Trade deficit and Foreign Debt - 2

The SMH and the Australian still run the same old scare campaigns about trade deficits every month.
The SMH article is clearly a cherry picking exercise. Picking and choosing from the different figures from the ABS report i.e. trend estimates, seasonally adjusted and original (read real).
The article takes the trend estimate number for the headline deficit and uses original figures for fuels and lubricants.

From the SMH

"Australia has recorded its second largest trade deficit ever, casting further doubt on the health of the economy ahead of next week's budget."

This is a fallacy. Countries have run trade deficits in the past and have had booming economies. This fallacy assumes that the health of the economy is purely determined by its international trade position. Plus given the economy grows over time, in the future we will probably have a largest deficit on record. yawn

If you read the ABS report, the original (real) numbers tell a different story.

Like I mentioned last month. The imports are the good stuff. Capital and intermediate goods to make companies (and employees) more productive. The consumerables dropped off after the Christmas splurge.
An example of why investing in capital goods and intermediate goods makes sense for Australian companies.
March 2005: Buy $100 million of mining equipment which enables expansion of production of mine. Mine production expands from $20 million to $25 million per month.
Assume an equipment life of 3 years (36 months) and the company is now $80 million better off at the end of 3 years.
Calculation: 36 x $5 million (extra) - (cost of new equipment $100 million) = $80 million.

Before people do the culture cringe and say Australia is just a mine and a farm. There is good reasons, we have a big comparative advantage in both those areas.

For all the worry about rural exports, resources are the biggest export area for Australia.

	Goods				Services
	Rural	Resources	Manufactures	Other
Dec-04	6340	14704	7298	2362	8479

Rural exports only made up 16% of the total exports in Dec2004, less than services. The source is ABS but the Reserve Bank has a nice downloadable spreadsheet on this page.

The last laugh was that because rural exports are down that means drought. Sorry, no rain means drought.

"These falls suggest that the emerging debate about whether Australia is heading into drought is largely academic, with rural exports already behaving as if one is under way."

There is always the Australian dollar mentioned as well, it is too high, it is too low. A good exchange rate works both ways, yes exports seem dearer to our customers overseas, but imports are cheaper. Customers will want to pay lesser price... but we can pay less as well.

My guess the foreign debt issue will be another sore point. These companies and consumers just don't know what they are doing, maybe the Government should step in and regulate. Damn sovereign individuals.

Have Fun

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