Post by rod on Jul 12, 2016 10:01:34 GMT
Credit Ratings Agencies talk of Sovereign risk we all know that a currency issuing Govt cannot involuntarily default on obligations denominated in its own currency but is that all Ratings Agencies examine ?
So I checked out some definitions most of them talk of Govt repaying debt etc but some definitions talk of exchange rate and Central bank monetary policy,
So what are the risks of continued deficits ?
Forex traders might sell down or short our currency, foreign investors may see the value of their investments fall, Banks and business that borrowed in low interest Euro's or US$ may take a hit but if you are going to borrow big from overseas you would want to hedge against currency fluctuations.
I have seen some shorts on AU$ as low as 0.40 to US$.
Is that all bad ?
The values of our commodity exports would rise along with tourism and education in AU$ but the cost of imports would also rise.
A slow down on imports can't be all bad it would make our local manufacturers more competitive, more demand and jobs over the long term.
A flight of foreign capital, would that be a problem ?
We could grow some balls like Iceland and introduce capital controls, would that be seen as another sovereign risk ?
We have plenty of superannuation savings sitting around that could be invested in developing our economy.
What do we need from overseas, we are pretty much self sufficient we have food, resources, energy, labour and plenty of smart people, do we really need the foreign investment that politicians say we do, or do we just believe in ourselves ?
So I checked out some definitions most of them talk of Govt repaying debt etc but some definitions talk of exchange rate and Central bank monetary policy,
So what are the risks of continued deficits ?
Forex traders might sell down or short our currency, foreign investors may see the value of their investments fall, Banks and business that borrowed in low interest Euro's or US$ may take a hit but if you are going to borrow big from overseas you would want to hedge against currency fluctuations.
I have seen some shorts on AU$ as low as 0.40 to US$.
Is that all bad ?
The values of our commodity exports would rise along with tourism and education in AU$ but the cost of imports would also rise.
A slow down on imports can't be all bad it would make our local manufacturers more competitive, more demand and jobs over the long term.
A flight of foreign capital, would that be a problem ?
We could grow some balls like Iceland and introduce capital controls, would that be seen as another sovereign risk ?
We have plenty of superannuation savings sitting around that could be invested in developing our economy.
What do we need from overseas, we are pretty much self sufficient we have food, resources, energy, labour and plenty of smart people, do we really need the foreign investment that politicians say we do, or do we just believe in ourselves ?
