Tuesday, November 30, 2010

Something That Doesn't Stop Can Go On Forever

Here's an interesting factoid I came across, while poking around in the trade data (here):

Australia has had a a current account deficit in 48 out of the 50 years since 1960. [1]

These aren't small deficits, either: They average 3 percent of GDP. And yet, where's the pressure to increase net exports? Where's the currency crisis, where's the collapse of the Australian dollar? (In fact, it's at its highest level in more than 30 years, per the BIS.) Where's the unsustainable debt? I know nothing about the Australian economy, but it's hard not to wonder, if a big current account deficit is sustainable for 50 years, why not 100? Why not indefinitely?

It's a question that people who think that current account balance is the master key to the macroeconomy, really ought to think about.

[1] The exceptions are 1972 and 1973.


  1. Here's about a billion words from Steve Keen on the subject of debt and Australia:


    Today's post even has some graphs you might be interested in.

  2. BTW, your post title made me laugh out loud.

    I've been reading Keen for about a year and I still can't tell if he's the smartest guy around or a crank.

  3. Josh, I'm an ignorant of Australia's economic history, but I remember that Obstfeld and Rogoff use this case to ilustrate the accounting of external debt sustainability. Take a look at their book, it might be of interest.


    Martin Rapetti

  4. Thanks, Martin! Just got the book out....