Woes About understanding CAD (1 Viewer)

[MoonLiteDreamz]

What have you been smokin? That sounds like something Paul Keating would say.

By your information, I haven't smoked anything AND so what if I sound like Paul Keating? I dunno much about him, but I know he HAS made some decisions that were necessary at that time.

It is also true that countries with recession generally do have eco growth higher than other countries. Cuz when we have recession, we usually spend less on Imports, and our ex. rate is low, therefore helps Aus's International Competitiveness, thus increase our exports. Though it also means Aus' CAD would be relatively higher, but I believe Net goods and Services would have a more significant effect that the change of CAD.

I think we do have a problem with the CAD, but only in that our export base needs to be diversified, and perhaps reduce our reliance on rocks n crops. Perhaps we should start focussing on some value added activities, and position ourselves appropriately to this wonderfull region of the world we live in: China, India, Japan, and south east asia all on our doorstep, and we are perfectly positioned to take advantage of it!

I agree, but i think the govt should also try to improve the lack of savings (or the overspending nature of ours) in Australia. Because no matter how productivity we become, our overspending nature can still restrain us from becoming a better nation.

 

[Demandred]

Umm... I am not too sure about the recession bit, care to provide any examples? The only reason I can think of is that the economy is more vulnerable to change during a recession, thus, allowing microeconomic reforms to take place. A strong economy is very apathetic to change due to the political risk.

 

[gibbo67]

A high CAD is not necessarily a bad thing for the economy at a time when foreign investment flows are growing at an ever-increasing rate across national borders. Some countries (such as Saudi Arabia and Japan) have significant CA surpluses because they can't reinvest back into their own economies.

If an economy can't invest in its own capital stock, it can't grow within its national borders at any rate of significance if Robert Solow's growth model is considered (that economic output is a function of labour, capital and technology or GDP=f(l,k,t) ).

On the other hand, nations such as Australia and the USA have a potential for capital investment opportunities that exceeds the domestic pool of funds available to invest in capital stock.

In addition to capital investment, many traders (especially in oil) are dependent on the stability of the $US in their contracts and will invest in US treasury bonds to preserve the value. This is another example of how the CAD can blow out.

 

[gnrlies]

By your information, I haven't smoked anything AND so what if I sound like Paul Keating? I dunno much about him, but I know he HAS made some decisions that were necessary at that time.

It is also true that countries with recession generally do have eco growth higher than other countries. Cuz when we have recession, we usually spend less on Imports, and our ex. rate is low, therefore helps Aus's International Competitiveness, thus increase our exports. Though it also means Aus' CAD would be relatively higher, but I believe Net goods and Services would have a more significant effect that the change of CAD.

Do you even know what a recession is? by definition it is negative growth. I dont know what you're talking about countries with recession having higher growth rates. I think something in your knowledge is fundamentally flawed.

Oh and the paul keating thing was a reference to his comment "this is the recession we had to have" - one of his most famous articulation blunder.

I agree, but i think the govt should also try to improve the lack of savings (or the overspending nature of ours) in Australia. Because no matter how productivity we become, our overspending nature can still restrain us from becoming a better nation.

We do need to increase our nationalk savings, but not for the reasons you suggested. We need to do it because we are going to have a huge amount of retirees who will most likely need to be supported by savings which we dont have (hence the tendency for budget surplus' etc).

More of a concern is if we didn't spend. Look at japan, thats been there problem for the last 15 years.

 

[MoonLiteDreamz]

Do you even know what a recession is? by definition it is negative growth. I dont know what you're talking about countries with recession having higher growth rates. I think something in your knowledge is fundamentally flawed.

I don't actaully remember what my arguement was now, since it was pretty long ago. but this is what I just came up with:

~When we have a recession, our exchange rate usually depreciates, this can cause an increase of exports, making us internationally competitive. therefore more overseas buying our products, and boosting our GDP... etc.~

Oh and the paul keating thing was a reference to his comment "this is the recession we had to have" - one of his most famous articulation blunder.

I know. But i didn't think it was the wrong thing to suggest.

We do need to increase our nationalk savings, but not for the reasons you suggested. We need to do it because we are going to have a huge amount of retirees who will most likely need to be supported by savings which we dont have (hence the tendency for budget surplus' etc).

Isn't that what compulsary superannuation for? Plus if they don't have super, they can claim pension...

One reason why we have such huge foreign liabilities is the loans we borrow for buying houses and others with non-capital returns. To me, that is a bad debt, which could've been avoided IF Australia had more national savings then what we do.

 

[gnrlies]

I don't actaully remember what my arguement was now, since it was pretty long ago. but this is what I just came up with:

~When we have a recession, our exchange rate usually depreciates, this can cause an increase of exports, making us internationally competitive. therefore more overseas buying our products, and boosting our GDP... etc.~

Well theres two things wrong with what you have just said

1 - when we are in a recession, our exchange rate does not necessarily change.
2 - even if our exchange rate went down, and all of what you said is correct, it is a complete breach of logic. Recessions are good because it improves our international competitiveness? Thats stupid. We dont want to have recessions. We want to improve our internaitonal competitiveness to increase economic growth (or in other words prevent a recession) not the other way around. That'd be like saying that I will take this perfectly nice meal I have in front of me, and feed it to my chicken because Im really hungry and If i feed the chicken some food it might lay some eggs.

Isn't that what compulsary superannuation for? Plus if they don't have super, they can claim pension...

Yes, compulsory superannuation is another policy aimed at doing this. They can claim a pension, and many will (because super is not enough), but who pays for the pension? taxpayers (i.e. australians). So i guess the point is this:

We have two choices - increase our national savings so that we can consolidate our superannuation and not require government assistance, OR keep our national savings static and have a huge welfare bill that you and I will have to pay for during our working lives.

One reason why we have such huge foreign liabilities is the loans we borrow for buying houses and others with non-capital returns. To me, that is a bad debt, which could've been avoided IF Australia had more national savings then what we do.

this is false.

most people finance their houses using domestic debt, not foreign debt. Foreign debt is mostly income generating since the government stopped using it. The only way what youve said could make any sense at all is if this has resulted in some sort of crowding out, and businesses prefer to finance domestically, but are forced overseas. But the thing is that this is not true. Most firms prefer the cheapest and most suitable source of finance, which in many cases is found overseas.

And a house is not bad debt.

Owning a house is an alternative to having to rent, so think of it as an investment yielding the benefit of whatever rent would need to have been paid to live in that house. Its also another form of "national savings". Its just equity in property. It essentially is no different to putting your money in the bank, except that instead of earning interest, you earn the benefit of not having to pay rent, and you would most likely get some kind of capital gain.

People buying houses is far from a bad thing. In fact, it's very much a good thing. Ask many australians, and they will say that their house is what is going to allow them to retire (reverse mortgages, downsizing etc).

 

[Celiast]

, can someone please tell where i can access information for external stability other than school text books and news articles, for thorogh info

i need this for causes of CAD, net Foreign liablities , NFD effecting the external stability