Re: Stiglitz on Soros--question for Leigh

["William B. Ryan" <william_b_ryan@xxxxxxxxxx>]

Leigh,

I do not challenge your veracity or accuracy in the numbers concerning
the  apparent equality between deficits and bank credit for (Australia
and the Philippines), although I might offer an alternative interpretation
as to what the numbers signify.

Have you looked at the numbers for all economies that perennially run
deficits?  I would like to know if the relationship you have identified
holds true universally.

As to interpretation, it would seem that bank credit has not financed
net capital formation in Australia, but has effectively financed capital
formation in the rest of the world that is exporting to Australia.  Would
this not be the case if each net dollar worth of goods imported equals
one dollar less in terms of effective demand for products produced in
Australia, and therefore would represent one dollar charged against profit
for the domestic firm whose market has been correspondingly degraded?
 It would also, I would think, represent a dollar of additional profit
to the foreign firm that is posted to the firm's capital account.

It seems that Australia is taking on debt to finance capital formation
in the rest of the world.  If so, it would appear that Australia is taking
on debt that must be increasing exponentially to domestic consumption,
since the ratio of domestically produced products is decreasing in ratio
to that which is being imported, where the increasing consumption in
total is in effect being financed by Australian banks.

I don't see how exchange rate policy has much to do with this, except
perhaps in the short term, in the transitory period in the aftermath
of a CHANGE in policy.  In the long term, or so it seems to me, the foreign
firm can always increasingly grab market share from Australian firms,
since they can always under price them in Australia's domestic market
no matter what the exchange rate.  This is quite independent of efficiency
in methods of production or so-called "comparative advantage."

What do you think?

Bill


--
William B. Ryan
william_b_ryan@xxxxxxxxxx - email
voicemail/fax - 1-866-678-3967 - toll free



---- "Leigh Harkness" <Leigh@xxxxxxxxxxxxxxxxxxxx> wrote:
> Paul
>
> Thanks for your comments setting me onto the straight and narrow.
>
> You wrote:
>