to Australia’s national interest,” Mr Hockey said.

ADM's grain division president Ian Pinner has been in Australia recently to lobby shareholders, including farmers, to approve the deal.

Mr Pinner has been working to dismiss concerns that the takeover could restrict access to grain storage and ports.

"Open access and arrangements that exist today will, and, I believe, need to exist going forward," Mr Pinner told the “AM” program in June.

"We've spent a lot of time talking to the stakeholders of GrainCorp to ensure that we've got what we believe is the right strategy once we acquire the business," he said.

While in Opposition, the leader of the National Party, Warren Truss, urged the Foreign Investment Review Board to veto the takeover.

Mr Truss has said the deal is not in Australia's national interests as it could see most of Australia's export facilities become foreign owned.

"It makes no sense for us to restrict access to the growers or to the trade to either the up country storage or to the ports," Mr Truss told the ABC earlier this year.

Mr Hockey’s decision reflects the attitude of the previous Labor government and reiterates that the government welcomes foreign investment “because of the benefits that it provides to the Australian economy.”

US Treasury warns debt ceiling deadlock or default could have "catastrophic consequences" and trigger deep recession

As the budget impasse in Washington starts to hurt financial markets, the US Treasury is warning a deadlock over America's $17 trillion debt ceiling could have "catastrophic consequences".

In a document released this morning, Treasury says a failure to raise the debt ceiling could see America default on its debts for the first time ever.

Treasury warns that will not only hurt America's economic recovery but put it back into a deep recession.

Listen to my analysis from this morning's edition of "AM".

· "Not only might the economic consequences of default be profound, those consequences, including high interest rates, reduced investment, higher debt payments, and slow economic growth, could last for more than a generation."

· "In the event that a debt limit impasse were to lead to a default, it could have a catastrophic effect"

· "Many private-sector analysts believing that it would lead to events of the magnitude of late 2008 or worse, and the result then was a recession more severe than any seen since the Great Depression."

Chicago volatility index (VIX) on rise - though nothing like last impasse in late 2011.

Leighton denies bribery, corruption claims in Asia and the Middle East

The construction company Leighton Holdings says it is co-operating with federal police amid allegations it paid millions of dollars of kickbacks to win contracts in Iraq.

Fairfax Media has obtained hundreds of confidential documents that it says show corruption was widespread and, in some cases, approved across Leighton's international businesses.

Listen to my story which includes an exclusive interview with former Leighton chief executive Wal King

The documents include a handwritten note from November 2010 that allegedly shows former chief executive Wal King approved $42 million in kickbacks to "a firm in Monaco nominated by Iraqi officials" for a $750 million oil pipeline contract.

The six-month investigation also exposes alleged plans to pay multi-million dollar kickbacks to win contracts to build a barge in Indonesia, as well a dam-building project in Malaysia.

Leighton voluntarily reported the Iraq and Indonesia incidents to the AFP in 2011 but it has refused to confirm when the alleged breaches of its code of ethics occurred.

The AFP says it is treating the case as a priority, and "working to ensure the matter is thoroughly investigated".

Mr King, who was chief executive of Leighton for 23 years until retiring at the end of 2010, told the ABC he was not aware of the activity in the reports and will issue a statement this afternoon.

In a statement, Leighton says it takes the accusations seriously and "is deeply concerned about the suggestions of impropriety".

It described the Iraq investigation and the construction of a barge in Indonesia as "exceptional instances".

"Leighton continues to cooperate with the AFP while the AFP undertakes its investigation," the statement says.

"We are not aware of any new allegations or instances of breach of our ethics."

Leighton has taken action in NSW Supreme Court to recover $5.6 million from a former employee for alleged breaches of "contractual and fiduciary duties" in relation to the construction of the barge in Indonesia for a subsidiary, Leighton Offshore Pte Limited.

And the company says it has already conducted internal investigations into the Iraq case.

It dismissed a senior executive in July 2012 in relation to the Iraq matter, and says it has changed its management and risk structures and revised its code of business conduct.

The allegations come as the Reserve Bank confronts claims that its subsidiary Note Printing Australia tried to strike a deal an illegal deal with Iraq in 1998.

