Concern over chronic current account deficits prompts politicians to exhort the productive sector to work harder and improve efficiency.
A look at our international accounts shows that the tradeables sector is not the problem. Rather it is the extent to which our economy is in foreign ownership. Both Labour and National are complicit in the takeover of our economy by offshore interests. They have stubbornly refused to acknowledge the fundamental defects in our monetary, tax and trading systems.
In 1962, along with Marcus Fleming, Canadian economist Robert Mundell (a 1999 Nobel laureate) co-authored the Mundell-Fleming model of exchange rates, and noted that it was impossible to have domestic autonomy, price stability, and free capital flows - that only two of these objectives could be met with the current systems. Control of capital flows is essential if we are to become a stable, prosperous nation.
|
New Zealand International Accounts $M
|
|
Year
|
Balance on goods
|
Balance on services
|
Balance on income
|
Balance on transfers
|
Current account balance
|
|
2001
|
2213
|
-232
|
-7580
|
483
|
-5117
|
|
2002
|
2451
|
436
|
-7091
|
246
|
-3957
|
|
2003
|
714
|
1504
|
-7043
|
113
|
-4713
|
|
2004
|
-1027
|
1272
|
-7406
|
391
|
-6770
|
|
2005
|
-2411
|
978
|
-9965
|
494
|
-10903
|
Balance on income: dividend, interest and other earnings received from other countries minus dividend, interest and other earnings paid to other countries.
Balance on transfers: benefits, pensions, tax, etc. received from other countries -
minus benefits, pensions, tax, etc. paid to other countries.
Current account balance: total of the other four columns.
You will see from the table that the big source of our current account deficits is large negative balances on income. This means there is much more money going out of the country from foreign owned investments here than comes in from Kiwis’ offshore investments. This is the main source of our exponentially increasing external debt. Our consumption is in large part being funded by foreign money. We continue to sell our assets to acquire this money. The rent we pay for property owned by foreigners continues to increase. Our accumulated current account deficit is increasing exponentially at about 3% per year. At some point we will be unable to service our nation’s external debt. Asia 1997, Iceland, Ireland, New Zealand?
Correction of the disastrous course we are set upon requires radical change to our monetary and trade and tax systems, including control of capital flows.
- contributed by Allen Cookson, Oxford