Traditionally, the absence of an export oriented manufacturing industry has been considered a key weakness of the Australian economy. More recently, rising prices for Australia's commodity exports and increasing tourism has to some extent alleviated this criticism. Nevertheless, Australia has developed the world's third largest current account deficit in absolute terms (in relative terms over 7% of GDP). This has been considered problematic by some economists, especially as it has coincided with high prices for Australia's exports and low interest rates which keeps the cost of servicing the foreign debt unusually low.

http://en.wikipedia.org/wiki/Australia

I wondered why taxes were low..

Does anyone know how accurate Wikipedia is? Also how independant it is?
:)

Anyone can edit wikipedia's articles, but they have strong internal mechanisms for keeping articles neutral and correct. Someone did a study a while back comparing wikipedia to a regular encyclopedia. They found them to be roughly equivalent, with both containing about the same number of errors. I use it fairly regularly these days.

Is this thread about the accuracy of wikipedia, or about the current account deficit?

Wikipedia is a good reference point, but you shouldn't rely on it as fact. On marginal topics, it is largely incomplete. Controversial topics are often controlled by powerful interest groups.

As I see it, wikipedia is more like a thesis, created when an initial contributor posts information to on a topic in which they have an interest. You would expect this view to be biased, so other contributors then make amendments. In theory, peer review results in the information becoming more accurate.

The biggest problem with wikipedia is that it is not accepted by academics. The review process is performed by people who are not recognised as experts in their field. This is why it cannot be directly quoted for research purposes.

Quote:

I wondered why taxes were low..

Tax has nothing to do with the current account deficit (CAD).

Australia currently runs a budget surplus, which means that collections (taxes) are higher than outlays.

The CAD is predominantly due to private operations, so the government has no real direct influence over the figure.

A CAD indicates that Australia imports more than it exports. This problem is compounded because imports are largely financed by overseas debt. An analogy is that you are earning more income, so the bank lets you borrow more because you are able to service the debt. No problem while the interest rates are low, but if they increase, or income starts to drop, crunch time will follow close behind.

I don't get why the CAD is a problem anyway. If it gets skewed, then the exchange rate should adjust and make our exports more or less competitive, thus correcting it.

There are a few problems with such a high CAD, mostly caused by Australia's high amount of foreign debt.

The AUD is often held as a speculative currency. If there is a sell off, the currency devalues. A devaluation will result in:
- making the servicing of foreign debt more difficult
- exports will earn less, especially on the sale of resources
- imports will become more expensive, therefore placing pressure on inflation
- business confidence will reduce, therefore resulting in a contraction in spending
- jobs will become less secure, compounding contraction in spending

In short, the economy will go into recession.

exports will earn less, especially on the sale of resources

Wouldn't they earn more?

business confidence will reduce, therefore resulting in a contraction in spending

If exporting becomes more lucrative, confidence will increase.

Quote:

exports will earn less, especially on the sale of resources. Wouldn't they earn more?

No, here is why...

Assume the exchange rate is AUD1.00=USD0.70, and the price of iron ore is AUD50.00 per tonne. Due to capacity constraints, Australia can produce only 1,000 tonnes of ore a year. The total income from iron ore exports is AUD50,000, or USD35,000.

If the exchange rate drops to AUD1.00=USD0.60, Australia will now receive USD30,000 for the same amount of exports.

The numbers are only examples, but the capacity constraints are a reality.

But we would get paid the price that is set on the international market - ie in $US, so we would get paid more if the exchange rate dropped.

Very good point Freediver. This would also mean that we could lower our prices and be more competitive on the market than other countries. The only problem is we would have to increase mining in this country which would have long term environmental effects and reduction of rescource deposits.

Farmers have always wanted a lower dollar value like 60 cents to the US dollar but I could never work out why. Because most of our needs for the country is imported so everything will go up in price locally.

Summary:

If the dollar comes down, the locally targeted business suffers but, businesses that export, grow.