The Australian Securities and Investments Commission (ASIC) says the reports are a matter for the AFP, because such activity is governed by the Commonwealth Criminal Code.

But Independent Senator Nick Xenophon has stepped up his criticism of ASIC in light of the new allegations, saying the regulator should have the power to investigate in such cases.

"If it's an Australian-registered company, it ought to be within the domain of ASIC to look at bribes being paid by an Australian-based company or a company with significant Australian operations in relation to their conduct overseas," he said.

When Mr King's retirement was announced in 2010, Leighton chairman David Mortimer praised his contribution to the company.

"During Wal's leadership, Leighton has risen from being a middle-ranking Australian construction company to a global leader as a contractor and the world’s largest contract miner," Mr Mortimer said at the time.

"Just recently, Engineering News Record ranked Leighton as the 12th largest contractor by revenue in the world."

Leighton shares fell sharply in early trade and at 10:25am (AEST) were down 8.9 per cent at $17.85.

Bob Hawke still knows how to tell a joke (did anyone doubt it?) 30 years on from America's Cup victory

Fixed line phone hangups tell story of Telstra's long term transition

Telstra says its decision to cut 1,100 jobs from its operations division will not get in the way of winning lucrative new business from the National Broadband Network.

The decision was the result of a major restructure as the decline of traditional fixed line telephone connections continues.

There have been some dramatic changes for Telstra since its privatisation began right back in 1997.

So is this latest round of cuts a sign that Telstra's strategy is part of a new approach?

Telstra is no longer a company just known just for its copper wire network and phone lines into homes.

The first big change came in 2005, when the then-chief executive Sol Trujillo revealed a big decline in traditional fixed-line phone connections.

AUDIO: Telstra to trim more as it eyes NBN deal (AM)

He said this was because more customers were relying on their mobile phones.

More recently, consumers have been using new services like Skype, and there is also the threat of free calls from Apple's new operating system.

Telecommunications analyst David Kennedy says the old lines of the business are fading, but even new technologies are being superseded.

"The reason they've been forced to accelerate this sort of process is that a lot of the traditional business lines, especially for residential homes, public switched data network is in decline, but mobile and fixed broadband have reached a kind of maturity," he said.

"The connection growth has really tailed off over the last three years. So to maintain profitability the whole industry is now looking to reduce the cost base at a faster rate than they have done in the past."

With the shift to the NBN, Telstra has needed to become more efficient to compete.

And, of course, there is the unrelenting pressure to keep shareholders happy.

Under Labor, Telstra negotiated an $11 billion deal to decommission its copper network and to move customers over to the NBN.

Under the Coalition plan, Telstra might get even more work to get the NBN from the street corner to households using its copper wire.

But Mr Kennedy says it is not a done deal, and Telstra might need to trim even more staff.

"Telstra need to proceed with the sorts of efficiencies which they're implementing, irrespective of whether the NBN goes ahead or not - or in what form," he said.

"We now have a new government and its likely that the old copper network will continue to operate in some shape or form. If Telstra's going to operate the underlying copper then it's going to need to do so on a more efficient basis."

Economist warns GFC fallout yet to hit as world marks Lehman Brothers collapse anniversary

Five years after the collapse of Lehman Brothers, economists are warning the worst fallout from the global financial crisis is yet to hit Europe and parts of Asia.

The concerns come as the US Federal Reserve decides just when to start scaling back its massive economic stimulus program, which has so far succeeded in keeping much of the world from falling back into crisis.

The Fed shocked financial markets when it decided to delay any slowdown in the money printing.

Tim Hodgson is senior investment consultant at the global pension fund advisors Towers Watson.

He argues that the current era of cheap and easy money from central banks might need to be extended.

"I think it's changed more than just the financial world. But there's a lot of repair still to do," he said.

"So it's clear that despite progress in banking systems to get risky assets off balance sheets, improve tier-one capital ratios, I don't think anybody thinks that banks are home and dry yet, particularly, I would argue, in Europe."

Audio: Europe, Asia still at risk from GFC fallout (The World Today)

He says the economy - and broader society - is yet to recover from the Lehman Brothers collapse.

"Never before in history have we had this level of monetary stimulation ,and for growth to be so disappointing," he said.

