2 replies on “Should You be Afraid of a Big Current Account Deficit?”

  1. For Arjay 2 points:
    firstly do not use such an abbreviation CAD for Current Account Deficit in USA where USD prevails and CAD is used every second of every day to mean Canadian Dollar. How about UDI  meaning USA deficit Income.
    Secondly the Globalization you predict will surely come, more likely PRC Socialist based than USA base as USA thwarts every effort momentarily, unless you want to call it the USA New World Order as promised on the $1 note reverse as “Anuit Coeptus ~ Novo Seclorum Ordum “.  LOL.

  2. Now reread his summary conclusion:-
    Financial globalisation is work in progress. Capital controls and source-based taxation hinder international capital mobility. Even if there are no restrictions, it is hard for investors in country i to properly utilise the investment opportunities in country j, for reasons of ‘information distance’. All too often, there is home bias (people in a country holding vastly greater domestic assets than is optimal from the viewpoint of diversification). There are international finance pathologies such as capital surges, sudden stops, investments by foreigners in wrong assets, and so on.
    These are the hurdles along the road.
    In the destination state, there is no good reason why the investment opportunities in country i at time t should match the savings of country i at time t. We should judge the success of the project of financial integration by the extent to which we are able to achieve large and variable current accounts.
    In addition, in a place like India, a big CANADIAN DOLLAR generates greater accountability on the part of the government. One would predict better economic policy when there is a large CANADIAN DOLLAR The widespread mistrust of a large CANADIAN DOLLAR may reflect two things. Some don’t see the extent to which we’re not in 1991 anymore: there is much more of a deep engagement with financial globalisation, and the exchange rate floats enough that the borrowers are not unhedged. And, establishment figures resent accountability.
    So just nuke Canada and save all the trouble with CANADIAN DOLLAR infiltrating nations? Is that the gist?

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