If the dollar increases then export reduces and locally targeted businesses grow.

Most Australian residents are employed by locally targeted business's which means an unemployment increase. This is why having a good rate like 70 cents is of more benefit to the country.

I think the rule of thumb is stay between 65c and 75c. This way the impact on imports and exports wouldn't be enough to cripple either industry.
:)

I think that the exchange rate adjusts automatically due to market forces to tend to equalise the total value of exports and imports.

Likewise, our currency is only traded so heavily because it is so stable. That trade tends to destabilise it, but only to a certain level because then people stop trading it.

A business that produces locally and sells locally won't be affected directly either way - though they might be affected by the price of competing goods.

What a high value for our dollar really means is that our labour is worth more than the labour of a foreigner. We are more productive and sell low quanitities of high value goods in exchange for a high volume of what are (to us) cheap goods. It means that our imports and exports are matched even though our exporters are disadvantaged. We cannot compete in the 'cheap labour' market because our workers are paid so much. So while a high dollar may hurt our farmers and miners, it is a sign of a strong economy, provided it is has a real basis and is not some temporary glitch.

Quote:

But we would get paid the price that is set on the international market - ie in $US, so we would get paid more if the exchange rate dropped.

Very true, I overlooked that fact. Probably not a good example, as I expect most transactions are hedged for currency risk.

Regardless of the export issue, a low AUD is bad for Australia because of the amount of debt we hold.

The profitability of exporting is far more sensitive to exchange rates than our ability to repay loans.

Aushole - you have rather ruined any credibility you had over your insane suggestion that we earn less on exports if the Aus dollar falls. Even though you spelt it out in an example you still failed to see it. You must never have ever spoken to an exporter.
With regard to your other assertion about the effect of a low dollar of our debt - well you are wrong there too. As the OECD recently pointed out, Australia has been very clever in being able to borrow most of the money denominated in its own currency - AU$. The balance that banks have borrowed in foreign currency has been protected by hedging. So changes in exchange rate have little effect. Australia also has some overseas investment lendings (much less than it owes) and this amount increases (in AU$ terms) with a lower Aus dollar.
Most countries naturally want a lower currency and it usually brings benefits. But people want AU$. The US would like a bigger devaluation than is currently happening. It owes US$ but is owed foreign currencies. In this situation the US external debt would be wiped out with about a 25% devaluation and its balance of trade would improve. But people want US$ still so the rate stays up.

Here's a question Sense

Does this mean the Euro Dollar could possibly replace the US Dollar by being more 'wanted' as you suggest and if so the US would collapse and probably take the rest of the world with them? :o

enviro - I don't think it is an issue of one currency replacing another. CBs everywhere hold both Euros and US$. Both will continue. But a devaluation of the US$ is no bad thing from the US point of view. I'm sure they'd welcome it. Especially their exporters. There are plenty of US haters about predicting the collapse of the US - its just wishful thinking on their part. We need a strong US and we should support them.
And one more point. Your post said "Euro dollar". I think you mean the Euro. Eurodollars are something else entirely. They are units which track the US$ but are not issued by the US Fed - a bit technical.

wrote on Mar 6^th, 2007 at 6:28pm:

enviro - I don't think it is an issue of one currency replacing another. CBs everywhere hold both Euros and US$. Both will continue. But a devaluation of the US$ is no bad thing from the US point of view. I'm sure they'd welcome it. Especially their exporters. There are plenty of US haters about predicting the collapse of the US - its just wishful thinking on their part. We need a strong US and we should support them. And one more point. Your post said "Euro dollar". I think you mean the Euro. Eurodollars are something else entirely. They are units which track the US$ but are not issued by the US Fed - a bit technical.

:-?

What about if arab nations were to exchange their US dollars for all Euros wouldn't this cause a large murmer in the US economy and, like the stock market, cause a bullrun?
::)

Sense,

I accept the exchange rate example was not well thought out. Guess I wont be an economics teacher!

