The Stimulus Package Explained

[minux]

Stimulus Info...
"This year, taxpayers will receive an Economic Stimulus Payment. This is a very exciting new program that I will explain using the Q and A format:

Q. What is an Economic Stimulus Payment?
A. It is money that the federal government will send to taxpayers.

Q. Where will the government get this money?
A. From taxpayers.

Q. So the government is giving me back my own money?
A. Only a smidgen.

Q. What is the purpose of this payment?
A. The plan is that you will use the money to purchase a high-definition TV set, thus stimulating the economy.

Q. But isn't that stimulating the economy of China?
A. Shut up.

Below is some helpful advice on how to best help the Australian economy by spending your stimulus cheque wisely:
If you spend that money at Target, all the money will go to China .
If you spend it on Petrol it will go to the Arabs.
If you purchase a computer it will go to India ..
If you buy a car it will go to Japan .
If you purchase useless crap it will go to Taiwan ..

And none of it will help the Australian economy.
We need to keep that money here inAustralia . You can keep the money here by spending it at yard sales, going to a footy game, or spend it on prostitutes, beer and wine (domestic ONLY), or tattoos, since those are the only businesses still in this country.

[Philthy]

Fine, I'll just buy a heap of TEDs and throw a party for the good of the nation. You talked me into it

[88GreenVN]

I'll send mine to Minux to invest on the pokies for me and go 50 50 on the huge expected profit

[Tom_1569]

Fine, I'll just buy a heap of TEDs and throw a party for the good of the nation. You talked me into it

Tooheys is owned by Lion Nathan, a Japanese Company
Maybe try something from the Fosters group .

[Juztin]

So pretty much this is a good excuse to but as much Aussie beer as possible =] =] =]

[vlv8vic]

Where'd you find that one Craig? thought there would be something a bit more clever out there by now.... bit more witty.... I'll wait.....

[System]

i'll buy 950 bucks worth of boags...

well so your sayin that Holden parts go to another country too? (expecting a comment to say "china")

[Philthy]

Tooheys is owned by Lion Nathan, a Japanese Company
Maybe try something from the Fosters group .

I was waiting for somebody to correct me on that, I wasn't 100% sure where they came from.

[BOY1236]

If you spend it on Petrol it will go to the Arabs.

I highly recommend that...... need new set of tires soon

[Zuicider]

aye but its all taken out of contrast those products taken from those countries are highly inflated by australian companys so majority of the money spent will get funded around. minux your just shitty your not mgoing to get 950 back

[minux]

aye but its all taken out of contrast those products taken from those countries are highly inflated by australian companys so majority of the money spent will get funded around. minux your just shitty your not mgoing to get 950 back

Not at all, the mrs is getting it so im not fussed

As for this original post, I didnt write it, it was emailed to me

[Shounak]

Hate to be the boring Economist, but every dollar that's spent overseas benefits Australia just as much as a dollar spent here.

If you spend Aussie dollars, it will always benefit Australia.

[minux]

Hate to be the boring Economist, but every dollar that's spent overseas benefits Australia just as much as a dollar spent here.

If you spend Aussie dollars, it will always benefit Australia.

How so? If i spend $2000 buying a lens from Hong Kong, how does it benefit Australia?

[Shounak]

How so? If i spend $2000 buying a lens from Hong Kong, how does it benefit Australia?

Follow the trail of money.

What does the HK retailer do with AUD$2000? It's about as useful to him as $8,000,000 Zimbabwean to us here in Melbourne.

The money always eventually finds itself back to Australia and is used to purchase Australian goods/services.

In the extreme case where we assume that the HK seller burns every AUD he receives, we still benefit. All it does is remove money from the Australian economy and increase buying power. Meaning we can do more with our money.

It's a bit hard to wrap your head around, but just follow the money. Money spent oversea's will always work its way into the domestic flow.

[Reaper]

Follow the trail of money.

What does the HK retailer do with AUD$2000? It's about as useful to him as $8,000,000 Zimbabwean to us here in Melbourne.

The money always eventually finds itself back to Australia and is used to purchase Australian goods/services.

In the extreme case where we assume that the HK seller burns every AUD he receives, we still benefit. All it does is remove money from the Australian economy and increase buying power. Meaning we can do more with our money.

It's a bit hard to wrap your head around, but just follow the money. Money spent oversea's will always work its way into the domestic flow.

