Yes, the state of knowledge of dynamic systems in economics is truly appalling.

The CAD is certainly part of the story behind the growth in NoDoc/subprimes, though not the whole story. In a nutshell, I argue that all monetary systems have an endogenous capacity to expand indefinitely, but if that is allowed to happen, one impact will be a debt-driven capacity (for a while) to purchase imports.

So rather than seeing the CAD as a reflection of the gap between Exports and Imports–the conventional economic interpretation–I see the CAD as fuelling our excess of Imports over Exports.

At some point, as you intimate, the debt servicing burden that generates will become overwhelming–or the currency will collapse, or some combination of the two.

And yes, to get back to balance again, we need to produce: though “XM for some substantial time to reduce it. We may get some salve out of our resources on that front, but with the move to treating the country as primarily a quarry, we’re always going to be paying to import other people’s technology.

What I am most concerned about is the Current Account which has been which has been in deficit continuously since July 1973. Is this not the most significant source of internal credit? As I understand it, this is covered by asset sales and borrowings (by the banks), and that this debt is passed on to consumers who have bid up the price of everything, is this correct?

What happens when we run out of people capable of paying the interest on this “private” debt as it undergoes “growth”?

Has this debt resulted in both the no doc/sub prime problem and the current oil price rise?

Australia is now so technologically dumbed down that is will take a generation to be able to actually balance the Current Account.

Well that’s not going to be very good.

We are essentially saying house prices reflect the relative purchase power of a wage earner in nominal dollars in that wage earners country.

1. If you agree that the Case Shiller will regress to it’s 100 year mean of 100 over the next 5 years (that also seems to be what the FED, IMF & market think)

2. The AUD/USD exchange rate is roughly 1:1 i.e. parity and stays around that level

3. The Stapleton index must ultimately fall 50% and it will likely begin its fall very soon.

Peter

I think those metrics do make sense. Ultimately you’re looking for imbalances, and they are certainly there. What’s more likely as a correction though is that our house prices will start to fall–though not as rapidly as the USA’s–so that Stapledon’s index will drop too. That will counteract where the Aus/USA dollar relation might go, and gives some idea too of how long the imbalances are likely to persist.