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Yet More Deficient Thinking

Here's a letter that I sent yesterday to the Wall Street Journal:

University of
Massachusetts economics professor Ronald Olive asserts that "When a
country runs a current account deficit it must incur liabilities, that
is, borrow or run down its foreign assets, or do both" (Letters, 15

This assertion is simply untrue.  If Mr. Olive spends $500
on a bottle of Chateau Latour and the owner of that French chateau then
holds those dollars as cash, or uses them to buy dollar-denominated
equities or real estate, America's current-account deficit rises
without any corresponding increase in Americans' indebtedness or any
reduction in Americans' holdings of foreign assets.

Donald J. Boudreaux