"The growth response to the level of stimulation says to me that the old linkages that we expected are broken."

Monetary measures cannot continue forever
An important question, Mr Hodgson say, is how long global monetary intervention can continue.

"I suspect it might last longer than we expect," he said.

"Where's the improvement going to come from? Where's the reset mechanism? There's still a lot of deleveraging to do. The European banks haven't really succeeded in deleveraging to any material extent. Australia - the households haven't deleveraged. So I'm not sure that we're on a healing process yet."

We often look at the global recovery through what is happening with Fed decisions in the United States, or what might be happening in Europe with the eurozone crisis.

In reality, emerging economies such as India are exposed to the day when all this cheap and easy money is going to be wound back.

Certain emerging markets benefited massively from that liquidity," Mr Hodgson said.

"The slight drawback, or the threat of drawback from the withdrawal of the Fed stimulus, has seen certain emerging countries really suffer massively."

And he warns that there will be serious social consequences if living standards do not improve.

"In a sense, what's happening in the likes of Spain is remarkable because historically, youth unemployment over 50 per cent of the population," he said.

"That has historically been associated with reasonably significant social unrest.

"And yes, as these economies adjust, it is perfectly possible that we'll see social tensions rise. I'm expecting geopolitical tensions to rise."

It is unclear exactly how long it will take the global financial crisis to run its course.

"It's a kind of five to ten year, maybe 15 year workout phase," he said.

"It's not all doom and gloom because the system adapts and the human spirit is generally forward looking and generally optimistic and I'm pretty sure that we will work through this and there will be a brighter dawn. But it might not be in 2014."

Spruikers back as property prices boom - ASIC warns self funded retirees are new targets

The recent steady rise in property prices has heralded the return of the property spruiker.

But this time around, the corporate watchdog is moving early to crack down.

The Australian Securities and Investments Commission says some sales pitches that offer advice on increasingly popular self managed superannuation funds could be breaking the law.

In the last major property boom a decade ago, the so called "get rich quick" experts made a name for themselves spruiking real estate.

LISTEN: Business editor Peter Ryan examines the return of the property spruiker.

Some investors made big money. Others less fortunate lost their life savings. And a few spruikers who broke the law went to prison.

But now with property prices on the rise, there is evidence that the property spruiker is back.

And self-funded superannuation funds are the new targets, according to ASIC commissioner Greg Tanzer.

"We're certainly seeing an increase in advertising that's specifically directed to SMSFs," he said.

"We know that there are a number of SMSF investors who, like many Australian investors, have an affinity with property. And there's nothing wrong with that, provided you understand the limitations, some of risks that you're taking on."

ASIC says some spruikers could be breaking the law.

Mr Tanzer says some spruikers who try to sell property into self-managed funds are are not licensed to offer financial advice.

"If you want to extol the virtues of investing in property, obviously that's something that's just subject to normal state and territory laws," he said.

"But it's where you are doing that in the context that you're encouraging that investment through an SMSF, ASIC's jurisdiction might be enlivened."

The one-time real estate agent turned consumer advocate Neil Jenman says there is no doubt the property spruiker is back.

"They've gone into their hibernation for a few years but they're certainly back in force at the moment," he said.

Mr Jenman has been running seminars of his own around the country, warning about the perils of bad advice - especially ones involving retirement savings.

"It's what they call FOMO. Everybody seems to be suffering from FOMO, which is fear of missing out," he said.

"And the spruikers have headlines. And one of them has actually got a headline - we are about to enter the greatest boom in history. Don't you be the one to miss out. Come to my free seminar and I'll tell you what to do, provided you give me $25,000 after that, of course."

Mr Jenman believes ASIC is right to be concerned.

"People are, without realising it, already losing thousands of dollars," he said.

"I mean, they're selling property in America for goodness sake. The difference is, if you went America to buy them yourself, you'd find that you'd probably be able to get them for nothing because they can't give them away in some parts of America."

But ASIC is moving quickly this time to head the spruikers off.

Mr Tanzer is keen to ensure history doesn not repeat itself.

"We've seen examples in the past where people have been burned by getting into property investments that might be overpriced, that might be promised but not delivered," he said.

