Borrowings and Lendings

“….. but for each dollar of current account deficit you’ve got to borrow a dollar from a foreigner” I heard this one just a couple of days ago by from David Murray the former CEO of the Australian Commonwealth Bank.  Its even more stark than the usual misrepresentation of government and trade deficits. The statement is highly misleading , in the sense that people use the term borrowing, and it’s hard to think that David Murray wouldn’t know that. Borrowing in the normal use of the term means going out and asking someone for a loan.  As head of the Commonwealth Bank he wouldn’t have used the term borrowing to describe the process of the Bank’s customers depositing their money in his bank. In a narrow accounting sense that is what the bank is doing though and that’s all most government “borrowing” is. The central reserve banks of all developed countries have many overseas held accounts.  In an accounting sense they have borrowed money but it doesn’t cause anyone to lose any sleep in the way that an average person might if they had borrowings as a mortgage or a car loan. If we have money in the bank and that bank displeases us in ways  banks often do, we can’t repossess the CEO’s car! All we can do is move our money to another bank and the bank don’t usually care in the slightest!

One response to “Borrowings and Lendings

  1. Thanks for this website. It is very illustrative and highly instructive! I have shared it on my Facebook page. Have you thought of putting this on Facebook yourself?

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