Moreover, one of the defining features of the recent period is record levels of cross-border holdings of assets – everything from factories and other real estate to stocks and bonds. This means that someone from Poland might take out a mortgage on her house from a Swiss bank, or an American credit card holder might pay a record low interest rate because of China’s eagerness to lend to the rest of the world.
DBx: Yes.
Always remember that, by the rules of accounting, U.S. trade deficits (or, more precisely, current-account deficits) are a necessary accounting result of U.S. capital-account surpluses – that is, of net inflows of capital to the United States. And so next time you encounter some government official or media pundit talking or writing as if U.S. trade deficits are necessarily a problem, remember that these ‘deficits’ keep interest rates in the U.S. lower than they would otherwise be, and thus not only reducing the burden of debt for consumers, but also by spurring domestic investment (which, over time, raises American workers’ real wages).
