Another look at the so called intermational imbalances

Comments on Michael Stutchbury “Success story riding on China’s back”, 22/09/2009, http://blogs.theaustralian.news.com.au/currentaccount/index.php/theaustralian/comments/success_story_riding_on_chinas_back/

Michael, you are spot on. The economic situation in Australia is so different to that in the US and the Europe Union.

It is a result of a number of reasons, including the impact of the Chinese economy, and Australia’s solid and sound pre-crisis economic situation which in turn includes sound banking system, no government net debt, and low interest rates and low unemployment.

Another point you made is about the likely external imbalances as a result of a booming Australian economy that will be sustainable. That will be strengthened if considering foreign direct investments if Australia allows as a result of the boom.

In fact, the current account imbalances between the US and the rest of the world can also be sustainable for a long time if the US allows foreign direct investment into its asset markets.

It is like a older person living on his/her saved assets as opposed to his/her current employed earnings. It is another version of the “life cycle” income theory.

So far few economists have considered this issue through this way.


But economists should broaden their thinking in era of globalisation and unprecedented international adjustments.