Howcan CAD be inflated by the housing bubble? (1 Viewer)

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How can CAD be inflated by the housing bubble?
Can someone please explain?

Thankyou very much!

 

[azza_3761]

The first thing most consumers do once they have bought a house is to funish it. The purchase of overseas goods will therefore increase duing housing booms. This leads to an inflated CAD.

 

[Cityboy]

The actual reason why the CAD increases during housing booms is that due to increasing demands for funds in order to pay for the houses people need to go to overseas sources in order to find funds to borrow due to the low amount of domestic savings in the Australian economy as such this increases the CAD.

 

[Rafy]

The banks and lending institutions lend out the money in people's saving accounts. As we are low savers there is often not enough money to lend out (And to allow the RBA regulated threshold for avaliable funds; so money is there to be withdrawn by savers and the system remains solvent) Therefore the financial institutions must go offshore and borrow money from there..

 

[callan_87]

exactly so there will be an increased deficit in the income component of the current account