can someone explain current account & trade deficits

brut · Jun 11, 2009, 7:26am

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

Anne Onymous · Jun 11, 2009, 8:49am

Quote:

Originally Posted by brut

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.

brut · Jun 11, 2009, 8:52am

i see, understood, thanks

Jun 11, 2009, 7:26am	#1
brut Junior Member Member Since Mar 2008 49 Posts	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

Jun 11, 2009, 8:52am	#3
brut Junior Member Member Since Mar 2008 49 Posts	Re: can someone explain current account & trade deficits i see, understood, thanks

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