adam . # .

Cheap US money: Firstly I Am Also Not An Economist.

2001-2006 saw a huge recovery in the AUD-USD exchange rate (particularly 2004). This meant suddenly cheap imports as Australians discovered the Pacific peso was worth something again. The underlying reason for the shift was presumably the interest rate differential between Australia, with one of the highest rich world cash rates, and the US, which was holding its rates down near zero. Same goes for other big trading partners such as Japan (0 interest rates) and China (pegged to the USD).

I think the CAD looks so volatile because, like profits, it\'s the small difference between two large numbers. Over the 40 year period Cam has presented, the Australian economy itself has had significant growth, so its easier to get spikes.  As for the late spike, I suspect we were selling lots of dirt, but importing more (in dollar terms) back in the form of toasters, stationery, hard disks, Belgian beer, and so on.

As far as the Pitchford thesis goes (so that\'s what it\'s called, ohh) I\'m pretty much on board. The current account deficit can be a bit meaningless in the context of a floating currency.  I give a Japanese company money, they give me a car - where\'s the deficit?