We're told that we've never had it so good, but our yet our current account balance and foreign debt levels have rarely looked so bad.

Considering Australia's once-in-a-century commodities boom, we should be racking up huge current account surpluses and exporting capital to the rest of the world. Instead, we're are racking up record current account deficits and hundreds of billions in foreign debt.

Australians have spent the last decade pumping the savings of foreigners into an overheated housing market, leaving us with record levels of foreign debt but no increased capacity to service those liabilities. The commodities boom was meant to turn our fortunes around. But in reality, it has simply allowed us to keep borrowing rather than address the structural imbalances in our economy. Besides, high levels of foreign ownership in the resources sector have meant a constant outflow of money overseas in the form of dividend payments.

Australia seems to have fallen into a classic debt trap - borrowing in order to service existing debt. And the current global credit squeeze will only make Australia's debt burden more difficult to service.

So, what happens when the commodities boom comes to an end and Australia's terms of trade decline?

with luck, i could be dead by then. pollies figure, with luck i'll be dead by then too.

leaving your nation in the hands of pollies is as sensible as putting your super in a land developers prospectus, as responsible as letting pedophiles babysit your children.

to be fair, ozzies are an ignorant gormless lot, raised as sheep, trained to queue for fleecing, and incapable of protecting themselves. little wonder they submit to anyone who says: "i'll save ya!"

but reality doesn't care, the financial asteroid is unmoved by innocence.

i'll be dead, probably. wish i could be sure, globalization means a butterfly crash landing in brazil could bring it all down tomorrow.

There seems to be multiple reasons and I offer these as causes;

Closing of local manufacturing and import of the goods they used to make.
The selling off of either all or part of Australian companies which
provides good opertunity for over pricing of imports from parent
companies so enabling profit dispatch without tax.

Oil imports; during last years high oil price I had a look at the
import of crude oil increase due to local depletion and the increased
cost. The cost in one year went from $22 billion to around $28 to $30
billion. I obtained the first figure from the Aus Bureau of Stats
and the second from knowing the difference between price and depletion
plus demand increase. The result was a bit rubbery but would not be all that far out.
The depressing bit is it will get very much worse.

Dresdener,this is why the Howard Govt went for such a drastic IR reform.We have a balance of payments deficit that is almost $60,000.00 per working person.We either increase tarrifs or lower wages in order to keep industry here.The longer we procrastinate,the greater the pain.

We should have a import debit /export credit scheme, if you export you get credits which you sell on the open market or use to import, the price would be set by the need to import. if the price of the import credits gets too high then it becomes cheaper to produce and/or buy locally made.
Foreign companies likewise if they wish to export money must have an export credit or export commodity's in lieu of of cash, simple and presto no debt, plenty of jobs and corporations showing responsibility instead of gouging whatever they can wherever they can.

ok

The balance of payments will work itself out! If it goes to high the Australian dollar will devalue thus making imports cost more and if we start running big surpluses the Australian dollar will increase in value thus making imports cheaper and exports more expensive. We are a booming country and dont have enough captial in Australia and or it is cheaper to source the captial off shore, e.g. Japan has interest rates that are close to 1%. Where is it cheaper to take out a loan? Japan or Australia?

Peter Costello should challenge John Howard for the leadership this month. Only he can continue with the success we have been having over the last eleven years. Considering we have sent troops overseas at great cost we can afford this easily. We have been able to continue with the war in Iraq yet it has not harmed our economy. This country has been in safe hands. Our people have got tired only recently of one of our most successful Prime Minister's. We have all prospered spending has been confident and many home owners and investors have done very well with real estate. Most people are looking affluent with new cars and only the best home appliances. John Howard should now stand aside he has served us and his country well. It is time for Tony Abbott, Malcolm Turnball, Alexander Downer and Peter Costello to throw their hat in the ring for us to have a new fresh leader. This has to happen now before it is too late otherwise we will all have to suffer Kevin Rudd and Julia Gillard.

Julie,

I'm sorry, but the top echelon of the Liberal Party is as tainted as Howard, especially Costello, Abott and Downer. Ditching Howard and electing any of those three would pretty much hand the election to the Labor party without a fight.

EasyTimes when will this exchange rate correction happen? This balance problem has persisted for 32years and is now threatens an avalanche. Are we patient or just plain stupid. If the exchange rate goes down now, our debt written in foreign currency goes up by the same amount. We have all heard that fairy tale correction proposition it is now quite obvious that the correction will be a non benign collapse.

Consider this. The current account deficit was 16 billion for the first quarter of 2007. We have run straight deficits for 32 years. The deficit amounts to $54 per person per week, and we are now borrowing to cover this because we do not have many assets left to sell. $54 is the weekly wage of a skilled Chinese worker. This means that our current marvelous prosperity and "boom" is derived not because of a "minerals boom" but because we each have a Chinese slave working for us and we put the slave rental charges on the credit card.

What happens when the Chinese slaves are emancipated. What happens when our creditors finally come to a realisation that they will have to whistle Dixie for their money. This almost happened a few weeks ago.

Both Liberal and Labor governments bear responsibility for this egregious situation.

hello All
This is a good thread.
There is but one trade that screams out to be turned around. It is the backbone of Australia. Our comparative advantage as one of the world` largest livestock producers is envied considerably by those countries unable to supply their own demand for meat.
The Governments market disssstortion are all instances of small strategic moves to fit in with a larger agenda of forein Governments to captire vaule adding, employment andprofit that can be generated from this valable primary resource. These examples also constitue further evidence that there ismorethan just heads of livestock being exported from Australian Shores, when shipments of live cattle and live sheep leave for overseas.
Every feedlot that the Government assist in setting up via the foreign aid programe is yet another diversion of jobs and value- adding FROM Australian economy and community.