Australia's place in the global economy :( (1 Viewer)

[nevery]

Anyone else think this is a terrible topic? I just can't 'get into' the BoP and ToT. I'm OK with exchange rates. I'm just more into economic issues, globalisation etc. I'm not a maths person, so I'm not enjoying this topic much. Any tips? (especially for a non-maths person like myself)

 

[dishab]

Dude i am hating this topic. :angry:. One on one lesson with your teacher could help

 

[waryap]

there's really not much you can do. Just memorise where everything goes and you'll be fine.
but in terms of exchange rates I have a rather easy method to learn stuff and getting your brain working.

Appreciation of the $A will make anything coming into Australia cheaper(imports, foreign debts, Australian owned assets overseas etc etc) and anything going out more expensive (our exports and foreign investors who invested into Australian assets.
Vice versa for the depreciation of the $A.

But yeah, for the Balance of Payments, it's just repetition so you get used to it.

 

[b00m]

there's really not much you can do. Just memorise where everything goes and you'll be fine.
but in terms of exchange rates I have a rather easy method to learn stuff and getting your brain working.

Appreciation of the $A will make anything coming into Australia cheaper(imports, foreign debts, Australian owned assets overseas etc etc) and anything going out more expensive (our exports and foreign investors who invested into Australian assets.
Vice versa for the depreciation of the $A.

But yeah, for the Balance of Payments, it's just repetition so you get used to it.

Earlier on, I had similar problems with this topic.. but did some research and read over the chapter a few times. This article may help if you're struggling

No worries, mate: living with a deficit

October 24, 2009
Ross Gittins is the Herald's Economics Editor.
It's deeply unfashionable to worry about Australia's big current account deficit and the huge and growing foreign debt it has produced. But if you're among the unfashionable, then get ready to do a lot more worrying.
Why? Because in a major speech he gave this week the Secretary to the Treasury, Dr Ken Henry, gave notice that the current account deficit is likely to get even bigger in the next few decades.
The deficit on the current account of the balance of payments occurs because our imports of goods and services exceed our exports (the trade deficit), and payments of interest and dividends to foreigners exceed our receipts of interest and dividends from foreigners (the ''net income deficit'').
The deficit on the current account has to be financed by a combination of net borrowings from foreigners and net inflow of foreign equity (share capital) investment. This net capital inflow produces a surplus on the capital account of the balance of payments, which exactly offsets the deficit on the current account.
Over the year to June, the current account deficit amounted to an unusually low $38 billion (equivalent to 3 per cent of gross domestic product), thus taking the stock of net foreign debt at the end of June to $633 billion (53 per cent of GDP). Adding the stock of net foreign equity of $93 billion gives us total net foreign liabilities of $726 billion (60 per cent of GDP).
Even so, these days you don't find many economists worrying about the current account deficit, either. Why not? Partly because Australia has run a current account deficit since the year dot.
As Henry reminded us this week, we've run a current account deficit in every decade since Federation, bar the first. Over that period the deficit's average about 2.5 per cent of GDP, although in the past three decades - significantly, the period of floating currencies, financial deregulation and integrated global capital markets - it's averaged about 4.5 per cent.
Why do we always run a deficit? Because we've always been a ''capital-importing country'', needing the capital of foreigners to help us exploit our many investment opportunities.
It's clear that, for the past few decades, the US has been living beyond its means, consuming more than it produces, with households saving little and borrowing a lot, and the US Government running big budget deficits and racking up huge public debt. In consequence, the US has run big current account deficits, leading to increasing foreign debt.
This profligacy was unsustainable. And the global financial crisis represents the doo-doo hitting the fan, and the US consumer and Government being forced to start mending their ways. The US is now having to consume less, save more, produce more, export more and import less. The US dollar is likely to stay low to help with this painful and protracted process.
But our current account and foreign debt performance is quite similar to the Americans'. So how come the world's saying rude things about them but not about us?
When a country runs a current account deficit, this means its households, businesses and governments aren't saving enough each year to finance all the physical investment the nation is doing in new housing, business structures and equipment, and public infrastructure. Its capital account surplus represents its call on the savings of foreigners to make up its ''saving-investment imbalance''. It follows that a nation runs a current account deficit either because it isn't saving enough or because it's investing too much.
The reason the Yanks are getting a hard time and we aren't is that they're judged to be saving too little (which is the same as saying they're spending too much of their income on consumption), whereas we're seen as having a reasonably adequate rate of saving but an outsized rate of investment spending.
Henry says that our rate of gross national saving each year has averaged about 20 per cent of GDP over the past two decades - which is near the average for the developed countries - and has risen to 24 per cent over the past four years. This is way higher than the Americans' rate, which is now down to about 12 per cent.
(If you'd gained the impression we were saving very little, that's probably because you were focusing on the saving done by households. But our companies have been saving a lot through retained earnings and, until lately, our governments have been running budget surpluses and under-investing in infrastructure.)
As for our rate of national investment each year, it's averaged almost 25 per cent of GDP during the 2000s, which is a couple of percentage points higher than the average for the developed countries, and compares with just under 20 per cent for the Americans (and a bit over 16 per cent for the Brits).
Another reason for not being too worried is that we've been doing such a better job of managing our economy over the past 20 years: getting on top of inflation, getting unemployment down, never being slow to raise interest rates when we need to and getting the budget under control, while regulating our banks and undertaking micro-economic reform to make our economy more flexible.
This reform makes it more credible for us to regard the overseas borrowing by our businesses (mainly the banks) as having been undertaken by ''consenting adults'' who can look after themselves. The same can't be said of America's consenting adults.
It's true that the global financial crisis has shaken confidence in the consenting-adults complacency, demonstrating that, contrary to theory, capital markets can stop working and start refusing to roll-over (renew) existing borrowings as they reach maturity.
With our huge foreign debt, our banks face ''roll-over risk'' and we should never forget it. Even so, there could hardly be a bigger or more frightening stress-test than the one we've just been through, and we passed it with flying colours.
The point is that, provided most of our investment spending is soundly based, the income we earn from those businesses will service the interest on the money we've borrowed. But that's just as well because, as Henry says, all the big economic developments we face - a much bigger population, climate change, the information technology revolution and the resumption of the resources boom - will require huge additional investment spending, guaranteeing continuing, even bigger current account deficits.

