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Four Possible Drivers for Large Current Account Deficits like in the US

Large Current Account deficits are rarely a positive symptom. They reflect often an underlying economic situation that can be unsustainable. The US has a large Current Account deficit. What are the possible drivers for such a large deficit?

This article focuses on the economic symptoms or situations that could lead to a large Current Account deficit.

 

Drivers for Large Current Acocunt Deficits cause Unbalance

 

How a Current Account Surplus can lead to a Weak Chinese Currency

Central Banks have few options to manage the currency in case of a Current Account deficit. Such a deficit is financed by a Capital Account Surplus. This can be done via higher incoming investments or lower foreign currency reserves. In case of Current Account surplus, the Central Bank will have the option to keep its currency artificial low in the eyes of the rest of the world. How does that work?

This article focuses on the impact of a deficit or surplus of the Current Account on the Capital Account and the domestic currency.

 

 Current Account Surpluses and Weak Currencies

 

The Capital Account and Reserve Account: Money Flows for Capital Investments

Deficits and surpluses in nations Current Account are financed and spent in it Capital Account. What is this Capital Account? In the broadest definition, the Capital Account is the difference between money flowing in and out of the country as a result of capital investments. The Reserve Account is a part of the Capital Account.

 

Capital Account and Reserve Account: Money Flows for Capital Investments

 

This article focuses on the Capital Account and Reserve Account. We will clarify some of the different definitions around Capital Account and explain what both Accounts imply.

Just looking for market timing signals to make money on the stock market

When I started with my search for what later would become the Stock Trend Investing system, what was I actually looking for? It was not financial freedom or a way to better the world. The thing I wanted was just to find a way to make money and to avoid losing money on the stock market.

 

Market Timing Signals to Make Money

 

I saw that all stocks moved up and down in tandem. I realized that it will be very difficult to do stock picking. There are so many other people doing that. And all that effort is already incorporated in the market price.

The market inefficiencies are not so much in individual stocks. Looking at market movements, I could see that these inefficiencies occur much more often in all stocks together when stock bubbles inflate or deflate.

The Balance of Payments and Current Account Deficits and Surpluses

The Current Account is rarely exactly balanced. What does it mean when there is a Current Account surplus or deficit? These Current Account deficits and surpluses need to be financed and spend. This is happening in the Capital Account as a result of the Balance of Payments.

Read here our next post on why is the Japanese yen so strong.

Balance of Payments: Current Account + Capital Account = 0

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