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"...public opinion deserves to be respected as well as despised" G.W.F. Hegel, 'Philosophy of Right'

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November 30, 2004

CartoonTandbergaph1.jpg Here it is. Australia's 2 billion current account deficit last month takes the yearly shortfall to a record $20 billion.

Export growth has been lacklustre (with a decline in manfacturing exports) whilst imports are booming. Hence the current account deficit.

What to make of it?

Josh Gordon in The Age points out, the latest current account deficit is larger, as a percentage of the economy, (7 per cent?) than when former treasurer Paul Keating warned 18 years ago that Australia was in danger of becoming a banana republic.

Gordon says:

"Australia's current account deficit as a proportion of the economy is now higher than in the United States, where investors are offloading US dollars on concerns that the situation is not sustainable."

Should that not undermine the Coalition's sound economic creditionals? Is that not a sign of bad economic management? Do not record trade deficits coming in trend terms virtually every month say that there is something of a crisis here?

Bu there is so little criticism. It's all optimism.

The Australian Financial Review has no comment. Alan Woods in The Australian says no worries. Foreigners will happily keep on funding the deficit and the banana republic days are well and truely behind us. And the Reserve Bank does not think that monetary policy can do anything about the current account deficit.

That leaves the responsibility with the Treasury. Peter Costello, the federal Treasurer, is relaxed and comfortable. He suggests that it is a function of the drought and the $US adjustment. He supports the US pressure on China to revalue its currency. Little is said about the 29 trade deficits in a row.

The Australian is also relaxed. The international market will do its magic:

"In the 1980s this would all have been the trigger for "banana republic" talk, but times have changed. Australia's product and labour markets are flexible enough to make the necessary adjustments, and a flexible exchange rate can always adjust to make imports more expensive and exports more attractive."

'Tis the invisible hand at work again? Not quite. We still need to get the fundamentals right:

"What yesterday's worrying numbers show is the need to plough ahead with a reform program that will improve productivity and make our exports more competitive. For starters, a new round of workplace reform can hedge against looming skilled labour shortages in export-oriented industries. Last month, the Productivity Commission identified infrastructure and service delivery as the next competition battlegrounds and, with many of our ports straining past capacity, the relevance for exports is clear."

Little is said about the dangers to the international economy posed by the twin deficits of the US economy, or its structural weaknesses.

John Quiggin has a different story to tell. It is entitled 'Looking over the edge'.

| Posted by Gary Sauer-Thompson at 9:49 AM | | Comments (5)


Never mind all that economicy jiggery pokery, I got me a new Plasma TV that's bigger than any wall in my house.

The nice man at Hardly Normal said I didn't have to pay anything off for three years.

Wow, my house should be worth two or three times as much by then, so I can just roll it all into my home loan, with the new Landcruiser I'll need by then to tow the new 10 metre boat that I'll take out when I actually am allowed to take a day off work.


You have done a good job as a consumer keeping the Australian economy booming.

Alas, the economic pundits are now saying that you need to do some belt tightening.You have been living beyond your means for too long.

It is you who are the problem.

You have been much too lazy about saving from the money coming through your door. And you have been borrowing to make up its cash-flow shortfall.

Life is not a funfair playground you know.

Don't you just love the moral advice from these economic pundits. They are the new priests are they not?

I love the way the ascetic priest's definitions of good and bad keeps shifting.

Belt tightening!!

My God, I didn't vote for belt tightening.

I voted for perpetually low interest rates and ever increasing home values.

Who is to blame for all of this?

Canberra is doing its bit for you. That is the message its noble ministers are trying sending to you through the distorted lens of the liberal media.

You would know that you gave the Coalition Government an election mandate for more labour market deregulation, removing the obstacles impeding economic efficiency and the sale of Telstra.

It is doing that job.

So the need for beltightening can only be the result of market uncertainiy created by the anti-business talk of the ALP, and its unwillingness to tick off the legislation implementing the Government's mandate.

Did not the ALP tighten you up by increasing rates to 20%+ 12 years ago? Clearly they are the bad guys.

But you do need to remember that the Government cannot do everything for you. There is the question of personal morality (eg., self-reliance).

That means doing things for yourself by taking advantage of, and exploiting, the opportunities created in the market by the government's good economic policies, strong economic management and sound economic judgement about the direction and pace of economic reform.

Hard work is the key to success.

As a small business person with a staff of one, I'm eternally grateful that I will soon be able to sack myself with no comeback.

Ahh, that'll teach me to be lazy and to waste company time on the internet.