Current account deficit | foreign debt

 

[jasonn]

i find this topic to be more interesting than the previouss

 

[b00m]

i find this topic to be more interesting than the previouss

Lies and slander.

 

[nevery]

Lies and slander.

I agree. Stop promoting sinful behaviour!

ROFL!

Anyway, thanks for the stuff waryap, I try to think of it like that. And thanks for the article, b00m. I love Ross Gittins. I even went to the Wessta lectures in penrith last year and he was one of the speakers. Great guy.

 

[0bs3n3]

What's so hard about Terms of Trade?

I do agree that Capital and Financial account stuff can get a bit convoluted though. Exchange rates seems pretty alright so far.

 

[nevery]

What's so hard about Terms of Trade?

I do agree that Capital and Financial account stuff can get a bit convoluted though. Exchange rates seems pretty alright so far.

Actually it's not too much the ToT, although they can get a bit annoying, but it is the balance of payments/capital, financial and current accounts that bothers me.

 

[0bs3n3]

Actually it's not too much the ToT, although they can get a bit annoying, but it is the balance of payments/capital, financial and current accounts that bothers me.

Current Account is quite easy. Capital and Financial is a bit more complicated.

What parts don't you get?

 

[nevery]

Current Account is quite easy. Capital and Financial is a bit more complicated.

What parts don't you get?

What goes into each account I guess, and how it all 'fits in'.

 

[Alby8534]

Like it as much as last topic. Except fricken BOP. Don't mind the impact/consequences stuff. But the little stuff inside the two components (usually asked in the MC which can mean easy marks for someone else but stupid mistkae costing an entire mark for you) is sooo annoying.

Thinking labour market might be a bitch.