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Old 03-09-2011, 10:41 AM   #21
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Join Date: Jan 2008
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Excellent job by Gumby explaining something that is not intuitive and mostly concerns economists, not people.

When you have a trade surplus you make more than you spend (as a country) and the difference you can lend to your government to fund the deficit. (Like Japan)

If your gov’t ran a surplus it would lend you the money to finance your trade deficit. (Like Hong Kong)

When you have both a trade deficit and a gov’t deficit you don’t have any money left over to lend so your gov’t has to borrow from someone else .

Originally Posted by kyounge1956 View Post
The problem is finding a way to expand A's economy.
Right. Except you need to invest new money to do that, and with public + private deficits, there isn’t any money for that either. So you need to turn to foreigners once again, asking them to come in and invest in your country. Hopefully, through employment, additional consumption, and taxes you will generate enough economic activity to get back on track.

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