Problems of a Current Account Deficit- Economics Help

http://www.economicshelp.org/macroeconomics/bop/probs-balance-payments-deficit/


This article explains the concerns and possibilities of account deficits. The trade deficit make up a large portion of the current account deficit. This means that imports and investment have a greater value than exports. This is sometimes concerning because it is not sustainable in the long term and can cause countries to pay back money with high interest. This situation seems similar to a problem that would cause unanticipated inflation in a country. These countries also rely on consumer spending which leaves them more vulnerable to unwanted changes. The issues are concerning but not as realistic for countries like the U.S. The U.S. attracts capital and that makes it harder to rely on foreign investment. This article helped me understand that developing countries are more affected by trade deficits. I also learned that in some cases the deficit could indicate a growing economy. One part of the article that I did not understand was about inward investment. I have not learned about it specifically and would have to do more research. The amount of possible reactions to the account deficit is a lot more than I previously expected and it is much more complex.

Bureau of Economic Analysis- U.S. Department of Commerce

http://www.bea.gov/newsreleases/international/trade/tradnewsrelease.htm


The Department of Commerce released the trade deficit report for the month of October. I was surprised that it took over a month to compile the report until I started reading. There were many other factors and statistics in the report that I didn't expect. The trade deficit in October was 43.4 billion dollars. That is two billion dollars down from September but an increase of 20.5 billion from that time last year. At first this number seemed huge but as I read on, I realized that the percentages make a difference. The exports increased 3% or 57.8 billion from last year which is good. This report ties directly to the Gross Domestic Product of the U.S. It is part of the formula and like most other countries; the imports are higher than the exports. I realized how the trade deficit affects GDP and why it is important to calculate. After reading the report, I was concerned that the U.S. is vulnerable to issues if something were to happen to the imports. We seem to be heavily reliant on imports which was a topic of concern. The report eased the concern and what we learned in class made me realize that all countries are reliant on imports more than exports.