Yes, I have worked for exporters, but none of them were in raw materials. They were all manufacturers, and the trades were predominantly in AUD.

Many Australian economists consider the high CAD a problem because of our propensity for high debt levels. Are you saying they are all wrong? How does that reconcile with the OECD information you quoted?

How does your argument on resource exports work, if there are capacity constraints in the economy?

Are you saying it is NOT a problem with Australia having the third highest CAD in the world, and the worst in Australia's history? That was the subject of the thread.

If a high CAD is not a problem, why is it getting so much attention?

I have no answers for these questions. Maybe someone else does!

If a high CAD is not a problem, why measure it?

Think of it as a 'work for the dole' scheme for economists.

enviro - The Arab nations are in no position to do as you suggest. The so-called US dollars held by the Arab nations are for the most part in US Treasury Bonds. These can't be cashed with the US. They will be redeemed on the due date which for some of them is 30 years in the future. When the US issued them they knew full well when they were to be redeemed and they have and always will meet their commitments. The Arabs can sell them of course to someone else but this doesn't involve the US. And of course the US bonds pay rather more interest than Euro Bonds so why would they want to sell them? This is all alot of nonsense spread by the US and Jew haters to be found on every forum. I'm fed up of it. I'll not be discussing it further. It's a non-issue.

You've got a thing about jew haters. Personally I don't know any jewish people so it is a bit hard for me to judge the Jews. Because I am a christian I would never be able to understand why the Jews never accepted Jesus as the son of God. In Australia we accept any religion that does not conflict with the governing laws of this country. You and Aus Nat should be able to have some great debates having opposite beliefs. I'm sure this is why your on the forum anyway, for a bit of brain stimulation that is.

Thanks for the info too as I was unaware of how these treasury bonds worked. I didn't know that the US borrowed all this money for 30 years. It would be interesting to see a breakdown of who they owe money to.
:)

With any issue where the public doesn't understand the fundamentals, you always get cranks and scaremongerers saying it will cause some sort of disaster, be it science, economics, engineering, whatever.

http://www.smh.com.au/news/Business/High-A-tough-for-exporters-Costello/2007/03/21/1174153142945.html

Treasurer Peter Costello said a high Australian dollar does make it difficult for the country's exporters, but he would not be drawn on the outlook for interest rates.

"The fact that the dollar is high does make it hard for Australian exporters. It's doubly difficult is you are an agricultural producer because you are also dealing with drought conditions," Mr Costello told reporters.

"But as you know we have a floating exchange rate. It moves in relation to trade flows, the global economy and interest rates. There are a lot of factors that go to putting the exchange rate to where it is."

"But the reality is the government's policy is to allow that to trade in an open market."

The Australian dollar struck a fresh 10-year high above 80 US cents this week, amid speculation that the central bank will need to raise interest rates again, possibly in the next few months, to head off inflation pressures.

Asked whether the market was overreacting to the prospect of another interest rate rise, Mr Costello said: "I won't be commenting on future movements in interest rates."

AUShole wrote on Mar 3^rd, 2007 at 2:21pm:

Wikipedia is a good reference point, but you shouldn't rely on it as fact.

Just like any encyclopaedia, so as such, it is a good encyclopaedia, good enough anyway given it is free and it is a wiki. Most questionable pages are flagged as either poorly referenced, or containing bias if that is the case.


AUShole wrote on Mar 3^rd, 2007 at 2:21pm:

The biggest problem with wikipedia is that it is not accepted by academics. The review process is performed by people who are not recognised as experts in their field. This is why it cannot be directly quoted for research purposes.

Much of it is put together by experts, well often anyway. It is not recognised by academics as a credible source but no encyclopaedia should be! I would consider my lecturers questionable if they accepted encyclopaedia references in my assignments.

Enviro had a point about the euro.  There has been some speculation that one of the reasons we invaded Iraq, collected their bounty of $23 billion, recycled it through the US treasury then flooded Iraq with American dollars is because Iraq was  changing to the euro.

