can someone explain current account & trade deficits

This is a discussion on can someone explain current account & trade deficits within the General Trading Chat forums, part of the Reception category; im confused. The US (say) imports $1m worth of goods from china, and exports nothing. so it has a trade ...

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Old Jun 11, 2009, 12:26pm   #1
Joined Mar 2008
can someone explain current account & trade deficits

im confused.

The US (say) imports $1m worth of goods from china, and exports nothing. so it has a trade deficit. this $1m cash is then reinvested by china into the US to buy government bonds. so there is a zero net flow of cash out of the united states. they started with $1m and ended with $1m.

so how is it that the US run a current account deficit? is it not the case that the dollars that leave the country when buying exports, flow back into the country to buy bonds stocmks and other sh1t
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Old Jun 11, 2009, 1:49pm   #2
Joined Feb 2008
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Originally Posted by brut View Post
im confused.

The US (say) imports $1m worth of goods from china, and exports nothing. so it has a trade deficit. this $1m cash is then reinvested by china into the US to buy government bonds. so there is a zero net flow of cash out of the united states. they started with $1m and ended with $1m.

so how is it that the US run a current account deficit? is it not the case that the dollars that leave the country when buying exports, flow back into the country to buy bonds stocmks and other sh1t
Hey,
In your example, the $1m investment in TBonds is not included in the current account but in the capital account. So there is a $1m trade deficit and current account deficit, with a $1m capital account surplus.
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Old Jun 11, 2009, 1:52pm   #3
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brut started this thread i see, understood, thanks
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