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Yet More Deficient Thinking

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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
May).

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.

Sincerely,
Donald J. Boudreaux

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