2007-08-23

Fiscal Surplus and Foreign Debt

So, the Federal Government has a $17.3 Billion surplus. What to do with it?

In the past I have advocated using it to pay off government debt. This has been done, so what now?

One good way to use it is to help reduce our foreign debt.

Australia's current account deficit is around $56 billion (annual). Australia's net debt that it owes the world is around $532 billion.

If the government used this surplus by buying Yen or Euro (not USD, that's a falling currency) then it would reduce our current account, reduce our net debt and increase our foreign exchange reserves. In the short term it would depress the Aussie dollar but, as the interest comes back, it would act to increase its value.


5 comments:

Reuben Kincaid said...

Yo OSO

Is the Foreign Debt that you quote, public debt or private debt? How will the buying up of overseas currency contribute to a reduction in the level of Foreign Debt? Is it because the interest payments would be "cheaper"?

One Salient Oversight said...

It's both public and private added together - but most of it would be private (since public debt in Australia is now non-existent)

The idea is that Australia has borrowed $532 billion from the rest of the world. We're paying interest on that.

The Federal Government has $17 billion up its sleeve.

The Federal Government can't just "pay off" the debt since the debt is mostly private in nature. Instead, what the government can do is do the opposite - instead of borrowing money from overseas, they invest money overseas.

Australia's current account deficit is made up of the trade balance plus interest we pay to overseas investors. If the government invests the $17 billion abroad, then the interest payments coming back will help balance out the account.

Ross McPhee said...

That make sense, I guess.

Dave Lankshear said...

All this sounds like "funny money" to me. No actual service has been purchased, no actual goods have been made... it's like some of those weird "End of Financial Year" transaction journal entries I have to make .... because my accountant says I have to.

Neil, would this whole "Foreign account deficit" thing disappear if, say, we had a Federal World Government like the European Union on steroids? What other economic implications would emerge from having just ONE world dollar? It would make a fascinating study.

Other than that, a Democratically elected and accountable World Trade Organization and IMF would be better than the "Diplomatic deals behind closed doors" that rant against.

Anyway, it would never happen. Too many American Christian voters would take to the streets fearing a Tim Lahaye style anti-Christ world take-over. The irony of protesting against their own theology (of an Lahaye "End times shakedown") never really seems to register with these people.

But the new economic system of a one world government would be interesting. Imagine WORLD employment standards... all that cheap slave Labor in India and China would have to be paid properly, meaning that they were no longer the factory of the world. Maybe setting world employment minimum wages would help disperse manufacturing to be more localized as it should be after peak oil anyway?

Dave Lankshear said...

Did I do the code wrong or something? Man I hate the blogger comments function!