Causes Of Australia's Foreign Debt

External stability – stable exchange rate, a sustainable level of foreign debt and the current account deficit (CAD) 

This growth in national debt has blunt consequences on inflation, interest rates and growing economy. Foreign control of large amounts of government debt means that the taxes will have to be raised to repay debt and percentage owned to overseas governments which is not acceptable. Assuming that trade deficiency also exists it will lead to depreciation of dollar which effect its position as a reserve currency, and if during this process any new currency emerge as a replacement of reserve currency, higher interest rates will be required to sell the debt to foreign countries (Inflation). Raised interest rates have a negative impact on the economy and high accumulation of debts leads to high interest rates (Spending). Hence the economy suffers. This means that the funds for government programs like Social Security and Medicare are not enough (Economic Progress Under Obama). Another consequence of high national debt is the reduced flexibility in fiscal policy (Spending).

In the long term the increase of foreign debt can lead to a debt sustainability problem, if Australia becomes overwhelmed with debt the economy will find it hard to service current debts. If the size of the debt is rising faster then the increase of GDP the interest payments on the debt will progressively

Exchange rates fluctuate in response to a multitude of factors. Upswings and downswings in the exchange rate can have both positive and negative consequential effects. Depreciation drops the value of the dollar and permits owners of foreign currencies to purchase a greater amount of Australian goods. Hence, depreciation makes Australian exports cheaper and accordingly

The net primary income account, in the balance of payments, plays an ongoing part in the cause of Australia’s current account deficit (CAD). This occurs mainly due to the fact that the net primary account is comprised of payments of interest and dividends on Australia’s net foreign debt and equity. In 2011-2012, it was equal to a deficit of 3.1% of GDP; however it is expected to increase in the future due to large returns to overseas investors in Australia’s mining industry.

First we must look and account for the causes for the recent trends in balance of payments. This is very important as it reflects key features of the structure of the economy and highlights the imbalances in the relationship between Australia and the economy. In particular, we must inspect the current account deficit (CAD), which is when the debits are greater than the credits recorded as a percentage of GDP and is an accurate indicator of the economy’s current position.

National Debt in the U.S. has expanded rapidly throughout the years. In 2012-2015 it has increased by 70 percent. Most spendings are obviously spent by government in unnecessary facilities. Many people ask why is it affecting us and why has the government not issued a reform to solve it. This worries us because it doesn’t only involve an internal debt but a national debt as well.

Foreign aid is a term referring to resources and money lent out or given to a ‘recipient nation’ who is in need by a wealthier ‘donor country’. This can be given either in long term ‘humanitarian aid’, aimed at improving the welfare and development of the human population, or short term ‘emergency aid’ focused on providing the daily necessities to a population after a war, or natural disaster. Despite common belief, the purpose of foreign aid is not only to help countries which are in need, but also to achieve a range of social, economic, cultural and geopolitical goals that will benefit our national interest. Australia is currently the largest foreign aid donor of its nearest neighbour,

Furthermore, the nation will go deeper into debt with the rest of the world as Americans continue to rely on the strong flow of foreign money, particularly from central banks in Asia, to finance the trade gap. China, Japan and other foreign governments are some of the biggest holders of government securities, lending money to cover the substantial federal budget deficit and helping to keep interest rates and home mortgage costs here relatively low. As a result, American consumers are able to spend more and save less.

The concept of superannuation was introduced through the Superannuation Guarantee (SG) with the idea of managing, accumulating and growing assets of members so that once retirement arrives they can enjoy a higher standard of living without concern for a shortage of income when retirement occurs, they arrive in the form of pension, lump sums or both. It is further explained by Dawkins (1992) that our current retirement income system was weak and that there was a need to strengthen Australia’s national saving performance. He stated “Greater domestic saving will relax the current account constraint on Australia’s economic performance. It will mean that we can grow faster without relying so heavily on foreign saving and building up an

There are three major economic factors that have combined contribution to FMG’s growth over the past 5 years, including the strong AUD , the amazing export feature due to the Chinese boom which drives up the commodity price and the interest rate decision by RBA. Australia dollar has appeared strong for the past 5 years and maintained at $6-$6.8 level for AUD/CNY at most time. It promised a high level of foreign income for Australia exporter. In 2009, China demanded almost 60% of the world’s iron ore to produce 47% of world’s steel production. It contributes the most to the price rocket from $31.78 to $180.6 US cents/mts in 5 years time. In addition, Australia borrowing cost remains high over the past few years which may alter the finance decisions of FMG.

As the current interest rate set by the Reserve bank of Australia is 1.5% the likelihood of saving will decrease and instead consumption from investments is more likely to increase. This will also leave homeowners with more disposable income as the cash rate also decreases their mortgage rate also decreases

It is often suggested that the large current account deficit poses a serious financing problem for the United States. Each year, the lament goes, the United States must attract net inflows of capital sufficient to "cover" the huge current shortfall. But this proposition gets the logic backward: the U.S. deficit is "financed" by net capital inflows only in an ex post accounting sense. In economic terms it is more nearly correct to say that net capital inflows cause the current account deficit. (p. 218)

Globalization has led to greater inequality in Australia. It could be due to increased trade and growth, and capital liberalization doesn't work in favor of the poor. Governments are supposed to reduce the negative financial market positions and not impose any such policies that would enhance those situations. Instability can cause deterrents for both firms and governments in the same manner. Interest rates being on a rise can reduce investment and a volatile currency will discourage exporters, especially the smaller firms that do not have any financial expertise to guide them. Expansionary policies will also be affected as the cost of borrowing increases. And these pressures on the government demand that it lower taxes and increase incomes, at the same time cutting the government's own spending patterns,

Current Account Deficit. A rise in the ratio of the current account deficit to GDP is generally associated with large external capital inflows that are intermediated by the domestic financial system and could facilitate asset price and credit booms. A large external current account deficit could signal vulnerability to a currency crisis with negative implications for the liquidity of the financial system, especially if the deficit is financed by short-term portfolio capital inflows. Financial crises that have