Re: Current account deficits (was The IMF and the Presidential Candidates)

[Jim Devine <jdevine@xxxxxxxxxxxxxxx>]

At 09:04 AM 9/1/00 +1200, you wrote:
> Been meaning to ask this for a while:
>
> New Zealand has been running a current account deficit for 27 years. It is now
> at about 8% of GDP. Sounds dangerous to me, but Treasury and other orthodox
> economists here (following Friedman) say no need to worry with a floating
> dollar.
>
> Should we worry? Why?

How high is NZ's external debt relative to its GDP and exports? How high is
its interest and other debt-service relative to its exports?

More importantly, has the debt been used to pay for productive investment
or for boondoggles? Back in the 19th century, the US ran big trade and
current-account deficits but it didn't hurt since most went for productive
investment (railroads, etc.) which helped the US make the debt-service
payments. These days, the US current account deficit is more serious, since
it mostly goes to finance consumer spending, which doesn't help deal with
debt service.

Jim Devine jdevine@xxxxxxx &  http://bellarmine.lmu.edu/~jdevine