drz-400
DP Veteran
- Joined
- Oct 12, 2009
- Messages
- 2,357
- Reaction score
- 551
- Location
- North Dakota
- Gender
- Male
- Political Leaning
- Conservative
Never said trade is a zero sum game, but neither is accounting.
You spend more then you make, you will pay a price eventually. This goes for individuals, companies and countries. You may in the short term benifit from cheaper goods allowing you to buy more then you otherwise would have, but eventually the amount of money leaving the economy, will exact a toll on it. This will lower incomes in the future, either directly as investment income leaves the country, or it will lower wealth as capital assets are bought by foreigners, allowing them to make the capital gains
A large current account deficiet that is persistant would not be possible under a "gold standard", and is only possible with the fiat currency system we have now. Under the gold standard, a country would not have the ability to fund a large persistant current account deficit as their gold inventory would be reduced over time (as people demanded gold for their "dollars") This is the accounting side of the issue. With the fiat currency system, what will typically occur is inflation
Actually I think it could be entirely possible. When we run current account deficits, the flip side is we run capital account surpluses of equal size in order to maintain a balance of payments. So under a gold standard we would be subject to large capital inflows if we had a large current account deficit. The effect would be a driving down of interest rates (or maybe the price of gold) in the US until it would be no longer more profitable to loan money to the US.
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