Need Help With Current Account! (1 Viewer)

[maomaobrowncow]

im doin an assignment on Australia's current account deficit, and the question is..."is Australia's current account deficit a problem?"

i have reasons y it would b a problem...but i need more on y the CAD is a good thing...or tht it isnt a problem...

any help would b appreciated!

 

[midifile]

Have you heard of the pitchford thesis?
This thesis argues that the CAD is not a problem as long as all the debt is business and consumer debt and not government debt. The money borrowed from overseas is used for income earning purposes, and therefore businesses/consumers should be able to make interest repayments and repay the loan. This is used to stimulate the economy as it increases production and there is the flow on effect etc. The government has paid off all of their debts, and therefore the country is not reliant on foreign debt.

 

[williamc]

Have you heard of the pitchford thesis?
This thesis argues that the CAD is not a problem as long as all the debt is business and consumer debt and not government debt. The money borrowed from overseas is used for income earning purposes, and therefore businesses/consumers should be able to make interest repayments and repay the loan. This is used to stimulate the economy as it increases production and there is the flow on effect etc. The government has paid off all of their debts, and therefore the country is not reliant on foreign debt.

99% of Australia's debt is private sector debt. Obviously 16yo's arnt the ones causing this level of debt, and it is adults. The Pithford thesis assumes that adults are able to use common knowledge and be 'rational' to whether their level of debt can be paid back, this is why the pitchford thesis is sometimes known as the consenting adult thesis. Adults should act in a rational way aslong as their borrowing decisions are not influenced by any negative factors.

With the Net Income component of the CA being a major contributor to austalia's CAD, thus being proven that it is not an issue by the pitchford thesis one could assume that australia's CAD is insignificant.

 

[nick90]

http://www.rba.gov.au/PublicationsAndResearch/Bulletin/bu_aug02/bu_0802_2.pdf

This link is to a 2002 rba bulletin, which gives some interesting info that would help you in arguing Australia's foreign debt isn't much of a problem. I remember reading a Gittins article quite a while ago as well about why the cad is less of a problem, but couldn't find a link.

 

[munchiecrunchie]

adding on, a significant proportion of the CAD consists of imported capital goods, which ultimately generate an income, and therefore isn't really a problem.

 

[rajputsingh]

Economics is screwed...everything impacts something else
refer to cartoon in SMH on 15/2/08
"unemployments down"
"thats good"
"no apparently thats bad...it means a labour shortage"
"thats bad"
"No thats good...it will push wages up"
"thats good"
"no thats bad...it means higher interest rates"
"thats bad"
"No thats good... it strengthens the dollar"
"Thats good"
"no thats bad...more expensive exports"
"Thats bad"
"no thats good... cheaper imports"
"...Lets stick to the weather"


c it is all very messy

 

[munchiecrunchie]

Economics is screwed...everything impacts something else
refer to cartoon in SMH on 15/2/08
"unemployments down"
"thats good"
"no apparently thats bad...it means a labour shortage"
"thats bad"
"No thats good...it will push wages up"
"thats good"
"no thats bad...it means higher interest rates"
"thats bad"
"No thats good... it strengthens the dollar"
"Thats good"
"no thats bad...more expensive exports"
"Thats bad"
"no thats good... cheaper imports"
"...Lets stick to the weather"


c it is all very messy

it is indeed confusing but hey it gives us more to write about, which = more marks =]

 

[xsjado]

Economics is screwed...everything impacts something else
refer to cartoon in SMH on 15/2/08
"unemployments down"
"thats good"
"no apparently thats bad...it means a labour shortage"
"thats bad"
"No thats good...it will push wages up"
"thats good"
"no thats bad...it means higher interest rates"
"thats bad"
"No thats good... it strengthens the dollar"
"Thats good"
"no thats bad...more expensive exports"
"Thats bad"
"no thats good... cheaper imports"
"...Lets stick to the weather"


c it is all very messy

Yeah, that made me lol when i read it in the paper...

 

[Zrap]

CAD can raise interest rates but lower inflation

 

[williamc]

CAD can raise interest rates but lower inflation

wtf, no.

 

[Zrap]

Yeah man! Economic 101

 

[onlinenooby]

Err no.