Iran wants to open a new trading centre "Oil Bourse" to compete with two western oil trading centres.  They will be using euros and apparently if this happens and Iran starts trading oil with euros - this will cause the fragile US economy to collapse. This is another reason why it's possible Iran will be attacked shortly under the guise of their increasing nuclear capacity.


Quote:

The Iranians are about to commit an "offense" far greater than Saddam Hussein's conversion to the euro of Iraq’s oil exports in the fall of 2000. Numerous articles have revealed Pentagon planning for operations against Iran as early as 2005. While the publicly stated reasons will be over Iran's nuclear ambitions, there are unspoken macroeconomic drivers explaining the Real Reasons regarding the 2nd stage of petrodollar warfare - Iran's upcoming euro-based oil Bourse. In 2005-2006, The Tehran government has a developed a plan to begin competing with New York's NYMEX and London's IPE with respect to international oil trades - using a euro-denominated international oil-trading mechanism. This means that without some form of US intervention, the euro is going to establish a firm foothold in the international oil trade. Given U.S. debt levels and the stated neoconservative project for U.S. global domination, Tehran's objective constitutes an obvious encroachment on U.S. dollar supremacy in the international oil market http://www.globalresearch.ca/articles/CLA410A.html

At the moment I believe, most of the foreign debt for the US and Australia is held by Japan and China - and it can be called in at any time.

Were these speculations from a credible source?

Of course Freediver.  Go google it yourself and have a look at all the articles.  It may appear to be  a conspiracy to the neo conservative supporters - but these articles are based on occurrences in the Middle East caused by the US foreign policy.

Until Bush, Cheney and their associates are tried for war crimes, misleading congress and the public about Iraq, condoning the torture of prisoners, authorised but illegal wiretaps and violations of treaties this will remain speculation.

It's not so much that it is a conspiracy, it's that it doesn't make sense. Some of the claims may be factually or logically true, but they seem to be implying it will have fallout. It won't. It's like it's the opposite of a conspiracy. A plot to bake some bread.

Quote:

A plot to bake some bread.

LOTS of bread!  ;D

Quote:

They will be using euros and apparently if this happens and Iran starts trading oil with euros - this will cause the fragile US economy to collapse.

Do you really believe that?

If so, it means the rest of the world will just sit around and watch, because they have no interest in the performance of the US economy.

I don't fully understand it - but it is simply explained in this article:

Excellent article by Cóilín Nunan: "Oil, Currency and the War on Iraq". Fascinating explanation of some major economic mechanisms involving dollars and euros and oil. A very big reason that the United States is such an economically and militarily dominating country is apparently that U.S. dollar is the de facto world reserve currency. Lots of things are counted in dollars and some goods are only sold for dolars. That means that foreign governments and corporations and banks are keeping large dollar reserves. That essentially amounts to a huge loan the rest of the world is giving to the United States, which will subsidize the U.S. economy. In order to acquire those dollars, the rest of the world has to provide goods and services for those dollars. That allows the U.S. to have a huge import/export imbalance. Last November, 48% more imports than exports. It would be untennable for any other country to run such a deficit.

Next major point is that one of the reasons everybody has to have dollars is that the OPEC oil producting countries only accept dollars for oil. Well, not all of them. The only one that does something different is Iraq, which only accepts Euros for their oil, since 2000. And Iran is considering it as well. And the thing is that it might just as well be Euros that everybody used as a reserve currency. It would apparently be a better choice in many ways, because the European economies are more balanced, and the OPEC countries would end up getting more value for their oil. So, now, what would happen if Euros became the only choice for buying oil? Most likely the U.S. economy would plunge, because it would no longer be subsidized in that manner. And EU would probably be quite happy being subsidized in its place. Anybody thinks all this might have something to do with the great urgency to take over Iraq? And why would Britain support it?
[i][/i]
The full article by Coilin Nunan
http://ming.tv/flemming2.php/__show_article/_a000010-000538.htm

