The trillion dollar secret

Following the release of the Sept Qtr national accounts, we opined that Australian’s would be shocked to learn when our net foreign debt breached $1T in the Dec Qtr. We were wrong on two accounts. 1) The net foreign debt had actually breached $1T in the Sept Qtr. The ABS had actually underestimated the Sept Current Account deficit by $2B in its Sept Qtr release; and 2) The media & Government jumped on the surprising GDP growth in the Dec Qtr and totally glossed over the National Foreign Debt – again! The below table indicates two poor trends. The trade deficit is annualising at about $40B p.a. Concurrently the Current Account (that includes the trade deficit) is lurching towards $80B p.a. In time what could confront Australia would be a collective decision by foreign investors or debt holders to withdraw funds from the Australian economy. This occurred in 2014/15 and it drove the currency lower. A view (even if wrong) that Australia has no potential to pay back its foreign debt could cause a currency crisis. Read more (VIEW LINK)