. similarly, borrowing hk dollars to fund the deficit would involve a shift in ownership of those dollars around the economy, but no net increase in quantity. the mechanics of financing the deficit ought not therefore raise any concerns in hong kong in the context of monetary stability. nevertheless, in practice the markets do appear to exhibit a degree of negative reaction to the deficit. why? a number of possible explanations come to mind. • first, and rather obviously, there is hong kong ’ s basic law, which indicates that deficits should be avoided. it ’ s understandable for markets to become nervous if they suspect that the law might be infringed. • second, many people, whether in hong kong or elsewhere, anyway have a gut feeling that getting into debt is imprudent. this does not stop them individually from borrowing money, or from being tolerant of their government being in debt, but they may nevertheless be uncomfortable about it. the underlying rationale for holding this view may not be well articulated, but it does not need to be – if the view exists, that is enough for it to have an impact. and the impact may be reinforced if the government ’ s record appears to run counter to what it has itself been preaching. • this leads to the third point, which is that hong kong has boasted since long ago about its budget surpluses and the absence of government debt. this makes it intellectually difficult to deny the significance of the deficit. not that anyone is trying to downplay it – the expressions of concern from government officials have been numerous, sincere and unambiguous. but in some ways this serves to highlight the difference. the present position is seen to represent a sea - change in the financial circumstances of hong kong, whereas other economies more familiar with deficits might be able to take a deterioration in public finances more easily into their stride. • fourth, there is the more specific concern, that either of the two available means for financing the deficit - by, as now, realising foreign currency investments or by government borrowing – would impact adversely on hong kong's financial standing in the eyes of rating agencies and others. of course, it is by no means obvious that these financing activities would necessarily endanger monetary stability or weaken the exchange rate. indeed, there are plenty of examples of economies with low foreign reserves or high government borrowing having enjoyed firm currencies and strong credit standings, and it's hard to see why, for example, the act of the hong

glenn stevens : economic conditions and prospects speech by mr glenn stevens, governor of the reserve bank of australia, to the american chamber of commerce ( qld ) amcham iinet business luncheon, brisbane, 3 april 2014. * * * i thank alexandra rush for assistance in compiling these remarks. thank you for the invitation to be in brisbane again. economic conditions in queensland have been quite varied over recent years. in some ways the forces at work have been in parallel to those in the national economy. on the one hand, the expansion of the mining and gas sectors has driven strong growth in some of the regions. in the past four years, business investment in queensland rose by 75 per cent, totalling $ 230 billion over that time and almost $ 70 billion during 2013 alone. the proportion of national investment occurring in queensland has been unusually high. investment in the mining sector may now have peaked, but the capacity put in place is supporting strong growth in exports. queensland ’ s coal exports reached record highs over the past year and exports of lng are expected to commence in late 2014. on the other hand, more prudent behaviour by households, after an earlier period of fairly free spending and borrowing, has kept demand in the urban areas more restrained. there was also a marked slowdown in the property sector in the southeast of the state, perhaps more so than in other states, which has been a dampener on economic activity. part of the story here is that in an earlier environment of fairly easy access to credit, dwelling prices rose too high relative to incomes in some areas. there was also perhaps, in some instances, too much construction of the wrong sort of dwelling. some people involved in or exposed to the property sector also had too much leverage. when credit conditions tightened and there were not enough buyers, prices fell and construction slowed down significantly. after growing at an annual average pace of 12 per cent between 2002 and the peak in late 2009, dwelling prices in brisbane fell and remain around 5 per cent below their peak. about a third fewer dwellings were constructed in the year to september 2013, compared with the peak in 2008. building approvals have been relatively strong in the resourceexposed regions in recent years, but elsewhere in queensland approvals for new detached houses are at around half the 2008 level. this is something that american members of amcham who are exposed to the us housing sector would have also felt over recent years. the us construction sector, while now established on the path of recovery