The Reserve Bank is also worried and says the use of property in self-managed super funds is one area where households might be taking on risk.

Reserve Bank warns on property price bubble, but says banking system "relatively sound"

By Business editor Peter Ryan

The Reserve Bank has joined a growing chorus of local and global authorities to signal that record low interest rates have the potential to fuel a property price bubble.

In the minutes from its September meeting, the central bank's Board mirrored last week's warning from the prudential regulator APRA (Australian Prudential Regulation Authority) for banks to be vigilant about their lending standards.

"In the current environment of low interest rates and slow credit growth, members agreed that it was especially important that banks maintained prudent lending standards," the minutes say.

According to the minutes, the RBA board was briefed on the recent intervention by the Reserve Bank of New Zealand which has introduced a stricter loan to value ratio (LVR) as it deals with signs of a property price bubble.

Earlier today, the International Monetary Fund also signalled that the current era of low inflation and low interest rates around the world had the potential to created a price bubble.

In calling for the wider use of macro-economic tools, the IMF said the access to cheap money "encourages households to borrow more and can make them more vulnerable to shocks."

However, the RBA appears confident that the Australian banking system remains in "a relatively sound position" and the "profitability remains strong compared with that seen in other advanced economies."

"Households continue to show prudence in managing their finances with higher levels of saving and a slower pace in credit growth for some time.

"The continued high rate of excess home loan repayments was consistent with low rates of financial stress among households with mortgages."

But the RBA appears less comfortable about the growing use of property in self managed superannuations funds which are gaining popularity in Australia.

"Property gearing in self-managed superannuation funds was one area identified where households could be starting to take some risk with their finances."

According to the minutes, the rising risk "would be closely monitored" by RBA staff.

The warning from the RBA, APRA and the IMF coincides with the fifth anniversary of the Lehman Brothers collapse which sparked the global financial crisis.

The seeds of the GFC can be found in weaker lending standards and creation of a subprime housing market which burst to spark America's worst housing crash since the Great Depression.

The RBA left the cash rate on hold at 2.5 per cent earlier this month, saying the current setting was "appropriate".

The RBA has cut the cash rate by 2.25 percentage points since November 2011 to breathe life into the economy and to tame the high Australian dollar which has fallen by 15 percent since April.

Switkowski set to head NBN Company despite "no comment" from Turnbull

The Coalition frontbencher Malcolm Turnbull has refused to confirm speculation that former Telstra chief executive Ziggy Switkowski will be appointed to head the company responsible for the rollout of the National Broadband Network.

Mr Turnbull says any decision would have to be made by the Coalition cabinet.

“That decision would be taken by a cabinet and obviously if I’m the Communications Minister it would be on my recommendation," he said.

“It’s not the first time Ziggy’s name has been flagged. He is obviously highly qualified and most people would regard him as an eminently suitable person but no decision has been taken by a Coalition government because we haven’t been sworn in yet.”

However, speaking on ABC News Breakfast, Mr Turnbull expressed concerns about the operation and makeup of the NBN Co board.

“It is remarkable that there is no one on that board who has either run or built or managed a large telecommunications network. That is a singular deficiency," he said.

Mr Turnbull confirmed the Coalition will order a forensic audit into NBN Co to examine governance and policy.

“We have not ruled out a judicial inquiry. That is certainly a possibility,” he said.

The current chief executive of the NBN Co, Mike Quigley, announced his retirement in July and is expected to remain in the role until a successor is appointed.

The ABC contacted Mr Switkowski in relation to the speculation but he refused to comment.

Business lobby ramps up push for IR overhaul; ACCI says both major parties rapidly writing cheques with no money in the bank

So far this election campaign, the normally hot issue of industrial relations has barely rated a mention.

But behind the scenes, business lobby groups are ramping up their wish lists on IR reform regardless of which party wins on September 7.

The Australian Chamber of Commerce and Industry has today presented more than a hundred reform priorities to both major parties which includes an overhaul of the Fair Work Act.

But in the lengthy submission, the Chamber is urging the Coalition needs to get more aggressive about workplace reform if, as expected, it wins office.

The chamber's Peter Anderson says he is "not particularly" surprised that industrial relations has been taken the back seat during the election.

