Rhian"Our current acount deficit is 6% of GDP" Very creative Statistics Rhian.Our deficit is $400 Billion and our GDP is $1000 billion or one trillion.Our deficit is 40% of GDP and not 6% which you espouse.Now this very basic error puts all your other claims in the realm of wishful thinking.Please explain.

Arjay
You're confusing the current account deficit with our foreign debt. The current account deficit is the gap between money received on our overseas transactions (export revenue, interest and dividends etc) and money sent abroad each month, quarter, year etc. Foreign debt is the accumulated stock of debt arising over the years as a result of deficits. A basic error indeed, but it’s yours, not mine.

Good point Rhian,however your stats prove to be more concerning than I first thought.6% of our GDP is $60 billion or $6000.00 for every working person pa we are loosing from our economy that future generations like your children and mine must one day make recompense.

The US is considering increasing tarrifs because they are going out the back door with their current account deficit to the tune of $800 billion pa.In real terms the US is 15 times our population yet per
head of population ours is worse.Never in our history have we sold so much of our resources yet our current account deficit continues to worsen.This is why the Howard Govt wants to keep wages low so we can keep industries here.Well it isn't going to happen.

Australia is bleeding to death just like the US and the free trade ludites lasiviate in denial,while Rome burns.

All countries should be allowed to balance their trade,just like ordinary households balance their budgets,otherwise we all become slaves to big business and Govts.

Arjay
On the day when Australia's domestic savings are sufficient to finance the investment we need, Australia may no longer need to run a current account deficit. But until then, we're much better off borrowing from foreigners than slashing domestic consumption or investment, which is what balancing the account would require.

Rhian, Australia cannot keep borrowing indefintely from foreigners to finance our fiscal improvidence.

Our foreign capital addiction is unhealthy. Why? Because most of the foreign capital inflow over the past decade has not gone into the expansion of export sectors needed to service our foreign liabilities. Rather, it has gone into non-tradable goods sectors (import consumption, property) and was lent to Australia in order to take advantage of our higher interest rates. This leaves our entire economy precariously exposed to the whims of foreign capital markets.

The enormousness of Australia's debt-servicing burden leaves us highly vunerable to any downturn in our terms of trade and/or a rise in global interest rates. Considering the size of our foreign debt, I shudder to imagine the balance of payments crisis Australia will experience when the commodities boom comes to an end.

If Australia is to reduce its CAD and stabilize its foreign liabilities, we need to start running trade surpluses. This means more investment in tradable goods sectors, but also in import-replacement industries.

Kenneth Davidson at The Age examined the recent findings of chief economist of HSBC bank, Dr John Edwards, in a paper prepared for the Committee for Economic Development of Australia. Davidson wrote:

"According to Edwards, if Australia wants to stabilise net foreign liabilities at 100 per cent of GDP, it must permanently limit the current account deficit to a maximum of 5 per cent of GDP, and it must do so by running a trade surplus of 1 per cent of GDP. This doesn't look too much of an ask, but given that in recent years Australia has been running a trade deficit of 3 per cent of GDP, Edwards points out: "The move to a surplus of 1 per cent of GDP means that exports have to increase by 4 per cent of GDP or imports cut by 4 per cent of GDP, or some mix of the two."

To put these shifts in context: the weight of the adjustment must fall on consumption rather than investment because investment is needed either to increase exports or achieve the necessary import substitution to avoid the necessity of the adjustment occurring in the context of a shrinking economy and rising unemployment."

http://www.theage.com.au/news/business/foreign-debt-a-cause-for-concern/2007/05/20/1179601239331.html