The disappearance of all political capital from both sides of the Parliament is a genuine crisis for the economy because difficult decisions and strong leadership are now required to take the pressure off monetary policy, writes Alan Kohler.

On Tuesday night, around midnight, the Australian dollar dipped below US74c for the first time in six years.

That followed the Reserve Bank of Australia's comment in its monetary policy statement on Tuesday afternoon that "further depreciation (of the Australian dollar) seems both likely and necessary".

It has already depreciated against the US dollar by more than 20 per cent in less than 12 months, and about 15 per cent against the trade weighted index.

Not enough, declares the RBA. More is both "likely and necessary". "Likely" we understand, since commodity prices are falling and China is turning into a basket case before our eyes, while at the same time the US dollar is rising as anxious capital floods into America seeking safety. But why is it "necessary"?

The most important number for the Australian economy now is not GDP or the cash rate, but the Prime Minister's approval rating - 36 per cent according to the latest poll, down a disastrous 4 percentage points.

The political capital of Australia's political leadership has evaporated, largely self-inflicted.

Economic reform, already difficult, is now out of the question. A change of government wouldn't help, and won't happen anyway, since the Opposition Leader's approval is even lower than the PM's - 35 per cent.

The disappearance of all political capital from both sides of the Parliament is a genuine crisis for the economy because difficult decisions and strong leadership are now required to take the pressure off monetary policy.

There are two fundamental, and related, problems that need to be addressed in this country: Australia's cost base is too high and businesses are not investing.

The cost base is too high primarily because the price of land has been driven up by investors seeking tax deductions and a safer place for swelling self-managed superannuation balances than the volatile sharemarket.

It's exacerbated by the restriction on viable land supply caused by too many regulations and a lack of transport infrastructure and high population growth.

Australia's high cost base is one reason businesses are not investing. The other two are political instability that frequently crosses into dysfunction, and the direction of the currency.

Tax reform is entirely off the table, even though a formal process to consider it is pointlessly under way. The Productivity Commission has recommended reforms to superannuation; forget it. Infrastructure investment by government is both minimal and hopelessly politicised. Significant reform of the health and welfare budget is also out of the question, so that the federal budget will be in deficit for at least a decade.

All of Australia's necessary economic adjustment following the end of the mining boom must be borne by the currency, which is plain for everyone to see. That in itself leads to a capital drought.

After all, if the central bank of a country comes out and says a devaluation is both likely and necessary, even after a big one (20 per cent) has already happened, where would you invest your money - there or somewhere else?

But wait, there's more.

About the time the Aussie slipped under US74c on Tuesday night, the IMF put out a statement warning of the global consequences of a "markedly" stronger US dollar.

The report commented: "A prominent risk to the outlook is that the (US) currency will continue appreciating due to sustained cyclical divergences and capital flows into US dollar assets."

That risk will only be increased by the first increase in the US interest rates, which the Federal Reserve has virtually announced will take place in September this year.

So the RBA is facing a potential "be careful what you wish for" moment: it's pushing the Australian dollar down what it hopes is a slope, but it might turn into a cliff.

Alan Kohler is a finance presenter on ABC News. He tweets at @alankohler.

Drum articles will not be open for comment today but readers are invited to have their say on our Facebook post for this story.