Listen to my interview with ACCI chief executive Peter Anderson.

"Because I don't think that the Government has you know a particularly good story to tell," he said.

"Because there's now been four or five years of experience with the Fair Work laws, and many of the claims the Government made about how those laws would apply to businesses, especially small and medium businesses, have not been met."

But Mr Anderson believes the Coalition needs to deal IR in an "orderly way".

"We know on industrial relations that the Federal Coalition has been very cautious and I think that there is still a very steep road for the business community to climb to convince the Coalition that there needs to be some significant changes to our employment regulation," he said.

"It needs to deal with these issues in an orderly way but it simply can't put them on the backburner.

"And the reason for that is that the Government's fair work laws, from almost all business perspectives, as well as independent perspectives, have swung the pendulum too far back towards centralisation and union power over bargaining."

Reserve Bank leaves door open to more rate cuts - but reluctant to say another is imminent

By Business editor Peter Ryan

The Reserve Bank has signalled that the official interest rate could remain on hold at a historic low unless there is a major deterioration in Australia's economic outlook.

In the minutes from the decision a fortnight ago to cut the cash rate to a 2.5 per cent, the RBA board appears to have settled on a neutral monetary policy stance with a bias to ease as required.

"Members agreed that the Bank should neither close off the possibility of reducing rates further, nor signal an imminent intention to reduce rates further," the minutes say.

The minutes from the RBA's August decision effectively rule out a pre-election rate cut when the Board next meets on September 3.

Listen to my analysis broadcast on The World Today.

"The Board would continue to examine the data over the months to judge whether monetary policy was appropriately configured," according to the minutes.

The RBA's decision to sit on the fence follows a raft of soft economic data with GDP expected to slow to 2.25 per cent and the jobless rate tipped to peak at 6.25 per cent.

However, the RBA says the further decline of the Australian dollar will be "important" in deciding the course of monetary policy.

The dollar "had declined since the previous meeting though remained high by historical standards" the minutes say.

The minutes add that further declines in the exchange rate would assist in rebalancing growth in the economy.

The minutes appear to signal that further rate cuts would require a material worsening of the economic outlook beyond the outlook in the RBA's recent Quarterly Statement on Monetary Policy.

Since the August meeting, Treasury release its Pre-Election Economic and Fiscal Outlook (PEFO) which confirms the outlook for slower economic growth, and rising unemployment.

The minutes shed little new light on the decline of the mining investment boom other than to confirm that business spending would be affected by a "turning of the cycle".

Bernanke's caution on stimulus withdrawal welcomed by investors

Less than a month ago, the world's most powerful central banker unsettled financial markets when he laid out a timeline for ending the unprecedented stimulus to the US economy.

The comments from the Federal Reserve's chairman Ben Bernanke sparked big swings in both the US and Australian currencies and a global selloff of stocks.

But overnight in Washington, Dr Bernanke tried to soothe investor nerves when he said the end of the Fed's money printing program was not necessarily on a preset course.

Listen to my analysis broadcast this morning on AM.

Ben Bernanke’s carefully chosen words are critical as prepares to execute a smooth exit from the quantitative easing program where the Fed is buying US$85 billion of bonds every month.

The trouble is that investors remain addicted to what has become an era of cheap and easy money as the causes of the global financial crisis fade into history.

So any suggestion that the party is over because of good news about the US economic recovery is being greeted as bad news.

The US dollar dived when Dr Bernanke’s prepared statement hit markets and as a result the Australian dollar rocketed to 92.92 US cents in more evidence that Australia remains at the whim of words from Washington or Wall Street.

But the money printing has to end given that to since 2009 the Fed’s stimulus has quadrupled to US$3.5 trillion.

The numbers might be mind-boggling. But any suggestion, signal let alone decision to taper quantitative easing is enough to cause painful financial lurches around the world.

So when Dr Bernanke addressed Congress overnight, he was choosing his words more cautiously than usual and said that while the stimulus could be scaled back, it could also be pumped up in the event of the economic shock.

It appears Ben Bernanke knows he has to have a bet each way to have any chance of a smooth and graceful escape from the bond buying.

But the evidence is that investors are hearing what they want to hear and today they were celebrating that the easy money might be around for a while yet.