Part of How Money Works – FAQ
The Two Most Misunderstood and Misused Economic Terms? In my opinion, it has to be the terms: a) “trade deficit” and b) “trade imbalance,” because those two terms are almost always used to imply incorrectly something negative about the US economy, when in fact there really are no trade “deficits” or “imbalances” once we account for all international transactions for goods, services and financial assets (see chart above).
Formula: Current Account + Capital Account = 0 = Balance of Payments.
Therefore, whenever you hear somebody talk about the trade deficit or a trade imbalance, it’s almost guaranteed that you’ll hear nothing about the foreign investment inflow that offsets any current account deficit, or the fact that international trade always balances. Part of the problem is that the term “deficit” automatically implies something negative and “surplus” implies something positive, when in fact those terms should be neutral and should not automatically carry any positive or negative connotation.
Source: Friday afternoon links • AEI
More in How Money Works – FAQ :
- 7 Deadly Innocent Frauds of Money
- Alan Greenspan – US Government can create all the money it wants
- Concise Summary of Money Creation
- Cool MMT Comments from Around the Web
- How the Government Deficit Helps the Economy
- Neoliberal Liberals
- Professor Steve Keen explains why austerity economics is naive
- Professor Steven Hail explains money in a video
- The Rock-Star Appeal of Modern Monetary Theory | The Nation
- The truth is out: money is just created, and the banks are rolling in it
- Think this Money Theory is too much CONSPIRACY THEORY crap?
- To understand economics, you must understand Monetary Sovereignty. Most economists and politicians don’t
- Trade Deficits & Trade Imbalances – Completely Misunderstood
- Warren Mosler, a Deficit Lover With a Following
- What gives money its value?
- Who can really create money? The Treasury or the Federal Reserve?
- Is the Federal Reserve (The Fed) a private entity, not controlled by us?
- Money Summit
- Government Deficits EQUALS Private Sector Surplus
- Outside Money Resources
- Possible Ideas or Throw-Away Ideas