mantra says "I don't fully understand it". Actually, you don't understand any of it - you just hate the US and are looking anywhere for signs that they may have problems. The article you posted was written over 4 years ago. The Iranian Euro oil bourse is now even further away than it was then - it ain't going to happen. You obviously haven't even read the earlier posts on this thread. You seem to think that the so-called US dollar holdings can be cashed in. This is absolute nonsense as I explained to enviro on this thread earlier. Most of the US reserves held are in the form of treasury bonds with repayment dates many years ahead - many of them 30 years ahead. Anyway there has been detailed analysis of the Euro oil bourse possibility showing that even if it were to happen it would be irrelevant. The oil buyers would only need the Euros for one day.
Stick to subjects you know something about - might limit your posts somewhat.

As far as hating the US - another one of your senseless accusations - it's only their president I have a problem with.

It's a free forum and the posts were just my views only.  Did I say I was an expert on the subject? So what if the article was 4 years old - the illegal invasion of Iraq started 4 years ago.

Hi mantra - How are you ?

Yes, some posters seem to specialise in personal abuse.  It shows something about themselves.
(I SO held back a quote then - it is a perfect one too !!)


USA is in huge financial strife. Their debt is just enormous. Bigger than that.  
Bush drove the US into an economically dire situation, debt wise.
(Thought you may like to hear that   ;)  )  
He "bought" the last election with tax cuts.  

It is the second biggest debt they have ever had (using one measure). The biggest was just before the great depression.



I have heard the "conspiracy" theory of US going to war in order to support their currency.
Generally I do not agree with "conspiracy" theories.  
Wars are REALLY expensive, oil is REALLY cheap by comparison, other energy systems are available too.

The US $ is the currency used to buy and sell oil in generally.
So the buyers of oil have to have US $ to buy oil. This is a demand for US$.
A demand increases the value of anything - even money !!
At the same time though, the sellers of the oil have LOTS of US$. Effectively, they sell those US $. Which is the supply side of the oil based US $.
At the end of the day, I don't think using the US $ for the oil market "helps" the US $
The supply matches the demand.  The US$ the sellers have do not vanish.

Take care

Thanks sprintcyclist.


Quote:

USA is in huge financial strife. Their debt is just enormous. Bigger than that.   Bush drove the US into an economically dire situation, debt wise.   (Thought you may like to hear that     )   He "bought" the last election with tax cuts.     It is the second biggest debt they have ever had (using one measure). The biggest was just before the great depression.

Yes the above is so true - they have spent the next 40 years of their projected budget.  There was a little about it on some program tonight - it indicated that America's economy is just teetering on the edge - China will be affected and Australia if they go into a recession.

Gee, we better start buying USA products to help their economy. I just ran out and bought a new Jeep (don't worry Mantra it is a diesel) so I hope this helps their economy. Think of the dominoe effect (Or butterfly effect).

BUY USA ;)

mantra wrote on Apr 2^nd, 2007 at 9:40pm:

If you haven't got the decency to respond appropriately - please ignore my posts - practice your viciousness on someone else.

And I thought I was the aushole!  ;)

Sense tried it on me, but after I admitted my error, left me alone. Eventually. After I asked questions sense couldnt answer! :D

Mantra, some of the material you have posted is bordering on conspiracy theory. Most of what sense has written is factual, it just isnt presented in a very positive way.

Aushole - obviously some of my arguments border on conspiracy and I'll admit are sometimes flawed in the eyes of others, but we all think differently and we have the right to think that way as long as we don't hurt others.

I don't mind my errors being pointed out reasonably.

I don't fully understand it - but it is simply explained in this article:

Most people do not have a decent understanding of economics. As a result, there are a lot of charlatans out there making absurd claims. If you don't understand it then it has little value, unless of course you want someone to explain it to you.

The US $ is the currency used to buy and sell oil in generally.  
So the buyers of oil have to have US $ to buy oil. This is a demand for US$.  
A demand increases the value of anything - even money !!

I'm pretty sure this is wrong.