As if he gets AUD anything. All that happens is he will go to his local bank and exchange it for HK$ or maybe US$, less a commission. That exhange will hold those funds till the next person wants AUS$ at which time they make another comission, plus they hope they make money on the currency market (they probably hedge against losses anyway). Other than a few dollars in credit card charges I cannot see how exporting money overseas can benifit AUS in any meaningful way.

Reaper

[Shounak]

As if he gets AUD anything. All that happens is he will go to his local bank and exchange it for HK$ or maybe US$, less a commission. That exhange will hold those funds till the next person wants AUS$ at which time they make another comission, plus they hope they make money on the currency market (they probably hedge against losses anyway). Other than a few dollars in credit card charges I cannot see how exporting money overseas can benifit AUS in any meaningful way.

Reaper

Makes no difference. It's easier to think of it as physical notes being exchanged, but it's the same thing with electronic transactions.

Basic point is that AUD is of no use to anyone but Australians in redeeming goods/services. Every AUD that leaves the country will find its way back.

So if the HK seller exchanges his AUD for HK. The bank now has AUD$2000.

The bank would never accept the AUD if they didn't believe they had a decent claim over Australian goods and services. No-one accepts a currency they can't do anything with.

The only use AUD has is to redeem Australian G+S, so ultimately any AUD that's sent overseas WILL redeem Australian G+S. Otherwise it might as well be burnt, it which case it will increase purchasing power of AUD. Basically the people of HK would be losing money unless they can do something with the AUD.

Which ultimately someone has to use. A hot potato will eventually cool down.

[Reaper]

Makes no difference. It's easier to think of it as physical notes being exchanged, but it's the same thing with electronic transactions.

Basic point is that AUD is of no use to anyone but Australians in redeeming goods/services. Every AUD that leaves the country will find its way back.

So if the HK seller exchanges his AUD for HK. The bank now has AUD$2000.

The bank would never accept the AUD if they didn't believe they had a decent claim over Australian goods and services. No-one accepts a currency they can't do anything with.

The only use AUD has is to redeem Australian G+S, so ultimately any AUD that's sent overseas WILL redeem Australian G+S. Otherwise it might as well be burnt, it which case it will increase purchasing power of AUD. Basically the people of HK would be losing money unless they can do something with the AUD.

Which ultimately someone has to use. A hot potato will eventually cool down.

Find it's way back??? Yes. To Australias benefit??? most probably not.

I send AUS$2000 to HK
HK sends goods to the value of AUS$2000 to Aus

no net gain except for the profit margin to the HK retailer and minor associated costs along the way.

That AUS$2000 will then be swapped back into AUS for either an (nearly) equal value of HK$ or goods/services.

Overall no meaningful gain to AUS.

By far the **BEST** way to spend the money (from a macro perspective) is in Australia on Australian made goods and/or services.

Reaper

[Shounak]

Find it's way back??? Yes. To Australias benefit??? most probably not.

I send AUS$2000 to HK
HK sends goods to the value of AUS$2000 to Aus

no net gain except for the profit margin to the HK retailer and minor associated costs along the way.

That AUS$2000 will then be swapped back into AUS for either an (nearly) equal value of HK$ or goods/services.

Overall no meaningful gain to AUS.

By far the **BEST** way to spend the money (from a macro perspective) is in Australia on Australian made goods and/or services.

Reaper

When AUD is spent, of course it's to Australia's benefit. There are no net gains, everything has a quid pro quo involved.

You've only touched on the first step though. Yes, AUD sent, HK goods send back. Now HK has AUD it has no use for. So eventually there will be an equal and opposite swap back.

Current Account Deficit = Capital Account Surplus (ceterus paribus). Every transaction is reversed out.

In order for HK to make use of the AUD they now hold in their pocket, they must use that AUD to redeem $2000 worth of Australian G+S, that's where the benefit comes in.

Foreign buying is good for the following reasons.
1. It's a sign that the country receiving AUD has confidence in the ability of the AUD to redeem future G+S. Ie. confidence in the underlying stability of the currency.

2. If it's cheaper O/S, it gives the purchaser more spending power so he gets more bang for his buck and his money is better distributed.

The only way this will be bad for Australia is potentially intertemporally. Benefits will not be immediate and that's what this stimulus package is hoping to do. Provide an immediate shot of adrenaline into the economy.

Buying Austalian is a furphy. If people pay extra for Australian goods, it's simply subsidising those Australian industries at the cost of other more efficient industries. Of course there's a point where Economic othordoxy should be put into perspective, but I don't think we're even close to that here.