Re: Trade deficits, Current Accounts, and Budget Deficits

From: Bill (xxx_at_yy.zz)
Date: 03/25/05 

Date: Fri, 25 Mar 2005 09:50:00 GMT

"Brablo" <gestureofrespect@yahoo.com> wrote in message
news:1111713129.657870.38540@o13g2000cwo.googlegroups.com...
> Hello all Economists!
>
> Our latest current account deficit is about $666 Billion for '04. I
> realize that everyone, including myself, was startled and wary about
> this statistic.
>
> However, according to one study book I'm reading (Schweser Study
> Program for the CFA '04), it states that "There is no negative
> interpretation associated with running a current account deficit.
> Unlike an individual or institution running a budget deficit, a current
> account deficit simply means that a country imports more than it
> exports. If offset by a surplus in the capital accounts, a deficit in
> the current account can continute for a long period with no apparent
> problem."
>
> So relax. There was no reason to be startled.
>
> Here are some questions that I have:
> 1. What are the differences between the trade deficit/surplus and the
> current account? What were the figures for each of these last year?
> Correct me if I'm wrong, but I think that the trade deficit was $666B
> for '04.
> 2. What was our budget deficit for last year?
>

When people talk about the trade deficit they are typically talking about the
balance on current account - which includes goods, services, some military
transactions, and I believe interest payments - which are mostly a wash each
way. Both the trade deficit and the budget deficit were a little over $600
billion last year. You can look it up someplace if you want exact numbers.

The trade deficit is financed by capital coming into the US. There are several
problems with this. It is totally at the discretion of foreigners and if they
lose confidence in US investments, e.g. because of the falling dollar, the US
is in deep trouble. It also means the foreign interests are increasing owed
money which will probably have to be paid back sometime.

Bill

Relevant Pages

  • The Current US Account Deficit Matters
    ... Is the dollar at risk because of America's enormous current account ... deficit puts the dollar at risk; at the same time, however, a lower ... It is precisely the amount foreigners must acquire in US ... $120,000 to invest in a new business, you may justify carrying negative ...
    (soc.culture.cuba)
  • NBC: An interesting perspective on U.S. trade deficit
    ... A recent Associated Press headline was, "Current Account Trade Deficit ... losing manufacturing jobs to countries that run trade surpluses. ...
    (rec.music.artists.springsteen)
  • Re: Balance of payments
    ... A country runs a current account deficit when its payments exceed its ... Foreign investment in the U.S. equals the deficit in its so-called ...
    (sci.econ)
  • Re: Trade deficits, Current Accounts, and Budget Deficits
    ... according to one study book I'm reading (Schweser Study ... > interpretation associated with running a current account deficit. ... I think basicly trade deficit is equal to current account deficit, ...
    (sci.econ)
  • Re: Laffer curve and supply side economics
    ... result of investment in capital and training. ... Trade deficit means we send money and receive goods. ... The news story deals with the balance with several countries: ...
    (sci.econ)