Balance of Payments Between Countries

  • A positive trade balance is the goal, but the money has to go somewhere. So every global exporter is also a global investor. If accumulating assets is a policy requirement, and what happens to those assets is an afterthought, the result is generally poor performance.
  • Most of these investments are bad (Saudi Tech funds, 80s Japan real estate, Germany sub primed loans, etc)
  • Accumulating dollars:
    • Trade more in dollars, need dollars during recession (debts still out there)
    • By buying dollars, its own currency is lower - more exports, which then makes step 1 stronger...
  • Some countries (Canada, US, Netherlands, New Zealand) have good overseas investment track records:
    • But they all have current account defecits (import more than export)
  • They have well developed financial centers, so their consumers overspend, but they are good at allocating resources
  • What keeps it imbalance is that the exporters sell to the global middle class, become net savers, but are bad investors...the net borrowers are good investors